The Death of Communism in China

This article appeared in The Journal of Commerce on March 5, 1999.
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Although China will commemorate 50 years of Communist Party rule this year, communism is dead in the hearts and minds of its people.

Like their former comrades in Russia and Eastern Europe, the Chinese people prefer market riches to Marxist dogma. Now even the Communist Party leaders are conceding that private enterprise is here to stay.

At its annual meeting, scheduled to begin today, the National People’s Congress, China’s parliament, is expected to amend article 11 of the constitution and officially recognize that privately owned enterprises are an “important part of the socialist, market economy.”

The diminishing role of state‐​owned enterprises, SOEs, and the raising status of non‐​state enterprises, including private firms, are realities that the ruling elite can no longer ignore. State enterprises account for only 30% of industrial output, but their political pull has meant that they still capture the bulk of investment resources — bureaucrats directed 70% of state bank loans to SOEs last year. With the change in the constitution, private firms hope to be able to compete on a more equal basis for scarce capital.

If the people’s congress does approve the constitutional change and recognizes “multiple forms of ownership” in addition to state ownership, the Communist Party will be admitting what the common folk already know: The future of China lies with free markets and private property.

In a 1997 Gallup survey, interviews with both urban and rural residents in China found that the most commonly held attitude toward life was “Work hard and get rich” (56%), while the least popular was “Never think of yourself, give everything in service to society” (3%). Today, unlike the time of the Cultural Revolution 30 years ago, one’s own future comes first. And that future is in the vibrant market sector, not in the stagnant state sector.

Nearly a decade after the Tiananmen Square uprising, President Jiang Zemin has made “stability” the No. 1 policy to ensure no deviation from the basic party line. But his increasingly harsh crackdown on dissidents is a sign of weakness, not of strength.

The truth is, the Communist Party of China is weaker now than at any time since 1949. The economic liberalization that began in 1978 has given more power to the people, and, unintentionally, undercut the Party’s power.

People have little faith in industrial enterprises or banks run by the state. They know that, regardless of official rhetoric to the contrary, government ownership means party control. But that authoritarian approach to economic organization has been a giant failure for all to see.

The dismal condition of SOEs, the deterioration of state budgetary revenues, and the fragile condition of China’s banking sector threaten the very existence of the party. That is why China’s leaders are nervous.

The decrease in budgetary revenues from the shrinking state sector has been dramatic. Tax revenues have fallen from 35% of gross domestic product in 1978 to 11%. The economic base of the party is in freefall. And to add fuel to the fire, China’s state‐​run banks are faced with a mountain of non‐​performing loans.

China cannot solve its economic problems alone. That is why it is essential for the West, especially the United States, to continue its policy of engagement and refine its policy of engagement.

The United States should help move China in the direction of greater economic and personal freedom by normalizing trade relations, integrating China into the global trading order, and promoting exchange on a broad front. Congress should not let the bilateral trade deficit with China interfere with that strategy.

Any movement away from freer trade and toward protectionism would only delay China’s progress toward freedom and prosperity and harm the global economy. Trade sanctions should be used only in extreme cases and only when they have a high chance of success; too often they can delay real reform.

President Clinton’s decision in 1994 to delink trade and human rights and the decision of Congress in 1998 to substitute the term “normal trade relations” (NTR) for “most favored nation” were steps in the right direction. Now Congress must act to reduce uncertainty in U.S.-Chinese economic relations by ending the annual certification spectacle and making NTR unconditional and permanent. Both Hong Kong and Taiwan support such a move and would benefit from it.

Likewise, China should be admitted to the World Trade Organization as soon as possible, provided China respect the principles of a liberal trading order, including the rule of law and the principle of non‐​discrimination.

Congress should recognize that advancing economic freedom in China has had positive effects on the growth of China’s civil society and on personal freedom. Today, millions of Chinese are able to travel freely, own their own homes, choose their own clothes, show affection in public, select their course of studies, and work where they want to.

As President Clinton said in his State of the Union speech, “The more we bring China into the world, the more the world will bring change and freedom to China.”

Despite continuing human rights’ violations, the China of 1999 is not the China of the Cultural Revolution. Although the pace of progress has been slow, China is creeping along in the right direction.

The torch of liberty will burn brighter only if China continues to open to the outside world. It is in the interest of world peace and prosperity that the West not lose the opportunity to engage China and let communism die a natural death.

James A. Dorn

James A. Dorn is vice president for academic affairs at the Cato Institute and editor of China in the New Millennium: Market Reforms and Social Development.