7. The size of the Chinese economy today.

China’s economy has rapidly expanded ever since the 1949 revolution (with only a few short-term interruptions). It expanded rapidly during the socialist era,[1] and it has continued to expand rapidly even since China was transformed back into capitalism (though now for the primary benefit of the few and not the many). It is hard to compare the statistics from the two periods, but it is possible that China’s economic growth has even speeded up somewhat since the return of capitalism, at least during the last decade or two.[2]

Marxists have never denied that in many circumstances capitalist economies can rapidly expand. In the Communist Manifesto Marx and Engels emphasize this rapid productive growth potential under capitalism to a degree that even pro-capitalist readers find startling!

However, is this still true in the imperialist era? Yes, sometimes it still is! Lenin said that capitalism in the imperialist era is characterized by stagnation and decay, and overall that certainly seems to be correct as the current economic crisis is demonstrating anew. Nevertheless, there was a major world capitalist boom in the quarter-century after World War II, and Germany and Japan had especially powerful booms. This was because of the massive destruction of productive capital during that war (and the accompanying cancellation of consumer and state debt) which cleared the ground for a new boom.

A boom in newly capitalist China was also possible, in part because there was virtually no state and consumer debt load from the socialist era. So, in other words, the normal situation under capitalist-imperialism is indeed for there to be stagnation and decay (or worse!), but this may not apply for a while to new capitalist-imperialist countries nor to countries which have gotten a “fresh start” because of the massive destruction of capital and debt in a devastating world war. (And despite the deaths of millions of people.)

In the modern era of capitalist-imperialism, at least from the early 20^th century on, it has for the most part proven to be quite impossible for economically undeveloped countries to break out of this condition and seriously begin to develop their economies in a major, sustained and all-round way—except through socialist revolution (as in the case of Russia and China). It is true, as Lenin noted, that the export of capital to economically backward and low-wage areas does serve to promote the development of capitalism there to some degree. But that development remains mostly in the hands of foreign corporations (MNCs), and in a form that serves to primarily promote the extraction of wealth from the undeveloped country. Independent local capitalist development in these countries is choked by the stifling domination of foreign imperialist countries and their MNCs.

However, there have been a very few exceptions to this general rule which require explanation. A few countries in East Asia, and South Korea most prominently, have managed to develop their economies even under the capitalist system. At the end of World War II, when Korea was split into two countries by the U.S., North Korea was much more developed industrially than the South—which was largely agricultural. But since then South Korea’s economy has developed in a truly major way until now the country actually qualifies as an advanced capitalist country. It is too far from our central topic to thoroughly explore how this was accomplished (let alone what happened to North Korea!). But we believe the basic explanation is that the two dominant foreign imperialist powers in South Korea (namely the U.S. and Japan) purposely promoted the independent development of a capitalist economy there as part of their geopolitical necessity to halt the advance of “Asian Communism”. For example Toyota, the Japanese auto company, gave tremendous help to the South Korean corporation Hyundai to build its auto division into a successful car company, even though this meant creating a major competitor to Toyota and the other Japanese auto companies! This sort of foreign tutelage and the limits forced on foreign MNCs operating in South Korea (by allowing the South Korean government to establish effective protective tariffs for example[3]), allowed a national bourgeoisie to emerge in the country and develop its own locally-based economy.

Something similar, though on a less impressive scale, was allowed to happen by the U.S. and other imperialist powers in Taiwan and a few other “Asian Tiger Economies”[4], and for the same reason: To build up their economies to try to prevent the spread of “Communism”. But there are serious constraints on allowing this sort of unfettered development generally since this would have a very negative impact on the profits of the MNCs of the major imperialist powers. In any case, the Asian Financial Crisis of the late 1990s began to show the limits of such capitalist development and the current more general crisis is likely bringing the initial “success” of this type of capitalist development near to an end.

The bigger exception we need to discuss, to the general rule that undeveloped (or “Third World”) economies cannot develop in a sustained and complete way under capitalism, is the case of China itself. How is it possible that China’s economy has continued to develop so tremendously since the transformation of socialist China back to capitalism?

There are two aspects to the answer to that question: First, China was no longer really “undeveloped” at the time of Mao’s death; on the contrary, it had already made major advances in the independent development of its economy during the period of socialism. Second, and even more important, the new Chinese bourgeoisie which captured power after Mao’s death was itself independent of foreign imperialist control.

In China’s case, the necessary political independence to promote the locally based development of its newly capitalist economy only came about because of its earlier socialist revolution and period of socialist development.[5] During this socialist period there was a complete political break from foreign imperialism, and this political independence in China largely continued even after the restoration of capitalism. In other words, the new ruling class in China was basically a bureaucratic national bourgeoisie, and not a comprador bourgeoisie. Of course there are some compradors in China, just as there are in every country, but they are not the leading core of the ruling class.[6]

So the notion of some, that further economic development in China could only continue if China remained socialist, was incorrect. In April 1976, while Mao was still alive, a much more sensible view was published in Peking Review. The article recognized that even if the proletariat lost control of the country the Chinese economy might still develop, but that if it did so “it would turn out to be modernization of an imperialist or social-imperialist type.”[7] And this is exactly what has actually occurred.[8]

It did appear to many that with Deng’s “opening up” of the Chinese economy to foreign MNC investment the new bourgeois ruling class in China had become compradors. But this was a superficial view, a misperception, which did not get at the essence of the situation. The “opening up” was in fact a step toward integrating China’s largely independent economy into the world capitalist economy, but for the conscious purpose of further promoting China’s own national economy and its own bureaucratic national bourgeoisie centered in the CCP.

Figure 7.1: Share of World Nominal GDP (%)[9]

Source: World Bank statistics from a table of the top 10 countries each year posted on Wikipedia, except for the 2012 figures which are based on GDP estimates by the IMF. The figures for China exclude Hong Kong, Macau and Taiwan. Nominal GDP is GDP calculated at official exchange rates, and is not adjusted for inflation. Note that the figures fluctuate from year-to-year due to booms and recessions in different countries, but that over longer periods overall trends can still be discerned.

However, what that old article in Peking Review said is certainly true: The complete and sustained modernization and development of any economy in the imperialist era can only be done either through socialist revolution or else (in very special circumstances) in an imperialist manner. In China’s case it was through socialism for a few decades and in the imperialist way since then.

Not only has China’s economy grown very rapidly in absolute terms over the past six decades, it has even rapidly grown as a percentage of world production—while the other major capitalist-imperialist countries, and especially the U.S., have all declined in these percentages.

Looking carefully at Figure 7.1 on the previous page, we see that over the past half century the portion of world GDP created in a given year in the U.S. has dropped from over 38% to 22.5%, a very substantial decline. (Immediately after World War II the U.S. share of the capitalist world’s total industrial production was 56.4 percent![10]) Japan’s share of world GDP rose steadily until it reached its peak in 1994, and then began to decline. The shares of world GDP of Germany, France, Britain and Italy also rose greatly after World War II, but have now declined noticeably over the last decade and a half. In recent years only China, and to much smaller extents Brazil and India, (of the major countries shown in this chart) have substantially increased their share of world GDP. In 1990 China was not even in the top 10 countries in terms of world share of GDP, but now it has surpassed Japan, Germany, France, the U.K., Italy and Russia to take the number two spot in the world, behind only the U.S.

However, there is a better (truer) measure of the real share of world production that countries have than what is shown in Figure 7.1. This alternative uses not GDP figures translated into dollars on the basis of official currency exchange rates at the time, but rather a translation into dollars based on the equivalent purchasing power of the local currencies within their own country. This is called the Purchasing Power Parity (PPP) conversion rate.[11]

Figure 7.2: U.S. & China — GDP Comparison for 2012[12]

Figure 7.2 shows what a huge difference it makes if you translate China’s GDP into dollars using the PPP conversion rate rather than the currency exchange rate. Either way, China’s GDP has been rapidly gaining on the U.S. over the past few decades. But China’s economy is still only about half the size of the U.S. economy if nominal GDP comparisons are made, while it is now nearly 80% the size of the U.S. economy if PPP conversion rates are used!

Most economists studying the world economy now believe that China’s economy will surpass the size of the U.S. economy quite soon. If PPP conversion rates are used (as they really should be) some predictions are that China will surpass the U.S. as early as 2015 or 2016! Even if nominal GDP conversion rates are used, it may only be 5 to 10 years until China’s economy surpasses the U.S.

Another point to consider is that the U.S. economy is artificially inflated in size because of the grotesque parasitism of the service and especially the financial services sector. If you look only at the basic core of the economy (i.e., manufacturing) China has now virtually matched the U.S. if it has not already exceeded it. (Figure 7.3 below only shows the statistics up through 2009.)

In this graph we see that while the U.S. share of world manufacturing value added has over the past 40 years dropped from over 26% to around 20%, China’s has jumped from around 1% to at least 18%. Moreover this calculation, once again, was done by translating Chinese figures into U.S. dollars at the prevailing currency exchange rates. If instead the more truthful PPP conversion rates were used then China would definitely have already well overtaken the U.S. in its share of world manufacturing value added.

Figure 7.3: U.S. & China — % of World Manufacturing[13]

Whether China has the largest overall economy in the world in terms of GDP (as it almost certainly will have soon), or only the second largest economy in the world (as it already has at present), can it be seriously imagined that a country with a capitalist economy of this magnitude and importance, and in the capitalist-imperialist era when capitalism itself has become capitalist-imperialism!, can be anything but a capitalist-imperialist country?!

Note that almost all the other major capitalist economies in the world today, including not only the U.S., but also Japan, Germany, France, Britain, Italy and Russia are clearly imperialist countries. How could China, the second largest and the fastest growing capitalist economy, not also be an imperialist country in this capitalist-imperialist era?? How could you even call this era the imperialist stage of capitalism if one of the most important capitalist countries is not considered to be an imperialist country? It just wouldn’t make any sense!

We should not leave this topic about the size and rapid growth of the Chinese economy without briefly mentioning the fact that a very large part of China’s population has benefitted either very little, or else not at all, from this enormous growth. As with capitalist growth in any country, and certainly for the world as a whole, the new wealth created has mostly gone to the few.

What was once, in the Maoist era, one of the most egalitarian countries in the world has become one of the most unequal—with the contrast between rich and poor becoming ever more extreme.

Economists have a measure they call the “Gini coefficient” to measure inequality. A Gini coefficient of zero means that there is no inequality whatsoever, while a coefficient of 1 means the most extreme inequality possible (one person having everything and everybody else having nothing at all). So the lower the Gini coefficient the more equal the society. In the world today there are no truly egalitarian countries, but the Gini coefficient for personal income in Sweden is 0.23 and in Germany is 0.27. For a highly unequal country like the U.S., with its dozens of billionaires and many millions of poor people, the Gini coefficient in 2009 was a very large 0.468.

In China the Gini coefficient has been getting bigger and bigger for decades! In 2001 it was 0.40, in 2007 it was 0.415 and in 2012 it reached 0.474, which is even worse than the U.S. despite including the notorious “1%” (the very rich) alongside the mass of people struggling to get by.[14]

Thus the massive and rapid economic growth in China is mostly benefitting the ruling bourgeoisie which is getting ever richer. It is true that there has developed a fairly large “middle class”, but nevertheless (and as the growing Gini coefficient demonstrates) this is a very secondary process to the overall continuing polarization of wealth.

Moreover, in China there is the continuing exploitation of the working class, when they can find jobs at all. There is quite massive and growing unemployment. There is the super-exploitation in factories of many tens of millions of migrant workers from rural areas, and serious discrimination against them. There are very widespread land grabs by local government officials and real estate developers. There are many forms of continuing discrimination against women. There is national oppression and discrimination against minorities. There is the fact that genuine unions are illegal, as are most democratic rights such as free speech, freedom of the press and freedom of assembly. There is a growing environmental catastrophe in progress, with air and water pollution reaching crisis levels. There are millions of people without access to health care and other social benefits such as sick pay and retirement income.

So when we speak of the Chinese boom we should always remember that no matter how big and fast it is, it is for the most part not for the benefit of the hundreds of millions of workers, peasants and ordinary people in China. That is simply impossible under capitalism.

[1] In particular, China’s socialist economy expanded at a very rapid pace during the Great Proletarian Cultural Revolution (often dated from 1966 through 1976), averaging more than 10% per year! See: Mobo Gao, “Debating the Cultural Revolution: Do We Only Know What We Believe?”, Critical Asian Studies, vol. 34 (2002), pp. 424-425; and Maurice Meisner, The Deng Xiaoping Era: 1978-1994, p. 189. Even the capitalist-roaders themselves had to admit that, except for brief declines during the Great Leap Forward and the first 3 years of the GPCR, the growth of both industrial and agricultural production during the rest of the Maoist socialist period (1969-1976) was very fast. See the charts on the second page of the article “China’s Industry on the Upswing”, Beijing Review, Vol. 27, #35 (Aug. 27, 1984), p. 18ff., online at: http://www.massline.org/PekingReview/PR1984/PR1984-35.pdf The later claim of the capitalist-roaders that the Cultural Revolution was a “disaster” for the economy was an outright lie. Even the brief production declines of the first three years of the GPCR were very rapidly made up for beginning in 1969, and the overall trend line from before the decline and after it was as if the short decline had not even occurred!

[2] Figure 7.1 below in this section shows that during the first 10 or 15 years of the return to capitalism the share of China’s fraction of world GDP actually declined. But since then it has zoomed up tremendously. This suggests that China’s GDP growth rate in the socialist era was fast, that it may have slowed down relative to the rest of the world for the first part of the new capitalist era, but then has become very fast again during the past 20 years.

[3] The use of means such as protective tariffs may help develop a country’s capitalist economy—given that they are allowed by foreign imperialism to establish and maintain those tariffs and other measures! Lenin criticized Bukharin (who promoted protective tariffs) by saying “that no tariff system can be effective in the epoch of imperialism when there are monstrous contrasts between pauper countries and immensely rich countries”. [“Re the Monopoly of Foreign Trade”, (Dec. 13, 1922), LCW 33:457] However, Lenin did apparently make his argument in too absolute a form as the quite exceptional case of South Korea seems to show. In that rare situation the foreign imperialist powers controlling the country decided that it was actually in their interests to allow local development in South Korea in order to build up a bulwark against “Communism”, and therefore allowed an effective tariff system to be put in place.

[4] See “Asian Tigers” entry in the Dictionary of Revolutionary Marxism.

[5] This is the persuasive position of Fred Engst in his essay “The Rise of China and Its Implications”, July 9, 2011. Engst argues that this political independence must in turn promote a period of independent economic development:

“Contrary to neoclassical theory, Chinese development shows that in the stage of imperialism, if a country wants indigenous economic development under capitalism, it first needs to break from imperialist domination so that it can have a period of independent development before entering the worldwide capitalist system. Otherwise, its own economy will be suffocated by the multinationals under the aggression of imperial powers.”

We would, however, disagree with the possible implication here that it might make sense for a country attempting to develop to try to first implement a temporary period of socialism, and then purposely end it and switch back to capitalism in a supposed stronger position! What happened in China was a specific historical case, with its own particularities, and is by no means a general recipe for economic development! (We think that Fred Engst would agree with us on this point!)

[6] In other words, the presence of compradors—agents expressing foreign capital’s interests—does not define the social system as “comprador” unless these compradors are a ruling core capable of subordinating other national interests to foreign interests.

[7] “Criticism of ‘Taking the Three Directives as the Key Link’”, an unsigned article criticizing Deng Xiaoping, Peking Review, Vol. 19, #14, April 2, 1976, available online at: http://www.massline.org/PekingReview/PR1976/PR1976-14b.htm

[8] And in this connection it is worth recalling Mao’s criticism of Deng Xiaoping: “This person does not grasp class struggle; he has never referred to this key link. Still his theme of ‘white cat, black cat,’ making no distinction between imperialism and Marxism.” [Quoted in Chin Chih-po, “Denial of the Difference Between Socialism and Capitalism Is Not Allowed”, Peking Review, #16 (April 16, 1976), p. 18. Online at:

http://www.massline.org/PekingReview/PR1976/PR1976-16e.htm

[9]Source: World Bank, List of countries by GDP (nominal), rounded to nearest 0.1%, online at

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29 The percentage figures for 2012 have been calculated by us from the world and national estimates for nominal GDP made by the IMF, in a table online at:

http://en.wikipedia.org/wiki/World_gdp (accessed summer 2013).

[10] “In the early postwar period, U.S. industrial production comprised 56.4 per cent of the capitalist world’s total; its exports 23.6 per cent and its gold reserves, 71.3 per cent.” —Yen Yao-chun, “The Economic Origins of U.S. Imperialist Policies of Aggression and War”, Peking Review, #4, Jan. 27, 1961, p. 12, online at: http://www.massline.org/PekingReview/PR1961/PR1961-04.pdf

[11] For a little further explanation of the PPP conversion factor, see the “Purchasing Power Parity” entry in the Dictionary of Revolutionary Marxism, online at: http://www.massline.org/Dictionary/PU.htm#purchasing_power_parity

[12]Source: World Bank, top 10 countries by nominal GDP and GDP-PPP for the year 2012, rounded to nearest 0.1%, online at http://en.wikipedia.org/wiki/World_Bank_historical_list_of_ten_largest_countries_by_GDP#Highest_GDP_share_by_country_.28World_Bank_statistics.29 The percentages of world GDP-PPP for the U.S. and China were calculated by us from the country and world figures.

[13] Source: The China Global Trade website at: http://www.chinaglobaltrade.com/article/us-manufacturing-and-trade-with-china

[14] For a short article on the Gini coefficient with values for selected countries in specific years see the entry in the Dictionary of Revolutionary Marxism at http://www.massline.org/Dictionary/GI.htm The Gini figures in the text come from that chart.