China won’t be capitalist world’s low-cost labor hub anymore, Communist Party congress declares
Socialism vs. capitalism: Chinese President Xi Jinping is seen at the end of the Communist Party of China's 20th National Congress on a giant screen in a commercial district of Hangzhou in eastern China's Zhejiang province on Sunday, Oct 23, 2022. On the other side of the street stands Gap and other brands associated with global capitalism. | Chinatopix via AP

Xi Jinping was elected to a precedent-breaking third term as general secretary of the Communist Party of China at its 20th Congress this past weekend, setting him up to lead the ruling party for the foreseeable future. For anyone getting their news from the corporate press in the West, that is probably the only thing they heard about the meeting in Beijing that ran from Oct. 16 to 22.

But leadership elections were only one aspect of this once-every-five-years event. Probably of more significance for the world were the decisions made by the 2,000 delegates dealing with the next stage of the country’s economic reform and their determination that China lead the way in building a cooperative alternative to the U.S.-dominated international system.

A worker operates a machine for knitting socks in a factory in Funan county in central China’s Anhui province, March 1, 2022. The Communist Party of China says it is now time for the country to move to the next phase of its economic reform, away from low-cost, cheap labor manufactured goods for the outside world. | Chinatopix via AP

If the CPC’s goals are fulfilled, China will cease being global capitalism’s cheap labor manufacturing hub and move toward an economy centered on higher value, domestic-focused growth.

The country’s main objective, according to the congress’s final declaration, is to achieve a breakthrough toward a “new pattern of development” premised on “promoting high-quality development; achiev[ing] greater self-reliance and strength in science and technology…and building a modernized economy.”

Supply chain industry data show the transition is already under way. Wage rates in China have increased significantly, even doubled, in the past few years. And even before COVID, a number of the low-cost export industries that once populated China’s southern free trade zones had already begun migrating to other countries as foreign capital sought higher profits elsewhere.

From 2016 to 2022, China’s global share of clothing, furniture, footwear, luggage, and handbag exports all declined. While Wall Street and the business press portray this shift as a policy failure—a case of China “losing” its “manufacturing and export dominance”—the reality is that the CPC never intended the country to permanently remain at the bottom of the world’s economy.

A turn from cheap goods and the low wages and income inequality that go along with them was always part of China’s long-term plan.

“In the past decade, China’s scientific and technological undertakings have undergone historic structural…changes,” Wang Zhigang, the country’s Minister of Science and Technology, said this past June. “We have entered the ranks of the countries of innovators.”

Statistics back up his claim. From 34th place a decade ago, China has risen to 12th place on the Global Innovation Index.

The CPC put scientific and technological development at the center of its agenda at the 18th Congress in 2012, and as the governing party, it dedicated resources to the task. In the ten years since that meeting, China’s research and development spending grew to become second-largest in the world after the United States, expanding from just over a trillion RMB ($153 billion USD) to almost 2.8 trillion RMB ($414 billion USD).

Chinese technology firms already compete with the rest of the world, especially in communications, as illustrated by the debut of 5G networks around the globe following their introduction in China. In other fields such as chemistry, materials science, and physics, China stands at the forefront, though it is still playing catch up in many more.

Most developed countries devote 13-25% of their R&D expenditure to basic research; China is at just over 6%. “We still have a big gap to close,” Liu Huifeng, a researcher at the Chinese Academy of Science and Technology, recently told the press.

In his opening report on the first day of the party congress, Xi said that inching away from export-led growth, moving into more advanced economic sectors, and reducing inequality to achieve “common prosperity” must be the hallmarks of the next phase of China’s “rejuvenation.” And pulling it off, he said, will mean sticking to the socialist road.

Higher value, domestic growth will be the goal for the next stage of economic reform. Here, employees work in a research and development lab of Beijing Applied Biological Technologies, a firm that developed COVID-19 molecular diagnostic test kits, May 14, 2020. | Mark Schiefelbein / AP

“Marxism works”

Tossing aside naysayers who dismiss the CPC’s adherence to socialism as window-dressing, congress delegates issued a statement declaring, “Our experience has taught us that…we owe the success of our party and socialism [in China]…to the fact that Marxism works.”

Only by integrating Marxism with China’s material reality and culture, and “applying dialectical and historical materialism,” can the CPC chart a plan to meet the challenges facing China, the congress said.

The effort to do precisely that is the story of contemporary China, and it starts in 1978 when party leader Deng Xiaoping initiated economic “reform and opening up.” Borrowing a page from Russian revolutionary V.I. Lenin’s “New Economic Policy” of the 1920s and combining it with China’s own conditions, the government began reforming state-owned industries, liberalizing agriculture, and wooing foreign investment with free market trade zones in order to access the capital and technology the country lacked.

It was all aimed at building up the productive forces and raising workers’ standard of living in line with the historical materialist view that socialism could only be constructed on the basis of a modern and developed economy. As Deng said, socialism was not supposed to be a society of shared poverty, but rather one of common prosperity and people moving ahead together.

Out of that experimentation came the concept of the “socialist market economy,” or “socialism with Chinese characteristics.” The CPC determined that China was only in the “primary stage of socialism,” a period that, because of the country’s underdevelopment, could last a long time.

Reform and opening up have brought undeniable progress. Over 850 million people have been lifted out of poverty, and per capita incomes today are 25 times higher than in 1978. National economic growth averaged 10% per year from 1978 to 2018 (three times the U.S. average), and by purchasing power parity, China is already the world’s biggest economy.

The country secured the capital and technical know-how it needed to lay the foundations of a modern socialist economy thanks to the reform agenda, but along with the success came problems that are endemic to capitalism: massive inequality, the emergence of class struggles between workers and bosses, and ecological degradation.

There have also been bumps on the road toward building a functioning socialist democracy: Tiananmen Square 1989, recent instability in Hong Kong, concerns about the elimination of presidential term limits, and questions about developments in the Muslim-majority region of Xinjiang.

Questions of democracy and the socialist market

Many Western commentators obsessed over Xi’s re-election this week and what they derided as his “unaccountable power,” but they largely ignored the rest of the congress proceedings.

It is indeed undeniable that Xi now stands head-and-shoulders above anyone else in the party leadership, and even those who support Chinese socialism may be wondering what became of the collective approach and the consensus around term limits that had prevailed since Deng’s days.

Mao Zedong’s disastrous Cultural Revolution of the 1960s—which saw the country descend into sectarian chaos for the better part of ten years—left previous generations of CPC members determined to never again allow any one leader the kind of power Mao had exercised. Questions about whether such centralization could be happening again don’t arise purely out of thin air.

For instance, exhortations to members to uphold “Comrade Xi Jinping’s core position on the Party Central Committee and in the Party as a whole” appear no less than five times in the final congress resolution and six times in a statement on amendments to the party constitution. Further, the general secretary’s personal ideological contribution, “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” apparently merits being declared “the Marxism of contemporary China and of the 21st century.”

Concerns about over-centralization aside, though, the most notable thing about the 20th Congress was that it demonstrated the CPC’s determination to open a new phase in the strategy of economic reform.

Echoing Deng’s maxim concerning common prosperity, Xi told delegates, “Material want is not socialism.” He said China will strive for material abundance and “well-rounded development.” Necessary for doing so, he argued, is maintaining the country’s commitment to a market form of socialism.

Ethnic minority delegates hold their ballot folders on the steps of the Great Hall of the People after the closing ceremony of the party congress. | Mark Schiefelbein / AP

“We must uphold and improve China’s basic socialist economic system,” his report said. “We must unswervingly consolidate and develop the public sector” and “encourage, support, and guide the development of the non-public sector”—including pursuing fresh legislation regarding property rights and the rights of entrepreneurs.

Xi said that the market, rather than a central plan, will continue to play the “decisive role” in resource allocation and that the reform of state-owned enterprises (SOEs) would be deepened, though details of what that means were not forthcoming. The general secretary simply said the ruling party would work to help SOEs “get stronger, do better, and grow bigger,” to aid them in becoming more competitive vis-à-vis private and foreign capital.

The CPC leader’s heavy emphasis on socialism as a required ingredient for China’s success is part of a long-running campaign he’s pushed since taking office. With a crackdown on corruption and a revival of ideological education, Xi has sought to restore the party’s legitimacy in the eyes of the public. He constantly reminds Chinese Communists of their revolutionary responsibilities.

In 2012, a National Ideology Center devoted to research in Marxism-Leninism was established on his initiative, and universities have made the teaching of Marxism a higher priority for students.

Four years ago, Xi instructed party cadres to make time for Karl Marx, not just the market. He encouraged them to again study classic works like The Communist Manifesto. And in the summer of 2021, the government initiated a large-scale regulation effort to rein in stock market speculation and reverse trends toward private monopoly in the economy, especially in the $4 trillion-dollar tech sector.

The current CPC leadership is also determined to never let the disaster that befell socialism in the Soviet Union occur in China. In a 2013 speech that was recently circulated among CPC cadre for the first time, Xi asked party members, “Why did the Soviet Union disintegrate?” He answered that the Soviet Communists’ “ideals and beliefs had been shaken.”

He expressed the conviction that “historical nihilism” was a major factor, that it had destroyed Communist morale. The repudiation of the Communist Party of the Soviet Union’s history in the Gorbachev years brought chaos and amounted to a surrender to capitalism in the ideological competition.

Xi said that to avoid that fate Chinese Communists must constantly remind themselves that “Marx and Engels’ analysis of the basic contradictions inherent to capitalism is not outdated” and that the transition to socialism is a long historical process. “We must prepare for both long-term cooperation and struggle” between the capitalist social system “and ours, along all fronts.”

China’s challenge

The struggle half of the equation won’t be long in coming.

Chinese families tour a pedestrian shopping street at Qianmen, a popular tourist spot, in Beijing, Oct. 3, 2022. | Andy Wong / AP

Internally, China still faces a number of immediate challenges: rising unemployment, rescuing a weakened property market that threatens wider economic instability, slowing population and labor force growth, and managing a strict “zero COVID” policy that continues to bring periodic lockdowns and slow the post-pandemic recovery. Externally, the war in Ukraine weighs on China in the form of global energy chaos and complicated diplomacy with other countries.

As for relations with the United States, Washington seems determined to provoke a new and long Cold War with Beijing.

Earlier this month, the Biden administration released its new National Security Strategy, which decreed that the U.S. will “outcompete China” in the next decade and block China “in the technological, economic, political, military, intelligence, and global governance domains.” The strategy document broadcast the complaints of a U.S. capitalist class long peeved that China won’t phase out socialism and open its major industries to foreign control and privatization.

The result will be a further ballooning of U.S. weapons spending, continued encirclement of China with military bases, escalation of tension around the Taiwan question, and the sowing of division between China and its neighbors—all measures to which China will have no choice but to respond.

Overseeing the transition of a developing economy of 1.3 billion people in a world where the laws of capitalism and powers hostile to socialism still hold sway isn’t an easy mission. The CPC faces the historic task of building a modern advanced economy using market methods while avoiding income polarization and keeping to a Marxist path. Other countries and parties have tried and failed, as the experience of the Soviet Union showed.

China’s ability to navigate that challenge is of great significance to Marxism and scientific socialism the world over. It’s possible that had China not achieved the gains it has in recent decades—if the CPC had fallen at the same time as the USSR and the Eastern European states—then socialism as an ideal might have been forced to wander in the darkness for a very long time. For the sake of progress everywhere, China needs to succeed in its quest to find a path toward common prosperity, socialism, and democracy.

As with all op-eds published by People’s World, this article represents the opinions of its author.


C.J. Atkins
C.J. Atkins

C.J. Atkins is the managing editor at People's World. He holds a Ph.D. in political science from York University in Toronto and has a research and teaching background in political economy and the politics and ideas of the American left.