• The Student Lens

Modern China - The transition from communism to capitalism



From the extreme equality of Mao Zedong’s era, the People's Republic of China has now established itself as the world's second largest economy, estimating to overtake the U.S in GDP by 2030. At the helm of this meteoric rise has been China’s non-democratic ‘communist party’, most notably led by Deng Xiaoping between 1978-1989 and Xi-Jinping, appointed in 2013. However, can China’s success truly be credited to ideal socialism or to the positives of the free market capitalist economy? To answer this question, it is important to firstly define what capitalism and socialism are and how they manifest within society. The Oxford Dictionary defines socialism as; “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.” This marks itself on society through a command economy, supporting community ownership of the means of production, as well as forwarding the need for equality whilst diminishing class distinctions. Capitalism is defined as; “an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state”. In a market economy, private owners and businesses control production and hire a workforce, leveraging inequality to fuel work incentive and increase prosperity. Even though these are simplified definitions of complex political concepts they give a base of knowledge for greater understanding of the varying aspects of the Chinese system, and the visibly monumental change which has underpinned it’s very culture over the preceding 30 years.

On October 1st, 1949, the People’s Republic of China was established, and their most iconic leader Mao Zedong was at the head of the state. At the end of his reign, China had been devastated by famines, left in financial ruin and on the brink of collapse. It was only with the appointment of Deng Xiaoping in 1978 that the boat began to slowly turn; Xiaoping understood that a communist system unable to generate wealth would never have sufficient resources to distribute. Deng’s slogan “Let some get rich first” created the foundations for China’s transition into a market economy. Throughout Xiaoping’s era his policies showed a definitive move away from socialism and advancements towards capitalism. Moreover, across this period, Chinese delegates visited near 50 of the world’s most successful capitalist economies, including the U.S, Singapore, and Japan. These visits helped explain the benefits of free market capitalism, foreign investment, and private ownership. This learning manifested in the introduction of the 3 initials ‘special economic zones’ in Shenzhen, Zhuhai and Shantou. These cities have seen expansive growth in recent years, cities opened up to world trade, private ownership and many of the other tenets of ‘free market capitalism’, leading to Shenzhen being referred to as the ‘Chinese silicon valley’. These ‘economic zones’ produced such results that the government increased them to a further 14 cities in 1984, including Shanghai and Tianjin. The economic revolution under Deng Xiaoping laid the foundations for the capitalist system, still headed by the ‘Communist party’.

The modern one-party state of China, led by Xi Jingping, has embraced even greater quantities of capitalist policy, continually relinquishing power over the economy and allowing for ‘free trade’ to operate with little regulation. The 2001 decision for China to enter the World trade organisation is an example of this, it opened their access to new clientele as well as improving China’s existing import and export tariffs with current partners. This decision has not only increased China’s exports 5x but has also helped build up its economy to 8x the size. Over the last decade Xi Jingping’s government has taken an aggressive stance against corruption, one of the multiple benefits of the non-democratic regime. The authoritarian system has accelerated the infrastructure expansion of the previous 30 years by bypassing extended corporate contracts through its governing autonomy. Furthermore, on several projects the government has enlisted businesses’ financial support and workforce to complete operations of national importance. These arrangements have been enrolled using generous tax breaks, and a government with such power that businesses oblige compliantly.

The liberalisation of Chinese economic policy however should not be considered similar to that of Western cultures. The modern government of Xi Jingping is heavily capitalist but only in market form and policy, the remainder of society is still subject to a regime sustaining power through heavy regulation of media, education, and propaganda. This autocratic system does not grant the individual freedom of other capitalist cultures but only that of personal wealth. In Western civilisation, the internet is left to an extent unregulated, this decision has quantified the free speech stereotyped in Western culture allowing for the differing news sources and individual opinion. However, China’s media is subjected to unprecedented levels of censorship. Apps such as Facebook and Wikipedia cannot be accessed by China centred VPN’s, filling the space with only rigidly regulated Chinese authorised companies to trickle out news. It is the treatment of the internet which is indicative of greater China; it has built a wealth creation system but refuses to liberalise areas which may unsettle their control of the population. China has revolutionised its economy without relinquishing any civil liberties that weren’t a part of its communist regime.

The saying -“if you want to be rich, you have to build a road first” is commonly used in China, and adequately summarises their attitude towards infrastructure over the preceding years, although China haven’t just stopped at roads but founded entire cities. The primary cities in the ‘special economic zones’ bill, have become unrecognisable from the small antique fishing towns they once were. In 1979 Shenzhen’s population sat at around 30,000 inhabitants, however through urbanisation the city is now occupied by 12.53 million people. The city’s exposure to foreign investment, alluring tax incentives, private ownership and government support has transformed Shenzhen into one of the world’s leading tech centres and a metropolis for hungry, beady eyed entrepreneurs. Moreover, this growth has not slowed down in recent years. In 2016, as many skyscrapers were built in the city as the entirety of the U.S. and Australia, the majority constructed to accommodate some of China’s largest tech companies; Telecommunications giant Huawei has operated out of Shenzhen since 1987, Amazon’s main e-commerce competitor Alibaba lead by Jack Ma and the second biggest electric car company BYD also take up space in the Chinese 'Silicon Valley’. Cities like Pudong and Shanghai now embody other famed cities in output and appearance, by virtue of the capitalist policies introduced. The infrastructure built here which has transformed the skyline for many retired Chinese villagers, has incentivised an incredible work ethic and given a home for the development of Chinese business. The staggering growth rate almost makes you forget the backward agricultural society which used to inhabit the plains of China.

However, China has not merely been constructing major cities, but also creating a vast transport network able to span the country’s varying terrain and succeeding in accelerating urbanisation and inner border trade. In a joint venture between the Chinese government and the private sector, the fastest high-speed rail in the world has been constructed: a masterpiece of technical engineering which travels between 250-300km/h. This railway has allowed for secondary cities to be welcomed into the greater economy of China, increasing their market potential by 59%. The railway networks also lend a helping hand by dramatically increasing trade within China as well as the access of rural workers to major cities. Looking again to current growth, the Beijing Daxing International Airport, a piece of architecture combining a railway, express railway and an airport is expected to be completed by 2022, with an average yearly throughput expected of around 45 million people. A significant amount of China’s success over the preceding decades can be credited to its mammoth emphasis on infrastructure growth, and unlike other areas of the economy which have witnessed a slowing of growth, infrastructure continues on a path of increasing expansion. Undoubtedly, the city building through foreign investment, private ownership and free market is the biproduct of the capitalist functions instilled in China. Yet, the transport network is not so much. This has been a prominent government policy of the 5-year plans, a stipulate of the command economy. At points, it has allowed for private sector support, although overall the Chinese government has sustained an iron grip over these projects of ‘national importance’, making it one of the surviving socialist policies.

Staple tech companies such as Facebook, Apple and Microsoft are household names in western culture, however Chinese businesses are beginning to compete with the U.S. giants. China is home to the greatest worldwide manufacturers of drones and electric cars in DJI and BYD, as well as the ‘copycat’ companies such as Baidu- of Alphabet (Google), Alibaba- of Amazon and Weibo- of Twitter. In competing with the U.S, the Chinese E-commerce company Alibaba has begun a campaign for greater market capitalisation of the global sphere. In 2020 Jack Ma’s company has continued its move into cloud computing by pledging to hire 5,000 employees and invest $28 million into global infrastructure and improved processing chips. Moreover, the company has partnered with Equinix, giving access to a wealth of international customers in cities such as Frankfurt, London, and Tokyo. China is no longer just competing with the U.S on economic output, but also competing with its blue-chip businesses for global trade. The major tech corporations in China are the product of the supportive capitalist government, which has facilitated for China’s position in total company revenue to move up by 4 places to second, overtaking Japan in 2013.

The rise of big businesses in China makes it appear that industries are beyond the direct control of the government, however this is not the reality and is another surviving policy of the communist regime. In 2019, the dating app Momo breached China’s strict content laws, waving goodbye to its conglomerate owned company Tantan’s social media feed and its place on the app store. As soon as the red flag content emerged virtually, all traces of the app were removed, use of the app was restricted for a month and the company went under intense government scrutiny conducting a full ‘intercompany’ review of its media and news. The case study of Momo is a reminder of the power of the government, and its inability to support the civil liberties of freedom of speech and freedom of press. China are willing to facilitate profits until their grip on the population and information is challenged.

To accurately gauge the extent of the transition from a socialist system you must analyse the workforce, but to fully understand the change you must view it through how equal it is. In recent years, the SWIID (Standardised World Income Inequality Database), has ranked China as one of the most unequal societies in Asia and the world. Gini levels are often used to quantify the inequality rate of a country, moreover World Bank Data presents that over the last 40 years, China’s Gini rate has been consistently climbing, peaking at 43.7 in 2013, ranking higher than the U.S and the majority of Europe. To explain this rise in inequality there are several factors which can be looked at. Firstly, the minimum wage, which in most Western cultures is set at around £6-7 at an hourly rate. However, in China, the nation’s highest minimum wage is in Beijing: 24 Renminbi- or roughly £2.62 an hour. Even poorer areas such as Heilongjiang have an even lower minimum wage of £1.09 an hour. This low minimum wage does not necessarily create an unequal society. However, when you partner it with the fact that the income share of the top 10% in China has risen from 26% in 1980 to 41% in 2015, we can begin to identify the reasons for the divide. China’s large quantity of Billionaires and low quantity of millionaires marks the country’s wealth divide centring more and more to individuals instead of the community. It is clear that the Chinese government has abandoned the need for social equality, class distinctions have only become greater in the last 40 years with socialist ideals neglected in favour of economic growth.

After defining China’s removal of the socialist workforce, we can now analyse whether the modern workforce has benefitted from the capitalist policies in place. During the 20th century, China suffered from devastating levels of poverty, with 98% of the Chinese population being below the $5.50 daily income threshold. Fast forward now to 2015 and the level has been reduced to 23.7% of the population. In the case of extreme poverty, the recovery is even more respectable, in 1981 83.1% of the country were below the line, however over the coming 35 years this has been reduced to only 0.7%. In historical context this is one of the greatest declines of poverty in human history, with the major success credited to the capitalist policies introduced by the government. The support of urbanisation and businesses has helped transform the Chinese workforce from an ineffective, agricultural one, to one that is integral in sustaining its current service economy.

Individual consumer spending in China has begun to rival that of other heavy consumer nations as it has become more capitalist. In recent years, China’s commercial marketplace has become the second biggest worldwide with retail spending reaching $5.6 trillion. From a consumer standpoint this largely typifies that of a modern capitalist system. Consumerism and capitalism have always been inextricably intertwined, greater consumerism forwards the idea of greater capitalism. This is because it motivates the purchasing of the privately produced products that a capitalist system creates. Consumerism shapes the capitalist system by dictating which products are to be produced and how they are produced from the desire of the customer. The greater the level of consumption often implies the greater level of capitalism as capitalist products appeal to individual wants instead of communist necessity, thus increasing levels of consumption mean greater levels of desires from the consumer. And it is the hunger now in China, for consumer products which is propelling forward this capitalist system, creating a consumer market in its cities that could rival most regions worldwide.

The China vs U.S trade war has been a focal point for foreign policy in Donald Trump’s White House, yet the debacle has only emphasized China’s position as an economic superpower. American anger over ‘unfair’ Chinese business practises has grown from a mixture of copycat companies and biased government policies for national enterprises. Chinese owned businesses receive greater tax breaks, increased market access and lucrative government construction contracts, compared to foreign businesses. The rise of companies such as Weibo, Alibaba and Baidu has led to the U.S accusing China of stealing technology; these companies hold business models so similar to their American counterparts that certain brokerage firms have labelled them as ‘Chinese google’ and ‘Chinese Twitter’. The stand that the U.S has chosen to take against China has however seems rather counter-productive as the import tariffs on Chinese products reaching 25% in 2019 were directly matched by China. Instead of impacting China this tariff war has negatively impacted Trump’s voter base; middle America soybean farmers who ship almost exclusively to China have witnessed a decline in demand and profits as the trade war continues. Some of the biproducts of this have been some of the lowest trade volumes in recent years and a suspension of investment into both the U.S and China. This mutually un-beneficial fiasco has led to the signing of the China trade deal, which witnesses some moderate change with the U.S to cut the tariff on the import of $120billion of goods to 7.5%, with the rest held at 25%. On the flipside to this, China has committed to increasing purchases of American goods by $200billion over the next two years.

Moreover, China’s foreign policy has not just been that of a jousting match with the U.S, but also the beginnings to one of the most expansive infrastructure projects in history. The Belt & Road initiative sets to connect over 100 countries via rail, road, and water, all leading to the major economic centres in China. The project has had the signatures of 138 nations so far on the ‘memorandum of understanding’, with China pledging to spend $2 trillion over the following two decades, plus giving generous loans to poorer nations to facilitate suitable infrastructure development . For such a fee it begs the question: what do China stand to gain from the Belt & Road’s completion? Primarily, the network directly links China to economically poor but mineral rich countries, one of the main ceilings on China’s growth in the last 30 years has been its inability to acquire enough fuel to sustain its factories operating at maximum capacity. This grand transport system will allow China to create inbuilt vendors to easily transfer vast amounts of fuel into Chinese machinery. Secondly this network would make China the epicentre of global trade, a move potentially symbolising the end of U.S superiority and the beginning of China’s global supremacy. Inexplicably the project is motivated by capital and economic growth, a move casting China in the same vein as the Roman empire of 2 millennials ago.

As quoted, famed investor Jim Rogers said, “California is more communist than China” and although there is some hyperbole in his words it is difficult to pick holes in the statement. Over the last 30 years, China has abandoned socialist policies in the attempts of designing the most proficient form of capitalism. This has brought strong benefits to the country; and although the workforce has become more unequal, it has urbanised and dragged tremendous amounts of people out of extreme poverty. Moreover, the transition has, whether deemed positive or negative, augmented China’s position as a global power. Now coming out of one of the most considerable wealth creation periods in Chinese history, and with the promise of the Belt & Road system on the horizon, it seems inevitable that the U.S. will be bypassed by China in power and GDP. Without denying its meteoric rise, this probable new global leader could be seen as a step backwards for progressive societies. Civil liberties in China are still primitive, statistics exiting the country are often questioned, and the potential mistreatment of its citizens is in the public eye even more at the moment. Do these factors mean the world should be worried about China’s growing power? Undeniably, China’s transition has brought great change to all aspects of society, its move to capitalism has founded entire cities and transformed the entire perception of China. The hope is now that with the liberalisation of the economy complete, this may eventually lead to a liberalisation of its government and people.

All the data used in this article has been referenced and can be requested by emailing The Student Lens.



JACK CLARKE

History and politics student at the University of Liverpool. Interests in history, politics and economics.

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