China’s Transition to Capitalism – 1500 word INTERNATIONAL BUSINESS essay

To what extent and in what ways do the reports in the Transitions Theme Update Supplement strengthen the argument that China is undergoing a transition to capitalism?


The basis for the argument for transition presented in both the Transitions Theme (2001) and the Update Supplement is Chinese economic growth. The original document highlighted how GDP growth was a central factor in determining transition, and the update notes how this has continued at ‘breakneck speed’, GDP growth at around 8% per annum. This growth necessitated a change in the position of China within the global political arena, and a contingent change in China’s geopolitical position vis-à-vis other major powers such as the United States (Update, p.1). Three possible solutions to this need for change were posited in the original Transitions document: that the economic development would underlie a socialist state, that it would facilitate an as yet inchoate stage of capitalism in China, or that a hybrid development model would emerge from this growth which was neither wholly capitalist nor communist. In this essay, the second of these arguments is considered from the perspective of the evidence adduced in the Transitions Theme Update Supplement, with particular reference made to labour, property rights, and changes at the level of the Chinese party and state. In this paper it will be argued that, broadly speaking, the reports in the Transitions Theme Update Supplement reaffirm the argument that China is undergoing a transition to capitalism. However, this position is tempered by ambivalence and discrepancies between political rhetoric and business practice which limit the extent to which the argument is strengthened by the evidence presented in the reports.

Perhaps the strongest support for the argument that China is undergoing a transition to capitalism is put forward by Watts (2004) in the context of Chinese labour, in which he argues that ‘the socialist revolution in China ended up creating one of the world’s most ruthlessly capitalist states.’ To contend that China is ‘ruthlessly capitalist’ is not merely to evoke a transition, but to submit that such a transition has already happened and has been emphatic. However, the evidence which Watts puts forward – the long hours, the proliferation of migrant workers in the cities, and the relatively low wages  – are not in and of themselves exclusively capitalist economic features; harsh working conditions are as much a condition of the failed socialist utopias to which Watts alludes as they are of capitalist societies, and to see these labour conditions as capitalist per se is to apply a somewhat subjective interpretative reading to objective economic conditions. Watts (2004) notes that ‘in a quirk of history, China’s Communist Party finds itself aiding, abetting and participating in an exploitation of workers on an unprecedented scale; it is certainly not a triumph of the labour movement.’ However, failings in the labour movement are not themselves unequivocally symptomatic of a transition to capitalism; state exploitation of the workforce can obtain under communist systems as well. Indeed, the most balanced readings seem to come, logically enough, from those who articulate a more hybrid transitional state, which, in existing somewhere between capitalism and communism, best embodies the contradictions and complexities of Chinese business and political practice. Thus Chandler et al. (2004) rightly identify the contradiction behind Chinese openness to FDI and increasing accommodation of completely foreign-owned enterprise on the one hand, given the authors’ acknowledgement that the ‘dysfunctional financial system reinforces the dominance of state-owned dinosaurs’ on the other. This is perhaps a product of the argument submitted by the authors: namely that, despite what other theorists suggest is a coherent political philosophy held by the politburo and the Communist Party, the country does not have a single strategy which can be qualified as ‘communist’ or ‘capitalist’, and that ‘for all the trappings of a centralized economy, China lacks a coherent central plan’ (Chandler et al., 2004). Commentators in the Transitions Theme Update Supplement have reiterated the argument evidenced in Transitions (2001): namely, that there exists a central discord and division in China between the country’s economic strategy on the one hand and its political strategy on the other. This explains, for example, the country’s desire to encourage FDI and private enterprise whilst simultaneously according the state a strong intervening presence in private business. This position is articulated most clearly by the analysis in The Economist (March 2006), wherein the tension between politics and economics in China is acknowledged most explicitly:

Whereas economically China has surged ahead in the past few years, politically it remains almost as secretive, just as risk-averse, nearly as dictatorial and every bit as determined to crush any organised dissent as it was at the turn of the decade.

This position strengthens the argument that China is undergoing a transition to capitalism at an economic level, whilst strongly qualifying this assertion by noting how such a transition is almost anathema to the ongoing political attitudes and practices of the Chinese ruling party. In this context, arguments that China is undergoing a transition to capitalism will have to be put forward in the sense that such a transition is inevitable despite the politics of the state. In this regard, the implied argument that capitalism will run away with itself has parallels with historical precedents of such transitions in the Soviet Union and parts of Eastern Europe (cf. Glassman, 1991: 148).

Despite the conceptual or rhetorical move to increasingly privilege privatisation in China, and the contingent shift toward a capitalist mind set which this betrays, there are functional impediments which suggest that the rhetoric is not reflected by the everyday practice. One area where this is evidenced is in the question of property rights. As reports in The Economist (20th March 2004) suggest, although the state has increasingly oriented itself toward private property over public ownership, the tenets of the latter still obtain in practice, such that private businesses often find they ‘come into contact with state-sector suppliers, distributors and customers’ as they grow, ‘and often find that their theoretical property rights count for little when it comes to collecting debts or having contracts honoured.’ This article does not consider the balance between private enterprise and public ownership and state interference to be a level playing field. Kynge (2004) suggests that disparity is reducing, noting that although ‘state companies remain favoured in some respects’, the thrust of developments in China are increasingly toward the capitalist approach, and ‘Beijing’s efforts to level the playing field for private companies has both created a dynamic source of employment and forced state companies to sharpen their act or be weaned off state support.’ However, the fact that there is ambivalence here, and discrepancies of interpretation and opinion n the reports adduced in the Transitions Theme Update Supplement, suggests that whilst China is undergoing a transition to capitalism, this is an ambiguous and complicated transition. Taken in sum, the reports in the Transitions Theme Update Supplement which consider the reality of private property rights suggest a state whose business practice is not yet in kilter with its business rhetoric.

These developments can be seen, as Kynge suggests, as symptomatic of broader changes at the level of the Party and the state, particularly with regard to ideology and political philosophy. Whereas the post-revolutionary political philosophy of China was grounded in the notion that communism was the solution, to the exclusion of bourgeoisie influence in the state and to the detriment of private enterprise, Kynge (2002) suggests a reorientation on the part of the state towards these capitalist tenets. Contingent with a drive to increase the size of the middle class as a means to facilitating economic growth, the very make-up of the Chinese party has come to reflect these changes, with Kynge noting in 2002 how ‘one capitalist entrepreneur won a seat on the party’s central committee’ for the first time since the 1949 revolution. However, reformist narratives must be tempered with an awareness of the degree of continuity still preserved in the party – particularly at the level of the politburo, where much of the power lies – and it is still uncertain, even in the light of the documents in the update, how exactly China intends to negotiate the contradictions and paradoxes which emerge when capitalist models are applied to a one-party state. Pei cautions (2004) that ‘the rule of law, the foundation of a market economy, is basically incompatible with one-party rule, the essence of which is the arbitrariness of power’. As Mehta identified in Transitions, such a claim of mutual exclusivity is one which might be problematised by Chinese attempts to chart a ‘third way’ between the market economy and the one party state, though the incompatibility of the two in their purest forms is evidenced by historical precedents, most notably the quick fall of the Soviet Union in the wake of perestroika in the 1980s. The suggestion here is that there remain, despite advances in labour and property rights, and reshuffles at the level of governance, impediments and conceptual barriers to holistic reform. Broadly speaking therefore, it can be concluded that the reports in the Transitions Theme Update Supplement strengthen the argument that China is undergoing a transition to capitalism, but the argument is a qualified one.







Chandler, C., Levinstein, J. and Dahong, Z. ‘Inside the new China’, Fortune, 10 April 2004, Vol. 150, Issue 7.

Glassman, R.M. 1991. China in Transition: Communism, Capitalism, and Democracy. New York: Praeger.

Kynge, J.

–        2004. ‘A combination of appetite and energy has made China one of the world’s fastest-growing economies.’ The Financial Times, 24th March 2004.


–        2002. ‘Middle Kingdom’s class revolution: the Chinese leadership has outlined robust expansionary plans for the next two decades with a big emphasis on the middle classes.’ The Financial Times, 12th December 2002.

Pei, M. 2004. ‘China’s ruling party cannot have it all.’ The Financial Times, 14th January 2004.

The Economist. ‘Good things in tiny packages.’ The Economist, Vol. 378, Issue 8470, 25th March 2006.

The Economist. ‘On the capitalist road.’ The Economist, Vol. 370, Issue 8367, 3rd March 2004.

Watts, J. ‘Mao’s promised land ends in sweated labour.’ The Observer, 9th May 2004.