China’s Economic System: Between Leninism and Turbo Capitalism

In China’s state economy, the Communist Party is in control more than ever – experts speak of “market Leninism”. At the same time, social welfare lags far behind needs.

Finding a suitable name for the economic system of the People’s Republic is not that easy – even for economists who deal with China full-time and on a daily basis.

“We don’t have a proper term,” says Michael Pettis, finance professor at Beida University in the Chinese capital Beijing. “That is why we say ‘state capitalism’ or ‘capitalism with Chinese characteristics’ or ‘Leninist capitalism’ – you can think of many different terms.”

Alicia García-Herrero, chief economist at the French investment bank Natixis for the Asia-Pacific region based in Hong Kong, considers the term “state capitalism” to be appropriate: “Because the state dominates everything. Or ‘party capitalism’ because the communist party dominates the state . ”

“Faustian Devil’s Pact”

Both experts agree on one point: The Chinese system has nothing to do with the German social market economy. “The social market economy focuses on the concerns of workers and employees. In China, however, employees have almost no rights,” says García-Herrero. “They are not even allowed to form unions. The Communist Party ensures strong economic growth by depriving employees and workers of the rights they have in Germany, for example. So that’s a kind of Faustian pact with the devil.”

Until the 1970s, hundreds of millions of people in China lived in abject poverty. In the early years of the People’s Republic alone, the disastrous economic policies of the communist government cost the lives of between 14 and 55 million people. Only after the death of state founder Mao Zedong in 1976 did economic reforms ensure that the economy in China picked up. Above all, massive government investments in modern infrastructure ensured growth; for example in roads, bridges, express train lines, power plants, exhibition centers and residential complexes. But there are now more than enough of them nationwide.

Many apartments are empty

“Meanwhile, China’s leadership can hardly find any areas in which it can invest productively,” says finance professor Pettis. “Instead, it continues to build often useless infrastructure and huge residential complexes. A quarter of the apartments in China are empty. The government is still building.”

Pettis speaks of “unproductive investments”. China, on the other hand, still does not have a modern and efficient social system. There is a lack of investment – and political reforms. Because the People’s Republic is still clinging to its outdated decentralized social system. People from the big cities are strongly preferred to those living in rural areas. Anyone who moves to Shanghai from a small town, for example, can neither send their children to a normal school there nor simply go to the doctor.

Growing inequality

“China’s welfare system is not only smaller than ours in Europe, it is also more unjust. That is remarkable for a socialist system like China,” says economist García-Herrero. “It always depends on where you were born, where you work and whether you can manage to get an official residence document in a city you’re moving to. If not, you have virtually no access to the social system.”

China has become richer as an economy in the past few decades. At the same time, however, social inequality has increased significantly. The so-called Gini index, which shows the unequal distribution between rich and poor, has roughly doubled in the People’s Republic since the late 1970s, as figures from the United Nations show. In the USA, it remained roughly the same over the same period. In Germany, the unequal distribution between rich and poor has statistically decreased somewhat since then.