A Dying Model: Chinese Capitalism
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A Dying Model: Chinese Capitalism


Since the 1980s, China’s economy has grown rapidly with an average annual growth rate of real GDP at about 10 percent.  Today, the Chinese economy is the world’s second largest and is set to surpass the U.S. to become the world’s largest economy by around 2015 when measured by purchasing power parity.  However, various economic, social, and ecological contradictions have accumulated in recent years and China’s current model of capitalism is unlikely to remain viable beyond the medium term (defined as the next ten to fifteen years).

China’s economic growth has been based on the intense exploitation of a large cheap labor force, unusually high investment rates, and exports to western markets.  As the global capitalist economy struggles with stagnation and crisis, China’s exports will achieve at best sluggish growth in the coming years.

Investment has risen to about 50 percent of China’s GDP.  The excess investment has reduced the rates of return on capital and threatens to undermine China’s financial system as much of the investment has been financed by bank loans and other forms of debt.  A more sustainable level investment is probably around 30 percent of GDP.  However, to lower the investment by about 20 percent of GDP, household consumption needs to rise by a similar magnitude.  Most households depend on wages as their main source of income.  Thus, for household consumption to rise by 20 percent of GDP, a large portion of the national income (between 15 and 20 percent of China’s GDP) needs to be redistributed from the capitalists to the workers.  This is likely to face strong resistance from China’s capitalist class.

In this context, a serious debate has emerged in Chinese society.  A growing number of Chinese intellectuals and social activists argue that China needs to rethink its free market-oriented economic reform.  Public ownership of the means of production needs to be revived and income and wealth need to be redistributed from the wealthy to the poor in order to enhance social stability.  These intellectuals and activists are known as the “New Left.”  Many of them are also known as the “Maoists” as they tend to have a sympathetic perspective on China’s Maoist socialist past.

In the early 2000s, the Maoist social base was limited to older state sector workers who suffered the most during the privatization in the 1990s.  But in recent years, with rising economic and social inequality, the Maoists have gained support among the urban middle class as well as a newer generation of the Chinese working class.

Partly encouraged by the growing influence of Maosim, Bo Xilai attempted a moderate social reform agenda while he was the Party Secretary of the city of Chongqing.  Bo Xilai cracked down on organized crimes with connections to the local capitalists, increased investments on social housing, and promoted “simultaneous developments” of state owned and private enterprises (rather than outright privatization as has been practiced in many other parts of China).

Therefore, the recent purge of Bo Xilai is politically significant.  It suggests that the “Communist Party” is determined to push forward with further free market-oriented economic reforms without serious social reform.  While such a course might benefit Chinese capitalists in the short run, it is set to further intensify China’s various contradictions and potentially prepare the conditions for a general social explosion in the not very distant future.

Historical experience from Brazil, South Korea, and Poland suggested that when a country’s non-agricultural labor force increased to more than 70 percent of the total labor force, the working class was likely to emerge as a powerful political and social force, demanding higher wages, social welfare, and political democracy.  China’s non-agricultural labor force currently accounts for about 60 percent of the total labor force and its share has been rising at an annual rate of about 1 percent.  At this rate, China’s non-agricultural share of labor force could exceed the critical threshold of 70 percent by around 2020.  If China’s current capitalist system fails to accommodate Chinese workers’ demands by then, a general economic and political crisis will be highly likely.

Chinese capitalist development has taken place at the cost of massive environmental degradation.  According to the latest Living Planet Report, China’s ecological footprint is already more than twice as much as China’s own bio-capacity.  China’s has some of the world’s most polluted cities and about 40 percent of China’s land has already been degraded.  According to a report prepared by the “2030 Water Resources Group,” China could face a water deficit that amounts to 25 percent of China’s projected water demand by 2030.

Thus, in the next one or two decades, economic, social, and ecological crises are likely to converge in China, leading to the downfall of China’s current capitalist model.  How the crises will be resolved will have enormous implications not only for China’s future but also for the entire planet.

Dr. Minqi Li is an Associate Professor in the Department of Economics at the University of Utah. He is the author of The Rise of China and the Demise of the Capitalist World Economy (Monthly Review Press, 2009). 

Richard McGirr
December 15, 2012 at 04:42

Excellent analysis. 

November 7, 2012 at 12:33

John Chan wrote: "One thing for sure, the predatory imperialist Westpac and its lackeys will not let China make change peacefully, therefore China must build sufficient strength to expel the insidious interference from the Westpac in order for the change to take place successfully".
Must every post you write be filled with aggression?
After re-reading many of my posts and seeing other posts, I must state that I get tired of the hearing the term 'westpac', as it is a nonsensical word.
If the Pacific and Asia are so separate then please explain to me why China is making inroads in the Pacific and making claims in Antartica?
By your posts, you seem to show how much you hate us all, so why do you want to come visit? Whay do you want to influence us with soft culture? Channel 28 and 29.

November 7, 2012 at 12:27

A good post.
Interesting read and analysis.

November 7, 2012 at 11:50

China’s leadership change
by John Chan
As with the US presidential election tomorrow, the world’s governments, media and corporate boardrooms understand that this week’s 18th national congress of the Chinese Communist Party (CCP), which will unveil a new leadership for the next decade, has profound implications for global capitalism. Huge interests are at stake.
Not only is the Chinese economy now the world’s second biggest, but the largest section of the international working class is in China. Global corporations are heavily dependent on the 400 million Chinese workers for cheap labour and profits. Whether the CCP can maintain its rule has become a life-and-death issue for world imperialism…

November 7, 2012 at 11:48

"Learn from Singapore."
Learn what from Singapore? Singapore is another one party anthoritarian state controlled by a small peranakan elite that suppresses labour and human rights and wealth inequality is also extremely high. 

John Chan
November 7, 2012 at 01:32

The author shows how to offer constructive criticism to China, this article proves Minxin Pei, Gordon Chang, Peter Navarro and Co. are US imperialist Cold War diehards, their writings have nothing to do with peace and human rights, but spewing out their toxic ant-China venom intended to destroy the peace of this world by fabricating chaos and conflicts.
“If China’s current capitalist system fails to accommodate Chinese workers’ demands by then, a general economic and political crisis will be highly likely.” is highly possible providing the amount of protests occurring in China. But would the Chinese leadership capable to lead China into the path of change as happened in Brazil, South Korea, and Poland? And what does it take for the Chinese leadership or the Chinese society to walk the path of Change as happened in Brazil, South Korea, and Poland?
One thing for sure, the predatory imperialist Westpac and its lackeys will not let China make change peacefully, therefore China must build sufficient strength to expel the insidious interference from the Westpac in order for the change to take place successfully.

China's Model of Development
November 6, 2012 at 12:35

It is incredulous the faction led by Hu-Wen are referred to as "reformers".  It is shocking when the these "reformers" took China on a 180 dgeree turn to excessive capitalism; The 100% exploitative type capitalism that even the ardently non Communist Europeans and Americans eschew. This just shows the stupidity of the Beijing leadership if not a leadership with many conflict-of-interests hidden from public gaze.
A clear break from the Communist past is not "reform" but a revolution.  The last thing a teeming mass of poverty needs is an exploitative and environmentally degrading capitalist system.  Did Hu-Wen had the Chinese populace's consent for such an extreme change of direction? It is clear they did not nor had any clue as to what they were.  These are fumbling mediocre managers sitting in a chair too high for them.  The foundation was laid for them but they had no conceptualization or idea of the transformation they were into, and neglected the ordinary Chinese's welfare in relation to boosting the exploitative wealth and consequenes of an ever inflating Keynesian economy to the detriment of the workers and farmers.
It is clear that with all the corruption happening including those corruption and nepotism arising from "Guangxi", Mr Xi is going to have a hard job cleaning up all the mess left behind by the vested-interests groups in the SC and Politburo- related parties. 
Of course China will continue to prosper and accumulate wealth, but to what costs and damage to the society in terms of the downtrodden, less, able, and honest?  But to rectify this, China needa management expertise.  Their administrative or management or organizational structure currently , reeks of one that is unwieldy and ignorantly patched together unlike one pre-designed by an expert;  Much like a ramshackle car put together by an itinerant farmer instead a "BMW" designed by an expert and experienced automotive engineer.  I make this comment because I am qualified to say it.  The management or organizational structure of China's bureaucracy needs a revamp.  If the leadership in Beijing has the brains to grasp it, the function based organizational structure adopted a number of years ago, by the PLA – if it is still working the way it should – is the correct way to set up an effective and efficient administrative structure with built-in or potential for built-in checks and balance.  Get this right and you will have a car model that will carry its passengers efficently, speedily and smoothly t its destination.
As to the question of a China's "model" of capitalism whether it is dying, it is bascially a question of knowledge.  Reading the public comments of Hu-Wen, it is clear they are clueless people.  They have no idea or concept of a model in mind but just chugging along and making policies here and there after expensive and highly damaging trials and errors.  Reminds me of putting an qualified farmer in charge of administration or itinerant Pol Pot running the country of Cambodia.  This is the bane of China.  All that moronic talk of a system or model with "Chinese characteristics" is just a whole bunch of hogwash and BS. It means they don't know or know what they are doing, or where they going and how they will get there. Their priority is only their chair and how to preserve it.
But the high chairs being what it is – will bring experts and consultants and knowledge to them if they-who-sit-on-these-chairs know how to make use of these knowledge and expertise intelligently and honestly – without making their family obscenely rich – bring forth a model that will achieve what it was designed to achieve.  A Rich, powerful, knowledgeable, civilized, respected, and egalitarian China.
Hongkong, Singapore, S Korea, Taiwan .. did not stopped at middle income.  They upgraded and retooled their industries, established new training institutes to retrain their people for higher value, high tech, more automated industries to increase productivity while putting schemes and policies in place to ensure savings for old age, education of children, health expenses, low risk investment income, reaonably priced housing, highly respected judiciary, self actualization, and so on.
Beijing can make that grade.  I wish Mr Xi and his team the best.  Their legacy is for them to make.  Learn from Singapore.  Don't waste your time re-inventing.  Borrow and modify – but with the caveat to modify intelligently not mornically.  The principles of development are the same, big or small country.  An internal combustion engine is the same no matter big or small engine.  Just don't hash the engine.

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