December 25, 2002

Dear Reader,

Happy holidays from RIETI! Thank you for reading our newsletter. In time for the New Year, Miyakodayori is pleased to announce a new feature on its website, a forum that features comments by you, the reader:

http://www.rieti.go.jp/en/miyakodayori/comments_list.html

If you would like to post your comments regarding the current or a previous issue of Miyakodayori, please send an email to Devin T. Stewart at devin-t-stewart@rieti.go.jp

And now, for the last issue of 2002, C.H. Kwan says it is time for China to call a spade a spade or, in this case, a capitalist a capitalist.

China's Capitalism, Maturing

While maintaining a socialist cover, China is pushing forward with capitalism as symbolized by the permeation of the market mechanism and private ownership. The government positions the current Chinese economy as being in "the primary stage of socialism." But the present polarization in China between the proletariat and the propertied class is more like "primitive capitalism."

At the 13th National Party Congress of the Communist Party of China in 1987, then party general secretary Zhao Ziyang put forth the view that China was in the primary stage of socialism. "Socialism in China was born out of a semi-colonial and semi-feudalistic society, and its level of productivity greatly lags behind that of industrialized capitalist nations. Therefore, China must go through an extremely long primary stage so that it can achieve the industrialization and the commercialization, socialization and modernization of production that other countries have secured through capitalistic means."

The aim of this view was to modernize the country by introducing capitalist elements into a socialist economy. Furthermore, it was said that the primary stage would last for at least a century. By presenting this theory, socialism was shelved as an ideal to be achieved in the far-off future, while the introduction of capitalist elements into the economy was justified.

Essentially, the ideal of socialism is to realize an egalitarian society through the public ownership of production means. When we look at the realities in China, however, we see that the country is drawing further and further away from this goal, as can be seen in the fact that only one part of the population enjoys the fruits of economic development. Many bureaucrats and senior Communist Party officials take advantage of loopholes in laws, abuse their position and power and use whatever means, be they legal or illegal, to make money, and corruption has become a major social problem.

In particular, we see cases where managers of state-owned corporations conspire with the government agencies that have jurisdiction over them to divide up state-owned property cheaply through privatization and public offerings. In due course, the share of state-owned firms in the industrial sector has fallen sharply, and non-state-owned enterprises, including foreign firms, have become the main form of ownership. People's communes in rural areas and state-owned enterprises in urban areas have lost their traditional livelihood guarantee functions, and many workers have found themselves forced to live only on their wage income. Meanwhile, we are seeing the creation of a capitalist class that has become rich through either legal or illegal means.

This situation resembles Karl Marx's description of primitive capitalism, where relationships are forged between capital and wage labor, which is necessary for the formation of a capitalist society. In the coastal regions, the industrialization brought about by the "exploitation" of migrant workers from the inland areas and the housing construction boom made possible through the de facto private ownership and concentration of land (enclosure) is indeed a scene that recalls Britain during its formative capitalist years.

As a consequence, China is advertising a wine called socialism while selling a vinegar called capitalism under the pretext of the theory that the economy is in the primary stage of socialism. In fact, leaders have not presented any vision as to how the country can proceed to a higher stage of socialism. In contrast, in 1993 the three pillars of a socialist economy - "planned economy," "people's commune" and "state-run enterprises" - were deleted from China's Constitution. Furthermore, with President Jiang Zemin's "Three Represents Theory" put forward in February 2000, China is steadily moving further away from socialism, as can be seen in the 2001 decision to allow capitalists to join the Communist Party.

In the end, there can be no doubt that the Chinese economy is not moving toward a higher stage of socialism but toward a higher stage of capitalism. Nevertheless, the higher tiers of capitalism, unlike the primary stage, will require the establishment of the rule of law, a democratic form of government, and systems to protect private property rights on one hand and the weak (in the form of social welfare) on the other. No matter what it calls itself, this is a tall order for any country.

Author, C.H. Kwan
Fellow
Research Institute of Economy, Trade and Industry (RIETI)

Editor-in-Chief, Ichiro Araki
Director of Research
Research Institute of Economy, Trade and Industry (RIETI)
e-mail: araki-ichiro@rieti.go.jp
tel: 03-3501-8248 fax: 03-3501-8416

RIETI invites you to visit its English website
[http://www.rieti.go.jp/en/index.html].

The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).