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Socialist Foundation and the Critical Transition to State Neoliberalism

After the Communist Revolution in 1949, the Chinese Communist Party (CCP) under the leadership of Mao Zedong took control over China when it defeated the Nationalist Party (Guomindang or Kuomintang) in the civil war.1 For almost thirty years, the communist party-state pursued revolutionary socialist programs in the form we have called "state socialism" as a strategy to achieve the twin goals of economic development and social equality. Then, in 1978, the party-state shifted gears, suddenly dropped its socialist aspirations, and adopted the "reform and opening up" policy, which unleashed a whole series of changes that launched China gradually but unmistakably on the path of "state neoliberalism." In this chapter, we attempt to answer three research questions:

• What were the distinctive features of China's state socialism between 1949 and 1978?
• Had the Maoist socialist experiment been a total disaster or, alternatively, had it laid a solid foundation for the remarkable economic growth in post-socialist China since 1978?
• What factors had prompted China to embark on the critical transition to state neoliberalism in 1978?

Characteristics of State Socialism in China

Suppose you could travel through time to Maoist China in the mid-1970s, and you told the Chinese that their country would become an economic powerhouse of the capitalist world economy in the next thirty years. No Chinese would take your words seriously because they knew that China had experienced very serious developmental problems during the socialist period (since 1949), and this painful socialist legacy should prevent the country from making any progress in economic development.

First of all, when the Chinese Communist Party took power in 1949, China was a much devastated country owing to rounds of foreign encroachments that often escalated into wars, infighting among warlords and violent civil wars between the communists and the nationalists, and serious structural deficiency and dislocations such as the inadequacy of arable land, a shortage of investment capital, and technological stagnation. Raging hyperinflation in the last years of the Republic government's rule in the late 1940s also drove the Chinese economy into disarray.

In 1952, a year when China was deemed to have recovered from the worst of war devastation, its gross domestic product (GDP) amounted to 67,900 million yuan (Chinability 2014). With a population of about 588 million,2 per capita income amounted to 116 yuan, making it one of the poorest countries in the world. As with most other poor developing economies, China was dominated by agriculture, with the primary sector contributing 50.5 percent, the secondary sector 20.9 percent, and the tertiary sector 28.6 percent to its GDP (Hitotsubashi University Team n.d.). In 1950, life expectancy at birth was around 36 and no more than 25 percent of the population attained primary education (Selden 1993).

Furthermore, China faced the problem of forced withdrawal from the world economy. Before the Chinese communist state could barely consolidate its power in the early 1950s, the US quickly mobilized warships to patrol the Taiwan Strait and supported the defeated Nationalist Party in Taiwan, sent soldiers to fight Chinese troops in Korea, imposed an economic embargo on mainland Chinese products, and waged ideological attacks on Chinese "communist totalitarianism" in the mass media. Until 1971, the country was also barred from assuming its place in the United Nations.

Indeed, in order to contain the spread of communism from China (and the Soviet Union), the United States was said to have gone so far as to pardon Japan immediately after the Pacific War, and helped to construct a "Greater East Asian Co-prosperity Circle," which allowed Japan to unite and lead South Korea, Taiwan, the Philippines, Malaysia, Singapore, and Indonesia in building a bulwark against communism (Cumings 1987).

Intense hostility from the US during this Cold War era served to preclude certain development options for socialist China. Cut off from contacts with capitalist states, the Chinese communist state could not possibly pursue either export-oriented industrialization (owing to the closure of Western markets) or import-substitution (owing to the economic embargo) in the global economy. The embargo imposed by the United States and other Western countries also denied China access to foreign inflow of capital and technology. The threat of property seizure and restrictions on the remission of profit among foreign enterprises also led to their departure from China, whether on the eve of the communist takeover or a little later (Siu-lin Wong 1988).

Under these circumstances, China had no recourse but to pursue a more or less autarkic path of socialist development. There was one exception. With the signing of the 1950 Sino-Soviet Treaty of Friendship and Cooperation, China was covered by the Soviet nuclear umbrella, granted military support, and given economic, technical, and planning assistance (Selden and Lippit 1982, p. 6). Thus, the Chinese state was forced to lean toward the Soviet bloc and miss the golden opportunity of achieving ascent during the postwar economic boom in the capitalist world economy. Furthermore, the Cold War had created a resource strain on the Chinese economy. From 1952 to 1977, defense spending on average accounted for 5.5 percent of China's GDP (Y. Lin 2003).

It has been suggested that China did not pursue just one single brand of socialist policies (Selden 1993, pp. 7-9). On the one hand, there were revolutionary socialist policies that gave emphasis to class struggle, mass mobilization, state-centered accumulation, collective and communal production, egalitarian distribution, as well as elimination of the market and household economy. These prevailed during the periods of land reform in 1947-8, the collectivization drive of 1955-6, the Great Leap Forward between 1958 and 1960, and the Dazhai movement of the Cultural Revolution decade from 1966 to 1976.

On the other hand, the party-state also sought a more moderate, broad-based coalition of social forces, striving to balance the market and plan, state and household interests, as well as tolerating the peasants' heterodox cultural, religious, and economic values during the early 1950s and early 1960s. While agreeing with Mark Selden that there were considerable policy oscillations between revolutionary socialism and its moderate retreat, we contend that economic pursuits in the first twenty-nine years (1949-78) of China could still be identified as "state socialism," which has the following distinctive features.

Land Reform and Collectivization

In order to eliminate the exploitation that stemmed from unequal land ownership, generate economies of scale in land cultivation, and obtain the rural surplus necessary for national accumulation, land reform and collectivization were implemented in the country. The approach to land reform was moderate, for in attending to the poor peasants' demand for land, the party-state made sure that it would restrict the scale of both redistribution and retribution so as not to antagonize the middle peasants or even the rich peasants (Selden 1982, p. 47; Selden and Lippit 1982, pp. 6-7). The reform was completed by 1952 and, according to Victor D. Lippit (1974, p. 95), it redistributed 44 percent of the arable land in the countryside from the landlords to the poor and landless peasants.

Similarly, collectivization was to proceed slowly. While mutual-aid teams were formed early on, advanced collectivization would await the commensurate growth in mechanization, which required in turn the development of industries. By 1955, however, leaders of the party-state became impatient. The First Five-Year Plan (1953-7), drafted under the tutelage of the Soviet Union, gave special emphasis to the development of heavy industries. With China unable to obtain investment capital elsewhere owing to its forced withdrawal from the capitalist world economy, the only option was to expropriate the agricultural surplus, which party leaders believed could be given a boost by collectivization. Instead of relying on voluntary participation, Mao argued in 1955 that, in order to check the polarization of the peasantry, large-scale cooperation had to be carried forward at full speed (Selden 1982, p. 60). Collectivization stepped up after July 1955 and, by 1958, the formation of rural communes was complete (Selden 1982, p. 55).

Rural social relations were completely transformed by this wholesale collectivization. If the 1949 "land to the tillers" program was geared to the creation of independent commodity producers by giving land to the poor peasants, forcible collectivization abolished the private ownership of land. In the words of Selden (1982, pp. 69-70),

In less than a year the entire countryside passed from a mixed system of private ownership of land and the means of production with varying degrees of small-scale mutual aid and elementary forms of cooperation, to large-scale collectivization and communes; from production organized in most cases on a scale ranging from single households to a few dozen households, to one embracing an entire village or even a township and typically involving several hundred families.

Through the levy of agricultural tax and compulsory sales of food grains at very low prices to the state,...