Red China, Inc. Does Communism Work After All?

China is securing an ever-bigger share of the world market with the methods of a planned economy. Competitors and economists alike are astounded by the country's seemingly unstoppable march to becoming a global economic superpower. The development has left many wondering: Does communism work after all?

By and


Boom City Shanghai: President Hu Jintao and his Communist Party are experiencing explosive success across the country.
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Boom City Shanghai: President Hu Jintao and his Communist Party are experiencing explosive success across the country.

Nine men dressed in dark tailored suits meet behind high, Red walls. Their secret meeting place in downtown Beijing is called Zhongnanhai, or "Middle and Southern Lake." Once part of the Forbidden City, Zhongnanhai was a place where emperors, concubines and eunuchs would spend their days concocting court intrigues. Some of the buildings from those feudal days are still standing today, joined by functional, gray and white structures built when the Chinese Communist Party established its headquarters here.

The nine men -- who constitute the Standing Committee of the Communist Party's Politburo, the most-powerful political body in the Middle Kingdom -- meet in the southern section of this refuge. Their discreet meeting is businesslike. The group's members were not elected by the people and they are not interested in being observed while governing. Cameras are banned and there is a conspicuous absence of jovial pats on the back or ready smiles for the evening news.

None of the members of this sombre squad is known for his charisma. President Hu Jintao, 64, the head of state and Communist Party leader, and his eight colleagues are stiff technocrats. Hu, the son of a tea merchant from Jiangsu Province, holds a degree in hydroelectric engineering. The others are trained in fields like electrical engineering, metallurgy or geology.

But the discussions and decisions made here within the ranks of China's Politburo affect the well-being of 1.3 billion Chinese -- and increasingly the rest of the world. If the Middle Kingdom were not a country, but rather a giant company -- let's call it Red China, Inc. -- then the Politburo would be its all-powerful board of directors.

And if Hu were not a communist official but rather a capitalist corporate boss, he would find himself inundated with job offers worldwide. Competitors in the capitalist West can only dream of the successes he and his fellow communist leaders cum business executives have achieved.

Hardly a day goes by on which Asia's giant, Red corporation does not report new and dazzling business figures. And the more helplessly Western heads of state -- from United States President George W. Bush to German Chancellor Angela Merkel -- attempt to reform their traditional market economies, the more enviously the capitalist world eyes China's frenzied growth, all the while asking itself: Does communism work after all?

China's speedy ascent to become a global economic superpower is troubling to many: to the industrialized nations of the West because they fear for their jobs; to politicians because the global balance of power is shifting; and, last but not least, to economists because it is so puzzling to them.

Economists' theories are based on the recognition that market forces alone drive economic growth. The state's only role is to ensure that competition functions and that no one is able to abuse his power in the marketplace to an inadmissible degree.

A Midas touch

For these economists, the fall of the Iron Curtain offered glaring proof that their hypotheses were correct. Indeed, planned economies in Soviet bloc countries were failures, creating poverty instead of affluence and leaving industrial wastelands in their wake. Yet China is flourishing. With a blend of a planned economy and unbridled capitalism that you won't find mentioned in any textbook, the country is capturing world markets and achieving double-digit growth year after year.

Hu and his Red board of directors appear to have something akin to the Midas touch. With their country, which amounts to a gigantic, low-cost factory, they have already managed to accumulate more than $1 trillion in foreign currency reserves. In theory, at least, the communist People's Republic of China, has now joined the United States, the global capitalist superpower, in deciding the fate of the world's leading currency.

In 2005, China leapfrogged over France and Great Britain to become the world's fourth-largest economy. The country's new spot in the rankings came as the result of an omission on the part of its communist bosses: Already blessed with so much growth, they had simply forgotten to include a large portion of their giant service sector in China's economic statistics.

American sinologist Roderick MacFarquhar is astonished by China's performance. "Never before," says MacFarquhar, "has so much wealth been created by so many people in such a short time span."

If China continues to grow at the same pace, it will oust Germany as the world's third-biggest economy in only two years, perhaps even dethroning the United States from its leading position one day. In 2005, China was already the US's second-largest goods supplier and Japan's largest. Not satisfied with being No. 2, Beijing's strategists are continuing their plans to shower the world with inexpensive products such as T-shirts and DVD players -- and, increasingly, with Chinese high technology.

A fast-developing tech sector

China recently surpassed Germany in the number of patents it registers. With its latest five-year plan, the country's Communist Party has set itself an ambitious goal of catapulting China to world-class heights in the fields of science and technology. According to the plan, Chinese probes will orbit the moon next year and land on it by 2010. China's space ambitions also include a bizarre aural spectacle: Its lunar orbiters will transmit 150 pop songs back to earth, including a Chinese tune titled "We Love our China."

The Communist Party's economic successes aren't its only impressive achievement. Chinese cities are safer than places like São Paulo or Bogotá, and they seem cleaner and more orderly than the slums of Nairobi or Soweto in South Africa. Beijing and Shanghai boast a lively cultural scene, and broadband Internet access is already taken for granted in the country's major cities. Mobile phone reception is even available in small villages.

Communist Party leader Hu and his Politburo colleagues aren't the only ones behind the changes that have swept across this vast country. True, they are responsible for coming up with the overriding strategies behind China's economic miracle, and for this task they take the necessary time -- hours that Western politicians waste doing the rounds on talk shows. But the Politburo also routinely solicits advice and reports on the latest global trends in science and business -- on issues running the gamut from biotechnology to health insurance -- from academics in so-called "study sessions." This being a communist land, these sessions would of course be incomplete without the requisite lectures on China's revolutionary history and Marxist theory.

Graphic: The Government System of the People's Republic China
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Graphic: The Government System of the People's Republic China

The State Council, China's cabinet -- headed by the pedantic and schoolmaster-like 64-year-old Prime Minister Wen Jiabao -- deals with the day-to-day business of government. The cabinet meets at least three times a month, as required by law, in a building located a stone's throw from the offices of the Politburo. Meetings are graced with tall beauties dressed in red outfits and white gloves, who serve cabinet members green tea from the Wuyuan district in Jiangxi Province.

Red China, Inc.'s central nervous system

In addition to Wen, this inner circle of the Chinese government includes four deputy premiers, five members of the State Council (including one general) and a secretary general. Comprised of eight men and two women, the group directs and coordinates the work of 28 ministries and commissions, including the country's central bank and its central auditing authority. It also presides over an immense number of government agencies, including China's official news agency, Xinhua, the Academy of Sciences, the customs agency, the weather bureau, an agency in charge of grain production and distribution and -- not to be overlooked -- the Administration of Government Offices, which provides high-ranking officials with living quarters, cars and vacation homes.

All the elements in the network that make up Red China, Inc. come together in Wen's State Council. The body controls daily life in China with a plethora of decrees, memorandums, plans, measures and responses. In the month of September alone, it issued a decree on the "Administration of Payment of the Automobile Sales Tax," approved "Basic Regulations for the Electricity Market" and organized "Safety Inspections of Dams that include Power Plants."

A decade and a half after the collapse of the Soviet Union, a communist country appears to be relentlessly transforming itself into an economic superpower. Its recipe for success is, at first glance, the five-year-plan -- one which dismayed Western politicians have routinely dismissed for such features as its ban on private ownership of land and its manipulation of currency exchange rates.

Having your cake and eating it too

But five-year plans are only one side of the coin in China's vast realm. The other is a wildly unfettered capitalism geared solely toward naked profit. And when it comes to turning a profit, hardly anything seems sacred anymore, not even for China's communists. The Great Hall of the People in Beijing is a case in point. If the National People's Congress doesn't happen to be in session or President Hu isn't using the magnificent building -- with its more than 300 rooms and enormous paintings depicting scenes from the revolution -- to receive foreign dignitaries, the government simply rents it out. Recently, US automaker Ford used the building to unveil its latest line of car models, and fast food giant Kentucky Fried Chicken opted for the elegance of the Great Hall to hold a meeting of its more than 2,100 Chinese restaurant managers.

Ironically enough, while economists in Europe and the United States advocate "less government" and "open markets" as a response to globalization and the Chinese challenge, the Marxist-Leninist party that rules China blatantly avails itself of every advantage of capitalism while steadfastly refusing to give up state control over the economy.

Graphic: Awakening Giant
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Graphic: Awakening Giant

ICBC, a major Chinese bank, recently conducted the biggest initial public offering in financial history, floating shares worth the equivalent of $22 billion on the Hong Kong and Shanghai stock exchanges. In a win-win situation for China's communists, the bank's value rose to more than $200 billion, and yet Beijing retains control over ICBC. The country's three largest telecommunications companies are also state-owned. Two years ago, the Communist Party simply reshuffled senior executives among the three companies.

Is China, one of the most undemocratic nations on earth, setting an example for democratic countries on how to effectively solve problems? Do China's successes fly in the face of every critic and skeptic who believes that Marxism-Leninism and capitalism are as incompatible as the devil and holy water?

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