China: The Perfect Capitalist State? posted by Richard Seymour

Since “free markets” are often treated as talismans, which will usher in political liberalisation in thug states, it is instructive to see how economic liberalisation does to the political culture of a dictatorship like the People’s Republic of China (PRC). I’ll begin with a quick tour of the Arabesques described by this process, then move on to its relationship to the political structure in China.

From State Planning to “Market Socialism”
Since 1978, China has been embarking on a reform process in which State Owned Enterprises (SOEs) have been gradually privatised. This process first manifested itself through the Contractual Management System, in which SOEs were contracted out under supervisory agencies (state ministries and local councils) with a specified profit quota to be returned to those agencies. Any profits obtained above the set quota could be retained wholly or partially by the SOE. In addition to this, although private enterprises were limited to just 7 employees and under following 1978, larger enterprises began to appear illegally before being given official legitimacy by the 13th Party Congress in 1987. Joint-stock companies and over-the-counter trading was attempted in the mid-1980s, but little progress was made until 1991.

Zhao Ziyang, who became premier in 1981, and General Secretary of the CP in 1987, guided these reforms. Ziyang acted with the specific backing of Deng Xiaoping, the former leader. Economic overheating in 1988 caused Ziyang to be relieved of his job, and Li Peng was placed in charge of putting a temporary halt to the reform process which only re-started after an intervention by Deng Xiaoping, following which the 14th Party Congress resolved to establish “market socialism”. Zhu Rhongji overtook Peng’s post in 1993 with a reform blueprint that has been faithfully pursued up to the present. Where Rhongji differed from Ziyang was in the goal of their reform plans – Ziyang wished to strengthen the public sector and retain it as the most significant sector of the economy, while Rhongji’s plan was to move toward a “socialist market economy” in which the state would remain dominant only through its continued stakes in key or basic industries. Private participation was envisaged in all but military and essential SOEs.

In fact, what emerged was a rapid process of corporatisation under the name of the “modern enterprise system”, in which large to medium SOEs were to be allowed to transform themselves into corporations, either as “limited liability” enterprises with 2-50 shareholders or as shareholder companies with more than 50. In 1994, the new policy was summed up as “take a firm grip of the large, let go of the small”. The state would focus on the largest 1,000 SOEs, while the smaller SOEs would be privatised. Some became “share-based cooperatives” (SBCs), in which the shares may only be sold to employees.

However, since the term “employees” includes management, most of these privatisations have been the result of management buy-outs while workers have been obliged to purchase the less profitable SOEs just to save their jobs. Congruent with the new perspective, the 15th Party Congress redefined the “public economy” to include “the state and collective components of the economy of mixed ownership” - so long as the “competitiveness of the state economy” were not diminished, practically no measure could be considered as reducing the “socialist character” of the state. The private sector in China now outsizes the public sector considerably, even though the government chooses to conceal this elementary fact by speaking of the “state component” in the corporatised SOEs. This language is deceptive because the private sector has been growing much faster than the state sector since the 1980s, and it is private capital that has been making inroads into the public sector rather than the latter retaining a “firm grip” on the former.

(To be continued tomorrow when I've had some sleep. Night.)