The Chinese Way of Capitalism

The top law writers of People’s Republic of China have been holding their annual official gathering since March 5. The top two topics to be presented to “China’s top legislature, the National People’s Congress (NPC), … [will be] two draft laws aimed to grant equal protection to state and private properties and introduce a unified income tax for domestic and foreign-funded enterprises,” (China Daily, March 08, 2007). So, by the end of the session, private property will be enshrined back into the constitution, and the income taxes will be equalized for foreign and domestic capital.

Another key topic of discussions and dissemination of propaganda regards Taiwan. Naturally.

Other topics and initiatives requiring the attention of the current five-year plan (the 11th), as discussed by the deputies gathered in Beijing, include the importance of fighting corruption (both commercial and politico-bureaucratic), battling pirated goods’ production, paying more attention to the strife of migrant workers, and, most importantly as well as most repeatedly, achieving a ‘harmonious society’. If only nice words could change reality! The ridiculously increased production of the those two words must have been a high priority before this round of PNC; for every phrase or half-sentence uttered one can count at least twice as many instances of ‘harmonious society’.

The communist leaders in China, over the course of more than two and half decades, have shed all really existing forms of socialism, to the extent that even the fashion industry (that penultimate mark of consumerist capitalist ‘maturation’) is boasting claims of its own (according to the locally distributed reports).

The party heads in charge of propaganda training accordingly, following the fabled leaders of Orwell’s Animal Farm, the pigs, have taught the cheerleading sheep (the ideological side of the state apparatuses from the press to the cooperative academics and professional hacks) to bleat out a new, improved slogan: Socialism good! Markets better!

As transitions go, proceeding from poor and deformed socialism to outdoing capitalism in its own game does not always go smoothly, and may acquire noticeable deformations in the process. One such, as applies to the Chinese case, is the inordinate level of scams permeating the actually existing economy.

The most famous of the Chinese scams are those involving fake goods,; copyright violations that get a lot of press. The extent of such fake goods, production, distribution and sales are vast indeed, yet, although the topic is approached from the law-enforcement angle, the official media are reluctant to delve too deeply into the sociological root causes giving rise to such practices on such a scale.

Since 1978, China has gone through three main stages of capitalist restoration. The three stages, enacted in 1978, 1984 and 1992, first took a step from centralized to decentralized planning; then shifted the focus from state control to markets as the primary regulatory force; and finally abandoned state owned enterprises (SOEs), leaving them to fend for themselves in a fully market-oriented system. Dong Xiaoping,s justification for taking that final plunge, in 1992, is said to have been: “As long as it makes money it’s good for China.”

According to Hart-Landsberg and Burkett, “By the end of 1990s, SOEs employed only 83 million people, representing just 12% of total employment and just one-third of urban employment,” and further, by 2001, “state owned enterprises accounted for only 15% of total manufacturing employment,” (China and Socialism; Monthly Review Press, 2005, p. 53). The privatization of unprofitable and profitable state assets and adopting a fully profit-oriented urban manufacturing was coupled with the abandonment of rural farming communes as well as town and village enterprises that contributed to the rural-based manufacturing.

As a result of this diminishing of the state sector, and additionally as a result of the tax-related incentives (besides others) provided to private and foreign capital to buy up state owned enterprises and/or invest directly in manufacturing, the state revenues have naturally taken a dive. “As a consequence [of privatization policies], fiscal revenues as a share of GDP fell from approximately 35% in 1978 to less than 11% in 1996,” (ibid, p. 56).

The end results have been massive changes in the employer of choice coupled with a deep erosion of the state responsibilities for providing welfare for the citizens, who have seen a radical rise in the number of unemployed-with-no-benefits-whatsoever. Meanwhile, private capitalists will simply not be able to keep up with creating adequate employment fast enough (naively assuming, of course, that they would want to, in the first place) for all the workers being rendered unemployed due to the lack of investment in the agricultural structures that previously provided a way of making a living for millions of people. It must be noted that at least 55% of the Chinese people still live in the countryside; so for the foreseeable future the streaming of the unemployed from the country to the city will continue.

As openly recognized in the official press, “The continuing reform of State-owned enterprises will create a huge number of laid-off workers, who will find it difficult to find new jobs, [Tian Chengping, minister of labor and social security] said. Moreover, about 5 million college graduates, the largest number in history, will enter the job market this year, in addition to surplus rural laborers swarming into cities for work, Tian said … [estimating] that there will be 24 million job seekers this year, but only half will find a job,” (China Daily, March 14, 2007).

The social reality for a majority of Chinese working classes therefore is a pincer type squeeze: high levels of unemployment plus zero social safety networks. In this situation, therefore, the prospects of making a living through the gray market producing, distributing and selling fake goods is the only thing that has so far prevented (delayed?) a unified rebellion by millions of workers, very poor and badly angry, since they live in a nominally communist society and therefore know who is supposed to own the socially produced wealth.

In this year’s National People’s Congress, in the piece of legislation to do with taxation, tax rates for both domestic and foreign-owned companies are to be set at 25%. At the moment, the income tax rate for domestic enterprises stands at 33%, while it is 15% for foreign-owned enterprises. Since most of the wealth here is created by (workers employed by) foreign-owned capital, the new tax structure is intended to increase state revenues, as well as level the playing field for its own moneyed men. The added revenues, officials hope, will pay for some of the promises made in last year’s NPC under the banner of ‘Socialist Countryside’ (for things like free education) meant to make life slightly more bearable in the countryside.

In their steering of the actual economy, the Chinese Communist Party leaders are in a bind. On the one hand they must maintain standards,, as it were, and crack down on copyright piracy to appease their World Trade Organization overseers. So, in the news we witness raids of production sites for pirated music CDs, movie DVDs or fashion accessories, while their operators are portrayed to be heartless cheats, who keep their workers locked up on the premises, working them like slaves 16 hour a day, seven days a week, with no benefits and no rights; no (realistic) irony intended to be detected by the hundreds of millions of workers in the official economy.

On the other hand, they cannot push too far, and they know this well. A truly effective crackdown, besides being nearly impossible in a country as vast as China, is likely undesirable, for it would inject countless further millions of unemployed workers into the vast sea of the already un-employed and un-benefited.

What is to be done, then? Simple: Let the extra-surplus unemployed work in (officially-declared illegal) industries that (in real terms) provide much needed relief to the state.

Scam industries in the Peoples Republic of China are quite varied, feeding many needs. The pirated CDs and DVDs as well as the fashion accessories are only the most well known. The myriad other operations range from production of fake diplomas, to fake receipts, fake insurance policies (do not buy travel insurance from people not behind a counter in any Chinese airport or train station, and inspect the counter very closely if they are standing behind one), to fake bank account statements (for visa purposes), and even fake fakes! In some markets, the more conscientious stall owners would advertise their goods as high quality fakes, unlike the cheap fakes other stalls are selling.

Scams of the free-floating nature range from the airport-based types already mentioned, and covers every step of your way from the airport to most other locations, including, but not limited to, tourist attractions as well as places of business, open-air as well as indoors. They include regular overcharging (especially in relation to foreigners), to the classic snake oil peddlers (one of my students, a Chinese woman, was had by one such; was told her looks would greatly improve if she spent a lot of money on a facial cream they sold her that actually caused her face, previously optimally normal and healthy, to break out in an unusual rash), to bait-and-switch (good first-time product/service/presentation to get customer to buy on wholesale scale, followed by realization that quality/service/product sucks, with no option to back out), to even fixing meters (gas/electricity/water) by municipal workers/authorities for fleecing people’s needs for utilities.

And, of course, official establishments have their own inroads to the gray economy. There are plenty of cases, for example, where (as alluded to, above) bank managers get some (a lot?) of their regular income from selling official bank documents. Such practices exist across official spheres. As reported by the press last month, and as has been a topic of discussion in this year’s National People’s Congress, well over two thousand party officials were expelled from the communist party last year for corruption; most high-ranking of them Chen Liangyu, the Communist party secretary in Shanghai, who “was accused by the official press of illegally enriching relatives, protecting staff who broke the law and ‘creating malign political influences’,” (Financial Times, September 25, 2006).

So, all in all, Chinese capitalism is an awkward creature. It walks much like the rest of the really existing capitalisms, yet, because of the conditions created due to the route taken for its restoration, some deformities are structurally required for it to carry on. Clearly, the most brazen of these deformities is that capital is being managed by allegedly a Communist Party. All the rest of the deformities, one can conclude, arise precisely because the leaders of a communist party, supposedly the guardians of workers, rights, are doing their best to sell off the farm and its workers, the animals, and all the resources lying therein.

REZA FIYOUZAT can be reached at:


Reza Fiyouzat may be contacted at: