29.02.2024

Only solution: socialist democracy

Is the People’s Republic heading for a crack-up or uninterrupted progress, asks Daniel Lazare. Perhaps we should ask Frederick Engels - or maybe not

The economic news out of China is grim. Despite last year’s reported 5.2% growth rate, the country is in the grip of a real-estate meltdown of staggering dimensions that only goes from bad to worse. Consumer confidence has plunged, the CSI 300 stock index is 40% below its 2021 high, while manufacturing has declined for four months in a row.

Kyle Bass - a Texas hedge-fund owner who made a fortune out of the 2008 financial crisis by investing in credit-default swaps - says that the Chinese property collapse is so big that it looks like “the US financial crisis on steroids”.¹ After HSBC reported a $3-billion loss, CNN warned that China’s financial woes are beginning to infect global banking as a whole.²

If so, the implications are dramatic. On the left, views are polarised between those who echo such alarmism and those who say the bourgeois press is blowing it all up in the hopes of weakening the Chinese state and forcing it to adopt more free-market measures.

On one side is the International Socialist Alternative - formerly the Committee for a Workers’ International, founded by Ted Grant. It recently declared that the Chinese economy is in a state of “involution” due to “four Ds” - debt, deflation, decoupling from US investment and trade, and a demographic crisis caused by falling birth rates. The result is “a vicious circle, whereby collapsing property values, falling wages and unemployment translate into even weaker demand, forcing factories to lower prices and cut wages even more”,³

On the other side is Michael Roberts, the popular Marxist blogger and regular Weekly Worker contributor, who has repeatedly argued that growth rates are still strong despite capitalist nay-saying and that the People’s Republic of China has ample means to ensure stability. As he put it in July 2022,

The government can order the big four banks to exchange defaulted loans for equity stakes and forget them. It can tell the central bank, the People’s Bank of China, to do whatever it takes. It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies. It can tell the state bad banks to buy bad debt from commercial banks. It can get local governments to take up the property projects to completion. So a financial crisis is ruled out because the state controls the banking system.

One side says the crisis is intensifying, while another says the state is in a position to prevent matters from getting out of hand. So which is it - a state that is vulnerable to capitalist vicissitudes or one that is relatively immune?

In fact, both analyses have their shortcomings - which is where Engels comes in. In 1857, he wrote a 2,000-word article for Horace Greeley’s New York Tribune that ended with a prediction about the Chinese empire’s impending collapse:

One thing is certain: that the death-hour of Old China is rapidly drawing nigh. Civil war has already divided the south from the north of the empire, and the rebel king seems to be as secure from the imperialists (if not from the intrigues of his own followers) at Nanking, as the Heavenly Emperor from the rebels at Peking ...

The very fanaticism of the southern Chinese in their struggle against foreigners seems to mark a consciousness of the supreme danger in which Old China is placed; and before many years pass away we shall have to witness the death struggles of the oldest empire in the world, and the opening day of a new era for all Asia.⁴

But there was a problem. Rather than “rapidly drawing nigh”, the demise of the Chinese empire was still more than half a century off. Problems continued piling up at astounding rates. The Taiping Rebellion, led by the rebel king, Hong Xiuquan, would claim perhaps 20 million deaths before ending in 1864. Foreign imperial powers would demand concession after concession, until an army composed of troops from Britain, France, Germany, the US and more than half a dozen other western powers finally blasted its way into the Forbidden City in 1900. Even then, the empire would still hold out until 1911.

Doom and gloom?

So Engels seriously underestimated the capacities of the Chinese state. This suggests a number of things. One is that he was as mortal as the rest of us; another is that he could be over-eager in predicting revolution, etc.

But a third is that, if someone with such formidable analytic powers got it wrong in the 1850s, then Marxists should be extra-careful not to make the same mistake in the 2020s. Bourgeois experts may predict doom and gloom, but the modern Chinese state’s ability to carry on in the face of economic adversity should not be underestimated.

But Engels’ error is suggestive in other ways too. One concerns the great riddle of the modern PRC, which is how a “deformed workers’ state” could allow a vast capitalist sector to take shape in its midst, while maintaining the trappings of a communist state. Why did the PRC not go the way of the Soviet Union after 1991, by allowing the bourgeoisie to take outright political control? Groups like Socialist Alternative (SA) argue that this is in fact what happened via a process of self-bourgeoisification:

China under Deng would continue on the road to capitalism, especially with his historic ‘Southern Tour’ of 1992, but this would be under the control of the authoritarian [Chinese Communist Party] state to insure that the party elite and especially the ‘princelings’ - CCP royalty - could seize the juiciest pieces of the capitalist economy, while also maintaining iron political control to keep the working class down and nullify any resistance to brutal capitalist restoration.⁵

The upshot, supposedly, was a bourgeois state no different from the US or UK. But this sort of seamless self-transformation only makes sense if one assumes that a state must closely mirror the underlying class structure and that, if the economy is going capitalist, then it must immediately follow suit. But it is less compelling if one takes into account a 2,000-year bureaucratic tradition that has allowed the state to elevate itself above society and thereby maintain a high degree of independence. This is what enabled the Chinese empire to hold itself together despite deepening western inroads from the 1870s on. Perhaps it is what has enabled the PRC to hold itself together despite deepening capitalist inroads starting in 1992.

The remarkable durability of the Chinese state is the subject of a new book, The rise and fall of the east, by Yasheng Huang, a professor at Massachusetts Institute of Technology. In it, Huang cannot resist comparing ancient China with another empire a few thousand miles to the west, in which completely different conditions prevailed:

Praetorian guards roamed free in the Roman polity and seemed to assassinate at will any emperor standing in their way ... According to one account, between 27BCE and 395CE, 70% of Roman emperors died of unnatural causes. These include assassination (37%), battle wounds (12%), executions (11%), suicides (8%), and poisoning (3%). Roman emperors ruled for only 5.6 years on average ...

Their Chinese equivalents did the opposite. Huang provides the figures:

This is anywhere from three to six times the Roman record, which in turn seems like a model of stability, compared to the anarchy that followed the fall of the western empire in 476. Observes Huang:

.perial China occasionally fell into disunity, but the disunity was de facto, never de jure, and in the 6th century China reconstituted itself as a unified country and it has never looked back. It then embarked on an expansion spree and scaled itself both spatially and temporally. Today China under the CCP is very much a continuation of its imperial former self - tyrannical, unified and durable against all odds.⁶

CCP ‘guarantor’

If this seems overly ethno-determinist, it is worth keeping in mind that roughly the same process took place in the USSR, where Stalin styled himself a red tsar and argued that the Bolshevik goal was not to overthrow the old empire, but to consolidate it “as a single indivisible state ... for the benefit of the workers”.⁷

If Stalin could dredge up various aspects of the tsarist past - the knout, the Okhrana, great Russian chauvinism, etc - then why could his co-thinkers not do the same? Instead of changing the communist structure into something new, Deng Xiaoping’s decision was to preserve it as a guarantor of stability, even as a private economic sector was permitted to burst forth below.

Engels’ 1857 article is suggestive for a third reason: while his timing was off, he ultimately proved correct. The imperial state’s ability to defy reality was not infinite, and eventually it would succumb to larger forces. Indeed, the sheer length of the process ensured that change would be all the more turbulent when it finally arrived. The implications for Xi Jinping are similar: that the PRC’s ability to defy capitalist reality is also limited and that putting off change guarantees that it will be all the more thoroughgoing.

This is at least one aspect of Roberts’ argument. Further economic liberalisation is no answer to the Chinese real-estate crisis, he contends, because market liberalisation is what caused it in the first place. Rather, the answer is a reinvigorated public sector. As he wrote in 2022,

China needs to reverse the expansion of the private sector and introduce more effective plans for state investment, but this time with the democratic participation of the Chinese people in the process ... Otherwise, the aims of the leadership for ‘common prosperity’ will be just talk.

Either the state reins in the private sector or the private sector reins in the state. Yet “democratic participation” is not something Xi can implement merely by pushing a button or flicking a switch, especially since the effect of lifting the lid on so much pent-up democracy will undoubtedly be to sweep the neo-Stalinist CCP from power. As Engels’ 1857 article ended up underscoring in a round-about fashion, the process will be deep and turbulent. If it is not a 1917-style social revolution, it is because property is already nationalised, if only nominally. But, even if it is ‘merely’ political, it will still be a revolution regardless.

So, while SA appears to be correct about the depths of the economic crisis, it is incorrect about the nature of the political crisis, because it believes that state transformation is safely behind us. It fails to appreciate the degree to which the economic breakdown threatens the underpinnings of the PRC in the here and now.

But, if Roberts is correct about the risks for the PRC, he does not seem to fully appreciate the Hobson’s choice it now faces. If it fails to intervene, the resultant crash will not only ruin a middle class that is a major source of support, but will bring about certain knock-on effects that could devastate local economies. If it does intervene by, say, saddling itself not with billions, but trillions of dollars in real-estate debt,⁸ then it winds up weakening itself. The fact that “the state controls the banking system” renders it more vulnerable rather than less.

Plainly, the CCP is incapable of a solution, since it caused the debacle. Only socialist democracy can wrestle with the consequences and come up with a response. But this is something that only a revolutionary working class can create - not on behalf of a fossilised and corrupt CCP, but despite and against it.

1. finance.yahoo.com/news/chinas-economic-instability-worsens-heads-192901020.html.↩︎

2. www.cnn.com/2024/02/21/investing/hsbc-annual-results-2023-china-impact-intl-hnk/index.html.↩︎

3. www.socialistalternative.org/2024/02/23/chinas-involuted-economy.↩︎

4. www.marxists.org/archive/marx/works/1857/06/05.htm.↩︎

5. www.socialistalternative.org/2019/06/04/china-30-years-since-tiananmen-massacre.↩︎

6. Yasheng Huang The rise and fall of the east Yale 2023, pp8, 155-56.↩︎

7. OV Khlevniuk Stalin Yale 2015, p8.↩︎

8. www.swissre.com/institute/research/sigma-research/Economic-Insights/china-property-market.htm.↩︎