By Alex Callinicos
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Will China abandon its state capitalism?

This article is over 8 years, 2 months old
Issue 2379

The paralysis in Washington is turning more eyes towards Beijing. Often this reflects quite exaggerated expectations about China’s emergence as a new superpower on the verge of displacing the United States. 

All the same, something important may be happening in Beijing at the minute. The Third Plenum of the 18th Central Committee of the Communist Party of China (CPC) took place, last weekend.

Plenums can be important policy making forums. Analysts are drawing comparisons with another Third Plenum, in 1978. It was then that the dominant CPC leader, Deng Xiaoping, launched a programme of reforms. 

These led to greater reliance on market mechanisms and China’s growing integration into the world economy.

The spin in Beijing is that this plenum will mark another turning point, as Xi Jinping, the new president and CPC general secretary, launches “comprehensive reform”. So what’s at stake?

After Mao Zedong led the CPC to power in 1949, it constructed, not a socialist, but a state capitalist regime. 

Workers, in other words, had no more control over the process of production than they do in Western societies. But economic and political power was concentrated in the hands of the party-state bureaucracy surrounded by the CPC.

Despite Mao’s pursuit of “self-reliance” China remained subject to the logic of competition and accumulation at the global level. In particular it needed economic development to maintain its military position against both the US and the Soviet Union.

Mao’s efforts to solve this problem lead to disaster, particularly in the Great Leap Forward of the late 1950s and the Cultural Revolution from the mid-1960s. After Mao’s death in 1976, Deng sought to build up China’s economic strength through a partial opening to the world market.


This has been remarkably successful. China is now the world’s second biggest economy and the largest producer and exporter of manufactured goods. This was achieved by making China an export platform for both local and foreign capital.

Wages were held down, and investment given priority over consumption. Investment in the past few years rose to nearly 50 percent of national income. This built and equipped the factories and provided the infrastructure that has made China the workshop of the world.

The economy’s reliance on investment grew as a result of the crisis. The government reacted to the financial crash in 2007-8 with spending increases that were channelled into investment via loans to companies via state-controlled banks. 

These measures allowed China to recover rapidly from the Great Recession of 2008-9. But they contributed to the development of property bubbles, rising inflation, and over-investment. So the CCP leadership has been trying, with some success, to slow the economy down.

Xi talks vaguely about a “Chinese Dream”. This seems to tally with Beijing’s longstanding objective of shifting the economy from export and investment to domestic consumption. But this is proving easier said than done.

The problem is fundamentally one of class power. The Chinese economy has been opened up to foreign transnational corporations, and a class of indigenous private capitalists has developed over the past 30 years.

Nevertheless, there are still powerful elements of state capitalism in China. There are 145,000 state-owned enterprises (SOEs), which dominate many sectors. Moreover, informal networks often bind foreign, private and state capital together through the role of the “princelings”, the children of party leaders who have gone into business.

There are rumours that the Third Plenum will launch the large-scale privatisation of SOEs. Let’s see. Since Xi took over, there has been a hyping up of Maoist rhetoric and what amounts to a campaign against some multinationals—including GlaxoSmithKline and Apple—over issues such as alleged bribery and bad treatment of Chinese consumers. And the SOEs are still benefitting from cheap bank loans.

Beijing, in other words, suffers from the same kind of gridlock that afflicts Washington. 

The switch to market capitalism of which Chinese and foreign liberals dream may be a long time coming.

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