Peace for the World

Peace for the World
First democratic leader of Justice the Godfather of the Sri Lankan Tamil Struggle: Honourable Samuel James Veluppillai Chelvanayakam

Tuesday, June 13, 2017

This is the century of new state forms

China’s outreach will popularise state-capitalism


A Chinese Puzzle: A one-party state economic superpower with global ambitions

The New Silk Road(Maritime routes are broad-brush and incomplete)

The convolution of state forms is likely to change more during this century than in any previous 100 year period of human history. The ancient civilisations Mesopotamia, Egypt and Indus Valley survived unchanged for several thousand years; so did the hydraulic society of ancient China. Lanka’s later dry-zone system continued for a millennium. Military power cum slave-production dependent societies such as Greece, Rome, the Mayas and the Aztecs flourished for hundreds of years; Rome, close upon a millennium. The reign of capitalism has been 370 years if we count from 1648; nearly 230 years from 1789. Stabilisation of a new state ‘genotype’ in China, the collapse of the Soviet order, the chronic disorders of late capitalism and the prospect of guaranteed minimum income societies, taken together with leaps in a technology broadly and IT specifically, are quickening the pace of change.

This essay is about two factors in this metamorphosis; the prevailing state form in China and the future global impact of this super-state. By super-state I mean a nation state that is projecting economic power, political influence, security concerns and territorial ambitions, globally. I will take it in two steps; first the nature of the state in China (is it capitalist, socialist or something else?) and second, perspectives on future impact of this super-state. Donald Trump handed Beijing a walkover in their bilateral rivalry by refuting globalisation and asinine withdrawal from the Paris Climate Accord; but these are ephemeral to my big picture and merit no further mention.

Characterisation of the

Chinese State

Whether the state in China is capitalist or not is not abstract disputation among idle scholars. It matters to countries which are destinations of Chinese investment or lie along the proposed land and sea corridors. In former days whether a small country was allied to the US or USSR mattered in economics, politics and social relations. (The nature of their state matters even more to citizens and classes within China but that dimension is absent from my discourse today). I have been researching the nature of the Chinese state from the mid-1980s and my first definitive paper was in December 1999 at the Hector Abhayavardhana Felicitation Symposium at the Ecumenical Institute (ESIDA).

The proceedings, edited by Rajan Philips, were published in 2001 as ‘Sri Lanka: Global Challenges and National Crisis’.

If I may brag a bit, when I reread the paper I was elated how well its 50 pages ("China’s Socialist Market Economy: Viable Concept or Oxymoron") had held up for two decades. The three paragraph Conclusion could well have been written yesterday, or tomorrow! I concluded (a) China was not capitalist, nor definitively on a road to capitalism; (b) the viability of an alliance of non-capitalist (sate and collective) sectors with private capital was being established; and (c) I offered the prognosis that the character of this state would eventually be decided by international developments. If I were asked now, 20 years on, how I would like to update this I would go further than the caution that held me back then. I would confidently assert the state in China is state-capitalist; a term I held back in the 1990s.

On the second point it is apparent that China is state-capitalist with the feature that the party-state is the leading partner and private capital plays an auxiliary role. On the third point, global influence, reality has gone beyond my anticipation. I was then ruminating that the class nature of the Chinese state would be decided by the strength and evolution of global capitalism in the twenty-first century. It has gone much further; the global system is being set by China as much as the other way round. In the remainder of this sub-section I will argue that state-capitalism in China is led by the party-state with capitalism and the market playing auxiliary roles.

The monopoly of power in the hands of the Chinese Communist Party (CCP) defines the nature of the state. The CCP and its leaders retain control over state, economy, army, media-culture-web and many aspects of everyday life. There is a temptation to trace a Mao-Deng-Xi Jinping lineage but this is exaggerating the individual dimension. The economy and economic decision making is integrated into polity. The growth and prosperity of the private sector and the global reach of the Chinese economy (mostly through ‘private’ companies) has hardly altered this hierarchy. At root the state controls politico-economic power relations; no Chinese company, no "filthy" billionaire dare defy the state. And the Party holds reserve power over the state. This is the mechanism, much admired by some, which endows decision making in China with such authority. In the domestic market and the panoply of international projects, many led by purportedly private companies, authority lies with the state. Washington cannot bring Microsoft, GE, Blackrock or Bank of America to heel with the muscle that Beijing’s writ has over Chinese enterprises.

About 50% of China’s output in the modern (non-peasant, non-informal) sector is created by private capital. But . . . but! All land is state owned only usufruct is conceded to farmers, provinces and private enterprises. A property bubble may produce billionaire property developers but their edifices stand on state owned land; ditto for private industrial plant. China’s four giant banks are state owned; private and foreign ones are comparatively tiny. The economy is credit intensive, not equity intensive since domestic savers do not have deep pockets, so the banks who pay the piper call the tune. The state intervenes directly and indirectly in enterprise decision making; the Party reigns through trade unions and cells. Apart from this there are 120 giant state-owned conglomerates which dominate energy, petroleum, telecoms, defence, coal, aviation, chemicals, steel and base metals.

It is not that Chinese capitalism is effete; of course not. It is robust and powers on. Hundreds of millionaires and billionaires have surfaced. The Gini Coefficients which measure wealth and income inequality are worse in China than America. But these giants stand on quicksand and clay. Yes, Chinese capitalism is solid; its entrepreneurs thrive better than their Western counterparts. The use of market forces is real; an exploding economy cannot function without market rationalism in price determination and resource allocation. Indeed, Chinese capitalism flourishes, but at the end of a short leash.

China goes global

It is not possible to cover the whole gamut of Global China Inc. within the confines of this essay. One star item, land and maritime expansion known by the ugly moniker One Belt One Road, OBOR, will have to suffice. OBOR is economic (lubricating China’s gigantic export and import market), it is political (China hopes to replace America as the world’s premier power, within, maybe 25 years; leadership in Asia is already secure), and it is strategic, supplementing its expanding military spending. Analysts argue whether the impetus behind OBOR is more economic or political. In perspective, the two cannot be separated. In the short-term it is also driven by infrastructure overcapacity and the need to deploy China’s huge foreign savings and construction capacity.

OBOR is structured along two land corridors, two spurs and an ambitious maritime expansion.

* A railway corridor from central China and another from northern China to Europe through Russia

* A non-rail corridor from western China through Central Asia to Iran, the Levant and Turkey. (This mimics the famous Silk Road of yore from Xian to Rome)

* A spur to the port of Gwadar in Pakistan through Afghanistan and Kashmir

* A spur from south-west China through Burma to the port of Sitwe

* Port developments in Burma, Lanka (Colombo and Hambantota), Pakistan, West Africa, and even Greece (Prius) until it was blocked by a nervous European Union.

Financing calls for massive deployment of capital; China says it will invest $4 trillion and analysts estimate other countries en route will chip in $1.6 trillion till 2030. These estimates are wildly exaggerated; actual expenditure will be much less in view of China’s huge domestic debt*. Lanka has run up a sovereign debt of $60 billion; 10% is owed to China and to resolve this, our government will convert debt into equity. The $15 billion China-Uzbekistan deal is a quarter of Uzbekistan’s GDP; the $37 billion China-Kazakhstan deal, the $46 billion China-Pakistan agreement and the $24 billion China-Bangladesh pact each represent about a fifth of GDP of the partner countries. 

[*Though China has large foreign reserves, domestic debt has risen to $17 trillion due to massive credit expansion to state corporations and private enterprises to boost activity and create jobs following the post-2008 downturn in exports].

OBOR is Chinese government driven but construction is in the hands of private companies at market rates; a classic state-capitalist arrangement. For some countries, the impact will be overwhelming; for some like Lanka very large. The greatest impact will not be political subservience or financial imbalance per se, but rather copycat ideas of how to organise the nation state. It is impossible not to be influenced by how they do things in China. If not governments, then some political movements will be impressed. Whether Beijing intends it or not - most likely it is indifferent - imitating features of state-capitalism ("With national characteristics!") by small countries is unavoidable.

Therefore, the global landscape of the next half-century will consist of a plurality of interwoven state forms; common or garden capitalism in some countries mainly in the West, re-emergence of social-democracy as the futility of neo-populism strikes home, and thirdly the state-capitalist model. You have the advantage over me in that you will know the UK election results when you read these lines. If Labour does well, the polls say victory is impossible, it will signal the return of social-democracy to European centre-stage. Copycat state-capitalism will not lag far behind in small nations along the New Silk Road.