100 years from the founding of the Communist Party of China—Dilemmas and Pressures today

On July 1, the world’s largest dictatorial regime (which we describe as “state capitalist”), the Communist Party of China[1] government, celebrated the centennial of the Party’s founding with a ceremony aimed at creating a sense of national pride. The CCP (“Chinese Communist Party” – the name it is known by internationally) government once again tried to imprint to the Chinese society its national rejuvenation clichés:

“The Party led the Chinese people to establish the Republic”

“The Party will bring about the rejuvenation of the Chinese nation”

“The Party will rule forevermore”.

At the same time, large sections of Chinese society, particularly the youth, are embracing an attitude of so-called Lying-flat-ism, a tongue-in-cheek “lifestyle” that avoids competitions and the crazy tempo of life. This attitude is a response to the increasing pressure of survival and the hopelessness of  being unable to see any substantial improvement in living standards, which speaks volumes about their despair and negativity towards the “future” advocated by the regime.

On the other hand, the Chinese dictatorship is also adopting measures which reveal a mood of panic. There is increasing government control and regulations of the market and capitalist enterprises in various sectors (in online trade, real estate market, etc). 

A regime that makes its young people feel desperate and passive, and puts even the capitalists under pressure, is bound to face unpredictable risks in the future.

With great power come great problems

Since its “Open Door Policy” (改革开放, literally “Reform and Open Up” – a suite of “reforms”, typically associated with Deng Xiaoping that opened up the country to the capitalist market) China has become a sweatshop for the Western world, a “nuclear weapon” for the Western capitalists to suppress the average wages and rights of manufacturing workers, and a huge consumer base for Western products .

China is inching closer to becoming the world’s largest economy. According to the International Monetary Fund, China’s GDP (gross domestic product) will reach $33 trillion by 2030[2], in this way surpassing the USA. In 2020, it was the world’s largest investor with $132.9 billion[3], which includes investment in the auto, retail and semiconductor industries. In the Fortune 500, China boasts 124 companies, surpassing the US’s 121[4].

At the same time, China is expanding its control over natural resources globally. For example, China controls a huge share of rare-earth minerals, indispensable for high-tech development. China already occupies 85% of the global rare earth market[5]. According to data from the US Geological Survey, besides rare earth minerals China is also the largest supplier of 12 key minerals, and either monopolizes or is the largest supplier of another 10 important minerals. In addition, according to data from the Land Matrix database published by the European Land Monitoring Agency, from 2011 to 2020, Chinese companies have acquired and leased up to 6.48 million hectares of land in Asia and Africa. It can be said that China has or is gradually gaining hegemony or monopoly status in the global market in many industries.

With these enormous economic strengths, it is not difficult to understand why China is regarded as the greatest threat by the United States. And of course, these explain the arrogance of the Communist Party. But it is precisely because of this situation that the CCP regime is facing huge challenges.

Before understanding the various dilemmas China faces today, it is important to have a basic understanding of China’s political system. Today’s CCP is like the beverage you buy at a convenience store. The package may say black tea, but when you take a look at the ingredients, you’ll find that it is completely different from what the package says. The CCP today is related to socialism only by name; it is a “state capitalist regime” with dictatorial powers.

The turning point for the CCP to move towards capitalism was the Open Door Policy initiated in 1978. The Open Door Policy was not initially a conscious attempt by the CCP to bring China into the capitalist market economy, but rather a motivation to stimulate economic growth and increase the productivity of industry and agriculture. In doing so, the CCP looked towards the path taken by Taiwan, Singapore, South Korea and other capitalist regimes in East Asia, which tended to become the “factory of world capitalism”. The dictatorial, brutal, and legally unrestrained model of the CCP’s transition to capitalism attracted a great number of Western investments on the one hand and led to the rapid development of Chinese capitalists and more powerful bureaucrats on the other. This allowed China to further develop crony capitalist relations. 

Despite the fact that the CCP governs by the methods of a police state, local governments are highly decentralized. Although nominally the central and local governments are both ruled by the CCP, in reality there are many problems of coordination and conflicting interests between the central and local governments, and among the local governments themselves.

These internal tensions created difficulties for the development of the Chinese regime. And now the CCP regime faces the challenge of balancing between conflicting trends. On the one hand it desperately needs the centralization to rally all its forces in order to compete with its international rivals. On the other hand, the expansion of the market forces means that a certain level of decentralization is developing.

In particular, if the Chinese regime wants to survive the current conflict with the US, or wishes to be able to continue its dictatorial rule, it must become a “developed” country; which means a more educated labor force, the further development of high-tech industries and R&D (research and development) and a higher level of consumption. Without a highly centralized regime, it will be difficult to coordinate all national resources to lead China’s economy through the current turning point.

Despite China’s tremendous economic growth since its Open Door Policy, there is in fact a huge imbalance in China’s domestic economic development. According to Nikkei Asia, the income gap between urban and rural areas in China has widened by 57% in the last 7 years alone, and even at the “China Development Forum” in March this year, the Chinese scholar Sòng Xiǎowú pointed out that 720 million people in China still earn less than 2,000 yuan (€265) a month. The Gini coefficient (which measures inequality) has hovered between 0.47 and 0.5  for a long time, which is far off the developed countries’ scores.

According to the CCP’s recent census, only 12 million newborns came into life in 2020, which is the lowest since 1961, and the percentage of people over 65 grew to 13.5%. On the other hand, the movement of rural workers has also changed. According to China’s official statistics bureau, as of the end of March, there were 2.46 million fewer rural workers in urban areas than in the same period in 2019.

A survey by Hang Seng Bank also pointed out that the migration of rural residents to urban areas had slowed down even before the outbreak of the pandemic. The aging population and the movement of the labor force reflect several issues: the living and labor conditions in cities are worsening; local governments’ ability to support social security programs is becoming thinner; and the return of rural workers to find work in rural or smaller cities means that China has a long way to go to boost its consumption. Of course, this also creates challenges in recruiting workers in the big cities. China’s economic data in the first half of this year were actually not as good as projected—the annual growth rate of retail sales of consumer goods rose by 12.4%, lower than the forecast of 13.6%. China’s consumption growth has been slowing down for the past five years, from 10% in 2015 to 6% in 2019.

There are also contradictory developments in the forcesthat drive China’s economic growth[7]: Fixed asset investment, which accounts for more than 40% of China’s GDP[8] reached 19.39 trillion RMB (renminbi, the Chinese currency) in January-May, but is still lower than the forecast of 16.9% annual growth. Investment projects and growth rates were concentrated in real estate[9] and the relatively sluggish manufacturing sector was concentrated in the tech industry. These developments alone indicate that China’s economy has not yet recovered to its pre-pandemic strength, although it seems to recover faster than western capitalist countries.

To boost domestic consumption and employment, the CCP would have to promote higher quality and  better paying jobs as well as providing more adequate social security so that the general population can shift their consumption from the basic needs of health care, education and rent (or the savings and borrowings for these expenditures) to other consumer goods. China wants to develop a skilled job market in the next phase in exchange for higher consumption power and productivity, but how much more industrial transformation can really take place when most investments turn to real estate?

Contradictions within the ruling class

The Chinese Ministry of Finance announced on June 4 that it will transfer all 8.4 trillion RMB of the total revenue from land transfers in 2020 to the state taxation department for collection, which means that 8.4 trillion RMB (84% of the total local revenue) will be transferred to the central government [10]. In addition, on July 1, seven local governments, namely Hanoi, Inner Mongolia, Shanghai, Zhejiang, Anhui, Qingdao, and Yunnan Province, will first implement the transfer of local land revenue to the central government, and it is expected to be implemented nationwide in 2022.

The huge revenue generated by local land transfers has for long been the most important source of income for local governments in China. At the same time, local governments have also been financing themselves through land transfers in exchange for huge capital gains, which of course brings many risks of hidden debts for local governments.

Xi’s move can be said to be a continuation of the party’s attempt to control the real estate sector. In recent years, the Communist Party has been emphasizing the need for regulation of housing prices and for curbing speculation in the real estate sector. It has also been testing the central government’s control over local property owners. It remains to be seen how far they will go, but they will certainly stir up the sensitivities of the rich and powerful in China and provoke more conflicts and clashes.

In the first half of 2020 China’s local debt surged by 3.4 trillion dollars, and according to official reports, only Shanghai has a fiscal surplus among 31 provinces and municipalities, while the rest are caught in a deficit, with several provinces even having a fiscal deficit of more than 250 billion yuan ($33 billion).

In many provinces and municipalities there are news that local governments have stopped paying various allowances to government employees. Interestingly, although Li Keqiang is generally regarded as one of the representatives of the anti-Xi faction, he not only publicly asked local governments to tighten their belts in 2020 but also sternly stated (at the State Council’s regular meeting in July this year) that he would severely punish local governments for major financial irregularities.

From these signs, we can see that in parallel with the contradictions and conflicts within the CCP, the difficulties and pressures on the Chinese government and economy are building up. The CCP regime (especially Xi) has expanded control over the corrupt elites not just in the real estate industry and local government levels. After the Chinese government blocked in 2020 the IPO (Initial Public Offer) of Ant Financial Services, a fintech affiliate of Alibaba, a ridesharing platform called DiDi was immediately and severely punished on June 29, less than five days after it was listed on Wall Street. On July 4, the CCP took down 25 of DiDi’s apps in China. The move has deterred 70 Chinese companies that were expected to go public on Wall Street. One of the reasons the CCP punished DiDi with “cybersecurity censorship” is that in the current US-China technology war, they fear that DiDi will hand over important China network information after it goes public in the US. They also need to prevent these Internet cartels from going out of the control of the regime as their capital expands and financing becomes free.

The CCP is also under enormous pressure to reform the economy. If they want to allow more new enterprises to have a chance of survival in the market, they will have to impose a check on the monopoly of the big domestic enterprises. However, such a move will also put China’s capitalists in a more difficult situation: if they want to maintain profits in the domestic market, they need to accept more restrictions from the regime, but if they want to further develop their businesses and make profits, they must also integrate into the “freer” foreign markets.

What does the Xi Thought accomplish?

In the past two years, the CCP has increased its control over government agencies and the market. Xi has also continuously tightened his control over the party apparatus after taking power. The Communist Party of China is not a ”political party” in the strict sense but a bureaucracy that aims to control the economy, the wealth, and the development of the various classes in Chinese society.

Although Xi Jinping made a high-profile claim that the number of the CCP members is more than 90 million, the fact is that those who join the Party do it in order to access the various privileges that come with the membership, such as advantages in the job application or promotion for government jobs. In order to become a party member, one needs to jump over many hurdles, and this ensures those admitted into the Party are part of the elites of their respective class or at least have close relationships with them and are ready to serve the interests of the party leadership and the development of Chinese capitalism.

Since Xi Jinping came to power, he has continuously expanded the influence of the so called “Xi Thought” at various levels. From the state propaganda, it has deepened and extended into the education system, the main lines of the party’s ideology, and even government departments. Less than a year after the creation of the Research Center for Xi Jinping Thoughts on Diplomacy in July last year, the Research Center for Xi Jinping Thoughts on Economics was established, on July 5 this year. This is the eighteenth such “Research Center” since Xi Jinping came to power. On the other hand, education from elementary school to university and within the party, also promotes the “Xi Thought”. This reflects Xi Jinping’s continuing attempt to create a cult of his personality. Since Xi took office, the Central Commission for Discipline Inspection has punished up to 4,089 million officials.

Regardless of how many people can be “brainwashed” by the Xi Thought, it is true that people at all levels of Chinese society are more aware of the boundaries of power, and this is also connected to the fact that the ruling class is disorganized and mired in factional fighting. The greater concentration of power ensures that even after he leaves office, Xi can avoid the fate of being targeted by political opponents. Of course, this could also cause more acute infighting and friction inside the ruling clique. 

Another contradiction lies in the fact that since Xi came to power, he has emphasized “socialism with Chinese characteristics” more vigorously than the government propaganda after the Open Door Policy period.

Xi’s bonapartism requires a special ideology to ensure its legitimacy. In 2018, the CCP suppressed all Marxist or Maoist reading clubs on campus. This move had the aim to control how young people access and interpret socialist ideas, and ensure that these ideas are within the scope and limitations imposed by the regime.

The question is posed, if a dictatorship does not demonstrate some advantage in governance, how will the youth and the lower class accept their legitimacy? When social conflict and discontent spread, people will start to see through the illusions cast by their rulers. The acute conflicts amongst the different factions in the party apparatus and between the state and the capitalists show that the regime has entered a period with more uncertainties, in its effort to maintain its rule and survive the contradictions of a state capitalist economy. 

CCP is arguably maneuvering in its attempt to deal with the various challenges and contradictions. The more Xi Jinping tries to concentrate and dispatch all resources to develop the economy and the more he wants to consolidate his personal dictatorship, the sharper the conflicts and anger that will develop at all levels of society.

Challenges from abroad

The regime is facing increasingly profound challenges at home, while its international position is becoming more isolated as the China-US conflict intensifies. At the centennial celebration of the Party, Xi Jinping signaled a turn in foreign policy, advocating a more “credible, loveable and respectable China” as the new motto of his diplomacy.

While the CCP still maintains its “Wolf Warrior” approach, the shift of the Biden administration away from the unilateralist approach against China has created a more contradictory terrain. At the G7 summit, the United States took the lead in establishing an increasingly tough anti-China camp. The European Parliament called on the EU to boycott China’s 2022 Winter Olympics. If a general boycott of the Winter Olympics in Beijing takes place in 2022, it will be a major defeat for the regime.

The Chinese economy still depends on the global supply chain. Although China maintains monopolies in various sectors, without the current international division of labor China’s economy is bound to suffer a huge setback. The United States is also adopting increasingly high-profile economic countermeasures against China in the fields of technology, finance, and trade.

Xi Jinping wants to ease the tension between China and the US. But at the same time Xi Jinping cannot afford to be seen as too “moderate”. The “Wolf-Warrior diplomacy” seems to result in sharp conflicts with Western countries. But the regime needs it to incite nationalist sentiments and provide legitimacy to its rule, diverting the anger of the masses to “foreign enemies”.

In the sharpening international conflicts in the future, the CCP will find itself having less room to maneuver between trying to maintain its international diplomatic and economic ties, and trying also to maintain its domestic patriotic fever. In the short term, at least, many countries are still not ready to align themselves with the US anti-China strategy. But the reorganization of the global supply chains has already started and is putting pressure on the regime. 

The boiling point

The People’s Bank of China lowered the required deposit reserve ratio of financial institutions on July 15, by 0.5%, freeing up RMB 1 trillion for bank loans to ease the pressure of China’s small and mid-sized companies from the rising prices and labor shortage.

As European and North American countries are gradually recovering from the pandemic and the United States, China’s economic recovery has not been as good as expected. Xi Jinping is not only caught between the internal contradictions and international conflicts, but is also faced with intensifying anger from the lower classes of society. Especially in the past two years, the anger and dissatisfaction of the workers and young people in China intensified. On the eve of the centennial of the Communist Party, instead of patriotic cheers, the Chinese internet was filled with discussions about the “lying-flat-ism” trend, a passive outlook to capitalist competition.

The young people in China, suffering from economic difficulties and political oppression, develop passive and dissatisfied emotions. The social phenomenon known as “lying-flat-ism” can be summarized by the phrase “we can’t stand up, but we don’t want to kneel, so we just lie down”.

This reflects the feelings of the suffocating youth in this predicament looking for a “passive strike” to express their dissatisfaction. From the software engineers’ struggle against the 996 work hours (9 AM to 9 PM, 6 days a week) in 2019, to the 打工人 (arbeiter) meme[11] , to online radical feminism movement like the hashtivism[12] , although they each have complex content, they all reflect a sense of dissatisfaction against the regime and capitalist exploitation.

Mixed consciousness in the working masses will generate more conflicts and contradictions inside Chinese society. The anger and discontent of the popular strata pressurize the CCP to respond, while it also legitimizes its attempt to regulate the market.

On July 23, the Chinese government announced that it will strictly forbid the “capitalist” mode of operation in education and training institutions. These institutions must now operate as non-profit organizations, and cannot be traded in the stock markets.

This is undoubtedly a big blow to the capitalist private education industry in China. This has caused the listed stocks of China’s private education industry to plummet as investors have dumped their shares. It is estimated that this policy will shrink the private education and training industry by 70%.

The announced intention of the new regulation system is to reduce the pressure of school competition for young students and the burden of education expenditures of the parents. This is in some degree a progressive measure. In the context of intense competition in the Chinese job market, the desire of working and middle-class families to help their children, providing them with education, has become the backbone and the profit guarantee for the private education and training industry. In the past, the CCP had little regulation on the industry, allowing it to grow without control, attracting a large amount of domestic and foreign capital. The flow of capital allows private institutions to hunt for good instructors, taking them from the recruitment pool of public schools. It also meant that the capitalists began to acquire more power to influence society.

The large resource gap and inequality between private and public education meant that families that cannot afford additional educational expenditures become more vulnerable and marginalized. For families that can afford such expenditures, their children face tremendous mental stress, and the parents have to pay a large amount of money to the private schools, while the institutions use 80% of their budget on advertising [13], creating a vicious circle of competition. Only a few capitalists who have invested in private education and training institutions profit from it. As the Chinese government is unwilling to provide better public education, its method of leveling the playing field is to ban the private education and training industry. In this way, the policy can to some extent alleviate the inequality gap in education. At the same time, this policy also means strengthening the state control over education.

The existence of the private education and training industry and the students’ dependence on it meant that compulsory education was no longer regarded as the most important channel to acquire knowledge. This weakened the penetration of the “Xi Thought” in young people. In the face of the challenges in the inter-imperialist conflict, it is of course important for the Chinese state to take exclusive control of the “factories of ideology” and knowledge reproduction.

The iron fist of the CCP also slammed the food delivery platforms, requiring that the platform companies provide appropriate insurances to the delivery workers, establish an income distribution mechanism that matches the work intensity, and ensure that the income of delivery workers is not lower than the local minimum wage.

Such measures on the one hand tamper with the increased social discontent of delivery workers due to their cruel exploitation, and on the other hand stabilize the income of delivery workers and achieve the need to boost consumption. And of course, they help to boost the “people-friendly” profile that the regime wants to build. In any way, it remains to be seen how far these “reforms” and “progressive” policies will be carried out and how far they will go.

After all, what Xi Jinping and the ruling class fear most is the transformation of the anger of the masses into real struggle. The CCP is trying to continuously suppress the struggle, by whipping up patriotism or by imposing the “Xi Thought” to conceal and distract the dissatisfaction of the masses. But on top of China’s economic bottlenecks, these are only increasing the pressure on the pressure cooker, and will eventually accelerate the mixed emotions of the working masses, such as dissatisfaction and pessimism, to the boiling point. The pressure valve of the cooker is making a sharp boiling sound. The Chinese youth and lower class must look for all possible means to organize, and one example is through the Internet (although it’s heavily policed).

In the end, we need strong grassroots and working-class organization, in order to be able to fight against the chaos and challenges when the huge pressure cooker of China breaks open.

[1] CCP is the China Communist Party. CCP today is no longer a socialist party, and the party mechanism is dominating all government departments. But also, as this article analyzes, the CCP, the government, and the big business in China are more and more mired in contradictions and conflicts inside the country.
[2] The IMF estimated in April 2021 the overall growth of the Chinese economy to be 8.4%, but lowered that estimate on July 27 to 8.1%.
[3] 天下, vol. 726. According to UNCTAD and the Chinese Ministry of Commerce, China’s investment abroad in 2020 was US$139.2 billion, surpassing US’s 92.8 billion as the biggest foreign investor.
[4] This is according to the list of top 500 companies published in August 2020 by the leading U.S. financial magazine, Fortune.
[5] According to a BBC report on March 1, 2021, market research firm TIN said that China’s exports of 17 rare earth minerals accounted for 85-95 percent of the global rare earth market demand in 2019.
[6] This observation is based on “Mao’s China and After: A History of the People’s Republic” by Maurice Meisner.
[7] The “troika” of China’s important economic pillars are: consumption, investment, and export.
[8] MacroMicro reported on July 12 that China’s fixed asset investment from January to May was 19.39 trillion, 15.4% lower than market expectations of 16.9%.
[9] MacroMicro reported on July 12 that the two-year average growth rates of manufacturing, infrastructure and real estate were 0.6% (-0.4% before), 2.6% (2.4% before) and 8.6% (8.4% before), respectively.
[10]  According to a June 7 report by Radio Free Asia, China’s Ministry of Finance issued a notice specifying that four government non-tax revenues, namely, income from the transfer of state-owned land use rights, special income from mineral resources, sea-use payments and payments for the use of uninhabited islands, which were originally collected by the natural resources department, would all be transferred to the taxation department for collection.
[11] Which means Hard-working workers with low wages.
[12] A kind of extremism, out of despair for the future of life and giving up the pursuit of ideals or hard work.
[13] According to the Chinese media, for every ¥1 spent by parents, private education platforms invest ¥0.85 in advertising and marketing.

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