<Index>

Ⅰ. From the 1949 Revolution to the 1978 “Reform and Opening-up”

China's birth as a workers’ state/ “New Democracy”: Chinese Class Cooperation/ Class collaboration of Bureaucracy and “socialism in one country”/ Stalin's Check on China: Seeds of Sino-Soviet Conflict/ Fantasy of “Class Coexistence”/ Political consciousness of the United States and the Kuomintang/ Realization of ‘Permanent revolution’/ Outcome of the Revolution/ Three Ways to Improve Productivity/ 1) The First Way to Promote Productivity: Helping Developed Countries by Revolution/ Productive force and Permanent Revolution/ Failing of Follow-up Revolution in Advanced Capitalist Countries/ Sino-Soviet Conflict and Breakdown of Economic Cooperation/ Mao’s Evaluation of the Sino-Soviet Conflict/ Isolated China/ 2) The Second Way to Promote Productivity: ‘Great Leap Forward Movement’/ Catastrophe, Mao's downfall and Right Turn/ Policies of Liu Shaoqi and Deng Xiaoping Leadership/ The Cultural Revolution of Mao Zedong Faction/ Deified Authority/ China in a state of panic: Background of the ‘Cultural Revolution’/ Changes in the ‘Three Kingdoms’ relationship/ China Helping the U.S.-made Blockade of the Soviet Union/ Mao's Death and the Power of the Pragmatic Faction/ Road to ‘Reform and Openness’

II. Changes in Chinese society as a result of 'reform and opening up': China's social character as a deformed worker state has not changed

1. Significant growth in productivity

2. Dangerous growth of pro-capitalist forces in China

 

‘Capitalistic concessions’ of worker’s state

Increasing productivity is essential to provide the results of the revolution to the working people who participated in the revolution and to overcome the counter-revolution of imperialism. As Trotsky explains, this is the basis of Marxism.

“A socialist state even in America, on the basis of the most advanced capitalism, could not immediately provide everyone with as much as he needs, and would therefore be compelled to spur everyone to produce as much as possible. The duty of the stimulator in these circumstances naturally falls to the state, which in its turn cannot but resort, with various changes and mitigations, to the method of labor payment worked out by capitalism. It was in this sense that Marx wrote in 1875: “Bourgeois law…is inevitable in the first phase of the communist society, in that form in which it issues after long labor pains from capitalist society. Law can never be higher than the economic structure and the cultural development of society conditioned by that structure.””—The Revolution Betrayed, Chapter 3, Socialism and the State (underlined and emphasized by the Bolshevik Group, hereinafter the same)

To reiterate, the best way to improve productivity is the subsequent revolution of advanced capitalist countries. This is the fastest way to aid the highest level of production technology to revolutions in underdeveloped countries such as Russia and China, and to go straight without detours toward the socialist world revolution.

However, in reality that unfolds specifically, not abstractly, history rarely goes straight. It twists and turns. In real history, the subsequent revolution of advanced capitalist countries have been delayed disappointingly long.

These historical conditions forced 'capitalist concessions' to degenerate/deformed worker's state. Those policies include the Soviet Union's New Economic Policy (NEP), the opening of the market in earnest during Deng Xiaoping, Vietnam's Doi Moi, and Cuba's allowing private companies.

However, there’s nothing free in history. Capitalist concessions rapidly grow pro-capitalist forces in the system, without exception under any conditions. And the forces that have grown like that now threaten the survival of the worker's state internally. The same is true of China's 'market opening-up' over 40 years.

 

Lenin and Trotsky’s analysis of ‘capitalist concessions’

Lenin and Trotsky closely analyzed NEP experiments between 1921 and 1928. This is an essential theoretical framework for understanding the mechanism of the worker state's 'capitalist concession measures'.

“In his speech at the last party congress he attended, Lenin said:

Here we have lived a year, with the state in our hands, and under the New Economic Policy has it operated our way? No. We don’t like to acknowledge this, but it hasn’t. And how has it operated? The machine isn’t going where we guide it, but where some illegal, or lawless, or God-knows-whence-derived speculators or private capitalistic businessmen, or both together, are guiding it. A machine doesn’t always travel just exactly the way, and it often travels just exactly not the way, that the man imagines who sits at the wheel."

<Ellipsis>

“When Lenin said that the machine often goes where it is directed by forces hostile to us, he called our attention to two facts of supreme importance. First, that there exist in our society these forces hostile to our cause―the kulak, the Nepman, the bureaucrat ―availing themselves of our backwardness and our political mistakes, and relying upon the support of international capitalism. Second, the fact that these forces are so strong that they can push our governmental and economic machine in the wrong direction, and ultimately even attempt―at first in a concealed manner―to seize the wheel of the machine.”

<Ellipsis>

“A certain growth of the hostile forces, the kulak, the Nepman, and the bureaucrat, is unavoidable under the New Economic Policy. You cannot destroy these forces by mere administrative order or by simple economic pressure. In introducing the NEP and carrying it through, we ourselves created a certain place for capitalistic relations in our country, and for a considerable time to come we still have to recognize them as inevitable.”-<Platform of the Joint Opposition, 1927>

Lenin and Trotsky explain that capitalist concessions inevitably grow pro-capitalist forces, that perfect control of them is difficult as long as concessions are carried out, and that the pro-capitalist forces will, in solidarity with international capitalism forces, start secretly but ultimately seek national power, so the revolutionaries of working class should respond to this threat with great alarm.

This analysis is also a very useful theoretical tool for understanding China today.

 

China’s Capitalist Concession

China has implemented a "capitalist concession policy" over the past 40 years. In it, pro-capitalist hostile forces have grown to a lethal level. Emerging capitalists from private companies emerged, and many of them became suddenly rich. The bureaucrats who colluded with them were pro-capitalist corrupt. Among them, 'billionaires (more than $1 billion in assets) have emerged. Imperial financial capital inserted its tentacles through the gap in market opening-up. In addition, public support for capitalist private ownership was mass-produced by allowing the sale of real estate usage rights.

Pro-capitalist social forces are weaving capitalist networks into thousands of strands. Using the power of money, they are expanding their power and consolidating it again. It is still moving in secret with its head down. In the meantime, they are waiting for a day when the power relationship unfolds in their favor. When the day comes, they will rise up in unison, both inside and outside. On that day, they will try to take the wheel by pressing down on the neck of the worker's state and shouting “freedom” or “democracy.” After taking the steering wheel, it will wield its power to seek a full revival of private ownership. tāoguāngyǎnghuì (Deng Xiaoping's foreign policy stance: "Hiding one's light under a bush") is also the political motto of pro-capitalist forces who wait for the future under the Communist Party.

 

China’s Billionaires

The increase in Chinese 'billionaires' symbolizes the growth of pro-capitalist forces. Since 2016, China has become the country with the largest number of wealthy people, or "billionaires."

“China was ranked as the country with more billionaires than the second to fourth-ranked countries (the United States, India, and the United Kingdom) combined. A total of 1,133 people in China have a net worth of more than $1 billion (about 1.21 trillion won), a third of the 3,381 global billionaires in 69 countries.…China outpaced the United States in terms of billionaires in 2016. Since then, the number of billionaires in the U.S. has increased by 30 percent and the number of billionaires in China has doubled.”—Chosun Newspaper, March 18, 2022

* * *

 

The representative route that gave birth to the "tycoon" is, above all, the privatization of state-owned companies. As a result, the growth of pro-capitalist forces was laid, and pro-capitalist forces grew in various forms.

 

1) Privatization of the State-owned company

Deng Xiaoping's leadership has opened the door to "market opening-up." However, in 1978-1992, the first period of 'market opening-up', ownership was not even touched. It only allowed individual companies to pursue profits by giving up collective farming, which is not supported by mechanization, introducing a "farm production responsibility system" that gives autonomy to individual farmers, and separating ownership and management of state-owned companies.

However, in 1993-2002, which is the second term of "market opening-up" the Communist Party of China boldly promoted "the theory of rich-first (be rich first)." He began to touch possession. The justification was to establish a "modern corporate system" with the core of separation between the government and businesses. Under the guidelines of "Hold the Big and Let the Small Go" (zhuā dà fànɡ xiǎo), the government began to organize the so-called "poor" state-owned enterprises (evaluation and implications of reform of Chinese state-owned enterprises, Foreign Economic Policy Research Institute, 2014). The move, called "privatization," mainly targeted local companies or local government-owned state-owned companies. It was a policy that not only management rights but also part of ownership were handed over to individuals.

Of course, this is quite different from the capitalist 'privatization' of handing over ownership altogether. It is a policy that hands over management rights held by the government to professional managers, allowing them to pursue profits, and own "part of the profits" privately.

“In a typical market economy, most companies are private companies. Companies owned and operated by the state or the public sector are limited to some special sectors, and the proportion of the national economy is not very large. On the other hand, China is in a transition period from a conventional socialist planned economy to a market economy, so there are not many private companies in a pure sense, and there are various types of companies mixed with sharing and private or state-run and private forms.”—Types of Chinese companies, LG Management Research Institute(중국 기업의 유형)

“In many areas, local governments still maintained stakes in local businesses, especially trying to run joint ventures with new private managers. In fact, the problem of determining what to classify as a privatized company among today's Chinese township companies is bound to be very difficult. This is because local governments will hold about 20% to 50% of shares.”—China's Economy: Transition and Growth, Chapter 12, Barry Norton, 2007

‘Privatization’ in two ways and steps

Privatization proceeded in two stages. First, the stake in the company is split and distributed relatively evenly to the management and employees working in the company. "Stock-sharing system". After that, the shares distributed in such a way are bought at a low price by management who knows the company's situation best and has connections with local governments. “Management Buyouts (MBO)”.

"After privatization, the governance structure of Chinese state-owned small and medium-sized enterprises appeared in various forms, the most common of which was the stock-sharing system, which relatively equitably owned corporate stocks by management and employees. For example, in Shandong Province, which promoted the fastest large-scale privatization in China, 210 companies chose the form of a stock merger in July 1994, which ended the first privatization, accounting for 77.2% of the number of privatized companies.

Since 1997, the second ownership reform has been promoted to expand management's stake in privatized companies. In other words, management's initiative in the company is secured through the Management Buyouts (MBO). Compared to the stock cooperation system, MBO has the advantage of solving incentives from the management class to achieve management normalization, so by the early 21st century, it gradually replaced the stock cooperation system and became the most common form of state-owned enterprise reform."—A Study on the Reform and Policy of the Chinese Government and State-owned Enterprises and Private Enterprises(중국 정부와 국유기업 및 사영 기업의 개혁과 정책에 관한 연구), Kim Yoon-kwon

 

Soviet and Chinese Privatization

However, this method is almost similar to the method of complete privatization in the Soviet Union and Eastern Europe after the counter-revolution of the return to capitalism. This is likely not a coincidence. It is a known fact that American financial capital brains designed and directed the "privatization" of the Soviet Union and Eastern Europe. Jeffrey Sachs, a professor at Harvard University, is a representative figure. ('Marxist Analysis of the Collapse of the Soviet Union(「소련 붕괴에 대한 맑스주의적 분석」)', Bolshevik Group, 2015) Meanwhile, as China entered the second phase of "market opening-up," a higher level of capitalist concessions were needed to gain "credit" in the global capitalist market, including joining the WTO, and to be specifically incorporated. And it is known that the Wall Street Advisory Group played a role in the process. The meeting between Zhu Rongji, the leading figure in China's "market opening-up," and Goldman Sachs, the head of the U.S. financial capital, between 1996~7 is a representative event (KBS's Red Capitalism Part 2 "Communist Party on Wall Street").

However, privatization of the Soviet Union and Eastern Europe and that of China were very different. First of all, the difference in character of political power is the most decisive. The Soviet Union and Eastern Europe proceeded after pro-capitalist factions overthrew the communist regime and secured loyalty from state violence organizations such as the military. However, China was led by the Communist Party of China without the movement of power. Second, the privatization of the Soviet Union and Eastern Europe was sweeping. But that in China was limited. While the central large-scale infrastructure industry remained in the form of state-owned, it was targeted at local companies, small local state-owned companies, or venture companies with unclear growth potential. Third, the privatization of the Soviet Union and Eastern Europe was called 'shock therapy' and 'big bang' and pursued sweeping and rapid change. But China was gradual. Even after allowing individuals ownership of assets and profits ('privatization') the central or local governments still had considerable equity and influence over the enterprise. Fourth, what is more stark is the result of privatization. The Soviet Union and Eastern Europe suffered hell for their people in the years following the capitalist counter-revolution, resulting in massive inflation more than 1000% and extreme unemployment. (Russia: A Capitalist Dystopia, IBT, 2002). China also had a major social shock, including inflation of nearly 30% in 1989, but it was not comparable to the Soviet Union and Eastern Europe, and since then, rapid economic growth has led to significant improvement in life(『중국과 러시아의 경제체제개혁 비교연구』, 민족통일연구원).

Barry Norton, a professor at California State University, explains similarly in the second edition of "China's Economy" (2018).

“The change in China was initiated by a group of Communist Party leaders. Older generations such as Deng Xiaoping and Chen Yun were the founding revolutionaries who contributed to the creation of a command economy. They gave tremendous credibility, justified the introduction of markets, and reduced opposition to the reform process. These leaders understood their own system well. They were well aware of the flaws and the tremendous challenges they faced, but they also had little incentive to overturn the system completely. The Communist Party leaders implemented a gradual reform strategy because they wanted to maintain control and limit the scope of destructive change.

The approach to the transition to a market economy was very different in Eastern Europe and Boris Yeltsin's Russia. The main goal of reformers in those countries was to move as quickly as possible to a modern market economy. …they wanted to shake off the legacy of communism as soon as possible and start focusing on this model quickly…The strategy they followed was often called "Big Bang." For reformers, it was very important to set free prices as soon as possible for the price system to work, and then move quickly to property rights reform, or privatization.”—Chinese Economy: Adaptation and Growth of the Market Economy, Barry Norton, 2018

 

Bureaucratic ways and looting Public assets

After the central government decided on "privatization," called "zhuā dà fànɡ xiǎo(Hold the Big and Let the Small Go)" and "Guó tuì mín jìn(State Ownership on the front, Privatization on the back)" guidelines and goals for "privatization" were issued below. While "100 pilot companies" were selected, it was implemented in a performance-oriented bureaucratic manner rather than grasping the reality of the company.

Then the assets shared by the whole society began to be looted. The best national assets have begun to fall into the hands of the so-called "skilled" good people. They were managers who were well aware of the company's situation and at the same time had the ability to create good relationships with the Communist Party or local officials who had real power to "privatize." And at the same time, a state official who had a strong relationship with his superiors became their partner, making it easy to hand over the proper assets to the manager.

The speed and success of "privatization" now depended on how strong the relationship between central and local officials and businessmen was. "Guānxì," which means connection, has become a keyword of Chinese understanding.

“As seen in the drivers of the reform, state-owned small and medium-sized enterprises were promoted by the local government of China. Local government leaders also aimed at improving the government's financial situation, but they actively promoted reforms to maintain or enhance their political status by receiving good performance evaluations. Therefore, what local leaders were interested in first was the speed of maintaining and reforming social stability rather than the strategy of improving corporate management or reforming. In other words, it ends the ownership reform of state-owned enterprises while maintaining social stability within the deadline required by the higher government.

Therefore, local officials naturally prefer the main form of insider privatization: joint ownership of shares by management and employees, or MBO (acquisition by management). This is because privatization of outsiders is time-consuming and expensive, and there is a high rate and possibility that the employees are unemployed, which is likely to damage the interests of bureaucrats. So bureaucrats prefer to sell to management at a bargain price rather than corporate bankruptcy. This became an important factor in which the loss of state-owned assets became serious during the privatization process at a time when the legal system was insufficient and objective asset evaluation was difficult."—A Study on the Reform and Policy of the Chinese Government and State-owned Enterprises and Private Enterprises(중국 정부와 국유기업 및 사영 기업의 개혁과 정책에 관한 연구), Kim Yoon-kwon

 

The age of ‘Nouveau Riche’

Public assets have fallen into the hands of people of ability in a cheap price. Unsurprisingly, some of them were passed on to state officials who cooperated to make things easier, such as documents forgery.

"(Criticism of the sale of state-owned assets at a bargain price) □ Regarding the sale of state-owned enterprises, some raise concerns that the polarization of national wealth and the outflow of national wealth will intensify

-Some economists point out that the loss of state-owned assets is occurring as the parties to the sale, especially local governments, and management, arbitrarily decide on prices

In China, where there is no climate of responsible management, it is difficult to expect improvement in management performance through private transfer of corporate ownership. In the absence of fair market rules and monitoring functions, It is claimed that looting of state-owned assets is widespread by information asymmetry and collusion" — China's State-owned Enterprise Reform Status and Prospects(중국의 국유기업 개혁 현황 및 전망), Bank of Korea 2006

“In the process of privatizing a company, government interference in the process of evaluating its assets and determining the final sale price continues through close relationships with the management concerned ...In the process of privatization, the government has no choice but to rely heavily on the management class due to the asymmetry of information on the actual management situation of the company. In this relationship, the management layer adjusts the evaluation results, sale prices, and finally privatization results for possible corporate assets to their advantage.—A Study on the Reform and Policy of the Chinese Government, State-owned Enterprises and Private Enterprises(중국 정부와 국유기업 및 사영 기업의 개혁과 정책에 관한 연구), Kim Yoon-kwon

The effect of the theory of rich-first, "Whoever become rich first," came to be a full-fledged reality during this time. Suddenly, the nouveau riche who made a fortune appeared. They were among the private management group, who had transferred public assets such as land and companies, and bureaucrats who pocketed black money in the process.

 

The consequences of allowing privatization

Meanwhile, the negative consequences of allowing privatization and looting public assets had to be borne by the working people. Mass layoffs continued in the name of "management rationalization." Social welfare benefits provided by hired state-owned companies have also disappeared. Naturally, the workers were indignant and resisted. Labor disputes have soared.

As shown in the table, the number of labor disputes has soared since the mid-1990s when "privatization" was realized extensively. The number of participants in labor disputes in 2003 was nearly five times higher than in 1996.

 

“the State advances while the Private sector retreats”

This surge in labor disputes has raised the level of social unrest. Like the gums without teeth, the foundation of Communist rule shook from its roots. Then there was a slight change of direction. In 2005, the Fifth Central Committee of the Communist Party of China announced that it had abolished the theory of rich-first that "anyone should be rich first" and adopted the theory of "Let's all live well together" (Jungang Newspaper, October 12, 2005 중앙일보 2005년 10월 12일). From the existing “private esctor advances while State sector retreats“ of encouraging private ownership rather than state ownership, it has shifted to “the State advances while the Private sector retreats” to “restore the part of state ownership.”

“The Chinese government has pushed for nationalization of the "National Retirement Policy" since 2004 due to increased corruption and the loss of state-owned assets and massive layoffs during the privatization process, which has continued since the late 1990s."—Contents and Limitations of China's State-owned Enterprise Reform 중국 국유기업 개혁의 내용과 그 한계점, Korea Labor Institute, March 2012 issue

Perhaps because of its effectiveness, as shown in the table above, the number of disputes and the number of participants decrease significantly over the next few years.

 

Spilled ‘privatization’

However, the water ‘privatization’ has been spilled, albeit partially and restrictively. It quickly became irreversible, and it spread by wetting Chinese society based on the 1949 revolution like ink. Meanwhile, the Chinese Communist Party bureaucracy, which is parasitic on the world revolution and the Chinese revolution but has not been a Marxist revolutionist for a long time, has no will to undo it and, more importantly, has no ability.

“But in a Chinese situation that lacks the rule of law, the MBO causes the loss of assets and serious corruption problems of state-owned enterprises. As the situation became serious, the State Council promulgated related policies consecutively in 2003 and 2005, putting the brakes on privatization that resulted in the loss of state-owned assets. However, even now, insider privatization is the most common form in the provinces.”—A Study on the Reform and Policy of the Chinese Government and State-owned Enterprises and Private Enterprises 중국 정부와 국유기업 및 사영 기업의 개혁과 정책에 관한 연구, Kim Yoon-kwon

* * *

The way the means of production are owned is the key to determining the social character. In the mid to late 1990s, the privatization of assets was allowed even if it was partial and limited. That laid the groundwork for pro-capitalist forces such as "billionaires" to grow. The dam that was being built up caused cracks.

So far, we have looked at the basic factors of allowing privatization and privatization of state-owned companies. Now let's look at some of the derivative factors of pro-capitalist power growth. "The growth of new industries such as high technology and IT, the pro-capitalist factions within the Communist Party, allowing the sale of real estate licenses and popular privatization supporters, and imperial financial capital infiltrating China"

 

2) ‘Billionaires’ in new industries such as high technology and IT

Increasing productivity is China's life and death state project. The Chinese government fully supported the high-tech sector. The combination of three factors, "challenging and capable individuals, government support and foreign investors with high technology," has risen to the rapidly growing Chinese economy. In the process, companies that exploded in size appeared. Baidu Alibaba Tencent and others, called BAT, are the leaders, while Huawei Xiaomi Lenovo DJI Pinduoduo Wahaha also fall into this category.

It is not easy to accurately grasp the ownership structure of all start-ups. However, it is widely known that the government played a big role in the start-up and growth of most startups.

The government has incentivized startups to take ownership of about 20 percent to encourage the startup. In the early days, it was nothing, but the explosive growth of Chinese industries and start-ups over the past two to thirty years has now become a tremendous asset.

Lenovo, the world's No. 1 company in the PC sector, is a case in point. 

“The group of executives who founded Lenovo made a clear contribution to the success of these hurtful companies. There was some hesitation, but this group of managers was allowed to take 20% of the company's shares into the founder's shares. The desire to foster China's high-tech industry and emulate a centralized corporate environment such as Silicon Valley played an important role, and many new technology companies were allowed to distribute some of their shares to managers who participated in the foundation.”—Chinese Economy: Transition and Growth, Barry Norton

In the second edition published 10 years later, Barry Norton explains more specifically the cases of Lenovo and its startups.

“A typical early example of a hybrid company is the Legend Computer, later called Lenovo. Founded in 1984 by the Computer Science Institute of the Chinese Academy of Sciences, Legend began as a resale of foreign computers and gradually entered the assembly stage.……Based on this stage, Legend boldly moved to acquire IBM's personal computer division in late 2004. As part of the acquisition, Lenovo received significant investment from U.S. private equity firms, which became strategic partners. The new consolidated company was then listed on the Hong Kong Stock Exchange. The shares are 36 percent owned by the original company, the Beijing Legend Company (which is sufficient to maintain control), and the Chinese Academy of Sciences maintains a third of its stake in the Beijing Legend.……Like Lenovo, major information technology companies in China such as TCL, Founder, ZTE, Datang, and SMIC can be characterized as mixed companies. They have substantial public and private ownership interests, a complex history, and links to foreign countries.

……the combination of these unique opportunities has attracted challenging owner managers who are somehow trying to find a way to bring these elements together and create a successful company. Today, mixed companies can be observed in various sectors of the Chinese economy. In many cases, a mixed form is a company originally established by a founder working for a government agency. His employer would have initially provided him with capital and given him time and space to start a business. As the environment was liberalized in the 1990s, many managers took control of the company, while the government maintained a minority ownership stake. For example, Wahaha Beverage is a large consumer goods company headquartered in Hangzhou and dominated by charismatic owner entrepreneur Zongqingu. However, the city government, where the company was established, maintains a 46 percent ownership stake in the company, reflecting the origin of the company's separation from local schools. Such companies are sometimes classified as "private" companies, which means they are privately owned, but are ambiguous about the formal ownership structure. The largest private company is Huawei, which is precisely employee-owned.”

 

China's ‘Billionaires’

The start-ups grew vertically in the environment of a huge number of highly educated workers, cheap wages of about one-fifth of Korea, modern industrial infrastructure created by state-owned enterprises, and a domestic market with 1.4 billion consumers. With the growth of businesses, founders became 'billionaires'.

Rank of China's "Super Rich"
Rank	Name	Amount of Property (Korean Won)
1	Family of Wang Jian-Lin, CEO of Wanda Group	38 Trillion 768.8 Billion
2	Family of Jack Ma, CEO of Alibaba Group	25 Trillion 735 Billion
3	Family of Zong Qinghou, CEO of Wahaha Group	24 Trillion 840.4 Billion
4	Ma Huateng, CEO of Tencent	21 Trillion 131.2 Billion
5	Lei Jun, CEO of Xiaomi	16 Trillion 185.6 Billion
6	Family of Yan Hao, CEO of China Pacific Construction	15 Trillion 960.8 Billion
7	Robin Li, CEO of Baidu & Dongmin Ma	14 Trillion 949.2 Billion
8	Lu Zhiqiang, CEO of Pan Hai Construction Group	14 Trillion 612 Billion
9	Zhang Zhindong, CEO of Suning Group	14 Trillion 274.8 Billion
10	Family of Lu Guanqiu, CEO of Wan Shiang Group	11 Trillion 464.8 Billion
11	Yan Bin, CEO of Rainwod Group	11 Trillion 464.8 Billion

From: Herald Economy, 2015. 헤럴드경제 2015년

 

However, the lives of Chinese 'billionaires' are not stable unlike the rich in the U.S. and South Korea. In particular, startups have been under pressure since President Xi Jinping emphasized “live well together." Some people lie flat and donate tens of trillion yuan, or retire at an early age.

“With the recent retirement of so-called second-generation private entrepreneurs, many people are beginning to wonder if the Chinese government is taking over private companies. Most recently, Legend's chairman Liu Chuanzhi stepped down. Legend is the parent group of Lenovo, which acquired IBM's PC division. Just before that, Tencent's Chairman Ma Hua-teng retired, and just before that, Alibaba's Chairman Ma Yun retired. Before Chairman Ma Yun, Baidu founder Li Yanhong retired, so the founders of all three so-called BAT companies disappeared.”-Chinese private enterprise suffering era 중국 민영기업 수난시대, Dr. Beijing, September 2019

“Big Tech fell flat on its knees. After advocating "joint wealth (living well together)" that pressured companies to distribute, President Xi pointed out the barbaric growth of Big Tech in August 2021 and ordered them to obey the party's guidance. As the party deeply intervened in corporate management, Big Tech heads withdrew from management at a young age in their 30s and 40s. Founder Huang Zheng, founder of Pinduoduo (e-commerce), founder of Byte Dance (video and news platform) Zhang Yiming, founder of Jingdong Liu Qiangdong, and founder of Kwai Seo (video platform) Su Hua have stepped down from the management front. The companies also contributed tens of trillion won in our money.”—Chosun Newspaper 조선일보, May 26, 2022

From the standpoint of these private business billionaires, this situation in which the communist regime is clutching its leash will never be pleasant.

 

3) a pro-capitalist faction within the bureaucracy

 

Privilege and corruption

After the privatization of state-owned enterprises, the power of state bureaucrats was further expanded and strengthened. The government officials hold the power 'to sell state-owned enterprises to private sector, to license start-ups and supervising their operations, and to acquire land at low prices and sell its usage right at high prices.'

The absence of worker democracy had blocked the air. On top of that, when a humid environment of allowing capitalist privatization was created, mold rose here and there. Corruption was rampant. Rats gnawing on the country's barn were infested. The labor performance of the working people flowed into them in large quantities through the bottom hole of the warehouse. The loss of social communities from corruption amounted to 13 to 16% of GDP.

"Economic losses and consumer welfare losses created by four major types of corruption in the late 1990s accounted for 13.2 to 16.8 percent of GDP. The corruption cases of officials now open to the public are only a small percentage of the corruption that is prevalent throughout China. For example, the scale of corruption cases dealt with in domestic courts in 1999 is only two-thousandth of GDP."—Professor Huang Kang of Tsinghua University, "China's Corruption Problems and Economic Development in the Late 1990s 1990년대 후반 중국의 부패문제와 경제발전"

As corruption prevailed, a rotten smell that pricked people's nose rose everywhere. The Gu Junshan incident announced in 2015 is a typical example. Gu Junshan, who was in charge of military, supply, and welfare of the People's Liberation Army, raked in property by asking real estate developers to pay rebates in the process of selling military land in charge of real estate management and infrastructure construction. The assets collected amounted to "30 billion yuan (about 5.4492 trillion won)." What's surprising is that this was not the pinnacle of the corrupt food chain. Gu Junshan was sentenced to death but was suspended for two years. It was due to the contribution to the investigation of "the bigger tiger" of corrupt officials, such as Zhou Yongkang, a ninth-ranked member of the Politburo Standing Committee.

 

Inheritance of privileges

The power of the Stalinist bureaucracy in China is inherited. And that power is sometimes replaced by the power of capital. In 2014, the Kyunghyang Newspaper reported offshore tax evasion by China's top elite family using foreign tax havens through joint coverage with the International Consortium of Investigative Journalists (ICIJ).

This report should not be believed as it is. The International Consortium of Investigative Journalists (ICIJ) is a pro-American organization based in Washington, D.C., and it is quite possible that the influence of U.S. imperialism was involved. Specific facts need to be weighed. However, the Chinese government itself acknowledges that the status and power of the first generation of the revolution are inherited by descendants and that it is being replaced by the power of capital again.

 

Pro-capitalist faction within the bureaucracy

They form pro-bourgeois factions within the Communist Party of China and the country. These pro-capitalist bureaucratic factions cannot yet rebel against the entire 1949 revolutionary system. They don't have that much power yet. Thus, sometimes they are caught in corruption investigations, and some are sentenced to life imprisonment or death penalty.

However, as capitalist relations in China grow, their network is also becoming stronger. In this process, they are awakening their pro-capitalist identity. In the future, pro-capitalist factions within these bureaucracies will resist another of the bureaucracy's personalities of defense of past revolutions and state-owned assets to protect their wealth and status. Furthermore, the resistance will develop into a struggle to overthrow the Communist regime and capitalize the entire society. They are responding inside and outside and on the other hand, looking for the Chinese version of Yeltsin, waiting for the time to ripen.

 

4) Allowing the sale of real estate usage rights and supporters of public privatization

 

Land System and Its Changes in China

China's land system is still governed by the public ownership system. Legally, privately owned land and housing do not exist, and only the right to use is recognized.

“Land, which is the most important material foundation for economic activities, follows a strict public ownership system. The state's "reasonable" use of land comes before various private property rights established on the land. With the enactment of the Real Rights Act in March 2007, the possibility of an "extension" after the expiration date of the land use right was opened, but this is a story for usage right which is strictly a separate from ownership.”—LG Management Research Institute LG경영연구원, 2010

However, after the "market opening-up," special economic zones allowed the sale of usage rights to invite capitalist companies and gradually expanded their scope. In particular, usage rights sales have become common since the mid-1990s, the second period of "reform and opening-up" in which the "privatization" project was in full swing. The abolition of the housing distribution system in 1998 was a significant turning point.

“China’s housing distribution system, which has been maintained for the past 50 years, will be abolished in the second half of the year. "In order to revitalize the economy, it is urgent to expand social infrastructure and boost the housing construction economy," the State Council of China said on the 22nd. "From the second half of this year, we will ban housing distribution in cities across the country and not rent all new houses."Through this, we plan to encourage households distributed to buy homes, he said.”—Korea Economy 한국경제, April 22, 1998

 

Consequential Points of Sale and Extension of Land and Housing Usage Rights

Land is still state owned, but the possibility of the sale and extension of the right to use is not a simple matter. This is because the right to use land and housing becomes a bridge to private ownership, and mass-produces a large number of social members who support private ownership.

Land ownership is said to be strictly in the state, but the contradiction will be sharply revealed when the right to use expires. Both of the following articles point to the problem.

“Buying land from the government is buying 'land use rights' to real estate owned by the government. The period of use is 70 years for residential use, 50 years for industry, science, education, etc., and 40 years for commercial use.Housing use lasts up to 70 years, and many buildings built after the reform and opening in 1978 are starting to exceed the 35 years of use, which is half the time.What happens when the land license period expires?…"When the right to use land expires, ownership of land use rights, other buildings, and other attachments is acquired free of charge by the state. The land user shall return the right to use the land and shall register the cancellation in accordance with the procedures prescribed by law."

So will the Chinese government take back real estate when it really expires in China?"―China's Real Estate System 중국의 부동산 시스템, Dr. Beijing, September 2019

“Personalization of land or public ownership of land... China at the crossroad/Now China's politics and economy are both moving towards privatization. This reality is that China denies itself the legitimacy of the socialist revolution and land reform. The automatic extension of residential land stipulated in the Civil Code of China is likely to flow into the everydayization of land privileges unless other measures are taken.”—Pressian 프레시안, June 8, 2020

 

A Surge in real estate prices

As the Chinese industry expanded, real estate prices such as land and housing soared. Special economic zones such as Hainan Province and Guangdong Province and large cities such as Shanghai and Beijing took the lead. As of 2021, housing prices in Shenzhen, where financial and IT companies are located, are “90,049 yuan (about 16.14 million won) per square meter.”

First-line real estate (Beijing, Shenzhen, Guangzhou, Shanghai, etc.) has risen nearly tenfold over the past decade. In the case of Shenzhen, it means that 100 square meter apartments bought for 150 million won in the early 2000s are now about 1.5 billion won.

 

Left: Changes in real estate prices in China

-Real Estate price of First Class cities: 13%, Second Class cities: 11%, National Average: 9%, SSE Composite Index: 2%

Right:Proportion of real estate among household assets by country(%) China, Japan, U.S.A

  From:Daily Economy 매일경제 Januray 21, 2020.

 

Mass production of private ownership supporters

As a result, on the one hand, the tycoon(people who become suddenly rich) and the "counter-tycoon"(people who become suddenly poor) on the other appeared. The wealthy, who are children of parents with social status and wealth, are employed by state-run companies or start-up industries, or do business, become owners of large city housing such as apartments.

“Who's buying Shenzhen real estate, China's No. 1 house price?/ This is because most of them are "new kěn lǎo zú." In other words, they buy houses with financial support from their parents. But the 'new' kěn lǎo zú are a little different. They have relatively good universities, decent jobs, and are well versed in finance, investment, etc.”―JoongAng Newspaper, August 14, 2021

According to the principle, land is state-owned, so as the expiration date of the housing expires, the price will plummet and converge to zero, like consumables such as clothes, shoes, and automobiles. In addition, when the expiration date is up, 'according to the law,' the state will demand a return.

In that case, will homebuyers be willing to return hundreds of millions of assets? They will be demanding an extension of the right to use in the future. They will risk their life. And the case is already emerging. And the Chinese authorities allowed the extension. The extension of the right to use will be like 'occupancy', and it will gradually resemble ownership. It will eventually result in substantial private ownership. In large cities, tens of millions to hundreds of millions of people have become supporters of private ownership.

Because of this, the so-called "one-family one-home system" claimed by some left-wing and labor organizations can never be a socialist demand.

 

5) Imperial Financial Capital Extends Its Tentacles to China

Since Mao Tse-tung invited U.S. President Nixon to China in 1972, the distance between China and the U.S. has quickly become close. Along with the United States, it defined the Soviet Union as a common enemy and became an ally. China has faithfully implemented the Soviet Union blockade joint front. After Deng Xiaoping took power in 1978 and the "market opening-up" policy, the relationship between the two countries took a new leap forward and became closer.

China's political and economic needs have drawn closer to American imperialist financial capital under the conditions of disconnection with the Soviet Union, isolation, and backward productivity. In the meantime, the tentacles of U.S. financial capital have spread throughout China's politics and economy, taking root, combining with China's capitalist elements, and forming a tight network of relations.

 

Communist Party of China and ‘Wall Street’

KBS documentary <Red Capitalism Part 2: The Communist Party on Wall Street>, which aired on July 1, 2021, explains the strong relationship and history formed between the Communist Party of China and the U.S. imperialist financial capital: 'China needed economic cooperation with the global capitalist system. To this end, they sought cooperation from Wall Street in the United States, and Goldman Sachs, one of the leading financial capital players in the United States, became the window.’

The nature and breadth of this relationship can be guessed by looking at the personnel and organizations involved.

the Chinese side

-Wang Qishan: Born in 1948, from Deng Xiaoping to the current Xi Jinping administration, Vice President of China from 2018

-Zhou Yongkang: Born in 1942, Goldman Sachs invted him to Texas in 1998 when he was minister of land, led China Petroleum & Chemical Corporation (SINOPEC) to be privatized and listed on the New York Stock Exchange, ninth in power as Secretary of the Central Committee on Political and Legal Affairs of the Communist Party of China(2007-2012), and sentenced to life imprisonment for corruption in 2014

- Zhu Rongji: Born in 1928, Prime Minister under Jiang Zemin, conductor of 'market opening' during WTO accession

- Jiang Zemin: Born in 1926. Mayor of Shanghai in 1985, General Secretary after Tiananmen Square incident, President of China 1993-2003

the U.S. side

-Henry Paulson: CEO Goldman Sachs, China's 70+ visits, U.S. Treasury Secretary George W. Bush administration,

-Robert Zoellick: Under the Bush administration, U.S. Undersecretary of State, Goldman Sachs International Adviser, World Bank President, led the publishing process of "2030 China: Building a Modern, Harmonious and Creative Society"

-George Herbert Walker IV: George H.W. Bush's nephew, Goldman Sachs executive, arranged a meeting with Zhou Yongkang and Goldman Sachs

-George H.W. Bush: Texas Oil Businessman, 1974 China Liaison Office Director, 1976 CIA Director, 1989-1993 President, George W. Bush's father

-George W. Bush: 1946–, oil businessman, President of the United States 2001–2009

 

In the mid-1990s, when the second stage of "market opening-up" was in full swing, China got advice on "privatization" from Goldman Sachs. And it would have helped a lot to escape the foreign exchange crisis that swept East Asia and join the WTO in 2001.

In the early 2000s, it would have been a reward to privatize the large flesh of China Telecom and SINOPEC Group Corporation which dominated all of China, and to list it on the New York Stock Exchange. Since then, the honeymoon between U.S. financial capital and those in power of the Communist Party of China has intensified.

“This is how full-fledged cooperation begins for the common interests of China and Wall Street. Since then, Goldman Sachs has cooperated deeply with China's power group, including issuing $5 billion bonds by Chinese railway, the IPO of Beijing-Shanghai Railway, the IPO of Beijing-Shanghai Railway, and the Tang Shuangning family from the People's Bank of China. Henry Paulson later became U.S. Treasury Secretary. Later, Jiang Zemin's grandson, Zhang Ziqing, also worked for JP Morgan.”-The Quadrangle of Icebergs: Selfish Global Finance Companies 빙산의 4각: 이기적인 글로벌 금융회사들, Dr. Beijing, 29 August 2020, Washington Post, 19 August 2013)

 

Investment of imperialist capital in China

After China's entry into the WTO, overseas financial capital's investment in China has been brisk. The new promising industry, which rose to the fast-industrial Chinese economy, was the main investment destination.

China, which has a high level of education, low wages, and well-maintained industrial infrastructure, is called the world's factory. China accounts for about 30 percent of the world's manufacturing industry. "The added value of Chinese manufacturing in 2019 was $3.8 trillion, accounting for 27% of the world. It was followed by the U.S. with $2.3 trillion, 57% of China's. Japan, ranked third, recorded $1 trillion (Global Economic 글로벌이코노믹, April 5, 2022).”

Western and Japanese capital have built factories in China to produce their products. Consignment production of Apple, the world's largest IT company, is a case in point. Foxconn, a Taiwanese company, manufactures iPhones and iPads on consignment at its Chinese factory. The number of employees increases or decreases depending on the economy, but about a million.

Imperial financial capital has invested in Chinese start-ups such as Tencent and Alibaba and is enjoying a huge amount of income. Tencent's major shareholder is South Africa's Naspers, which has benefited thousands of times its investment.

“Who owns the most shares in Tencent, China`s largest Internet company? If you thought it was the Chinese government, that's a wrong. The answer is "Naspers," a South African media company that owns 33.3 percent of Tencent. The current chairman of the National Spurs, then CEO, saw the growth potential of China's Internet market, and invested $32 million (about 34.6 billion won) in Tencent in 2001 to earn 46.5 percent of the stake. The company's $32 million stake in Tencent has jumped more than 5,400 times its value, increasing to $173.7 billion (about 188 trillion won)."—Korea Economy 한국경제, March 12, 2018

Alibaba's major shareholder is not Ma Yun, whom we know well. Son Masayoshi(Son Jung-eui), a Japanese businessman. He also made 4,000 times the profit from investing in 2000.

“What drew a lot of attention from Alibaba`s listing is that Alibaba`s largest shareholder is Japan`s Softbank, not its founder Ma Yun. In the early days of Alibaba, President Son Jung-eui decided to invest five minutes after meeting Chairman Ma Yun and investing $20 million in Alibaba in 2000, holding 32.4% of Alibaba's shares. As a result, the 20 billion won invested at the time increased more than 4,000 times to 80 trillion won, and Sohn's personal assets also increased to more than 17 trillion won, making him the richest person in Japan.”—IT Cultural Center IT문화원, October 9, 2014

The familiar name "Carlisle" also stands out. Carlisle is one of the world's top three private equity funds. Carlisle was one of the U.S. financial capital that "picked up" assets that plunged after entering Korea in the face of the foreign exchange crisis. Carlisle acquired KorAm Bank in 2000 and earned 800 billion won in trading profits in four years. In China, they also put in straws of excess profits.

“Carlisle Group acquired 85 percent stake in China's largest heavy equipment maker, Seogong Machinery, and acquired management rights of China's third-largest insurer, Pacific Insurance Co., for $4.1 billion”—Bank of Korea's Results and Prospects for China's State-owned Enterprise Reform 중국의 국유기업 개혁 추진 성과와 전망, 2006

The economic influence of Tencent, Baidu, and Alibaba, which gave birth to Chinese billionaires, does not end in itself. They are reinvesting in dozens to hundreds of Chinese companies, respectively, using octopus-based methods. In this way, imperial financial capital is expanding its influence and putting its tentacles deep into Chinese society.

 

A joint report by the World Bank and the State Council of China

In 2013, an interesting report related to China was published, “2030 China: For the Construction of a Modern, Harmonious and Creative Society”. In commemoration of the 30th anniversary of World Bank cooperation with China, a study was launched in 2010 and published in 2013.

The content is also significant, but first of all, the subject of publication is more significant. It is a joint study by the World Bank and the State Council of the People's Republic of China. As you know, the World Bank, along with the IMF, is a den of US-centric imperialist financial capital. Colony loan sharking is the main business. And the State Council is China's key state body in charge of the administration. At the time of the report's release, the World Bank president was Robert Zoellick, who was previously introduced, and the prime ministers of the State Council were Wen Jiabao and Li Keqiang.

The report presents the hazy title of “building a modern, harmonious and creative society' as China's goal. And for it, the report suggest, “China must change its policy and institutional framework.”

“First, rethinking the role of the state and the private sector to encourage increased competition in the economy. Second, encouraging innovation and adopting an open innovation system with links to global research and development networks. Third, looking to green development as a significant new growth opportunity. Fourth, promoting equality of opportunity and social protection for all. Fifth, strengthening the fiscal system and improving fiscal sustainability. Sixth, ensuring that China, as an international stakeholder, continues its integration with global markets.”

Six plausible proposals are made with euphemisms that slightly hide their intentions, but the keys are "reducing the role of the state, promoting competition according to capitalist market logic, supporting the private sector, and integrating with the global market." In other words, it is to become more capitalist politically and economically.

Its contents are described in more detail in the Executive Summary.

“First, implement structural reforms to strengthen the foundations for a market based economy by redefining the role of government; reforming and restructuring state enterprises and banks; developing the private sector; promoting competition; and deepening reforms in the land, labor, and financial markets. As an economy approaches the technology frontier and exhausts the potential for acquiring and applying technology from abroad, the role of the government and its relationship to markets and the private sector needs to change fundamentally. While providing relatively fewer “tangible” public goods and services directly, the g ­overnment will need to provide more intangible public goods and services like systems, rules, and policies, which increase production efficiency, promote competition, facilitate specialization, enhance the efficiency of resource allocation, protect the environment, and reduce risks and uncertainties.”

It is no stranger at all for the World Bank to insist on "the dismantlement and privatization of Chinese state-owned companies, the marketization of the financial sector, the reduction of the government, that is, the dissolution of the Communist Party and the establishment of a capitalist government." Imperial financial capital should 'fairly' want the dissolution of the state-owned system through the counter-revolution of capitalism. The problem is that China's State Council is standing side by side with the World Bank.

 

The Duality of Bureaucratic Groups and Xi Jinping's Government

Now, the Xi Jinping administration does not seem to be moving as reported in 2013. It is acting as if it is trying to control capitalist pressure by emphasizing "state first, privatization back" and "be wealthy together" But that is not because Xi Jinping is the head of the working class. Bureaucratic groups are under double pressure. In other words, they defend their own power-based state-owned system on the one hand, and on the other hand, they tend to privatize privileges (power and wealth), that is, pro-capitalism. This pressure appears to be the duality of the workers' national bureaucracy.

 

Now, the Xi Jinping administration is "temporarily" under pressure from the former for the stability of the Communist Party's power and acting as a branch that expresses the pressure in a policy manner.

* * *

As we have seen so far, pro-capitalist forces have grown to a dangerous level in China. The policy of allowing private ownership was laid down, and on top of it, "explosively-grown startups and billionaires, pro-capitalist factions within bureaucracy, popular private ownership supporters promoted by home ownership, and imperial financial capital related to China."

They are still looking for a leader of the capitalist counter-revolution who will represent their voices most sharply and boldly, although they are still feeling the disadvantage of the power. The ideal model they are looking for is Yeltsin, who overthrew Soviet power in August 1991. As a result, they already have guidelines for action. It should be seen that the network of role-sharing has also been closely formed in a fairly completed form.

They will begin with a vague cry of “Democracy! Freedom!” against the corrupt and incompetent Communist regime. And then they will move toward a clear goal of "Down with the communist regime! Market Freedom! Total capitalism!" They want intact capitalist power. After overthrowing the current Communist regime, which is based on deformed but labor-oriented ownership, and taking over state power, the power will first dissolve the state-owned system and restore bourgeois private ownership completely.

In the reverse order of proletariat dictatorship, which is “Proletariat first nationalizes the means of production after it takes state power (State and Revolution).”

 

(to be continued)