Lessons in growth for SA in ‘socialism with Chinese characteristics’.

MAO Zedong once remarked that a revolution is “not a dinner party”, but in the case of China and its allpowerful ruling Communist Party, the revolution is proving to be a movable feast of operatic proportions. While communism suffered an ignoble end in the Soviet Union, Mao’s torch-bearers have reverse-engineered the ideal, added LED lights and a touch screen and given it a new lease on life well into the 21st century.

Amid bleak prognostications for the future of western, late industrial-era capitalism, mired in a debt crisis that to the Chinese communists only further proves the irrationality of the “free market system”, China’s no-nonsense dirigism is envied by many, and even admired.

The model of a strong state sector that essentially directs the economy, and in fact owns much of it, is held up as a template for the future, especially for other “developing” countries. Not least of these is SA, where the ruling African National Congress (ANC) is quite open in its approval of the “Chinese way”, and the apparent ease of its one-party authoritarianism. This should be alarming.

The Chinese communists, much like their ANC counterparts, who are regular visitors on “study tours” to China, also believe in a “second transition” deal, where the national democratic revolution will be supplanted by socialism. For the time being, however, all effort is to be redirected and channelled to building the productive base of the economy (and getting extremely rich in the process).

The Chinese Communist Party has forged a new “Bling dynasty”, whose remoteness from those it governs and whose stunning wealth and hedonism differ little from the emperors who came before. China, and especially the new elites of its big urban centres, is living through the Louis Vuitton stage of revolution, en route to the promised land of socialist utopia envisaged by Mao.

Yet the spectre of Mao, especially his authoritarianism and disdain for private property and enterprise, looms large over China, where the private sector’s role in making the country an economic powerhouse is barely acknowledged, and grudgingly at that. Later this year, when the ruling party leaders meet to anoint their new paramount, the politburo may admit into its ranks China’s richest man, Liang Wengen, a construction tycoon who tops Forbes’s annual list of China’s richest people, with a £6bn stash.

This sop to the private sector is meant to “reassure business” of the government’s intentions, and while it may seem incongruous to some to have a plutocrat in the inner sanctum of the party, “socialism with Chinese characteristics” makes the unlikely appear quite normal. It is this trait that has allowed the communists to preside over arguably the most important transformation in history of a major economy, without either themselves being thrown out with the “old” system, or having to introduce the political reforms that usually accompany such an upheaval, of modernisation and breakneck urbanisation.

While Mao is revered at official level, and throngs of visitors crowd his emperor-style mausoleum on Beijing’s Tiananmen Square, his Cultural Revolution of the late ’60s and early ’70s is widely regarded as a “mistake”. Still, a huge portrait of the Great Helmsman looks over the square, an eerie reminder to all not to take for granted the relative openness and freedom of Chinese society as it asserts itself in a globalised world, where the logic and abundant fruit of relentless reform easily displace revolutionary romanticism.

To this end, the Chinese Communist Party takes its ideological cues not from Mao but from another of its revolutionary icons, Deng Xiaoping, who, in 1981, said: “I think there are more than 100 kinds of socialism in the world. There is no restriction. China will build socialism with Chinese characteristics”.

It was Deng, smiling from the cover of Time magazine, who opened China to the West, unleashing the frenetic wave of development and growth that has made it the world’s second-biggest economy, and giving birth to the Chinese “economic miracle”.

Starting in 1979, China began an overhaul of trade policies and developed its first free economic zones to serve as a role model for the rest of the economy, throwing down a bridge to private and western capital to an untapped Chinese market. Abundant and cheap labour, and purposeful and effective reform and deregulation, kick-started the economy and lifted millions out of poverty. Thousands of unprofitable state enterprises were sold off and privatised.

Through all this, the party has maintained its iron grip. So, while many tolerate Chinese communism because they hope growth and development will automatically translate into a widening of political freedom and a human rights culture, this may be wishful thinking.

The suppression of the Tiananmen Square protests in 1989 should have left no doubt that changes would be made strictly under the party and its leader-technocrats.

‘China and its elites are in the Louis Vuitton stage of revolution en route to Mao’s envisaged socialist utopia’

In ways big and small, the party still controls all aspects of Chinese life, from sport and business, to religion and the media. Although it claims to operate in a “multiparty” system, these “parties” are little more than servile adjuncts of the mother body.

China even insists on appointing its own Catholic bishops, and recently detained the bishop of Shanghai, Thaddeus Ma Daqin, when he resigned from the state-ordained church body, the Patriotic Catholic Association. In fact, the largely underground church gives a revealing snapshot of what is happening across society, in this later stage of communist dominance. Whereas the official “Catholic Church” in China claims 5-million members, the underground church has 10million — double the number of adherents.

This disaffection with the party is also reflected in a disbelief of public pronouncements generally, be they on sanitation, air quality or assurances that state corruption and official opulence will not be tolerated.

A case in point was the recent floods in Beijing, in which authorities were accused of downplaying the threat and misleading the public. Communist rule is increasingly regarded with cynicism. The party’s embrace of “free enterprise” has even led it to push the state-controlled media into becoming “profitable”, but attempts to have the public buy official media have failed, and even state firms are criticised for failing to renew subscriptions to government-owned publications.

Oddly enough, given Mao’s identification with the peasants, more than 300-million of them still live in poverty. His having deprived them of all property rights makes them easy prey for developers, and “land thefts” and the subsequent protests are common in China. Peasants are subject to pass law-style restrictions on their movement to urban areas.

Members of the ruling elite are said to have salted away more than $100bn abroad, which some claim reflects scant faith in China’s future. Many also prefer private schools abroad for their single children, again a vote of no confidence in China, and among the many betrayals that anger Chinese.

So it is an irony that just when “socialism with Chinese characteristics” has never appeared stronger, and enjoys unprecedented respectability around the world, that the ruling party is in a crisis in its relationship to the economy, not least its highly successful stateowned enterprises (SOEs).

It is through the SOEs, as much by the administrative machinery of state, that China’s communists dominate the economy. While the liberalisation of trade and investment boosted private enterprise domestically, the party itself has since moved centre stage, and the communist elite has used growth in the double-digits to entrench itself in power through its manipulation of ownership of the SOEs. The ANC touts this as a suitable model to drive growth in SA, too.

In its “reforms”, party and state are beholden to the special interests in the SOEs, and the new generation of leadership, lacking the charisma and potency of a Mao or a Deng, can do no better, and China is the poorer for it. While the Chinese genius for innovation, patience, hard work and application is the real engine of the country’s economic miracle, self-aggrandising SOEs and multimillion-dollar white elephant infrastructure projects and outlandish urban monstrosities are officially feted as the new face of a muscular, outward-looking China that seeks to challenge “western hegemony” and assert the supremacy of socialism over capitalism.

In 2001-09, the top 119 state companies directly controlled by the Cabinet received subsidies worth about $1,2-trillion in low-cost land, bank loans and other resources, says the Unirule Institute of Economic Research, an independent group in Beijing. And the latest packages of financial aid are heavily biased towards SOEs, which now form the predominant interest group in Chinese society and politics, and which render all but impossible the necessary shift to a broader-based economy and increased local consumer power.

Increasingly, “socialism with Chinese characteristics” is just crony capitalism.

Says John Lee, at the Centre for International Security Studies at the University of Sydney: “Every major sector except for export manufacturing is dominated by SOEs. In 2010, the largest three SOEs (PetroChina, China Mobile and China National Petroleum) made more profits than the combined profits of the country’s largest 500 private domestic firms. The bias towards SOEs exists despite the fact that private domestic firms are two to three times more efficient on any number of credible commercial measurements, such as return on capital, profit margins and return on assets. Putting more and more national wealth into less and less efficient firms is clearly an unsustainable strategy.”

He continues: “Studies are now suggesting that the disposable income of 400-million Chinese has actually stagnated or gone backwards over the past decade. Other indicators reveal that absolute poverty (those living on less than $1,50 a day) has actually increased over the same period. Currently, more than half of the country is still living on $2 a day or less. The bottom line is that across-the-board incomes have not been rising at anywhere near the same rates as growth in gross domestic product — an exact reverse of what occurred from 1979-89, when the household rather than state sector drove economic activity and growth.

“Within one generation, China has gone from being the most equal society in all of Asia, in terms of distribution of income, to the least. In China’s state-dominated model, opportunity and privilege are tied to SOE and Chinese Communist Party connections. Of the party’s 80-85-million members, fourfifths are the business elites, and those joining are upfront about the fact that they do so to gain access to opportunities that they would otherwise be precluded from. Unsurprisingly, Chinese elites have emerged as the strongest supporters of the one-party system.

“The upshot is that a relatively small number of well-connected insiders benefit at the expense of the majority … the much-hyped transition towards a domestic consumptionled economy driving growth is all but impossible under these circumstances.” What would Mao have made of all this? And what to make of the Chinese “economic miracle”, and its relevance to SA? In its ability to direct and concentrate its efforts on its economic reforms, China has been able to turn a low-tech, cheap-labour economy into one ascending the value chain. There is much to learn from that. But in doing so it has also entrenched an intolerant party elite, and the assertion of Chinese power and influence around the world has often come with unfortunate consequences.

Perhaps the one true lesson is the Chinese injunction to “seek truth from facts” in the big economic and social questions, even if that requires dumping outmoded ideologies that no longer serve useful purposes.