The new China

THE rest of the world has been watching with curiosity and appreciation the great socio-economic transformation that China has been experiencing since the formation of the People’s Republic of China some seven decades ago.

While in the first couple of decades outsiders had only occasional glimpses of what was going on in the new Republic, the reforms initiated by Mao Zedong’s successor Deng Xiaoping in the early 1980s threw open China for the rest of the world to see. And what a success story it has been: an annual rate of growth of over 9 per cent for over a decade, unparalleled in world history, which has slowed down a bit; a corresponding increase in per capita income; a drastic reduction in the proportion of population below the poverty line; an almost complete eradication of illiteracy; and considerable improvement in health indicators.

This success story and the “success trap” that emerged from it are the themes of the book. The author, Manoranjan Mohanty, is one of India’s leading China scholars. The book is the result of intense field studies of many decades, careful analysis of official data, and interviews with officials and common people.

Mao himself was clear that although the Soviet Union had demonstrated a path of socialist transformation, China with its special characteristics, essentially a land of peasants emerging from decades of civil war, had to follow its own path. People’s full involvement in economic reconstruction through communes was the essence of the new strategy with emphasis on collective effort.

While the thrust was on agriculture to produce food for the millions, other economic activities were not neglected, especially rural industries. Together they laid the basis of the rural economy and society. But all was not well as famine and the disruptions of the Cultural Revolution showed. Mao’s demise led to further confusion, leading to Deng’s rise to power in the late 1970s.

Household responsibility system

Deng’s criticism of the Cultural Revolution was that it had distracted attention from productive activity, which alone, he was convinced, would lead to the upliftment of the people. Agriculture and peasants would continue to get special attention, but Deng and the new administration were convinced that this would happen only if households were enabled to produce their requirements.

So the Household Responsibility System (HRS) was launched, allowing households to lease out land to produce grain for their needs. Any surplus they had would be procured to feed the urban population.

Households were encouraged to cultivate vegetables and fruits also and sell them. What started out as an experiment soon became the norm and led to an increase in household activities and incomes, the emergence of informal markets and a steady supply of grain for the urban population.

Deng and those who shared power with him were convinced about the advantages of the market in the production process and so could boldly declare that China would be a “socialist market economy”. Details of how to move forward were not clear, but there was the conviction that “socialism with Chinese characteristics” would be the principle and “wading through the river feeling for the stones” would be the strategy.

In general, the emphasis on high growth and the use of both the state and the market to achieve that objective became the focus of the reforms. Initially, attention was concentrated on rural areas. The HRS did not privatise land because the legal title remained with the village under collective ownership. But effectively, the land came under the control of households and could be passed on from generation to generation. Some subcontracting was also permitted. The rate of growth of agriculture soon picked up.

With households being free to take up other activities, trade and rural industries of different kinds developed. The diversification of the rural economy became part of the new strategy. In turn, it led to the introduction of new technologies. Soon income inequalities became quite visible in rural areas. There was movement of people, especially men, into the cities in search of employment, but legal restrictions on residence kept it under control.

Foreign investment

Another thrust of the reforms was to open up China, which under Mao had remained an essentially closed economy. Initially, it was meant to find markets in the rest of the world, especially in the United States, for China’s manufactured goods, but soon it allowed foreign capital to invest in China. At first, the capital came from Chinese residing in other countries of the world, but soon it started coming from the U.S., Europe, Japan and from all over, attracted by the cheap labour and favourable conditions offered by the host country. Production increased, employment and incomes grew, and growth made a quantum jump to double digits. China became the manufacturer for the rest of the world, making its export earnings available to the U.S.

There was a price to be paid, though. The sense of equality, which was the hallmark of the early years, was gone. Cooperation, which was emphasised for long, was replaced by competition to get ahead. The author’s assessment is that the moral order of socialist values has no salience in contemporary China.

Together with economic liberalisation and close intercourse with the West, there has been an explosion of consumerist, atomistic, sensate values. In order to develop a market economy, the thrust has been to utilise productive initiatives of all kinds—individual, family, cooperative, collective, joint stock company, Chinese-foreign joint ventures, state enterprises and other possible forms.

Like technology and management, the market, too, could be and should be used for socialist reconstruction, insisted Deng and those who shared power with him. However, along with them came corruption and deterioration of the environment, major indicators of the “success trap”.

Successes and failures have been taken note of by the party, which is the supreme authority in socialist China. This was so under Mao, under Deng and now under Xi Jinping. While studies of the economic and social transformation of China are now readily available, there are few that deal with the role of the party and the manner in which it exercises control over all aspects of the Chinese polity, economy and society. Hence, the author has rightly devoted a major part of the book to deal with these aspects.

Centralism

China is a unitary state and all aspects of its administration come under the Communist Party of China (CPC). “Democratic centralism” is the basic philosophy of the party. Says the author: “Democratic centralism may be more centralism and less democracy, mass line may be a mobilisational slogan on most occasions, but making this an essential organisational principle has its significance.”

To start with the centralism, let us note that the general secretary of the CPC is the President of the Republic and in more recent years also the Chairperson of the Military Affairs Commission (MAC). There are also organs of the state, particularly the National People’s Congress (NPC), China’s Parliament with nearly 3,000 deputies elected every five years, which enacts important laws and passes the budget.

While the state and the party are conceptually distinct entities, there are unavoidable overlaps. The MAC, for instance, exists both as an organisation under the party and as a part of the state structure appointed by the NPC. The party-state administrative structure experiences tensions at times, kept under control by the fact that there is considerable overlap of personnel among the different bodies. There is no doubt that the party and its Central Committee are the ultimate authorities. The book provides detailed accounts of how the party-state tensions are dealt with.

The party, through its branches at every level, is the agency of social management and economic guidance controlling all institutions of state and society. State agencies have the responsibility of providing efficient administration; the party is the source of legitimacy rooted in history. From this perspective, Chapter 7 of the book, which deals with prosperity and problems in the countryside, is important. In the initial years of reforms, the political role of the party was redefined. Economic management was left to production units themselves and the responsibility of the party was to articulate national-level decisions. However, holders of key positions in enterprises and village companies, who were members of the party with special responsibility to enterprises, played their role in the new thrust to diversify production and to follow market signals. For instance, transferring land for setting up industries and commercial zones became the main preoccupation.

This close link between enterprises and the party would soon bring in new problems. With industries picking up, enterprises came to devote greater attention to profits than to needs. Successful entrepreneurs sought entry into the party and were easily accepted because of their local influence. Foreign investors found in these new party members allies to promote their interest. Corruption in business matters became endemic and soon seeped into the party as well.

Thus, along with success and achievements, new sets of problems emerged: corruption, growing inequalities, environmental degradation and increasing alienation. However, the silver lining is that the leadership is aware of the problems and is making a determined effort to deal with them.

What is missing in this admirable volume is a discussion of the subtle changes that have come into China’s economic sphere in the past decade or so: the dominance of finance capital. The early flow of foreign capital into China was to take advantage of cheap labour to increase production and to use the big and growing domestic market to sell the goods. Soon it was discovered that manufactured Chinese goods had a comparative advantage in the U.S. and European markets. But the bug of financialisation crept into China, and wealthy Chinese found it quicker and easier to grow their wealth through transactions in claims to wealth than through long-term and risky productive investment.

Shanghai soon became a global trading centre for shares and various forms of claims to wealth. From the mid 2000s, the character of the Chinese economy began to change, with the emphasis shifting from productive activity to financial transactions. The wealth of the wealthy began to grow, a good number of them becoming global billionaires. Increasing inequalities in socialist China became an acknowledged and accepted fact. Corruption at all levels, including within the party, became publicly discussed scandals. The success trap and the agency trap feed on each other, making Red China look rather grey in complexion. Hope lies in the party leadership’s determination to wade through the river, now with new stones to push aside.

However, does the Chinese experience serve as a warning to other countries that now roll out the red carpet for global capital?