China’s faltering socialist market economy

Freed from foreign domination, China has attempted in various ways to consciously craft its own destiny and show the world that there is a way of organizing and developing society other than that charted by Soviet socialism or Western capitalism.

This romantic view is the stuff of radical aspirations not only in the Third World but also in First World countries.

In the late 1960s, as a graduate student in England, I was half-amused to find young British activists on university campuses wearing Mao jackets and caps and spouting quotations from chair Mao Zedong.

China’s communes appeared to inspire in them a vague longing for an idyllic world free from the alienation and pathologies of industrial society.

The image of Red Guard militants challenging entrenched authority seemed to fit the anti-Establishment discourse of the student revolution that was then sweeping major universities in Europe and North America.

Lasting about a decade, the Cultural Revolution was an unmitigated disaster. While it sought to provide young people with a revolutionary experience, it plunged China into political turmoil and mired its economy into a deeper depression. It proved the Marxist thesis that socialism wasn’t meant to be built on the base of a backward economy. But no one among China’s leaders had enough stature to challenge Mao’s directives not to touch the Red Guards as they targeted party elders and bureaucrats for public humiliation.

Professionals, intellectuals, and academics were sent to the countryside for “re-education.” Universities were closed down. With Mao stressing the primacy of revolution as the true engine of social development, scientific research was downgraded, and technological development ground to a halt.

In 1975, old and ailing Mao allowed Deng Xiaoping, who had been stripped of all his positions in the Party during the Cultural Revolution, to slowly resurface.

Admitting his own mistakes, Deng had taken care not to criticize Mao or the Red Guards. Still, he found a way of using some of Mao’s writings to advance proposals on what to do to reverse China’s worsening economic crisis.

But when his restoration to his Party duties appeared to be too fast, Deng was again sidelined. After Mao’s death in September 1976, Deng made sure he would not pose a threat to anyone who aspired to succeed Mao. He remained a loyal Party member and bowed to the discipline of its collective leadership.

His deft self-abnegating leadership steered China through its critical post-Mao years. Even as he was already making the major decisions in foreign policy and the economy, the diminutive Deng was content to remain vice chair or vice premier to less experienced leaders until his final elevation as China’s paramount leader.

He reopened the universities, rebuilt the research centers for science and technology, and presided over China’s unprecedented rise as a modern economic powerhouse using a model of market socialism that defied existing dogmas about the relationship between the state and the economy.

As the rift between China and the Soviet Union widened in the late ’70s, Deng appealed to the United States, Japan, and Western Europe to help China develop its economy. He invited international corporations to invest in China and to bring with them not only cutting-edge technology but also the latest ideas on how to run a modern business organization.

He encouraged Chinese entrepreneurs to set up their own private businesses, assuring them that “to be rich is glorious.” By the time of his death in 1997, Deng had overseen two decades of astounding economic growth that effectively lifted hundreds of millions of ordinary Chinese out of poverty.

Today, after more than four decades of experimentation with capitalist development under Communist Party supervision, China finds itself, once more, at a crossroads. In January this year, according to The Economist, Chinese stocks traded in China and Hong Kong lost $1.5 trillion in value in just one month.

Since 2021, their value has fallen by 35 percent. As The Economist (2/8/24) puts it: “Investors abroad and at home once saw China’s government as a dependable steward of the economy. Now this trust has seeped away, with severe consequences for China’s growth.”

The country has adroitly positioned itself to reap the maximum benefits from economic globalization; today, rising protectionism abroad is erasing that advantage. The collapse of its property sector left many home buyers with unfinished buildings and ghost towns.

Not wanting to reinflate a bubble that has burst, the government has refused to bail out the debt-saddled developers. In the face of deflation, it has turned to China’s consumers to help buoy the faltering domestic economy by spending their savings.

The situation brings back the old questions: To what extent can the state interfere with the markets? How far can the Chinese Communist Party wield control over China’s market-driven economic system? Tough issues to consider this Lunar New Year.