China’s Rise Challenges Political Economy Thinking

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Capitalism, Economic Theory, history, Marxism, philosophy, Political Economy, politics, Socialist market economy

China is already the biggest economy in the world by far. Just look at the numbers of the real economy, not speculative capital flows.

What is more important than a country’s current position is its trajectory. China’s rise is an unprecedented development of a country, from being one of the poorest on earth to its current position as the leading force in science, technology, infrastructure, manufacturing, commerce, finance and more. What drives this development? What are the lessons for the rest of the world?

In order to transform our thinking from collection of impressions into a semi-scientific analysis, we need a theory that will try to explain events. The discipline that is adequate for building such theories is called “political economy”. Of course, there are many schools of thought within political economy.

For your convenience, I requested Google AI to summarize the main schools of Political Economy. The result can be seen below, in the appendix. For simplicity, I will reduce these schools to Capitalist vs. Socialist theories. I will try to show in very broad lines how the current Chinese experience challenges both.

Capitalist Political Economy assumes the centrality of private capital

The development of bourgeois political economy came as a response to the rise of the capitalist economy, and thrived to build the theoretical grounds to explain its success. It tended to ignore major geopolitical realities like colonialism and imperialism, and their mass robbery against most of humanity. It concentrated on the low-level mechanisms of production, described the relations between owners and workers, and explained commercial exchanges.

While their models tends to concentrate of “the free market,” no political economist can ignore the role of the state. Much of the debate is about this role: should the state be minimized as much as possible? Should it intervene to protect the free markets, to encourage competition or to set “level playing ground”? Or should the state intervene actively in the economy, to boost development and counter “cyclical crisis”?

For most of the past two decades, many bourgeois economists spent infinite time on China. As the ideologists of the political struggle to promote the interests of their capitalist masters, and defend the supremacy of the Western imperialist states and people, they do not try to ask what we can learn from China’s unprecedented success. They try to minimize this success and prove that it is not sustainable.

For a long time, they claimed that Chine will not be able to pass some level of economic development without breaking the rule of the communist party. They were so convinced in their capitalist faith that when China broke all glass ceilings, they were completely astonished and felt that they had been cheated.

I remember, at the height of the Western financial bubble in 2007, which was based on fake-mortgages, how “the economist” explained that, true, China is already leading in manufacturing, but its banks are state controlled and had nothing of the sophistication and brilliance of the innovative greedy Western banks. They promised this will keep China a second-grade economy for ever (or until they get rid of those communists). It ended in tears, with unprecedented loss of public money to save those magician bankers, while poor families were kicked out of their homes. It also led to a prolonged economic crisis, that was only softened by China’s massive investment.

Infinite number of articles claimed that China’s economy is based on copying other’s technology and that the Chinese people are not capable of innovation.

When, in about 2014, China’s GDP by PPP (gross domestic product adjusted to price levels) surpassed that of the US, the whole economic world changed course and started to use nominal GDP instead. It allowed them to continue speaking about China as “the world’s second biggest economy”.

Currently there are several new variants of myth that these economists are trying to spread in order to hide the failures of the Western US-led capitalism and to minimize China’s success. They speak about “debt” here and there, hiding the fact that the US is accumulating debt to the rest of the world, because it consumes much more than it produces, while China is mostly indebted to it own people, as its people produce more than they spend, and put their money with state banks to invest. They speak about China’s economy being dependent on exports, while, actually, over the last twenty years China’s export to GDP ratio declined from 35% to 20% (see chart).

They emphasis China’s (real and severe) real-estate crisis, and ignore the facts that this crisis is mostly due to the fact that China’s builders already built (more or less) enough houses for all its population, and that the crisis was deliberately instigated by the state to change course. As a result, buying homes became cheaper, and resources are directed to other productive goals, without a major slow-down across the economy.

Most of all, they try to pretend that any success in China is due to the private sector, while the state is hindering economic development. Their attempts to own China’s success while condemning the system that brought it were discredited by the relative left turn of the Chinese government over the past decade. The involvement of the state and the communist party in the economy was reinforced. Alibaba (“China’s Amazon”) and other consumer’s tech giants were “humiliated” and forced to be tuned to the public interest. All these while China is winning more and more “economic races” against the West.

How Socialist Political Economy views China?

• I do not like the situation!
• Why?
• Because there are still rich people.
• I thought that we were struggling so that there will be no poor people…

(I do not remember the source of this imaginary dialogue. If you know it, please send me the reference.)

There is no recognized mainstream version of Socialist Political Economy. Until recently I had the impression that most Western Marxists tended to disown whatever happened in China after Mao’s death as a capitalist counter-revolution.

This total rejection poses several theoretical questions.

1. Marxist theory was built as systematic criticism of the state of human society under capitalism. Whatever the 19th century socialists expected to happen after the revolutionary victory was only a wild guess, more prophecy than science. That leaves us comparing reality with idealistic concepts, where reality is always sure to fail.
2. In a twist of history, all victorious socialist revolutions happened in economically “retarded” countries, and not as a natural “next step” after mature capitalism. This posed very severe challenges of building modern society and basic economic development. There was no ready theory preparing to the required steps.
3. For a long time, Western socialists tended to count off China’s economic development as “slave owners selling cheaply the sweat and blood of the Chinese workers to imperialist multinationals.” China’s economic development progressed much beyond that stage, as we witnessed the development of strong local companies, some state owned and some private. As a response some socialist sceptics claimed that it is all basically a “capitalist development.” This coincided with the explanation of most bourgeois economists that attributed China’s economic strength to the private sector. This approach envisions new strengths in the declining capitalist system.
4. Specifically, describing China’s development as mostly driven by capitalism raises theoretical questions about political economy. How have China avoided the famous cyclical crisis that stem from Capitalist over-production? What about the law of diminishing marginal returns?

Restructuring the paradigm

One widely accepted paradigm in socialist political economy states that there is no direct transformation from capitalist society and economy to communism. There is a socialist stage in-between, which should be used to get rid of the remnants of the old society and build the foundation for communism. China declares itself to be in this socialist transitional stage and sees communism as a goal to be pursued.

What can we learn from China’s experience, and from that of many other socialist revolutions and regimes, over the last 110 years, about the possible roads to communism?

1. The danger of capitalist counter revolution is still there, until the whole world will be decisively won for communism. The struggle continues within each country and on the international level. In the Soviet Union it was the local bureaucracy that led the counter revolution and dismantled the socialist state for its self-interests. Other socialist experiments were bloodily extinguished by internal and external enemies.
2. Pretending that you have communism by generalizing poverty does not work. Comprehensive central planning at a relatively undeveloped economy failed to produce people-oriented economy. Against these challenges, China introduced the “socialist market economy,” in which productive units, state-owned and private, strive to satisfy demand. It is not necessarily the best solution, but it is the only one that achieved consistently fast development so far.
3. Political power is central for deciding the direction of development. In Capitalist societies politicians and bureaucrats are the servants of the bourgeoisie class. In China the 100-million-member communist party keeps the local oligarchs under its supervision. The results are obvious: While in the West politicians allow, or even encourage, private companies to pursue profits at the expense of burning mother earth, China leads the charge, and mobilize state and private companies, to promote sustainable energy.

Appendix: Google AI summary of main schools of Political Economy

Core Schools & Perspectives

• Classical Political Economy: (Smith, Ricardo) Views labor as the source of wealth, advocating free markets but acknowledging capitalism’s inherent risks, focusing on observation over math.
• Marxian: Analyzes capitalism through class conflict (bourgeoisie/proletariat) and predicts its eventual downfall due to private property becoming an obstacle.
• Keynesian: (Keynes) Argues for government spending and intervention to manage aggregate demand and stabilize economies, especially during downturns.
• Neoclassical: Focuses on individual rational choice, supply/demand, and market equilibrium, often seeing minimal need for intervention unless markets fail.
• Austrian School: (Hayek, Mises) Emphasizes individual action, subjective value, and spontaneous order, warning against central planning as no single entity knows enough.
• Institutionalism: (Veblen, Commons) Highlights how social institutions, norms, and power structures shape individual behavior and economic outcomes. 

The Importance of Understanding China’s Rise

Tags

China, history, politics, russia, ukraine, Understanding China, Western Decline

Introduction to the discussion about China in the Haifa activists’ community

Why should we discuss China in Haifa while we have so many problems, here in Palestine and all over the Middle East?

One obvious reason is that our “problems” – the ongoing Israeli Genocide in Gaza, and Israel’s continuing aggression on so many fronts, the culmination of almost 150 years of Zionist colonization and ethnic cleansing – are imposed on us by the imperialist world order. The bombs that are killing children in Gaza are made in the USA, as well as the planes that drop them, and the budgets that pays for them. The decisions where and when to drop those bloody bombs are taken in the White House. A small settler state could not terrorize the whole region without the full backing of the strongest imperialist powers.

For this reason alone, Palestinians have the strongest motivation to aspire for fundamental changes in the current world order, an order that leaves no place for their human dignity or national aspirations.

But we are also citizens of this world. It is natural that we care about the future of the planet we live on. Our humanity faces many challenges, but somehow the discussion of important issues seems to be dull or blurred lately.

A few years ago, everybody was alarmed about Climate Change. Now the leading forces of the current world order are reversing the policies that were supposed to limit (insufficiently) global greenhouse gas emissions. Just at the same time as natural disasters multiply, the voices that were used to raise alarm about a burning world are muted. Why?

And, if we somehow don’t burn the Earth after all, what about the future of humanity? Where are we all going? Are there still good and bad actors struggling about the future? Are the main fault lines dividing the world between Capitalism and Socialism, or are there new alignments? What did we learn from the last hundred years, where humanity passed through infinite upheavals?

Enter China’s Rise

From the declaration of “the end of history” by Fukuyama in 1992, the deceased succeeded to perform an impressive comeback. True to its nature, the capitalist regime continues to lead us in the seemingly endless cycle of boom and bust. But the capitalists would not bring their regime to its end by themselves (unless it is the end of the world). Each crisis causes destruction and suffering, but opens new opportunities for hope, building, and progress. The crisis can result in real systematic change only when and where there is an alternative.

There is a lot of controversy about the facts and their analysis. But, to the best of my understanding, the most obvious fact in todays’ geopolitics is the fast change of the international balance of power. The incumbent Western Powers, led by the US, are in decline. The Global South, with all its problems and setbacks, is on the rise. But, out of the Global South, there is one major force emerging, leading the change in the global balance of power: rising China.

For decades, Western scholars, politicians and media were busy inventing theories to prove that China will not be able to compete with the ruling powers. They claimed that it is only capable of stealing or imitating, but not of innovation. They claimed that the communist party rule stifles the private sector, which is the key to any economic development. They claimed that its politically guided banks prevent the optimized allocation of capital that is practiced by profit-driven banks.

Now, as China beats the competition in almost every field, they cry foul and rush to try to imitate some of its methods.

As Trump learned the hard way with his recent trade war, it is too late for the West to try to contain China. But it is not only that they cannot stop China’s development. In the period of single-polar hegemony, many (if not most) of the third world countries were subject to all kinds of economic sanctions. Now China is the main trading and technology partner and a major investor for most countries. This is a major reason why Western sanctions failed to subjugate Iran, among others. Sanctions on Russia cost Europe dearly, but the Russian economy, replacing Chinese for Western partners, proved resilient. The latest victims of major imperialist punishment, Brazil and India, continue business as usual.

China is Different

In the last major change of leading world powers, the US overtook the role from Britain, as a result of two “World Wars” that devastated Europe and much else. Such a change has many aspects: economic, military, cultural and in every other field of human activity. Maybe the main effect for most of Humanity was the transfer from old style colonialism, based on direct occupation, to Neo-Colonialism, based on economic dominance.

What would the ongoing dethroning of the US and “western” hegemony bring to the world?

First, we should all hope that this change will happen without any major wars. Unfortunately, under the current systems there are wars all the time, and they are unlikely to stop until the fundamentals of the world order are changed.

We can notice that China tries very hard to avoid military confrontation. It also avoids the “cold war mentality” that characterized the competition between the US and the Soviet Union, under which every local conflict became one more flashpoint in a global chess game. What China presents instead are the principles of “nonintervention” in the internal matters of others, and readiness for economic cooperation with everybody with no strings attached. It is very annoying in many cases, but it is China’s way to reduce conflict.

China is the first example in modern history of an aspiring global power that was not rising through imperialist expansion. It accumulated its vast capital by the hard work of its people, and not by robbing others.

China is also different in many other ways, between them:

• It is one of the oldest civilizations.
• It had a meritocratic system, for over a thousand years, that enabled sons of peasant families to progress to top positions in the state’s bureaucracy through standardized exams.
• Its ethos is not “nationalist” in the Western sense. Even its system of writing is design to connect people that speak different languages by a single written language.
• Its culture, based on Confucianism, is based on social stability and harmony and is basically secular.
• China suffered humiliation, robbery, and destruction by Western powers, most famously through Britian’s “Opium Wars” (1839 – 1860), but was never fully colonized.

On top of this came the extraordinary experiences of the last hundred years, of long civil war (1927 – 1949), Japanese occupation (1931 – 1945), victorious Socialist revolution (1949), the Great Leap Forward (1958 – 1962), the Cultural Revolution (1966-1976), and the following years of unprecedented economic expansion in Human history.

I hope I succeeded in convincing that the rise of China deserves our attention, and that proper understanding of it requires that we do not stick with our western fixations. I will try to suggest some constructive ideas in coming posts.