China's Economic Model: Marxism and the Market

Aug 9, 2010
Spencer Rose

Chinese Shipping Container - Vards Uzvards

China's reformed economy has embraced market capitalism for over 25 years, but its staggering growth may be related to continuing communist control.

The World Bank's January 2010 announcement that the People's Republic of China will surpass Japan as the second largest economy in the world, and is set to become the world's largest in 2030, caps a near three-decade period of strong economic growth in PRC that challenges some common assumptions of classic market capitalism.

On the one hand, massive foreign investment and internal liberalization since the 1980s reformed the Maoist planned system to a socialist-market capitalism, and helped propel PRC's industry and modernization. Yet, according to some researchers, the modernized Marxian doctrine that prevails in government policy is a contributing factor to PRC’s GDP increases, and liberal market orthodoxy is hard-pressed explain why.

China’s Turn Towards Market Capitalism

During Chairman Mao Zedong’s ten-year Cultural Revolution (1966 – 1976), China underwent a colossal economic upheaval resulting in severe rural poverty. China’s shift to capitalism, and ascendancy in the global economy, began with sweeping reforms under successor Communist Party Leader Deng Xiaoping in the late 1970s. Deng did not support capitalism ideologically, but had sought pragmatic solutions to China’s poverty and woeful economy.

Unlike Mao, who had sought economic self-sufficiency, Deng believed China could improve its economy and reduce poverty by participating in the market system and by increasing trade with the West. During his reforms, Deng faced a dilemma: to modernize China and introduce Western markets, while aiming to maintain political stability of the Communist Party. In the end, Deng believed he had achieved socialism with Chinese characteristics: individuals don’t get richer – the people get richer.

The Legacy of Deng's Economic Reforms in China

Deng's reforms proved very attractive to foreign investors from the West, though put off by China’s extensive bureaucratic processes, inflexible labour laws, and fixed salaries. China soon changed these policies to suit Western models, and China's cheap labour attracted a flood of investors.

Privatization in China, however, has been very gradual – its heavy industries remain largely nationalized. In 2005, China’s government still owned and subsidized over 200 large state companies in utilities, heavy industries and resource industries. Subsidized large industry also remained substantial. At this time, such subsidization was looking to be on the wane, as the private sector accounted for 70% of Gross Domestic Product (GDP).

A 2005 report from the World Bank recognized Deng's reforms as effective in reducing poverty for over 400 million Chinese citizens. The proportion of the population living in poverty fell from 53% to eight percent over the past three decades.

China’s joined the World Trade Organization in 2001. Expanding on existing trade in the spirit of an “Open Door” policy, the PRC promised to open up trade in sectors such as telecommunications, banking, insurance, asset management, and distribution to foreign investment, and to agree to the WTO's trade rules.

Marxism and China’s Economic Growth

The experience of the Chinese economy has presented challenges to some tenets of neoclassical market capitalism. In Satyananda J. Gabriel's in-depth study of the modern Chinese economy entitled Chinese Capitalism and the Modernist Vision, he argues that a modified version of Marxist doctrine remains a prevalent factor in the economic policies that have contributed to China's growth.

With extensive command of economic decisions by the state, China’s government differs from the Western governments in its decision-making processes. Through complex state and bureaucratic mechanisms to implement economic changes, mobilize resources, and control industry, neither democratic processes nor market forces fit the objectives or values of China’s economic organization.

China furthermore maintains policies of protectionism and fixed currency that, at times, infuriate other global players in the West, but benefit China's aims. Critics of these policies characterize China as a state-dominated economy with a mercantilist, rather than free-trade, orientation. This remains at odds with the WTO's free trade objectives. Economists in the West also remain skeptical about China's unorthodox economic policies and resistance to full market liberalization. They caution that a future collapse is a real possibility.

Even still, over the last twenty-five years, China's "bridged" economy has sustained a solid growth rate, changed the structure of international economic relationships, and has become critical to many multinational corporations.