China’s special path to capitalism Ruthless Criticism

Translated from GegenStandpunkt 4-1994

China’s special path to capitalism

I. “Socialist market economy” – a radical reform project’s name and content

China is a tough nut to crack for political expertise. It’s annoying to experts on “development” and “good governance” that the world’s fastest growing economy is ruled dictatorially by a “communist party.” The success of the Chinese – not what they are doing or what they want – gives food for thought. Do the advisors who repeatedly recommend pluralistic democracy and a renunciation of dirigisme to the countries of the Third World as the very best “framework” for the path from a developing country to a competitive national economy need to correct themselves on the occasion of the “Asian model”? Do “we” have to acknowledge the benefits of despotism in establishing and promoting “our” globally valid economic model? Or is China not at all a case of our free economy – even if German captains of industry eagerly make pilgrimmages there in the company of the Chancellor in order to buy, sell, and invest? It does not exactly inspire confidence in the German observer that the political leaders from Beijing insist that their opening to the world market and the conversion of their economy to free prices and profit maximization are socialism – according to the official interpretation of even the “Chinese Marxism of the present epoch.” This is not the proper abjuration that “we” appreciated so much from Gorbi and Yeltsin and now expect worldwide. It is downright alarming, however, that the Chinese are resisting “our” insistence on respect for human rights. Perhaps the country with the insane future market in which “we” must be present is not a real partner after all, but an enemy in disguise from whom it would be better to withhold our high technology?

With respect to China, national morality and national interest are at odds because neither is quite settled: Human rights activists castigate, with some resonance, an immoral materialism in foreign policy – and German foreign policy representatives make themselves mouthpieces for this protest when negotiating new trade agreements and lines of credit in Beijing. It is the practical political uncertainties of dealing with the “emerging Asian world power” that creates the need to theoretically sort it into the familiar system pigeonholes; but so does the unsatisfactory outcome of this attempt. There is no getting around the Chinese business opportunities – but there is also no getting around the sovereign power of the Chinese leadership with its unmistakable reservations about Western “values.” One does not have this country economically and politically under control like other members of the family of states – young tigers and developing countries, anyway. That’s why the policy advisers don’t really know where they stand: Communist despotism or capitalist growth model? With this mania for classification, they are not clarifying anything, but only carrying out the practical need for subordination theoretically.

“Riding the Tiger!” – The reform project as seen by its makers

It is striking, however, that the father of the reform policies pursued since the early 1980s, Deng Xiaoping, confronts the systemic question himself. He strictly denies that the economic innovations are aimed at introducing capitalism and abolishing socialism like the Russian reforms. His definition of the envisaged “development strategy all of its own which cannot be fitted into any past patterns known to date in the world,”[1] is achieved by borrowing from, but also by distinguishing itself from, all previous political-economic systems. Deng promises that China will make use of the good, but especially the bad experiences that other countries have had with real socialism, with capitalism, and with the status of developing countries.

Of course, in view of an investment boom by foreign capital, credit fraud, stock speculation, and 150 million unemployed, it’s easy to dismiss the phrase “socialist market economy” as lip service and a not very serious bow to traditional leftist state doctrines. The popular form of dividing programmatic statements into what is really meant and what is merely said, however, turns a deaf ear to the tasks and considerations that the Chinese reformers have set for themselves and which make them different from, for example, their Soviet colleagues.

“To distinguish whether something is socialist or capitalist, there are three criteria: Does it serve to develop the productive forces of socialist society? Does it serve to increase the national strength of the socialist state? Does it serve to raise the standard of living of the people?”[2]

This is shrewd: If the state and society are socialist anyway, then everything that benefits China and increases its power and wealth is socialism. Capitalism, on the other hand, is anything that weakens and harms China. On the one hand, this skillful distinction reveals the extent to which the systemic differences that until now have been familiar in China – planning rather than markets, supply rather than profits – are to be blurred. On the other hand, it provides an initial definition of what is meant by socialism, which China still wants to adhere to: Socialism is first and foremost nationalism – and capitalism is national self-humiliation. This is very much in the tradition of the Chinese Revolution. Since the British opium war against the “Middle Kingdom” up to the communist victory in 1949, the Chinese have repeatedly experienced the fact that the rule of the capitalist world powers means national ruin for China and does not do the people any good either; at one time, China was plundered by imperialist expeditions, at another time the people were made labor slaves of the Japanese. This much “socialism” has always been part of the anti-imperialism of national liberation movements: They fight for their own nation-state, which is committed to its own people and its progress and builds on its indigenous forces; its masses are its basis, because their labor is its only means of self-mobilization. The military victory over the “foreign devils,” their expulsion from the Chinese economy, and “relying on one’s own strength,” first constituted the nation, i.e. established the “unbreakable unity of the people and the Communist Party” which supports the state. According to the logic of anti-imperialism, China guarded its independence jealously, even hostilely against “the Soviet brother country” and secured it already under Mao with the atomic bomb.

In retrospect, today’s reformers also acknowledge Mao’s anti-imperialism – it was necessary for the enforcement and establishment of an autonomous China – and the lasting need to guard this achievement. Unlike the Russians, the Chinese reformers do not look back on a single national aberration when they invite the “foreign devils” to invest again today. They see no reason to take anything back and become dissatisfied only because of their success; because they see their successful work unfinished. From the point of view of the consolidated nation, the nationalism that had carried the anti-capitalist struggle for the new China becomes dissatisfied with the socialism of the Mao period, with the isolationism and the program of “relying on one’s own strength!” with a planned economy and rural communes.

“Deng Xiaoping’s foremost goal is to create the political and economic conditions in his lifetime for China to develop into a strong and prosperous world power, and in the future to regain its place as the ‘Middle Kingdom’ of the world.”[3]

It is pointless to ask whether the recovery of the “Middle Kingdom” and the reduction of the rest of the world to the periphery had always been the whole content of the Chinese definition of socialism. In those days, the unification of the demoralized and starving peasant masses into a people and the basis of a nation already required something more than the yearning for national greatness: namely, the organization of life and livelihoods carried out by the Party. Whether or not this identity of interests between the people and the leadership – the content of Chinese socialism and the reason for the Party’s power – was from the very beginning only the means of rebuilding a great China, or even to some extent the purpose of the communist revolution, the people in the Party would be the last to understand the difference.

In any case, with the reform resolutions of 1978, the political leadership took its standards from the already established world powers. From their wealth and their weapons they could see what a proper, modern state requires. Measured by their power, their wealth, and their ability to constantly increase it, socialist China, with its growth rates, looked like a poor, backward country. Because it was to become a world power, Deng Xiaoping defined it as a “developing country” that finds the standard of wealth and the method of increasing it abroad – in the “developed countries.” In other words, it had to follow their example, it had to become like them. In view of the hopeless “lag in developmental,” it had to tap the sources of wealth of its technologically advanced enemies and could no longer rely on finding the means of its progress solely in domestic labor and its gradual developmental achievements. The old motto “rely on your own strength!” thus took on a whole new meaning.

Secondly, precisely because the CP leaders admire the wealth of capitalism, because they let it teach them how development works, they harbor reservations. Anyone who wants to gain access to the wealth that already exists abroad must face a ready-made world market that the “developed countries” already occupy in every respect. And here the example of the other “developing countries,” which have placed themselves under the care of the capitalist world powers and opened themselves up to capitalism, does not teach the former hegemon of the Third World anything good: for nations which do not dominate the world market, but have to prove themselves by the standards of profit and political trade regulations prescribed by others, opening up all too often means national ruin. Offering the country’s products to the agents of the world market, allowing them to compare the cheapest and best commodities worldwide, and making national production dependent on what these people want to buy; offering them land and people as investment opportunities, allowing them to compare locations and letting them decide what and whether anything is produced in the country at all: This has brought neither national wealth nor political greatness to most “developing countries,” but rather has degraded them to sales markets, suppliers of raw materials, and the “backyard” of the main capitalist powers.

China also wants to open itself to the world market and acknowledges the need for development aid from the advanced nations, but it wants to use the world market to its advantage and avoid the fate of the other developing countries. The “policy of opening” has appointed the world market as China’s development aid agent. Since this decision, the Politburo has been dealing with the problem of how China can make foreign capitalism the instrument of its modernization without immediately surrendering to its laws and the political blackmail of the relevant states to such an extent that national construction is no longer at the discretion of the Chinese political leadership, but is totally determined by decisions made by foreign capitalists and power brokers. Modern technology should be brought into the country, cheap goods and cheap labor should be paid for; but the law of value of the world market should not to be left to judge what and whether anything is worth producing in China at all.

“If socialism is to gain superiority over capitalism, it must boldly adopt and profit from the modern methods of management and administration which express the general laws of modern socialized production and commodity economy of all countries of the world, including the developed capitalist countries. Foreign capital, foreign resources, technologies and skilled labor, and the private sector, which serve as useful complements to us, must and can be used for socialism. Since power is in the hands of the people and there is a strong people-owned economy, the above cannot harm socialism but contribute to the development of socialism.”[4]

Socialism therefore has the second meaning of a reservation of national sovereignty against the outside world: precisely because one wants to use the powers of foreign countries for the progress of the nation, one must be all the more vigilant as to whether the degree and type of capitalist influences are also advancing the nation. In the early years of reform, the movers and shakers who wanted to “ride the tiger” were aware that they had embarked on a highly uncertain, possibly all endangering path of “development.”

“Our work must be based on taking great risks and preparing countermeasures so that the sky will not fall when we encounter a great risk.”[5]

The CP wants China to be exposed to the laws of the world market, but only to the extent that it wants this done itself; it regards the retention of a predominant share of the “people’s economy,” but above all the Party’s undiminished power of command, as a reassurance of its freedom of action; therefore, the first order of the reforms is that it must under no circumstances be impaired by the progress of the reforms:

“Without political stability, society is unstable, so reform and opening up and economic construction would not be possible. We must adhere to the four basic principles (the socialist road, the dictatorship of the people, the leadership of the CP, Marxism-Leninism and Mao Zedong thought) and eliminate all factors that could cause disorder, even turmoil, in China. At the same time, it would be impossible to achieve unbreakable unity and stability if we did not insist on economic construction as the center, if we did not implement the reform and opening-up policy, and if there was no economic development.”[6]

The Party’s power over society should ensure that it has the ability to review every step of the reforms and the elements of capitalism that are introduced for their benefit to the nation, giving free rein to their beneficial aspects, but politically prohibiting the detrimental sides from developing; in extreme cases, one simply undoes everything.

“Are securities or shares good or not? Try them out! Are they good only for capitalism? Try them out for two years, if wrong, stop experiment!”[7]

This shows a radical faith in political force, but also an idealism about its omnipotence.

Capitalist management methods to strengthen the socialist economy – a mixed system?

China’s politicians see their economic reforms[8] as freely chosen from the systems on offer; China takes only the best from them and leaves the rest. Because it is the state and party leaders themselves who want to take advantage of the world market and make the domestic economy suitable for it, they regard the elements of capitalism which they want to introduce “non-ideologically” and experimentally, and which they want to discard just as easily if they don’t like the results, as well as the retained elements of their old planned economy, as both alternative and combinable methods of state economic management. Their new “correct version of the relationship between plan and market” is intended to break the “vicious circle of ‘control brings stagnation and flexibility brings chaos.’”[9] To them, their turnaround does not seem all that fundamental; they are now “only” paying attention to one more economic indicator in addition to the old ones:

“We have effected a switch from a practice which was characterized by running only after high speed to one that makes the improvement of economic results its central task...The objective of quadrupling the gross value of industrial and agricultural production (by the year 2000) laid down at the Twelfth Congress of the Communist Party of China presupposes constant improvement of the economic results, or rather, without the improvement of economic results, the objective of quadrupling the gross value of industrial and agricultural production could hardly be realized, or would make no sense even if it was realized. We must admit that quite a few people in this country have thus far failed to adapt their thinking to new circumstances, and are still seeking, conscientiously or unconscientiously, output value increases and high development speed.”[10]

It is not only the Chinese who find it difficult to understand what “economic results” are if not the increase in the amount of products and the speed of industrial development; it is even more difficult to understand why even quadrupling the national product, the development goal set by the Party, would be senseless if not reached by the “improvement of economic results.” The business specialist uses this formula to indicate, in contrast to “output,” the relationship between “input” and “output” – “improvement of economic results by increasing income and reducing expenses.” What is presented as just another indicator of productivity actually imposes a whole new purpose on the Chinese economy. The production of steel and machinery, food and houses is measured by whether it generates a surplus of money, because otherwise there is no way to compare intermediate products and labor as “inputs” with the final product as “outputs.” The national leadership no longer sees economic progress in the growing total result of all productive contributions that it organizes, but rather decrees that all work in every occupation produces a surplus of money over an advance, that is, that profit is produced at every point, which the leadership takes stock of nationally as a new type of economic growth. However, the leadership does not want this new purpose of production to be understood as a change of system, but ultimately as an instrument to “accelerate development”:

“Now we are accelerating measures at all levels and making every effort to build up the new system of socialist market economy in the 1990s while the basic features are still in place... Now some foreign friends are wondering whether it is not contradictory for China to adhere to socialism on the one hand and develop the market economy on the other. This question is really about how to understand socialism and the market economy. In our view, both the plan and the market are economic instruments, not features of a social system. The socialist economy does not simply mean the planned economy already. In my opinion, the essence of the socialist economy can be explained mainly in two points: The first is a high efficiency of the use of resources and high labor productivity. The second is the maintenance of social justice and the achievement of common prosperity. If we draw a comparison between the planned economy and the market economy as two different methods of using resources, the latter is more efficient than the former. This is an important reason why we have both adhered to socialism and made a decision in favor of the market economy. The preservation of social justice and the realization of common prosperity are the socialist ideals. In the comparison between two different forms of property, in which mainly common property, or private property dominates, the form of property with common property as the main form of property is more conducive to the preservation of social justice and the realization of a common prosperity. For this reason, we adhere to the socialist market economy, that is, with regard to the forms of property, we emphasize common property as the main form of property, and with regard to the economic processes, we introduce the market economy.” [11]

They self-confidently and – one would like to say: honestly – introduce the difference between what a worker gets from his work and what the nation in need of development gets from it. Cheap labor, long hours, and limiting employment to the minimum of workers actually needed: that is the efficient use of resources that the market stimulates and that increases returns – for the nation. The Chinese apostles of efficiency, who thus allude to the expediency of the division of labor and the use of labor, do not hide the fact that this expediency is not for the worker, but counts him and his livelihood among the expenses that efficient production must keep to a minimum. If at the same time they use “socialist ideals” of prosperity and social justice to justify hanging on to communal ownership as a corrective, they concede that the socialist nation simply wants to exploit its workers. The form of ownership retains a political reservation against the capitalist calculation within, which the party wants to make the means of the nation without exposing the nation – this is what the ideals of social cohesion stand for – to severe tests that question the national success of the “modernization program”[12]: Capitalist calculations should be be made, but not by outright, hereditary capitalists who could assert an unrestricted right to monopolize the means of production in their hands against the politicians. The license for private exploitation of national production is granted for a limited period of time and can be terminated.

The CP’s self-image of its “mixed system” and its art of meeting several and opposing state goals at the same time is not the truth of the relationship. It is not as if there were competing points of view of equal rank. Social cohesion is not another goal alongside efficiency, money management, and “development”: it is only at risk because of the reform program; and it is not brought to bear as an equally competing state goal against the opening to the world market and capitalism, but only insofar as the leadership thinks it necessary for this course. The caution, all the experimental, state-controlled advances in the reform policy, does not represent a lasting residual reservation against the new course, but rather the will to really promote China’s world power. Socialism, which is not to be abolished when making the transition to a market economy, takes on a third meaning: What looks like and is passed off as a reservation against the world market and capitalism is nothing more than prudence on the part of the leadership in introducing it. It wants capitalism as a means of the nation, it demands that the capitalists it lets in and nurtures also serve the nation, and not just it that serves them. And that’s not even the whole truth.

The introduction of capitalism is not done by itself

The CP retains communal ownership primarily because there are no private owners in the Maoist country. The Chinese reformers take account of the fact that there is no standpoint or interest in their vast realm that had demanded, wanted, or seized the introduction of the “market economy” as an opportunity, other that of the Party itself. They anticipate the fact that by introducing free prices and profit calculations they are not “serving” any interest among the people, and that they themselves must produce the social conditions over which they want to rule. They are aware that everything that comes about in terms of the market, free prices, profits, and world market success is and remains the work of the “socialist” state, and that they can’t simply relax their grip over anything they set in motion if they want to have it participate in the world market.

This then ultimately distinguishes the Chinese from the Russians. The Russians saw the Soviet Union as a developed industrial country and thought they were actually rich; they believed that in order to fully develop and utilize their potential, all that was missing was the free play of forces, access, and a wholehearted opening to the world market. What emerged was something else; that is, the developed industrial country that was the USSR did not and does not produce any wealth at all according to the standards of capitalist wealth – globally marketable commodities and money in worldwide demand. In order to make room for private interests, the Russian state withdrew from its economy without a replacement – an economy that was only of its “making,” whose division of labor had existed only in the state plan. It decreed that combines and enterprises should operate on their own account and ordered them to exploit the piece of nationally necessary work they performed and the demand for it entirely for their own benefit – reaping chaos and an industrial wasteland. The Russians eventually accelerated “privatization” in order to finally create real private ownership in the country – and in doing so did not get any business going, but instead made the inherited national wealth available for organized gangs to cannibalize. The Russian reformers – in the mistaken belief that industrialization provided all the necessary conditions for participating in global capitalism – thought that capitalist growth would come about by itself if only their isolation from the outside world and the internal command economy were abolished.

The Chinese are completely different. They define China as a poor developing country that lacks everything needed for successful participation in the world market. They do not assume that market forces, if left to their own devices, will produce flourishing landscapes of their own accord, but rather that political power must force production for the world market if it is to come about. They do not permit private enterprise and private interests, but rather decree surplus products and export production. So they have an inkling that the introduction of capitalism is not “liberalization.” It was not that way for the “original accumulation” of the means of production and the original expropriation of the peasants in 16th and 17th century England; and it is certainly not that way for a nation that has arrived too late and wants to gain access to the riches of an already established world market and can only gain entry through lasting successes in foreign trade.

This, then, is the fourth and final meaning of the “socialism” that the CP clings to despite the introduction of the market economy: the Party is the sole subject of the introduction of the new mode of production. It thus serves neither capitalists nor any other private interest that conflicts with it, but only its project of developing into a great power. It therefore recognizes no rights of its citizens that are superior to the executive and no service of the state to them; it does not organize a democracy in which rule can rely on the consent of richer and poorer private owners because it ensures their competition. The CP is now establishing the “development dictatorship” it has always been accused of being, and is using power over the people to force them to generate surpluses. To this end, it “plans” every step of development and the elements of its world market strategy, and uses the means of the command economy to ensure that the necessary output for exports is achieved. None of the laws of the “free market economy” work by themselves and ensure that private acquisitiveness automatically enriches the state and increases the nation’s resources; first, everything has to be ordered politically; secondly, it has to be obligated to function; and thirdly, its effect has to be examined afterwards. Step by step and as its project, the Party is creating the conditions for capitalism in China. It can’t be that it sees this project as mere servitude to a capitalist “economy” or as mere integration into a “free world market.” It really isn’t the first time that national endeavors have been given the honorary title of socialism.

“Enrich yourselves!” – a Chinese moral campaign – probably the last

The extent to which the introduction of a capitalist economy in a socialist country differs from a finished capitalism is revealed not least by the campaign with which the CP, in the finest Chinese tradition, is once again preparing its people for the changes. Against the memorable imperatives with which the Party has always explained its changes of line and direction to the people, Deng is setting a new one that entails nothing less than elevating yesterday’s anti-socialist crime to a new civic duty: enriching oneself at the expense of others! This imperative, copied from capitalist attitudes, proves more the difference from the model, which has still yet to be introduced, than the identity. A call for capitalist attitudes, in fact, betrays their absence and is as unnecessary as it is out of place in capitalism. With private property, the motive of enrichment is automatically given; in fact, it is not a motive at all in the subjective sense, but rather a necessity for all owners who want to use their property; so there is no need to propagate it. And the administrators of the capitalist common good are wary about those who have no chance of enriching themselves because of a lack of property thinking the unlawful thoughts that they already harbor anyway. Capitalism functions through the property system as an objective constraint for everyone involved; moral appeals to comply with it do not exist and are not needed. Its domain is, on the one hand, the justification of the existing distribution of wealth and poverty – ‘One should not be envious, effort must be rewarded’; on the other hand, the warning to relativize the self-evident private materialism – ‘Solidarity with the poor is needed!’ In China, its the other way around: Without property and its privilege to extort services from society with its necessities of life, enrichment is obviously not a self-evident and plausible motive; the Chinese did not demand the right to do this from their government – the government demanded enrichment from its subjects. The leadership, unlike its people, was dissatisfied with the level of agriculture and industry achieved under Mao – and particularly dissatisfied with its people’s satisfaction with the assurance of food and supplies at the low level that far surpassed the years of famine and war. The demand that one should not be satisfied with what has been achieved is a reflection of this modesty. Because it is precisely in the achieved identity of nation and masses that it locates the fetter on the progress of the nation and its benefit from its work:

“Poverty is not socialism. Since simultaneous prosperity for all is impossible, it is permissible and deserves to be encouraged that some areas and part of the population first attain prosperity, thereby gradually leading an ever-increasing number of areas and people to a common prosperity.”[13]

In the name of the fight against poverty, mass poverty is announced – and still justified by the old egalitarian socialist standards: it is supposed to be a problem of the uneven progress of prosperity, while in fact the socialist state adopts a new relationship to its working base. By falsely allowing the citizens to separate their materialism from the community and get more for themselves against each other, the leadership is actually revoking the material guarantees that defined communist China. Everyone should take care of their own progress and thereby serve China; the progress of the nation, conversely, no longer includes that of the citizens. As long as China had only organized the life and work of its citizens, and its citizens had essentially only worked for this purpose, the state could not obtain the resources to grow in size; the Party leadership sees the state as having been virtually exploited by this communist equation: it had gotten to the point that the enterprises were eating from the great pot of the state and the workers and employees were eating from the great pot of the enterprises.[14] One would like to ask the reformers where the state got the great pot that the subjects were able to plunder so shamelessly.

“To remove this obstacle, we must apply the socialist principle of ‘to each according to his merit’ and stop letting everyone eat from the common rice bowl. First, we should take measures to widen income gaps appropriately so that a number of people can get rich sooner than others. Of course, widening income gaps is not an end in itself, just to increase labor productivity. It is only a means to the end of making everyone rich so that in the long run the social equality of communism can be realized.”[15]

Unabashedly, the Party informs its people that their sustenance is a burden on the nation and can only be considered in return for increased labor, or only for those who are actually needed for the nation’s progress and thus are allowed to do so. All this – in the long run, of course! – for the benefit of the billion Chinese who must be forced to their happiness.

So far, the people have accepted the new imperative in the same way as all previous ones, and have acknowledged the new working and living conditions with the “insight” that enrichment is now a socialist-patriotic duty. With this campaign, the transformation takes advantage of a special power that the Chinese CP has over its people that does not exist so easily in any other way. Whenever the Party leadership issued new slogans in the past, they were followed with conviction, no matter how well or poorly justified these convictions might have been. In the last instance, they were justified by the good experiences that the Chinese had had with the communist leadership: their support of the Party had brought an anti-colonial liberation and built up a national economy that could feed their huge population and in which all their comrades got a share. The fact that morality in China was not merely morality – no high-mindedness in the face of quite different materialistic calculations and actions – and that the contribution to the whole was not opposed to one’s own benefit, but rather conditioned it in some way, secured opinion leadership for the Party and popular support for its policies. Mao, during the Cultural Revolution, had called on the masses to disempower the “cadres who follow the capitalist path” and put hats of shame on them. The masses did it. In the end, even to excess, so that new slogans had to curb their zeal again. Ten years later, Deng Xioaping is putting into circulation a new, capitalist imperative that exploits the usual Party loyalty and at the same time deprives it of its basis. The identity of comrades and nation, which had established moral obedience as useful to everyone, is dissolved by adherence to the reform imperative. By instrumentalizing the moral power it had acquired through its revolution for the new direction, the CP is destroying it. No wonder that the greater the “income disparities” become, the greater the importance attached to “socialist education.” People are supposed to hold on to the “we all” as the purpose and perspective of capitalist reform even more, while any substance of commonality is increasingly terminated.

II. The systematic revolutionizing of the Chinese economy

The agrarian reform – a money economy in the countryside

Turning the harvest into national monetary wealth with free prices!

The first addressees of the economic reform will be the peasants – who else in the agricultural country of China, whose economy still largely coincides with agriculture, much to the chagrin of the reformers. The current upheavals, which are overturning the previous socialist state planning of the economy, are at first no different in this from their predecessors in the Party.

The Communist Party under Mao had already set out with the program and promise of peasant liberation in order to create the “New China” freed from colonial dependency. The Party abolished the personal bondage of the peasants and the feudal tenancy system in the countryside in order to make the only productive force that China had into the basis of the nation’s future economic development “through our own efforts”; the proceeds of agricultural labor – undiminished by private beneficiaries – was intended to benefit the project of industrializing China. The Party itself took responsibility for agricultural productivity. It organized a new cooperative structure for rural work and brought the peasant masses together in rural people’s communes, thus relying on a more economical use of peasant labor that was intended to make up for the lack of resources. To the extent that the state administrator of the economy saw itself in a position to do so, it then equipped the rural production units with basic technical means of production. However, there was no further increase in productivity. In return for the hard work of the masses, the Party guaranteed the rural population the basic necessities of life and a minimum of social security. Even if this was only enough for a meager existence, it was a guarantee of survival that peasants had never had before. With the help of state price fixing and low remuneration of crop yields from the people's communes, the Party succeeded in diverting resources from the undeveloped and relatively unproductive Chinese agriculture to build up a national industry.

Mao himself then went too slowly on this path to China becoming a self-sufficient economic power. With the “Great Leap Forward,” he committed the peasant masses to a new national experiment. Directly alongside and in addition to their agricultural work, the peasants were required by the Party demanded to act as agents for the industrial development of the nation: they were to set up a rural industry in the people’s communes; villages, for example, should operate their own small blast furnaces. The attempt ended with a slump in agricultural production and the collapse of the national food supply, including famines, while the village attempts at “industry” proved to be completely unproductive and useless. These failures and the civil war-like conditions that broke out in their wake later provided the reformers with the argument for abolishing the previous state planning system of the “Great Helmsman” after Mao’s death with the “Gang of Four.”

Mao’s contradictory attempts to turn the agrarian country of China as quickly as possible into an industrial location that could stand comparison with developed nations revealed an objective plight of the nation and its plans of progress. Most of the nation’s labor was spent on the lives and survival of, first, the rural population – which only fed itself – and secondly, the relatively small number of city people. Where the greater part of national labor is devoted to producing for consumption, there is little room for the creation and accumulation of a wealth of discretionary resources that could be used for industrial development and the production of higher labor productivity. The predominance of agriculture over industry is not only an indication of national underdevelopment, but also the decisive obstacle to all attempts to overcome it.

Mao’s successors claim that their reforms are actually only addressing this objective problem of all Chinese efforts at progress, and in a better, more effective way than the failed attempts of their predecessor; they would merely finally tackle and solve the common task of promoting agricultural productivity in such a way that sufficient resources and forces would be freed up for industrial development. However, the path they have chosen is not based on a new or even better method of gradually overcoming the barriers of unproductive agriculture, but rather, under the title of “increasing productivity,” the rural masses are subjected to a completely new purpose which no longer coincides at all with an increase in the useful products of their labor. The new solution adopted by Mao’s successors, which has now been in practise for 15 years, is the introduction of money as the result and end goal of the labor carried out on the land. This is intended to eliminate the state’s dissatisfaction with agricultural production, which is always inadequate compared with the demands on it, and to emancipate the development of the nation’s wealth from its limiting “natural” basis.

The new measure of production, money, as the only result of peasant labor that counts, should not be confused with the unit of account of the previous state economic management system of the same name. This was used by the socialist state to take stock of the planned economic activities and allocated the amounts it had collected to the enterprises and rural communes as their resources in accordance with its planning projects so that they could continue their production. With socialist money, price fixing, and allocation, the Chinese state wanted to force its economy to produce the material production results it wanted. The new task is now exactly the opposite: to treat the harvest yields as commodities, i.e. as instructions for payment, and to look for buyers for them, i.e. to earn money independently. Agriculture should generate real money: This means that it should no longer be handled as a means of state command to promote and direct production, but, conversely, that production should be subjected to the requirement of producing growing financial assets in private hands without state intervention, and that its results should only count as useful wealth to the extent that this succeeds. In the futue, money as the basis and purpose of every effort should decide which expenditure of labor is worthwhile because it ends in a surplus of money at some point in society. The Party has therefore made abstract wealth the sole purpose and sole result of rural production. This is its only contribution to remedying the lack of productivity in agriculture that it deplores. It is not concerned with improving productivity in the countryside, but rather newly defining the benchmark of productivity.

What impresses the reformers about money, which peasant labor is supposed to sweat out, is that, unlike a surplus product of use values, it is wealth that is universally usable and deployable, follows its own objective laws, multiplies on its own – and thus provides the state with growing access and unlimited usability, i.e. genuine national wealth. Because it is not at all concealed that the state’s motivation for the new purpose of all production is to enrich itself by taking money from peasants who are focused on privately increasing their wealth.[16]

An offer to the masses with a coercive character and state protection

However, this new requirement of the former “blue ants” is introduced in the form of a great offer: they no longer “need” to work for the state, the community, or their people’s commune – at least not exclusively, and in the long term no longer at all (see below), but are “allowed” to make money for themselves, largely freed from old socialist shackles and state tax obligations. This is an advantage that the reformers extoll to their people, who have not asked permission to engage in more “private initiative,” as a great service to the community, as if it were a new version of a moral campaign from the past socialist times. By their own admission, with the offer to earn money privately, they only want to supplement their previous public welfare system with an additional incentive and stimulant; and a particularly powerful one at that, because it stimulates the primeval utilitarian egoism of the peasant masses. In front of their people, they accuse themselves of having so far stifled “private initiative,” which promotes progress and finds its confirmation and field of activity in money, with an egalitarian provisioning – see the “iron rice bowl” – that is indifferent to natural differences in skill and willingness to work hard.[17]

The Party constantly proclaims the praise of self-interest and its miraculous effects and invites the Chinese to confuse the new compulsion to earn money and the end of state guarantees of work and life with a personal guarantee of success, as well as with “blossoming landscapes” and the dawn of national prosperity:

“Once a production group has been entrusted with decision-making powers regarding its own production, its members and cadres will not sleep as long as the smallest piece of land is not cultivated, the smallest pond is not used for production, and everyone will think of a solution. Just imagine how much wealth could be created if all the people in the hundreds of thousands of enterprises and the millions of production groups put their heads together! If more wealth is created for the state, the income of individuals should be raised a little and collective welfare improved to some extent.” (Deng Xiaoping, Selected Writings, Beijing 1983, p.175)

Like any idyll, this picture has mendacity written all over it. If, as claimed, its aim is to increase the productivity of agricultural labor and to increase the number of agricultural commodities, then a little more would be required than millions of privately employed heads. Of all things, the elimination without replacement of state planning specifications, of organization – no matter how poorly carried out – based on general interests, the abolition of all production guarantees, in other words, the sheer commitment to a self-interest in profit that is deprived of its means, is supposed to bring about this miracle? Deng is at least open about how the Party at the top of the state will determine its relationship with the people in the future: Only to the extent that the masses help the state achieve lasting financial wealth will they be taken into account in its calculations.

The paeans to the wealth-creating power of private “decision-making powers” are thus easily understood as a commitment to a new state purpose. The party’s advertising of its reform plan is merely the appropriate background music for its actual program of measuring the peasantry’s performance in terms of the money it earns for the nation, and determining it accordingly. In addition, the offer of being able to earn money becomes a compulsion to have to earn money; and the more the state incentivizes their private initiative by abolishing previous social guarantees, a necessity of survival. Of course, the Chinese land reform would not be the first to begin with a “peasant liberation” and end with a gigantic expropriation of the peasants. The special feature of this “offer,” however, is that it does not free the peasants from feudal dependency – the communists did that 40 years ago – but from a socialist economy of planning and use values, which at least ensured the survival of the rural population. The agrarian reform begins with the dismantling of the rural people’s communes and their production brigades, thereby depriving agricultural production of the security on which it had previously been based. They will be replaced by small rural tenants on state-owned land who can prove on the plots allocated to them whether they can benefit from the new command “Enrich yourselves!”

The Chinese reformers already know the type of upheaval of working and living conditions they are imposing on the nation’s population. That is why they are not carrying out this upheaval all at once and not completely. Although the state is no longer ensuring the orderly provision of the entire people, it is precisely for this reason that it is concerned that the provisioning services of agriculture for the nation do not fall victim to the new profit-oriented production system. Contrary to its own propaganda, it wisely does not believe that the unleashed “private initiative” will automatically provide the country with everything it needs. That is why it is sticking to a state obligation to deliver parts of agricultural production.

In a first step, the state makes individual families instead of the entire village responsible for delivering the agreed harvest yields to state collection points. The “contractual responsibility system for village households” makes individual peasants directly aware of whether the target has been met or falls short, and rewards individual performance. The state pays guaranteed prices for the agreed deliveries and also ensures the supply of seeds, fertilizers, etc., at planned prices if the obligation to deliver is met for this part of the cultivation. If the harvest exceeds the delivery obligation, the peasants are free to sell it and get paid as much as they can get for it. Initially, the “enrichment” of the peasant is to be limited to residual and by-products that are not important for the national food base. The old security of the village commune is therefore not completely eliminated; the state buys most of the harvest at fixed prices; the income from free sales represents an addition, a real surplus.

Only in the next step does the reform turn the opportunity into a necessity, as the Party expands the share of the harvest that can be sold freely and restricts the compulsory deliveries. Ultimately, state remuneration no longer ensures a livelihood. But the state creates a replacement: although the reduction in deliveries exposes a further part of peasant labor to “market risk,” it also creates the market by depriving the urban population of part of their food supply and forcing them to pay free prices for previously allocated products. In this way, the urban population is also made familiar with the “money circuit,” which the reformers have chosen as the growth engine of the Chinese economy. For a while, the sellers of agricultural products enjoyed the privilege of being the only ones in the planned economy who were allowed to charge free prices and enjoy a certain redistribution of the national product. Then they were introduced to the downside of their new freedom: they were not only expected to collect free prices, but also to pay them – for seeds, fertilizers, and everything else – and the state administration increasingly targeted them as a source of tax revenue.

The tenants of the plots can no longer live on what the party administration buys and pays for; so they are dependent on the offer to earn additional money. This transforms work on the land and the work ethic of the peasants more thoroughly than any of the Party’s moral campaigns ever could. The extra work which wrests harvest products from the soil, and which is no longer included in the state plan but can be sold on urban markets, becomes the epitome of worthwhile work in the countryside. The new right to enrich oneself and the new duty to see where one ends up forces the peasants to do a lot of extra work and overtime. Now that’s “productive”! Farm labor close to the city, i.e. close to the market, which is easier to convert into money, is more “productive” than that in the hinterland far from the city; work on good soil brings more money; poor yields on infertile soil are the private problem of those who farm on it and no longer burden the social income calculation. Thus the Party’s new production mandate to its peasant masses creates a division into a minority that can make something out of the new right to freely sell and enrich oneself – and a large majority who only lose their old secure livelihoods under the new conditions and find no substitute for it in free money-making.

The new rural life in China: the money assignment finds its functionaries

The liquidation of the collective organization of work and the living conditions of the peasants isn’t any prettier than the violent abolition of the feudal landlords from whose subjection the Party once liberated the peasants. Both the dismantling of the rural communes and the redistribution of land to private tenants are an act of violence by the Party, this time against the rural masses, even if they believe the Party’s promise of enrichment.

The “competence” to carry out this division falls to the power wielders in the village; and these are the Party functionaries who until now have been responsible for planning collective agricultural work on the soil. In addition, the reorganization of agriculture is putting the powerful families in the village – a traditional upper class that even Mao’s communism had not so much abolished as harnessed – back into their former role under new circumstances. Now the Party functionaries no longer have any communal tasks or any communal remuneration to distribute – although in the past they probably gave the better parts to themselves and their families – now it is all about poverty and wealth, and the new program stipulates that everyone should enrich themselves to the best of their ability. Local political power now provides access to the primary peasant means of production. Some plots are larger than others, some soils are better, some fields are irrigated and easily accessible, others are not. The allocation of plots of land determines which peasant can successfully heed the principle of enrichment and who is doomed to sink into poverty.

But it’s not just land. The distribution of the other means of production works the same way. The internal division of labor of the rural collectives is also privatized; their functions are assigned to individual “key households” in the name of “specialization.” Those who can now concentrate on fish farming and fruit growing have an enrichment advantage over other village households, as these sidelines are the first to benefit from the free market. Those who obtain craft equipment, the tools needed for repairs, and the rural services on offer have the opportunity to earn money from the peasants. “Specialized” administrative tasks of the old communal economy become a source of profit for their new providers; this opportunity falls primarily to the Party functionaries who were already responsible for these tasks before the land reform. “Key households,” which snatch up the few vehicles, “specialize” in transportation and sales. They turn themselves into traders who earn their money by mediating between the peasants and the state buyer or the market. They give the peasants whatever they want from their earnings. The new administration of the traditional credit cooperatives, in which the peasants had once saved part of their income and which had distributed the state money allocated to the village among the villagers according to work points, turn this basis into a business with the financial needs of the new small tenants; entirely in the spirit of the commanded conversion of agriculture into monetary relations. In the rudimentarily developed “rural industry” located in the villages, the ownership structure and mode of production change, even while the collective form of ownership is retained. The enterprise managers are now agents of the new profit motive; the rest of the old labor collectives are transformed into free workers who are allowed to increase the enterprise’s profits in return for wages. Since 1985, the free employment of wage laborers has been permitted in unlimited numbers. The Party ideologues do their best to prove that this “hired labor” is not a relapse into capitalist conditions.

The obligatory output for the state is delivered to the local power holders at fixed prices – otherwise “the state” does not exist in the countryside. The rural means of production that are still allocated by the state, freed from the previous command, are channelled through contacts that determine the possibility and success of plot work. The peasants are paid by local bigwigs for their deliveries to the state administration – often with promissory notes that no one can redeem. The village bosses are reluctant to hand over money to the peasants, but instead collect it under ever newer titles and do not adhere to Beijing’s stipulation that taxes on the peasants must not exceed 5% of average income. They have also been instructed by the same headquarters to independently transform the village and regional economy into financial wealth. They levy whole litanies of exotic special taxes[18] and have long since discovered that the allocation of land can also become a source of income for those who decide on it. Land now commands a rental price because those who have the right to develop it pay for this right. Wherever peasants find themselves in competition with more powerful buyers of this good – for example, in the special economic zones with their real estate boom fueled by foreign investors claiming land for such ambitious projects as hotels and golf courses – the land becomes unaffordable for them, if they are not immediately evicted from the land by force.[19]

The local grandees then become businessmen and large-scale farmers who expand their land areas and rent out the land that has been “voluntarily returned.”[20] The peasants who tried in vain to make a living from this land are then allowed to work on it again as day laborers. In this way, economic conditions from which the communists had once liberated the peasants are returning – transformed. The introduction of money and capitalist accounting methods in the countryside does not lead to forms of modern, legally regulated and correctly managed exploitation, but rather to a kind of feudal dependency: to economic exploitation and political oppression by the same master. In a country where there are no functionaries of monetary enrichment, the state power that orders this revolution is itself the authority that creates these functionaries in the form of the local Party functionaries by transforming their powers into levers for increasing money – and Party members into the first capitalists in the country.

On the other hand, millions of former members of peasant communities are left jobless and destitute. The new Powers That Be allocate them insufficient land or none at all, take the harvest from them at low prices, do not pay and collect cash tributes. The masses become superfluous for agricultural production, which has been converted to the dictates of money, but find no other work to replace it. The Party also assumes this. The “liberation of the peasants” from socialist egalitarianism is supplemented by liberation from the once rigidly enforced obligation to stay in the village one belongs to; the peasants are “allowed” to move away. This has an effect well known from the history of European peasant liberations: the peasants become impoverished without the obligation to remain on the traditional land, but also without the guarantee that they will be able to in the long term. Which is because they are also dispensable as laborers to the new masters. The relentless additional work and the squeezing out of other peasants makes them superfluous and also brings about an accumulation of wealth which frees up certain means of increasing productivity by using machines and thus making additional workers redundant. Millions leave the countryside of their own accord. Others, whose farms or dwellings stand in the way of more powerful interests, are simply driven out. Both groups add to the army of unemployed people in rural areas or head for the big cities and special economic zones.[21] An estimated 150 million migrant workers populate the slums around the growth centers and are willing to work for any wage, no matter how low. The masses of vagabonds in search of work threaten the already low wages in the industrial cities and incur the hostility of the locals. Due to their “overpopulation,” the booming coastal cities impose migration bans on “economic refugees” and compel their desire to survive to take criminal paths. Violent crime is also booming in China – as are death sentences.

The political liberation of business acumen calls into action the Party’s power of control

The state leadership enters lots of successes in the balance sheet for the transition of agriculture to money transactions. The countryside is exuding money, the new money owners are taking up the call for enrichment and participating in commodity trading, investing in speculative transactions, and becoming co-owners of rural industrial enterprises. Rural industry, whose business basis is autonomous from the state, that is, particularly low wages, now generates almost 30% of the national economic product. Over the years, the Party has succeeded in deregulating the prices of almost all agricultural products and handing them over to haggling and reducing state subsidies for agricultural production. In its annual financial reports, the Party announces a growth in rural production of 5-8%. The available harvest product also grows through privately enforced surplus labor. And every surplus person who is no longer automatically fed has a positive impact. Although the Party laments the lag of agricultural productivity behind industrial growth rates, this also proves that the development of the national economy which it has set in motion is becoming more and more emancipated from the limits of its agricultural basis.

Nevertheless, wherever the Party leadership addresses the situation of domestic agriculture and the current state of agrarian reform, it regularly expresses dissatisfaction. What it criticizes and promises to remedy follows the logic of a clear division into two parts. It doesn’t give its project a second thought; it increasingly discovers abuses in the realities of the reform that need to be opposed:

“In some regions, peasant incomes have not risen, but have fallen despite increases in production. Peasants in many areas also have problems selling grain, and the practice of issuing promissory bills instead of cash to buy grain is widespread. The problem of arbitrary levying of fees and charges has also increased. Peasants have already complained about the low government grain purchase prices and the rising levies... In accelerating economic development, some departments and regions have neglected the role of agriculture as the foundation of the overall economy. The promotion of industry and the service sector at the expense of agriculture is a misguided strategy and cannot be successful in the long term. The rush to establish development zones, expand the real estate sector and build office buildings and hotels in many areas has led to a high take-up of agricultural land. This has led to the use of funds earmarked for agricultural development in other areas. In order to make investments available for industrial development zones and the real estate sector, investments in agriculture were reduced in some areas and additional taxes were levied on peasant. The funds reserved for the state purchase of agricultural products were also absorbed by banks and credit cooperatives for other purposes.”[22]

The government is dissatisfied with the “modernization” that it has called into being, not because it has encountered resistance to its reform plans from the peasants or from the Party functionaries empowered to implement the reforms, but because its order for them to enrich themselves off peasant labor has been met with enthusiasm and found zealots. Now the Party is struggling with the fact that the private enrichment that has been set in motion as ordered does not coincide with the reform intention of turning agriculture into a source of money for the development of the nation and its industrial potential. The lower levels of the state and Party apparatus are exploiting the peasants as they see fit for their own regional or individual benefit. The central power learns from its state budget that the sums of money generated by the reform command are being withheld from their intended national benefit. Conversely, state funds for the development of agriculture, which are supposed to insure that the country’s food supply does not break down as a result of the new money calculations, end up in the pockets of local Party leaders who have a better use for them. Their private desire to enrich themselves is not measured in terms of the Party’s worries about supply shortages, famines, and uprisings by the impoverished peasants and urban population. The state representatives of the new money economy are taking the redistribution of national economic potential at the expense of rural China into their own hands; with the result that the main industrialization projects come into conflict with the uncontrolled proliferation of regional economic projects with which the local bigwigs want to turn their regions into part of “modern China” and its corresponding wealth.

All the Party leadership’s complaints about its own project boil down to the discovery that the national standpoint no longer has any reliable support in the countryside and among the ruling local representatives: The success of the agrarian reform jeopardizes the sovereignty of its leading subject. The reformers have delegated the implementation of land reform to their local party apparatuses; they are supposed to use their authority to make the money requirements inescapable for the peasants; and they are allowed to transform themselves into the primary agents and subjects of the new monetary wealth. Those addressed have made this equation of power and money business a reality and thereby put their influence in the countryside on a new foundation. What they enforce in the villages and what their word can achieve with the peasants is no longer achieved exclusively thanks to the authority conferred on them by the Party, but is based primarily on the private relationship of dependence created by economic and political power – and this tends to make them independent of the Party’s directives and insensitive to reproaches from Beijing. The danger comes less from the peasants – although the reality of reform has also included peasant uprisings in recent years – than from its own power base, so that for the reformers today the maintenance of state power has become the top consideration for whether the “modernization” of China will succeed. The current need for reform manifests itself in the government’s efforts to maintain or regain control over the economic life it has unleashed and the local fat cats without, however, overriding any of the principles which are causing the unwelcome effects. The fact that the forms taken by the upheaval in the countryside run counter to the reform intentions is one side of the coin; the fact that the state’s intended purpose and the criticized “abuses” cannot be separated is the other.

The Party leadership first reacts to the disempowerment of its authority due to the reform by later conceding the entrenched situation in order to restrict it through legalization. After years of local leaders demanding rent from the peasants for allotted plots of land, this practice was permitted in 1988 and the rent was assigned an official amount. After those who manage the land had been illegally turning its sale into a source of income for years, “a new law is now intended to regulate land sales and speculation.” (FAZ, 9.31.1994). The government is appealing to party members with anti-corruption campaigns and perpetually ineffective calls for party discipline and a modest lifestyle. Once it orders a demonstrative crackdown, this may escalate into a semi-military operation against local private armies. When the national food supply collapses – due to droughts or floods, due to the restriction of grain production in favor of freely marketable agricultural products, or due to the loss of arable land thanks to the construction boom – when hunger threatens the cities and food prices skyrocket, then the state once again prescribes more grain cultivation, increases the quotas of in-kind royalties and guaranteed prices; it then temporarily bans haggling with food until the situation “eases” again and the “price reform” can be resumed.[23] The party does not question its own reform work, even if it tears apart social conditions and puts its state authority to a severe test.

Original accumulation in Chinese

In this way, over the last 15 years, by transforming foodstuffs into commodities, Chinese reformers have committed the whole society to money and earning money and have uprooted many millions of people from their nationally unproductive rural existence. This is how the achievements of original accumulation, familiar from the prehistory of the European capitalist nations, comes about in China: the accumulation of financial assets and property on the one hand, the accumulation of a mass of propertyless workers forcibly set free from the land on the other. The peculiarity of this violent transition to a new mode of production in China is that the state cannot refer to any pre-existing social need for increasing abstract wealth. Because of a lack of money activists in the form of merchants, moneylenders, tenants, and factory owners, the transition is carried out by the Party alone. The seeds of the Chinese capitalist class emerge from its ruling personnel. The political power of the Party creates the missing interests and subjects of the economic principle that, in the future, should determine every economic activity and every possibility of living.

Wealth in the form of money is being forced out of an agriculture which neither pkans nor gears production for it. In the few hands which this wealth is concentrated in, the new money economy has found the functionaries suitable for it; the Party cadres are provided with economic power through their political access power. Hidden in the form of state ownership of land, the liberties of private land ownership are instituted and landowners are brought into being, who in turn are preferably recruited from the ranks of the Party. The reform thus sets in motion the desired accumulation from the yields of a backwards agriculture. It is true that large amounts of surpluses do not end up in the national headquarters, which wants to use them according to its growth plans, but with a host of local authorities who enrich themselves and use their money as they see fit. But decentralized, private wealth, which strives to increase independently, is created this way, and a “rural industry” grows from these surpluses. Despite all the contradictions in the Party leadership’s ideals of development – how else could the livelihood of the peasants be transformed into the monetary wealth of new masters than through the force of local leaders who are authorized to wield it? After all, the nation does not create the new wealth by increasing the productivity of peasant labor, but by forcing monetary returns from labor that does not generate any surpluses on its own. And finally, in this way, a large part of the peasantry makes the transition to the status of a free wage labor force, regardless of the fact that the capital to use it is not even available, thus increasing the absolutely poor population and the growing industrial reserve army. Parts of the population are deliberately set free for tasks other than agriculture; perhaps not as the planned, somewhat harmonious result of rural surplus labor, growing productivity of agricultural labor, and the state’s demand for labor. But what do planned economy ideals have to do with the introduction of a monetary economy?

Open-door policy and special economic zones – foreign capital as engine of development

The Chinese development policy makers did not wait for the results of the agricultural reform. It was clear to them that the surpluses they could extract from unproductive peasant labor through ruthlessness and impoverishment would remain quantitatively modest. The free wealth that can be used again for further growth, that commands all the world’s resources and therefore achieves the profitable combination of labor and machinery – this wealth is produced far too little and far too slowly. In order to remedy this deficiency in a country lagging behind on a global capitalist scale, the Chinese nationalists want to put international capital at their service. The capital already accumulated from abroad is intended to trigger accumulation in China, which, once set in motion, will then itself become a growth machine like the capital of the world market. The existing and concentrated financial assets of the multinationals are to become the servants of a Chinese accumulation of similar assets.

All the achievements of world civilization?

However, the Chinese reformers are only theoretically working towards this position, which they practice with the policy of opening up:

“It should be emphasized that opening up to the outside world is indispensable for reform and construction, that all the advanced civilizational achievements created by the various countries of the world, including the developed capitalist ones, should be introduced and utilized for the development of socialism, and that cutting oneself off can only lead to backwardness.”[24]

On first reading, the “civilizational achievements” of others, which one should not isolate oneself from, seem to mean something like technology and know-how:

“With social production forces being what they are today, no country in the world is in a position to possess all the resources and techniques needed for its development. This is especially the case with a developing country, which is usually short of funds and expertise. Therefore, to pursue a policy of opening to the outside world and of encouraging economic and technical interflow with other countries will promote its economic growth and enhance its ability to stand on its own.”[25]

The dialectic of participation in world trade from the standpoint of national scarcity, however, teaches the open-market policy makers that it is not simply technology and knowledge that they lack, but money that makes these “resources” available:

“The purpose of exports is to import goods and materials to meet domestic requirements. In the past, our emphasis was placed on the concept of ‘export in order to import,’ or ‘sell in order to buy.’ this is because we must import according to the capacity of export and increase import on the basis of expanded export. However, this is not enough; we must also direct our attention to the other side of the question, that is, ‘import in order to export.’”[26]

They are not satisfied with the very limited ability to buy internationally that comes from exporting domestic products which they produce and withdraw from domestic use. Their need to purchase is greater than their ability; therefore, they have to buy a lot more, namely the means of production for export production. But with what? The country does not have the wealth to procure all this. It can borrow capital from other nations, but in return it has to accept a permanent drain on wealth from servicing the debt. China once rejected this as a loss of sovereignty and the gateway to capitalist dependency, and apparently in keeping with this tradition, the innovators have come up with another means of keeping the problematic debt within limits while still opening up access to external growth potential:

“China is a socialist country that essentially has to raise the funds for its modernization program itself. In relation to its natural and human resources, however, its capital endowment is inadequate and poses a permanent problem. A rational use of foreign capital is therefore of great importance for our country.”[27]

They want to face the problem of not being able to pay for the commodity imports considered necessary by importing capital, i.e. by inviting foreign money into the country to use the nation’s resources. They see this as saving costs for the nation and as a virtually free way of building up their own global market economy through more capable agents who, in China’s own interest, use and develop its existing production potential:

“We should make an effort to increase the proportion of foreign direct investments. Such investments can be made in a very flexible manner and in diverse ways by setting up enterprises jointly operated by Chinese and foreign partners. This mode of cooperation has many advantages: It is directly associated with the investor’s interests; risks are shared by both parties; there is no need to pay interest in the period of construction; our existing production capacity and infrastructure can be made use of; it promotes the import of advanced technology and the technical transformation of enterprises; it facilitates the learning of the scientific principles of business management; and it enhances the competitiveness of products, making it possible for them to enter the international market.”[28]

It is irrelevant whether this form of “utilizing foreign capital” means less of a burden for China than a negative trade balance; because what looks like an alternative isn’t; and what presents itself as a way to increase the nation’s export capacity – possibly to pay for much-needed imports – goes far beyond this stated purpose. If that were simply the issue, then the nation’s sacrifice for this increase in international purchasing power would be even greater than in the past, when domestically needed products were diverted for export, or as in the real socialist states, where entire industries were exempted from their intended domestic tasks in order to manufacture export products and thus pay for the planned imports. From this point of view, China would be withdrawing crucial national productive capacities from their previous national uses and leaving them to the demanding calculations of those who compare international business locations.

But the China of the reform era has been calculating differently since then. It no longer aims to make partial use of the world market, but wants to be part of it in principle; it does not simply want to import goods and technology, but the capitalist relations of production. China wants to import the accumulated capital that it does not have and cannot produce on its own. In the eyes of the reformers, this would also solve the import-export problem and the question of the deficit; in their opinion, an attractive location for capital offers completely different freedoms.[29] The only thing that matters now is that the invited foreign capitalists also come and do China the service of developing the country into a capitalist location; that they convert its infrastructure, production facilities, and masses of workers into genuine sources of profit and provide China with the material basis of a world power. But there is more to this invitation, because capitalists are not in the habit of taking on development tasks: They use existing profit opportunities and existing location conditions, but they do not create them. Although the Chinese track record conceals this fact, the reformers have certainly prepared themselves for it in practice.

The separation of the special economic zones from the mainland – a response to the contradiction of obliging foreign capitalists to provide development aid.

The Chinese innovators also know that they can’t dictate to foreign capitalists, unlike to their domestic human material; they must present them with offers. And they can’t overlook the fact that they are exposing their country to a comparison that foreign capitalists are making between a worldwide range of locations, ranging from the established home countries of global capital which can be sure of their attractiveness because they are already home to a great deal of business, to the special offers of those third world countries that, in order to attract capital, waive any national participation in their profits, taxation, and guarantees of profits being reinvested in the country. China’s economic planners want to create the necessary location attractiveness, even though China can’t offer capitalists much of what they are used to. They organize what little they can into reserves: In order to survive the comparison, they have separated entire economic regions from the rest of the country and prepared them in such a way that international business interests can get their money’s worth.

Initially – and throughout the 1980s – China’s reformers declared four coastal provinces to be “special zones” and assigned them the task of attracting foreign capital. Within four coastal cities, they have made the most developed areas of the country available for capitalist development, i.e. the best “industrial landscape” and infrastructure that was created during the socialist era. In these special zones, they guarantee, as far as it is within their power, the relevant business conditions, in contrast to the conditions in the rest of China. The country continues to supply the capitalist islands with the services of the spurned planned economy – at planned economy prices. Before foreign businessmen get involved, the Chinese state develops industrial zones, port facilities, telephone and transportation networks, and airports at its own expense. However, it restrains the invited capitalists with legal requirements and expenses. They are given what they need, but ignored or highly privileged when it comes to paying taxes; here the state relinquishes its monopoly on foreign trade and relaxes its foreign exchange controls. The entire nation has to raise the funds for the development of the special zones through taxes and profit transfers, so its own performance is burdened accordingly and disadvantaged in terms of the allocation of funds.[30] For the economic policy makers, nothing is too expensive or too much trouble for the development of their capitalist islands. Whatever outlays they put into them for global capital is well invested. And whatever they scrape together is useless for the progress and future of the nation anyway; in their judgment, they have made good use of these contributions if they can put them to use – even by taxation – to attract capital to the special zones. Then the capitalists brought in will somehow turn even planned-economy steel, hand-harvested rice, and Chinese handicrafts into genuine financial wealth. In China, therefore, no investor spontaneously comes upon favorable conditions for competition inside a national region of rule; he gets them supplied by the Chinese state through special political efforts – but initially only in the special economic zones that are separate from the rest of the country.

This separation is made out of caution. After all, the task of preparing for the demanding foreign capitalists should not lead to the nation being “sold out,” a problem that the new world market entrants necessarily face in a very different way than the old critics of the world market. With the experiment’s limited geographical scope and light weight relative to China’s size, economic policy is careful to ensure that all calculations regarding the national benefit of the project are not thrown out the window from the outset and that it remains in control of domestic economic life.[31] This is sealed off from the special zones, which are considered to be economic foreign countries, by borders and border controls. While the planned economy is continued for the time being in the hinterland, which is only slowly being reformed, the capitalists in the special zones are allowed to do as they please; all governance is placed at their service. On the other hand, imports from the special zones into the Chinese hinterland were initially strictly prohibited or only permitted in special cases involving goods in short supply under the plan. Companies and consumers were not supposed to spend the scarce foreign currency that China earns in an uncontrolled manner in the national world market islands.[32] In the first decade of the opening-up policy, the businessmen who were brought in did not have to be prohibited from competing on an internal Chinese market. There was no such thing; investments of foreign capital were aimed at producing for the world market anyway, where there was money to be made.

A key argument in the competition between capital locations: extremely cheap labor!

Secondly, through the separation, the Chinese reformers gain a very special advantage for their special zones from the disadvantage of not yet being a location for capital. The separation of the capitalist islands from the hinterland is the basis for a special offer in terms of capitalist cost price: China offers the capitalists of the world workers whose monthly wages are between 2 and 5 hundredths of those in Germany. To the extent that modern factory work has been reduced to mindless manual tasks that anyone can perform without training, capital has freed itself from the education levels and industrial traditions of the workers. Through this “progress of the productive forces,” offers like that of extremely cheap Chinese labor power become interesting in that it functions no worse than German or Turkish labor power on modern machines – the production process has become that objective. This is what is being counted on by the masters of the “blue ants” who are no longer conceded the old role of a – indeed the – national productive force.[33]

In terms of its economic quality, the daily wage of just under 5 marks is not a starvation wage as in many other Third World countries; because the workers, who are part of the world market through their work, continue to be part of the socialist supply state with their lives – both in terms of their subjective consumption requirements and the objective cost of living. The wage received in the joint ventures in Canton or Shenzhen is included in the costs of the world market companies, but it does not have to pay for prices that contain a capitalist cost price along with profit. It only has to make the services of the “unproductive” command economy with its planned prices available to its recipient. The houses in which the workers live, the food they consume, the social and medical services they use are still provided by the socialist economy, which is supposed to have affordable low prices. In order to attract foreign capitalists, China is therefore giving them labor-saving reproductive services from its command economy, which it wants to abolish. Measured against the costs of housing and food, and compared with the wages calculated on this basis in the state economy, especially in the hinterland,[34] the employees of the joint ventures even appear to be well paid and privileged. Millions of uprooted country people migrate to the provinces on the south coast and line up for jobs like these.

In order for the multinationals to sieze the opportunity, China not only offers labor at almost zero cost; it also ensures that the employers who are invited into the country can use the purchased commodities without restraint. All services that are somehow still required of the socialist state enterprises are exempt to free capital; health services, daycare centers, and shops with which the planned economy enterprises make life easier for their workforces, are out of the question. Socialist job guarantees are certainly not the case, nor are the contractual considerations in hiring and firing that are common in capitalism and called a “balance of interests.” In the interests of the competitiveness of the location, pretty much all forms of government oversight, working times regulations, workplace health and safety are dispensed with;[35] trade unions are banned in “socialist China,” where they are not needed anyway. The economic policy-makers trained in Marx’s “Capital” already know how to foster a Manchester capitalism. It is doing a lot to assert itself in the competition between low-wage countries.

The reformers are satisfied with their achievements:

“The special economic zones are in the forefront of China’s opening to the outside world, providing a special channel for the country to absorb and utilize foreign capital, introduce advanced technologies and access the international market, and are among the comprehensive experimental fields of China's reform.”[36]

This is how they assess the success of their special economic zones policy. There is no sign of worries about a “selling out of the nation,” but rather pride in the fact that the international business world has accepted the invitation that China has presented to it. Foreign capitalists can make a profit on Chinese soil, earn foreign currency from it and for China, make capital out of Chinese people and means of production – and not only for themselves, but always half for the state which brings these conditions to the joint ventures and thus becomes a capitalist itself. Whatever the Chinese side contributes in terms of buildings and equipment[37] to the joint ventures is by political definition half the investment sum.

Turn the whole country into a special development zone – push foreign investment everywhere!

There is another reason, in addition to those mentioned, for splitting off the special zones, which in 1992 were expanded by two more and 14 “open cities” on the coast, from the huge Chinese realm: because in more than these cases, China can’t raise the investment funds to produce the locational qualities it needs to attract international capital, despite all its taxing, siphoning off and diversions of “surplus.” The vastness of China can only afford the necessary expansion of infrastructure, transportation, energy supply and basic industries in a few select districts.[38]

The development that is being rushed ahead in the special zones therefore has the drawback that it remains peripheral on the scale of the giant Chinese realm. It tends to widen the “development gap” between the coast and the hinterland – through what it costs the country and through what grows in them – rather than automatically, and on a large scale, achieving the “trickle down” effect that the special zones program was based on:

“Moreover, the numerous investments of foreign capital in the coastal areas would have widened the gap between them and the interior.” “Dong said the inland areas would open up even more natural resources to foreign capital in the coming years to narrow this gap with the coastal areas.”[39]

For a country that has arrived too late on the world market, importing accumulation is the royal road for abridging its original accumulation, as the reformers see it. One just needs to be capable of doing it much more and everywhere in the country. But this wonderful concept is not so easy to generalize. The central government cannot raise the investment funds that would be necessary for the infrastructural inputs in order to make it attractive to foreign capital.[40] On the other hand, it cannot burden the potent capital that is making world market profits in the special zones with the state’s faux frais for producing or even expanding nationwide its business conditions; the equal tax treatment of domestic and foreign companies or joint ventures that was announced at the turn of the year 1994 led to a storm of indignation from foreigners – and subsequently to the government backing down.[41]

The government knows what to do. In view of the success of the special zones, the standpoint of caution seems largely unnecessary. It has decided to hand over more of its land, more of its resources, and more of its development projects to international capital as a location offer. It allows the prospecting of mineral resources – a type of “cooperation” that it would previously have considered colonial exploitation – and, since it does not have the means to do this itself, it even allows foreign consortia to build the infrastructure – usually a guarded state task, the fulfillment of which determines what a location is worth. The government is now building highways, railroad lines and airports and “paying” foreigners for them with the right to use these facilities for business purposes for 15 years.[42]

The multinationals’ interest in such offers serves as proof to the reformers of how right they are in continuing to open up. International investors have seized on them and, in the eyes of China’s growth strategists, are confirming that capitalist “know-how” can also be used for infrastructure projects, even without additional government debt. However, these deals do demand some services from the state. If the multinationals agree to this form of payment, then they are betting that the facilities they provide will be used extensively by people who can pay – and with the kind of decent money that multinationals can earn. The Chinese state must guarantee exchangeability and offer foreigners the advantages of convertibility, even if it cannot actually do this with its national credit. It thus opens up speculation on a “huge Chinese market of the future” to major international corporations, while making itself increasingly dependent on their investment decisions. Here too, however, the Chinese development fanatics are currently enjoying nothing but success. International business entities and their political backers are betting on China. Regardless of whether the purchasing power in the country already provides what the investing capitalists expect from it or whether they are speculating on a future that is not yet certain, China has in any case convinced them and their lenders of the prospect of the “huge Chinese market” – and this is a huge difference from the times when the opening only affected islands of development where export products were manufactured and foreign currency earned, since there was nothing to be earned in China, which was still socialist. This progress was not brought about solely or even primarily by the special economic zones, but by the determination of the Party leadership to subject the entire country to money and to put the achievements of “socialist industrial accumulation” at the service of an original accumulation of capital.

Profit, credit, national debt – the struggle to repurpose existing industry

The Party now certifies the country’s suitability as a place to invest capital and obligates the whole society as a matter of principle to use “free market” methods. Of course, it takes into account the fact that the regulation of the new economic purpose is destructive of the old way of functioning, and therefore takes care not to ruin the functionality of the traditional national industry.

Capitalism – a textbook example Reform of the enterprises

The state no longer wants to operate industry as its project, it no longer wants to organize its supply of investment funds and materials and the supply of food to the workforce, but wants to create an economy separate from itself that takes care of its own costs and profits so that, as a tax state, the central government can make easier and greater use of it. To this end, it separates the economic units from itself and introduces the viewpoint of private wealth as well as the necessary right to have the means of production at its disposal in order to operate it. The first act of the reform is to replace the entire system of indicators, by which the fulfillment of its plans by the enterprises was previosuly measured and according to which bonuses were distributed, with one decisive “indicator,” that being profit. This “indicator” is not merely a new accounting method between the state and its enterprises, but is made into the self-interest of the independent units so that they can fulfill their new mission on their own initiative: Profits are no longer delivered, but taxed; amortization funds are no longer managed centrally, but form the capital of the company with which it is supposed to operate and improve its earnings. The socialist factory managers become profit representatives of the state. In return, they are given more rights vis-à-vis the Party and the workforce, are allowed to earn many times the normal wage, and decide how the profits remaining in the company are used. Because there is no ruling class that would be the natural contractor for the new program, the state, as the owner of the industry built up under socialism, appoints its factory managers half as managers in its service, half as tenants who acquire the right with the office – and as long as they have it – to turn themselves into capitalists through the profits of their companies. In addition, new companies should and may be founded; initially, only by the existing economic units and state authorities, then increasingly by anyone who raises the investment funds.

To achieve this, the treatment of labor is “liberalized”: Initially, only start-ups from state-owned enterprises are allowed to hire workers on the usual terms; “free management persons” are allowed to have 1, 2, and later 14 helpers and apprentices until wage labor gradually becomes normal. Since then, the guarantees of the “iron rice bowl” – lifelong employment, access to social and medical care provided by the enterprise – have been phased out, being abolished first in the independent enterprises and later everywhere. The worker becomes freely available: He is paid if his work promises profit and dismissed if not. The ideal of state unemployment and health insurance as part of the free labor market remains an ideal for the unforeseeable future – neither the wages paid nor the state revenues can bear the burden of capital’s new kind of pauperism. If one wanted to feed the paupers, one would not have had to create them in the first place. The productivity of the new economic system and its difference from the earlier modest national economic progress consists in nothing but the separation of the poverty of the used and unused parts of the population from the wealth that accumulates elsewhere: The economy frees itself from feeding the masses; work that merely earns a living for the worker is no longer permitted; only work that yields more for the economy and the nation than it costs is paid; surplus becomes the condition of the work that creates the necessities of life. With a resounding effect: instead of industry absorbing the freed rural population, it massively produces members of the reserve army. By the year 2000, planners expect China to have 300 million unemployed, twice as many as now and almost half of its working population. That is the difference from Mao’s poor people’s communes.

The credit system

The reformers quickly realized, or copied from their real-life role models, that a profit-making industry that is separate from the state and has to raise its own investment funds needs credit. In order for national accumulation to really get going, opening new businesses and investing must not depend on how much money the promising businessman has already earned and accumulated. It should not be the existing assets that determine whether business is done, but rather the chances of profit that should determine whether money is available for it. This was, to a certain extent, the defect of the socialist economy and the reason for its overly slow accumulation, that it could only make progress from the additional means of production that it had previously produced itself. Only capitalist fraud, the “financing” of businesses, and the acquisition of the means of production through speculative anticipation of profits guarantees solid capitalist growth. Especially in China, where private investment is supposed to increase without there already being enough assets to invest. Not only the independent state industry, but every small operator of a food stall or a taxi must first be equipped with the material from which all business starts and to which it returns.

To this end, the state creates a privately calculating credit system by dissolving its old treasury, the “People’s Bank of China,” which was responsible for the central direction and distribution of all resources generated in the planned economy. It founds a new central bank under its name, which it juxtaposes to a whole world of commercial banks. The central bank’s first act is to transfer a good portion of its collected savings to the new commercial banks so that they have assets they can count on. The central bank itself is relieved of the task of directly lending to companies; it only grants loans to banks and engages in “macroeconomic management” with interest rates, minimum reserves, and monetary policy. The commercial banks are allowed to use their capital to create credit and thus satisfy the companies’ need for money. For their part, they are allowed to turn this into a source of profit and enrich themselves with interest on the growth they “finance.”

The state debt

Apart from providing the missing capital, the commercial credit created by the state is intended to perform another, no less important service: to satisfy its own financial needs. The state no longer gives “credit” – that was a real socialist name for allocating funds to businesses – but takes it. It supplements the limited standpoint of the tax state, which makes use of the economy separated from it through fees, with that of the debt state.[43] In this way, it also limits its economic freedom of action, i.e. it frees it from the barrier of taxes that have already been collected and pays for its purchases with debts that it writes down and pays interest on. In this way, it gives even more impetus to the creation of credit and the anticipation of profits with which capital is to be created in its society.

The stock and bond market

At the beginning of the 1990s, the reform leaders finally discovered the advantages of the last speculative achievements of capitalism, which the first generation of reformers had considered one of its evil aspects and rejected for China. Unlike the Russians, they are making one of the “most ambitious privatization programs in the world” the capstone of their reforms, not the beginning. In doing so, they are correcting their former reservation and abandoning the suspicion that private property would evade communal tasks and only exploit national life for private gain. They are doing this because in the meantime some citizens have earned a lot of money and built up assets. The reformers want to put this at the service of the national growth program by collecting it and turning it into capital. By setting up stock exchanges for both shares and government bonds, they are making private speculation on future earnings into a source of finance for the state and businesses. They allow competition for these rights to interest and dividends, permit their appreciation and depreciation in trading, and thus free the state and companies from having to prove their value. Bought and sold at the right price, they are definitely worth it for the winners of this competition.

The defense of national use values from the “laws of the market”

This actually brings together everything that is part of a proper capitalism. In China, however, the Party order to establish the economic institutions that the reformers have systematically copied from the model comes up against a society that functions in China differently; the new principle must first be imposed on it. The release of the various profit vultures opens up a lot of conflicts between the old way of functioning and the new mission. The Party is therefore adding a struggle for control to the mandate that enterprises should operate at their own expense, so that the wonderful principle of “self-regulation by the market” also steers where it wants to go.

Under the given conditions of the planned and scarcity economy, which always delivered too little surplus to its organizer, the command, or rather the permission, to industry to make profits from now on and to reinvest them does not lead to the desired acceleration of all-around growth, but to usury. The command to make profits is implemented by taking advantage of the established dependencies through price increases; the enterprises do not even have to produce a surplus over and above the previous product, they simply charge it to their customers. The enrichment in one place that comes about in this way is based on ruin in another. This does not fundamentally contradict the purpose of the reform: how else could the required accumulation of money be achieved in a situation of scarcity other than through usury? The Party, however, which has the overall progress of the nation in mind, must decide which usury it wants and which it does not. If buyers can no longer afford the products they need, then the Party reacts – but in a differentiated way: If the population can no longer afford some of the foods they are used to, then they must cut back and make sacrifices for the future of the country; but if industrial enterprises can no longer procure the necessary primary products, machines, and spare parts under the regime of price gouging, then the reaction is different. It does not advance the nation and its sources of money if the accumulation of one enterprise succeeds only by making the accumulation of others impossible. The reformers therefore do not leave the decision about which and how much industry there should be in China to those haggling over the necessary production conditions. They do not even wait for the ruinous effects of price liberalization, but instead set political guidelines in advance as to how profit-making should relate to the indispensable reproductive capacity of national industry. They separate the area in which the enterprises are to provide their services based on the division of labor despite the profit mandate, from a hyper-planned area in which they are allowed to make money regardless of this.

As with the peasants, the reformers are introducing a “contract-based responsibility system”: The enterprise assumes a production obligation and in return is guaranteed that the state will purchase its products at fixed prices as well as the scheduled supply of means of production and raw materials. As long as its production exceeds the quantity agreed with the state, it may sell it at free prices, but must also buy the raw materials needed for this at free prices. From the same point of view, they introduce a second division between different branches of national industry: The smaller, nationally less important producers of consumer goods are allowed to pursue money without restriction – what the nation needs least and what is most easily dispensed with is best suited to the new production order from the start. On the other hand, the large, nationally decisive industries which primarily include the basic materials and steel industries, energy supply and infrastructure enterprises, remain more or less bound by planning obligations and are supplied with intermediate products. Securing the reproductive services of the economy requires the conditional renunciation of free prices and unconditional profit-making. This is how money accumulation comes about – for those who the planners allow to sell freely and at the expense of those who are denied the same permission.[44]

In contrast to the liquidators of the Eastern Bloc, the reformers ensure the material functionality of the economy by integrating the vast majority of state-owned industry into planned obligations and services. At the same time, however, they have by no means given up on subjecting state enterprises to the imperative of “economic results,” even in those areas that continue to operate according to state specifications. If state enterprises shift their product range on the basis of this order, reduce the production of commodities with fixed prices which are not very profitable, and increase other “profitable” products,[45] then the state reacts again by planning, but without directives. It uses the enterprise’s profit interest as a lever to control production. It raises the prices of commodities that it wants to obtain or taxes them less than those that merely “the market demands.” It gives loans at lower interest rates more easily to enterprises whose production it wants to promote than to others.[46] Instead of percentage taxes, it also negotiates a fixed tax amount with each individual company for a certain period of time, depending on whether the enterprise is supposed to be promoted or treated more like a state cash cow. In this way, parts of state industry are politically incentivized to accumulate.

Certainly, only parts. On the other hand, the branches of the economy that the state holds to planning obligations are deliberately denied the opportunity to drive up prices; they are supposed to cheaply supply the free enterprises that are entitled to make a profit with intermediate products and services so that they can make profits. However, if state enterprises are in turn dependent on the products of the “free” companies, they must of course pay the high free prices. Half of state industry is in the red because of the reforms. The fact that the state enterprises supply the necessary steel, electricity, etc., is therefore not rewarded by the fact that they do not have to calculate. Their indispensable operating services are booked as a loss for which the state capitalist as a whole provisionally and regretfully pays.[47]

The losses define the need for further reforms. Economic policy is by no means satisfied with ensuring profits in one area by putting other industrial sectors at the service of the profit-makers and living with their losses. This is a first step which requires a second, the conversion of state industries into profit generators. Step by step, the socialist employment guarantees are now being abolished here too and the ancillary social functions that belonged to the combines are being abandoned.[48] In principle, profitable enterprises must not be burdened with the social costs of their functioning, which promptly confronts economic policy-makers with the question as to what considerations for “social stability” they consider indispensable in view of mass unemployment...

The vaunted combination of plan and market is therefore nothing more than the Party’s back and forth between its two orders to state industry, which it allows to apply both at the same time and against each other. The compulsion to make a profit is offset by consideration for its supply functions. On the other hand, Beijing views the safeguarding of its functions as a growing national debt – for purely conservative rather than investment tasks. In 1994, all reform steps were stopped, and in 1995 an “experimental program to establish a modern corporate structure” is to be launched with 100 large state enterprises in order to make them – which they have long been in letter – “independent of administrative influences and responsible for their own profits and losses so that they can keep pace with the development of the market economy.”[49]

The fight against “overheating,” or: What is the right measure of fictitious accumulation?

The reform policy has created the position of the private banker and entrusted state officials with filling this role. Now the increase in money and credit is no longer based on political considerations, but rather on those of profit. The anticipated profit, of course! Speculation on future profits has been chosen as the decisive lever for growth – and with the potency of credit, the risks involved have also been negotiated.

The banks proliferate with the funds allocated to them, they quickly discover the debt techniques that turn limited deposits into unlimited credit expansion, and thus unleash a start-up boom. There is money for every business idea, everything is involved in new start-ups: State enterprises that invest profits in ancillary businesses and place rationalized employees there, government agencies such as the military, joint ventures, but also laid-off employees of the planned economy who “start their own businesses.” The number of failed attempts is only revealed later, through the actions of the bank, which decides in the event of losses whether they are initial losses that can be overcome by additional investment funds and deferred payments, or bankruptcies that must be enforced by withdrawing credit. As soon as the loans have been granted, the banks stand by their customers in the same way the state as a whole stands by the economy: they defend the money they have lent and their interest income by granting further loans to their customers. This also applies to regional banks which, in competition with other parts of the country, take precisely the development position that the state wanted to reserve for their particular region.

In a gigantic, at times “galloping inflation,” to which the state itself contributes not a little with the financing of state enterprises, the economic leaders in Beijing are assessing the success and danger of their project. The companies no longer use money as a means of accounting and circulation, but have realized that production is all about cashing in, and are raising prices as much as they can. To the extent that the success made possible by the rapid growth of business and the resulting shortage of basic materials and infrastructural services on the one hand, and easily accessible credit on the other, allows. However, the devaluation of money also shows that even though businesses are increasing their income, they are still far from increasing their material wealth to the same extent. The compulsion to supply the market with commodities in order to make use of its purchasing power and earn money is overridden by the unchecked expansion of credit. Credit is not doing the job of increasing national production for which it was set free, but rather is replacing growth. And not at this or that point, but quite fundamentally: speculation does not build on top of an existing business and push it further, it is largely the starting point and sole basis of business. This jeopardizes not only real economic growth, but also the reliability of the national money – the epitome of wealth and the instrument of state financial power. In the real estate boom, the fall in the value of money itself becomes a source of profit: high-rise office buildings and development projects are built using credit, and are only profitable on the condition that real estate prices continue to rise at the usual pace.[50] The fact that monetary growth is no longer a reliable expression of increased wealth raises doubts that the impressive real growth figures could be falsifications.[51]

For years, the central government in Beijing has repeatedly fought against the credit expansion it initiated as a threat to the steady productive growth of the national economy – as “overheating” – and has tried various braking maneuvers. To this end, it creates and refines the “instruments of macro-control” which it borrows from abroad: Central bank interest rates, the obligation of banks to raise cash deposits and add them to a minimum reserve, etc. However, it has to realize that these central bank instruments are rather ineffective, due to the commercial and regional banks using their credit creation techniques to evade the requirements.[52] With the establishment of the credit system, the Party has created a constellation of interests opposite itself and endowed them with power over the expansion of money, and it is now defending its own development projects and its wealth against the central credit restrictions, which always mean off-setting, that is, abandoning projects. In its concern for the stability of speculation, the center is faced not simply with unregulated relations between the central bank and commercial banks, but with a powerful interest against which it must fight to assert its control. In order to enforce the nationally desired use of the freedoms of credit, it resorts to bans. As part of its braking manoeuvres, it criminalizes the very financial techniques that it had previously praised as growth-promoting. Economic policymakers prohibit collective and state enterprises from the practice of crediting each other’s receivables and deliverables. The “triangular debt” resulting from the failure to balance accounts has made credit growth independent of the banks and therefore uncontrollable. Now the state enterprises have to turn their shortfalls into official credit relationships with the banks and service them. However, the banks themselves are just as out of control: they are therefore subject to a

“nationally publicized call to put an end to the four kinds of chaos: the illegal raising of investment capital, the illegal mutual lending among banks, the illegal high-interest loans and the establishment of illegal pseudo-financial institutions. ... According to Zhu, no branch of the People’s Bank of China, indeed no financial institution at all, should grant any loans for investment projects that have not been expressly approved by the central government.”[53]

In the emergency, economic policy resorts to the practice that its credit reform had just abandoned: the central approval of all investment projects – but now no longer for the purpose of planning and distributing national production, but to save the credit system.

When the central government then decides what credit should be available for in the country, however, it must not pay too much attention to restricting credit and stabilizing the value of money. State industry must continue to receive loans, and the many newly established private businesses are also bankrupt if they have to prove their current profitability; after all, all growth is based on credit. Previous braking maneuvers have led to deep slumps and massive closures of companies. This leads to a back and forth between restricting credit and once again allowing speculative inflation and an unresolvable search for the right balance between the two.[54] The ideal of a “soft landing” is very much in vogue.[55]

The emergence of financial capitalists via the stock market Forced loans and the bond market

In order to “finance” its tasks, the state indulges in a rapidly growing national debt. It does not want to simply print the money for its needs and add the free augmentation of money by the political money guardian to the uncontrolled credit expansion of the banks, as this would immediately undermine its efforts to stabilize the value of money. Since the Chinese state does not have a capital market on which it could “borrow” what it needs, it fabricates a correct ratio between borrowed capital and state debt in its society. In reality, it forcibly collects money from its citizens in exchange for allocated, low-interest, non-tradable government debt securities – a somewhat brutal form of “placement” of government debt.[56] The shortcoming that there is not yet a large financial capital that does its business with government and other debts can be overcome by force; on the other hand, the government’s money does not enjoy so much trust among small savers that they would like to invest in it in the long term. The forced loan has only one shortcoming: government securities issued and placed in this way prevent money owners from lending their money voluntarily. It therefore remains a stopgap measure.

After years of forcing government loans on the people, economic policymakers are changing course, paying higher interest rates with shorter maturities on new issues and legalizing trading in the old ones. Since the wage earners, who are condemned to forced savings that result in losses, are desperate to get rid of their securities, this creates a great business opportunity for the slightly larger money holders.[57] Valued and traded at correspondingly low prices, even these debt instruments are profitable and bring about a radical concentration of financial assets.[58] For this effect, the creation of large financial capitalists, the state does not even have to offer higher interest rates, but only set up a stock exchange and allow trading in these securities. This would then create the capital market that the state wants to use.

Privatization and the stock market

In order to obtain the money that has now been accumulated to finance and modernize state industry, the state is offering the nation’s savers the chance to buy this industry – at least in part, as it reserves a majority stake for itself in order to secure economic policy objectives. Not too few citizens respond to this offer to give money to the state, but too many; apparently, after 15 years of making money, there are not only not enough big money holders, but also too many small ones. As soon as the first stock exchanges are permitted, a tremendous run on them begins. In veritable popular uprisings and mass brawls, Mao’s grandchildren demand they be allowed to become shareholders – the mere entry ticket to the stock exchange becomes an object of speculation[59] and illegal trading centers spring up all over the country.[60] The people are not yet completely divided into rich and ordinary consumers: While German citizens know quite well that the most they can do with their savings accounts is to go to the savings bank, but under no circumstances to a stock exchange, in China the last small saver still wants to participate in the capitalism project and become a “capitalist” himself. In any case, the offer to buy shares in state companies is an opportunity to exchange the rapidly depreciating money for something “real” and escape inflation.

Share prices therefore skyrocket because there are plenty of potential buyers. However, as soon as the state offers larger parts of state industry, the stock markets react unstably and sensitively to the expansion of supply.[61] This reveals that the “real” thing that is available to buy first derives its value mainly from a comparison with the declining value of the renminbi and second is nothing more than a risky speculation on the future profits of state industry, which is often operating at a loss – a speculation that does not become any more promising because the Chinese state no longer operates it alone, but rather allows shareholders to participate in it.[62]

The government has to decide whether these birth pangs of finance capital are right or whether the unpredictable exchange rates should be stabilized because of the attraction of new money. The government cannot remain calm in the face of chaotic bond and share prices, if only because the establishment of capital markets is aimed at attracting not only domestic savings, but also foreign financial capital. Shares have been separated into A and B shares, with B shares reserved for foreigners. The separation is intended to protect some of the shares from demand in inferior domestic money and turn them into foreign currency earners; on the other hand, it is intended to protect domestic trading from the trust or mistrust of foreign investors. However, no amount of skillful maneuvering can guarantee positive stock speculation, especially not when it comes to international investors.[63] In the meantime, the government has recognized that share privatization must proceed much more slowly if it is not to add to the devaluation of money with the devaluation of the privatization objects. It is now saving share prices and serving the stock market by not using them: it is refraining from issuing shares until further notice.[64]

The renminbi and the world market

All actions related to money – techniques to correct the national debt, banking laws, open market policies, the establishment of bond and stock exchanges, and the new value added tax – have a reason: China, like other states that “pay” for political projects with national debt, has a problem with the solidity of its national credit; and it has this problem particularly because its debts command over an initial accumulation of capital and profit. The problem, the solution to which is not, of course, decided by the techniques of balancing and placement of the national debt, reveals the purpose: the leadership wants to establish a money that also represents wealth outside the country and opens up access to other wealth. It is by no means enough for them to be able to legally dictate the circulation of the notes to the Chinese and impose their devaluation on them. The state notes should open up access to the world market and be able to withstand comparison with other national funds, and even turn this comparison into a national advantage. This is why the business leaders are certain that their money will be confronted with the established moneys on the world market and the returns achieved there. This touchstone will determine whether they will succeed in establishing a money that has international value because the national debt on which it is based sets enough successful business in motion.

The Chinese leadership does not simply expose its money to this comparison; it shapes it with its sovereignty. It prohibits citizens from privately comparing domestic money with foreign money, i.e. from freely exchanging it and buying foreign commodities. Permission to exchange, as it knows, does not ensure the exchangeability of the currency, but rather ruins its limited international usefulness if the currency cannot withstand the comparison. The government reserves the ability to buy world market commodities for itself and its targets by strictly separating internal and external circulation. Chinese are not allowed to own and hold foreign currency, even if it has been earned through exports. Until recently, they had to be sold to the state bank at the official rate for yuan, except for a permitted quota that the state allowed its foreign exchange earners for purchasing machinery and intermediate products on the world market. Conversely, the state allocated quotas from the collected foreign currency treasury to non-exporting companies for eligible investments at the official rate. If companies did not use up the foreign currency quota to which they were entitled, they were allowed to auction off the unused foreign currency to other companies that needed more foreign currency than the state had authorized.

As is always the case with long-term systemic change in China, when it comes to the exchange rate, the political means that initiate and protect the use of the global market are also an indication of weakness and an obstacle to further use of the global market. China simply can’t rely on a sufficient, highly competitive export business. The separation of internal and external circulation, i.e. the political reservation of the foreign exchange earned from exports for national development needs, leads to export companies setting up foreign accounts and completely withholding their earnings from the nation; it leads to capital flight and to a black market, which proves that there is more investment or consumption demand for world market commodities than the nation can satisfy.

Because the leadership also wants to make more extensive use of the world market, it is experimenting with the test in question, without giving it the final say on the external value of its money. Attempts to allow free foreign exchange trading have led to a radical decline in the value of the yuan, to uncontrolled, nationally useless imports, and were quickly suspended again. An intermediate step towards convertibility is currently being tried out: Abolition of foreign exchange quotas, swap markets, and foreign exchange allocation. Instead, all foreign currency must be deposited with Chinese banks, which auction off the foreign currency they receive to buyers via interbank trading. Ironically, this “opening up” is rejected by the joint ventures. The foreign multinationals are becoming advocates of the compulsory management of foreign exchange. They now miss the guaranteed state exchange rate at which they can obtain the foreign currency they need for their business at favorable prices.

Technical changes to the exchange rate policy do not bring about the convertibility of the yuan; at most, they indicate how far China has or has not come with the suitability of its money for the world market. The question as to whether the Chinese will succeed in introducing capitalism at a national level, i.e. in creating a real money, is not at all decided by the internal debt, its degree and its techniques, but – as the still valid separation of internal and external circulation shows – by exports. Over a longer period of time, China must establish itself so successfully as an export nation, i.e. export more than it imports, that it creates enough demand for its own currency abroad and foreigners want to exchange their money for Chinese money; China must be so profitable that it wants to invest in China on a growing basis. Only when foreign traders and capitalists find the use of Chinese money profitable will what the government puts into circulation as debt and what is multiplying at an alarming rate in China not just be speculative inflation and unsound debt management, but real money. The free convertibility of the renminbi remains the Party’s goal, but not one that it decrees, but one that will come about as a result of global trade successes when the time comes.[65] If the time comes.

So far, at any rate, China has been very successful in attracting international capital, making itself an export nation, an investment location, and an object of speculation for the entire capitalist world. The fact that the Chinese communists have used political force to take care of all the functions of capital themselves and have not left them to the calculations of private owners, i.e. that they did not want to follow the free trade advice of the IMF, has won them the trust of the international business world – and that of governments as well. Communists who, with their eyes wide open, set their people free for exploitation at unrivaled low prices, and at predictable business and international exchange conditions, earn the respect of free entrepreneurs. If their dictatorial regime commits the people to serving the nation and the capital it attracts, or banishes them to an undisturbed misery, then this is not condemned as a communist lack of freedom, but valued as political stability. In fact, the boom in foreign investment, which has intensified once again since 1989, honors the Tienanmen Square massacre.

III. The balance sheet

What the immense changes that the Party has made and is making will bring to the ordinary Chinese is one thing; whether the nation that should be made great will benefit from them is another. In this respect too, it is not easy to take stock of success. This is especially true when one takes into account the lively support from abroad and its high expectations for the Chinese future. This is because the Chinese leadership is no longer in control of the situation it has created in two respects.

Externally: more and more dependence

The state, which wanted to do everything differently, has left itself at the mercy of the economic cycles of the world market, the state of credit, and speculation. Certainly, speculative capital investments have provided China with a steady influx of investments in recent years, and thus a credit that makes a $100 billion debt seem “appropriate” and reasonably solid. But it is speculation when global companies throw themselves into the “biggest growth market of the next few decades” because they cannot afford to miss out once things really get going there, without the country’s domestic market already offering so much solvency. Incidentally, this speculation arises more from the dogged search for “growth markets” rather than from China itself justifying it. The country has managed to become an object of speculation for international capital, thereby losing the very sovereignty that it so jealously guarded at the beginning of the reforms. The initially cautious opening to the world market and the concentration of China’s own forces on doing justice to it has, with increasing success, led to the nation drawing more and more of its actual growth potential from the interests of foreign capitalists. China’s credit, the epitome of its economic power, depends on its assessment of the country as a future market. The success of the course is no longer determined by Chinese governance, speculation, and work, but by the calculations of foreign capitalists. These, however, depend on all sorts of things – not least on how much the imperialist states allow China to export to the world market they dominate.

China has also made itself dependent on their goodwill; now it has to accept a lot of questions of trust – about money and its convertibility, about openness and democracy – and can no longer wave them off like it used to. China already knows why it wants to become a member of GATT as a “developing country,” and the others know why they refuse access under these conditions. China wants market access – e.g. the most favored nation status that the US has granted it after a lot of back and forth – enshrined as obligations of trading partners and international law. The USA and others demand that the country give up precisely the special features that are responsible for its successful use of world trade,[66] because they place the admission of imports and exports, capital investment[67] and currency comparisons under the criterion of the national balance sheet. While the main capitalist countries are eager to take advantage of the opportunities that have been created or are expected from the Chinese market, they are not prepared to allow China a “special role” in their world market, with which it can “unfairly” strengthen itself instead of surrendering to them.

Domestically: Lots of open questions about violence

The need for control is growing faster than anything else in the country. The upheavals have created new antagonisms everywhere, which are dealt with or suppressed by force: the expulsion of peasants or inhabitants of the “redevelopment areas” of large cities; the millions of vagabonds who want to settle down against the will of the locals; strikes by workers in state industries to defend themselves against their factory managers; peasant uprisings; ethnic hostilities or the student democracy movement of 1989. Rebellion of any kind is rigorously crushed. The moral consensus between the Party and the “masses” is gone; Party life in local groups and lower branches is dead. The Party no longer connects the top and bottom of the country. Its dictatorship oppresses the people; the “unity” it organizes is only that of the ruling team.

But that is also at stake. The Party uses its authority and military power to carry out the capitalist revolution, while at the same time assigning its cadres the role of capitalists and the command posts of state power. It gives the functionaries, in their dual roles, the task of enriching their company, their city, or their province – and not least themselves – in competition with other units. The separation of the power of money from the power of the state, which is necessary for both to serve each other so wonderfully, does not come about under this Chinese Party rule; a competition between the economic and state units does – albeit a peculiar one, in which the functionaries use their dual powers.

The competition that the reform program has brought about is indeed over wealth, but it is fought by means of political violence. It pits the country’s political subdivisions and institutions against each other and against the central state – and in no way forces private individuals to seek their advantage by increasing productivity and reducing prices, i.e. by providing improved services to the nation. Even within the Party leadership there is a power rivalry in the form of a dispute over lines, so that the expressed concern about how the party will continue after Deng’s death is not unfounded.

The party offices, the heads of companies, and the political leaders of the regions promote their companies with their sovereignty, their taxation rights, and their decentralized credit powers. They organize the necessary permits, but also the means of production, raw materials, and loans for the success of “their” local sources of wealth.[68] And to ensure that everything goes well, they protect them from competition that could ruin their business and take over the domestic market. The whole of China is riddled with customs borders and sales bans that pit regions and cities against each other. Orders from the central government are ignored and circumvented.[69] For years it has had to fight with the regions for tax revenues without a clear decision; entire coastal regions live from smuggling, which it cannot prevent.

Violence also becomes a direct source of wealth, originally with the very highest encouragement: for years, the army has not only protected the state and its borders, but also made a profit. Some of the largest Chinese corporations are military institutions that do business with the unpaid labor of soldiers and in interesting areas, especially in arms exports.[70] Other branches of the armed forces take the mission of enrichment seriously in the sense that they also develop business acumen while serving on the external borders. Naval units organize and protect a lucrative free trade, which from the point of view of headquarters is smuggling; to compensate, they collect customs duties and tributes from international shipping on their own and in turn requisition “contraband”; other nations complain and call it piracy.[71]

The state leadership in Beijing is experiencing a strange impotence in its dictatorship. It has to assert itself against its own officials and subordinate party branches and finds it difficult to do so because it has no direct control over the country, but only becomes effective locally through the will and actions of these officials. It therefore discovers the need for something like a monopoly on violence and proclaims the “separation of Party and state” and a juridification of powers as new reform goals.[72] The leadership hopes that a separation between the political party and the institutions of the law, as well as an administration subject to the law, will enable it to get a grip on the country down to the last corner and prevent the provincial leadership from acting on its own authority. Such a division of responsibilities should also relieve the Party of conflicts that threaten to tear it apart.

But this does not happen because the Party in China is still the state. Instead of separating Party and state, the leadership sees itself faced with the task of keeping all the antagonisms it creates within its own ranks and resolving them through Party discipline. One of the main tasks of the Politburo is no longer economic reform, but saving and restoring the internal unity of the Party. On an ongoing basis – absurd in view of the task the Party gives its officials – “cadre work is being improved, discipline and socialist morale are being increased.” The Party emphasizes its Marxist character and by this means commits its cadres to serve the nation as a whole. On the other hand, it practices the only means available to any state in such a situation: it criminalizes what it does not like. In a permanent campaign against corruption, it punishes the undesirable use of the freedoms it has granted its officials. The nascent bourgeois state power enforces the validity of antitrust and stock corporation law, customs and foreign exchange regulations, etc., with demonstrative executions of high-ranking personalities. At least it tries to.

[1] China’s Economy in 2000, Beijing 1987, p. 32, in the following cited as: “China 2000”

[2] Deng, China aktuell, 4/92

[3] China aktuell, 4/92

[4] XIV. Parteitag der KPCh, in: China aktuell, 10/92

[5] Deng, in E. Zander, China am Wendepunkt zur Marktwirtschaft?, Heidelberg 1992

[6] Deng sees the combination of private sector economic reforms and the maintenance of dictatorial Party control over them as a clear distinction from the reformist self-destruction of the Eastern Bloc: “Those who ruled the Soviet Union and Eastern Europe also called themselves the Communist Party. Why could they be overthrown? Why did even those who changed their name fail to achieve anything? The core problem is that they didn't get their economy up; and the more they fiddled with the political system, the more chaotic it became. The communist regimes in Eastern Europe fell because they did not carry out any or only inadequate economic reforms and therefore remained economically weak, and because they were politically too soft on the democratic opposition.” (Deng’s Southern Tour, April 1992)

[7] China aktuell, 10/92

[8] “China’s aim in following an open policy is exactly to absorb the useful things of capitalism to serve the development of the socialist economy for the ultimate goal of the early realization of the lofty ideal of communism. No 'liberalization' whatsoever is involved here. Only socialism can save China.” China 2000, p. 536

[9] China 2000, p. 54

[10] China 2000, p. 27-8

[11] Peking-Rundschau 21/93, p. 15

[12] “China is after all a socialist country – a fact that precludes the possibility of ignoring completely the prime considerations of social equality and the people’s well-being in formulating a development strategy. This explains why in spite of the negative phenomena that kept occurring in China’s economic life, the many social evils seen in the course of industrialization in many developing countries such as inequality in distribution, constant unemployment, sustained inflation and increasing foreign loans that are all supposed to accompany the conventional strategy, have been either non-existent in China or have existed only as exceptional cases.” China 2000, p. 22. The interpreter of the reforms was still proud of the exceptional nature of these social ills in 1987. In the meantime, they have also become the rule in China. As long as they do not call the national path to success into question, they are not considered objections. This is how functionally the Chinese communists see their social ideals.

[13] Jiang Zemin at XIV. Parteitag der KPCh, in: China aktuell, 10/92

[14] XII. ZK der KPCh, 1984

[15] ibid., p. 52

[16] The national economic interpreters make no secret of the fact that it is all about the services of the rural people in the accumulation of national monetary wealth, and in their zeal they overlook the different quality of the old and new "transfer" balance sheets. They negotiate the rural masses as the only freely available source of enrichment for the nation in the past and the future - even though only an incredibly measly sum can be taken from each individual farmer. It's the masses that do it here. At the beginning of the reforms in 1981, only “13-14 billion yuan, representing 7-8% of the total, was directly provided by agricultural ...China’s surplus production clearly does not amount too much at present. This is particularly the case with agriculture, if we bear in mind the vast number of people taking part in farming. On average, the annual surplus production of a peasant stands at only 40 or 50 yuan in China. This is the root cause for the insufficient supply of funds... The value of the surplus contributed by peasants (indirectly) to the state through price redistribution and in the form of taxes was estimated at over 700 billion yuan in the period from 1953 and 1981. This and the approximate 100 billion yuan accumulated within the agricultural collectives in the same period brought the total up to 800 billion yuan. Accumulation by peasants accounted for more than 50% of the country’s total accumulation of 1,500 billion yuan during this period. In the period between 1953 to 1981, state investment in agriculture was only about 80 billion yuan. The peasants’ contribution to the state and industry in the form of surplus products was greater than what they received from the state and industry, even taking into account the defence, administration, cultural and educational spending due to be borne by the peasants. As the state is now short of funds, it will not be possible in the near future to raise the prices of farm products or to lower the prices of industrial consumer goods in the near future. Consequently, for quite a long period the surplus the peasants give to the state will continue to be larger than what they receive. The amount of the peasnts’ surplus transferred to industry is even likely to increase.” (China 2000, p. 372-3)

[17] “As the first step, private plots, sideline occupations and country fair trade were reintroduced [in 1978]. Greater powers of decision were given to production brigades; and various forms of the responsibility system were intoduced, which have eventually evolved into a household contract responsibility system with remuneration closely linked with output... All these steps manifest a correct understanding of the historical experience, and represent a fundamental change in the country’s agricultural policies. They have extricated China’s economy from long stagnation, enabling it to develop and prosper...Why is this system so popular and so powerful?...[It] clearly defines the obligations, directly benefits the peasant, involves simple procedures and makes maximum use of the enthusiasm of the masses of peasants by assuring them of their power to make decisions on matters relating to the management of production and by ridding the distribution system of the influence of egalitarianism.” (China 2000, p.162-5)

[18] The following list of special local taxes, which were banned by the central government without much success, only proves it is common practice: “27 arbitrarily enacted additional taxes are mentioned in the first place, which should be abolished immediately: Taxes on public insults, compulsory levies for a fund to finance film screenings for the peasant population; another to improve the condition of toilets in the countryside; additional taxes for fishing boats or to be able to pay for medicines; levies for road accidents, to combat soil erosion or against the devastation caused by hares...” (Le Monde diplomatique, October 1993)

[19] “‘We don’t know how much longer we can stay,’ says farmer Liu, ‘they decide about us. Who do you think is making money from the sale of our fields?’ The officials are worse than the big landowners before the revolution, he grumbles. The Party functionaries decide on the sale of the land, which officially belongs to the collective, and the real estate representatives manage to make a profit from the deal...Actually, land in China belongs to the state. Only the right of use is sold for 50 or 70 years. The state is entitled to a considerable tax on every sale. But the state has long since lost control of its property. Businesses, companies and authorities regard the land they use as their property and have discovered that they can make a lot of money by selling houses and land. Anyone who has the right to decide on land sales is sitting on a vein of gold.” (FAZ, 31.9.1994) “Since some cadres want to profit from the real estate boom – one of the most favorable opportunities to enrich themselves at the moment – they do not hesitate to expropriate land, with minimal compensation as the only quid pro quo.” (Le Monde diplomatique, October 1993)

[20] “Not surprisingly, in such areas one finds a few households contracting to farm all of a village’s arable land. A 1984 survey outside beijing found that 11 percent of the labor power in a village in two brigades, where sidelines were developing rapidly, contracted to farm 94 perecent of its land... The grain-specialized households farm the land themselves, although (!) they may hire laborers, mostly other peasants from the village, during the busy season to help them work the fields.” (Jean C. OI: State and Peasants in Contemporary China, Berkeley 1989, p. 190-191)

[21] “According to the Beijing Ministry of Labour, at least 150 million people capable of working are unemployed in the less industrialized inland areas, especially in the traditional rice-growing regions such as Sichuan, the most populous province.” (SZ, February 9, 1994) “In 1993 alone, around 5 million farmers from the economically backward province of Anhui are said to have migrated to the urban coastal areas in search of employment. The province, with a total population of around 60 million, of which around 50 million live in rural areas, is said to have 12 million surplus rural workers. According to statistics from the postal administration, Anhui farmers sent more than 100 million yuan per month to their home villages last year.” (China aktuell, 2/1994)

[22] Premier Li Peng, Accountability Report on Agriculture 1993, China aktuell, 1/1993

[23] “The State Council, China’s highest government body, will not produce any new price reform measures for the rest of the year. Local government departments are being asked to do everything possible to lower consumer prices...By July, food prices in particular had skyrocketed. Grain, for example, cost 57.8% more than in the previous year, pork 48.6%... The inflation of all consumer prices in the 35 largest cities was 24.2%. The Chinese government fears growing discontent, especially among the urban population. For months now, people in Beijing’s marketplaces have been complaining louder and louder about the soaring prices... Newspapers now have to publish long daily columns with recommended prices for seasonal vegetables, which are to be monitored by inspection teams. The city of Beijing is bringing 20 million kilos of meat from reserve stocks onto the market and has stipulated that retail meat prices may not be more than 5% higher than wholesale prices.” (Frankfurter Rundschau, August 26, 1994)

[24] 14th National Congress of the Chinese Communist Party, in: China aktuell, 10/92

[25] China 2000, p. 31

[26] ibid., p. 495

[27] ibid., p. 496

[28] [28] ibid., p. 514

[29] Once the old national politicians’ concerns about national independence and their fundamental reservations about foreign business interests have been dispelled, once they have discovered the development-promoting potential of international capital willing to invest, the reformers’ fear of debt dependency is therefore significantly less: “In the long run, exports and imports should be balanced, ... under our conditions, however, a reasonable deficit - as long as it does not become a heavy burden - will facilitate the acceleration of the country's modernization.” (ibid., p. 503)

[30] No wonder, too, that exporting state-owned enterprises set up companies abroad only for the purpose of being able to enter into a joint venture with this "foreign capital" at home, and thereby compensate for the deterioration in tax and foreign exchange law relative to foreign capital. It is no wonder that more and more regions and cities wanted to become special economic zones and began to proclaim themselves as such without permission: All those that were not special zones had to accept stagnation and an outflow of funds for development elsewhere. Shanghai, which was not a special zone until 1992, is now said to be “recovering from decades of decline caused by a crippling tax burden.” Agency material Reuter, January 25, 1994. It is also no wonder that exporting state-owned enterprises set up companies abroad for the sole purpose of being able to enter into a joint venture with this “foreign capital” at home, and thereby compensate for the disadvantage in tax and foreign exchange law compared with foreign capital. “Entrepreneurs and public sector managers were in no hurry to repatriate foreign profits made during the trade boom. Some of these funds flowed back disguised as foreign investment to provide tax relief and more flexible access to foreign exchange.” Far Eastern Economic Review Yearbook 1993

[31] Deng Xiaoping’s later regret about limiting the special economic zones to four still betrays the worries in the Party at the time, the standpoint of caution and experimentation: “In retrospect, I made a big mistake in not adding Shanghai as a fifth when it came to establishing the four special economic zones. But at that time we also faced huge obstacles. Some old comrades of very high rank within the Party were against it. They said that since Shanghai was of great importance to the country’s overall situation, there could be difficulties of national proportions if we did not proceed carefully. In my opinion, precisely because Shanghai is a place of vital importance, it would have been much more worthwhile to launch the Special Economic Zone project there. But unfortunately I did not insist on it at the time.” China aktuell 4/1992, p. 230

[32] “First, it is necessary to protect our national industries, not only for developing domestic production but also for conserving foreign exchange for urgent use in the future.” China 2000, p. 494

[33] They consider this to be the narrow-mindedness of the Mao era. Of course, that’s not what the political planners of the future say. They prefer to talk about a contemporary move to take the lead in development in a completely new way: “Labor-intensive production is being withdrawn from developed countries and regions to developing countries; this is a current in contemporary economic structural change. Our country has a large labor force and labor costs are low, so we should take the lead and establish labor-intensive production on a large scale... We must seize the opportunity at all costs, only then can we turn the disadvantage of so many people into an advantage. Firstly, we can solve the employment problem; secondly, we can develop the villages to the best of our ability; thirdly, we can strengthen the country; fourthly, we can integrate ourselves into the world. It’s as if we ‘save the whole game with one move’ in reform and development. There is no way we can lose this game.” (Renmin ribao, 5.2.88) The fourth goal is certain, the third is questionable, but bringing in foreign capital certainly has nothing to do with village development and a solution to the employment problem. The nation, as the quotation reveals, regards its billion Chinese as useless and burdensome on wealth; it is explicitly relying on capital as the real wealth of nations. If foreign entrepreneurs know how to exploit a few million from this abundant natural resource, this may be to China’s advantage, but experience has shown that it has nothing to do with an employment program – it’s the opposite.

[34] “Workers in Wuhan (hinterland) factories earn about $55 a month compared with $155 in comparable Shenzhen (special economic zone) factories.” Wall Street Journal, Jan. 26, 1993 “Labor costs for U.S. companies operating in China rose 17% last year (1993) ... But the increases lag behind the nearly 23% rate of inflation in urban areas. Average salaries for educated Chinese, often university graduates, working in foreign-owned firms remain far below those in Hong Kong, Taiwan and other Asian countries.” Agency material from Associated Press, 1994

[35] Chen Yun, Deng Xiaoping’s opponent in the Party leadership, always emphasizes the risks of the market economy reforms, which he supports in principle, against the opportunities. With his “theory” of the bird and the cage, which means that the market economy bird should fly, but always within the planned economy cage that ensures the Party’s control over the entire process, he too has criticized the conditions in the special zones above all for the loss of order: “Some conditions in Shenzhen, and indeed from the top down in society, are even more laissez-faire than under capitalism. Things that even capitalist society does not allow to run their course cannot be controlled in Shenzhen, are not under control. According to the current direction of development, Shenzhen relies on external development and its destiny is controlled from outside.” China actuell, 5/1992

[36] Die Wirtschaftszonen Chinas, Beijing 1993, p. 9

[37] “With the exception of a few firms, which are independent economic entities enoying the status of corporate bodies, all the enterprises are run jointly by domestic and foreign partners. … Sites and housing are usually provided by the Chinese side while technical equipment is provided by its foreign counterpart. Profits and other incomes are shared out between them according to ratios laid down in the contract.” China 2000, p. 505

[38] “However, a study of the present conditions in China will also show that it is not yet time for large-scale utilization of foreign capital. This is because in the current economic readjustment, we lack domestic funds to coordinate borrowed foreign capital, and there is also a shortage of personnel whose knowledge and experience are equal to the work. ... The import of a project requires consideration of the domestic capacity to provide accessories. Domestic investment, equipment and infrastructure are required for any projects imported from abroad, and raw materials, fuels and transport facilities are needed to ensure the normal operation of the projects when they are put into production. Take domestic investment for instance. For every U.S. dollar of foreign investment, 2.3 yuan will be expended in necessary accessories. This shows that the scale of capital construction of the whole country and the scale of its agricultural and industrial production.” China 2000, p. 509-11

[39] Peking Rundschau 30/93, p. 20

[40] As more and more regions and cities wanted to become special zones from 1988 to 1991 and declared themselves unplanned – figures go up to 10,000 – Beijing closed the projects again: “According to government figures, only around 2% of the thousands of special economic zones are actually under development. If the rest were suddenly added and also demanded public investment for the beginnings of an infrastructure, this would literally break the bank. Vice Premier Zhu Rongji warned that the excessive opening of development zones would divert the country’s investment funds away from other vital projects, lead to hyperinflation and a significant loss of farmland. He estimated that if all the currently announced zones were developed with government money, it would cost the mind-boggling sum of $789 billion.” Asian Economic News, June 14, 1993

[41] “Joint ventures fear that their tax privileges will be reduced. The Far Eastern Review Yearbook already sees a flight of capital underway. The government reacts and assures that the 100,000 fully or partially foreign-financed companies with a total invested capital of over 50 billion would not have to pay more taxes under the new tax system.” NZZ, January 26, 1994

[42] “China will adopt the form of ‘construction-management-leasing’ to introduce foreign capital into infrastructure construction projects such as energy and transportation. According to this policy, foreign businessmen with investment can contractually undertake some major infrastructure construction projects. After completion, the projects will be managed and operated by the relevant foreign investors for 15 years, and China will collect taxes from them. After the contract expires, the projects will be handed over to China. The Jinhua-Wenzhou railroad line now under construction in Zhejiang Province is an example of this.” Peking Rundschau 30/1993, p. 19

[43] The standard economic work of the transition period explains the transition to state debt as a result of the tax waiver required by the foundation of independent businesses; now it is no longer the state that should finance the credit, but the credit the state: “But the situation changed since 1979... The share of financial revenue, which accounted for 33% of the national income in the past, fell to 25.8% in 1981. [and to just 13% in 1993].... The enterprises are given more power to make their own decisions. From 1979 to 1981, through the implementation of the enterprise fund system, proportional retention of profit, full responsibility for profits or losses, and other measures, more than 28,000 million yuan was retained by the enterprises for their own use... In the case of finance, revenues and expenditures were tight and deficits appeared. Finance drew on the surplus accumulated over the years, stopped allocating more credit funds to the bank and rapidly decreased or terminted the allocation of working funds to various departments of the national economy. It also overdrew from the bank and issued bonds. The basic cause of the financial difficulties in recent years is that with the whole economy still in the process of transition, we lack the economic basis to substantially increase financial revenues... In the last couple of years, it was proposed that finance move out of the management of construction funds... but it is impossible to let finance be divorced from investment... Large-scale energy, transport and similar projects use finance-allocated funds, either because too long a period is required to recover investment or because they are runnind direct losses. In the thirty-odd years since the founding of the People’s Republic, items (1) and (2) accounted for about half the budgetary expenditures on economic construction. Thus, it is difficult for finance to move completely out of the fields of supplying construction funds. When current financial revenue cannot meet the needs of expenditure, the stability of currency and prices will be shaken unless the increasingly larger bank funds cut back accordingly on credit payment to support finance in the interest of achieving an overall financial and credit balance.” “It seems that with the changes introduced in the movement of funds, the old practice of using finance to back up credit will be replaced by one of making credit support finance.” China 2000, p. 393-6 and 41

[44] The departments that have suffered the most lasting impoverishment are those that cannot participate in the general price hike with their own commodity production, but are allocated their income by the state as cost centers – or not: the employees of state industry, education, and healthcare: “Chinese teachers have been among the losers of the economic reforms since 1978. Everywhere except Beijing and Tibet, they were paid with provisional promissory bills last year. The state now owes them 309 million yuan. In a letter to the editor in the People’s Daily, teachers at a state school in northern China complained that they had not been paid for seven months last year and were now trying to survive by fishing, raising pigs and chickens, and selling eggs, vegetables and ice cream. It said, ‘School has almost become a market, with serious consequences for students’ academic performance. While China has become immeasurably richer in the 15 years of market economy reforms, millions of teachers have fallen behind as local officials divert the education budget into new business parks, real estate, hotels and luxury cars.” Agency material Reuter, Beijing, February 15, 1993

[45] Such undesirable reactions on the part of companies can also be expressed as a sign of the distortion of the price structure due to still too many state-regulated prices – but this only points to the circular nature of the reform efforts, as the price controls were not introduced for no reason and only to hinder “self-control”: “For a long time,prices were frozen in China, leading to an ever-widening gap between value and price. Consequently, certain products which were ‘profitable’ were produced in larger and larger quantities, and certain products which stood no chance of gain were in ever graver in short of supply.” China 2000, p. 480

[46] “We must also learn to make good use of such economic levers as pricing, taxation, credit, interest and exchange rates …. In some economic activities in which price does not play a role, we must rely on taxation and other economic levers to regulate economic growth. Measures already taken in China include the replacement of a unitary taxation system with one involving diverse categories of taxes and tariff rates... For instance, a higher tax rate applies to excessively produced goods, so that production can be curbed, whereas a lower tax rate is necessary for goods in short supply, so that their production can be promoted ... It is also necessary to bring banking into full play. By offering differential and floating interest rates, the bank can regulate production and give guidance to investment.” China 2000, p. 480. Mind you, these are all measures from the early days of industrial reform; today it is being reformed: The various incentive taxes are again being replaced by a uniform tax rate on sales or profits; and banks are to charge interest according to banking business considerations rather than to promote desirable products or restrict undesirable ones.

[47] FAZ, April 19, 1994. The foreign press immediately concludes that the state-owned enterprises are not productive enough and knows the reason: the state provides for them and spares them the harsh winds of competition.

[48] “In Wuhan, a city of 7 million inhabitants whose economy was based on gigantic state-owned enterprises such as iron foundries, steelworks and shipyards, the values of orthodox communist ideology were held particularly high. Accordingly, the now propagated ‘smashing of the iron rice bowl’, a system that guarantees state industry workers permanent jobs, housing and free social services from the cradle to the grave – no matter how much they work... The wind of reform has also been blowing through Wuhan’s state industry in the last two years. Terminable employment contracts and performance pay have been introduced, and unprofitable parts of the company such as hospitals, kindergartens and retirement homes have been spun off. State-owned juggernauts were broken down into smaller, more manageable companies, ailing factories were privatized or even sold to foreigners for restructuring, as was recently the case with a textile dyeing factory. Everywhere, surplus workers were put on the streets – with a little financial start-up aid and the good advice to set up profitable private businesses, such as small restaurants. From then on, the companies were to operate efficiently, rationally and financially independently.” SZ, August 19, 1994

[49] FAZ, November 14, 1994

[50] “China is again threatened by economic overheating... The increase in fixed asset investments made by state units in July 1994 was 72.9% higher than in the same month last year. This development can only be explained by the provincial and local authorities’ clear contravention of the economic stimulus measures ordered by Beijing. For the central government, this must be all the more worrying as the growth in investment, viewed in a differentiated manner, amounted to 95.8% in the real estate sector, 76.8% in industrial construction, but only just under 20% in the technical renewal of companies, for example through the purchase of modern machinery. Many of the state-owned enterprises, which have been complaining for months that they do not have enough funds to buy raw materials and pay wages due to Beijing’s restrictive credit policy, obviously still prefer to invest all available capital for speculative purposes in property development, especially in southern China, rather than in the renovation of their industrial operations.” Neue Zürcher Zeitung, August 26, 1994

[51] “China’s economy may be growing more slowly than the official figures from the communist government would have us believe. The recurring doubts about the double-digit growth rates of recent years are now being fed anew by a report card issued by the State Statistical Office in Beijing itself... Beijing has launched a nationwide inspection campaign to combat the widespread falsification of economic data by career-minded provincial cadres.” Frankfurter Rundschau, September 19, 1994

[52] “Zhu’s real Waterloo, however, was the credit system. As part of the austerity program, Zhu demanded that the banks reclaim Rmb 90 billion they had lent for speculative real estate transactions by mid-September, but barely a third of the target amount came in. The subsequent extension of the deadline by one month hardly changed anything. Some of the sums supposedly rescued were also fraudulent, the product of extensive collusion between banks, according to reports. A number of regional and sectoral banks cooperated with associated non-banks to replenish each other’s liquidity on a rotating basis. As soon as the state auditors turned their backs on them, they shuffled the funds around. Eventually, most of the real estate loans turned out to be uncollectible. As funds already tied up in bricks and mortar cannot be recovered, the banks had no choice but to force their industrial customers to repay loans for current business as a substitute and suddenly confront the managers of ailing companies with a veritable cash crunch. Intimidated by the threat of mass redundancies and political unrest, the government finally gave in and cleared the battlefield, declaring that it had won the war against economic overheating. The central bank proudly presented a credit contraction of Rmb 76 billion in July and August... By the fourth quarter, however, credit was on the rise again.” Far Eastern Economic Review, Yearbook 1993

[53] NZZ, August 26, 1994

[54] “The two years of austerity policy since 1988 have taken their toll on state industries, which are trapped between declining profitability, corporate inefficiency and debt servicing. The aim of austerity was not only to cool down the overheated economy, but also to stop the system’s tendency towards boom-crisis cycles by reorganizing its basic structure. Unprofitable companies were to be closed or merged, and industries with poor development potential were to receive little or no support. In reality, however, only a few of China’s loss-makers – an estimated 34.5% of state-owned enterprises – were closed or merged. Fear of social unrest, which could lead to bankruptcies, has tied the government’s hands... This year, last year’s excessive lending, a record Rmb300 billion, granted out of concern over declining industrial production and social unrest, is beginning to have a negative impact on the economy. The only success of the austerity program, the reduction of the inflation rate from 18% in 1989 to 2% last year, is in jeopardy.” Far Eastern Economic Review, August 8, 1991

[55] “For foreign investors no less than for Chinese companies and provincial governments, the overriding issue is whether China will be able to avoid the ‘hard landing’ that its economy suffered in 1988-1989 during the last period of severe credit restraint.” Financial Times, August 8, 1993

[56] “In the years following the first issue of government bonds, they were initially mainly allocated to state-owned companies and institutions, which in turn passed them on to their employees as part of their wage and salary payments in the form of a 'compulsory bond'. These bonds were characterized by the fact that they were not tradable and had terms of five or more years and a nominal interest rate of 4%. Above all, the aspects of compulsory purchase and the fact that the government bonds could not be sold before the maturity date made them unpopular as an investment.” China aktuell, 3/1992 “Unpopular investment” – that’s putting it politely; in fact, compulsory bonds are not an investment at all but a form of temporary expropriation, which is partly reversed after years in devalued money. In years when government securities are particularly unattractive, the leadership still resorts to this form of “placement” later on: “due to the high inflation rate, the real interest rate on the Rmb 37 billion worth of domestic government bonds issued by the government was actually negative, with the predictable result that barely 20% of this could be placed by the middle of the year. Beijing had no choice but to stuff these bonds into the wallets of urban workers in return for wage deductions.” Far Eastern Economic Review Yearbook 1993

[57] “In addition to the development of savings rates and savings deposits, however, the concentration of savings in individual population groups that are potential buyers of securities must also be examined... In addition to the self-employed – already around 13 million in mid-1991 – these include, for example, the managers of state and collectively owned enterprises, who have an average annual income of 8,000 yuan, employees in foreign-owned enterprises who earn 7,000, but also cab drivers with 5,000 yuan a year. With an average per capita income of 1500 yuan for the urban population ...” China aktuell, 3/1992

[58] The “socialist securities market” results in a strong “concentration of income and wealth among private investors. The controversial example of the Shanghai 'millionaire Yang', who bought up government bonds at a high discount in rural areas and later resold them at a higher price, should be mentioned here.” China aktuell, 3/1992

[59] “Although 204 companies in Beijing have already issued share certificates (such as employee shares) internally, this is the first time that state-owned companies in the capital have offered shares to the public. Anyone wishing to become a buyer must deposit a sum of money with banks in Beijing for six months. The receipt of this deposit will then be entered into a lottery to decide who will be eligible to buy shares. Mr. Li expressed confidence that the deposit requirement would ensure the success of the auction.” International Herald Tribune, March 25, 1994. Mr. Li’s confidence reveals that there is not only the problem of too many buyers coming forward in the share placement in China, but also the reverse, that the willing buyers have no money at the right moment and spoil the success of the auction.

[60] “Until a few weeks ago, citizens of Chengdu (Sichuan) gathered by the thousands for unauthorized stock trading outside the city's North Stadium. The administration declared the exchange illegal and shut it down, but many say this only drove it underground. Some townspeople also say they do nothing but play the market. In a high-walled hall in the City Center just behind a giant statue of Chairman Mao Zedong, speculators buy shares by computer from the country's two legal trading venues in Shanghai and Shenzhen. Traders say Chengdu should also be allowed a legal stock exchange.” Washington Post Foreign Service 1994

[61] “Faced with growing budget deficits, China’s leaders have shed their socialist scruples and are pondering how to sell the huge state stakes in tradable companies without depressing the stock market too much. Only about 20% of the shares of the 250 or so companies listed on the Shanghai and Shenzhen stock exchanges are held and traded by private investors. About 30% are owned by institutions and a full half by the state – a formula that once allowed ideological hardliners to cling to the idea of socialist ownership while still using the markets to increase industrial efficiency. Now, however, the voice of money is louder than that of politics. The only problem is that China’s legion of small shareholders don’t like the idea at all. They fear that a flood of new shares would swamp the market. Several weeks of rumours about how Beijing will proceed with its privatization plan have already shaken market sentiment. Perhaps only 3% or 10% should be offered. That would limit the damage to the index. You have to look at the ability of investors to absorb the emissions.” Reuters, February 2, 1994

[62] The stock market index in Shanghai rose by 100% in 1993, only to fall again by 80% – a “volatility” of prices that caused a wave of expropriation among small investors.

[63] “A weak market forces the postponement of Chinese share issue. China’s state-owned Shanghai Haixing Shipping Co. has postponed its planned sale of shares on the Hong Kong Stock Exchange due to unfavorable market conditions. The failure follows tepid trading in Luoyang Glass Co, whose shares fell 20% below their issue price as soon as they began to change hands on Friday... There has been no sign of ‘tremendous interest in Chinese companies’ in Asia in recent weeks. The prices of Class B shares, which are reserved for foreign investors, fell by about 38% this year on fears of mounting debt problems at many Chinese state-owned enterprises. China’s State Property Administration Office has complained that the proposed prices are too low. The bureau said emission prices were not allowed to fall below the value of the company's assets.” International Herald Tribune, July 13, 1994

[64] “According to the edict, no further securities will be admitted to trading until at least the end of 1994... The decree even called into question the issue of securities next year, stating that this could only take place if market conditions were right. With this edict, Beijing has put an end to the 17-month downward trend in stock market prices, which has accelerated noticeably in recent weeks and not only caused Chinese small investors to grumble loudly, but also threatened to undermine international confidence in the stability of the local capital markets.” NZZ, August 6, 1994

[65] “The Chinese currency is moving towards convertibility as part of the reforms. But this process will still take a while.” Li Peng in Bonn, Handelsblatt, July 11, 1994

[66] “The USA supports China’s membership of GATT. The only controversy is whether China should be admitted to the organization as a developing country or an already developed country. In the discussion about China’s admission to the new World Trade Organization, which comes into force on 1 January, the lack of transparency in the Chinese economy, state-owned enterprises and the convertibility of the national currency are also up for debate.” FAZ, August 10 1994. Developing countries are granted market access in the GATT without full “reciprocity.”

[67] Even when it comes to attracting foreign capital, which China so desperately needs, it is selective. It does not make itself available to every foreign business request. There is already enough labor-intensive, low-cost production, but now the planners are looking to expand the export range: “global companies are pushing into the Chinese market. However, China only wants to accept investments with advanced technology.” Li Peng, Handelsblatt, July 11, 1994

[68] “In order to protect and develop their own tax sources, imports of consumer goods from other provinces that can be produced at a profit in their own regions are made more difficult and local subsidized raw materials are processed in their own region wherever possible. For example, textile factories have been set up in provinces that grow cotton in order to prevent companies and state bodies in other regions from benefiting from the price subsidies paid by the government of the region of origin. This has led to major overcapacity and considerable problems in the traditional textile processing areas. At the same time, the provinces concerned are trying to make it more difficult to import inexpensive goods from other provinces through administrative intervention in order to protect local products against competition from outside.” A. Bohnet, Die chinesische Finanzreform, Giessen 1991, p. 10

[69] “The decentralization of fiscal and administrative decision-making and disposal rights since the early 1980s has led to a shift in competencies and financial resources to the provincial and local governments. Central guidelines were increasingly ignored or systematically circumvented. ‘Beijing makes its policies, we have our counter-policies’ was one of the maxims used by local leaders. The southern provinces in particular used the freedom granted by the reforms to enact trade and tax regulations that deviated from Beijing's guidelines and to protect their local markets through often rigorous protectionism against goods from other regions.” FAZ, April 8, 1994

[70] “Some officers develop great skill in their business activities. They use the army and its nationwide network of information and relationships to set up businesses that are directly or indirectly related to the People’s Liberation Army. Experts estimate the number of People’s Liberation Army enterprises at 20,000, producing a variety of goods such as weapons, cars, airplanes and pharmaceuticals. The army managers earn and live well, and a large proportion of the Japanese and German luxury limousines on the streets of Beijing bear military license plates. The best-known army companies such as Xinxing and Poly, which own a skyscraper with a hotel, offices, theaters, restaurants and nightclubs in a prominent location in Beijing, have grown up with arms production and arms trading.” FAZ, March 31, 1994

[71] “In the coastal regions of China, the navy's smuggling parties and the profitable cooperation of the army and navy with smuggling gangs are an open secret... It is said that smugglers bribe coastal patrols or even order escorts from the navy in order to be able to carry out their business safely. Attacks on cargo ships are increasing in the South China Sea. The Chinese navy and customs are also involved.” ibid.

[72] “The new reform course (since 1987) aimed at five important points: stricter separation of party and constitutional bodies, strengthening of the people's congresses, decentralization of decision-making powers, reform of the cadre system, further expansion of the socialist legal system (‘rule of law instead of personal rule’) ... Although these demands were anything but radical, their implementation soon met with the feared objections and obstacles on the part of conservative party cadres.” O. Weggel, Revolution nach Plan, NZZ-Folio 11/1994, p. 19