The spectacle of businesses begging to be beggared

Robert Loh’s 1962 memoir, Escape from Red China, recently became available again as a low-priced ebook, and it deserves to be more widely read–and perhaps particularly so at this moment in Chinese history. It is a rare portrait of the early years of the People’s Republic, describing in vivid detail the progress of the Communist Party’s escalating political campaigns (Loh’s book is frequently cited in Frank Dikotter’s history of the period, The Tragedy of Liberation: A History of the Chinese Revolution 1945-1957).

While there are many memoirs of the later Cultural Revolution period from people who experienced it as children or adults, first-person accounts of the previous decade are much rarer. Loh’s account is particularly valuable since he was a family friend of the famous Shanghai “red capitalist” Rong Yiren, and worked for him managing flour mills (Rong is thinly disguised under the pseudonym “J.P. Chan” in the book, but his identity is obvious). Loh thus had firsthand experience of how the Communist Party dealt with private business in this period.

A particularly interesting section of the book is his account of the build-up to the nationalization of private businesses after 1956. Rather than simply expropriate private firms at a stroke, the Party gradually put ever more pressure on them to place themselves in public hands:

The softening-up became apparent in late 1954 when the first pilot projects for Joint State-Private Enterprise were inaugurated. One or two firms from each branch of trade were chosen. The pilot projects were always the best equipped and most profitably operated firms. The State acquired part ownership of these firms by taking over the shares of such “counter-revolutionary elements” as the big investor T. V. Soong, by taking shares in lieu of the fines assessed under [the] Five-Anti [campaign], and even, in a very few cases, by actual investment.

These pilot Joint State-Private Enterprises were given every possible advantage. Their assets were evaluated fairly. The tax levies were just. Government low-interest loans were easily available. Adequate quantities of raw materials were supplied promptly. Labor problems were solved without bother or friction. Priority was given to these firms’ distribution and transportation facilities. In fact, the government saw to it that the pilot projects operated smoothly and showed a healthy profit.

In short, the capitalists who had the State for a joint partner did very well indeed. Each of them was made into a rosy picture of socialism’s glorious future.

On the other hand, the horrors of “free” private enterprise were depicted even more graphically. We “national capitalists” whose firms were not chosen for Joint State-Private Enterprise were “softened up” by being denied all of the advantages given to the pilot project owners.

My experiences at the flour mills were typical. The contempt and animosity I had been receiving from the mills’ Party Secretary became worse. The amount of wheat sent to us by the government had not been enough to keep our mills operating a quarter of the time; now we were sent less. Moreover, the fees paid for our work were reduced. Our losses therefore became even greater. We were still not permitted to go out of business, but bank loans became even harder to get. And, of course, the workers were made to demonstrate more frequently and violently against me.

Later, Loh describes how Mao decided to accelerate the rollout of this model of “joint” enterprises to all private companies. There was enormous pressure to make this appear to happen voluntarily, with local businesspeople handing in their “applications” for state partnership in public celebrations.

All the Chinese Communist propaganda at the time emphasized the “miracle” of businessmen happily surrendering their enterprises. The inference was that they clamored for socialism because its benefits had been proven to them by the patient, kindly, generous, always truthful, meticulously honest and infinitely wise Communists. People in the Communist bloc and the more naïve in the neutralist nations accepted this explanation without question. I have gathered that the Westerners, however, have been confused ever since by the picture of businessmen begging to be beggared.

It is true that the Chinese businessmen did exhibit wild enthusiasm, but they acted out of fear. Each had been made to understand that his future depended on his contribution during the “high tide of socialist transformation.” Once he had given up his enterprise, he knew that his sole means of livelihood would depend on the whim of the Communists. In short, he was struggling with almost hysterical intensity simply for survival.

Moreover, he knew he would not survive at all if he refused to apply for Joint State-Private status. Of the 165,000 firms in Shanghai, I knew of only one whose owner did not make the application. He was an elderly man whose enterprise was a medium-size paper mill. I spoke to him and attempted, for his own good, to make him change his mind. He was too panic-stricken, however, to face the future without the possession of the enterprise which, throughout his life, had been his sole means of security. He quickly lost his possession, of course; immediately after the campaign the government cut off his source of raw materials and refused to place further orders with him. The bank refused him loans. Within two months, he was bankrupt. He was sued by his employees’ Trade Union and by the Tax Bureau. He was arrested and sentenced to the work gangs of labor reform.

escape-from-red-china-book-with-dj-front-cover

I wouldn’t want to overdo the historical parallels with the present moment. But it’s true that the Communist Party is still a master of getting private companies to do what it wants, mainly by demonstrating how difficult life for them can be if they don’t.

The most obvious recent example is the crackdown on a group of high-flying private conglomerates, led by Wang Jianlin’s Wanda Group, which were pressured into abandoning overseas investments and selling billions of dollars of assets. “Wanda will respond to the state’s call,” Wang told Caixin when asked for an explanation of the sudden change of business strategy.

Another very interesting recent story is the reported desire of the government for big internet companies to “offer the state a stake” so that it can have a more direct role in managing social media and online commerce. It is hard not to hear some echoes of that 1950s push for companies to make voluntary applications to the state to take them over.

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