What is China’s State Capitalism, Anyway?

Written by Frank Li

The dramatic rise of China over the past four decades not only has rocketed China’s economy to the top of the world (in terms of PPP – purchasing power parity), with no end in sight, but also is ending western dominance over the past 200 years, at least.

What does that mean to the world? Everything, from democracy (End of Democracy?) to human rights (Human Rights: Yet Another Big and Fat Western Lie!)!

Behind the China miracle is her system called “state capitalism”. What, then, is it?

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1. What is state capitalism?

Here is an excerpt from Wikipedia – state capitalism:

State capitalism is an economic system in which the state undertakes commercial (i.e. for-profit) economic activity and where the means of production are organized and managed as state-owned business enterprises (including the processes of capital accumulation, wage labor and centralized management), or where there is otherwise a dominance of corporatized government agencies (agencies organized along business-management practices) or of publicly listed corporations in which the state has controlling shares.[1] Marxist literature defines state capitalism as a social system combining capitalism with ownership or control by a state—by this definition, a state capitalist country is one where the government controls the economy and essentially acts like a single huge corporation, extracting the surplus value from the workforce in order to invest it in further production.[2] This designation applies regardless of the political aims of the state (even if the state is nominally socialist)[3] and some people argue that the modern People’s Republic of China constitutes a form of state capitalism[4][5][6][7] and/or that the Soviet Union failed in its goal to establish socialism, but rather established state capitalism.[3][8][9]

2. What is China?

China is arguably the greatest country in human history. Two facts:

1. China has the longest continuous civilization in human history.
2. Throughout human history, great civilizations have come and gone, with one major exception: China – come, almost gone, and come again!

Two informative readings:

1. America: What is China, Anyway?
2. Top 10 American Misconceptions about China.

Two summary points:

1. China calls itself “a socialist country with Chinese characteristics”, while the West calls it “state capitalism” (or “communist China†from time to time).
2. Although the current Chinese system has been in place for about four decades, it has taken China some 200 years to reach this point. For more, read: Civilizations: Past, Present, and Future. So, let’s take it seriously!

3. What is China’s state capitalism?

Simply put, it’s a mixture of capitalism and communism!

In other words, the political system is still communistic (by Western standards), but the economic system is capitalistic, with a huge public sector being capitalistic as well as a burgeoning private sector.

What a strange marriage!

It is both a curse and a blessing for China.

It is a curse, because of its communist past (i.e. from 1949 to 1976), just like the USSR, when everything belonged to the public.

It is a blessing, because China, after Mao’s death in 1976, pursued economic reforms by adopting capitalism, without replacing its political system with democracy. In contrast, the USSR (now Russia, chiefly) changed both systems overnight after the Cold War ended in 1991, resulting in a total disaster. For more, read: Mikhail Gorbachev vs. Deng Xiaoping.

4. Capitalism vs. state capitalism

Capitalism is the best thing that ever happened to mankind. For example, capitalism has created unprecedented prosperity in the West over the past 200 years. In case you did not know, it was capitalism that propelled the West ahead of China about 200 years ago.

State capitalism is the best thing that ever happened to China. For example, it is state capitalism that has got some 600 million Chinese out of abject poverty over the past four decades, in a fashion (e.g. speed and scale) totally unprecedented in human history! The image below is worth more than 1,000 words.

Capitalism, like everything else, must be balanced with a counter force, such as socialism. In other words, while capitalism creates extra-ordinary wealth for the able and lucky folks, socialism provides the less fortunate with a safety net, thus creating and maintaining a “harmonious” society, for which China has been striving over the past few thousand years. For more, read this classic piece: Loop Theory – Capitalism vs. Socialism.

Additionally, anything unfretted is not good, including individualism and capitalism. This is why a nation must be governed with laws and regulations. But how do we draw the balance between freedoms and laws? Well, China has also been struggling with it over the past few thousand years. Two informative readings:

1. Governance in China: Past, Present, and Future.
2. Governance in America.

In short, everything is up to the “state”!

Without capitalism, a state is poor and irrelevant in today’s world. However, capitalism must be managed. Guess what? Because there is little governance in a democracy, state capitalism appears to be the best form of government, for now at least!

Bottom line: China is winning the race for superiority against the West. For more, read: How China’s Economy Is Poised to Win the Future.

Now, is China’s state capitalism The End of History? No, of course not!

5. China’s fundamental challenge

While state capitalism has proven to be, by far, the best system for China so far, here is the most fundamental question for China: Is the state, or the current form of government, even valid, let alone built to last?

Built to last? Not sure – Time will tell …

Valid? Yes!

I succinctly answered the question a few years ago with three major publications:

1. “Communist China”, Really?
2. Chinese Presidency: An Earned Kingship for 10 Years.
3. The Legitimacy of the Chinese Government.

However, China recently changed its Constitution by removing the 10-year term limit from the Chinese Presidency. Does this change make my earlier answer invalid? No, not at all! Here is my take on that change: It’s good for China for now. For more read: Will Xi Become Mao?

Bottom line: Everything must evolve. China, like all other countries, must be, and is, continuously striving for the best form of government (Towards an Ideal Form of Government), which is a long-enduring process, as highlighted by the image below.

Now, capitalism and communism, is it really a strange marriage? It’s not, if you just pull Marxism into the picture …

6. China and Marxism

Here is a recent news story about China: China Celebrates Karl Marx 200th Birthday Anniversary with Fanfare.

Why is China putting so much emphasis on Karl Marx these days?

The need to justify her marriage between capitalism and communism!

In America, Karl Marx and communism are synonyms. But did you also know that Marx actually wrote a lot more about capitalism than about communism (see image below)? After all, capitalism was what he experienced throughout his life, while communism (via socialism) was merely an ideal in the future.

Now, knowing China is trying to make her marriage between capitalism and communism work, are you still puzzled by her renewed interest and emphasis on Marxism?

Note: by “communism”, I am actually following America’s convention. China has never called itself a “communist” country (nor did the USSR). Instead, China calls itself a “socialist” country, strictly following Karl Marx’s definition, with communism being a remote goal.

Furthermore, China calls itself “a socialist country with Chinese characteristics”. What does that mean? It’s whatever the ruling CPC (Communist Party of China) wants it to be, Marxism notwithstanding.

Bottom line: China appears to be wanting, and needing, to develop a new theory based on Marxism, which will not only legitimize her marriage of capitalism and communism, but also make it long lasting. Is it a valid attempt? Yes! Will China be successful in this endeavor? I am not sure – Time will tell.

7. Discussion

To profoundly understand China and its state capitalism, we have to go back a few hundred years, at least …

Why was China a big loser for at least 200 years from 1776 to 1976? Two main reasons:

1. The West became exceptionally rich after the discovery of the “new” world in 1492. For more, read: History 2.0.
2. China missed the Industrial Revolution, entirely.

Now, China seems to have finally caught up with the West, thanks to state capitalism. Therefore, it’s time for the West to better understand China, specially its system: state capitalism.

As compared with America, China clearly understands these two big and basic issues better:

1. A successful society requires both capitalism and socialism, with the former leading the latter though.
2. A government must govern. All efforts must be made Towards an Ideal Form of Government.

In contrast, here is the reality in America:

1. Until recently, “socialism” was a nasty word. Bernie Sanders has made it fashionable recently, but it is typically socialism over capitalism (see image below).
2. There is little governance. Worse yet, not only can’t the government be trusted, it is often viewed as the enemy, requiring armed citizens to guard against government transgressions.

Oh, Karl Marx again … In addition to being big on both capitalism and communism, he also talked about democracy. Below is a quote.

At this pace, China will certainly surpass America not only economically as the largest economy in the world by 2030, with no end in sight, not also politically with a more functional form of government.

Unless America reforms our failing political system, as I have suggested (American Democracy – Why is it failing & how to fix it?), that is!

8. Closing

Both state capitalism and China are huge subjects. This post has shed some light on both, hopefully …

Now, please sit back and enjoy the long video below.