Louis Proyect: The Unrepentant Marxist

October 30, 2017

China’s State-Owned Enterprises: a reply to Michael Roberts

Filed under: China,economics — louisproyect @ 7:29 pm

Michael Roberts

Although this article will be critical of British economist Michael Roberts, I strongly recommend his blog that features several well-researched and thoughtful articles a week, including one on China that I will be commenting on now. Despite my disagreement with his analysis, I can at least recommend it as a source of valuable statistics on the remarkable growth of the Chinese economy. Of course, we are at odds on how to characterize its class character. Roberts writes:

This brings us to the question of whether China is a capitalist state or not? I think the majority of Marxist political economists agree with mainstream economics in assuming or accepting that China is. However, I am not one of them. China is not capitalist. Commodity production for profit, based on spontaneous market relations, governs capitalism. The rate of profit determines its investment cycles and generates periodic economic crises. This does not apply in China. In China, public ownership of the means of production and state planning remain dominant and the Communist party’s power base is rooted in public ownership. So China’s economic rise has been achieved without the capitalist mode of production being dominant.

For Roberts, the main justification for describing China as “not capitalist” is the preponderance of state ownership. He refers to 102 key state enterprises worth about 7.5 trillion dollars. This includes oil companies, telecommunications, power utilities and weapons. Furthermore, the presence of CP officials as president of the board of directors of these companies means that the party controls a major part of the economy and will likely resist privatization, according to CP leader Xi Jinping whose speech at a 2016 conference sounded as if it was meant as a direct appeal to people like Michael Roberts, as reported by China.org:

China’s basic economic structure is at the core of its success; a position that Xi reaffirmed. “The mainstay status of public ownership and the leading role of the state-owned economy must not waver.”

Yet, it is precisely this that Western economists and advisors have identified as the main problem in China throughout the last 30 years. They maintain that free markets and private property must play the leading role. However, it is quite clear Xi is right on this, and the pro-capitalists are wrong. This holds important lessons for left-wing forces internationally.

The driving force of capitalism — the pursuit of profit — does not dominate China’s economy. Instead, it is the needs of economic development and the process of planned urbanization. However, the complexities, difficulties and advantages of an economy led by public ownership and state-owned enterprises, are rarely studied in the West from a positive standpoint.

Nevertheless, there are highly competent Marxist economists and thinkers in the West, and a large layer of critically-minded social scientists and brilliant creative minds in the humanities and arts. If they are given the chance, they will be more than happy to help to foster new forms of urban life and workplace democracy in China.

China has become a sort of laboratory of socio-economic formations. This embrace of experimentation can offer dramatic insights capable of confirming or refuting various economic theories. For example, in the 1980s, the emergence of township village enterprises with “fuzzy” and unclear property rights was interpreted by economists like Joseph Stiglitz as evidence refuting the theory that economic dynamism must be based on private ownership.

Similarly, if we can discover why China grew by 7 percent after 2008, at a time when the world economy was in crisis, then there is a very strong chance that this will reveal how socialist economics can surpass the dynamics towards capitalist economic crisis everywhere.

If you search Roberts’s blog for references to “state ownership”, you’ll note a significantly more critical stance when it is applied to a country not ruled by a Communist Party leader who urges his ranks to read Karl Marx. In a 2012 article titled “Irresponsible capitalism” that looks at developments in the British financial sector, you see Roberts disgusted with British state-owned banks that are no different than Goldman-Sachs as a means of further enriching the one percent:

It’s the same story with the large UK banks that are now state-owned. The 83% taxpayer-owned RBS is set to pay its chief executive Stephen Hester a bonus of £1m on top of his £1.2m salary, while the man who brought RBS to its knees, the former chief executive, Sir Reg Goodwin (knighted for his services to the banking community) is still set to pick up his huge pension entitlements (£700,000-plus a year).

Unfortunately, the same due diligence does not apply when it comes to looking under the cover of Chinese SOE’s.

Let’s take a look at one of them, the Anbang Insurance Group that attracted a lot of publicity this year for its bid to invest millions of dollars in a building owned by Jared Kushner. The largest shareholders are state-owned car maker Shanghai Automotive Industries Corp and Sinopec, a state-owned oil company Sinopec.

Of course, trying to figure out who exactly “owns” Anbang is not easy. Like many huge Chinese firms, they make discovery difficult as an American trade union found out when pressing charges against it for unfair labor practices as the Times reported in September 2016.

The Anbang shareholders in the Pingyang County area hold their stakes through a byzantine collection of holding companies. But according to dozens of interviews and a review of thousands of pages of Anbang filings by The New York Times, many of them have something in common: They are family members and acquaintances of Wu Xiaohui, Anbang’s chairman, a native of the county who married into the family of Deng Xiaoping, China’s paramount leader in the 1980s and ’90s.

You remember who Deng Xiaoping was, right? He was Mao Zedong’s successor who took “the capitalist road” in the first place. I guess his friends and relatives were quite happy with the NEP-type reforms since it put them in the position of buying the Waldorf Astoria and coming close to bailing out Trump’s son-in-law who will hopefully be arrested this week.

As should be obvious at this point, “state ownership” is a convenient fiction in China, especially since anybody can buy shares in such companies, including Western investors. For example, Roberts is impressed with the fact that the state-owned China General Nuclear Power Corp has begun to incorporate Western technologies, However, it is traded publicly on the Hong Kong Stock Exchange, as is the case with the largest Chinese SOE’s, and thus no different from any other capitalist firm. In the final analysis, it is the class character of those who own the means of production that determines their social role. While the number of shares available to outside investors has been relatively small, “reforms” enacted in 2015 to transform SOE’s into mixed enterprises will likely increase their numbers as indicated by the transformation of the second largest mobile carrier.

Unlike China today, Soviet Russia never had a stock exchange. The children of Soviet bureaucrats could never look forward to inheriting their daddy’s holdings like Donald Trump did from his father. That is true state ownership.

Although ownership data is difficult to come by, you can read an article co-authored by Curtis J. Milhaupt and Wentong Zheng titled “Beyond Ownership: State Capitalism and the Chinese Firm” on the Columbia University Law School website. It hones in on Ping An, another insurance company. The largest block of shares is owned by HSBC Ltd., a multinational bank that originated in Hong Kong even though most shares are owned by other SOE’s. In 2016, Mexican families sued the bank for money-laundering the drug proceeds of the Sinaloa Cartel that had killed members of their families, just the sort of outfit you’d want to help overcome the law of value, as Roberts put it.

Milhaupt and Zheng refer to the “blurred boundaries” between private and state-owned firms in China, as I have tried to establish. To get an idea of how tangled things can get, this is how they describe ZTE, China’s second-largest telecom:

According to the website of ZTE Holdings, it is one of the “national key SOEs” designated by the State Council. The third shareholder of ZTE Holdings, Zhongxing WXT (also known as Zhongxingweixiantong), is a private firm owned by a group of individuals, of whom the founder, Hou Weigui, holds the largest percentage (18%). According to the website of ZTE Holdings, it was the first firm in China to adopt a “state owned, privately managed” model in 1993. Under this so-called “ZTE model,” the majority state shareholders contractually authorize the minority private shareholders to assume sole responsibility for managing the firm, subject only to the requirement that the state shareholders be guaranteed a minimum rate of return. Under the ZTE model, therefore, a firm is an SOE from the standpoint of ownership, but a POE [privately owned] from the standpoint of management.

It is best to think of SOE’s in China as a chainlink in the transition to capitalism. Given the constant references to “building socialism” in the Chinese press and the nation’s origins in a powerful revolution led by the Chinese Communist Party that is still in the driver’s seat, it is understandable why some might still believe that Xi Jinping is a new Mao Zedong rather than a pioneer in the construction of capitalism.

If you put China in the context of the origins of capitalism in Europe in the 17th and 18th century, the role of SOE’s might be seen as analogous to the state monopolies that flourished under what Marx called mercantile capitalism. In 1773, the Crown took control of the East India Company and used it as a means of expanding the empire in East Asia, a key element of primitive accumulation.

Another tool of primitive accumulation was separating the peasant from his means of subsistence through the Enclosure Acts around the same time, thus making it possible for a reserve army of the unemployed to be transformed into wage slaves.

Hasn’t China had its own version of the Enclosure Acts? That’s the argument made by Richard Walker and Daniel Buck in a July-August 2007 NLR article titled “The Chinese Road” (behind a paywall, contact me for a copy). They refer to the hukou, a Mao-era law that established household registration. If you migrated to the city in search of work, you might be considered in violation of the hukou and as such not entitled to the same rights as other citizens, thus making you vulnerable to super-exploitation. Walker and Buck write:

The harshness of the hukou system recalls Britain’s Speenhamland laws. Rural migrants must pay for the right to move and are prevented from becoming rightful members of urban society; they ‘float’ through the cities, poorly housed and lacking social services. The hukou is a pernicious method of discriminating among classes of people and keeping the floating population marginalized. It functions to maintain a low-wage labour force, reduce the demand for urban infrastructure such as schools, and facilitate rapid capital accumulation. In Beijing, reforms since 1997 have at least allowed purchase of temporary residence, and today Chongqing is experimenting with dismantling the hukou altogether, allowing people to acquire permanent residence in the city in exchange for relinquishing land rights in the countryside.

Like Britain, China is “taking off” in its own version of the Industrial Revolution made possible by such harsh measures. In the same way that becoming a major exporter of textiles in the 19th century helped Britain’s workers begin to enjoy a standard of living that was the envy of the rest of Europe, China’s workers appear content with the status quo, at least according to a Pew Research Center Poll that Roberts takes as a barometer of Chinese opinion. “No matter how you measure it, no matter what questions you ask, the results always indicate that the vast majority of people are truly satisfied with the status quo.”

Of course, it helps when you jail anybody foolish enough to complain about the status quo, especially those who would like to use the Internet to connect with like-minded citizens. Under the Great Firewall, a system intended to police thought, there are 3,000 websites that the Chinese cannot access. Here are some of the most notable according to Wikipedia.

 

 

11 Comments »

  1. China is unquestionably capitalist, with, as you observe, rigid controls upon labor that US and European capitalists can only envy. Hsiao-hung Pai’s book, “Scattered Sand”, reveals how many migrant workers work in conditions not far removed from slavery.

    http://sdonline.org/62/hsiao-hung-pai-scattered-sand-the-story-of-chinas-rural-migrants-londonverso-2012/

    Comment by Richard Estes — October 30, 2017 @ 10:14 pm

  2. You state: “state ownership” is a convenient fiction in China. To determine if this is true you need to know the public float of the SOEs. Do you know what that is? Your example of Ping An does not help. It is still considered a state controlled entity by anyone who knows how China works.

    Comment by Steve Diamond — October 30, 2017 @ 10:45 pm

  3. I imagine that the public float is quite small but the problem is determining what “state ownership” really means when the borderlines between private and public are so porous. This article will give you an idea of how different Chinese SOE’s are from the NEP:

    http://www.abc.net.au/news/2017-03-06/chinas-billionaire-members-behind-lack-of-enterprise-reforms/8327878

    China’s Communist billionaires accused of getting richer, faster, while GDP slows
    By China correspondent Matthew Carney
    Updated 6 Mar 2017, 8:04am

    An elite group of Communist billionaires whose combined worth is near $700 billion are being accused of holding China back as they profit from bloated state enterprises.

    Findings released by Shanghai-based Hurun Report have shown that top-ranking members of the National People’s Congress (NPC) are still enriching themselves at a greater rate than ever before.

    It reported that 100 members of the NPC were billionaires, with a combined wealth of nearly $700 billion — about the GDP of Belgium.

    “State-owned companies lack vitality, but the leaders keep them open because they belong to them, they own them,” respected government critic and historian Zhang Lifan told AM.

    Comment by louisproyect — October 30, 2017 @ 11:57 pm

  4. Yes that is the problem which is why you can’t rely on western standards of public v. private ownership. For example, see this NYT piece on Ping An: http://www.nytimes.com/interactive/2012/11/25/business/ping-ans-hidden-shareholders-friends-and-family-of-wen-jiabao.html?ref=business

    Comment by Steve Diamond — October 31, 2017 @ 12:12 am

  5. This is obviously one of the most complicated issues in Marxism right now. I agree with Roberts that China is not capitalist, or fully capitalist, but not primarily because of the weight of the state sector. The ‘state’ – the armed bodies of men – determines the class character of an economy. There has been no counter-revolution or collapse of the deformed workers state. No one can find a date. A meeting of the CCP in the 1970s does not count in overturning a state. Because of this, the Yuan is not convertible (as yet); the CCP can command economic practice; it can limit or expand public ownership. They are running a mixed economy dominated by a bureaucratic strata that is opening the door to the return of full blast capitalism. See may day books blog for a review of a book that take this position – Is the East Red? Anyway, the key thing is to defend China from U.S. war mongering, ‘even’ if you think it is capitalist.

    Comment by Red Frog — November 1, 2017 @ 12:29 pm

  6. There has been no counter-revolution or collapse of the deformed workers state.

    —-

    A counter-revolution is not necessarily marked by civil war. The USSR had a relatively peaceful counter-revolution, didn’t it? Trotsky could never have anticipated the willingness of the bureaucracy to become the agents of change. He analogized it much more with the trade union bureaucracy that would have been out of a job if a corporation broke a union when in fact the Soviet and Chinese bureaucracy was much more like the corporate managers who were glad to see the union busted.

    Comment by louisproyect — November 1, 2017 @ 1:24 pm

  7. #5 said: “Yuan is not convertible”
    I worked in Beijing for over a year (more than ten years ago). When traveling between China and Japan to visit old friends in Japan, I always exchanged yuans to yens in Narita airport. The rate of exchange was exactly as it would be in Beijing airport for the same transaction.

    Comment by Reza — November 1, 2017 @ 3:43 pm

  8. “There has been no counter-revolution or collapse of the deformed workers state. No one can find a date. A meeting of the CCP in the 1970s does not count in overturning a state. Because of this, the Yuan is not convertible (as yet); the CCP can command economic practice; it can limit or expand public ownership. They are running a mixed economy dominated by a bureaucratic strata that is opening the door to the return of full blast capitalism.”

    The problem here is that if you asked workers almost anywhere whether they would want to live in the United States or the People’s Republic, a majority, probably a huge majority, would pick the United States. In other words, they would choose the preeminent capitalist country over a deformed worker’s state.

    So, the example of the People’s Republic is an impediment to persuading workers to resist and overturn capitalism. It serves as a better example to nationalists among the BRICs, like those in India, Iran, Brazil and Turkey, who want to participate in the global economy while retaining social and economic control over their societies. It’s not an alternative to capitalism, and shows no likelihood of becoming one.

    Comment by Richard Estes — November 1, 2017 @ 3:56 pm

  9. While living/working in Beijing, I witnessed daily instances of migrant Chinese workers living in horrible dormitories while building luxury apartments in upper class neighborhoods. Sometimes, workers would sleep in the very buildings they were constructing until construction was complete. (This was during the construction boom prior to the 2008 Beijing Olympics.)

    Doing a quick Google search, you can find this fact: “China’s Gini coefficient for income, a widely used measure of inequality, was 0.49 in 2012 … The World Bank considers a coefficient above 0.40 to represent severe income inequality.”

    (For comparison: Mexico-0.48; Dominican Republic-0.47; Nicaragua-0.47; Bolivia-0.47)
    (Note: China’s Gini index fell to 0.465 in 2016 estimate)

    A question for anybody who can answer:

    China is a member of the World Trade Organization. As we know, international treaties take precedent over national laws. I am sure that WTO’s charter was written with capitalistic principles in mind, not “mixed economies”. Does membership in WTO not qualify China’s economy as capitalist (since its economic output *must* comply with WTO norms and protocols)?

    Comment by Reza — November 1, 2017 @ 5:00 pm

  10. Excellent work here, Louis. It is likely that the public float of China’s SOEs are a small minority, but if they are managed as private enterprises, for private profit and listed on stock exchanges, then they integrated into the world capitalist system. In the case of the British takeover of banks after the 2009 collapse, there was no pretense at socialism — the government’s ownership was strictly formal and the banks were allowed to maintain business as usual. Nobody would have argued with a straight fact that Britain was moving toward socialism.

    As even China has a limit on the number of rural migrants it can exploit, a shift in China’s ongoing primitive accumulation is necessary, and that is surely one important reason behind One Belt, One Road. Not to mention that China’s rapid GDP rise is based largely on unsustainable investment and concomitant suppression of household consumption. Given the material interests at stake, China’s integration with world capitalism, even if uniquely on its own terms, will only deepen.

    Comment by Systemic Disorder — November 2, 2017 @ 4:25 pm

  11. Chinese leaders still spend a lot of time praising Marx and Mao. Xi even did last week. This indicates that Communist thought still has a strong current in the society. The workers in state dominated firms tend to be more militant and this is probably why these firms have not been dismantled. CCP leadership will do just fine in any transition to privatization, but they still fear million of laid off state workers is my best guess.

    Comment by Ben — November 4, 2017 @ 7:59 am


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