China Rethinks Safety After Fatal Attack on Workers in Ethiopia

The attack this week by rebels that killed 74 people - including nine Chinese - in Ethiopia has highlighted the risks that China faces in its search for oil and other minerals in Africa. Analysts say the attack may cause China to re-think its policy in Africa, but as VOA's Luis Ramirez reports from Beijing, China's rising energy demand will mean business as usual.

Chinese officials on Thursday said they are re-evaluating the safety of Chinese nationals in Africa but said China will not withdraw investment from the continent.

Sinopec, the major Chinese state oil company that owns the operation where the workers were attacked in Ethiopia this week, on Thursday announced it is not pulling out of Ethiopia.

Rebels who say they do not want firms to exploit the region's mineral resources killed nine Chinese and 68 Ethiopians in the Tuesday assault. Seven Chinese nationals are believed to be among a number of people kidnapped and still missing.

With its energy demands skyrocketing, China has been looking more to Africa, to places that many western companies find too risky to operate in.

Economist Mao Yushi, an expert on Africa at the Unirule Institute of Economics in Beijing, tells VOA there is too much at stake for China to abandon its growing African investments. He says China may have underestimated the risks.

"I think the Chinese government's expectations of these risks were too low," Mao said. "These problems have happened not only in Ethiopia, but in Nigeria as well. And there are all kinds of problems in other places. The Chinese government's understanding of Africa was not quite enough."

This week's attack in Ethiopia highlights the price that China is forced to pay for finding new sources of energy to fuel its booming economy.

The assault is not the first against Chinese workers, who are being sent to Africa by the thousands. Kidnappers have seized a number of Chinese workers in Nigeria this year. In February, a Chinese engineer was killed and another Chinese national wounded in an attack on a stone materials plant in Kenya.

Chinese Foreign Ministry spokesman Liu Jinchao told reporters at a briefing Thursday that Beijing will look for ways to improve the safety of its workers on the African continent.

"In response to these recent incidents concerning the safety of Chinese personnel, the relevant departments are carrying out an assessment of safety abroad to help Chinese businesses smoothly develop economic and trade cooperation abroad and ensure the safety of Chinese personnel," Liu said.

Liu did not elaborate on what options his government would explore to enhance security for Chinese workers. He said a team of officials from the oil company and the Chinese government is in Ethiopia to investigate the attack.

The Chinese government says its policy of encouraging Chinese businesses to operate in Africa will not change.

Ethiopia accuses Eritrea of aiding oil field massacre

ADDIS ABABA, Ethiopia (AP) -- Ethiopia blamed longtime enemy Eritrea Wednesday for an attack on a Chinese-owned oil exploration field that killed 74 people, escalating the dangerous brinksmanship between the neighboring countries.

At least six Chinese workers and some Ethiopians were taken hostage during Tuesday's dawn attack, for which the rebel Ogaden National Liberation Front had claimed responsibility. The secessionist group is formed from Ethiopia's minority Somalis, has been linked to Eritrea and has had combatants fighting alongside Muslim insurgents in Somalia.

"Hand-in-glove with the Eritrean government, which hates to see Ethiopia's development, the terrorist forces in the region have acted out this horrendous act of terror," said Wednesday's statement posted on Ethiopia's Foreign Ministry Web site.

It called on the United Nations to take action against Eritrea.

Ethiopia: Attackers wore Eritrean uniforms

Eritrean Information Minister Ali Abdu denied the allegation, saying it was "a habitual nonsense statement" from Ethiopia.

Ethiopia and Eritrea, neighboring nations that fought a war over an unresolved border dispute that ended in 2000, have recently traded accusations over involvement in Somalia. Eritrea is accused of backing an increasingly violent Islamic insurgency fighting Ethiopian troops supporting the Somali government.

Tuesday's attackers "were wearing Eritrean military uniforms," Abdullahi Hassan, president of the region in Ethiopia where the attack occurred, told The Associated Press. "We are sure. They were speaking the Eritrean language."

Hassan said the area of the attack is now under control. The attack took place early Tuesday in Abole, a small town 500 kilometers (310 miles) east of Addis Ababa in Somali Regional State and close to the Somali border.

Nine Chinese workers killed; all Chinese staff evacuated

China condemned the attack, the first against a foreign company in the Horn of Africa nation. The bodies of the nine slain Chinese workers were being flown to the Ethiopian capital on Wednesday, before being repatriated to China, said Sun Qing, a Chinese embassy spokeswoman.

She said negotiations were under way to win the release of the hostages and that all Chinese staff were being evacuated. She said she had no detail on whether the attackers were wearing Eritrean uniforms.

Ethiopian troops continued their search Wednesday for the rebel group and the hostages.

Tuesday's attack by more than 200 fighters lasted about an hour, and followed a warning the rebel group made last year against any investment in eastern Ethiopia's Ogaden area. The group said in a second statement posted on its Web site that 400 Ethiopian troops were killed or wounded in the attack. It said the Chinese fatalities were caused by explosions caused by munitions during the battle.

The statement added that the oil exploration field was attacked because ethnic Somalis were driven from their land by Ethiopian troops to make way for the facility.

Rebels warn of further violence, want region to secede

In recent years, the Ogaden National Liberation Front has only made occasional hit-and-run attacks against government troops, making Tuesday's attack its most significant one. It has fought for the secession of the Ogaden region -- an area the size of Britain with 4 million people -- since the early 1990s.

The volatile Somali Regional State, as the Ogaden is known, "is not a safe environment for any oil exploration to occur. We urge all international oil companies to refrain from entering into agreements with the Ethiopian government," the front said in its claim of responsibility sent to The Associated Press.

The Ogaden National Liberation Front described Tuesday's attack as "military operations against units of the Ethiopian armed forces guarding an oil exploration site," in the east of the country.

It did not give any details of casualties, but said they had "wiped out" three Ethiopian military units.

Xu Shuang, the general manager of Zhongyuan Petroleum Exploration Bureau's Ethiopia operation, said nine Chinese oil workers and 65 locals were killed and that seven Chinese workers were kidnapped. But the group said it was only holding six Chinese workers.

"ONLF forces rounding up Ethiopian military prisoners following the battle came across six Chinese workers. They have been removed from the battlefield for their own safety and are being treated well," the group said in an e-mailed statement.

The official Xinhua news agency reported that the attackers fought 100 Ethiopian soldiers protecting the facility in a 50-minute gunbattle.

Ethiopia is not an oil-producing country. But companies such as the Chinese one and Malaysia's state-owned oil giant Petronas have signed exploration deals.

Xinhua said Zhongyuan Petroleum Exploration Bureau had 157 Chinese and Ethiopian workers at the facility. The company is a division of the giant state-owned China Petroleum and Chemical Corp. that began its operations in Ethiopia in May 2004, according to its Web site. It began work in the volatile Somali Regional State last year.

China Development - China's long march to capitalism(Part One)

Introduction

After the October 1917 Russian Revolution the Chinese revolution in 1949 was the second most important event in history. It led to the abolition of landlordism and capitalism and with it the end of imperialist domination in a huge area of the globe.

However, whereas the Russian revolution led to the setting up of a relatively healthy workers' state established by the working class under the leadership of the Bolshevik party ‑ a revolutionary party with an internationalist outlook ‑ the 1949 Chinese Revolution led to the immediate setting up of a Stalinist deformed workers' state.

The most elemental conditions of workers' democracy were lacking right from the very beginning. There were neither Soviets, nor workers' control, nor real labour unions independent of the State, nor an authentic Marxist leadership. This was because the revolution was carried out under the leadership of the Stalinists at the head of a peasant army and was not based on the working class in the cities. The peasant army is the classical instrument of Bonapartist rule. Mao, basing himself on this peasant army, manoeuvred between the classes in Bonapartist fashion, using the Red Army as a battering ram, first against the landlords and later also against the capitalists.

The victory of the Chinese revolution was possible due to a series of peculiar objective circumstances. The main reason why the Chinese Revolution took the form that it did was first of all the inability of US imperialism to intervene. The second factor was the inability of China to advance under capitalism and under the utterly degenerate bourgeois regime of Chiang Kai Shek. The other factor was the existence of a mighty Stalinist deformed workers' state in Russia, on China's borders.

Mao Zedong and the Chinese Stalinists formed a state in China in the image of Stalinist Russia - a monstrous bureaucratic caricature of a workers' state and therefore the Chinese Revolution of 1949 began where the Russian Revolution ended.

We have to remember that the Chinese revolution abolished capitalism in China in spite of the perspectives of the leadership of the Chinese Communist Party. Mao's original perspective was that of one hundred years of capitalism. He had the Stalinist two-stages theory that stated that in a backward underdeveloped country socialist revolution was not possible and therefore the first stage would be "democratic", i.e. bourgeois. Only after capitalism had developed would the struggle for socialism become possible. This theory was to be disproved by what happened once the Chinese Communists came to power.

In the initial stages Mao formed a "Popular Front" with a series of bourgeois parties. This led some to believe that Mao would "betray" the revolution, as the Communist Party had done in Spain and other countries where the Popular Front was used to check the movement of the working class. There was however a fundamental difference in China in 1949. State power was in the hands of Mao; the "armed bodies of men" were not controlled by the bourgeoisie. The bourgeoisie fled together with Chiang Kai Shek to Taiwan. There was no effective bourgeoisie with which to form a real alliance.

In these conditions the Popular Front became a tool with which to curb the workers in the cities, to stop them going beyond the limits imposed by the Stalinist regime. But because there was no "progressive bourgeoisie" with which they could build a "democratic" capitalist China, that could run the country and the economy effectively, and because real state power was in the hands of the Red Army, they were forced to take over the commanding heights of the economy. This was, in a certain sense, a confirmation of the theory of the Permanent Revolution in a distorted manner.

In spite of the fact that the Chinese revolution did not take the form of a proletarian revolution, the Marxist tendency supported it for it freed the productive forces from the constraints of capitalism and feudalism and laid the basis for a development of the economy, which would not otherwise have been possible. The Marxists did however explain that although the Communist Party and the state bureaucracy would be able to play a relatively progressive role in developing China, these same bureaucratic deformations would mean that the Chinese masses would need to carry out a second, political, revolution in order to advance towards genuine socialism, genuine workers' power.

The growth of the Chinese economy after 1949 was spectacular. It is sufficient to compare economic development in China and India in the period 1949-1979. Both countries started off more or less on the same level, but growth in China was far higher throughout this period. This can only be explained by the fact that China had a centralised, state-owned, planned economy. Although under a regime of genuine workers' democracy far more could have been achieved, the planned economy under Mao was a huge step forward and the growth that it permitted is the base upon which modern China rests today.

However, the bureaucracy had many shortcomings. In particular it had a narrow nationalist outlook which was characteristic of all the Stalinist regimes. Had China and Russia been genuine workers' states they would have come together in a Socialist Federation with the countries of Eastern Europe and developed an international plan of production using in a combined and rational manner the human and material resources of all these countries. Instead ‑ as the Marxists had predicted ‑ the national outlook of both the Chinese and Soviet bureaucracies eventually brought about a conflict.

This led to the Sino-Soviet split in 1960. The Soviet bureaucracy had attempted to bring China within its "sphere of influence". This the Chinese bureaucracy could not tolerate and as Mao had not come to power on the basis of an advancing Russian army (as in most East European countries) he had his own independent base similar to that of Tito. The Marxists in fact pointed out at the time that Stalin would have another Tito on his hands. As the conflict erupted, the Russian Stalinists withdrew all their aid, experts and so on, dealing a serious blow at Chinese development at the time. It was after this that the Chinese bureaucracy embarked on the utterly reactionary road of autarchy, isolating China from the rest of the world economy and thus from the international division of labour.

Mao attempted to disguise what he was really doing by denouncing the "revisionism" of the Soviet bureaucracy, as he needed some ideological and theoretical justification for the split with the Soviet Union. But in essence the Chinese bureaucracy was no different from its Soviet counterpart. It attempted to build its own version of "socialism in one country", something which is impossible to achieve even in a country of continental dimensions.

Thus a backward, isolated China was forced to develop the means of production starting on a very low level and without even the help of the more advanced technique available in Russia at the time. This meant that the development of China was achieved at a huge cost, both in terms of human and material resources. Nonetheless, China, from a backward colonial country, the playground for the imperialists, was transformed into a mighty power.

In spite of its shortcomings, the Chinese bureaucracy managed to achieve what the effete Chinese bourgeoisie had abysmally failed to do, to create genuine national unity and a modern state for the first time in the history of the country. The agrarian revolution was also achieved in one sweep and the nationalisation of the means of production laid the basis for the development of the Chinese economy on an unprecedented scale.

Between 1949 and 1957 average annual growth rate of the Chinese economy was 11%, and in the period from 1957 to 1970, industrial production continued to grow at 9%, far higher than in the capitalist world (in the same period India's growth rate was less than half that of China's.) In 1952 China was still only producing 1000 tractors per year, an indication that agriculture was still very primitive. By 1976 China was producing 190,000 tractors per year.

All this was achieved in spite of the disruption of adventures such as the Great Leap Forward in 1958 and the Cultural Revolution in 1966. The Great leap Forward was responsible for a serious drop in agricultural production, leading to a famine that took the lives of 15 million Chinese and between 1967 and 1968 there was a fall of 15% in industrial production, producing a sharp fall in the living standards of the masses. After these two major disruptions in economic development, the economy recovered thanks to the state plan.

Even in 1974, when the rest of the world was in recession - the first simultaneous world recession since the Second World War, when there was an overall fall in world production of 1% ‑ China grew by 10%. This is comparable to the USSR in the 1930s and reveals the real advantages of a planned, nationalised economy.

The effect of all this changed Chinese society and brought it into the 20^th century. Before 1949, the illiteracy rate in China stood at 80%. By 1975, 93% of children were attending school. There was a tremendous development of healthcare, housing, etc. The terrible poverty that existed prior to the revolution was eradicated, with a general improvement in living standards and also a series of important social gains. Life expectancy in 1945 was 40, but by 1970 it had reached 70, close to what it was in the most developed capitalist countries. The position of women also improved tremendously as the example of the abolition of the binding of women's feet and other reforms demonstrates.

Trotsky on the bureaucracy

In spite of the huge successes the bureaucracy was not a historically necessary social layer in the development of the Chinese economy. The plan did not need the bureaucracy to function. On the contrary the plan worked in spite of the bureaucracy. In Trotsky's collection of articles and letters published as In Defence of Marxism in a text written in October 1939, we find the following:

"If the Bonapartist riffraff is a class this means that it is not an abortion but a viable child of history. If its marauding parasitism is 'exploitation' in the scientific sense of the term, this means that the bureaucracy possesses a historical future as the ruling class indispensable to the given system of economy."

Trotsky explained that on the contrary the bureaucracy had no historical future. It was born out of the degeneration of the Soviet Union under conditions of extreme backwardness and isolation. The Chinese regime was modelled on that of Stalinist Russia and the Chinese bureaucracy played the same role as its Soviet counterpart.

The existence of this bureaucracy meant that, in spite of all the rhetoric, there were social privileges and inequalities within Chinese society. In 1976, for example, the industrial wage of a worker working 48 hours a week was $12 a month. Professionals earned $120 or more. There was a wage differential of 10 to 1.

In the USSR, Lenin had accepted a differential of 4 to 1 - a "bourgeois compromise" as he defined it - as a way of getting the economy moving, but it was seen as a temporary measure, as the Bolsheviks waited for the world revolution to unfold. The Bolsheviks had an internationalist outlook and saw their only real salvation in the world revolution. Their perspective was that once the proletariat of the more advanced countries overthrew capitalism then a harmonious development of the economy would be possible, as the more modern technique in these countries would become available to backward Russia. Unfortunately the revolution was defeated in one country after another and Russia remained even more isolated, thus putting the final seal on the process of bureaucratic degeneration.

The Chinese bureaucracy did not view differentials in the same way as the Bolsheviks had done. Wage differentials after the Chinese revolution were not seen as a temporary "bourgeois" compromise imposed by the isolation of the revolution and the underdeveloped nature of the economy, but as the consolidation of the wealth and privileges of the bureaucracy. Bureaucrats lived well above the conditions of ordinary workers. Implicit in such a situation was the possible restoration of capitalism at some stage.

Insofar as the planned economy guaranteed them their power, income, privileges and prestige, they defended it. But, as Trotsky had pointed out in the Soviet Union, the bureaucracy would not be happy to simply benefit from privileges based on their administrative position in society, they would want to be able to pass these on to their children. For this to become possible property relations would have to change. He explained in Chapter 9 of The Revolution Betrayed:

"Let us assume to take a third variant ‑ that neither a revolutionary nor a counterrevolutionary party seizes power. The bureaucracy continues at the head of the state. Even under these conditions social relations will not jell. We cannot count upon the bureaucracy's peacefully and voluntarily renouncing itself in behalf of socialist equality. If at the present time, notwithstanding the too obvious inconveniences of such an operation, it has considered it possible to introduce ranks and decorations, it must inevitably in future stages seek supports for itself in property relations. One may argue that the big bureaucrat cares little what are the prevailing forms of property, provided only they guarantee him the necessary income. This argument ignores not only the instability of the bureaucrat's own rights, but also the question of his descendants. The new cult of the family has not fallen out of the clouds. Privileges have only half their worth, if they cannot be transmitted to one's children. But the right of testament is inseparable from the right of property. It is not enough to be the director of a trust; it is necessary to be a stockholder. The victory of the bureaucracy in this decisive sphere would mean its conversion into a new possessing class."

And he went on:

"To define the Soviet regime as transitional, or intermediate, means to abandon such finished social categories as capitalism (and therewith "state capitalism") and also socialism. But besides being completely inadequate in itself, such a definition is capable of producing the mistaken idea that from the present Soviet regime only a transition to socialism is possible. In reality a backslide to capitalism is wholly possible. A more complete definition will of necessity be complicated and ponderous. [Our emphasis]

"The Soviet Union is a contradictory society halfway between capitalism and socialism, in which: (a) the productive forces are still far from adequate to give the state property a socialist character; (b) the tendency toward primitive accumulation created by want breaks out through innumerable pores of the planned economy; (c) norms of distribution preserving a bourgeois character lie at the basis of a new differentiation of society; (d) the economic growth, while slowly bettering the situation of the toilers, promotes a swift formation of privileged strata; (e) exploiting the social antagonisms, a bureaucracy has converted itself into an uncontrolled caste alien to socialism; (f) the social revolution, betrayed by the ruling party, still exists in property relations and in the consciousness of the toiling masses; (g) a further development of the accumulating contradictions can as well lead to socialism as back to capitalism; (h) on the road to capitalism the counterrevolution would have to break the resistance of the workers; (i) on the road to socialism the workers would have to overthrow the bureaucracy. In the last analysis, the question will be decided by a struggle of living social forces, both on the national and the world arena. [Our emphasis]

"Doctrinaires will doubtless not be satisfied with this hypothetical definition. They would like categorical formulae: yes-yes, and no- no. Sociological problems would certainly be simpler, if social phenomena had always a finished character. There is nothing more dangerous, however, than to throw out of reality, for the sake of logical completeness, elements which today violate your scheme and tomorrow may wholly overturn it. In our analysis, we have above all avoided doing violence to dynamic social formations which have had no precedent and have no analogies. The scientific task, as well as the political, is not to give a finished definition to an unfinished process, but to follow all its stages, separate its progressive from its reactionary tendencies, expose their mutual relations, foresee possible variants of development, and find in this foresight a basis for action."

As we can see, in Trotsky's perspectives the return to capitalism was a concrete possibility. He pointed out that the nationalised planned economy was not safe in the hands of such a bureaucracy and this implied the threat of capitalist restoration at some stage.

A deformed workers' state is by definition a transitional regime between capitalism and socialism, which will either be overthrown by political revolution or slip backwards to capitalism. Historically it first came into existence on the basis of the degeneration of the Russian Revolution. It is an unnecessary phase in the development of the productive forces. It was not an inevitable phase or necessary social form. Had the Russian revolution spread to the advanced countries in the 1920s, Stalinism would never have come into being.

In spite of their limitations, however, these regimes did develop the means of production to an unheard of extent. In that sense they had a progressive content. This flowed from the state ownership of the means of production and the planned economy. Trotsky analysed this in the Revolution Betrayed and made a prediction: so long as this regime could develop the economy of a backward country, it could achieve some success. But the more sophisticated the economy became, the more the bureaucracy would become a fetter on its development.

As the economy grew the bureaucracy began to consume a greater and greater proportion of wealth. With this came waste, corruption and plunder on a vast scale of the wealth produced by the working class and peasants. More importantly, as the economy developed and became more sophisticated it became evident that the bureaucratic command system of such a regime could not manage every detail of an increasingly complex economy. The bureaucracy from being a relative fetter on the development of the productive forces became an absolute fetter.

Trotsky also laid stress on the question of productivity. As we will see this turned out to be a key element in understanding how and why the Stalinist regimes collapsed in Eastern Europe and the Soviet Union. Trotsky explains in Chapter 1 of The Revolution Betrayed:

"The dynamic coefficients of Soviet industry are unexampled. But they are still far from decisive. The Soviet Union is uplifting itself from a terrible low level, while the capitalist countries are slipping down from a very high one. The correlation of forces at the present moment is determined not by the rate of growth, but by contrasting the entire power of the two camps as expressed in material accumulations, technique, culture and, above all, the productivity of human labour. When we approach the matter from this statistical point of view, the situation changes at once, and to the extreme disadvantage of the Soviet Union."

He added the following significant point:

"But in its essence the question, Who shall prevail-not only as a military, but still more as an economic question-confronts the Soviet Union on a world scale. Military intervention is a danger. The intervention of cheap goods in the baggage trains of a capitalist army would be an incomparably greater one." (Revolution Betrayed, Chapter 9)

Trotsky as early as August 1925 wrote a very farsighted and sharp analysis of the problems facing the young Soviet state, Whither Russia? (later to be known as Towards Capitalism or Socialism?). In this work Trotsky poses the question bluntly, "What is our rate of development when viewed from the standpoint of world economy?" And in answering his own question Trotsky says the following:

"Precisely because of our successes we have gone into the world market, i.e., we have entered the system of the universal division of labor. And at the same time we have remained encircled by capitalism. Under these conditions, the rate of our economic development will determine the strength of our resistance to the economic pressure of world capitalism and to the military-political pressure of world imperialism." (The Challenge of the Left Opposition - 1923-25, Pathfinder, 1975, page 330)

Trotsky laid great emphasis on this question of the rate of growth of the Soviet economy in 1925. He stressed that, "...the rate of advance is precisely the decisive element!" And added:

"It is quite evident that as we become part of the world market, not only our prospects but also our dangers will increase. The source, as of so many other conditions, is here again the dispersed form of our peasant economy, our technological backwardness, and the present immense productive superiority of world capitalism as compared with us... (ibid. page 344)

"The fundamental economic superiority of bourgeois states consists in the fact that capitalism at present still produces cheaper and better goods than socialism. In other words, the productivity of labour in the countries that are still living in accordance with the law of inertia of the old capitalist civilization is for the present still considerably higher than in that country which is beginning to apply socialist methods under conditions of inherited barbarism.

"We are acquainted with the fundamental law of history: the victory ultimately falls to that system which provides human society with the higher economic plane.

"The historical dispute will be decided - and of course not at once - by the comparative coefficients of labour productivity." (ibid. page 345)

What Trotsky says here is of tremendous importance in understanding what was to happen decades later in the former Stalinist countries. Although the planned economy allowed the Soviet Union to make tremendous progress in the development of the means of production, it still lagged far behind the advanced capitalist countries. But so long as the bureaucracy was developing the productive forces a relative stability was guaranteed to the Stalinist regime. Indeed in the 1930s not only were the productive forces being developed, they were developing at a much faster rate than in the capitalist world. This explains the resilience of the Stalinist regime in that period and also why the pro-capitalist tendencies within the bureaucracy could not yet crystallise into a viable force.

Trotsky, however, also explained that at a certain stage in its development the bureaucracy, from being a relative fetter, would become an absolute fetter on the development of the means of production. The rate of growth would slow down and this would reopen the possibility of capitalist restoration. This is what happened in the 1960s and 1970s. Economic growth in the Soviet Union first slowed to a level comparable to that of the capitalist West and then ground to a halt.

Once that point was reached, according to Trotsky, there were two possibilities: either the workers would overthrow the bureaucracy, while preserving the planned economy under democratic workers' control and management of production, or there would a counter-revolutionary return to capitalism.

History has shown that the latter was to be the fate of these regimes. In Russia and Eastern Europe, which had been in crisis since the 1970s, we saw a collapse of the system once it became clear that it could no longer develop the economy. In Russia, the system collapsed quite suddenly and it took several years before the economy finally stabilized and began to develop once more on a capitalist basis.

Chinese bureaucracy draws lessons

In China things have developed somewhat differently. The Chinese bureaucracy observed carefully what was happening in Russia. That wing of the bureaucracy represented by Deng drew lessons from the Russian experience and from their own recent past. China is of continental dimensions with a huge population, but even this immense country could not develop in isolation from the rest of the world economy. "Socialism in one country" had been proved to be a failure. The autarchic regime that the bureaucracy under Mao had attempted build had finally revealed all its limitations

The Deng wing observed Russia and Eastern Europe entering into crisis and the tumultuous events of 1989-1991 in which one after another all these regimes collapsed and the transition to capitalism was ushered in. They saw this once monolithic, all-powerful Russian bureaucracy collapse like a house of cards. In all of the former Stalinist countries of Eastern Europe and the Soviet Union - and especially in the former Soviet Union - the economy was thrown backwards with a huge destruction of the productive forces and the bureaucracy lost control of the process. It took some time before the economy stabilised and began to grow again. In these events the Chinese bureaucracy could see its own possible future. Therefore they drew the conclusion that they could not allow that to happen in China and that some change in policy was needed to avoid a similar collapse in their own country.

In the same period the Tien An Men events revealed that the Chinese bureaucracy could at some point face a similar fate. This, coupled with the collapse of the Soviet Union, had a tremendous impact on the thinking of the Chinese bureaucracy, and pushed them to move from the earlier stage of using market mechanisms to achieve an increase in productivity, while upholding the principle that the state sector should dominate, to an acceleration of the process that was to finally lead to today's position where the private sector dominates.

In China similarly to what had happened in the Soviet Union, as the economy grew under Mao so did the appetite of the bureaucrats and also the lack of coordination between different sectors of the economy was magnified. That explains such phenomena as "The Great Leap Forward" and the "Cultural Revolution". Mao was attempting to push the economy forward with these methods while at the same time trying to curb the excesses of the bureaucracy which were endangering the stability of the system.

The excesses of sections of the bureaucracy can put at risk the interests of the bureaucratic caste as a whole. In this sense this was similar to what Stalin did in the 1930s who dealt blows against elements within the bureaucracy, but always with the aim of preserving the stability of the regime. Stalin even had bureaucrats shot - striking blows against the most corrupt wing in order to save the bureaucracy as a whole. There was an element of this in the Cultural Revolution, when a layer of the Chinese bureaucracy came under attack. Demagogically, Mao attacked the "capitalist roaders" to consolidate his own position while at the same time curbing the more extreme forms of corruption that were undermining the whole system.

In essence the Cultural Revolution was not, as some claimed in the west, a movement of the workers and youth imposing their will on the bureaucrats. Mandel and co., compared the Cultural Revolution to the Paris Commune, thus showing their utter inability to understand what was really happening. They confused a movement unleashed by one wing of the Chinese bureaucracy aimed against another wing, with a genuine uprising of the workers in Paris in 1871. They did not understand that the Cultural Revolution was always controlled from the top, by Mao, the supreme arbiter. As we have already explained, with his methods Mao, far from pushing the economy forward, only achieved huge dislocation and chaos. For three years there was a complete collapse of both agricultural and industrial production, and all the schools and universities were closed. The wing led by Deng Xiaoping was horrified and began drawing conclusions also from these experiences.

We have to understand that a planned economy can only work efficiently if there is the check at all levels of the working class. The plan must be discussed at all levels by the workers. That is why workers' democracy, workers' control and management, are essential elements in the functioning of a plan. The workers, who are also the consumers, have a material interest in making sure that the plan works efficiently at all levels. The bureaucrat is only interested in meeting his quota ‑ regardless of quality or whether this is coordinated with the rest of production - so that he will get his bonuses. Furthermore, a centralised bureaucracy cannot decide on every aspect of production. Terrible distortions and inefficiencies are produced when everything depends on bureaucratic central command. The overall plan must be checked at all levels by the workers. This explains why the "The Great Leap Forward" and the "Cultural Revolution" failed. You cannot fight the bureaucracy with bureaucratic means. Thus these two episodes merely ended up adding to the disruption caused by the bureaucracy.

What happened in the Cultural Revolution is significant in understanding the later development under Deng. The Maoist bureaucracy had leaned on the masses to strike blows against a section of the bureaucracy. In doing so, in Bonapartist manner, they had unleashed forces from below, but there was a risk involved in this. To have allowed the masses to go any further implied the possible loss of control on the part of the bureaucracy. Once they had curbed the excesses of a wing of the bureaucracy, Mao and his followers clamped down on the very movement they had unleashed, and in 1969 reined it back in. Thus, the main slogan, from "The masses are right, what the people say is right" became, "What is right is what is in the mind of Chairman Mao".

By clamping down on the masses, the balance of forces inevitably swung back towards the pro-capitalist wing. Once Mao had curbed the masses, then the balance of forces was determined within the bureaucracy. Mao had good reason to worry about the masses, because there had been different waves of strike action and movements from below in the preceding period, the last of these being in 1966-67 and 1976 when there was an upsurge of workers' organisations to redress their grievances on wages and conditions. What we saw here was the tendency of the working class to go beyond the limits established by the bureaucracy. The point we have to understand is that the Maoist bureaucracy in defending the state plan could not go so far as to give power to the workers. This would have meant the loss of their privileges.

However, they were still faced with the problem of developing the economy. From a genuine Marxist point of view the only solution would have been to introduce genuine workers' democracy, which of course was the last thing the bureaucracy would do. We must not forget that that wing of the bureaucracy that did defend the plan did it to defend their own interests, their own privileges. Trotsky explains the situation very well in In Defence of Marxism. He says, "The bureaucracy is first and foremost concerned with its power, its prestige, its revenues. It defends itself much better than it defends the USSR. It defends itself at the expense of the USSR and at the expense of the world proletariat." That is in essence the nature of the bureaucracy.

A wide layer of the bureaucracy breathed a sigh of relief when the Cultural Revolution was brought to an end - they wanted to return to stability and enjoy their privileges within the system. What is clear is that there was already a wing of the bureaucracy that was discussing the idea of introducing some kind of market stimulus to the economy.

End of the Mao era

Once Mao was dead this "capitalist roader" wing of the Chinese bureaucracy went on the offensive and raised the question of the market, of the world market. In actual fact Deng Xiaoping and the others had a point, i.e. that it was impossible to separate China from the world economy and that it should participate on world markets. That was the original idea. In the absence of workers' democracy, the world market can serve as a rough check on mismanagement and inefficiency.

In the conditions which prevailed in China in the 1970s a kind of NEP would not have been excluded even by a revolutionary Marxist party, as the Bolsheviks had done in the early 1920s. As long as the main levers of the economy remain under state control, under the guidance of the plan, these methods can be used to stimulate and develop the economy in an isolated workers' state.

Lenin considered something similar when he offered the western capitalists concessions in Siberia where there were lots of raw materials, but the economy was underdeveloped. The weak, young workers' state did not have the means to develop Siberia. So Lenin insisted that in such a situation the only way of getting the investment, the technology that was needed to develop the productive forces, was to grant concessions to foreign capital. The idea was that by guaranteeing the capitalists profits, they could develop the region, obtain the new means of production, the technique and so on, and this would be to the benefit of the revolution.

In 1918 in his "Left-wing" Childishness and the Petty-Bourgeois Mentality Lenin points out that, "We, the party of the proletariat, have no other way of acquiring the ability to organise large-scale production on trust lines, as trusts are organised, except by acquiring it from first-class capitalist experts." The following year on February 4, he presented a resolution to the Council of People's Commissars in which he stated that, "The CPC... considers a concession to representatives of foreign capital generally, as a matter of principle, permissible in the interests of developing the country's productive forces..." The difference of course was that on 1918-19 there was no doubt about the nature of the Soviet Union. It was a healthy workers' state - or at least a relatively healthy workers' state - where such concessions would be used to strengthen the workers' state not weaken it.

We have also to remember that it was the delay of the world revolution that forced the Bolsheviks to make these compromises. These were acceptable so long as state power remained in the hands of the working class and this state maintained control of the commanding heights of the economy. The problem however, was that the foreign capitalists, far from reaching economic deals with Soviet Russia in 1921, wanted to crush it. With the Chinese bureaucracy it was another matter. With this privileged caste they could make deals. Even the arch-reactionary Nixon had no problems in coming to agreements with the Chinese bureaucracy.

After Mao's death, the idea of opening up the country to foreign investment gained force among the bureaucracy and Deng Xiaoping personified this idea. What this reflected was the fact that the bulk of the bureaucracy had drawn the conclusion that autarchy had failed, that China could not develop in isolation.

Deng had been general secretary of the party but was then removed from the leadership during the "Cultural Revolution". But by January 1974 he was once again a member of the Politburo. Before being stripped once again of all his positions, Deng was not only Prime Minister, but also vice-president of the party and chief of the Supreme Military Staff, the second man in China after Mao. In spite of his high ranking positions he was denounced as a "monster" and a leader of a counter-revolutionary conspiracy which was following "a capitalist policy." What was significant however is that he was able to keep his Party card. Normally anyone who fell out of favour with the "great leader" would have been expelled, or worse. This didn't happen to Deng because he had big support within the bureaucracy. With hindsight we could even hazard a guess that the majority of the bureaucracy - at least among the upper layers ‑ supported Deng, but could not move because of the position held by Mao.

This widespread support for Deng within the bureaucracy was confirmed after Mao's death. The "Gang of Four", which included Mao's widow, was playing with the idea of a continuation of the "Cultural Revolution". However, the real views of the dominant wing of the bureaucracy were clear. The "Gang of Four" was arrested on October 6, 1976 and never regained positions of power, and Deng emerged as the leader of the party in 1978.

It is in that period that we have the roots of the current situation. The debate inside the Communist Party on opening up the economy to foreign investment started in 1977-78. The Deng wing came up with the term "market socialism" to describe what they were proposing. They argued that the Mao era had left the economy in a mess. This was not quite the truth, for in spite of the upheavals, for about 25 years the economy had been growing quite rapidly.

What is true however is that as the economy became more sophisticated the bureaucratic command system began to show its limitations. Just as in the Soviet Union, there was lack of coordination between the different sectors, investment imbalances between different sectors, with overproduction of certain goods and underproduction of others. There was bungling, corruption, sabotage, waste and chaos on a grand scale. Productivity in industry was declining. There were inflationary tendencies, scarcity of consumer goods and social discontent.

This was starting to have an impact on the needs of the workers and peasants who were becoming restless. All this could have been resolved through the introduction of genuine workers' control and management of the economy, but for that to happen it would have required a political revolution; the bureaucracy would have had to be removed from power. But the bureaucracy was not going to renounce power that easily. Deng's view, and that of the wing of the bureaucracy that he represented, was that in order to continue the task of building the productive forces and improving productivity market stimuli were necessary.

Although they had already overtaken countries like Britain in terms of absolute production, in terms of productivity of labour both China and Russia were a long way behind the capitalist West. In Russia the crisis had already become evident with a significant slowdown in growth. In China the Deng wing of the bureaucracy understood the need to introduce the most advanced techniques into the Chinese economy. This could only be done by opening up China to foreign investment and participating on the world market.

Had state power been in the hands of the workers they could have curbed the tendencies towards capitalist restoration. But state power was in the hands of the bureaucracy, and in these conditions the introduction of capitalist incentives posed the real danger of the total destruction of the planned economy over a period.

We should, however, not have a mechanical approach to this question. It would be easy with the benefit of hindsight to say that ever since Deng came to power in 1978 the bureaucracy had a clear objective of introducing capitalism, but this would be wrong. The bureaucracy moves empirically, depending on the needs of any given moment. Even in Stalinist Russia there were periods of greater openness to market forces and decentralisation, followed by periods of recentralisation. They represented attempts on the part of the bureaucracy to get the economy moving. The bureaucracy was aware of the fact that if it did not develop the means of production their own privileged position was at risk.

China Development - China's long march to capitalism(Part Two)

Deng's 1978 turn

It was this consideration that led the Chinese Communist Party in the late 1970s to draw the conclusion that it was necessary to open up to foreign investment. In December 1978 the Chinese Communist Party held its Third Plenum. Here it discussed the new turn. Although it stated that centralised planning would remain the dominant form, it introduced elements of decentralisation and encouraged the setting up of private firms. The idea was that market forces would have to be introduced as a means of making sure the needs of the economy were met.

This eventually led Deng to suggesting the setting up of four special economic zones in 1979 around Hong Kong and Macao, in the Guangdong and Fujian provinces on the southern coast. These were zones that would be open to foreign investment. Initially there were quite tight restrictions in the levels and kind of investment that could be made by foreign capitalists. This indicates what we said above, that even the Deng wing saw these measures as a means of modernising the productive forces, while maintaining the centrally planned and state-controlled nature of the economy. At first they were very cautious and made only limited concessions.

However, precisely because of the restrictions, the four special zones were not immediately as successful as had been expected. That is why in 1983 these restrictions were lifted and, for instance, wholly foreign owned companies were then allowed to operate. Here we see the empiricism of the bureaucracy. There was not a worked out "plan". But once the bureaucracy embarked on this road it started to develop a logic of its own. The bureaucracy found it more and more difficult to dictate to the market forces. If they wanted the capitalists to invest they had to create favourable conditions for them.

While these special zones were being created a parallel process was taking place in agriculture. The old collectivised land system was dismantled and the logic of private production was introduced. This was done by "leasing" the land out to families. Legally the land remained state property - and does so to this day - but in practice it had become like private property. For instance the leased land can be passed on to one's offspring. This change led to a situation where already by the end of the 1980s those who had leased the land could even sell the lease or leave it as an inheritance.

This led to a differentiation within the peasantry, with some enriching themselves while others lost the source of their livelihood and were forced to start migrating to the cities. There was an increased productivity of the land on the one hand and an impoverishment of large layers on the other. This provided the inflow of cheap labour that would serve as a basis for the development of capitalism in the cities.

This is a process similar to what took place in Russia after 1861 with the dissolution of the Mir, the old agricultural commune. As the communes broke down the peasants began to move into the cities, providing the labour necessary for the development of capitalism between 1880 and 1912. But what is happening in China today is on a much bigger scale than what we saw in Russia. It can also be compared to the process in the early days of British capitalism, with the brutal expulsion of the peasants from the land, forced to go and live in the cities in atrocious conditions. It could even be compared to the period of the Wild West in the expansion of capitalism in the USA. What we are seeing in China has in fact elements of all these historical examples. It is unprecedented both in terms of the scope and the speed of the process.

One of the first measures the Chinese regime introduced in trying to attract foreign investment was the creation of a "labour market". Thus a series of reforms were introduced which allowed the managers of selected state-owned enterprises to end the so-called "lifetime" jobs. The idea that workers could be sacked was introduced.

A few years later, in 1983 the state went a step further. State-owned enterprises could now hire workers on a contract basis for a limited time period. This new system meant that the newly hired workers would not get the welfare benefits that state workers had benefited from in the past. By 1987 7.5 million workers had been hired on a contract basis by the state firms and a further 6 million had had their status changed from lifetime to contract.

In the same period the private sector workforce began to grow. From about a quarter of a million in 1979 it reached 3.4 million by 1984, mainly in very small enterprises. Initially a limit was placed on how many workers could be employed by private firms but in 1987 this was abolished. On top of this a disguised form of private enterprise was allowed to develop, in the form of the so-called "urban collectives" or Town and Village Enterprises (TVEs). These were controlled and dependent on local municipalities, but were "profit-oriented", i.e. operating like capitalist enterprises. (We will deal with the development of the TVEs later.)

In spite of these developments, throughout this period the state sector continued to dominate and guide the overall economic process. In the mid 1980s the state sector still employed about 70% of the urban workforce. However the status of these workers was changing. More and more of them were on limited contracts.

The closing of state controlled companies led to the previously unknown phenomenon of unemployment. Soon after the first "market reforms" were introduced, inflation began to take off, provoking social unrest. Fearing the political consequences of this, the regime in 1981 decided to slow down the process. This was something that would be repeated at each successive crisis throughout the process. But every time, as we will see, the bureaucracy - after an initial slowdown and restabilisation of the situation - decided to move forward and accelerate the process once more. It never took a step backwards.

In 1982 the Party still officially stated that the state sector was dominant. At this time we are still in the realm of the bureaucracy of a deformed workers' state using capitalist methods to develop the economy as a whole. By 1984 however they were moving on again, in the direction of greater freedom for capitalist-type development. More and more emphasis was being laid on private production and the market. The prices of most consumer and agricultural goods were liberalised. From now on the market would be the force that would decide price levels.

The 12^th Congress of the Communist Party held in the same year introduced the idea of a "planned commodity economy". We see the beginnings of the contradiction between the planned economy and capitalism being expressed even in the terminology used by the regime. The area covered by the special economic zones was expanded with the addition of fourteen more cities along the coast. A year later the Pearl River deltas, Min River delta and Yangtze River delta regions were also added. Basically the whole area along China's long coastline was opened up to foreign investment.

The process continued to accelerate in 1986 when new measures were introduced, further facilitating foreign investment: lower taxes, more freedom to hire and fire, and easier access to foreign exchange. As part of this process, they introduced a number of changes: they abolished the egalitarian system of wages, removed life-time jobs, linked wages to productivity, and gave short-term contracts - all very familiar to workers in the West.

At the 13^th national congress of the Party in 1987 further proposals were made to develop an "export-oriented economy". The growth of industrial capacity demanded the import of machinery and other goods. As a consequence, the mid-1980s witnessed sharp rises in China's balance of trade deficit, combined with another explosion of inflationary pressures. In the two years 1988 and 1989 there was an annual inflation rate of 18%. The real purchasing power of working class families was being hit hard.

The social instability that this provoked forced the regime to slow down the process. Under pressure, in late 1988, the regime put a brake on the so-called "reforms" and in an attempt to get inflation under control tightened the money supply. This provoked a new phenomenon for the Chinese economy, a recession in 1989. All this led to growing social unrest and a wave of strikes ensued. It is in this context that we have the protest movement around Tien An Men Square in Beijing.

What did the Tien An Men Square movement represent? Clearly the elements of a political revolution were present in 1989. There is no question of this. Large numbers of students came out onto the streets. The youth sang the Internationale, as if to say to the regime and to world opinion, "Look we are not in favour of capitalism, we are not counter-revolutionaries".

But what had started as a student and youth protest began to spread to the workers. This terrified the regime and convinced the Stalinist wing to crush the movement in blood. Through this brutal clampdown the regime was making sure it kept a tight grip on society. Some may ask when was the key turning point in the process of capitalist restoration. As we are dealing with an overall process that started nearly 30 years ago it is not possible to fix such a point. But there have been events which have contributed to accelerating the process. Thus it would be more correct to talk of a series of turning points and one such point is Tien An Men.

After the crushing of the Tien An Men protests the pendulum swung to the right. The movement around Tien An Men Square raised the hopes of many workers and youth, but the masses were defeated. After Tien An Men the regime sought out all the key leaders many of whom disappeared or spent many years in prison. At the same time the bureaucracy temporarily slowed down the process of market reform in an attempt to restabilise the situation. Once it felt sure of itself again the movement in the direction of capitalism intensified.

In the meantime we have to remember what was happening in Eastern Europe and the Soviet Union. In 1989 all the former Stalinist regimes of Eastern Europe collapsed one after another. The bureaucracy lost control of the situation and a chaotic transition to capitalism opened up. The Soviet Union resisted a little longer, but it too eventually succumbed to the same process, with the old Stalinist regime collapsing in 1991. As we have already pointed out, these regimes were so rotten that they fell without hardly any resistance on the part of the bureaucracy. In Russia where the prospect of civil war was a real one, the hard-line Stalinists proved so corrupt that they could not put up any serious opposition. The system they represented had reached its limits.

These events undoubtedly had an impact on the Chinese Stalinists. Up until then they had been introducing market reforms, opening up whole areas of China to capitalist investment, but the state-owned sector still remained dominant - and the party's position was that it should remain so. The levers of economic control were still in the hands of the bureaucracy. The process could still have been reversed. The point is that they had no interest in reversing it. As we have already stated, they never took a step backwards. Faced with moments of instability the process was slowed down but never reversed.

1992: "socialist market economy with Chinese characteristics"

The combined effect of the Tien An Men protest and the collapse of Stalinism in Eastern Europe and the Soviet Union had a profound impact on the Chinese bureaucracy. After these events the Communist Party leadership decided to accelerate the process of "market reform". They began to see capitalist restoration as the solution to their own crisis, but they were determined that the process would take place under the firm control of the bureaucracy. In essence this meant that the bureaucracy was preparing the ground to transform itself into a new capitalist class.

The fact that the bureaucracy was moving in this direction did not mean that it would necessarily succeed in completing the process of capitalist restoration. It is one thing to declare an intention; it is another to achieve it. Had there been a serious downturn in the capitalist west on a scale similar to the 1929 Crash things may well have turned out differently. But that did not materialise. The boom in the west was extended due to a series of factors that we have dealt with in other documents. This has only served to pile up new contradictions, preparing an even bigger crisis when it comes. But the Chinese bureaucracy does not understand this. It does not have a Marxist understanding of these processes, but reacts empirically to events. Capitalism was experiencing a boom on a world level while Stalinism was collapsing and that is all that they could see.

The conclusions the bureaucracy had drawn from all these events were made clear in 1992. That year the XIV Party Congress met, and officially abandoned the idea that the state sector should dominate. They announced the plan to set up a so-called "socialist market economy with Chinese characteristics". In the same year Deng launched a new stage in the "reform programme", as they called it. He went on a tour of the special zone of Shenzen and made a famous declaration, "As long as it makes money it is good for China." This was another important turning point within the regime.

Market mechanisms had already been operating for some time in China. What was significant about 1992 was that the Party officially decided to abandon its commitment to maintaining the state-owned enterprises as the dominant sector. They thus decided to shrink the state sector. Up until then what was taking place was the development of the private sector outside the state sector. Now they decided to proceed towards the privatisation of state-owned enterprises. They selected 2500 locally run state-owned enterprises and 100 centrally run companies for this conversion. By 1998 this was complete.

In 1994 they extended the programme and they stated that they would maintain control over the 1000 largest state-owned enterprises while all remaining state firms would be available for leasing or sale into private hands. By the end of the 1990s state-owned enterprises employed 83 million people, but this represented only 12% of total employment and even in the urban areas only one third of employment. We see an enormous change from 1978 when 78% of urban employment was in the state sector.

At the end of the 1990s the contribution of the state-owned companies to GDP had fallen to 38%. In September 1999 at the 4^th Plenum of the 15 ^th Party Congress they took another step. They called it the "Let go of policy" position, i.e. the state loosening up and renouncing its control. They proceeded to loosen up in medium and small state-owned enterprises. In July 2000, for example, the Beijing City government that covers a large area announced that state and collective ownership would be phased out in all small and medium sized state-owned enterprises within three years. By 2001 state enterprises accounted for only 15% of total manufacturing employment, and less than 10% of employment in domestic trade.

China had survived the crash of the South-East Asian stock exchanges, partly because they still had a certain degree of state control of foreign trade and the currency was non-convertible. These two factors shielded China from the effects of that crisis. It actually emerged strengthened after it and assumed a dominant role within the region. Following on from this in the period roughly from 1998 to 2001 there was a further acceleration of the process. The direction of the process was now very clear. The Communist Party hierarchy had been completely convinced that private firms were more efficient than state-run ones. The only kind of state-owned industries they could imagine were those that existed under the bureaucratic plan, with all the mismanagement that these involved. They could not envisage efficient state-owned industries under workers' control.

Some interesting figures are provided by a document called China's Ownership Transformation, published in 2005, which we quote below. The document was written by Ross Garnaut, Ligang Song, Stoyan Tenev and Yang Yao of the International Finance Corporation, Australian National University, China Centre for Economic Research and Peking University; published by the International Finance Corporation, a branch of the World Bank and available on the internet at www.ifc.org.

The authors stress that privatisation started in earnest in 1992. Referring to 1995 it says, "the state decided to keep between 500 and 1000 large state firms and to allow smaller firms to be leased or sold". It explains that there was a good reason for this because in 1997 the 500 largest state firms ‑ most of them controlled by the central government ‑ held 37% of the state's industrial assets, they provided large revenues for the state and so on.

The document, when referring to the period when they were speeding up the process, explains that "the trend reflected the belief that for an enterprise to be truly transformed it is necessary for the management to own the majority of shares". And in the Chinese tradition the slogan now became "the state retreats and the private sector moves forward". They invented the slogan to get the message across to the masses.

Plenty of figures are provided which outline the process and reveal its accelerating pace. For example, the document explains that, "If this performance typifies that of the rest of the country [referring to a sample of six cities] then privatisation in China has already gone further than in many East European and former Soviet countries."

However, it is not a simple process of just selling everything off. It is not merely a question of looking at the percentages of state and private ownership (although in the last analysis this is a decisive factor). It is not merely how much is in the hands of the state, but also how that sector that remains in the hands of the state is functioning, and with what aim. It is also necessary to look at the overall direction of the process, and this has been inexorably towards capitalism.

However, in the process of capitalist transformation they haven't yet developed a bourgeoisie that is capable of running major corporations on the scale of some of the American and Japanese multinationals, without the help of the state. The state will continue to play a key role for some time, but eventually a powerful bourgeoisie will emerge.

The bureaucracy has been selling off most of the small and medium sized companies and at the same time encouraging the development of private companies that were never in the hands of the state. Now 450 of the top 500 multinationals operate in China. So an important element in the equation is the fact that the private sector has been developing faster than the state sector. And if we look at what remains of the state sector, we see that part of it is being prepared for further privatisation. Large state conglomerates are being broken up into different companies, with the inefficient sectors being closed and the more profitable sectors sold off.

The managers of state-owned companies are busily involved in asset stripping. They have their friends in the private sector, and they let these have the best machines, the best parts and so on, while they let the company go into disrepair and decline. The feeling among these managers is "this factory is going to be privatised sooner or later and I am going to be offered the factory". So the idea is to reduce the company to a state where it is worth the least possible so it can be bought off cheaply. In many towns the local councils decide that the best way to get a company working is to sell it off cheaply to the managers to stop the asset stripping, the idea being that once the mangers become owners they will use the assets to develop the companies as they will reap the profits.

In the process the workers have paid dearly, with the loss of millions of jobs. In the period 1990 to 2000, 30,000,000 state sector jobs were destroyed. A so-called "rust belt" appeared in the traditional industrial areas, such as the North East, the heartland of China's old state plan. Those still with jobs saw all their long held benefits destroyed. Over a period of several years all the gains of the 1949 revolution were gradually whittled away. This involved resistance on the part of the working class, but the bureaucracy pushed on relentlessly.

They introduced the free market in health care, housing, and labour. Even education now has to be paid for. By the early 1990s there were already strong elements of capitalism. In 1992, 40 percent of sales came from the private sector. In 1991 there were 13,000,000 private industrialists with 21,000,000 workers - largely small businesses - but this was just the beginning. In the villages they introduced concessions to the wealthier farmers: the leasing of land and allowing products to be sold on the market, had broken down the collectives and produced a further differentiation between rich and poor peasants. In 1998 there were still 238,000 state controlled enterprises, but by 2003 this figure had gone down to 150,000.

The Town and Village Enterprises (TVEs)

As we have already touched on, another element in the development of capitalism was the growth of the Town and Village Enterprises (TVEs). The TVEs now account for 30% of GDP but their nature is not always clear and they are of a contradictory character. It would have been impossible for the bureaucrats to simply privatise these enterprises without economic and political chaos. Simply to privatise everything in one go would have meant that many enterprises, and indeed many sectors, would have been shut down or gone broke. This would have meant the end of the rule of the CCP.

The introduction of TVEs was therefore merely a transitional step along the road to complete privatisation. It allows the managers and other parasitic sectors of society time to accumulate the necessary capital to assume ownership of these enterprises. This is a perfect example of how the old state-owned enterprises and the state-owned sector now serve the interests of capitalism in China, by nurturing and supporting the nascent bourgeois elements of society until they can assume ownership directly. In some cases the TVEs are municipal companies, in others they are joint ventures with private capitalists. In any case, they all function as capitalist firms and have been gradually falling into the hands of private capitalists.

The TVEs are sometimes included in statistics to show that the majority of the economy is publicly owned, and some even use them to try and claim that it is a form of "socialism". But a closer look reveals a different picture. The number of TVEs grew from 1.5 million in 1987 to 25 million by 1993, employing 123 million workers, but since 1996 their number has been going down as they are fully privatised. Even when they remain state or municipal companies they function like private companies with the management having the right to hire and fire.

According to Hart-Landsberg and Burkett, Studies have shown that "... 'on average TVE workers can earn basic wages which are lower than the minimum wage and must earn the rest through overtime and piece-rate quota bonuses. Even the basic wage is not guaranteed since the minimum wage is set by local township authorities whose material interests - both institutionally and privately - are tied up in the maximization of profit'. Indeed, TVE 'competitiveness and profit margins' are largely underwritten by the 'abundant supply of dirt-cheap rural labor' freed up by the dissolution of the commune system and impoverishment of individual farm families." (China and Socialism - Market Reforms and Class Struggle, page 45)

The fate of the TVEs was tightly linked to the overall processes taking place in the economy. As the private sector became dominant so the TVEs had to adapt to this. As the same authors explain, "Equally devastating for the TVEs, with new opportunities to profit from private production, many managers began illegally transferring TVE assets or products to private enterprises where they could earn greater returns. This asset stripping accelerated in the mid-1990s after the party committed to the privatisation of small state enterprises... Faced with declining profits and deindustrialisation, township and village officials took their cue from state officials and began a rapid sell off of TVEs beginning in 1996." (ibid).

Using the state to build strong Chinese capitalism

The bureaucracy in China does not want to become prey to imperialist domination. And they are not going to allow that to happen. They know that they must maintain a strong Chinese capitalist sector, and they are doing that by building up and actually strengthening some of the state companies. They have huge amounts of capital available. The state banks are being used to pump money into these state corporations.

According to the authors of China's Ownership Transformation, "China has nurtured over 20 giant corporations and conglomerates that have proven competitive in the international market. Some of these companies are laying off tens or hundreds of thousands of employees, not because they are in financial distress, some of them are hugely profitable, but because they wish to position themselves as important international players. As of 2002 the top 12 Chinese transnational corporations, mainly state-owned enterprises, controlled over $30bn of foreign assets and had some 20,000 foreign employees and $33bn in foreign sales."

So although these are state-owned they are being prepared as major Chinese state corporations to compete with the US and the Japanese, etc., on a capitalist basis. The document provides a table called The Composition Of China's GDP By Ownership Types. We see that already in 1988 the state controlled sector was down to 41% of GDP. By 2003 it had gone down further to 34%. What they call the "Real Private Sector", in the same period from 1988 to 2003 had gone from 31% to 44%. But if we look at the overall Non-State sector, in 2003 it accounted for 66% of GDP. And the document concludes, "the private sector is now the dominant sector of the Chinese economy". It continues, "the share of the private sector is even larger if we take into account that a significant percentage of the collective farms are in effect privately controlled and that the private sector is in general more productive than the other sectors of the economy."

We've seen this happen before elsewhere on a smaller scale. In South Korea the state developed the big corporations, but that in no way defined it as a deformed workers' state, or even a state in transition. It was a weak capitalism that could only be built on the basis of the state investing the capital, because the bourgeoisie was too small and too weak to do that. In the context of China we see a similar process on a much bigger scale. Although a much stronger bourgeoisie is being created in China, it still does not have the resources to run and develop the major corporations, many of which are still state owned. Therefore it is the state that governs China and this state is building capitalism and the bourgeoisie.

If one looks at the legal structure in China one sees important changes being made in the last three or four years to bring the legal framework into line with the new property relations. In 2004 important changes were made to the Constitution, stressing the role of the non-state sector in supporting economic activity in the country and protecting private property from arbitrary seizure.

Until recently there were laws in China which regulated or prevented private companies from entering such sectors as the public utilities and the finance services. In 2005 these laws were abolished, allowing the private companies to enter these sectors. It is happening now also in the banking sector. They are beginning to privatise and are allowing foreign capital to come into the banks. In fact the bourgeois analysts, when they write about China today, go into great detail into the laws and legal structure that need to come into line with the new property forms. They see them as leftovers from the past that have to be removed to facilitate the functioning of private companies.

In China property relations have changed, but although much has already been done to bring the legal structure into line there are still remnants of the old legal system. The development of new property relations can indeed come into conflict with the old legal forms; they do not necessarily come into line with the economic base immediately. Sooner or later however, this "superstructure" must come into line with the economic base. As Karl Marx pointed out in 1859 in his preface to A Contribution to the Critique of Political Economy:

"At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or - this merely expresses the same thing in legal terms - with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure." [our emphasis]

In China we are not dealing with a social revolution, but a counter-revolution. Nonetheless the point Marx made is still valid. Once the property relations change, the legal superstructure must follow suit. Thus we can expect that the process of bringing the legal "superstructure" into line with the economic base will continue apace. Although there is some opposition within certain layers of the bureaucracy, "sooner or later", the two must be brought into line. Already much has been done, as the changes to the Constitution testify.

Entry into the WTO

Another key turning point was to come in November 2001 when China decided to join the World Trade Organisation. The question of entry into the WTO is an important one. On joining the WTO China committed itself to abandoning all control over foreign trade within five years and they have been doing that step by step ever since. The reason for China joining the WTO is obvious. The present Chinese economy can only exist if it is tightly linked to the world economy. It depends heavily on exports and it has to have international agreements on trade. It must participate fully in the world economy. This in turn accelerates the process of capitalist transformation inside China.

The abandonment of state control of foreign trade is an important element in opening up China to the world market. Let us recall that one of the key elements in the Bolshevik programme ‑ and that Trotsky firmly defended against Stalin and Bukharin ‑ was that a workers' state surrounded by a capitalist world must have a state monopoly of foreign trade. This was the case especially in an underdeveloped country.

Bukharin also held the idea that to develop the economy it was necessary to allow a layer of the peasantry to enrich itself. By this he thought that material incentives would produce greater efficiency and production. Bukharin, however, had no idea of where his ideas could lead. He did not envisage his position as being one that would lead to the return of capitalist relations. But had his position prevailed there would have been a return to capitalism in the Soviet Union as early as 1928. Even at that time the pressures from capitalism were felt very strongly. There are parallels between Deng and Bukharin. Even the language they used was similar. Deng used the slogan "to get rich is glorious", while Bukharin's slogan was "Get rich!"

The state monopoly of foreign trade was in essence a protective measure against the incursion of capitalist influences from outside. If one looks at the history of capitalism in the advanced countries, one see that protectionism was used at one stage to protect their home markets and free trade only becomes the favoured policy of the bourgeoisie in the later stages. Even the British bourgeoisie protected their market while they were developing their industry. Once they had developed modern, competitive industries they didn't need protectionism. By this stage their industry was strong enough to dominate the world market. As Marx and Engels wrote in the Communist Manifesto, referring to the bourgeoisie, "The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls..."

Until recently this was also the case in today's underdeveloped countries. Pakistan, for example, had a lot of tariffs and protectionist measures up to around 20 years ago. But in the recent period they have been forced to open up their internal market. The imperialists are dictating policy to these countries and they cannot tolerate protectionist measures, although at the same time they jealously guard their own markets in agriculture, etc. They have a pressing need to open up all markets to their goods.

The difference between China and Pakistan is that the imposition of the so-called open market on Pakistan has meant the destruction of thousands of industries and factories. The level of development of Pakistani industry was too low to resist outside competition. However China is not Pakistan and the Chinese government must be thinking, "We are strong enough now, we have the productivity to face up to outside competition." This however, is provoking retaliatory measures especially on the part of the USA, where protectionism is being sought as a measure to defend the US market against cheap Chinese goods.

Cold transition?

It is now clear that there has been a transition to capitalism, but how did it happen? There has been no armed counter-revolution, no major confrontation between different wings of the bureaucracy. Trotsky once used the idea of the film of reformism being played backwards. He explained that for a counter-revolution to take place there would be some form of violent conflict. Only then would a return to capitalism be possible. He was saying the system couldn't be "reformed" into capitalism.

Here we must learn from Trotsky. We must take from Trotsky not just isolated sentences here and there, but the method that he used. He was dealing with Russia in the 1930s where the traditions of the revolution were still alive. The Russian working class had played the key role in the revolution and were conscious of what a return to capitalism would have meant. That working class would have resisted capitalist restoration. Also the international situation determined a different balance of forces within the Soviet Union. A significant layer of the bureaucracy had an interest in maintaining the state plan.

However, in the Soviet Union Stalinism survived for several decades, far longer than even Trotsky could have anticipated, for more than 70 years in fact. Quantitative changes determine qualitative changes. In that period the revolutionary traditions were eradicated from the consciousness of the workers. The generation that had experienced the revolution was gone. The new generations witnessed a voracious bureaucracy raising itself further and further above the masses. They saw nothing but utter mismanagement, waste and corruption at all levels and towards the end all that was left facing them was a system which was grinding to a halt. Sometimes a regime can be so rotten that the ruling class ‑ or the ruling caste ‑ is incapable of resisting even the smallest pressure once the movement breaks out from below.

The idea that in order to build the basis for capitalism to develop, a bourgeois revolution is necessary comes from the experience of the classical bourgeois revolution in France in 1789 or in England in 1640. The bourgeoisie had developed, building up its wealth within the confines of feudalism and eventually it had to break through those limits. The young bourgeois class led the nation against the landed aristocracy and overthrew feudalism, creating the conditions for modern capitalist development. However, once capitalism had developed in a few key countries (Britain, France, the USA,) it meant that a repetition of the manner in which capitalism had been developed in these countries became practically impossible in the other less developed countries. Marx could se this in the case of Germany, where he stated that the German bourgeoisie had become reactionary even before it had come to power.

The Mensheviks did not understand this question. They expected all countries to go through the same stages. Russia was underdeveloped, with a huge peasantry and landlordism. They thus mechanically superimposed what had happened in France and Britain onto Russia. Therefore, for them, the task of Russian Communists was to support the "progressive bourgeoisie". They did not understand what Trotsky explained in his theory of the Permanent Revolution. In the epoch of imperialism the bourgeoisie in the underdeveloped countries could not play the progressive role they had played in France or Britain.

This also explains why the development of capitalism in other countries didn't always come about through the classical mechanism of the bourgeois revolution with the bourgeoisie leading the masses. That is not how capitalism came into being in Japan or Germany, for instance. Today these are two of the most powerful countries in the world. In Japan it was the bureaucracy of the feudal state, under pressure from US capitalism, that guided the movement towards capitalism, note the weak and effete bourgeoisie of the time. Why was this? Because world developments dominate all processes. The future of Japan as a powerful nation could only be maintained if they developed capitalism. Therefore, because the bourgeoisie in Japan was not able to carry out its historical role, another class carried out the tasks. In Germany it was the Junkers of the old feudal state apparatus, who oversaw a similar process.

However, precisely because there was no revolution, there remained remnants of the old feudal system. In Germany these contradictions were only finally resolved as a result of the aborted 1918 proletarian revolution, which at least completed the unfinished tasks of the bourgeois revolution. In Japan the same task was carried out by the American occupying forces after 1945. McArthur forced through the agrarian revolution in Japan for fear of the effects of the Chinese revolution on the Japanese masses.

In these cases there was no "bourgeois revolution" but a kind of "cold" transition from one system to another. Lenin stressed that history knows all sorts of mutations and transformations. The real live process does not always necessarily correspond in every detail to the textbooks! There is no rigid rule of how a social transformation comes about. As Marxists we must be aware of this, otherwise we will be thrown hither and thither by events that do not correspond to mechanical and preconceived views.

We therefore have to place Trotsky's view on the "cold transition" in the historical context in which he raised the idea. We also have to see, however, that Trotsky provided us with an insight into how the bureaucracy could easily adapt to a capitalist restoration. He explained that in the Soviet Union if there were a bourgeois counter-revolution the new ruling class would have to purge far fewer elements from the state than in the case of a political revolution. This is precisely what happened with the old Soviet bureaucracy when Yeltsin came to power, and the Chinese bureaucracy is no different. Trotsky's exact words in the Revolution Betrayed were:

"If-to adopt a second hypothesis-a bourgeois party were to overthrow the ruling Soviet caste, it would find no small number of ready servants among the present bureaucrats, administrators, technicians, directors, party secretaries and privileged upper circles in general. A purgation of the state apparatus would, of course, be necessary in this case too. But a bourgeois restoration would probably have to clean out fewer people than a revolutionary party. The chief task of the new power would be to restore private property in the means of production. First of all, it would be necessary to create conditions for the development of strong farmers from the weak collective farms, and for converting the strong collectives into producers' cooperatives of the bourgeois type into agricultural stock companies. In the sphere of industry, denationalization would begin with the light industries and those producing food. The planning principle would be converted for the transitional period into a series of compromises between state power and individual "corporations"-potential proprietors, that is, among the Soviet captains of industry, the émigré former proprietors and foreign capitalists. Notwithstanding that the Soviet bureaucracy has gone far toward preparing a bourgeois restoration, the new regime would have to introduce in the matter of forms of property and methods of industry not a reform, but a social revolution."

The social basis of the Soviet Union was that of a workers' state, with a state-owned centrally planned economy, and yet if it had transformed into a bourgeois regime not too many people would have had to be purged. This was because they were already privileged elements and they would have transformed themselves from privileged bureaucrats of the workers' state into privileged servants of capitalism. On the other hand, a political revolution would have had to impose on many of those bureaucrats a worker's wage and remove their privileges. Therefore a bigger conflict would have come about. The present situation in Russia shows that Trotsky was right.

Trotsky's analysis of the USSR furnishes important elements that help us to understand the present-day process in China. Here too we are dealing with a privileged caste, which as Trotsky stressed, would want at a certain point to become the owners of the means of production as a guarantee of their privileges.

There have been several factors that have pushed the Chinese bureaucracy in this direction. There was the massive post-World War Two boom in the capitalist west, with an unprecedented development of the productive forces. This was followed by the crisis of the Stalinist regimes in Eastern Europe and the Soviet Union. The Marxist tendency took note of this in the early 1970s. The Chinese bureaucrats took note of it too. The rate of growth in the Soviet Union went down to 3%, 2% and then zero. The system was stagnating. Finally Eastern Europe collapsed and then two years later the Soviet Union collapsed also. The Soviet Union lost huge areas of its territory.

These were very powerful factors in determining the thinking of the Chinese bureaucrats. They started off with what was basically a Chinese version of the NEP, trying to get the economy to be more efficient, more productive. They were observing world developments and the whole situation was pushing them in a certain direction. Just across the border in the Soviet Union they could see absolute chaos and disaster. They must have thought, "we are not letting that happen here. We have to introduce market methods but we are going to control the process ourselves". So they did it gradually, step by step, but once they had embarked on that road the process assumed a logic of its own eventually ending up with the present situation.

Now in China there are very powerful bourgeois interests. The new bourgeoisie is using the Communist Party to defend their class interests. In these conditions could the bureaucracy reverse the process and carry it out successfully? We believe that the process has gone beyond the stage where that could happen without a major conflict. If a wing of the Chinese bureaucracy were to decide to go down that road it would involve a major confrontation with the pro-capitalist wing. Thus a "cold transition" back to some form of bureaucratically planned economy would not be possible. But this is a hypothetical perspective as there are no indications that any such wing exists.

An important element in the Chinese equation is the size and experience of the working class. Any movement against capitalism would now have to be based on a mobilisation of this working class and the Chinese workers would not accept a movement back to Stalinism; they would tend to move forward towards genuine socialism, to real workers' power.

Undoubtedly, in such a scenario a section of the party would be affected. From letters and articles that have appeared in the Chinese press it seems there are still people in the Chinese Communist Party who believe in the ideals of the 1949 revolution, and these would be affected by a revolutionary movement of the working class and would be pushed into conflict with the dominant pro-capitalist wing. This would imply a split between different layers, with the tops defending the new capitalist relations, and some of the lower layers being dragged behind the movement of the working class.

Trotsky referred to the existence of a "Reiss wing" in the Russian bureaucracy, meaning a wing that wanted to return to the ideals of the October revolution, to genuine Bolshevism. In the 1930s such a wing existed. The revolution was still a relatively recent event and many of the party members from the period prior to the revolution could see the differences between Stalinism and genuine Bolshevism.

However, the Stalinist regime in the Soviet Union survived for decades. Stalin gradually destroyed any link to the ideals of October. In spite of this at the time of the collapse of the Soviet Union in 1991 there was a wing, albeit a small minority, that sought the ideas of genuine Leninism.

In China the situation is somewhat different. A "Reiss wing" as described by Trotsky is ruled out. The 1949 revolution was not based on the ideas of Lenin. The Chinese Communist Party had been transformed into a Stalinist organisation long before it came to power. Therefore even those who come from the period prior to 1949 have Stalinism as a point of reference.

We have to understand the difference between a "degenerated workers' state" and a "deformed workers' state". A degenerated workers' state is obviously a state that has become a deformed workers' state. But the only "degenerated workers' state" ever known in history was the Soviet Union. It started off as a relatively healthy workers' state and due to the isolation of the revolution it underwent a degeneration, with the bureaucracy usurping power. To complete this process the Stalinist bureaucracy had to physically eliminate thousands upon thousands of genuine Communists who understood the difference between what the Bolsheviks had struggled to build and the monstrous caricature that evolved out of the isolation of the revolution in an underdeveloped country.

In China there was no period when the state had been a healthy workers' state. There was never a period of genuine workers' democracy, of workers' power. The Chinese state started off from the very first day that the Communist Party came to power as a deformed workers' state. In actual fact the Communist Party inherited the old Mandarin state apparatus. Even in the early days of Soviet Russia Lenin pointed out that if you scratched the surface of the workers' state you would find the same old Tsarist state apparatus, for especially in a backward country, the new state had to count on many of the old officials. But at least in the times of Lenin the workers, through their organs of power, the Soviets, could curb the conservative tendencies of this stratum. But in China this was not the case.

In spite of this, even if in a distorted manner, there must be elements within the party who look with horror on the transition to capitalism in China. They see how the workers have lost all their rights and all the ideals of the revolution have been trampled on. They hark back to Maoist China which they view as a society which was far more "equal". But in the present context, with the development of such a huge proletariat, the old Maoist idea of basing everything on the peasantry would have no meaning to today's workers. Today the proletariat has become a dominant force, therefore workers in the cities who seek a way out through a "return to Mao" would find themselves raising the question of workers' power. Such a development would have an impact on the party which would inevitably break up along class lines.

Among the top layers of the bureaucracy, however, there is no evidence of a wing that wants to return to the old state-owned, centrally planned economy. From the point of view of the bureaucracy the system is "working". It is doing very well in fact! We have pointed out what Trotsky said about the bureaucracy wanting to pass on their privileges to their offspring. Today many of the sons and daughters of the bureaucrats have been transformed into owners of the means of production. Among this layer there is no desire to return to a nationalised planned economy. There is no material basis for them to wish to do so. They would resist any attempt to turn the clock back, and they would have the backing of the state. It is also worth noting that the tops of the army have also been transformed into owners of property. Thus the officer caste within the "armed bodies of men" also has a material interest in the new property relations that have been established.