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Journal of Contemporary Asia
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Is China Socialist? Theorising the Political Economy
of China
Xinwen Zhang
To cite this article: Xinwen Zhang (2023): Is China Socialist? Theorising the Political Economy of
China, Journal of Contemporary Asia, DOI: 10.1080/00472336.2023.2235757
To link to this article: https://doi.org/10.1080/00472336.2023.2235757
© 2023 The Author(s). Published by Informa
UK Limited, trading as Taylor & Francis
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Is China Socialist? Theorising the Political Economy of
China
Xinwen Zhang
Department of Economics, School of Oriental and African Studies (SOAS), University of London, UK
ABSTRACT
This article investigates important and interrelated issues regard-
ing China. It seeks to understand China’s current social formation,
setting out the relationship between China and socialism. To
examine whether China is socialist, this article examines key prin-
ciples of socialism drawn from Marx including: individuals’posses-
sion of the means of subsistence; the entitlement to a share of
the means of production that are held in common; equality; and
the degree to which the state is withering. Through an examin-
ation of China’s social welfare regime, the rural land ownership
regime, and state-owned enterprise profit sharing with citizens,
the article finds that China does not meet the criteria for social-
ism. In this context, the article continues to evaluate –based on
an examination of the ruling party’s motivations and the power
dynamics of several social forces –the possibility that China could
return to socialism once it builds a sustaining productive dynamic.
Also investigated is the role of the state, analysing state-controlled
economic resources including natural objects and state-owned
enterprise and their impacts on society and the economy.
KEY WORDS
Capitalism; Chinese political
economy; Marx; socialism;
state
Since 1978, China has been transformed to a market-based economy and has integrated
into the world system. China identifies itself as a “socialist market economy,”pursuing
socialist aims with market mechanisms (see Cheng 2023). Deng Xiaoping and his advisers
made attempts to reformulate Marx to suit China’s reform-era situation. For example, it
was argued that the socialist system may be decomposed into aims and means. Socialist
aims are broadly defined as “common prosperity”which contains both “prosperity”and
“equity”: socialism shall not make people equally poor, nor prosperity for a few.
1
Under
the banner of “socialism with Chinese characteristics,”various social groups harboured
different expectations about the goal of the reform and provided their own reformulations
of Marx for a market context. One interpretation is that society must pass through capit-
alism to build socialism, and it will finally return to the “correct”socialist path.
2
The offi-
cial stance of the Jiang Zemin administration was that as long as state-owned enterprises
CONTACT Xinwen Zhang 665171@soas.ac.uk Department of Economics, SOAS, University of London, Thornhaugh
Street, Russell Square, London WC1H 0XG, UK.
ß2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives
License (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in
any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on
which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their
consent.
JOURNAL OF CONTEMPORARY ASIA
https://doi.org/10.1080/00472336.2023.2235757
(SOEs) control the commanding heights, the socialist tradition will not be lost (Jiang
1997).
3
Liberalist reformers argue that “the essence of socialism lies in the delivery of
socialist promises, not by the means it adopts …If the Communist Party adopts correct
policies to effectively prevent wealth polarisation, the socialist nature of our country can
be guaranteed”(Wu et al. 1997). Traditionally socialist aims such as the extension of state
ownership are now considered means rather than aims, and China’s socialist nature is not
considered contingent on the share of the state sector (CPCCC 1999).
4
How socialist is the socialist market economy with Chinese characteristics? China’s
embrace of the market economy certainly deviates from Marx who wanted to abolish pri-
vate property and exchanges. Further, China has actually re-established the capitalist
mode of production. For many scholars, whether China is socialist is not even in question
if strictly sticking to Marx. One answer is to claim that the so-called “socialist market
economy”is a euphemism for “capitalism with Chinese characteristics”(Huang 2008).
Some of those who share a similar view worry that in this Chinese capitalism the “danger
that the system will evolve progressively –by means of this pragmatism without principles
–toward a pure and simple capitalism is not theoretical”(Amin 2005, 145).
Is it possible to practice socialism in a market context? Or is this a futile search for
socialist elements in a market economy? To answer these questions, it is necessary to
examine the various efforts to reformulate Marx in a market context to see whether these
efforts preserve Marx’s key principles. In 1997, the 15th National Congress of the
Communist Party of China (CPC), following Deng’s 1992 comments on ownership, stipu-
lated “that all forms of ownership that are in line with ‘Three Conducives’[Deng 1993a]
should and must be used to serve socialism”(Jiang 1997). In other words, both the mar-
ket mechanism and private property could serve socialist aims. The Chinese government
asserts that a development agenda that is in line with Marx’s vision of all-round develop-
ment of people can be labelled as socialist. This reformulation of Marx promotes a notion
of “growth with equity.”Is this reformulation different from liberal egalitarianism?
Moreover, claims about guaranteed equity defining the socialist nature of a country do
not indicate how this outcome can be achieved. If it is through redistribution, then social-
ism is narrowed to distributional equality; in any case, redistribution does not play a big
role in reducing inequality in China as in some developed capitalist countries. In his
assessment of China’s socialism, Naughton (2017) proposes four criteria for socialism –
capacity, intention, redistribution, and responsiveness –and concludes that contemporary
China is not socialist. Yet, his criteria are not specific to socialist societies, and are univer-
sal across capitalist democracies.
In some cases, socialism has been interpreted as an equivalent to a “non-neo-liberal”
approach in a market context. Is it socialism when the state attacks monopolies, provides
social security, and invests in projects such as public transportation or public housing? In
the same vein, is it a feature of the socialist economy that follows a production-oriented
growth pattern, preventing both financialisation and de-industrialisation? Analysts may
postulate how socialists would react to the ills of capitalism in a market context, perhaps
based on the socialist’s pro-worker stance. But these actions are not distinct and essential
features of socialism, as Western countries also widely adopt these social democratic poli-
cies. Another claimed attempt to pursue socialism in a market context is by distinguishing
a market economy with small-scale businesses and perfect competitive markets from a
capitalism which is a monopolised, financialised economy, and to assert that a market
economy can be “neutral”and acceptable within socialism. Based on such distinctions
made by Braudel (1977)–“there are two types of exchange: one is down-to-earth, is
based on competition, and is almost transparent; the other, a higher form, is sophisticated
2 XINWEN ZHANG
and domineering …and the capitalist sphere is located at the higher form”; Cui (2005,
163) argues that “petty bourgeoisie socialism must embrace the first type of market while
rejecting the second.”Regarding the question of petty-bourgeois socialism, Marx and
Engels (2022) made it clear in the Communist Manifesto that:
this form of socialism aspires either to restoring the old means of production and of exchange, and
with them the old property relations, and the old society, or to cramping the modern means of
production and of exchange, within the framework of the old property relations that have been,
and were bound to be, exploded by those means. In either case, it is both reactionary and utopian.
Westra (2020) also discusses the question of market economy and suggests that society-wide
markets only prevail in capitalist economies though markets of some sort exist in many his-
torical societies. Therefore, even in the case that the markets abound with small-scale busi-
nesses, if the condition of society-wide markets is met, it qualifies as a capitalist economy.
Besides limiting markets, market socialism also requires other conditions to be met –work-
place democracy such as control over the conditions of work and the authority to select the
managers, as well as collective control over the disposition of the social surplus and invest-
ment (Schweickart 2005, 194). Can workplace democracy avoid commodifying and alienating
labour which are the core features of capitalism? De-commodifying labour not only requires
avoiding economic means to compel workers to work, no matter how generous the remuner-
ation or benefits may be, but also freeing labour from extra-economic coercion. Moreover,
labour alienation means that labour becomes indifferent to use value in production, so that
“as the soviet style experiments demonstrated, while eliminating markets through the instate-
ment of society-wide economic planning largely de-commodified labour power, worker alien-
ation persisted in the disinterestedness of labourers in production processes that product
outcome from which they were structurally disconnected”(Westra 2002, 73). In other words,
work must be self-motivated in a socialist society (Westra 2002, 69).
The rest of this article is structured in four sections. The next section reviews some
key Marxist principles in a market context and examines whether China meets these prin-
ciples. This is followed by further investigation of the possibility that China will become
socialist after it passes a transitional stage. Based on this analysis, the final section will
demonstrate that the China model is one of state capitalism. A conclusion wraps up the
article.
Socialism and China
One of Marx’s critiques of the capitalist mode of production was of the expropriation of
surplus value by capitalists while labour only received subsistence wages. Labour is not
only economically exploited but also socially subordinated. The key to the capitalist mode
of production is private property. This private control of capital is a social power that
enables control of the labour process and subordination of labour to capital. To change
this exploitative production relationship and to abolish capitalist rule, the Communist
Manifesto proclaimed that the proletariat should “use its political supremacy to wrest, by
degrees, all capital from the bourgeoisie, to centralise all instruments of production in the
hands of the state, i.e., of the proletariat organised as the ruling class; and to increase the
total of productive forces as rapidly as possible.”After that, as “class distinctions have dis-
appeared, and all production has been concentrated in the hands of a vast association of
the whole nation, the public power will lose its political character”(Marx and Engels
2022). In other words, the state would wither away. The future society that Marx envi-
sions is an association of free people working with the means of production held in com-
mon; people consume a part of the product of their labour, and the remaining part serves
JOURNAL OF CONTEMPORARY ASIA 3
as the means of production collectively held by the society. Marx also cites Robinson
Crusoe’s pre-capitalist story of production in Capital to draw an analogy for the future
society: “all the characteristics of Robinson’s labour are repeated here, but with the differ-
ence that they are social instead of individual”(Marx 1990, 171).
Guarantee of Essentials
There is a concept of individual property and a deep sense of humanitarianism in Marx.
In a socialist society people are guaranteed a part of the social product according to their
ability and needs. Socialism aims to reduce risk and insecurity, eradicate poverty, and
eliminate unemployment. In contrast, the liberal conception of rights is defined as “the
legal capacity to strive for the things one would like to possess but do not guarantee the
possession of any of them”(Marshall 1992, 21). In a market context, it is often through
the state’s provision of welfare to guarantee individuals’possession of essentials. The
state’s provision of welfare is considered here for the purpose of examining whether a sys-
tem is socialist in a market context. While a socialist country needs to provide universal
benefits, the universal provision of welfare is not necessarily socialism.
In assessing China, Esping-Andersen’s(1990) taxonomy of welfare states is useful. It
indicates two criteria for the socialist welfare state: universality and equality. China
achieves near universal coverage of social security. In 2021, one billion people participated
in the basic pension plan (0.48 billion people enrolled in the Pension Scheme for Urban
Employees, 0.548 billion covered by the Pension Scheme for Urban and Rural Residents),
while 1.364 billion people participate in the Urban Basic Medical Insurance Scheme
(National Bureau of Statistics 2022). However, China scores low on Esping-Andersen’s
criteria for a socialist welfare state on equality of benefits. While the average public pen-
sion for urban employees replaced about 96% of the mean urban disposable income in
2018, the pension replacement rate for rural residents was only 12.5% (see Figure 1).
5
An
urban–rural divide is also found in health care expenditure and medical infrastructure.
While China’s social security system covers much of the population, Zhang (2020) sug-
gests that it has elements that work against socialist-universalism: (i) although private
pensions are a negligible feature of the system, the public pension is an earnings-related
scheme that replicates income inequalities rather than promotes redistribution; and (ii)
the Minimum Income Assistance (Dibao) is a means-tested poor relief which embodies
the liberal principle that “public obligation enters only where the market fails”(Esping-
Andersen 1990, 43).
Property
It is also noteworthy that China’s rural land is owned by the village collectives, which
may be seen as a legacy of the earlier socialist experiment with a planned economy where
the means of production was held in common. The household responsibility system con-
tracts land to rural households for farming or sub-contracting, but to avoid rural land pri-
vatisation, households cannot sell the contracted land. This not only prevents private land
accumulation but also guarantees that peasants hold their means of subsistence (Wen
2009,16–17).
In examining this system, Cui (2005) concludes that China’s rural landownership sys-
tem represents a Proudhonian version of petty bourgeoisie socialism. However, this is
questionable for several reasons. First, small-scale farming generates very limited income
for rural households. Second, the rural land regime restricts peasants’exit rights by
4 XINWEN ZHANG
protecting their usufruct rights. These rights are contingent on a rural hukou, which insti-
tutionally hinders people’s mobility. Third, collective ownership of rural land does not, in
fact, eliminate the possibility of land acquisition. The Land Administration Law and the
Constitution legalise the state’s acquisition of rural land for public purpose. Only through
this process of state acquisition can the rural collective land be transformed into urban
construction land and be designated for a specific development plan. The implications of
this land policy include: (i) The state becomes the agent bridging the rural and the urban
land markets, serving as the only buyer of the rural land and monopolising the urban
land supply; and (ii) peasants may not receive the full benefits from land value appreci-
ation. Until 2019, when it was removed, the ceiling for land compensation and the
resettlement fee for peasants was set at 30 times the three-year average of agricultural out-
put before the land was acquired. The price differentials between acquiring land from
rural collectives and selling it to real estate developers and industrialists is an important
source of fiscal revenues of sub-national governments, sponsoring many infrastructure
projects.
Additionally, there are different interpretations of entitlement to a share of public
property. Some scholars, like Zhou and Cheng (2012) argue that the individual entitle-
ment to public property is nominal; a public property, a means of production, is not held
by anyone, and what individuals own is a means of consumption. In this context, “public
property”is confused with “proceeds from public property,”which also includes SOEs. It
Figure 1. Pensions: replacement rate based on average disposable income
Note: Replacement rate for urban employees¼average urban pension income/mean urban disposable income; Replacement rate for
urban employees ¼average rural pension income/mean rural disposable income.
Source: Adapted from Zhang (2020, 11), with data from the National Bureau of Statistics of China.
JOURNAL OF CONTEMPORARY ASIA 5
is true that public property as a means of production is held in common, but the prod-
ucts of public property could serve as a means of consumption so that they can be dis-
tributed among citizens. In a situation where the masses do not have a vote in social
investment and do not have the right to receive proceeds from public property, the exist-
ence of such public property is not a characteristic of socialism. Rather, it is a characteris-
tic of state capitalism. In contrast, the socialist scholar Lange (1936/1937) proposes a
“social dividend”financed by proceeds from public property. Roemer (1995) proposes a
politico-economic coupon mechanism for market socialism, to prevent the concentration
of the ownership of stock in the hands of the rich, he argues that restraining conditions
must be applied, including that the rich are precluded from buying controlling shares of
all firms, and that all citizens have the same endowment of coupons. By doing so, divi-
dends from public-owned enterprises can be equally distributed among the population.
The approach of a “social dividend”financed by proceeds from government shareholding
is also adaptable to mixed economies. To create this kind of public ownership in capitalist
economies would need “a once-for-all capital levy which transferred some slice of prop-
erty from each private property owner to the state”(Meade 1964, 71). Socialist countries
that aim to develop a mixed economy can achieve the result simply by refraining from
selling the whole of the state ownership to the private sector (Meade 1993).
There is not an institutionalised mechanism in China that allows individuals to access
the proceeds of public property. China has transferred some SOE assets to fund the social
security system, but the primary purpose has been to fund the SOE retirees’unfunded
and under-funded individual accounts due to the shift from a pay-as-you-go pension plan
to the “individual account”scheme. Therefore, this is for a specific group of retirees and
is unsustainable (State Council 2017).
Equality
Socialist production relations can give rise to a high degree of equality. Marx (2022)in
the Critique of the Gotha Programme suggests that at first, “the right of the producers is
proportional to the labor they supply; the equality consists in the fact that measurement is
made with an equal standard, labor.”This principle of distribution –described by Marx
as “stigmatized by a bourgeois limitation”–still considers differences in personal capabil-
ities, while in the higher phase of communism, distribution will be according to one’s
needs. In the capitalist mode of production the social product is distributed between capi-
talists and labour, with labour receiving the means of subsistence and capitalists keeping
the rest. China’s embrace of the market economy means an acceptance of this capitalist
distribution rule. In capitalist society, the most often used approach to tackle inequality is
through redistribution, including progressive taxation and social security for all (Atkinson
2015). However, in a society there are often debates regarding the “affordability”of redis-
tributing resources to the disadvantaged, often severely limiting welfare and embedding
inequality. Moreover, a key problem with redistribution through direct taxation is that the
rich can hide financial assets, while the super-rich seek out tax havens. This causes
Piketty (2014, 515) to propose a global tax on capital which he admits being “utopian.”
China seems to be unable to collect sufficient direct taxes for redistribution. Income
taxation is progressive, and the highest bracket is 45% (compared with 37% in the US
and 45% in the UK). However, based on data from the OECD and the National Bureau
of Statistics of China, in 2019, personal income tax revenue only contributed 6.575% of
total tax revenue (social security contributions not included) in China (compared with in
41.07% in the US and 27.6% in the UK on a comparable basis).
6 XINWEN ZHANG
Another approach to equality is to guarantee equal opportunity. The market economy
is a system where all agents with diverging economic power make exchanges or compete;
there is no constraint on individuals using their economic power to force other agents
into unequal exchanges, particularly those who are deprived of market power. In the mar-
ket economy, the rich and powerful contribute to disadvantage by, for example, maintain-
ing a large reserve army of labour, diminishing competition, and limiting social mobility.
However, the conservative response of equal opportunity does not address the unequal
economic powers held by various market agents. As described by Roemer (1995, 21):
what distinguishes socialists or leftists from conservatives is, in large part, the view of how deeply
one must go in order to equalize opportunities. Conservatives believe not very deeply: if there is
no discrimination in hiring and everyone has access to education through a public school system
or vouchers, then the conservative standard of equality of opportunity is met. Socialists believe that
those guarantees only touch the surface …Most generally, equality of opportunity requires that
people be compensated for handicaps they suffer, induced by factors over which they have no
control.
In a socialist society, no one can manipulate economic power to force others into unequal
exchanges, and no one is forced by his/her disadvantaged circumstances into unequal
exchanges. These two aims may only be partially achieved in a market economy, that is,
through enhancing individuals’capabilities and restraining excess market power.
To be sure, in promoting equality, socialists consider enhancing people’s ability a soci-
etal issue. Besides enhancing individuals’capability through providing essentials such as
access to education and basic welfare, China devotes massive resources to improve phys-
ical and social infrastructure. Yet China’s industrial policies focus on fostering competi-
tion and nurturing advanced capabilities. Socialists also consider the state’s interventions
to include but not be limited to preventing profiteering prevailing, preventing the emer-
gence of monopolistic power, and pushing capital to make investments in areas that serve
the long-run goal of economic growth and steer the economy towards inclusive growth.
In this context, China exhibits a socialist tendency, or more precisely, a non-neo-classical
stance. However, China’s overall inequality is still high, not least due to regional diver-
gence and a rural–urban divide. China’s Gini index was 38.5 in 2018, with greater
inequality than in capitalist countries including Australia, Canada, France, Indonesia,
Japan, and the UK. In short, China may not be identified as a socialist country in terms
of economic equality.
State
Marx envisioned a future society that would be an association of free people. It was in
the transition to socialism that the means of production were to be concentrated in the
hands of the state, withering away in the transition to communism (Engels 2022).
However, when communist parties have achieved victory, they have been confronted with
military hostility from the capitalist world and economic blockades, the conditions for the
state to wither away have not been met.
In considering the transition to socialism, Lenin (2022 Ch. V) proposes:
the expropriation of the capitalists, the conversion of all citizens into workers and other employees
of one huge “syndicate”–the whole state –and the complete subordination of the entire work of
this syndicate to a genuinely democratic state, the state of the Soviets of Workers’and Soldiers’
Deputies.
In practice, the state was both the organiser of the society and the central planner of the
economy. Despite Lenin’s notions of democracy, this is a hierarchical system, with the
JOURNAL OF CONTEMPORARY ASIA 7
state representing the most fundamental public interest, and a proper democratic process
such as majority rule and freedom of public opinion absent. The literature also indicates
that the state elites that emerged were divorced from the masses and manipulated public
power to serve private interests (see Nove 1975, 620). Intuitively, the state syndicate con-
tradicts with the sense of “authentic human happiness and the genuine freedom”inherent
in Marx, but the reality of the socialist economy does create opportunities for the abuse
of power. It also legitimises the collective taking part of individuals’product to serve as
social product, which causes intra-class controversies, though between-class conflicts are
eliminated. For example, the controversy over the relative weight attributed to consump-
tion versus investment arises when the state aims to accelerate growth while peasants/
workers want more consumption. Sometimes these disputes could be tense. Kornai (2007,
163–170) argued that with soft budget constraints, bureaucrats’investment hunger caused
the neglect, sacrifice, and postponement of consumption. Without immediate responsibil-
ity for the results, bureaucrats are motivated to expand production, sometimes through
ignoring and distorting the information transmitted to colleagues doing the planning. The
central planner may adjust supply and demand but this adjustment may not come in due
time, particularly when local bureaucrats have an incentive to control information that
delays immediate adjustments to planning.
If the state syndicate and a withering away of the state fail, what would be the desir-
able way to organise the state? On the one hand, democracy allows unequal individuals to
influence collective decisions unequally (Przeworski 2010, 92). On the other hand, there
may be a contradiction between nurturing collective capabilities and minimising the state.
There is no immediate answer as to what a socialist state should look like in a market
context. The Chinese state has retreated from many aspects of social life since the reform
era, but the state continues to play a large role in the social economy. Yet the China
model of a big state is different from Marx’s vision of free people’s association. To better
understand the nature of the Chinese state, further analysis in conducted in the following
section.
To sum up this section, in terms of individuals’possession of the means of subsistence,
China has achieved near full coverage of the social security system, and the rural house-
hold responsibility system grants peasants usufruct rights over the contracted land. Yet
there is a high level of inequality in income distribution and social welfare benefits, and
there is no institutional mechanism that allows individuals to access proceeds from SOEs,
and hence China fails to meet the criteria for socialism. Moreover, a big state is not a
necessary feature of socialism, so that the state’s capacity to control the commanding
heights or the intention to shape the economy do not constitute material evidence for
China being a socialist country. SOEs in China are considered a manifestation of state
capitalism rather than of socialism since they do not directly distribute dividends among
citizens.
Will China Become Socialist?
Some scholars view contemporary China as representing an intermediate form between
capitalism and socialism (see, for example, Wan 2018). A more common narrative is that
the primary stage of socialism represents an initial form of socialism, and hence China
has already been a socialist country since the socialist transformation in the 1950s. The
main task in the primary stage of socialism, it is argued, is to build a self-sustaining pro-
duction dynamic through establishing a market economy before it realises communism
(Gong 2017; Wang and Zhang 2021). This temporary “deviation”into a market economy
8 XINWEN ZHANG
is justified by the realisation of communism at some point in the future. However, as dis-
cussed below, this sharp turn in China’s trajectory to communism is unlikely, considering
the motivations of the CCP as the ruling party as well as the power dynamics of several
social forces.
Arising from the ashes of civil war, the institutional structure of the Communist Party
and its military apparatus developed for war and national struggle. The party developed
to preserve its own existence rather than for strictly socialist pursuits. Writing of the
Soviet Union, Mandel (1978) discusses the ossification of a bureaucratic stratum and that
the country remained stuck on the road to socialism. If the state is stuck in the transition
phase, the means of production centralised by the state in the name of the whole society
would be continuously under the control of the Communist Party elites. As Westra (2020,
184) questions:
And once [wealth is] amassed, as party elites effectively become capitalists, do socialists really
believe these elites will divest themselves of their holdings at some indeterminate time in the
future to redistribute wealth and take their place as members of the common socialist proletariat
in the effectively classless society Marx envisioned?
Therefore, one key condition for the state taking possession of the means of production
in the name of the whole society is complete democracy (Lenin 2022). However, since
Lenin, ruling communist parties have become a self-sufficient and hierarchical system that
lacks checks and balances and excludes political competition. It controls the commanding
heights of the economy through state capitalism, and with this economic capacity the
Communist Party does not rely on any social classes, politically or economically.
The socialist experiments in the Soviet Union and its associated Communist bloc
resulted in a loss of faith in socialism for many people as they came to equate socialism
with the planned economy and state syndicate. For its part, the CCP confronted chal-
lenges from capitalism including economic affluence that glorifies capitalism’s successes
and political competition as the hallmark of democracy. Confronting these challenges, the
CCP links the legitimacy of its rule with the delivery of prosperity for the masses. In this
sense, maintaining rapid economic growth and sharing the fruits of growth with all citi-
zens is as important as maintaining the party’s rule. It is akin to bribing the people by
pushing forward economic liberation so that the party can bypass political reform. The
masses “buy in”because democracy is not presented as a guarantee of economic prosper-
ity. Paraphrasing Przeworski (2010, 109), they face three possibilities: first, political par-
ticipation and economic prosperity; second, political participation but being on the losing
side, with economic prosperity not realised; and third, economic prosperity without polit-
ical participation. The second and the third possibilities are ambivalent for many people,
though the first possibility is likely regarded as superior to the second and the third by a
majority. With uncertainties about the alternative future and satisfaction regarding rapidly
improving living standards, the motivation to change the status quo is not strong.
The situation of the CCP may be summarised as follows: (i) the state does not want to
relaunch any socialist construction project, because a robust private sector is deemed cru-
cial to the booming economy; (ii) the state is expected to mitigate class conflicts by pro-
moting economic growth and improving people’s living standards, as the ideal of
“common prosperity”which has been interpreted as “the rich will be able to remain rich,
but the poor will not continue to be poor”(Dunford 2022, 50), because escalating class
conflicts will jeopardise social stability and party-state legitimacy; and (iii) political com-
petition is not welcome, though political participation is encouraged (see Stromseth,
Malesky, and Gueorguiev 2017). In this context, while some bureaucrats may ally with
capitalists for bribes, the state has no intention to share power with private capitalists,
JOURNAL OF CONTEMPORARY ASIA 9
and capitalists as a class remain vulnerable, especially when dealing in corrupt relation-
ships with some bureaucrats. For instance, compared with getting bribes, attacking capi-
talists is not only lauded by the masses, but also the government can collect significant
revenues from penalties for “illegal income.”
6
Reinvigorating a socialist project faces other obstacles. During the reform era, as
income gaps widened, self-identified radical leftists, particularly some Communist Party
veterans, fiercely inveighed against corruption, proposing to return to the Mao era,
relaunching the Cultural Revolution and its attacks on venal bureaucrats (see Ma 2006).
However, that period left people with lasting pain; the fear of losing today’s property, life-
styles, and economic freedom means such proposals are repellent for many people.
Moreover, such proposals do not address how improvements can be made on the socialist
experiment with the planned economy in the pre-reform era.
Meanwhile, what liberal reformers call for is economic freedom and a minimal state;
the telos of reform is to create “perfect”markets without arbitrary state intervention (see
Wu 2013). The perspective mirrors modernisation perspectives that economic develop-
ment and the growth of the private sector can result in a social consensus for a liberal
agenda.
However, contemporary Chinese society is now increasingly divided into classes. Class
conflicts escalate, and this manifests in changing attitudes towards capitalists. For
instance, internet tycoon Jack Ma, who was once widely admired as a successful entrepre-
neur and ambitious role model for young people, now faces animosity from the masses,
particularly on social media, when people realise that they will never have a chance to
climb the class ladder. When Ma declared that people should be happy to have an
“opportunity”to work from 9 am to 9 pm every day and six days a week, one result was
the cult of “lying flat”which was a protest against such capitalist boasting (BBC News,
February 16, 2022). The alliance between private capital and the masses that was forged
through reform has been broken, which has been viewed by the authorities as an oppor-
tunity to strengthen party-state control and take back what had earlier been conceded to
the private sector.
The possible outcome of this political and economic realignment may be the augmen-
tation of the state sector and stronger state control. There is a narrative that making
SOEs stronger, more competitive, and larger is in line with the fundamental interests of
the people, as SOEs help to address the inherent deficiencies of the market economy. For
example, as Han and Ge (2018) suggest, SOEs operating in public utilities can lower the
prices of essential goods for low-income individuals. Moreover, as SOEs are nominally
owned by people, the development of SOEs theoretically promotes fairness and improves
income distribution. In addition, attacking big private capital strengthens the state’s con-
trol. This means, in a context where the party-state is strengthening its control over the
society, state capitalism is gaining momentum as radical leftists and liberal reformers are
losing support.
Where Is China Now?
From an economic perspective, the Chinese economy meets the condition for a capitalist
economy. While fragmented small markets that existed in many historical circumstances
involving interpersonal exchanges and other economic factors do not make it capitalism.
It is society-wide markets that weave economic forms such as profits, wages, money, and
so forth into a system that make capitalist economies (Westra 2020, 187). Nor can it be
said that a market economy with the prevalence of a capitalist mode of production and
10 XINWEN ZHANG
commodification of labour qualifies as socialism. Despite this, China has political rulers
who identify China as a “socialist state”and a large state sector controlling the command-
ing heights of the economy, while the private sector seems restrained and politically timid.
In this section, two questions are investigated: first, what is the nature of the Chinese
state, capitalist, non-capitalist, or non-socialist? Second, it asks what impacts the Chinese
state has for capitalism?
To investigate the first question regarding the nature of the state, it is necessary to start
from the economic resources controlled by the state or the state sector and track the dis-
tribution of these economic resources. China had experienced the planned economy when
the state possessed productive instruments and acted as the surrogate of all citizens.
Under market-oriented reform, the natural objects such as land and mines are controlled
by the state, priced on markets, and the governments collect massive premiums from sell-
ing these use rights to firms and individuals.
7
Public properties such as SOEs are also
repositioned in the market context. Naughton (2017, 7) indicates that SOE profits and the
land premiums together accounted for 9.5% of GDP in 2015, while Zhang (2019, 10) esti-
mates that SOEs contributed 23–28% of GDP and 5–16% of total employment in 2017.
By controlling natural resources and SOEs, the Chinese state still controls a big share
of the economy as it has transformed into a market economy. But what does this mean?
First, Chinese citizens’ownership over natural resources is nominal (or perhaps even
non-existent) because people must pay for using certain natural resources. The pricing of
the use rights of natural objects such as land and mines and transactions of these titles
over markets are evidence for their commodification and the existence of capitalism. If
we consider that Marx (1991, 911) refuted individuals’and nations’ownership of the
earth, which was entirely created by the relations of production and viewed natural
objects not as the product of human labour, which had no exchange value but a use value
(Marx 1990, 131). The state, by seizing the profit from trading natural objects, acts as a
rentier. Second, since Chinese citizens cannot directly access the proceeds of SOEs, the
question arises regarding the status of SOEs. Are they public property or the party-state’s
assets? It is reasonable to consider SOEs as the party-state’s assets because it is the party-
state who holds the owner’s rights including claim over residuals, decision-making
authority, control over assets, and the ability to hold SOEs’managers accountable for
their actions. It might be argued that rents from these natural objects and SOE profits are
devoted to building infrastructure and boosting development for the benefits of the peo-
ple. For example, sub-national governments control the land premiums which are usually
used to boost local economic performance. Similarly, SOEs that extract natural resources
rents and monopoly rents shoulder social responsibilities. While taking on these responsi-
bilities might be signs of benevolent governance, it does not mean that citizens who are
recipients of public service are the true owners of public property. In today’s circumstan-
ces, citizens remain the “nominal owners”of SOEs, because different arrangements could
trigger a legitimacy crisis.
If we consider the Chinese state as the principal of SOEs and natural objects, and
SOEs’managers and bureaucrats as the agent, agency problems within Chinese SOEs
share similarities with those found in private firms in the West such as profit retention
and managerial expropriation including transfer pricing through related-party transactions
and less direct personal benefits and consumption of perquisites (see Burrough and
Helyar 1990; Shleifer and Vishny 1997). In Chinese SOEs, managers tend to reinvest the
free cash rather than return it to shareholders –the state. The profit retention experiment
that began with reforms and aimed at boosting SOE performance allowed free cash to be
turned into investment funds within the SOEs. This was reinforced by the 1994 reform
JOURNAL OF CONTEMPORARY ASIA 11
when SOEs stopped remitting profits to the state and paid taxes only. In 2007 the state
started trials to collect dividends from some SOEs.
8
Even so, the SOEs collectively still
pay a very small share of their profits to the state, in 2015 amounting to around 8.15% of
total SOEs’profits (Jiao 2018, 100). Moreover, the dividends paid to the Ministry of
Finance are returned to SOEs, often with additional funds.
9
Given most SOEs providing
public services are unprofitable, funds returned to SOEs are evenly distributed within the
state sector, allowing unprofitable SOEs to share the rents generated by natural monopoly
SOEs. In this context, SOEs play a mixed role of capitalist and rentier of natural monopo-
lies, but as the state does not share SOEs’profits, the rents of natural monopolies are
only shared within the state sector and thus cannot be redistributed for social use.
A second issue regarding the state’s control of the economy as it has transformed into
a market economy relates to officials being more likely to deploy public resources to serve
their political interests. Kornai (2007, 160–161) observed that a main imperative in
planned economies was to catch up with developed countries and that this created an
“investment hunger”and soft budget constraints. In China, this imperative has been abet-
ted, since the 1980s, by the promotion system that linked sub-national bureaucrats’pro-
motion with economic performance in their areas (Xu 2011, 1141). This arrangement
motivates officials to deploy resources to fulfil performance targets.
Third, bureaucrats’control rights over SOEs create opportunities for managerial expro-
priation, particularly when citizens are excluded from supervision. Managerial expropri-
ation occurs when some SOEs’leaders transformed SOE assets into private property
through re-organisation and privatisation during the reform era. Fisman and Wang
(2015) suggest corruption as a source of under-pricing of state asset sales. Cheng (2004)
also documents rampant corruption such as graft, bribery, and embezzlement within
SOEs, as decentralisation of managerial power enables SOEs’managers to exercise discre-
tion over the ample economic resources they control.
Therefore, the analysis of the state and the state sector cannot support the argument of
a Chinese socialist state, as “public properties”such as natural objects and SOEs are virtu-
ally the party-state’s assets, and citizens have been deprived of nearly all the rights that
constitute the ownership of these public properties. To be more specific, SOEs play a
mixed role of capitalist and rentier, and as shown, the state apparatus barely shares in the
profits of SOEs, and hence could not redistribute these for social use. The principal–agent
problem between the state and individual bureaucrats and SOE managers is also notice-
able in that the state assets have often been stolen or misused for personal gain.
Next, what impacts do the established social order –the state and state sector –have
on capitalism in China? As the state and the state sector have repositioned themselves in
the market context, their conflicts with nascent private capital do not represent the final
struggle between socialism and capitalism. Instead, these are fights between the
Communist Party elite and emerging social forces. On the one hand, the party elites want
to fortify their political and economic positions, from which they can draw considerable
economic benefits, as there is a concern that big capital that gathers both economic
momentum and political influence may cause the communist elites to lose their dominant
social-economic position. On the other hand, the relative closedness of the party system
makes it hard to absorb the new social forces. The private sector’s growth has been spec-
tacular, but their political status does not match their economic power. The Communist
Party is a self-sustaining system, which limits the opportunity for nascent private capital
to penetrate the political arena. While the Communist Party system allows capitalists
membership, it also absorbs members from all social strata. To access the top levels of
power, however, is another matter. The party elite is a small, fixed circle, and the
12 XINWEN ZHANG
promotion of professional bureaucrats is based on meeting and exceeding targets. Unlike
in electoral politics where it is often seen that politicians seek support from capitalists and
provide patronage in return, in China the state sector constitutes the economic founda-
tions for the political administration, and the party-state is self-sufficient in the sense that
the system can sustain itself without support from either the capitalist class or proletariat.
The Chinese state has tended to not just regulate big private capital but has politically
tamed it. Therefore, whereas private capital may be invited to participate in politics, it is
on the condition that it will not threaten the ruling party’s dominance, and any inappro-
priate political ambition will be restrained. The authorities have made it clear that private
capital cannot control media, preventing big capital from directly influencing public opin-
ion. The level of regulation for big private capital is also stringent. For example, Alibaba
was issued an anti-trust fine amounting to 18.2 billion yuan ($2.8 billion) (CNN, April 12,
2021), while Jack Ma’s effective voting right in Ant Financial Service decreased from
53.46% to 6.2% (Nikkei, January 12, 2023; The Guardian, March 27, 2023).
The telos of state capitalism is not to dominate the whole economy by wresting capital
from the private sector with their political supremacy. Li, Liu, and Wang (2015) argue
that private businesses primarily concentrate on manufacturing and the services sector
(the downstream industries) and are subject to fierce market competition while SOEs
dominate energy and natural resource-related industries (the upstream industries), mean-
ing that the private sector relies on SOEs to supply essential intermediate goods and
energy resources. Although Chinese SOEs are considered less efficient than private enter-
prises, they have outperformed the latter since the beginning of the twenty-first century,
which may be ascribed to SOEs extracting rents from the private sector. Even so, a robust
private sector is important for the state sector, especially as the development of the private
sector will increase the demand for the products of SOEs.
Furthermore, technocrats seek to expand production rather than maximise profit. In con-
trast, capitalists, who are generally seen as profit maximisers, often exert significant influence
over state policies and support austerity policies. As Kalecki (1990, 351) pointed out, capital-
ists may be reluctant to increase investment for several reasons, including for the purpose of
maintaining their social position as bosses. For example, the 2008 financial crisis saw financial
capitalists in mature capitalist countries supporting austerity policies even after themselves
being bailed out. Like Kalecki, Vercelli’s(2014) explanation focuses on the primacy of political
interest (such as diminishing competition and weakening labour) over economic interests
(such as boosting aggregate demand). In China, the political weaknesses of capitalists led to
this capitalist tendency of restraining investment being overwhelmed by the technocrats’
investment hunger, thus fuelling the tendency of over-production (itself inherent in capital-
ism). The epidemics of over-production are resolved by the state increasing public consump-
tion, exhausting excessive productive capacity but not diminishing the means of production.
For example, China repeatedly implements expansionary policies reminiscent of
Keynesianism, particularly in funding infrastructure investments where such construction is
both an investment and a part of public consumption. So it is that China has built by far the
longest high-speed rail network in the world but has also accumulated rail debts of nearly
5.91 trillion yuan, or around 5% of China’sGDP(Nikkei Asia, July 6, 2022). While a neo-
classical perspective would suggest this is responsible for “welfare losses,”heterodox econo-
mists are likely to appreciate such investments.
The implications of the state and state capitalism for capitalism in China can be sum-
marised. To maintain its dominant political and economic position, the party-state politic-
ally tames private capital and thus the latter exerts less influence on state policies than in
the West. Technocrats seek to maximise production rather than profit, which may resist
JOURNAL OF CONTEMPORARY ASIA 13
some of capitalism’s ills such as the need for a reserve army of labour. State capitalism
does not aim to dominate the whole economy, as monopolising over upstream industries
allows it to extract rents from downstream firms and individuals. Thus, maintaining a
robust private sector is in line with the state’s interests.
Conclusion
This article has investigated broad questions regarding socialism in China: What is
China’s current position? Is China socialist? Will China become socialist? To answer these
broad questions, the article first proposed four defining principles of socialism, drawn
from Marx: individuals’possession of the means of subsistence; entitlement to a share of
the means of production held in common; equality; and the withering away of the state.
It was found that China fails to meet these criteria.
The article also considered the nature of the Leninist party-state, finding it a hierarch-
ical, self-sustained system that departed from the democracy envisioned by Marx. Only
when there is complete democracy will bureaucratic elites cease abusing state power and
taking possession of productive instruments as they do now. As China has transformed
into a market economy, it has been seen that citizens –who have nominal ownership of
natural resources and SOEs –must pay for use rights and cannot readily access SOEs’
proceeds. It was found that the market mechanism means that the distribution/redistribu-
tion system is based in systems that are capitalist.
In discussing SOEs, it was found that most SOE profits are retained within these firms,
the state barely shares the SOEs’profits, and thus cannot redistribute them for social uses.
SOEs are thus more-or-less capitalist and rentier but also show features of managerial
control. SOE and natural objects such as land and mines are virtually the party-state’s
assets. SOEs are also inflicted with agency problems as SOE managers tend to increase
control rights and benefits by deploying SOE resources to serve political interests and
through indirect and corrupt means of expropriation.
Finally, it was shown that the state and state sector have specific impacts on capitalism
in China. For example, they tend to expand production beyond the optimal level, and
restrain big private capital to protect its social-economic position. These are not signs of
socialism, but of a type of capitalism with a party-state that has developed non-socialist
pursuits and prepared to defend its position by all means.
Acknowledgements
The author wishes to thank Professor Kent Deng and Professor Richard Westra, the editors, and the
anonymous reviewers for their comments and suggestions.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1. Though Mao Zedong was the first to propose this phrase in drafting the goal for developing rural co-
operatives, Deng gave it a new meaning in the reform era by asserting that the core of socialism is to
achieve common prosperity. For example, he stated: “to take the road of socialism is to gradually
materialise common prosperity”(Deng 1993a, 373), and “socialism is not prosperity for a few and
poverty for the majority”(Deng 1993b, 364).
14 XINWEN ZHANG
2. Su (1998) argues that one logical interpretation of the slogan “the primary stage of socialism”is that
China will return to a planned economy in the future. Pushing forward market-oriented reforms, the
Chinese Communist Party (CCP) leaders feigned agreeing with such an interpretation to avoid attacks
from radical leftists. Su considers that the CCP leaders have no real intention to return to a planned
economy as they anticipate the date for entering communism is too remote –in hundreds of years –
but the CCP is perpetually burdened by the promise they made, which creates a sense of obligation
and responsibility regarding the commitment to return to a planned economy.
3. The idea of the state controlling land and vital industries originates from Lenin (2023): “our state
capitalism differs from state capitalism in the literal sense of the term in that our proletarian state not
only owns the land, but also all the vital branches of industry. To begin with, we have leased only a
certain number of the small and medium plants, but all the rest remain in our hands.”
4. The Decision of CPC Central Committee on Several Major Issues of Reform and Development of State-
owned Enterprises (CPCCC 1999) stipulates that as SOEs were restructured: “the proportion of the
state-owned economy in the entire national economy will decline. As long as we adhere to the dom-
inance of public ownership, maintain state control over the vital industries of the national economy,
and strengthen the control and competitiveness of the state-owned economy, this decline will not
affect the socialist nature of our country.”
5. Due to the rural population primarily earning income from the informal sector, where it is hard for
the tax department to track individuals’earnings, the pension system for rural residents allows people
to select their desired level of payments and receive benefits accordingly. For example, the lowest pen-
sion contribution for rural residents was 100 yuan per year in 2009. In contrast, the pension system
for urban employees is earnings-related, and the annual pension contributions vary from thousands
to tens of thousands of yuan. The disparity in pension contributions between urban employees and
rural residents is mirrored in the discrepancy of the pension benefits they receive.
6. Tong (2012) indicates that when Bo Xilai was the governor of Chongqing, he launched campaigns
against organised crime, which implicated many capitalists. Once convicted of gang-related crimes,
the state confiscates the property belonging to the firm and its boss. Due to the lack of transparency
in judicial proceedings, it was thought that Bo Xilai falsely implicated innocent capitalists to expropri-
ate their private property. Chongqing under the governance of Bo Xilai may be an extreme case, but
it indicates the political vulnerability of capitalists in China.
7. The Constitution of the People’s Republic of China stipulates that “Minerals, water, forests, moun-
tains, grasslands, wasteland, tidal flats and other natural resources are owned by the state, that is,
owned by all the citizens; except forests and mountains, grassland, wasteland, and tidal flats that are
owned by collectives.”
8. In 2007, SOEs were classified into three categories and paid dividends to the state at rates of 10%,
5%, or had them postponed to three years later or were exempted (see State Council 2007). In 2014,
SOEs were reclassified into five categories and the dividend rates paid to the state were 25%, 20%,
15%, 10%, or exempted (see State Council 2014).
9. According to the Ministry of Finance (2021), the Central State-owned Capital Operation Budget esti-
mated SOEs to have paid a dividend of 128.165 billion yuan to the state in 2021. In the same year,
the central state capital operating expenditure for SOEs was 118.105 billion yuan, including a 0.02 bil-
lion transfer to the social security fund, 4.6 billion for dealing problems left by SOEs’re-organisation,
76.402 billion yuan to inject back into SOEs, 10.02 billion yuan policy subsidies to SOEs, other
expenditure of 16.883 billion, and a transfer of 10.152 billion to sub-national SOEs.
ORCID
Xinwen Zhang http://orcid.org/0000-0003-1081-3542
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