the Chinese Communist party reasserts control

The neat, three-storey bourgeois house in which Frau Henriette Pressburg Marx gave birth to her son Karl in the German city of Trier has stood little changed for the past two centuries. But the town square has been transformed by the addition of a 5.5- metre bronze statue of the philosopher, which was unveiled on Saturday to celebrate the 200th anniversary of his birth.

The statue comes from a controversial source: it was a donation by the People’s Republic of China.

Nearly 30 years after the fall of the Berlin Wall and with the memories of communism still fresh for many, the Marx bicentennial has been met with caution in his home country. After Chinese plans for a triumphal unveiling on the anniversary of Marx’s birth rang alarm bells, Chancellor Angela Merkel’s advisers shot down proposals for a Sino-German state summit in Trier. Even the statue was negotiated down from its originally proposed height of 6.3 metres.

In China, however, there is no such reticence. The plans in Beijing include a ceremony at the Great Hall of the People and a conference on “Marxism and the shared future of mankind” at the elite Peking University. Wu Weishan, the sculptor who designed the statue in Trier, says he chose to portray the philosopher at the age he wrote Das Kapital, because that is the Marx that still casts a shadow over the world, especially in China: “China’s reform and opening is the development of Marxism in Chinese society,” he says. “Reform and opening up is inseparable from Marxism.”

Under President Xi Jinping, the Communist party is taking a far more heavy handed role in the economy © Getty

The celebration of Marx dovetails with an important shift in China’s ideological direction. At a time when President Xi Jinping is reasserting the authority of the ruling Communist party, the state is reclaiming a far more heavy handed role in the world’s second-largest economy .

The new enthusiasm for Marxism follows four decades in which the private sector’s influence on the economy grew to a degree unseen in any other socialist country. It has been accompanied by a renewed penetration of the party into corporate life and civil governance, and greater attempts to control civil society.

“The big story is that the Chinese are making a serious attempt to take over control of developing Marxism for the 21st century,” says Sebastian Heilmann, president of the Mercator Institute for China Studies in Berlin. “People are starting to rethink because they know the west has problems and so the Chinese message has resonance.”

At first glance there is little that is Marxist about China, despite the official emphasis on “socialism with Chinese characteristics” and the enormous golden hammer and sickle that adorns the stage at the Great Hall of the People. Income inequality is one of the highest in the world, sales of BMWs are soaring and many of the wealthiest families in the country belong to the party elite. A recent flurry of state media coverage of Mr Xi’s thoughts on Marxism somehow managed to avoid any mention of “class” or “capitalism”.

Flow of loans to Chinese businesses

China is unique among the socialist economies for its “hybrid” economy, specifically the size of its private sector, which has powered the economy since the mid-1990s. The private sector accounted for nearly all the growth in employment and two-thirds of overall economic growth between 1978 and 2012. In fact, the state accounts for only half as large a share of national employment in China as it does in France, the most state-centric of the “capitalist” economies, according to Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics and author of Markets over Mao.

“Most of China’s growth has come from the private sector, whether privatised state firms or newly created firms,” says Sergei Guriev, chief economist of the European Bank for Reconstruction and Development. “Chinese leaders recognise in public that major problems in the economy are due to the state sector.”

Chinese president Xi Jinping is reasserting the authority of the Communist party © AFP

But recent indicators show that the private sector’s gains have stalled and to some degree reversed. The past decade has been dominated by what private entrepreneurs call guojin mintui (“the state advances, the private retreats”). State-owned enterprises thoroughly dominate access to capital: they account for the lion’s share of borrowing from state-owned banking channels and claim the majority share of access to capital markets, especially through secondary offerings and bond issues. After a brief flirtation several industrial sectors have closed to private investment.

“China never had a political consensus that they wanted to dismantle the power of the state to direct the economy,” said Andrew Batson, China research director at Gavekal, in marked contrast to post-Soviet countries’ rejection of the political, and therefore the economic, legacy of communism. “China wanted to reform the SOEs but the goal was to strengthen the state.”

That desire has now come to the fore with the Made in China 2025 programme, which is designed to catapult Chinese industry to the forefront of technology, whether that be robotics, electronic vehicles or new telecommunications standards.

“We are in a period where there’s much more emphasis on top-down activity rather than market-driven bottom-up,” says Mr Lardy. “The big question is, is this just a little short blip where there’s a bit of a state resurgence and China will return to trend? Or are these things going to continue for the rest of Xi’s reign?”

For some experts, the emphasis on the state sector has come at a cost. The return on equity for the behemoths has slid, from above 6 per cent in 2005 to 4.7 per cent in 2017. “The objective of having bigger state companies has been achieved. But better is a more elusive goal,” Mr Lardy says. He believes China could have maintained annual growth rates about 2 percentage points higher than it did in the past several years, if it had not shifted resources away from the private sector.

However, others in China believe the increased reliance on the state sector provided a cushion during the slowdown in growth between 2012 and 2016. SOEs could keep workers on at reduced salaries, thus limiting worker unrest, and chip in when local budgets faltered.

“Adam Smith’s theories developed in a quickly growing economy and he never fully saw the social and governance crises of the industrial decline. But Marxism was developed in the first contraction after the industrial revolution,” making it relevant to today’s problems, says Wang Binbin, a political economist at the Marxism School of Sichuan University.

Late last month, Mr Xi called on the party “to solve the practical problems of contemporary China with the basic principles of Marxism”, and adapt it to the modern era. With no discussion of class and little desire to return to a fully-planned economy, Mr Xi and his advisers instead are trying to bring private enterprises, government and civil society under greater party control without triggering stagnation.

In a video that was widely shared onlline in China, President Xi Jinping told a worker to lower the price of maotai liquor © Bloomberg

“A great cause calls for the leadership of a strong party,” Mr Xi said in October, at the Communist Party congress that reappointed him for a second term. In case anyone doubted what that meant, he offered a pithy summary: “Government, the military, society and schools, north, south, east and west — the party leads them all.”

One way to “lead them all” is through party cells within private businesses, even in joint ventures or foreign-invested companies. Shanghai Disneyland raised eyebrows in January with its advertisement on career networking website LinkedIn, in flawless English, for a “senior specialist” for its Communist party Youth League office.

The drive for more party cells has been hotly contested, especially by foreign companies in China. In practice they range from benign — the party cell in Nissan Motor’s Guangzhou joint venture brags on social media about the free car washes it offers — to more interventionist, such as the party secretary at a European joint venture who yelled and banged the table during a meeting in a bid to block a senior appointment, foreign executives said, even though he did not have formal authority over hiring.

Some party cells collect donations from joint ventures and distribute them to workers as “party” bonuses, and executives fear they could soon weigh in on key business decisions. But in an increasingly top-down economy other foreign managers argue that it is better to keep the cells on-side.

Earlier this year Liu He , a close aide to Mr Xi who was recently appointed vice-premier, reorganised the central government bureaucracies to put the party back in direct control of ministries, after four decades in which technocrats had carved out a great deal of policy leeway.

China return on equity in SOEs

All civil servants, including teachers and employees of state-owned companies, are now included in the party’s extrajudicial disciplinary procedures, depriving them of the limited rights to lawyers and interrogation without torture that reformers had won for normal citizens over the past two decades.

A renewed reliance on China’s hukou or household registration system is bringing back the old Communist controls on population movement, especially in Xinjiang, along the central Asian frontier, where the minority Uighur people need permission to travel between towns.

Minority Uighur men in Turpan, Xinjiang province © Getty

Those social controls are given greater heft by new technologies. Digital record keeping is advancing fast in China, thanks in part to the wide popularity of smartphones and online payments. “A new system is emerging in China that’s aligning itself with digital technologies and this is something that most people under-rate,” Mr Heilmann says.

Police stations, for instance, can now check when a person last flew in or out of the country. Social credit scores, which evaluate behaviour unrelated to paying bills on time, can help determine a person’s ability to get a mortgage. And a ballooning security budget is allowing police to experiment with facial recognition and biometric data, especially in Xinjiang. Meanwhile, censors tamp down on news of any current government mess-ups and police online discussion of Marxism under Mao.

If Marxism 2.0 has more staying power than its failed prototype, those new technologies could play a key role. Alibaba founder Jack Ma is part of a growing movement in China arguing that the fatal flaw of state planning was simply that planners did not have enough information to make good decisions. Big data can solve all that, the thinking goes, for instance by aggregating information about new orders on platforms like Alibaba’s Taobao. That would smooth the economic cycle by allowing manufacturers to avoid expansions that contribute to overcapacity.

“Big data grows from matching supply and demand and improving supply chain management, so it can mitigate the risk of surplus production in classic economics, and overcome Smith’s blind spot of market adjustment or Keynes’ over-reliance on government interference,” Mr Wang says.

But will a controlling state disturb the functioning market that China claims it wants to preserve? In a video that went viral on social media last October, a party congress delegate is explaining the sales strategy for her company’s fiery mao-tai liquor to Mr Xi when he interrupts to ask how much a bottle costs. “That’s too much!” he says. “You should lower it down.”

The delegate freezes. Eventually she stammers out that the price is set by the market. “Market prices,” Mr Xi responds, as he too realises that he has just taken a first step down a slippery slope. “Ah yes, market prices.”

Additional reporting by Xinning Liu

Party deploys ‘ecological Marxism’ in growth debate

A car fit for cadres: Audis are manufactured in China and are popular with party officials © Bloomberg

China today stands out as one of only four officially Communist countries in the world, and by far the most influential. The ruling Communist party has been in power continuously for 69 years, just short of the Institutional Revolutionary Party of Mexico’s record of 71 years. Keeping that power requires modernising an ideology that many Chinese citizens view as outdated and irrelevant.

President Xi Jinping has identified a “contradiction” between “unbalanced and inadequate development and the people’s ever-growing needs for a better quality of life”, thus avoiding the issue of class in one of the world’s most unequal societies. He has introduced greater party control over the state without overriding market signals.

Marxist institutes across China are assessing whether the country can develop in a way that is “sustainable” or “ecological”, expressed in Chinese as the slippery but ubiquitous concept shengtai. Already, severe water shortages grip half the country, soil pollution threatens food security and the prosperous urbanites that support the party are deeply anxious about air pollution and food safety.

The interest in applying Marxism to ecological problems marks the return of Chinese theorists into a global debate after a long isolation. “Ecological Marxism” attracted attention in China after the state was forced to address the pollution of the Huai river in the late 1990s, and became a party priority in the mid-2000s. Chinese theorists argue a new and improved planned economy could incorporate environmental standards.

China is not alone in trying to redefine Marxism after the failure of the Soviet model. North Korea’s Workers’ party dumped communism as a ruling ideology between 2009 and 2012, replacing it with the homegrown juche or self-reliance ideology.

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