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Chapter 3
State Neo-Liberalism: The Chinese Road to Capitalism
Yin-wah Chu and Alvin Y. So
Introduction
China has undergone rapid and sustained economic transformation in the last
30 years. Its development has been remarkable for a number of reasons. In the
first place, its gross domestic product has increased at close to ten per cent per
year since 1978, and the country managed to reduce the share of population
living on less than US$1 per day from 64 per cent in 1981 to 16 per cent by
2006, or effectively lifting 400 million people out of absolute poverty (UNDP
2006). The rapid growth rate was matched nowhere in the world except for the
so-called Asian ‘miracle economies’ of Korea, Taiwan, Singapore, and Hong
Kong. In the second place, although the Chinese economy has its share of
problems, such as tremendous regional disparity, it also succeeded in
upgrading its technological capability and escaped the threat of foreign
domination. Over the years, not only has China become the global factory for
inexpensive consumer goods, it has also enticed BP, General Motors, Intel,
Microsoft, Oracle, and other corporations to locate part of their research and
development facilities in China. Furthermore, despite the importance of
foreign investors both as producers aiming at the global market, or as retailers
targeting at the domestic one, foreign capital remains largely a junior partner
in China’s development project. In the third place, despite the downfall of the
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former Soviet Union and Eastern Europe, China’s communist party-state has
continued to provide leadership for the country. This is the case despite the
growth of a nascent capitalist class as well as the emergence of widespread
dissent among workers and peasants. How, then, can we account for the
spectacular growth of the country and exceptional resilience of the party-state?
Numerous scholars have used divergent approaches to answer the
questions posed in the above. On the one hand, researchers influenced by
Weberian scholarship have explored the importance of social networks and
institutional transformations (Hsing 1998; Lin 2007; Nee 1989, 2000; Walder
1994). In particular, we learned the ingenious ways in which capitalists from
Hong Kong and Taiwan mobilized their network (or guanxi) and cultural
capital so as to overcome the deficient institutional environment of socialist
China and, until the 1990s, played the most important role in connecting China
with global production networks. We also learn of the ‘deep involvements’ of
the socialist state in building market institutions for the emerging market
economy and, alternatively, how China’s ‘multi-organizational’ state has
propelled accumulation at the local level. On the other hand, Marxist scholars
have focused on the changing dynamics of global capitalism and the
exploitative relationships that have emerged as a consequence (Hart-
Landsberg and Burkett 2004; Petras 2006). They have explicated the unfolding
of neo-liberalism since the late 1970s and how China has been incorporated
into the globalizing capitalist system.
Despite their value and importance, these studies have left a few
questions unanswered. Concerning the Weberian analyses, while one can
appreciate the nuance with which culture and social networks have been
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analyzed and the ‘unique’ textures of Chinese businesses, the studies have
largely ignored the wider context within which Hong Kong and Taiwan
capitalists have made their decisions. Indeed, perhaps it was not cultural
affinity or patriotism, but the changing global competition that had forced
these capitalists to relocate to China. Similarly, while we do not deny the
importance of the party-state in making the market institutions and deeply
appreciate the value of the notion ‘multi-organizational’ state in unraveling the
central-local tension of the Chinese state, we believe the role of the Chinese
state as a facilitator of capital accumulation should be given more emphasis.
Turning to the Marxist analyses, while we applaud their effort in painting the
global capitalist dynamism, we believe the accounts have gravely
underestimated the agency of the Chinese party-state in the drama of
economic transitions.
This chapter will develop the idea of ‘state neo-liberalism’ as a key
dimension to understanding China’s capitalist development. Specifically, we
argue that the Chinese economy has been given increasingly to neoliberal
practices, and the latter have unfolded in part as a result of the communist
party-state’s policy and in part because of the inherent contradictions and
divergent interests that attend the practices. The idea of ‘state neo-liberalism’
has been coined to highlight both the centrality of the state, and the
contradictions and tensions inherent in the neoliberal practices. In other words,
the communist party-state’s overriding concern for its survival and continued
leadership has been critical for shaping not only its initial decision to insert
itself into the global capitalist order, but also subsequent decisions to deepen
neoliberal practices, and to reassert its position as leader of emerging social
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forces and benefactor of the underprivileged. At the same time, neoliberal
practices also give rise to ideological and political tensions within the
communist party-state. Ideologically, so long as the party-state claims itself to
be socialist, it cannot openly advocate capitalism and endorse neoliberal
practices like privatization and marketization or it will have to face criticisms
from both the state elite and the general public whose cultural and material
interests have been hurt as a result. Politically, neoliberal practices will
invariably hurt the cultural and material interests of a segment of the state
elite, on the one hand, but will make for the emergence of new social classes
who will increasingly pose demands of quite different dimensions on the
party-state, on the other. It is through an analysis of the central concern of the
communist party-state and its effort to address the inherent contradiction of
state neo-liberalism that we will be able to understand the processes and
characteristics of the emergence of capitalism in China.
The following will first examine the meaning of state neo-liberalism.
The chapter will then move onto a discussion of how the state neoliberal
project has unfolded in China as propelled by the project’s inherent political
and ideological contradictions. We shall look at the hesitant emergence of neo-
liberalism in the first years of reform, the Tiananmen tragedy and how the
contradictions associated with the nascent state neoliberal project have been
addressed through a deepening of the process, as well as finally how the
communist party-state has sought to reposition itself as a leader and a
benefactor. The last section will venture into an anticipation of the future
trajectory of state neo-liberalism in China.
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State Neo-liberalism in China: Distinctive Traits
Before the late 1970s, capitalism in the West took the form what David
Harvey (2005) called ‘embedded liberalism.’ In order to solve the problems
created by the unfettered market during the 1930s depression, the state had to
take a more active role in managing the market to provide full employment as
well as to promote the economy. In embedded liberalism, the state is taking on
more and more roles (like providing more welfare and social services,
strengthening workers’ trade unions, imposing more regulations on the market,
and imposing higher taxes on the capitalist class). Thus, capital was induced to
compromise and have a new social contract with the working class, and capital
was embedded in a web of social and political constraints and in a new
regulatory environment that constraints its ‘greedy’ profit making behavior.
After World War II, a variety of social democratic, liberal democratic, and
dirigiste states emerged in Western Europe and the United States that
exemplify this embedded liberalism trend.
According to Harvey (2005), ’neo-liberalism’ is a new class project
through which the capitalist class fights back against the high taxes and the
strict regulations of the state as well as the ‘rigidities’ imposed by the state and
the trade union on production relations. On one hand, neo-liberalism is aimed
to liberal the market so members of the capitalist class could have more
freedom to hire and fire their workers, more freedom to expand their trading
and investment within the state boundary or beyond in the global space. In the
late 1970s, neo-liberalism has been accompanied by deregulation,
privatization, and the marketization of social services. On the other hand, neo-
liberalism is aimed to downsize the state and the role of the state is confined to
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set up and to preserve the institution for market liberalism. Thus Harvey
(2005, p. 7) uses the term ‘neoliberal state’ to refer to ‘a state apparatus whose
fundamental mission was to facilitate condition for profitable capital
accumulation on the part of both domestic and foreign capital.’
In the advanced capitalist societies of the West, neo-liberalism emerged
in a situation where both the state and the capitalist class are fully
institutionalized and are two most powerful players in their societies. Neo-
liberalism was a new project prompted by members of the capitalist class who
wanted to revamp the unfettered market when confronted by a crisis of capital
accumulation in the 1970s. As ‘neo-liberalism’ replaces ‘embedded
liberalism’, the state-market relations are tilted from a situation of state
domination to one of market domination.
The historical context through which neo-liberalism emerged in China,
however, was totally different from when it emerged in the West. China is a
state-socialist country where property was predominantly owned by the state
and the collective. In additions, China in the early 1970s had just gone through
the devastating Cultural Revolution, the primary aim of which was to suppress
the capitalist market and to destroy the capitalist class. Thus, the private sector
was almost non-existent and the capitalist class was very weak at the onset of
the reform. The market institution, therefore, had to be constructed from
almost nothing. But which agent had the capacity to recreate the market
institution in the 1970s China where anti-capitalist sentiment was still very
strong in the aftermath of the Cultural Revolution?
Whereas the capitalist class is the dominant agency for neo-liberalism
in the West, the communist party-state had to take the driving seat to propel
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neo-liberalism forward. Thus, we coined the term state neo-liberalism to
highlight the contrasting neo-liberalism experience that China had that is
different from the West. Obviously state neo-liberalism is a highly
contradictory term: while the party-state still claims to be communist and
stand on the side of workers and peasants, it has carried out all sorts of
neoliberal policies to assault of the workers and peasants to undermine their
interests. As such, it will be interesting to study how the contradiction of state
neo-liberalism has led to a oscillating path between market-led and state-led
development in China, and how the party-state has handled this contradiction
over the past three decades, leading not only to the surprising continuation of
the Chinese communist party-state, but also led to the rise of China as a
contending power in the capitalist world-system.
State Neo-Liberalism: Historical Emergence and Processes of Evolution
State neo-liberalism, as defined in the above, emerged in China through a
series of policy transitions after 1978 when the reform and opening up policy
was inaugurated. There are three major junctures of policy transition, which
include the 1978 inauguration of the reform and opening up policy, 1992
reinstatement and intensification of the reform and opening up policy, as well
as the policy of the ‘Three Represents’ (san ge daibiao) announced in 2002
and strategies adopted subsequently to address the dissents of workers and
peasants. For each transition, the policies were not initiated once and for all,
but in piecemeal and often times after the pattern of ‘two steps forward and
one step backwards’. This is particularly true with transitions up to the 1990s.
The reason for the cautious and intermittent progress was in part the absence
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of a blueprint for China to follow, hence Deng Xiaoping’s famous
pronouncement that China’s economic reform can be likened to a person who
crosses a river by groping for stones. Equally important for the policies’
intermittent progress was the contradictory nature of state neo-liberalism and
its ideological and political limits as suggested in the previous section. As a
result, despite the political elite’s shared concern with party survival, they
differed widely on the preferred courses of action to adopt. The following will
discuss the various policy transitions that lead China through economic
reforms to state neo-liberalism.
The Initiation of Reform and Opening Up in the 1980s
A good starting point to understand China’s road to state neo-liberalism is the
official narrative concerning China’s economic reform. According to the
narrative, the turning point is the policy statement issued in the Third Plenary
Session of the 11th Central Committee of the Chinese Communist Party held
between 18 and 22 December 1978. In turn, the policy transition has been
made possible with the leadership of Deng Xiaoping and as a result of the
defeat of the Gang of Four and hence ‘leftist’ excesses during the Cultural
Revolution. In this view, the Chinese economy was on the blink of bankruptcy
towards the end of the Cultural Revolution and reform was imperative (Hu
2008; ZZDYY 2002). While there are some truths in the official narrative, it is
also oversimplified. The narrative does not account for how the delicate
balance between state and market has been maintained. It has also overstated
the extent of unanimity within the Chinese leadership and acquiescence at
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different levels of the polity and society. As a result, the narrative also implies
a course of reform that was more frictionless than it really was.
The limited and intermittent economic reform can be observed by
examining the policy goals and their actual implementation. To begin with,
despite the general orientation of reform and opening up announced in
December 1978, the idea was confined to developing a commodity economy
around the planned one and changes were confined to three directions. They
include firstly the need to focus on the enhancement of productivity, secondly
the value of opening up by exploring the possibility of exports, introducing
foreign investment, and learning advanced scientific knowledge, as well as
thirdly the need to change production relations by the decentralization of
management and remunerating workers according to their work (ZZDYY
2002, pp. 26–8). Not only was there no mention of reforms in basic economic
institutions, changes so recommended had proceeded cautiously.
Focusing firstly on the policy of opening up, especially the overture to
potential overseas Chinese and foreign investors, it is notable that stringent
effort had been made to assure that disasters would be circumscribed if the
experiments were to fail. Initially, these overseas investors had to work in
collaboration with local partners and such investments were to be tested in a
handful of carefully selected Special Economic Zones (SEZ). The zones were
located in the southern part of the country, far removed from the national
center, and were mostly cities with abundant overseas Chinese connections
(ZZDYY 2002, p. 93).
Turning to the reform of state and collective enterprises, initial changes
were confined to enterprise management reform, such as the granting of
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greater autonomy to enterprises and the introduction of some forms of profit-
sharing between the state, management, and workers. These policies had to be
tested out, firstly in Sichuan and later in Beijing, Tianjin, and Shanghai. Until
the 1990s, further reforms were confined to similar policies such as permitting
enterprises to sell products in excess of the national quota at higher prices,
delineating the responsibilities of the manager, enterprise, and the state, and
allowing the employees to subscribe for shares of their firms (ZZDYY 2002,
p. 186). The more drastic strategies of bankruptcy, merger and acquisition,
auction, privatization, and the like had to wait till the mid-1990s when China
entered the second stage of economic reform.1
Most significantly, personal entrepreneurship and private enterprises
were not provided for in the initial agenda. Personal entrepreneurship was
tolerated in the countryside in 1978 with experiments in household-based
contracting system. Only in 1980, after a series of debates had taken place,
was the practice formally rectified and implemented nationwide (Zhou and
Xie 2008, p. 12; ZZDYY 2002, p. 35). Until 1984, these rural entrepreneurs
were not encouraged to hire more than seven employees lest exploitation
might take place. Even then, rural land continued to be owned collectively and
peasants could not be dispossessed (Ho 2001). Personal entrepreneurship (geti
jinying) in cities and townships was permitted slightly later in 1979, mainly to
ease the pressure of unemployment among youths returning from the
countryside. As with the rural entrepreneurs, regulations adopted in 1981 made
clear that such urban entrepreneurs could in no circumstance hire more than
five trainees (Zhou and Xie 2008, p. 13). Furthermore, even though reputable
private enterprises (siying qiye) employing eight workers or above appeared to
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have emerged in as early as 1983, their legal status was affirmed only after the
April 1988 constitutional reform, which took place after a series of debates
had occurred in 1986 and 1987 both within the party and the National
Congress (Zhou and Xie 2008, pp. 14–16).
Without going into the details of other dimensions of the reform, the
above has shown adequately that at the same as market reform was pursued,
‘socialist practices’ such as the centrality of state- and collective-ownership
were defended staunchly in the first stage of reform. The emergence of such a
pattern could be traced to two main considerations: the communist party-
state’s determination to stay in power and the contending ideas/interests that
surround the reform.
Most fundamentally, the economic reform was initiated as a means to
prevent the collapse of the communist party-state. As pointed out by many
observers and the communist leaders themselves, material deprivation and
political disillusionment toward the end of the Cultural Revolution had
afflicted the country with popular dissent. According to one source, per capita
staple food allowance in 1978 was even lower than that of 1957 (ZZDYY
2002). As had become legendary, the simple and fundamental need to survive
had prompted eighteen peasants and cadres within the tiny village of Xiaogang
Village in Anhui Province to conspire, take risks, and pioneer in secrecy the
de-collectivization of agricultural production. At the same time, despite the
noble aims of the Cultural Revolution to deepen socialism, widespread
disappointment set in as the attempt turned into ‘mass excesses and the
conversion of the ideological/class struggle into an elite-bureaucratic conflict
controlled from above’ (Petras 2006, p. 431). Material deprivation and
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political disillusionment sent warning signs to the communist leaders and
prompted actions to regain popular support. Speaking in relation to the
pittance of food allowance in the 1978 Central Work Conference of the
Chinese Communist Party (CCP), Chen Yun noted that ‘We cannot have
tension everywhere. There is a need to first stabilize the peasantry. … Having
stabilized this end, we will have stabilized the majority … and there will be no
turbulence all under heaven (tianxia jiu da ding le)’ (cited in ZZDYY 2002, p.
35).
However, if a certain extent of reform and opening up was considered
expedient for the continued domination of the CCP, the appropriate level of
marketization remained controversial. At the same time as Deng Xiaoping had
to promote the market without yielding to demands for ‘bourgeois liberalism,’
he also had to criticize leftist excesses and defend his policies as genuinely
socialist. Significantly, there were intensive debates on the continuing
relevance of ‘class struggle’ and the true spirit of Marxism and Maoism in the
early years of the reform. Deng not only had to defend the idea of productivity
first and uphold the policy of reform and opening up, he and his followers also
expended strenuous effort to criticize the excesses of the Cultural Revolution
and restore the honor of party leaders who had been condemned as ‘capitalist
roaders’ (ZZDYY 2002, 56–74). At the same time, Deng also responded to
demands for human rights and ‘bourgeois liberalism’ in as early as 30 March
1979 by speaking on ‘the need to be resolute on four basic principles’ (jianchi
sixiang jiben yuanze) (ZZDYY 2002, p. 46). Economic reform should not be
confused with the abandonment of socialism, people’s democratic dictatorship,
leadership of the Communist Party, as well as Marxism-Leninism and Mao
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Zedong Thought. This argument, namely, giving priority to productivity,
undertaking reform and opening up, as well as adhering to the four basic
principles, was elaborated and formalized in the Thirteenth Party Congress
held in 1987 (Xinhua News 2003). According to this view, reform and opening
up represented the earnest wishes of the people and were consistent with the
demands of China as an ‘early socialist’ country. The fundamental line of the
party at this stage of social development was therefore to lead and unite all the
Chinese people, focus on economic construction, and to insist both on the four
basic principles and the policy of reform and opening up.2
Furthermore, the uneasy balance treaded by Deng did not always hold
sway. While reform and opening up were given the green light in 1984 and
1987, the so-called ‘conservatives’ embracing the planned economy had been
most vocal in 1980 and 1981–2 (Solinger 1993; Fewsmith 2008). Indeed,
contentions such as these between marketization and a formally socialist state
were not at all novel. The history of post-1949 China was replete with such
competition of ideas and interests. Deng, for instance, talked about the value
of learning from the Soviet Union’s experiences and indeed other advanced
societies in as early as 1957 (Tang and Ma 2008). Even the policies proposed
by the so-called conservatives, Chen Yun and Xue Muqiao, in 1979 and 1980
were not too different from those they put forth in the mid-1950s (Solinger
1993). It appears that marketization and the tensions it inevitably invokes
within a socialist system has a long history and have no more than being
played out again in the 1980s.
Two generalizations about the early years of China’s economic reform
can be made. For one, the above discussion does not favor the idea that the
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reform was prompted by some levels of class contention (or even struggle).
For instance, while Petras (2006, p. 431–2) was not wrong when he claimed
that the failure of the Cultural Revolution had ironically ‘strengthened the
bureaucratic elite favorable to opening up to the market, reinforced the
capitalist remnants embedded in the regime, and … opened room for
advancement for economists, scientists, engineers, and other party cadres
educated for influenced by late Soviet experiments with profit-based
enterprises’, he had wrongly attributed the initiation of market reform to the
process of ‘class struggle.’ Similarly, the experience of China appears to differ
from the Hungarian case described by Szelenyi’s (2008), where ‘class
consciousness’ among the peasantry was the source of economic reform. In
China, while popular dissent had prompted the party leaders to act, it was the
Communist Party’s commitment to leadership that had proved most critical for
initiating the reform.
In turn, the coexistence of market reform with socialist practices
demonstrated the continued support to socialism given by different party
elites, though with rather divergent ‘scientific’ understanding of what
socialism in China entailed. Hence, Deng was not entirely putting up a façade
when he called his policy ‘market socialism.’ In the understanding of Deng
and his followers, the incorporation of market mechanisms into a collective-
ownership system was by no means a betrayal of socialist principles. That the
Chinese economy was to drift increasingly into the direction of neo-liberalism
was not something they had foreseen (cf. Hart-Landsberg and Burkett 2004).
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Crisis, State Rebuilding and the Deepening of Neo-Liberalism in the 1990s
By the mid-1980s, there were signs of serious dislocations in China. Food
production slowed down. Inflation surged as a result of the oversupply of
credit and over development of industries.3 The ‘double-track’ pricing system
generated room for profiteering and corruption among cadres and cadre-
capitalists (ZZDYY 2002, p. 220). Mounting dissatisfaction coupled with
examples from Eastern Europe led to requests for social and political reform
that culminated in the Tiananmen protests. Instead of acceding to the
protestors’ requests, the Chinese leaders chose to crack down on the
dissidents. The fateful events of 4 June 1989 threw into disarray not only the
country but also the party. Among other things, it opened to question whether
the party should still pursue the reform as defined by Deng, and how the party-
state should respond to the massive social changes ignited by the economic
reform (ZZDYY 2002, p. 250; Fewsmith 2008, p. 22).
The Tiananmen suppression severely tarnished Deng’s reputation.
Harnessing remnants of his influence, he affirmed with resolution the
correctness of the party line adopted at the Thirteen Party Congress in his 9
June 1989 address to leaders of the martial law troops. In his view, the focus
on economic construction, and the two basic points of ‘reform and opening up’
as well as the ‘four basic principles’, were all correct and should be pursued
with added vigor. If anything was wrong with the implementation of the party
line, it was the inadequacy of education with respect to the ‘four basic
principles’ (ZZDYY 2002, p. 250). Deng also managed to predominate in
appointing Jiang Zemin, rather than one of the conservatives, as the next party
secretary. However, he had to announce his formal step-down in the same
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Fourth Plenary Session of the Thirteenth Central Committee of the Chinese
Communist Party held between 23 and 24 June 1989 wherein Jiang was
elected as party secretary.
The next two years were expended to bolster socialist education, on the
one hand, and to tackle the national economy’s structural dislocations, on the
other hand. Significantly, the party took steps to evaluate the conduct of party
members and to enhance education within the party and its auxiliary
organizations. It passed a number of resolutions between 1989 and 1990 to
address the problem of corruption and other abuses of authority among the
cadres and their children. Effort was also made to open more channels for
getting in touch with the people (ZZDYY 2002, pp. 250–63). At the same
time, the party sought to tackle the ‘two-track’ pricing system, ‘triangular
loans’, the problem of inflation, over-rapid expansion of light industries before
the basic infrastructure was ready, and other issues that had led to the
dislocation of the economy (ZZDYY 2002, p. 273–7).
However, economic construction ceased to be the Party’s core mission.
Party ideologues, central ministries, party cadres working within the state
enterprises, and other so-called ‘conservatives’ rallying around Chen Yun
made a number of acrimonious criticisms against Zhao Ziyang and
consequently Deng himself, blaming their imprudent and overambitious
policies for the economic and social disorder. These so-called conservative
viewpoints seemed to predominate at the time, and Deng had to travel out of
Beijing twice to get his voice heard. Deng visited Shanghai and gave two
speeches at the turn of 1991. He also made his famous Southern ‘inspection
tour’ between 18 January and 21 February 1992. By visiting cities and Special
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Economic Zones where reform and opening up had proceeded furthest, Deng
was in a way soliciting support from the provinces to place pressure on the
centre. Indeed, Deng’s 1991 speeches aroused support among party leaders in
Guangdong, Tianjin, Hebei, Jianxi, and even Beijing. In turn, his 1992
Southern tour was embraced immediately by the media in Hong Kong,
Shanghai, and Shenzhen. However, the so-called conservatives struck back
and, in view of the international situation and the heavy cost of party disunity,
Deng decided to give way in 1991. In 1992, Deng seemed determined to
reinstate his idea of reform by using all methods on hand.4 With Yang Baibing,
the vice chairman of the Central Military Commission, declaring that the
People’s Liberation Army was ready to protect and escort (baojia huhang)
reform, Deng’s viewpoint came into ascendancy (Fewsmith 2008, p. 67).
To recapitulate, a number of factors have underlain the ‘victory’ of the
idea of reform and opening up in the wake of the Tiananmen suppression. In
the first place, although some party ideologues had attributed the social
disorder leading up to the Tiananmen protests to the policies of reform, a
return to the planned economy proved to be unpopular. A decade of reform had
facilitated rapid accumulation, which contrasted sharply with the first 30 years
of the socialist experiment. Although the reform hurt the interest of state
managers, it benefited a vast number of private entrepreneurs, workers, and
peasants. This perhaps explained the enthusiastic response given to Deng’s
1991 and 1992 speeches by party leaders in the provinces. Hence, while a
return to the planned economy was politically a lost cause, deepening reform
appeared to be able to gain the complicity of the majority of the people.
Intertwined with the contention of divergent economic interests and political
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values is the problem of legitimacy. As X. L. Ding (1994) has argued, the
Tiananmen crackdown pushed popular disillusionment with the communist
ideology to the utmost and undermined the Party’s legitimacy to rule.
Deepening reform and greater prosperity appeared to be the only alternative.
In this connection, it was perhaps not accidental that Deng’s commitment to
reform had been hardened by the failure of the 1992 Soviet coup. Although an
unswerving adherence to the socialist planned economy might delay the
collapse of the Soviet Union, it could not prevent it. A reform that promised
economic betterment for the public without loosing the Party’s political
domination was then chosen as the way forward.
In contrast to the image of a weakened state in the neoliberal literature,
the Chinese state has considerably strengthened its managerial and fiscal
capacity during the aftermath of the Tiananmen Incident. A new ‘cadre
responsibility system’ was instituted in the early 1990s by the central party-
state to strengthen its control over the evaluation and monitoring of local
leaders. County party secretaries and township heads sign performance
contracts, pledge to attain certain targets laid down by higher levels, and are
held personally responsible for attaining those targets. There are different
contracts for different fields, such as industrial development, agricultural
development, tax collection, family planning, and social order. The Chinese
party-state has the capacity to be selective, that is, to implement its priority
policies, to control the appointment of its key local leaders, and to target
strategically important areas. Thus Maria Edin (2003, p. 36) argues that ‘state
capacity, defined here as the capacity to control and monitor lower-level
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agents, has increased in China, and that the Chinese Communist Party is
capable of greater institutional adaptability that it is usually given credit for.’
In addition, the state has strengthened its fiscal capacity. The central
party-state introduced a ‘Tax Sharing Scheme’ (TSS) in 1994 to redress the
centre-local imbalance in fiscal matters (Yep 2007). The TSS is aimed at
improving the center’s control over the economy by increasing ‘two ratios’ –
the share of budgetary revenue in GDP and the central share in total budgetary
revenue. It seems that the TSS did succeed in raising the ‘two ratios’ (Loo and
Chow 2006), thus helping to arrest the decline of fiscal foundation of the
centre and increase the extractive capacity of the central party-state. Zheng
(2004, pp. 118 –9) argues that the TSS shifted fiscal power from the provinces
to the centre, so ‘now, it is the provinces that rely on the central government
for revenue.’
In addition, in contrast to the neoliberal doctrine’s calling for less
intervention, the Chinese state has intervened more into the economy. It has
engaged in debt-financed investments in huge mega-projects to transform
physical infrastructures. Astonishing rates of urbanization (no fewer than 42
cities have expanded beyond the one million population mark since 1992)
have required huge investments of fixed capital. New subway systems and
highways are being built in major cities, and 8500 miles of new railroad are
proposed to link the interior to the economically dynamic coastal zone. China
is also trying to build an interstate highway system more extensive than
America’s in just fifteen years, while practically every large city is building or
has just completed a big new airport. These mega-projects have the potential
to absorb surpluses of capital and labor for several years to come (Harvey,
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2005, p. 132). In addition, the state’s Science Commission made a number of
long and short term plans. The party-state also has decided to inject 2.5 billion
yuan over the five year period, and universities, research centers, and private
enterprises were asked to increase their level of collaboration. It is these
massive debt-financing infrastructural projects and the increasing attention
paid to the input of science and technology that make the Chinese state depart
from the neoliberal orthodoxy to act like a Keynesian state, and they also help
to lay the foundation for China to move up beyond the labor-intensive, low
tech development path.
Furthermore, after the party-state has strengthened its capacity and
played a more active role in upgrading the economy, it also pushed for a
deepening of neo-liberalism capitalism. In the first wave of neoliberal reforms
in the 1980s, the reform policies were aimed mostly to expand the private
sector; they had left the public sector largely intact. Thus the reformers in the
1980s used the term ‘market socialism’ to stress that China was still socialist
because it had a dominant public sector and the party-state was still in control
of the strategic sector (or the commanding height) of the Chinese economy.
However, the party-state turned its attention to reform the public sector
and pushed forward the following neoliberal policies in the late 1990s:
Privatization and corporatization policy to cut the size of the
state sector and to increase the size of the private sector. In the 1990s
the state-owned enterprises (SOEs) were undergoing corporatization,
so they were no longer dependent on the state for funding, and they
had to operate independently in the market. After corporatization, the
SOEs were asked to run like an independent private profit-making
112
enterprise; they can go bankrupt if they were losing money. The SOEs
were given the green light to layoff workers, to increase work intensify
and productivity, and to cut worker’s benefits if they found it necessary
to remain competitive in the market. In the late 1990s, there observed
the layoff of millions of state workers and the cutting back of their
benefits.
Commodification of human services. Whereas the Maoist state
provided human services (like housing, health care, welfare, education,
pension) on a needs basis and free of charge to all citizens, the post-
reform state treated human services as a commodity to be distributed to
people along market principles. Housing, for example, is no longer
provided free to state workers. Instead, workers are now asked to find
their own housing in the newly emerged private housing markets.
Likewise, workers are now asked to pay a part of the costs for services
in most welfare fields and social insurance, such as pension, medical
care and the newly created unemployment insurance, higher education,
and many personal services (Guan 2000).
Deepening of liberalization. Petras (2006) points out that China
joining the World Trade Organization (WTO) is likely to lead to a
further dismantling of the state sector; a dismantling of trade barriers
and removal of subsidies; the savaging of the countryside; the near
unquestioning orientation toward the export market strategy; the
opening up of the services sectors of telecommunications, banking, and
insurance for foreign investors; and the consolidation of foreign
113
production as the leading force in the Chinese economy (see also Hart-
Landsberg and Burkett 2004).
Despite the above deepening of neoliberal policies, it is important to
point out that the continued leadership of the party-state. Among other things,
it retained the right and the ability to control the prices of strategic resources,
served as the major shareholder of the restructured and most competitive state
enterprises, and made tireless effort to maintain macroeconomic stability,
albeit using economic measures of adjustment and control.
To recapitulate, the leaders of the Communist Party had initially sought
to introduce market reforms with a view to regaining public support after the
excesses of the Cultural Revolution. The reform was limited and the command
economy existed parallel to the market one. In the first stage of reform in the
1980s, Communist leaders were perhaps quite genuine when they claimed that
it was market socialism that they sought to construct. However, neoliberal
tendencies set in with the suppression of the Tiananmen dissidents in 1989.
Deepening of reform was chosen because the Communist leaders were
determined to stay in power in a situation where an overhaul of the political
system was not possible. Consequently, economic prosperity had to be pursued
as the only source of legitimacy to rule. Our argument is therefore quite
similar to Hart-Landsberg and Burkett’s (2004) analysis that the CCP has
initially considered itself to be carrying out socialist reforms, hence the term
‘market socialism.’ However, while they considered the CCP to have been
pushed toward the direction of neoliberal capitalism with no return as the
reform unfolded and the market policies became more and more entrenched in
the 1990s; we contend that the CCP did not simply ‘slip into’ capitalism.
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Those were the outcome of deliberate policy choices, albeit choices made in
specific circumstances defined by their time.
Emerging Interests, Escalating Dissents, and Continued Party Leadership
at the Turn of Twenty-first Century
China’s economy grew by leaps and bounds since the reform. For thirty years
between 1978 and 2007, its average annual GDP increase at the rate of 9.727
per cent (Chinability 2009). At the same time as the neoliberal policies led to a
rapid expansion of industrial output, they also facilitated a rapid accumulation
of wealth for the capitalist class and ruling elites, as well as a substantial
increase in living standard for workers and peasants. As such, there are good
reasons to believe that the policies enjoyed widespread support at the outset.
However, the problems of class differentiation and social inequality
that had emerged by the mid-1980s only became intensified over time. In
terms of income inequality, the gini coefficient, which stood at around 0.32 in
1980 increased to 0.36 in 1990 and rose to 0.45 in 2001 (Wang 2008).5
Underlying the statistics was a social structure that had become widely
differentiated. In a 1999 study of four cities with different levels of
development, Lu (2002) and his colleagues found that economic reform had
led to fundamental changes in the class structure. Among other findings, the
percentage share of agricultural workers nationwide reduced from 70 per cent
in 1978 to 44 per cent in 1999. The share of production workers increased to
22.6 per cent, while business service workers increased to 12 per cent. Though
numerically small, professional technical personnel (5.1 per cent), and
especially owners of private enterprises (0.6 per cent) as well as personal
entrepreneurs (4.2 per cent), who emerged as new social actors.6 Despite such
115
drastic changes, members of the lower socioeconomic classes remained the
most numerous nationwide, though major coastal cities such as Shenzhen,
which had grown most dramatically since the reform, did have ‘olive-shaped’
class structures. Most significantly, even for rapidly developed coastal cities
with a huge middle class, such as Shenzhen, 60–70 per cent of the people
earned below the average household income (Lu 2002, pp. 3–26).
Coupled with actual inequality was the perceived inequality. Lu’s
(2002) study found that while people considered market-induced inequality to
be acceptable, most regarded the income gap to be too wide and were
indignant about advantages gained through power and monopolization.7
Furthermore, while Lu and his colleagues found in 1995 that most people
considered their livelihood to have improved since 1978, 15–24 per cent of
those surveyed in 2001 found their living standards to have deteriorated since
1995 (Lu 2002, p. 38, see also Wang, Hu and Ding 2002). The disgruntled
were mostly from the lower social classes, including personal entrepreneurs,
production workers, service workers, and the peasants. More recently, the
2005 China General Social Survey found that most people considered it
necessary to impose higher taxes on the rich, and the government should do
much more to help the poor (Wu 2008).8
Reflecting the income disparity, perceived injustice, and divergence of
politico-economic interests were the rise of forms of social protests. The
number of ‘letters and visits’ (xinfang) and collective petitions (jiti
shangfang), two institutionalized mechanisms of voicing dissent, reached 10.2
million cases by 2000, an increase of 115 per cent over 1995 (Lee 2007, p.
231). Just as important, the number of ‘mass incidents’ increased from some
116
8700 cases in 1993 to about 60,000 in 2003, with the number of participants
increasing from 730,000 to 3.07 million, respectively (Tsai 2007). Speaking in
relation to the year 2004, the Minister of Public Security noted that there were
some 74,000 cases of ‘mass disturbances’ (quntixing tefa shijian) with more
than 3.8 million people involved.9 Furthermore, there were 87,000 cases of
‘disturbances to public order’ in 2005 (Human Rights in China 2006). Because
slightly different taxonomies have been used, it has been hard to know if these
figures refer to the same phenomenon. Nonetheless, they show quite
unambiguously that China has become more contentious over the years.
The causes of these petitions and mass disturbances were many.
However, disputes over land rights and labor issues seem to be most prevalent.
Referring to the mass disturbances in the first eight months of 2006, it was
found that 18.88 per cent of such incidents were attributable to disputes over
wage and welfare, 15 per cent to land expropriation and resettlement, 7.66 per
cent to enterprise restructuring, reform and bankruptcy, 5.96 per cent because
of civil disputes, 4.82 per cent were prompted by disputes over the rights to
mine, forestry, water, pasture and land resources, whereas 2.32 per cent was
induced by stock holding and capital raising (Ren 2006). Similarly, analyzing
62,446 petition phone calls made to the CCTV between 1 January and 30 June
2004 and some 4300 letters sent between August 2003 and June 2004, Yu
(2007) and his team found that 22,304 phone calls and 1325 letters were land-
related.10 Indeed, protests in relation to land rights were reported in as early as
1993, and a few of the disputes could involve tens of thousands of participants
and some protests could go on for months (Thornton 2004; Chu 2007).
Turning to the labor issue, it has been reported that the number of labor
117
dispute arbitration increased from 19,098 cases in 1994 to 154,621 cases in
2001 (Lee 2007). With the emergence of various grassroots efforts to build
new labor institutions under the pretext of service, education, and health,
workers have become more conscious of their rights and knowledgeable of
channels for voicing discontent. Finally, although the middle-class
professionals and private entrepreneurs were numerically small and their
positions were politically precarious, there were signs that they were
coalescing into forms of organizations that portend the growth of the civil
society (Howell and Pearce 2001; He 2003).
To address these issues, two apparently divergent courses of action
were undertaken since the mid-1990s. On the one hand, we observe efforts to
court the ‘progressive’ elements, such as the middle-class professionals and
nascent capitalists within the country. On the other hand, we also observe
efforts to present the party centre as the defender of national interests and
redress the most outrageous inequalities by initiating the ‘socialist
countryside’ and the ‘labor contract law’ as a means to developing a
‘harmonious society’. In other words, the communist party-state sought to
become both the leader and the benefactor.
In 2000, Jiang Zemin started to present his viewpoints concerning what
the party should do to retain the people’s support. In his view, the party
received public support because it had always represented the future direction
for China’s progressive culture, the fundamental interests of China’s people,
and above all, the developmental needs of China’s progressive social
productive forces at different stages of development. Jiang’s discussion on this
‘Three Represents’ (san ge daibiao) was formalized in his speech delivered for
118
the eightieth anniversary meeting for the Chinese Communist Party held on 1
July 2001. He made it clear that China was still at an early stage of socialist
development and, at the same time, it was in the party’s interest to broaden its
social basis. Consequently, when the party adopted a revised constitution
during the Sixteenth National Congress held on 18 November 2002, it stated
that in addition to workers, peasants, soldiers, and intellectuals, progressive
elements from other social strata aged 18 or above who identify with the party
could apply to become its member. For the first time in history, then, private
entrepreneurs could become members of the CCP (Xinhua News 2002).
Although Communist theoreticians were not necessarily impressed by Jiang’s
viewpoint, the constitutional change generated an official channel for the party
to co-opt outstanding members of the emerging social classes and formally
enabled the party to provide leadership for all segments of the population. It
also gave a more legitimate place for the presence of private entrepreneurs in
socialist China. For some of these people, the legal status provided a source of
reassurance that they lacked previously.
Just as important was the property rights law passed in March 2006. In
the Third Plenary Session of the Sixteenth Central Committee of the Chinese
Communist Party held between October 11 and 14, 2003, Hu Jintao pointed
out that a better definition of property rights would facilitate the development
of the private sector (Fewsmith 2008, 252). Although the law was drafted in
November 2005, ready for discussion and endorsement by the National
People’s Congress to be held in March 2006, massive societal opposition led
to its postponement until November. One of the arguments for instituting the
property rights law was that it could protect the peasants when the collectively
119
owned land was conscribed. However, the immediate effect of the law was
without a doubt to provide legal protection to private entrepreneurs and
owners of private enterprises.
An equally if not more significant development of the Third Plenary
Session was the introduction of the ideas that the country should aim at
‘comprehensive, coordinated, sustainable development, and promote
comprehensive economic, social, and human development’ (Fewsmith 2008,
p. 252). In other words, instead of promoting economic growth at all cost, the
Chinese authority appeared to have shifted its priority to emphasize
environmental sustainability and social development. In the Fourth and Fifth
Plenary Sessions held in 2004 and 2005 respectively, the ideas of promoting a
‘harmonious society’ and constructing a ‘new socialist countryside’ were
articulated and endorsed.11 As a result of the change in policy direction, the
central state abolished agricultural tax, increased expenditure into the rural
areas by 15 per cent, and raised its allocation to the healthcare budget by 87
per cent (So 2007, p. 569; Xinhua News 2005). Rural inhabitants were also
relieved from the burden of paying for many public services such as
miscellaneous fees levied by schools. At the same time, the working
conditions were so appalling and employer-employee relationships so abusive
that the central government had decided to introduce a new ‘Labor Contract
Law.’ To render one example of the abusive relationships, wages that remained
unpaid to the peasant-workers up to 2003 amounted to a total of 100 billion
yuan. The Labor Contract Law was legislated in June 2007 and was to take
effect by 1 January 2008 (PRC 2007). Among other things, the Law made
provision for negotiations between the employers, workers, and/or their
120
representatives on such matters as remunerations, working hours, holidays,
occupational safety, training, and labor discipline. There were other provisions
that, if implemented, could benefit the workers tremendously.
For some observers, Jiang Zemin’s attempt to promote the ‘Three
Represents’ and Hu Jintao’s quest for a ‘harmonious society’ are contradictory
policies that stem in no small part from the divergent personalities and social
experiences of Jiang and Hu (Fewsmith 2008). While Jiang represented the
coastal regions and the entrepreneurial and professional interests, Hu was said
to represent the inland regions and the interests of peasants and workers.
However, even if the personal backgrounds of Jiang and Hu did play a part,
the above has hopefully demonstrated that Hu’s policies were initiated within
the context of escalating dissatisfactions and inflammatory social conditions.
Above all, it is important to note that the changing policies do not indicate a
fundamental alteration of state-society relationships.
In the first place, despite better social welfare and enhanced ‘rights’ to
the workers and peasants, such welfare and rights were handed out without
any intension of ‘enfranchising’ these subterranean social actors. The policies
were to be implemented through government agencies, and measures were
undertaken to prevent the emergence of autonomous labor and peasant
organizations. Hand-in-hand with the continued effort to de-organize workers
and peasants was the discourse that surrounded the granting of rights and
welfare. Significantly, although Hu Jintao and Wen Jiabao have been presented
as enlightened leaders who care genuinely for the people, they have above all
been presented as benefactors who go out of their way to help the people. It is
perhaps not accidental that they address themselves as ‘Hu Yeye’ (grandpapa
121
Hu) or ‘Wen Yeye’ (grandpapa Wen) when coming face to face with the
nation’s young people.
In the second place, although Hu Jintao has demonstrated his concern
with distributive justice and talks about the need to develop socialist
democracy, rule of law, and improve the governing capability of the party, his
inclination is far from ‘liberal’ in the Western sense. In responding to the
issues of corruption and alleged inability of the central government to control
sub-provincial officials, Hu actually calls for the strengthening of party
discipline as a means to better control the government bureaucracy. Measures
include ‘democratic recommendation, democratic assessment, multi-candidate
examination, public announcement before appointment, and open selection
and competition for post’ or in other words ‘inner-Party democracy’
(Fewsmith 2008, p. 256). This, according to Fewsmith (2008), actually
reverses the reforms since the 1980s, which have sought to separate the
government from the party. The intertwining of the two means nothing less
than Hu’s determination to prevent the party from going into demise.
Finally, and most importantly, the policies have failed to address the
key contradiction in state neo-liberalism. As noted in the previous section, not
only has the policy of reform and opening up encouraged the nascent
capitalists and local-level state managers to undertake profit-making activities,
the fiscal redistribution policy and ‘cadre responsibility system’ have
effectively forced the local cadres into embracing neo-liberalism, however
ruthless it may be (So 2007).12 In so doing, the central state could have it both
ways. On the one hand, it unleashed at the local level the energy to propel neo-
liberalism, while maintained the fiscal and managerial capacity to develop
122
long-term plans and formulate strategic policies. On the other hand, the central
state could hold the moral high grounds, condemn the local state managers and
nascent capitalists for the exploitation of workers, plundering of the
environment, and corruptive behaviors, and maintain its authority. Seen in this
light, so long as the neoliberal policies and the central-local relationship
remain unchanged, policies promoting ‘harmonious society’ could no more
than handle the surface symptoms of neo-liberalism.
Concluding Remarks and Future Trajectory
In the above, we have reviewed the emergence of neo-liberalism in China and
argue that the party-state has played an eminent role in the process. While
economic reality has forced the party-state to initiate reforms in 1978,
divergent interests (political and economical) and ideological convictions
among the elite have prevented the country from following the ‘shock therapy’
approach adopted in Eastern Europe. Instead, the party-state has drawn upon
its 1950s experiment with marketization and taken a gradualist approach that
eventually crystallized into what we call ‘state neo-liberalism.’ In doing so, it
has avoided the massive protests that attended the collapse of the former
Soviet Union and Eastern European regimes.
However, the implementation of state neo-liberalism by a socialist
party-state is fraught with contradictions. Ideologically, so long as the party
declares itself to be the ‘Communist’ Party of China, the introduction of
neoliberal policies would inevitably attract criticism that draws upon socialist
doctrines. Politically, economic reform has hurt the interests of state managers,
planners, and party ideologues (Fewsmith 2008). Not only have their living
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standards declined in relation to private capitalists, their grip on power also
dwindles. In time, as neoliberal policies take effect, social differentiation has
unfolded. Even though the reform has initially benefited peasants, workers,
and the general public, many begin to suffer. Flyaway inflation, evaporation of
social welfare benefits, multiplication of miscellaneous and arbitrary charges,
non-payment of wages, deprivations at work, as well as the sheer social and
spatial inequalities considered widely to be unjust have fuelled the great many
petitions, protests, and even violent clashes with government officials. In other
words, not only that intra-elite difference in interests and ideological
convictions has not subsided, it has been aggravated by social and economic
conflicts that attend the process of economic transformation.
Contradictions that attend the implementation of state neo-liberalism
have been expressed in three ways. In the first place, different factions of the
elite have continued to vie for policy domination, oftentimes seizing upon
moments of social turmoil to make their case. This explains the rather violent
fluctuations and hesitations in the proposal and implementation of policies.
Examples include major setbacks in economic reform during the early 1980s
and between 1989 and 1992, the pre-1992 efforts to restrict the scale of private
enterprises, and the unwillingness to bankrupt or privatize state enterprises
until 1997. In the second place, contradictions that attend the implementation
of state neo-liberalism have been expressed in the apparent bifurcation of the
state into the central and local segments, with each of them pursuing rather
distinct courses of action. On the one hand, the state could mobilize the energy
of township and village governments as well as the nascent capitalist class to
develop capitalist enterprises and enforce the thoroughgoing marketization and
124
commodification of social and economic relationships. On the other hand, the
central state still maintains its capacity to mobilize resources, plan long-term
development (like investing in education and infrastructural projects as well as
setting up high-tech zones), and to bargain for its terms of insertion into the
global economy with the core states as well as the transnational corporations.
Finally, contradictions in the implementation of state neo-liberalism have been
expressed in the ways the party-state treats the workers and peasants. Although
it has as a rule overlooked gross abuses of labor rights and appalling social
inequalities, it has stopped short of privatizing landownership until very
recently. When the abuses have become outrageous and the level of dissent
inflammatory, the central state has also been rapid to reprimand local
governments for their oversight or outright corruption. Just as important, we
have seen the party-state’s recent attempts to introduce what might be called
‘hegemonic’ policies not only to provide leadership for the rising social
classes – capitalists and professionals, but also to alleviate hardships for the
subterranean ones.
The contradictions of China’s state neo-liberalism can of course be
alleviated temporarily by the strategies adopted so far: promoting the
‘harmonious society’ and putting the blame on the local states. However, when
the general public has not been ‘enfranchised’, it is doubtful if the new Labor
Contract Law or the policies of ‘socialist countryside’ can indeed take effect
(see Pun 2008). Furthermore, so long as independent local-level party
congresses have not been developed, it is doubtful if the party reform can
succeed in curbing corruption or other abuses of power. Although studies of
former state-enterprise workers and capitalists have found that they are
125
inclined to support the Party (Gallagher 2005; Dickson 2008), and that
workers are an unlikely political actor (Lee 2007), the inherent contradictions
may still set China in a course of political fluctuations in the years to come. As
marketization proceeds, especially with the passing of the private property
law, peasants will become dispossessed, and full-fledged proletarianization
will set in. With workers that can no longer fall back on the countryside for
basic survival, it implies that they will become more demanding, not only for
more extensive social safety net, but also for greater power at both the levels
of the state and enterprise. Whether China can endlessly balance itself between
the market and the state is therefore a wide-open question.
Epilogue: State Neo-Liberalism and Global Financial Crisis in 2009
In the late 2000s, China is again facing very serious developmental problems
and social protests triggered by the global financial crisis. In November 2008,
Roubini (2008) reported that China may be on its way to a hard landing, as the
last batch of macro data from China all point toward a sharp deceleration of
economic growth, sharply falling spending on consumer durables, falling
home sales, and sharp fall in construction activity. Factories are closing in
China’s export region and unemployment is a growing concern in urban cities.
China needs a growth rate of at least five per cent to absorb about 24 million
people joining the labor force every year. The collapse of the export trade has
left millions without work and set off a wave of social instability. The Sunday
Times reported (Macartney 2009) that social unrest among unemployed
workers are spreading more widely in China than officially reported.
126
In response, the party-state quickly unveiled a US$586 billion stimulus
plan (roughly seven per cent of its gross domestic product) over the next few
years to improve infrastructure (to build new railways, subways, and airports)
and to rebuild communities devastated by an earthquake in the Southwest in
May 2008. The stimulus plan would cover ten areas, including low-income
housing, electricity, water, rural infrastructure, and projects aimed at
environmental protection and technological innovation – all of which could
incite consumer spending and bolster the economy. The party-state wants to
promote domestic consumption and to improve collective consumption (such
as expand the health care network, lower tuition and fees for
schools/universities, and upgrade the rudimentary social safety net) and social
insurance. The assumption is that unless the social safety net and social
insurance expanded, the Chinese is more inclined to save than to spend, and
the enlarged domestic market will not be able to absorb the slack in the export
market caused by the global financial crisis in 2008.
In addition, Hu Jintao, when giving a speech in December 2008,
pointed out that ‘China should continue to hoist high the great flag of
socialism with Chinese characteristics and push forward the sinification of
Marxism.’ In several CCP meetings in late 2008, President Hu also called on
the armed forces and police to pull out the stops to uphold social stability by
putting down disturbances and assorted conspiracies spearhead by anti-China
forces. Willy Lam (2009) labels the above policies as ‘The Great Leap
Backward’ because they signal a sharp U-turn from the neoliberal policies of
the late 1990s.
127
Facing sharp economic downturn and growing social unrest, the party-
state has abundant reasons to move away from neo-liberalism to state neo-
liberalism. Since the global economic crisis has just started and China just put
up a stimulus plan, it is obviously too early to tell whether it will work. If
China does continue to move toward the path of state neo-liberalism, it could
end up in a position what Silver and Arrighi (2000, p. 69) have envisioned
that, ‘China appears to be emerging as the only poor country that has any
chance in the foreseeable future of subverting the Western-dominated global
hierarchy of wealth.’ However, whether China succeeds in achieving this will
depend on, to a large extent, how global capitalism is able to deal with the
unfolding worldwide economic and financial crisis that is now threatening the
very survival of the global capitalist system.
128
1Notes
Even when state enterprise reforms were deepened in the mid-1990s, bankruptcy, privatization, and
related strategies were reserved for medium and small state enterprises. Major state-owned
enterprises were accorded great attention under the policy of zhuada fangxiao or ‘grasp the large
and let go of the small’ (Yang and Zhang 2003). Great care has also been taken to address the issue
of laid-off state employees.
2 Fewsmith (2008, p. 28) consider the ‘two basic points’ as no more than Deng’s effort to highlight
a ‘boundary line defining the limits of acceptable public expression.’ However, it is of interest to
note that Zhao Ziyang was reported by Li Peng to have said that only ‘Party leadership’ should be
emphasized among the four basic principles (Fewsmith 2008, p. 31).
3 Inflation increased by 18.5 per cent between 1987 and 1988 (ZZDYY 2002, p. 232).
4 Gorbachev’s turn to the right (that is, his backing off from radical reform) and America’s swift
victory in the Gulf War were highlighted by Fewsmith (2008, pp. 56–7) as the reasons behind
Deng’s wait and see attitude in 1991. Interestingly, however, Deng insisted on reform despite the
failure of the Soviet coup in 1992.
5 The estimation has varied. Citing China’s National Bureau of Statistics, Lin and Liu (2008) have
reported lower gini coefficients for recent years. By contrast, scholars seeking to address the
conservativeness of the official estimation have uncovered wider income gaps (Chen, Hou and Jin
2008).
6 Lu (2002) and his colleagues utilized a neo-Marxist approach, classifying the social classes
according to the control of economic resources, ownership of social (network) and cultural
(education) capital, and taking into account variations in the quantity and quality of such capital. He
used a ten-class classification. The classes not mentioned in the text include national and social
administrators (2.1 per cent), managers (1.5 per cent), clerical employees (4.8 per cent), as well as
unemployed and underemployed (3.1 per cent). See Lu (2002, Table 14) for details.
7 Lu (2002, p. 29) contended that the gains made by peasants, entrepreneurs, and owners of private
enterprises increased much more than cadres and professionals in the first decade of reform, leading
to perceived injustice. As of 1999, the situation was more reasonable.
8 Interestingly, though, 74.8 per cent agreed or strongly agreed that even the children of peasants
and workers had equal chance (Wu 2008).
9 Mass disturbance was defined as ‘any riots, demonstrations, and protests that involved more than
100 people’ (Human Rights in China 2006).
10 Actually, about 20,000 petition letters were sent to the CCTV between August 2003 and June
2004. Yu (2007) and his team managed to process 4300 of them.
11 It is suggested that the ideas were articulated most clearly in the Eleventh Five-year Program
endorsed at the Fifth Plenary Meeting of the Sixteenth Central Committee of the Chinese
Communist Party held on 11 October 2005 (Xinhua News 2005).
12 It is of great interest to note that even though Wang, Hu and Ding (2002) warned of the social
conflicts that might stem from mass unemployment, acute inequality, and outrageous corruption that
emerged after the mid-1990s, they considered the main problem to lie with the local cadres who
were likely to cover up their mismanagement, which rendered it difficult for the central government
to take appropriate actions before the disasters occurred.
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