Whether a little more plan, or a little more market; this is not the fundamental difference between socialism and capitalism. The plan and the market are both economic tools.
The Party is everywhere, in all institutions, and [with] influence over all people. But the way it works is invisible, like in that American movie Fight Club. The first rule is that you don’t talk about it.
Beijing investment banker2
Since Deng spoke at the outset of the reform era of the construction of ‘real’ banks (Han 1995
), the ongoing reform of the financial sector has left it unclear to many – observers and participants alike – exactly what this role is and what it should be. Nevertheless, the CCP’s pursuit of an increasingly efficient economy whilst guarding against any political risk has been premised upon its capacity to retain control over the flow of capital and the related preservation of monetary and fiscal autonomy. In this way, the course of market-oriented economic reform, even as it has redefined the relative role of the state, has simultaneously intensified the political-economic importance of the CCP. Out of an analysis of how the financial system has been deployed by the CCP since the conception of the socialist market economy following the 1989 Tiananmen Square protests, this book sheds light on how the CCP has constructed capitalism. This is a capitalism that has
not only reshaped but itself has also adapted to the social structures of contemporary China, and in ways that now defy the traditional analytic categories of Western political economy.
I examine how this process of ‘communists constructing capitalism’ has been underpinned by historically distinctive cognitive frames concerning the relationship between financial capital and socio-political authority. These frames are a product of deeply embedded social norms and structures coalescing with the opportunities and constraints – both discursive and material – generated through China’s interaction with the global political economy. Accordingly, the financial system has continuously occupied a unique position at the centre of the broader political economy. Through analysis of the path of financial reform since the early 1990s, I trace the implications of the duality of the role that it fulfilled under the aegis of CCP control, firstly as an economically effective mechanism for financial intermediation within the real economy, and secondly as a politically effective mechanism for preserving centralized power and authority over the benefits of that financial intermediation. The institutional and regulatory reforms that took place during the 1990s and 2000s do not overshadow the continuity of this function. Indeed, as will be discussed in later chapters, those reforms were in many ways structured specifically around the need to preserve the integrity of this duality.
The development of the banking system is less a story of obstructed or stalled reform, but more one of a commitment to pressing against the limits of the growth model and engaging in a form of brinksmanship with the financial crisis in an effort to secure enough material wealth in order to ameliorate the effects of capitalist accumulation. This effort to ‘buy time’ through accumulation, and to ‘do enough’ to address social conflict and preserve social stability, is what distinguishes the modern epoch of capitalist accumulation from either a traditional conception of free market laissez-faire capitalism or of the true ideal of the developmental state. This was the guiding principle that has accompanied reform since the early 1990s, and it can still be witnessed today as the
CCP continues to actively engineer the process of development in a way that ameliorates the worst excesses of capitalist growth. More broadly, it serves ultimately as a demonstration of just how antithetical capitalism is to democracy. The role of the CCP in constructing an authoritarian capitalist society illuminates not just how the development of capitalism has affected China, but how China affects our conceptions of capitalism.
These arguments engage two long-standing conceptual fractures in contemporary political economy. The first concerns the relationship between the domestic (or the local) and its relationship to the international (or the global), the second that between the political logics of the state and the economic logics of the market. How the political problem is resolved in China via the economic, and moreover how the economic solution is in turn underpinned by the political, is one of the most central and intriguing aspects of China’s path to reform and opening.3
This process is in turn connected intimately to the evolution of the global political economy, as capitalist development has come to form the central objective of reform-era Chinese society. Recognizing the extent of the interpenetration of the political and the economic transforms the question of how China ‘became’ capitalist. Rather than one of the waxing and waning of state economic power and the political agency of private economic actors as China embarked on a new era of development, it becomes one of how structurally entrenched imperatives – both domestic and international – are constraining certain individuals, networks, and institutions whilst generating political resources for others, within an increasingly interdependent global system.
The book therefore addresses these fractures between the universal and the local, and the political and the economic, by approaching the ‘China question’ from an alternative perspective – one that de-emphasizes the state versus market dichotomy and instead focuses on the socio-economic foundations of power and authority that manifest through the financial system. At the core of a global political economy that has given rise to these analytical fractures reside multiple systems for mediating the flow of capital
and resources necessary for modern economic activity and production. Finance – and more specifically financial capital – penetrates the political realm as well as the economic, whilst also forming a critical set of linkages between the domestic and the international within the global political economy. This leads to the question of finance and its duality of purpose – as a system of financial intermediation as well as political control. It further points towards how the role of China’s financial system is crucial in China’s emergence into the global political economy as breaking down barriers between not only the political and the economic, but also between the local and the universal. This book speaks not only to the study of China’s political economy and the theoretical and conceptual debates that surround this endeavour, but also to more fundamental questions concerning how the universal coalesces with the local at the point of what remains fundamentally but not exclusively the international.
In this manner the book seeks to answer Kellee Tsai’s call for scholarship to better ‘show what China can do for political science, both empirically and analytically’ (Tsai 2013
, 860). It does so in three related ways. First, it provides an insight into the nature of China’s socialist market economy, probing China’s development as a resiliently non-liberalized political
economy that underpinned stable, rapid, and yet unsustainable economic growth. This is an empirical paradox that has not yet been adequately addressed, and I place the role of the CCP at the heart of this examination. The role of the financial system in China’s development has, as for all other financial systems in the world, been underpinned by a set of ideas and institutions that enable socio-political uncertainty to be evaluated, financial risk to be managed, and economic activity to be undertaken. The book shows how this process in China has revolved, not around an equilibrium reached between state regulation and market freedom, but around the role of the CCP as the primary source of confidence and faith in financial stability and economic growth.
This gives rise to the book’s second objective, which is to explore how such a perspective overcomes some of the limitations
of studying the political economy of financial capitalism that arise through a focus upon the distinct institutional categories of the state and the market. The role of the CCP as conceptualized in this book illustrates the difficulties of relying upon these categories to understand the intersection of universal logics of economic development and the particular social institutions through which these logics manifest. The study represents an attempt to overcome these conceptual limitations and provide a means of grappling with the empirical problem of explaining paradoxical trends in China’s politico-economic development at the same time as generating insight into what China’s post-1989 financial development can tell us about the nature of contemporary political economy as contemporary capitalist
The third objective of the book is accordingly to place these investigations in the context of the long-run evolution of the global political economy and to destabilize conceptions of China as ‘just another actor’ that is still comprehensible on the basis of concepts and theories of socio-economic action rooted in ‘Western political economy’. China’s experience of financial reform and economic growth demonstrates the significant scope for reconfiguring understandings of how financial systems affect the course of socio-economic development within contemporary global capitalism. The distinctiveness of the interaction between political authority and financial capital in China has the potential to profoundly disrupt the presumed resilience of the global liberal order, even as capitalism itself as a mode of social organization comes to be increasingly entrenched within this global order.
An ongoing puzzle: the socialist market economy
Xi Jinping’s remarkable political ascent, reaching its peak at the Nineteenth Party Congress in late 2017, has starkly highlighted the twin faces of China’s evolving capitalism: a resiliently illiberal authoritarian political system in conjunction with increasingly market-oriented economic reform and restructuring. He has emerged as not only the most powerful Chinese leader in decades, but also
the most committed ideologically to the intertwining of the CCP’s fate with that of the Chinese nation. In addition to contributing his eponymous philosophy to the CCP’s constitutional canon and embarking on a historic campaign of both Party-cleansing and Party-building, he rapidly consolidated his dominance over the policymaking institutions of Party, state, and military with his creation at the 2013 third plenum of two new central leading groups – one for State Security [国家安全领导小组], another for Comprehensively Deepening Reform [全面深化改革领 导小组]. Through his leadership of these two crucial bodies, he therefore obtained ‘omnipotent power’ (Zheng and Gore 2015
), which he has wielded across all areas of society, media, and the Party itself. Amongst a plethora of others, these groups at the apex of the Party’s policymaking apparatus symbolize the concurrent enmeshment of political and economic issues under Xi’s sole authority. The separation of politics and economics, at most a tenuous conceptual fiction in the most liberal or laissez-faire of societies, is now thoroughly non-existent in Xi’s China.
Although heated debates continue around the nature of China’s ‘intra-party democracy’ [党内民主主义] (Bell 2015
), the overall trend towards a deepening of centralized authoritarian control under the CCP is clear to see. There is considerable evidence of the institutionalized underpinnings of the CCP’s resilience (see Gore 2014
; Zeng 2014
; cf. Li 2012
; Fewsmith and Nathan 2018
), and Xi Jinping’s efforts to further consolidate personalized political power should be viewed in terms of continuity of a long-standing trend, rather than a rupture with it. At the same time as clamping down on political expression and other civil liberties, Xi Jinping entered office committed to economic reform, vocally exclaiming ‘market decisiveness’ [市场的决定性] as a core element of China’s future economic trajectory (Naughton 2014
). On top of this is the drive towards ‘national rejuvenation’ [国家复兴] and the aspirational sloganeering surrounding the realization of the ‘Chinese Dream’ [中国梦]. Even though the ideological thicket of the political discourse emanating from Beijing can often seem as if it is deliberately intended to obfuscate as much as clarify, the
common thread remains the leadership and unquestioned authority of the CCP.
The dilemma of Chinese governance to which the CCP is responding in such fashion was posed by Wang Huning (1988
, 1) in his early writings on centre–local relations:
If power is not transferred to the lower level it will be impossible to invigorate the economy and move it toward modernization; but the transfer of power to the lower level brings with it extremely great difficulties to the regulation and control by the political system.
As I argue in this book, any system of Chinese governance inevitably has roots in the historical development of Chinese society and is deeply embedded in Chinese cultural norms and attitudes towards financial capital itself. Although the CCP has marshalled increasing and enhanced authority over the institutions of state and market, it is by no means a recent development, and the Party’s current organizational and ideological reinvigoration under Xi Jinping can be seen as the latest incarnation of the attempt to grapple with a long-standing dilemma of Chinese governance.
These intertwined paths of political and economic change are embodied in the evolving concept of the ‘socialist market economy’ [社会主义市场经济], and particularly in the nature of the financial capital at its heart. Much scholarly and popular discourse tends not to provide very good answers to the question of how and why the financial underpinnings of this system operate as they do. Although recent work has explored these deeper ideational underpinnings of economic reform in the state-owned sector and strategic industries (Eaton 2016
), there is a peculiar lack of similarly rigorous analysis that homes in on the role of the financial sector in supporting this process. Both in China and throughout Western commentary, the dynamics of financial reform and of restructuring the state-owned industrial and manufacturing sectors are often perceived in terms of the challenge of identifying and realizing rational developmental principles. According to this view, political power struggles between ‘conservatives’ and
‘reformers’ in Beijing are relevant insofar as they may threaten to derail or delay these efforts, but do not determine what is considered to be the most rational developmental policy (Lardy 1998
; Huang 2008
; Shih 2008