I’ll be giving a talk next week hosted by the University of Washington China Studies program, over Zoom of course. In it I will introduce the results of a research project I’ve been working on over the last couple of years, to measure China’s state-owned enterprise sector and interpret its economic role. I’ll have slides with lots of cool charts, and am looking forward to a lively discussions with friends from UW and elsewhere.
The State Never Retreats: State Enterprises in the Chinese Economy, 1995-2018
Even after forty years of market reforms, the question of what role the state and private sectors play in China’s socialist market economy is still unsettled. Is the country experiencing a steady expansion of private businesses, or a new advance of state enterprises? In this talk, Andrew Batson will introduce new estimates of the economic size and structure of China’s state-owned enterprise sector, which turn out to have been remarkably stable over the past quarter century. He will discuss what these research findings show about the nature of China’s political system, how they affect our understanding of the history of China’s reform era, and what they mean for the future trajectory of China’s economy.
I enjoyed this video interview with the historian Odd Arne Westad, talking about the book he is writing with Chen Jian on China’s long 1970s. The best part comes toward the end:
Westad: Both in the early 1970s, when Mao Zedong was still around, and maybe even more so in the late 1970s, both under Hua Guofeng and then Deng Xiaoping and his group, there’s this obsession with the idea that there will be war, that China will be attacked from the outside. Most likely by the Soviet Union, but also possibly by the Americans.
The imperative of growth, of rapid growth, came straight out of that. It’s remarkable to see how often leaders in this time period keep repeating that. From their perspective, this isn’t growth to help people get rich and move out of poverty. It’s all about strengthening the state, creating a state that can withstand the storms of that war that is going to come in the future. That was their thinking.
It’s fascinating to see how much of the literature that deals with this time period, especially from a US perspective, gets this exactly upside down. They think that economic reform is simply about releasing setting productive forces free and enabling a market transformation based on what had happened elsewhere. I think from the leadership’s perspective, then and probably also now, it’s the state imperative that is the most important. It’s what the state can extract from its own society in order to prepare for some kind of external conflict.
Karl Gerth: I’m often surprised that the Made In China 2025 plan is talked about as a form of autarky rather than as a form of geostrategic response. Just take the simple statistic that the US military budget is greater than the next 10 countries combined. It’s easy to imagine that China would find itself today, as it did then, in a position where it constantly needs to innovate and unleash productive forces.
Westad: I agree with that. If we look at the situation today, I think that’s very true, it’s exactly where much of this is coming from. It is less specific thinking about rapid economic development per se as it is a preparation for whatever the Communist Party and the Chinese government wants to do. There doesn’t necessarily have to be a contradiction between those two. But it’s very clear what comes first: it is the geopolitical strategy that determines how China approaches its economy, not the other way around.
At this moment, it’s easy to see these historical parallels: with the US openly attempting to strangle China’s technology sector, China clearly feels more externally threatened than it has in a while. As a result, it’s more obvious than usual how its geopolitical position is shaping economic policy. The geopolitical context for Chinese economic policy is also the subject of Covell Meyskens’ excellent recent book on the Third Front–see my review from last year.
In 1984, the Taiwan-born and US-trained anthropologist Huang Shu-min left his family in Iowa to live in a village on the Chinese island of Xiamen, just outside the city of the same name. By that time Chinese villages had already benefited from a few years of reform, and the changes underway were dramatic. Huang was impressed by the visible improvements in living standards, but also somewhat depressed by the constant presence of official propaganda and the regimented controls over daily life. At one point, he recounts trying to express this conflict to a villager:
“I must say that living conditions here are probably much better than what one might see in India or in Africa. To me, this seems to be directly related to the tightly controlled but highly efficient administrative system that one finds in China. The fundamental contradiction then is between economic development and human liberty. In order to achieve quick development, sometimes citizens of less-developed countries, such as China, may have to forgo some of their individual freedom. The problem I weigh is how to draw the delicate balance between collective interests and individual freedom.
In the Chinese context, it’s hard to imagine a more anodyne statement. These days, the effectiveness of China’s authoritarian state and the correctness of its tradeoff between liberties and development have been taken for granted by a generation. What you expect to happen here is for Huang to receive enthusiastic agreement and a lecture on the virtues of China’s system. So it’s pretty interesting that his interlocutor, the village Communist Party secretary Ye Wende, actually pushes back sharply against the whole framing:
Ye looked at me wearily. “I don’t know anything about India or Africa, nor do I know where you have picked up this great idea about the conflict between economic development and liberty. The only thing I know is based on my personal experience, and it seems to run counter to what you said. The more political controls imposed on the peasants, the less they want to work. On the other hand, when the national government shed itself of most controls in the countryside and gave peasants more free choice, they responded with greater enthusiasm and higher production.
This may not be true for all of China. But in Lin Brigade, at least as far as I can tell, it was only in the 1970s, when people realized the absurdity of political campaigns in the countryside and stopped cutting each other’s throats, and when the national policy became more flexible toward peasants, that we were able to achieve genuine development. If you don’t realize this point, you will never be able to understand current agrarian reform, either at the national level or in this village.”
I listened to something around 350 albums for the first time in 2020; these are the ones that stand out most in my memory. Most of them were not newly issued this year, but I’ve listed them in reverse chronological order by original release date to highlight the more recent stuff:
Sun Ra Arkestra – Swirling (2020). A loving and lovable repertory recording that takes Sun Ra’s instrumental miniatures and expands them in new directions. What stands out is how full of joy and good cheer the Arkestra is, so unlike the po-faced seriousness of much of the jazz avant-garde.
Vin Gordon – African Shores (2019). A new recording by the great Jamaican trombonist, who played on many classic 70s sessions with Lee Perry and others, is an event. He’s ably assisted by the reggae-loving British saxophonist Nat Birchall, and together they deliver classic spacey rhythms.
Junius Paul – Ism (2019). A sprawling, glorious mess. The music spans the gamut from free bop to funk, all grounded by Paul’s monstrously rhythmic bass playing.
Kim Kashkashian – J.S. Bach: Six Suites For Viola Solo (2018). This adaption of Bach’s cello suites for the viola is beautifully played, and succeeded in making me hear these classic pieces differently.
Coleman Hawkins – The Middle Years: Essential Cuts 1939-1949 (2018). The inventor of jazz saxophone displays unceasing daring and invention on this huge trove of classic recordings. Probably Hawkins’ best period.
Tony Allen – The Source and Tribute to Art Blakey (2017). On these late-career albums for Blue Note, Allen’s music is more compact in length and instrumentation than the long jams he played with Fela Kuti. His drumming is masterful, subtle and propulsive at once. Allen led a band from behind the drum kit as well as anyone since Blakey; he was one of our many losses of 2020.
Matthew Shipp – Not Bound (2017). Free jazz that simmers rather than boils. Shipp is one of the most consistently interesting and listenable pianists in the avant-garde.
John Tchicai – Tribal Ghost (2013). The Danish saxophonist, an elder of the 60s avant-garde, convenes a sympathetic group with fellow elders Cecil McBee and Billy Hart along with saxophonist Charlie Kohlhase and guitarist Garrison Fewell from a somewhat younger generation. The Free Jazz Collective rated it the seventh-best album of the 2010s.
Bill Dixon – With Exploding Star Orchestra (2008) and Papyrus Vol. I & Vol. II (1998). Maximalist and minimalist contexts for Dixon’s extraordinary trumpet sounds, which are equally gorgeous in front of Rob Mazurek’s large ensemble, or playing duets with drummer Tony Oxley.
Steve Lacy & Roswell Rudd – Early and Late (2007). Rudd’s New Orleans-inspired growls and smears on trombone are the perfect foil for Lacy’s tart, angular lines on soprano sax; together they make for one of the best front lines in jazz.
Bennie Maupin – Penumbra (2006). Perhaps the finest single example of Maupin’s bass clarinet playing, which was made famous on Miles Davis’ Bitches Brew but has been recorded too seldom since. He also plays flute, tenor, soprano and a bit of piano, all backed by much loose, delicate percussion.
Roland Kirk – Kirk in Copenhagen (1991). You’re best off seeking out the full concert recording, released as discs 5 and 6 of the Complete Mercury Recordings and readily available on streaming platforms. Kirk’s sustained exuberance is a marvel; you can hear the audience laughing in delight, the only appropriate reaction to this music.
Gregory Isaacs – Slum In Dub (1978). A classic piece of dark dubbing goodness, every track is a gem. Thanks to my local reggae DJ for turning me on to this one.
Funkadelic – Funkadelic (1970). The rule of thumb for rock bands is that the first album is always the best, and that rule holds for George Clinton’s experiment with using a guitar-heavy rock lineup to play his soul and funk tunes. Funkadelic delivered occasional great tracks after this, but their debut is the most consistently enjoyable.
Gigi Gryce – Nica’s Tempo (1955). A somewhat obscure but nearly perfect piece of modernist 50s jazz. Gryce’s arrangements are the highlight, there are a couple of wonderful vocal numbers by Ernestine Anderson, and some surprising quartet tracks with Thelonious Monk. Another excellent Monk-adjacent recording is Introducing Johnny Griffin (1956); Griffin played on some of Monk’s best albums and his virtuoso chops are on full display here.
It’s been an exhausting year for me, not a great one for reading. I resorted to a lot of escapist fiction and comforting re-reads to keep going. Still, I made some pretty good new discoveries that I am happy to recommend. The favorites below are listed in roughly the order I read them:
Claud Cockburn, A Discord of Trumpets. The endlessly entertaining autobiography of a British journalist who was born in Beijing, spent his childhood in England and Hungary, and worked in Germany and the US. A feast of snarky one-liners, but also good first-hand account of events like the 1929 stock market crash.
Freeman Dyson, The Scientist as Rebel. The first and possibly best collection of Dyson’s essays for the New York Review of Books; invigorating reflections on science, politics, and history. Every one follows his cardinal principle: “It is better to be wrong than to be vague.”
Robert Charles Wilson, Spin. A classic piece of what-if science fiction that brings the expansive drama of cosmic time down to human scale.
C.J. Samson, Dissolution (and its sequels). Page-turning historical thrillers that also happen to be deeply researched and critical accounts of the cruel politics and ideological orthodoxy of Tudor England. Malcolm Gaskill’s appreciation in the LRB is a good guide.
Lydia Fitzpatrick, Lights All Night Long. A troubled youth travels from one isolated oil-industry town in Siberia, to another, in Louisiana.
Paul Howarth, Only Killers and Thieves. Two boys confront violence on the Australian frontier; consistently compelling though often brutal.
Susanna Clarke, Piranesi. This tale of a man finding meaning in repetitive acts inside confined spaces was, in retrospect, highly appropriate pandemic reading.
Emily Wilson, trans., The Odyssey. It’s been a while since I’ve re-read Homer, and it felt like a complete rediscovery thanks to Wilson’s translation. What struck me was how concrete and physical the language is, and how focused the poem is on morality and duty rather than adventure. Her enlightening introduction alone is worth the price of admission.
Right on schedule, Chinese officials have declared they have officially met the target of eliminating extreme poverty by 2020. The anti-poverty campaign was one of Xi Jinping’s signature initiatives over the past three years. With its focus on the rural poor and neglected regions, the initiative had a more “socialist” flavor compared to Xi’s two other major political campaigns, for environmental cleanup and financial rectitude, which focused on issues of more concern to urban elites.
Now all three of those campaigns are wrapping up, and the bureaucracy is starting to plan a whole new cycle of initiatives for the beginning of the next five-year plan in 2021. So what’s next? What kind of goal or program could meet some of the same political and ideological goals as the anti-poverty campaign? Various official comments and policy documents suggest that China’s government is preparing for a stronger focus on redistribution and reducing inequality, using more specific and quantitative targets than before.
Xi has laid out the overarching slogan of “achieving socialist modernization” by 2035 to guide the next stage of the government’s planning process. That’s a fairly capacious concept. But as Xi helpfully explained in a November 3 article, one of its main aspects is “promoting common prosperity for all people.”
The phrase “common prosperity” (共同富裕) has very specific connotations in Chinese politics. When Deng Xiaoping famously endorsed inequality in the 1980s by saying “We should let some people and some regions get rich first,” he justified that in purely instrumental terms: it was “for the purpose of achieving common prosperity faster.” The ultimate goal, Deng consistently said, was to achieve common prosperity, not to entrench deep divisions. Inequality would rise initially to allow China to grow more rapidly, then decline later. Since Deng’s original comments, that commitment has been honored more in the breach than the observance. Xi’s rhetorical focus on common prosperity signals that he aims to complete the great task that Deng began, by achieving the final goal that Deng did not.
In his article, Xi highlighted the fact that the “suggestions” for the next five-year plan passed at the Communist Party’s fifth plenum includes the phrase “the common prosperity of all the people will make more significant and substantial progress.” Xi said such a commitment had never been made before in a plenum document, and was a sign that the goal had been elevated in political importance. Although it is expressed somewhat indirectly, the clear meaning of this commitment is to reduce inequality.
Rather awkwardly, however, Xi’s campaign for eliminating extreme poverty coincided with a renewed rise in inequality, as shown by the official Gini index published by the National Bureau of Statistics. Inequality had steadily declined from around 2009 but then started rising again after 2015. For skeptics of Chinese official data, the trend of declining inequality after roughly 2010 is well supported by multiple other sources, so I believe the post-2015 rise or plateau in inequality is also a real phenomenon.
The earlier decline in inequality was mostly driven by a tight labor market that pushed up wages for blue-collar workers. The most likely explanation for the renewed rise in inequality is the reversal of that trend, due to the steady loss of manufacturing jobs in China after the industrial recession of 2014-15. Income inequality is also certain to rise again in 2020, given the huge and highly unequal shock to incomes from the Covid-19 lockdowns, which cost many low-income households weeks and months of lost wages. The anti-poverty campaign does not seem to have had a noticeable effect on overall inequality, probably because it targets relief for such a narrow slice of the total population. That suggests a more vigorous official attempt to reduce inequality will have to take a different approach.
What kind of specific targets might the government set in terms of inequality? The fifth plenum’s communique mentions two goals related to inequality: “achieve equalization of basic public services” (基本公共服务实现均等化) and “significantly narrow the gap in development between urban and rural regions and the gap in residents’ living standards” (城乡区域发展差距和居民生活水平差距显著缩小).
These goals are eminently quantifiable, in terms of the ratio of public spending and incomes in different regions. And in fact at least one government plan has already set such quantitative targets. The Integrated Development Plan for the Yangtze River Delta Region was published in December 2019, so it represents current government thinking before Covid-19 took over everything. In a novel step, the plan targets narrowing inequality between different parts of the region, whose center is defined as Shanghai and other major cities in Zhejiang, Jiangsu and Anhui provinces:
By 2025, the income gap between urban and rural residents in the central area will be controlled within 2.2:1, the gap between per capita GDP in the central area and the whole region will be narrowed to 1.2:1, and the urbanization rate of the resident population will reach 70%.
It’s less clear what precise tools the government could use to achieve such reductions in inequality. The associated goal of “equalization of public services” suggests one channel: public expenditures could be raised in lower-income regions to help narrow the income gap. Other policy documents suggests officials are increasingly open to using the tax system to do some redistribution. This would be a big change: while China’s top marginal tax rate is fairly high, the system as a whole is not progressive. Most wage earners are exempt from income tax, and required social security contributions are regressive (see this IMF paper for details).
The discussion of redistribution that happened around the the Communist Party’s fourth plenum in October 2019 also seems to have been quite important. That meeting was mostly ideological in focus, and produced a lot of verbiage about the nature of “socialism with Chinese characteristics,” much of which seemed to be a rehash of old slogans. But Han Wenxiu, a senior economic official, said publicly afterward that the meeting’s discussion of distribution was a major “innovation.”
Chinese-style socialism had long been defined as involving the coexistence of state and private ownership, and the coexistence of market incentives and government direction–the systems for the ownership of the means of production and the allocation of resources. The fourth plenum’s decision said that a third system, that of the distribution of income, is equally important: this is the innovation to which Han was referring. The plenum declares that Chinese-style socialism in terms of the distribution system means the coexistence of market-led labor remuneration with redistribution through government and charities.
This is a descriptive statement, not a prescription for any particular type of redistribution. But it nonetheless has political and ideological force because it elevates the mechanisms of income redistribution to a fundamental part of the Chinese system, rather than just technical details. That makes it more important to get the system right. In an article in the People’s Daily after the fourth plenum, Vice Premier Liu He, the nation’s top economic policymaker, articulated the case for a more active use of fiscal policy to redistribute income:
We should improve the redistribution mechanism, using taxation, social security and transfer payments as the main methods to appropriately adjust the distribution between urban and rural areas, regions and different groups. Among these methods, it is very important to strengthen taxation, particularly by improving the system of direct taxes and gradually increasing the share of direct takes, so as to enable taxation to play a better role in adjusting the income distribution.
Liu’s latest missive in the People’s Daily, following this year’s fifth plenum, touches on some of the same themes, but frames them a bit differently. He again calls for using the “redistribution mechanism,” including taxes, social security and transfer payments, to “improve the pattern of the distribution of income and wealth.” But this time he places more emphasis on redistribution as a complement to an overall macro policy that is more favorable to employment and household income:
We should adhere to the orientation of employment-oriented economic development, expand employment capacity, improve employment quality, and promote fuller employment. The expansion of the middle-income group is fundamental to the formation of a strong domestic market and to structural upgrading. We should adhere to the direction of common prosperity, improve the income distribution pattern, expand the middle-income group, and strive to make residents’ income grow faster than the economy.
Taken together, these documents suggest that various parts of China’s bureaucracy have been gearing up to do more to reduce inequality for some time, but that the thinking on how to define and achieve the goal is still evolving. It will not be clear for a few more months just how the “more significant and substantial progress” Xi promised on inequality will be expressed in terms of specific goals or quantifiable targets. I do think it’s more likely that the problem of inequality will be officially defined in regional terms, as inequality among occupational classes and income groups is a more sensitive and difficult issue. And it will take even longer to find out whether inequality will prove amenable to the tools China’s government is able to deploy.
The book that Odd Arne Westad is now working on sounds very interesting. It’s a collaboration with his fellow historian of the Cold War, Chen Jian, on China’s “long 1970s.” Their project tackles the late 1960s to the mid 1980s as one unified period, rather than dividing them into the conventional eras of the Cultural Revolution and Reform and Opening. The overarching question is a basic one: how and why did China make that transition from revolutionary politics to economic growth?
In a webinar last week organized by the University of California, San Diego, Westad said they still have three chapters to write, but was able to summarize some of the book’s main arguments. One of them is the importance of “change from below, from outside the state and Party sectors.” The following passages are from my notes of Westad’s remarks, slightly rearranged for readability:
It’s pretty clear to us that much of the economic transformation of China during the long 1970s originated in the south. It’s most visible in Guangdong and parts of Fujian. This is a fascinating story. It’s something that starts after the first, most intense phase of the Cultural Revolution is over.
It’s a kind of market revolution carried out in desperation by people and families who knew a bit about a how a market economy would operate, and were deathly afraid that things would move back to a situation like the Great Leap Forward. There are these small businesses that come up, completely against any regulation, already in 1972 and 1973, based on a barter economy and links to Hong Kong and Southeast Asia. This vanguard was already in place when reform from the center was launched.
One example we use is the No.3 Memory of Lenin Tractor Repair Factory in Zhuhai, which already in 1973 had started repairing tractors outside the plan. It would take tractors that needed to be repaired from other units, repair them on the side of the plan, and then get payment in kind. That payment in kind was then either bartered further within Guangdong, or smuggled downriver to Hong Kong. By 1973 this unit had a Hong Kong bank account. If this had been discovered at the central level, these people would have been shot.
We are not arguing that the specific models of economic and social transformation that you see in Guangdong were then put in motion at the central level. But it primed units to behave in ways they had already prepared for. That made it possible for them to get one step ahead in Guangdong. They could develop very quickly into very profitable companies.
This is really significant for China’s history over the next generation. Without these moves that had privileged certain areas and certain units prior to 1978, that development would have taken a very different course. With one exception, all the units that we looked at have since become constituent elements of some of the largest companies in China.
It seems as if the book’s focus will be less on high politics and foreign relations than one might have guessed from their previous works: Westad is the author of, among other things, a survey of China’s foreign relations entitled Restless Empire: China and the World since 1750, while Chen is the author of Mao’s China and the Cold War. But the Cold War context of this period clearly informs their analysis. Here are some more interesting comments from Westad:
It’s very unlikely, at least to me, that Chinese reform would have been as successful if it weren’t for the Cold War, if the US did not have an interest in facilitating China’s economic reform and economic growth. What the Americans found when they started coming back to China was just how far behind China was in terms of economy, technology, science. US leaders from Nixon to Reagan believed they had China as a partner in putting pressure on the Soviet Union, but they discovered quickly that China was far too weak to play that role. So that put great pressure on them to help China develop. The fact that the Chinese state after 1976 made use of the security links with the US to get the technology and credit it needed is of crucial importance.
Briano Eno, Dieter Moebius, Hans-Joachim Roedelius – Cluster & Eno. The product of an extended collaboration in a rural German retreat, this 1977 album still stands as one of the better things any of these electronic-music luminaries have done. It’s more melodic and interesting than the pure background of the ambient music Eno would develop a few years later, and more consistently beautiful than much of Cluster’s previous work. These delicate miniatures are more attractive to me than the more rock-like songs on their follow-up effort, After The Heat.
Andrew Hill – Smokestack. Although Andrew Hill’s run of mid-60s albums on Blue Note is some of my favorite jazz ever recorded, I did not really appreciate this one the first few times I encountered it. It’s an oddball lineup — piano, two basses, drums — and the compositions are dark and twisty. Listening to it again recently, I abandoned all previous reservations; it’s great stuff, a distillation of Hill’s inimitable style.
Geri Allen – Etudes. Another pinnacle of modern jazz piano, with brilliant accompaniment from Charlie Haden and Paul Motian. Her version of “Lonely Woman” sounds perfectly natural on piano, a real accomplishment; Ethan Iverson calls it “the first truly acceptable version of Ornette Coleman’s most famous ballad with piano in the lead.”
Vin Gordon – African Shores. The British saxophonist Nat Birchall is not the only jazz musician to have fallen in love with reggae music. But he may be unmatched in his commitment to playing reggae in a respectful idiomatic style, without letting jazz preoccupations with individual virtuosity get in the way of the music. He produced and played on this new late-career album by the great Jamaican trombonist Gordon, who delivers indisputably excellent instrumental reggae throughout.
Pete Rock – Center Of Attention and The Original Baby Pa. A time capsule from the golden age of hip-hop: these albums were recorded in 1995 but went bafflingly unreleased at the time. Pete Rock’s beats are excellent, and provide many fine headnodding moments in his classic style, even if the rapping is not always as interesting as the production.
Makaya McCraven – Universal Beings E&F Sides. The sequel to one of the best jazz recordings of 2018, and very much more of a good thing. The casual vibe and accessible rhythms of this project disguise McCraven’s radical rejection of the usual strategies of the jazz avant-garde: there are few extended solos or complex compositions here. Instead he favors a collective groove, atmosphere and interlocking parts.
Friedrich Engels introduced the idea of the “reserve army” of labor in his The Condition of the Working Class in England, an impassioned combination of journalism and political polemic produced in 1845. As he watched the ebb and flow of business cycles in early days of British industrialization, he realized that the number of workers employed by profit-seeking capitalists would also have peaks and valleys:
From this it is clear that English manufacture must have, at all times save the brief periods of highest prosperity, an unemployed reserve army of workers, in order to be able to produce the masses of goods required by the market in the liveliest months.
Workers are on “reserve” because they are not required all the time, only some of the time. Ultimately, the reserve army of the unemployed functioned to keep labor costs down and thereby maintain capitalists’ profits. Engels and Marx elaborated on the idea in The Communist Manifesto of 1848, in which their description of workers as an “army” emphasizes how unfree they are:
Masses of labourers, crowded into the factory, are organised like soldiers. As privates of the industrial army they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they slaves of the bourgeois class, and of the bourgeois State; they are daily and hourly enslaved by the machine, by the overlooker, and, above all, by the individual bourgeois manufacturer himself.
I thought of this idea of the reserve army of labor after reading Dexter Roberts’ new book, The Myth of Chinese Capitalism. Somewhat in the spirit of Engels’ book, it’s a journalistic expose of the conditions under which China’s working class labors, and a polemic about what keeps them in those conditions. (Full disclosure: along with a number of other China-watcher types, I am thanked in the acknowledgments for the book.)
The focus is on rural migrant workers, in particular a family from Guizhou whose experiences Roberts tracks across multiple provinces and several years. The point is not so much that migrants labor in sweatshops, although their employers do not come off too well, but that they are systematically denied opportunities to better themselves. He argues that China’s rural migrants constitute a deliberately maintained underclass whose “marginal status was necessary to buttress fast economic growth and lift living standards for those new middle-class urbanites.”
Roberts puts most of the blame for this not on capitalists but on institutions and systems maintained by the government, in particular the much-maligned household registration, or hukou. His reporting vividly brings to life the daily indignities created by the hukou system, and how it warps and limits the life choices of migrants. Other issues include the government’s repression of independent labor unions and its continued controls over the use of rural farmland. In combination, these systems limit migrant workers’ bargaining power with employers and keep them part of an unfree reserve army of labor.
While very much a work of contemporary reporting, his book also makes a few ventures into history. These are necessary because the hukou and related policies did not originate with China’s turn to market economics in the late 1970s, but date instead to the high socialism of the 1950s. The push for Soviet-style industrialization, he argues, also required the deliberate maintenance of a rural underclass in order “to ensure cheap raw materials for industry and food for elite urbanites.” Those same socialist practices were simply repurposed in later decades to serve a different kind of industrialization drive, one led by private investors and export manufacturing. Looking at the full history of the Chinese government’s treatment of its rural citizens, he concludes:
In an irony little discussed then or even now, the biggest beneficiaries of Mao’s peasant revolution would be the cities and the people who live there—not the countryside. The rural masses post-1949 would become second-class citizens, their primary purpose in the new system to support the cities.
The coercion of rural labor is indeed a theme that runs through much of the history of Maoist China. The reserve army of rural labor was in many cases literally an army: in the 1960s and 1970s, rural residents were organized into militias that could, if needed, rise up and confront any foreign invaders. These could number in the hundreds of thousands of people in a single province. But militia members were not just drilling on the weekends to prepare for possible invasion: they were also deployed as forced labor to “wage shock attacks and rush construction of key projects,” as Covell Meyskens describes in his indispensable book Mao’s Third Front (previously discussed here).
The Third Front drive to build industry and infrastructure across inland China in fact relied mostly on rural workers, who did not have to be paid as much as higher-status urban workers. Meyskens estimates that while 3.9 million urban workers participated in the construction of Third Front projects between 1964 and 1980, another 11.1 million workers came from rural areas. It is rather striking that Mao’s drive to industrialize on the cheap also required a reserve army of rural labor to keep costs down and accommodate surges in activity, just like 19th-century British manufacturers.
Given all this history, I started to wonder why Roberts chose as his title The Myth Of Chinese Capitalism, since capitalism is generally acknowledged to be pretty good at the exploitation of labor. The myth that is more effectively exploded by his book is the myth of Chinese socialism, which no longer appears as much of an equalizing force.
One of themes running through Superpower Showdown, the instant history of the US-China trade conflict by Bob Davis and Lingling Wei, is nostalgia for former Chinese premier Zhu Rongji. Two decades ago, Zhu was a strong advocate for China’s entry into the WTO and pushed hard for China’s government to accept difficult reforms in order to grasp that bigger prize. “When China needed to change to join the World Trade Organization, Zhu was able to win President Jiang Zemin’s support and push through reforms that eliminated thousands of state-owned firms, even though that produced massive layoffs,” Davis and Wei write.
Ever since then, successive US administrations, up to and including the Trump administration, have searched for a similar figure they could work with to drive further liberalization of the Chinese economy. They have never found one. “Washington needed another Zhu Rongji,” they write, but “none was on the horizon.” To this day, especially among foreigners, Zhu is often seen as the hard-charging reformer who remade the Chinese economy through sheer force of will, a hero who achieved significant market liberalization.
At this point, it’s clear Zhu’s advocacy of WTO accession for China was the correct strategic choice: it led to massive gains in China’s global export market share, while fears that Chinese farmers and domestic companies would be swamped by foreign competition proved unfounded. But for all his charisma, it is too simplistic to think of Zhu as a heroic figure with a widely celebrated legacy. It’s worth recalling that out of the seven people who have served as Premier of the People’s Republic of China, Zhu had the second-shortest tenure: a single five-year term (1998-2003), exceeding only Hua Guofeng’s truncated four-year tenure (1976-1980). On many of the issues most closely associated with Zhu, his positions have since been reversed or weakened by successive Chinese administrations. It is not an accident of history that a Zhu-like figure has not risen again.
Zhu paid a serious political price for how the WTO negotiations played out. In an episode recounted in detail in Davis and Wei’s book, Zhu visited Washington in April 1999 at a low point in the negotiations, and made a strong offer to get them restarted. President Bill Clinton nonetheless rejected it, and, in a major breach of protocol, publicized the specific terms Zhu had offered. They went well beyond what other Chinese leaders had expected. The US bombing of the Chinese embassy in Yugoslavia in May further poisoned the atmosphere for making concessions to the Americans:
The combination of Clinton’s rejection of Zhu’s WTO offer followed by the embassy bombing badly weakened the premier. As soon as Zhu returned home from his U.S. trip, committees under Li Peng’s National People’s Congress questioned whether Zhu had gone too far in offering concessions. Wu Jichuan, the head of the Ministry of Information Industry, threatened to resign over Zhu’s offer to open the telecommunications industry to foreign competition. At a meeting of senior Communist Party officials, Zhu offered Mao-style self-criticism, or jiantao, for his U.S. trip. He said he was too anxious to get a deal done, said a senior government official at the time.
The rest of the Chinese leadership made sure that Zhu would not go freelancing again, and set clear limits on what he could offer. The WTO deal that the US and China eventually agreed on did not go as far as Zhu’s April 1999 offer; notably, Wu Jichuan prevailed in his insistence that foreign companies be essentially blocked from the telecommunications market. Today, with the US and China locked in a conflict over mobile-phone apps and semiconductor technology, it is hard to imagine there are many Chinese officials who think Wu Jichuan was wrong about that and Zhu Rongji was right.
The domestic economic reform most closely associated with Zhu’s spells as vice-premier and then premier was the downsizing of the state sector, which began around 1995 and accelerated in 1998-2000. Zhu allowed local governments to close or privatize underperforming state firms, and oversaw mergers and consolidation of the larger companies controlled by the central government–a policy summarized by the slogan “grasp the large, release the small”. As a result, the number of people employed by state-owned enterprises fell from 77 million in 1995 to 42 million in 2003, the end of Zhu’s term.
There is some evidence that Zhu expected or hoped that the downsizing process would continue after he left office. According to William McCahill, who worked at the US Embassy in Beijing during Zhu’s tenure and is now a senior fellow at the National Bureau of Asian Research:
When Zhu Rongji left the post of premier in 2003, he foresaw the number of central government-owned SOEs shrinking in five years from around 180 firms to around 15, all operating in national security areas like telecoms and energy.
What actually happened was that the downsizing of SOEs slowed and then stopped almost immediately after Zhu left office. In March 2003, the government established a new organization, known as Sasac, to supervise SOEs. At the Third Plenum in October 2003, the Communist Party approved a new architecture for economic policy that focused on “preventing the loss of state assets,” a pejorative term for botched privatizations. Within two years Sasac effectively brought a halt to management buyouts and other common methods of SOE privatization, and they have never resumed. The number of centrally owned SOEs directly supervised by Sasac has now fallen to 97. But all of that shrinkage has come from merging those companies into larger conglomerates that would be more effective national champions, and their numbers have been little changed in recent years.
While Zhu Rongji focused on encouraging competition among different SOEs in order to energize the domestic economy, more recent administrations have instead emphasized reducing competition among SOEs and building up larger entities that can more effectively take on Western multinationals.
The layout of China’s state sector today perhaps owes less to Zhu than to Li Peng, his predecessor as premier and frequent sparring partner in internal economic debates. According to Sarah Eaton’s excellent 2015 book The Advance of the State In Contemporary China, as early as 1991 Li presided over an effort to identify 100 SOEs as “large enterprise groups” that would receive special government support to become a team of stronger, more competitive companies. That idea continued to be influential during Zhu’s tenure, and beyond:
In particular, ‘grabbing the large’ – one half of the most controversial policy of ‘grab the large, let go the small’ (zhua da fang xiao 抓大放小) – carried forward the essential aims of the large enterprise strategy championed by Premier Li Peng in earlier years. In general terms, the idea was to focus the state’s resources on supporting a group of ‘elite SOEs’ that would anchor a trimmer, fitter state economy.
The simplest way of summarizing China’s SOE policy since Zhu left office is that it gave up on the “release the small” part of the policy, but has redoubled support for the “grasp the large” part. The combination of social unrest among laid-off SOE workers, and public criticism over corruption in the privatization process, had made continued SOE downsizing politically untenable by the 2000s. But the economic upheavals of the last two decades have generally only reinforced Chinese officials’ belief that SOEs play a necessary role in stabilizing the economy. Xi Jinping’s public commitments to keep making SOEs “stronger, better and bigger” are just the latest iteration of a line of thinking that is at least three decades old.
The conventional take on Li Peng has been that his conservative socialist economics were overruled by Deng Xiaoping, and lost out to Zhu Rongji’s liberalizing forces. Looking at how China’s state sector has evolved over the last couple of decades, that story does not seem completely right. Li Peng has clearly had a lasting legacy, and helped fix the state-capitalist direction of China’s economic strategy.