By Eva Cheng
Ever since Beijing's turn toward the market in 1978, top Communist officials have repeated a "determination" to defend socialism and that state ownership would remain the "mainstay" of the economy.
Beijing's key measure of "socialism" is that the state formally owns a quantitative majority of the production units. Within this mechanical definition, it proclaims China socialist.
But since 1978, economic activities have been less and less geared towards the needs of the majority. To move towards socialism, production would need to be planned around social priorities, on the basis of public ownership of the key means of production.
Democratic participation of the producers is critical in this process. But Beijing's bureaucratic rule runs counter to that. It seriously distorted China's transformation after 1949. Yet despite that, China was qualitatively closer to a just society than the capitalist world of "dog eat dog".
But after 19 years of reliance on the market, private gain has increasingly become the driving force of economic and social decisions.
Until at least 1978, the bureaucracy had a fundamental interest in defending China's property and social system, deriving from it enormous consumption benefits. With the overhaul of the economic order, some sections of the bureaucracy have less incentive to defend public ownership.
More of them find their interests best served by pushing China further towards capitalism.
Regardless of the wishes of the leaders in Beijing, private gain dominates economic decisions in the provinces, led and pushed along by fledgling capitalists, many of whom came from or are still linked to the Communist Party.
Rural production
In the countryside, where the bulk of the population lives, economic and political decisions after the 1949 revolution were shaped by Beijing's bureaucratic control. But aside from exceptional periods, like the years immediately after the Great Leap Forward of the late 1950s, basic needs were met, on the basis of socialised production, organised around communes.
But this superior system of production was rolled back by Deng Xiaoping. Communes were disbanded and farmers were sent to produce as individual households, on land leased from the state.
This is a massive reversion to petty commodity production, which did not help to improve the production of food. Many farmers gave up farming because it was not economically worthwhile. Many "sold" their land entitlements.
This led to a concentration of land in the hands of the richer farmers, or property developers and speculators. Those who did well from this were either part of the local bureaucracy or well connected to it.
They are a minority against the growing sea of impoverished rural families, many of which toil for subsistence in rural or urban sweatshops, often quasi-privately owned and using primitive technology, if they are lucky enough to find a job.
Theft
The key industrial production was in the hands of urban state enterprises. But the dismantling of central planning, legalisation of private businesses and the residual state subsidy and control of key supplies have shifted the self-interest of many local bureaucrats to the wholesale milking of state assets for private benefit.
Bank loans and subsidised supplies came readily with the right political connections. Poor accounting scrutiny means resources may not be put to productive use. Losses can be conveniently allocated to the public, and they further entitle a firm to tax deductions. That more than a third of state firms are in the red is no sign that their managers, who often are Communist Party officials, are impoverished.
The National Administration of State Property revealed two years ago that state property worth 300 million yuan (US$36 million) "disappeared" each day. Other official figures revealed that the accumulated loss in the 10 years to 1994 amounted to 500 billion yuan (US$60 billion).
The national body held officials as the chief culprits, and identified 10 key ways that such disappearances can occur and 58 ways that booty can be concealed.
Assets often vanish when state firms form joint ventures with foreign capitalists or when they are partially privatised. A lack of proper audit is the norm.
Officials often seriously undervalue — or even count as costless — land and other assets that the mainland partner contributes to the venture. Their readiness to do so is linked to the extent that they can benefit, often under the table.
Some booty resurfaced as bigger villas, Mercedes cars, golf club memberships; some went into productive activities. Officially, the Shenzhen Special Economic Zone admitted in 1994 that 4 billion yuan left the zone in the previous four years, but the unofficial estimate is much higher. One official told a Hong Kong newspaper off the record that much of the funds had been invested in new enterprises in inland provinces.
Last year, US$12.1 billion from China went into the purchase of US Treasury bonds. The big ticket purchases by mainland Chinese of property and other overseas assets are visible, but not the smaller transactions and their holdings in overseas bank accounts.
Company shares
Thousands of state firms were turned into share companies, allowing for different extents of private or quasi-private shareholding, including by foreign capitalists. Only hundreds of them were listed on the stock exchange, but they cover some of the most strategic parts of the Chinese economy. They often have access to lucrative concessions or privileges.
There are two stock exchanges in China, in Shanghai since 1990 and Shenzhen since 1991. Two classes of shares exist. "A" shares are restricted to mainland Chinese buyers and "B" shares to foreigners, including those from Hong Kong.
But the restrictions for B shares have loosened up over the last few years; basically they can be bought by those who have access to foreign currency. But A shares remain traded only in yuan, and demand for them hugely exceeds supply. This is a measure of the funds not going into productive activities.
The Shanghai B companies include the firms operating key development zones around Shanghai, a telecommunications equipment producer, China's largest mobile phone system producer, the power plant operator in Heilongjiang province, China's largest medium output engine supplier, China's second largest tour agency, leading producers of textile machines, compressors, cement, and consumer durables such as refrigerators and washing machines.
Also listed are a key hotel chain and a taxi group in Shanghai, as well as manufacturers of a range of other consumer goods.
The stocks listed in Shenzhen are less in heavy industries and more related to property and consumer services.
Those listed in Hong Kong are the biggest and of the most strategic importance. They include the operators of expressways in Anhui, Jiangsu and Zhejiang provinces as well as Shenzhen; producers of telecom cable, ships, power equipment, iron and steel, petrochemicals, trucks and machine tools from various parts of China.
A smaller number of state firms are also listed in New York, but the most traded stocks are listed in Hong Kong and China.
In most cases, the state retains over 50% of the shareholding in these firms. But this is no measure that their production is geared to the essential needs of the economy. They produce and/or speculate for profits.
If that means taking away from workers their means of livelihood, so be it. Vacuum Electron Device, a B stock listed in Shanghai, plans to reduce its work force by 40% this year. The public purse will bear 75% of the compensation expenses.
Gone with the job in a state firm in China are usually housing and other essential welfare.
The state helps foreign investors to maximise their profits in many other ways. The profits tax payable by these listed firms is mostly, for several years, 18% less than the national norm of 33%. Some companies pay even less, or are completely exempted. Cheap loans from state banks are also available.
State firms
State firms now have little regard for social responsibilities or the welfare of their workers. They are also fast losing their weight in the economy.
In 1995, they accounted for only 34% of industrial production, down from 78% in 1978. From non-existence in 1978, foreign firms' weight increased to 2% in 1990 and 12% in 1995.
But given foreign capital's influence on listed state firms, they exert more influence than those figures suggest. In 1995, they accounted for 31% of China's exports and 48% of imports.
The share of other private or quasi-private capital in industrial production increased from 22% in 1978 to 54% in 1995.
State firms, however, still account for a bigger proportion of employment. They employed 65% of workers in 1995, foreign firms 3% and other categories together 32%.
While the pockets of the managers are filled, many state firms have delayed paying or underpaid their workers and pensioners. Some aren't paid at all. Many still manage to live in company housing, but probably not for long.
Unconfirmed reports prior to the 15th Communist Party Congress indicate Beijing's plans to expand the scope of privatisation and shed another 110 million state workers over the next few years.