Thursday, February 15, 2024

China’s Stock Market: A Lesson on What Socialism Is Not

By Charles Andrews*

Late in January, the Chinese government arranged for its state-owned companies to put as much as $282 billion into the falling stock market. The companies were told to buy via Hong Kong accounts.

The government is desperate to halt a big slide in the Shanghai Composite Index, which had fallen nearly to its March 2020 low point at the start of the COVID pandemic.

Why does a “socialist” economy have a stock market?

Since Deng Xiaoping and crew yanked China off the communist path and onto a capitalist trajectory, the factories, construction sites, and other means of production have become private property. China says its socialist market economy has two parts, a private sector and a state sector. However, nearly all the means of production are the property of corporations. Ownership resides in shares of stock. This is the setup for state-owned corporations as well as private ones. A government holding company typically owns most of the stock of a state-owned firm, but all the big ones have put five to fifteen percent of their shares on stock exchanges in Shanghai and Hong Kong.

It cannot be otherwise in a capitalist economy. The means of production, physical things, are owned by one or another person or group of persons. This is a social claim that persons are free to trade for some other claim. The division of ownership into shares, and the ability to transfer and exchange shares, are necessities in a capitalist economy.

There has been a lot of talk about financialization and its growth over the last thirty years. However, financial reflections and distortions of reality have been around as long as there has been significant capitalist ownership. A “tulip mania” occurred in Holland from 1634 to 1637. People bought and sold contracts to buy a tulip on margin (partial payment, owing the balance upon the agreed delivery date of the bulb). The price of tulips went to fantastic heights, then crashed to nothing.

People buy shares of stock to make money. Corporations pay dividends out of their profit. As the profits of a corporation grow, the price of its shares tends to increase; shareholders gain on their “investment.”

Underneath this scramble is the labor of the working class. Workers operate the means of production and repair their breakdowns—producing the food, clothing, housing, schools, health care, and new means of production that are the real wealth of a society. Capitalist property, including shares of corporate stock, is a lock on this wealth.

When invested capital grows faster than profit, the “value” of the capital shrinks. In stock market terms, share prices go down. For many years in China, it was the opposite: the working class was so thoroughly exploited, and the number of workers was so enlarged by peasants forced into migrant wage labor, that profits grew and grew.

Capitalist booms inevitably collapse, as Marx explained by the tendency of the rate of profit to fall. The Chinese economy is not doing well today.

  • A big real estate bubble has burst. “By some estimates, Chinese cities now have 65 million to 80 million empty apartments.” Some are developers’ unsold inventory. In addition, people bought and expected to flip one, two, and even dozens of empty condos on speculation; rents are too low to bother being a landlord.
  • Foreign corporations have piled into the country since the early 1990s, eager to share in the exploitation of low-wage labor; but Chinese capital has mounted a challenge, and the government has made life more difficult for foreign businesses. The influx of global capital has slowed; companies move production to Vietnam, India, and Mexico; and profits garnered in China are taken out of the country instead of reinvested there.
  • The labor force is shrinking. Fewer new workers arrive from the countryside. Working-class families in the cities find it impossibly burdensome to raise and educate children. Retirements outnumber the entry of new youth into the labor market.

The rise of share prices has turned into a fall, and it is not clear where it might stop. The government responds with a campaign to push the stock market back up.

The self-styled “Communist” regime has not been candid about why the Shanghai Composite Index of share prices matters so much. One motive might be to attract foreign investment (on PRC terms) at a time when the economy is in a slump.

Some 212 million retail investors own stock. Although their total holdings are small in the economy, severe price falls are painful to many of them.

Another reason might be the government’s new retirement system. The Chinese equivalent of U.S. Social Security is not sufficient to live on. Consequently, workers must try to save enough for their retirement. This gave employees with higher salaries a motive for speculating in real estate, a game that is now over. Instead of figuring out how to guarantee adequate social security, the government has begun to push people into “investing” in mutual funds of stocks and bonds—very much like 401(k) and other retirement savings accounts in the U.S. In Dec. 2022 China even granted Fidelity Investments, the gargantuan brokerage and mutual fund operator, regulatory approval to sell mutual funds in China.

Whatever the motives, the government spends billions purchasing stocks in an attempt to get share prices up. The sight is ridiculous. For all the admiring Western publicists who chatter about the state holding the commanding heights of the economy, about the political power of the “Communist” Party over private capitalists, a “socialist market economy” can no more have controlled capitalism than a woman can become a little bit pregnant.

The alternative is socialism which takes the road to communism. There is no capitalist property in the means of production. There are no capitalists, no stock shares, and no share prices. An overall plan allocates all investments. In the 1930s the Soviet Union proved that a planned economy works. Since then, studies of its triumphs, but also its problems, have shown how to combine essential planning with initiative in each firm. (No Rich, No Poor, ch. 4)

To the capitalists of the United States and the “Communist” capitalists of China, we say: we can run it better—for our needs and for the earth!

Note: We invite workers who want to know how a capitalist economy operates and what a real socialist economy is to contact the Communist Workers’ Platform USA.

* Charles Andrews is the author of The Hollow Colossus.