China’s communist dictatorship and market economy don’t fit well together – Gautam Sen

Xi Jinping

Gautam SenThe ongoing economic turmoil in China, with an apparently inexplicable crackdown on leading technology sectors, prominent public personalities and growing belligerence towards the outside world are a product of twin struggles to ensure the CCP’s and Xi Jinping’s continued dominance over China. – Gautam Sen

The widening economic turmoil in China highlights fundamental issues of compatibility between markets and political dictatorship. Such issues have been discussed by economists since the 1930s and China’s experience encapsulates at a more profound level the vexatious conundrums that haunted the Soviets earlier. The Soviet economic experiment of central planning was considered unsustainable by mainstream economists for many reasons, the two fundamental ones being the insuperable difficulty of determining relative prices and ensuring incentives to agents in a centrally planned economy. These are not mere technical issues, but go to the heart of the viability of socialism itself because without central economic planning and socialisation of private property the entire collectivist experiment is null and void. There is no socialism without central economic planning. More pertinently, the experience of China with quasi marketisation of its economy in the past four decades has highlighted the incompatibility of totalitarian rule with markets, which require transparency and democratic oversight to affirm the integrity of its processes and rules.

The response of the CCP, under the influence of General Secretary Deng Xiaoping, to the disastrous experience of economic policy and subsequent impasse under Mao, was to loosen controls on planning and allow market forces fuller play in the latter half of the 1980s. However, state enterprises, though exposed to market forces, continued to play an important role. Marketisation helped overcome the problem of determining relative prices and creating incentives for entrepreneurs. In addition, there were unique contingent features to Chinese economic innovations, like the freedom granted at the first stage to the agricultural sector and rural industries that formed the bedrock of the subsequent surge in economic growth and investment by overseas Chinese communities (cf. Gautam Sen, EPW, Vol. 35, No. 11). The extensive foreign investment from advanced economies that catalysed China’s sustained high growth was to occur later, turning it into the world’s second largest economy and the workshop of world. A compliant and disciplined work force on low relative wages were important additional factors in China’s economic success as well.

Despite the experiment with market freedoms, China’s Communist dictatorship inevitably prioritised the political and economic interests of the Chinese Communist Party (CCP) and its incumbent leadership over issues of economic performance and well-being. Only those unaware of the history of CCP’s rule can have doubts about it though the success of the CCP’s policies of economic transformation and growth over thirty years and more might have misled them. Ultimately, the CCP has always been a callous criminal organisation that endures essentially through the threat of violence and actual violence though it has achieved some degree of uneasy popular acquiescence by delivering economic transformation and improved living standards. But economic change under the auspices of the CCP was also attained through fraudulent policies and deception, which is now unravelling with potentially momentous consequences for China and the world at large.

The economic transformation of China since the liberalisation of the late 1980s that occurred was the result of a peculiar combination of an opening to market forces, encouragement of traditional Chinese indigenous entrepreneurial skills, massively rewarded, and a high savings rate due to both culture and political diktat. China took advantage of an open international economy while engaging in outright mercantilism, by eliminating the competition through “price fixing” via myriad direct and indirect subsidies to national producers. China was also in the habit of manipulating data to mislead investors, for example, by significantly exaggerating foreign investment inflows. The consequences of CCP economic policy and behaviour over the past generation have re-emphasised the vital significance of accountability and transparency in the governance of markets though the world has only recently woken up to their necessity, with the US authorities only now insisting, perhaps too late, on such prerequisites for the listing of Chinese companies in the NYSE. In fact, the lack of accountability and transparency have come back to haunt China itself because markets eventually react to disinformation and losses that investors incurred as a result, which is happening today. Indeed, it may be posited that democracy is essential for markets to function because it limits the arbitrary power of political authorities to subvert private decision-making on capricious whim or for political reasons. In fact, the current disruption of global supply chains, dependent on China, underlines the incompatibility of markets with totalitarian political systems subject to politicised arbitrary decisions that can become indifferent to impact of their actions on markets.

It should be recognised that the economic policies espoused by the CCP were also designed to turn China into a superpower and achieve its goal of regional dominance and achieve specific goals like reunification with Hong Kong, Taiwan and establish suzerainty over the South China Sea. India and Japan were the two regional powers it needed to subdue as rivals and force them to accept de facto vassal status. For decades now, CCP leaders have wondered at the audacity of India unwilling to acquiesce to Chinese pre-eminence since it has all along harboured withering contempt for it. Japan was left alone because of its alliance with the US, though Japan’s economic entanglement with the Chinese economy was felt sufficient to constrain opposition by it to China’s goals in Asia. China’s bid for power was hugely aided by successive US administrations, obsessed with building it to rival an already prostate Soviet Union after 1989, reneging on an agreement to allow maintenance of the newly established status quo following its retreat from eastern Europe. Key elements of US help to turn China into an economic behemoth were the facilitation of significant non-reciprocal access to its domestic market and encouraging the relocation of major swathes of its own manufacturing to China. Extraordinarily, the US also turned a blind eye to the unhindered theft of US technology and intellectual property, without heed to the legal protocols of property rights. The US has recently woken up to its egregious folly though the Chinese economy has now acquired autonomous momentum. It appears unavoidable that the US will be obliged to institutionalise the effective uneasy Sino-American condominium that has come into existence already in Asia. The tensions between them will persist because the contours of the implicit condominium are not a given. US allies in Asia are likely to be left largely to their own devices, obliged to reach an unhappy accommodation with unstoppably powerful China and its irresistible economic and military clout.

In the final analysis, the integrity of the CCP dictatorship and the unassailability of its leaders have remained the overriding factor in China’s domestic political dynamics since the communist seizure of power in 1949, despite economic liberalisation. All other issues are subordinate and the bid for world leadership is an additional messianic CCP aspiration. In many ways, the global aims of the CCP mirror the call to Jihad to establish a world caliphate and historical evangelical militarism to implant Christianity everywhere. The stupendous human and economic cost of securing and asserting the interests of the CCP and its incumbent leaders are mostly irrelevant to its calculations. The Chinese people have been its greatest victims, suffering horrendously as a result, though China’s innumerable Western apologists feign amnesia, with only a few exceptions, about their fate. The blood and treasure expended by the Chinese people since the 1930s has virtually no parallel in world history and it only got worse after the Communist seizure. By contrast, the legacy left behind by the once-reviled dictator Chiang Kai-shek in Taiwan looks truly nourishing with every passing year.

The criminality of the CCP, headed by Mao Zedong, has few counterparts in history, his culpability exceeding the marauder Timur’s killings in scale and only less obscenely graphic in method than Adolf Hitler’s. The greatest man-made famine of 1958-1961 was Mao’s handiwork, the deaths exceeding thirty million. All questioning of the policies that led to the gigantic tragedy were peremptorily silenced. The celebrated revolutionary Defence Minister, Marshall Peng Dehuai, mildly critical of the Great Leap Forward of 1958, was purged along with others who failed to denounce him. The vindictive Mao was to eventually imprison Marshall Dehuai who died incarcerated in the early 1970s. Mao was to soon unleash the Cultural Revolution to secure his position that seemed uncertain in the power struggle that ensued after the Great Leap Forward had precipitated the unprecedented famine. The Cultural Revolution, unleashed in 1966 and lasting until Mao’s death a decade later, upturned China, millions of party members denounced, families torn apart, descent into cannibalism, with an estimated 2 million perishing. It was also accompanied by shocking cultural vandalism that reminded of the Ghaznavid depredations against India’s cultural heritage. An official party reckoning described it as a catastrophe that caused “the most severe setback and the heaviest losses suffered by the party, the country, and the people since the founding of the Republic” in 1949. Many other tragedies have continued to occur in China, the knowledge of many simply suppressed, crowned by the mowing down of an estimated ten thousand of the flower of China’s student youth in May 1989 at Tiananmen Square for demanding democracy, accountability and the end to corruption. The singer who entertained the murderous troops was one Peng Liyuan, married to current Communist dictator President Xi Jinping in 1987.

The CCP’s dictatorship’s routinely highhanded and brutal governance of China is illustrated by numerous other criminal actions. One of them is the frequent peremptory seizure of land and homes occupied by ordinary Chinese, often numbering tens of thousands, for vanity construction projects and building dams, a mania among the intellectually circumscribed engineers who dominate the CCP leadership. The scope of the CCP’s totalitarian control over the Chinese population is a salutary reminder of the profound evil that can be perpetrated by modern technologies like artificial intelligence and quantum computing. It has facilitated massive surveillance, intense control over the social media, unabashed censorship on an unimaginable scale and imposition of harsh automatic sanctions for the least whiff of dissent that have no parallel in history. Their escalation is eloquently reported by Kai Strittmatter’s, penetrating analysis in We Have Been Harmonised. One inadequately unrecognised but critical aspect of the CCP is its predatory nature in relation to the economic agency of ordinary Chinese. China under the CCP is the classic predator state that has instituted a system that imposes exceptional demands on the workforce to exert itself with crushing hours to extract performance and then robbery of public savings with a Ponzi-like scam that has not been precisely classified yet by observers.

The huge and intensifying contemporary crisis in China’s real estate market captures CCP’s predatory system of robbing ordinary people and has come to occupy pole position in economic policy. It has led to a deeply dysfunctional cul de sac, with serious economic and political implications from which there is no easy escape. The overwhelming majority of private investment in China is in real estate and this vehicle has been used to relieve ordinary citizens of their had earned money. Although greed and cupidity also played a role in their predicament, they have been cynically taken advantage of by the CCP. Real estate, valued at over US$52 trillion, represented approximately 66% of household assets compared to 7% in equity and funds. And land sales of US$1.3 trillion by local government for real estate activity accounted for 44% of their total revenue in aggregate. By comparison the national budget was US$4.45 trillion (31% of GDP) and expenditures were US$5.38 trillion (37.5% of GDP), indicating a major deficit and compelling budgetary obligations. Real estate activity is also a major contributor to demand in the wider economy, for example, 30% of steel is consumed by it. In effect, what the state and the CCP were doing was to fraudulently absorb the major portion of savings of ordinary investors through land sales and massively inflated pricing reflected in the final cost of housing, which included corrupt payoffs to officials that further raised prices. And the avaricious system needed to scoop up more and more savings to continuously raise revenue and fund housing construction. Additional housing sector activity and revenues serviced pre-existing commitments, a classic Ponzi scheme for the predator state to rob its citizens, who enjoyed few political and cultural rights under CCP tutelage to protest. It is likely that the ongoing collapse of China’s real estate sector will result in major losses for all bond holders though the state is likely to rescue purchasers of homes by facilitating completion of most projects. But the ensuing problems of falling real estate prices and significant decline of the sector poses a serious challenge to the authorities.

The history of the CCP suggests that the ongoing economic turmoil in China, with an apparently inexplicable crackdown on leading technology sectors, prominent public personalities and growing belligerence towards the outside world are a product of twin struggles to ensure the CCP’s and the incumbent leadership’s continued dominance over China. The CCP’s control over Chinese society has always been unambiguously predicated on the threat and use of force against any challenge to it, but it has also increasingly rested on delivering economic growth, overcoming poverty for the majority and their sullen acquiescence to the extant unfree political order. But the very economic growth and the markets that facilitated it are unavoidably threatening the CCP’s monopoly of political power, hegemony over the economy and its burgeoning numbers of private agents. Markets have unleashed new social forces and players with wealth and aspirations that cannot be congruent with the goals of the CCP and hence the need to rein them in and overpower them. The situation in China encounters the fundamental dilemma of the need of markets for a more liberal and transparent political order that ultimately leads to the sharing of political power in a pluralist society. And this is the insuperable dilemma faced by the CCP that will lead to its ultimate downfall, how peacefully one cannot predict.

In conclusion, it might be observed that the global Covid crisis is not merely the product of the criminal negligence of Chinese labs under CCP rule, but deliberate because its known outbreak in China did not prompt an attempt to interdict its spread abroad. Once again, the lack of transparency and democratic accountability have allowed the CCP to conceal and inflict untold criminal damage on the entire world. – The Sunday Guardian, 23 October 2021

Dr Gautam Sen taught international political economy at the London School of Economics and Political Science for more than two decades.

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