Commentary on Political Economy

Tuesday, 29 September 2020


 As the Ratland economy comes to the end of "the mobilization of resources" and Western capitalism exhausts the exorbitant privilege of "the Great Moderation" that this Chinese mobilization permitted, the Chinese totalitarian party-state has only one avenue of survival left - the attacking closing of its economy from the rest of the world combined with the rapacious neo-imperialist expansion of direct arrogation of external resources through military aggression and conquest. We have already outlined this implosion earlier and will return to it soon. For now, let us just identify the salient element in this new twist and turn in the politico-economic strategy of the Chinese Dictatorship - corporatism. Every totalitarian party-state must seek to reduce domestic consumption and earn hard currency to amplify its financial power and extend its industrial-military complex beyond its territorial boundaries. By substituting domestic consumption relatively with the conquest of external markets, the totalitarian party-state manages at once to export the political and economic antagonisms that invariably accompany the lack of any democratic representation of its population. In a quite literal sense, the Chinese Dictatorship is thus able to export any political trouble by posting its most restless and disruptive individuals in foreign missions, whether diplomatic or industrial or commercial. This is all well until the external expansion of the Dictatorship through mercantilist practices - the suppression of domestic demand and the support of specific export industries - runs against stiff barriers through the refusal of importing nation-states to accumulate balance of trade deficits. At that point, unless the Dictatorship needs to expand internal consumption if its economy is to grow. But such expansion would require the redistribution of income and the inevitable collateral empowerment of vast sections of the population that would lead to troublesome pushes for further democratization and representation. This is a denouement that the Chinese party-state is simply unwilling to accept. As the internal politico-economic situation deteriorates, the Party leadership is further moved to integrate even more the various sectors of society within the cadres of the Party, and indeed to identify the Party with the State more than ever before. This development involves the integration of various sectors of society into an evermore "corporatist" state apparatus, which in China is known as "the United Front". The problem with corporatism, however, is that it colossally exacerbates all the contradictions of the autarkic, mercantilist totalitarian economy - because now the openness of that economy to the discipline of the world market evaporates and the local decisions of individual enterprises are bridled by the overriding needs and demands of "the national team". The inevitable outcome is a disastrous deterioration in the innovative entrepreneurial initiative of Chinese industry and the suppression of industrial and managerial talent that China might possess. The hour of reckoning for the Chinese Dictatorship is nigh.

Chinese Communist party asserts greater control over private enterprise


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Senior Chinese Communist party officials have been sending an ominous message to private sector entrepreneurs in recent weeks.

In a series of policy announcements and meetings, they have emphasised that private companies have an important role to play in “United Front work” — a euphemism for efforts aimed at ensuring that non-party organisations and entities support the party’s top policy objectives as well as its iron grip on power.

The officials added that they wanted to assemble a “team of representatives” from the private sector. They would be recruited either as party members or to join formal advisory bodies, with a particular focus on younger entrepreneurs in strategically important technology sectors. In return, private enterprises were promised greater government support and more equal treatment relative to their state-owned competitors.

The party has made similar promises in the past when it was worried about the country’s economic outlook, which is now clouded by the coronavirus pandemic and US attempts to cripple important Chinese technology companies. But this is the first time it has spelt out such an explicit quid pro quo in terms of how private entrepreneurs will be expected to help the party in return.

Xi has made it clear that the party would be at the centre of everything, private businesses included

Steve Tsang, Soas China Institute

“As private companies take on more important roles in the economy, we have higher expectations for them,” said Wang Jun at the China Center for International Economic Exchanges, a leading government think-tank. “The government is doing a lot but more effort is needed to provide fair and equal treatment for private companies compared to state-owned enterprises.”

Some private entrepreneurs grumble that similar promises proved to be empty, and worry that Xi Jinping, China’s president, is intent on formally giving the party a greater say in operational decisions.

“The government has so many policies designed to help us, but none of them actually do,” said one sceptical private entrepreneur, who asked not to be named. “We just have to rely on ourselves.”

China’s private sector still accounts for 50 per cent of government tax revenues, 60 per cent of economic output and employs 80 per cent of all urban workers. This is despite years of systemic discrimination, such as limited access to bank loans compared with their state-owned peers.

Under the new guidelines, party committees that previously wielded little power at private companies are supposed to play a role in personnel appointments and other important decisions.

China’s economy has shown strong signs of recovery following the coronavirus pandemic but some analysts warn of a lingering ‘sense of vulnerability’ © Bloomberg

The committees represent the party at various companies — state-owned, private sector and foreign-invested — but managers wary of their potential influence have largely been able to contain them. At many companies, the party committees do little more than organise study sessions or social gatherings for party members.

Guo Shan and Feng Chucheng, analysts at Beijing-based consultancy Plenum, said that of the more than 800 listed private companies that they examined, only 12 per cent cited the importance of “party building” in their articles of association. Most of the party committees, they add, “barely affect the firms’ decision-making”.

Sheng Hong, former head of a think-tank that was forced to close for repeatedly criticising Mr Xi’s economic policies, said the only thing private companies should be forced to do is pay their taxes.

“The best thing the government can do is leave private companies alone and not waste its time and energy on including them in United Front work,” he said, noting that many entrepreneurs have felt compelled to contribute to Mr Xi’s campaign to eradicate poverty ahead of the party’s centennial next summer. “Eradicating poverty is the job of government, which collects taxes, not companies.”

Analysts said that the pressure building on the private sector was not surprising given Mr Xi’s rhetoric. Speaking at the party’s 19th congress three years ago, he said “north, south, east, west and centre — the party is leader of all”.

“Ever since the 19th congress, Xi has made it clear that the party would be at the centre of everything, private businesses included,” said Steve Tsang, director of the Soas China Institute in London. “But [until now] he had not tried very hard to assert control over private business. The timing is probably due to a sense of vulnerability because of the impact of Covid-19 and new economic risks brought about by heightened tensions with the US.”

Whenever China and the US appeared to be on the precipice of an all-out trade war over recent years — such as when trade talks faltered in late 2018 and early 2019 — Mr Xi has responded by celebrating the party’s revolutionary roots while also trying to reassure the private sector.

In any conflict between party and private-sector interests, however, few people have any doubts about which side would prevail.

“What Xi really wants is an increasing share of the economy controlled by state-owned enterprises,” said one government adviser.

“The party doesn’t know what to do with wealthy and powerful entrepreneurs, especially given Xi’s insistence that the party is still a Communist party and we must reduce social inequality. It’s a very hard problem for the party.”

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