8. Monopoly and Finance Capital in China.

Earlier we quoted Lenin’s definition which says in part that “Imperialism is capitalism in that stage of development in which the dominance of monopolies and finance capital has established itself…” So have monopolies and finance capital established dominance in China today? They certainly have! And, moreover, this overall dominance is not by foreign monopolies and foreign finance capital, but clearly by Chinese monopolies and Chinese finance capital.[1]

During the Mao era, when China was a socialist country, industrial production was consolidated and centrally directed through overall socialist planning. When Deng Xiaoping and his cohorts transformed China back into capitalism after Mao’s death, all these industries initially remained state owned and the economy was, to begin with, almost entirely state capitalist. Over time, and especially during the 1990s, many of these “state-owned enterprises” (SOEs) were privatized, and many additional private companies and corporations were established and grew. And with the “opening up” to foreign investment, many foreign corporations also began to set up factories and operations in China, mostly for the export of commodities produced with cheap Chinese labor.

What this has all meant is that in the new capitalist era state capitalism in China has been considerably (though still only partially) transformed into private monopoly capitalism. Of course state capitalism itself is a form of monopoly capitalism in the general sense—and even a more concentrated and further monopolized form of it! And even if China had retained near total state capitalism, as the Soviet Union did in its last 35 years, it would have still been an imperialist country. But the fact that China has partially switched over to Western-style private monopoly capitalism has made its form of capitalist-imperialism look more similar to that in the U.S., Europe and Japan.

% Share of Chinese State-owned enterprices

Even though China has been a capitalist country for decades now, as of 2012 SOEs still make up about half of the economy in terms of assets owned and about one-third in terms of value-added production. About 20% of Chinese employees work at these SOEs, down from 60% as recently as 1998. (See chart.)[2]

However, it should be understood that these many remaining Chinese state-owned enterprises (SOEs), though they do in fact constitute a type of state capitalism from a formal perspective, now actually operate much more as if they were privately owned monopoly corporations. Some of the first significant steps in this direction were taken in the economic “readjustment and reforms” of 1979 when SOEs were “granted some decision-making powers, such as [over] the distribution of profits”.[3] A different sort of bourgeois “reform” of SOEs, beginning in the early years of Deng Xiaoping’s return to power after Mao’s death, was the dismantling of the “iron rice bowl”. In the Maoist era, workers in state enterprises were guaranteed permanent employment status, an eight-hour day, an eight-grade wage scale in which workers could move up through seniority, free medical benefits, pensions, paid maternity and sick leave and subsidized food, housing and childcare. With the return of capitalism all these benefits have been stripped away and are no longer obligations of SOEs. One of the motives of the new bourgeois ruling class for closing down so many SOEs, other than low profitability, was the strong outrage of the workers to the loss of these benefits and the growth of serious labor unrest because of this. In some cases the government just had no choice except to shut down some enterprises entirely, given their exposed and hated new management policies.

Another big step in changing SOEs to be more like private corporations was made with the new regulations for SOEs introduced in May 1984, which stated (among many other things) that “businesses have the right to produce whatever is needed or is in short supply, after fulfilling their state plans and orders”, set prices themselves (within ranges), choose their own suppliers, decide their own staffing (hiring and firing), adopt any wage system they like (including piece work), etc.[4] And in the decades since then the management of SOEs has time after time been granted ever freer latitude to operate their corporations pretty much as they wish, and focusing primarily on the production of profits. The biggest change, of course, occurred when definite state production plans were abandoned, with the shift to a market economy.

While capitalist China today still has loose overall five-year plans to help coordinate its economic development, these plans no longer specify exactly what goods each SOE should produce, or how many of each commodity, what the prices should be, etc. On the contrary, these SOEs are now nearly as free as private corporations are to make their own decisions about what and how much to produce, how much to charge, when and where to expand, etc. It is now the dictates of the capitalist marketplace which are the primary determiners of what SOEs produce, not any socialist production planning, and further emphasis is continually being put on allowing markets to play the “decisive role” in the allocation of resources.[5]

Moreover, in China even privately-owned monopoly capitalist corporations are under somewhat more state/Party direction (or “interference”, as they often view it) than occurs in Western capitalist countries. (Of course, in the capitalist-imperialist era there has been a partial merger of the corporations and the state everywhere, to varying degrees, as Lenin pointed out.[6]) So the difference between SOEs and private corporations in present-day capitalist China is not nearly as great as one might imagine. Both types of formal ownership are tools for the exploitation of the Chinese working class by the ruling capitalist class. And both types of formal ownership represent the partial merger of the capitalist state with semi-independent units of production, though to somewhat different degrees.

One important reason why the state and Party in China have more influence over private capitalist corporations than is common in other capitalist-imperialist countries is that the owners and managers of these private corporations are often themselves members of the CCP! A very large number of such “red capitalists” have joined the CCP over the past dozen years.[7] A second group of “red capitalists” were already in the CCP when they became capitalists! In 1992 the CCP began encouraging members of the Party to start their own private business operations. This is what became known as xiahai, or “plunging into the sea” of private enterprise. These xiahai capitalists were acting on Deng Xiaoping’s well-known admonition that “to get rich is glorious”, and they have generally kept their membership in the CCP in order to maintain their political connections and influence. As of 2002 roughly one-fifth of China’s private entrepreneurs were already members of the CCP, and two-thirds of them were xiahai capitalists.[8] Some of China’s biggest “red capitalists” now appear on the Forbes list of the world’s billionaires!

With the “opening up” to foreign investment in China, foreign MNCs quickly came to generate a very large percentage of the manufacturing production in China that was exported to other countries. (Indeed, one of the primary purposes of this “opening up” was to foster this development.) In 1995 exports from foreign-funded enterprises in China were 31.51% of total exports; in 2003 they reached 54.84% of total exports; and in 2008 they topped out at 55.25% of total Chinese exports.[9] This domination of Chinese exports by foreign-funded enterprises led some people to erroneously conclude that foreign MNCs were dominating the entire Chinese economy. There are several things to consider in coming to understand why this is simply not the case.

First, since 2008, while the value of exports by foreign-funded enterprises has continued to rise, the percentage of total exports coming from foreign-funded enterprises has been gradually falling. Chinese government statistics showed that this percentage had fallen to just below 50% in 2012.[10] Moreover, while exports from SOEs in 2012 dropped by 4.1% from a year earlier, and exports from foreign-funded enterprises rose by 2.8%, the rise in exports from privately-owned Chinese companies increased by a much larger 21.1%.[11] The trend now is therefore for locally-owned private Chinese companies to take over an ever-larger part of the export market.

Second, many of what are counted as “foreign-funded enterprises” in Chinese statistics are not really foreign! In particular, Hong Kong based companies are included in the “foreign-funded” category even though Hong Kong has actually been part of China since 1997! Moreover, Hong Kong is by far the largest single source of “inward foreign direct investment” into China, accounting for $456.2 billion (or 41%) of accumulated “foreign” inward direct investment as of 2010.[12] This compares to an accumulated FDI from the U.S. of only $78.7 billion (7.1% of the cumulative total) as of 2010.

Many people have somehow got the idea that the Chinese economy is dominated by Western imperialist countries such as the U.S., Britain and Germany, but it just isn’t so. Even if you add together the accumulated inward FDI (as of 2010) from the U.S., Britain, Germany, France and Japan it only comes to $197.4 billion—which is much less than half of that from Hong Kong alone![13] And there is also quite a bit of investment from Taiwan, South Korea, Singapore and even tiny Macau (which is also now part of China), none of which can possibly be considered as a foreign power capable of bossing China around or controlling its economy.

Third, even the export component of the Chinese economy is itself declining in importance over time. The Chinese government is making an ever more determined effort to reduce its economy’s reliance on exports, and major changes have already been made in this direction. The exports of goods fell from 38% of China’s GDP in 2007 to just 26% in 2012.[14] The value of Chinese exports continues to rise, but the internal Chinese economy is growing much faster. This is why the percentage of Chinese exports as a part of total GDP is falling so fast.

Therefore the notion that foreign imperialist countries and their MNCs dominate the Chinese economy is quite erroneous, as is the sometimes accompanying notion that foreign imperialism controls China politically.

Things are even clearer and more obvious when we look at the financial heights of the Chinese capitalist economy. All the big banks are under tight control by the government and Party. As the British ruling class magazine, the Economist, noted in reference to China, “The country’s biggest financial institutions are so closely held by the state that they are, in effect, arms of the treasury.”[15]

Four of the ten largest banks in the world are now Chinese, including the biggest of them all, the Industrial and Commercial Bank of China (ICBC) which has assets of $2.8 trillion! The other three are the China Construction Bank ($2.2 trillion in assets), the Bank of China ($2.0 trillion), and the Agricultural Bank of China ($2.1 trillion).[16] These banks are the core of Chinese finance capital and are under careful and attentive direction by the government and Party. “The sheer size of these institutions is breathtaking. ICBC and ABC have over 400,000 employees each, nearly as many as Volkswagen, the world’s biggest carmaker. ICBC has over 4 million corporate clients. CCB has some 14,000 branches.”[17]

One Western book about China’s financial sector, and representing the views of foreign financial capitalists, laments that China’s “central government has unshakable control of the sector”, adding that “foreign banks hold, at best, little more than two percent of total financial assets” and “despite the undeniable economic opening of the past 30 years and the WTO Agreement notwithstanding, China’s financial sector remains overwhelmingly in Beijing’s hands.”[18]

The “Big Four” banks are led by senior figures in the CCP hierarchy, “with bosses shuttling easily between banks and regulatory agencies.”[19] This state control of the big Chinese banks is very important in many ways. It is one of the primary mechanisms that allow the government and the Party to supervise the entire economy and to arrange for stronger investment in the parts of the economy it chooses to strengthen or promote. And loans to SOEs have been especially promoted. This is one of the reasons that the state-capitalist sector of the Chinese economy has remained as large as it is.

This sort of overall control of the economy by the financial sector is true to a large extent in all imperialist countries in the capitalist-imperialist era, and is the reason that this financial sector is at the very center of what is called “the commanding heights” of the economy.[20] This is partly why Leninists so strongly stress the concept of financial capital. But in China this financial command is not in the hands of Wall Street profiteers as it is to a considerable extent in the U.S., but is instead directly in the hands of the “ruling committee” of the Chinese bureaucratic national bourgeoisie centered in the CCP.

Nevertheless, these giant Chinese banks are themselves extremely profitable, to the point of being the great envy of other major banks around the world. ICBC alone had pre-tax profits of nearly $50 billion in 2012.[21] In late 2012, China’s four largest banks reported a combined third-quarter profit of 150 billion yuan ($30 billion), almost triple the amount made by the top four U.S. banks during that same period.[22] “Bank profits as a share of China’s economic output equaled nearly 3% last year [2012], whereas the highest ratio achieved in recent decades by American banks was only 1% of GDP (in 2006).”[23]

Following the path of the Western world’s giant banks in this age of financial capitalism and globalization, these giant Chinese banks are now expanding their operations globally. There have been obstacles in doing this in many countries because these state-owned Chinese banks do not follow all Western banking standards and do not wish to fully open their books to foreign eyes. However, Chinese banks are making progress in sidestepping such difficulties. On a trip to China in October 2013 George Osborne, Britain’s Chancellor of the Exchequer, announced an agreement to allow Chinese state-owned banks to operate in London by classifying them as branches rather than subsidiaries, and thus avoiding rigorous scrutiny. International trading in the Chinese yuan has tripled over the past three years to $120 billion per day, and London wants to secure its position as the center of this huge and growing trading in Chinese currency, and also in Chinese bonds, by allowing Chinese banks to operate there.[24]

The response of foreign imperialists to the rapid rise of these big Chinese banks has been in two opposite and conflicting directions. On the one hand, they are impressed, envious (especially of the big profits) and fearful of this new competition. In a review of one very recent book glorifying American giant banks and strongly opposing any attempt to cut them down to size so that they are no longer “too big to fail”, the Economist summarizes one of the author’s primary conclusions: “Trimming them [the big U.S. banks], he frets, may lead to ‘a point when America can no longer be called a super power’ and would be ‘handing the baton to China’.”[25]

On the other hand, a popular theme in Western bourgeois economic literature is that China’s banks are in a “fragile” condition. These banks are viewed as being too much under CCP political control and thus too ready to make loans to Chinese companies that those companies will not be able to pay back. There is of course some truth to this, but what these critics fail to understand is that absolutely all capitalist financial systems everywhere do this very same sort of thing! And must do so!

Bourgeois economists cannot admit, and few of them can even understand, that the creation of credit bubbles is absolutely essential to every capitalist boom in every country. The reason is simple: Capitalism inherently involves the extraction of surplus value from the working class. Since the workers are not paid for all the value they produce, they cannot possibly buy back all that they produce—unless they are granted ever larger amounts of credit. If consumer credit is expanded, the market for commodities is expanded. And in that case the expanding market makes it possible for corporations to use part of their surplus value, or else to borrow from banks, to build more factories to sell to that expanding market.[26]

And this is exactly what every capitalist boom amounts too. In reality it is a house of cards which must eventually, and inevitably, collapse in the form of an overproduction crisis brought to a head by one or more financial crises. And yes, this will inevitably happen in China too, at some point.

But because there was no internal or external debt in China during the socialist period[27], the room for the creation and expansion of credit in the new capitalist era has been much greater than in the U.S., Europe or Japan, which were already wallowing in mountains of debt built up over the decades since World War II. This is the primary reason why China has so far been much less affected by the world overproduction crisis and its attendant financial crises; they simply have had the ability to increase their credit/debt load in a much greater and faster way. Thus, in relation to the sizes of their economies the stimulus packages during the 2008-9 financial crisis were much greater and much more effective in China than elsewhere.

A related view common in the Western bourgeois economic literature about the Chinese financial system is that it has been leading to a “gross misallocation of capital”. Well, of course from a Marxist point of view this is also inevitable under capitalism, and there have been many especially absurd examples which can be pointed to. In the U.S. in the late 1990s, for instance, there was the so-called “New Economy” or “Dot.com” boom, wherein there were massively disproportionate (and totally unwise) investments in Internet companies, some of which never made a profit at all. Many billions of dollars were lost in such foolishness. Following that collapse in the recession of 2000-2001, a new wave of misallocation of capital in the U.S. began in what turned out to be major housing bubble and the securitization of bundles of subprime mortgages. That too collapsed (or partially so) in 2008-2009. A similar sort of thing happened in Japan in the late 1980s, with the grotesque real estate bubble that collapsed in the early 1990s. What, indeed, is a capitalist boom if not a “gross misallocation of capital”—which only becomes fully clear when the bubble bursts?

The Chinese financial system does in fact have many problems which are continually building up, just as are those of all the other capitalist-imperialist countries. There is certainly a housing bubble building up in China, for example.[28] There is a shadow banking system in China, just as there is in the U.S. (though it has a somewhat different character). There is quite a lot of overproduction presently evident in China (as elsewhere). There are some new “ghost cities” with thousands of apartments and offices currently unoccupied. All these things and many more are true.

However, this is in the very nature of capitalism for there to be a lot of economic anarchy of this sort, and for there to be expanding debt and asset bubbles during boom times. None of this shows that Chinese capitalist-imperialism is fundamentally different from other capitalist-imperialist countries.

[End of Part 1 (of 4)]


[1] We should note, however, that since Lenin’s day a new term has been introduced, namely ‘oligopoly’, which is—strictly speaking—more correct than “monopoly” which often implies total or complete monopoly. ‘Oligopoly’ is semi-monopoly, or a “looser form” of monopoly. In other words, a situation where a small number of producers control the capitalist market for some commodity and limit their competition, generally to matters of styling and advertising.

[2] The information in this paragraph about Chinese SOEs, as well as the chart, come from “China: Changing the Economy: The Long Weekend”, Economist, Nov. 2, 2013, pp. 49-50.

[3] “Businesses Enjoy Expanded Powers”, Beijing Review, Vol. 27, #25, June 18, 1984, p. 10. Online at: http://www.massline.org/PekingReview/PR1984/PR1984-25.pdf

[4] Ibid., pp. 10-11.

[5] This “decisive role” for markets is the terminology used in the communiqué of the Third Plenum of the Eighteenth Central Committee in November 2013. Previously the market was described as merely the “basic” determiner of the allocation of resources. The change in terminology—though slight—was meant to put yet further emphasis on market forces. See: “The Party Plenum: Everybody who loves Mr Xi, say yes”, Economist, Nov. 16, 2013, p. 49.

[6] Lenin refers to “the beginnings of state-controlled capitalist production, combining the colossal power of capitalism with the colossal power of the state into a single mechanism and bring tens of millions of people within the single organization of state capitalism” in his article “War and Revolution”, May 1917, in LCW 24:408. However, it should be remembered that the role of the state in directly guiding the capitalist economies of the major imperialist countries tremendously increased during World War I, and that after the war was over this direct role was severely cut back again. Moreover, the term “state capitalism” came to have a qualitatively different (and deeper) sense once the formerly socialist Soviet Union became state capitalist in the 1950s.

  Nevertheless there are any number of mechanisms by which “private enterprise” and the state are blended together even in the West. For example, there is the fact that corporate wealth and the rich and their media largely determine who gets elected to political office; there is the fact that corporate lobbyists largely determine the details of new laws; there is government regulation of corporations (direct and indirect, such as through tax laws) and also “regulatory capture”, wherein corporations supposedly being regulated by government agencies gain control over the regulatory bodies (through bribes or otherwise); and there is the “revolving-door syndrome” (“cronyism”) whereby government officials (or even industry regulators!) become corporate managers (and vice versa) [see http://www.sourcewatch.org/index.php/Government-industry_revolving_door and

http://www.thenation.com/article/174151/reverse-revolving-door-how-corporate-insiders-are-rewarded-upon-leaving-firms-congres ].

[7] In 2001 General Secretary of the CCP Jiang Zemin lifted the ban on capitalists joining the “Communist” Party. The ideological justification for this move was his theory of the “Three Represents”—i.e., that the CCP should represent not only the workers and the peasants but also a third group which included businessmen, professionals and others. The CCP planned to admit 200,000 managers or owners of large or medium-sized private businesses as new Party members by 2002. Many more such “red capitalists” have been admitted since then, though the figures have not been released—presumably because they are politically sensitive. [Bruce Dickson, Red Capitalists in China (2003), especially pages 102-104.]

[8] Bruce Dickson, Red Capitalists in China (2003), pp. 107-108.

[9] Kelly Liu & Kevin Daly, “Foreign Direct Investment in China Manufacturing Industry—Transformation from a Low Tech to High Tech Manufacturing”, International Journal of Business and Management, Vol. 6, #7, July 2011, Table 3. Online at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CD0QFjAA&url=http%3A%2F%2Fwww.ccsenet.org%2Fjournal%2Findex.php%2Fijbm%2Farticle%2Fdownload%2F9232%2F7900&ei=D53FUpbUI8P9oATJqICoAQ&usg=AFQjCNFtNEMkloZfQb7fV-LllztAbOss_w&sig2=viGucJ_cfij7ca8o3iSvYQ&bvm=bv.58187178,d.cGU

  However, by our calculation, the percentage of foreign-funded exports in 2008 was 55.34% (rather than 55.25% as the authors state here) if official statistics from the Chinese government are used. (See next footnote for the Chinese government statistical website.)

[10] “Statistical Communiqué of the People’s Republic of China on the 2012 National Economic and Social Development”, National Bureau of Statistics of China, Feb. 22, 2013, Table 6. Online at: http://www.stats.gov.cn/english/NewsEvents/201302/t20130222_26962.html

[11] Ibid.

[12] Ken Davies, “Inward FDI in China and its Policy Context, 2012”, Columbia FDI Profiles, Oct. 24, 2012, annex table 4, (p. 11). Online at: http://www.vcc.columbia.edu/files/vale/documents/Profiles_China_IFDI_24_Oct_2012_-_FINAL.pdf

[13] Ibid.

[14] “China: The economy: A bubble in pessimism”, the Economist, Aug. 17, 2013, p. 39.

[15] “China’s Big Banks: Giant Reality Check”, Economist, Aug. 31, 2013, p. 61.

[16] Ibid., p. 62. The data is as of the first quarter of 2013. Besides these 4 enormous Chinese banks, another one of the top ten banks in the world is HSBC, a world bank whose home turfs include both Hong Kong and the U.K. But this bank is dominated by the British imperialists.

[17] Ibid., p. 61.

[18] Carl E. Walter & Fraser J. T. Howie, Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise (John Wiley & Sons (Asia), 2011), pp. 28-29.

[19] “China’s Big Banks: Giant Reality Check”, Economist, Aug. 31, 2013, p. 61.

[20] The very term “commanding heights” of the economy comes from notes prepared by Lenin in November 1922, for a speech at the Fourth Congress of the Comintern. See: LCW 36:585; online at: http://www.marxists.org/archive/lenin/works/1922/nov/13b.htm

[21] Ibid.

[22]Wall Street Journal, Nov. 12, 2012; New York Times, Nov. 10, 2012.

[23] “China’s Big Banks: Giant Reality Check”, Economist, Aug. 31, 2013, p. 61.

[24] “A light touch”, Economist, October 19, 2013, p. 11; and “Chinese banks: Open for business”, in the same issue, p. 62.

[25] “American Banks: Not big enough”, a review of Richard Bove’s book, Guardians of Prosperity: Why American Needs Big Banks, in the Economist, Jan. 11, 2014, p. 73.

[26] The major variation on the theme is when consumer credit can no longer be expanded fast enough. In that case, in the capitalist-imperialist era governments themselves take on the necessary debt, by either borrowing money from the rich, or else by just printing it. These “Keynesian deficits” can prolong booms for an additional period, though in the end the joint debt bubble of consumer and government debt must still eventually pop.

[27] Tsai Cheng, “Our Country is Now a Socialist Country Without Internal or External Debts”, Peking Review, Vol. 12, #21, May 23, 1969, online at: http://www.massline.org/PekingReview/PR1969/PR1969-21-NoDebts.pdf

[28] This housing bubble in China has been building up for many years. In 2013 the sales of new homes exceeded $1 trillion for the first time. The total value of new home sales rose by 27% from a year earlier, while average new home prices in December 2013 rose by 16% in Beijing (from a year earlier), by 18% in Shanghai, and by 20% in Guangzhou and Shenzhen. [“Housing: Sales in China top $1 trillion”, San Francisco Chronicle, Jan. 21, 2014, p. D2.]



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