A Brief History Of Neoliberalism

In Chapter 5, Harvey describes the reformation of the Chinese economy under the leadership of Deng Xiaoping following the death of Communist Party Chairman Mao in 1976. Harvey identifies how China implemented some neoliberal reforms while maintaining some of its historically Communist features. Deng sought to increase economic growth by implementing free market aspects. He implemented market pricing (rather than having the state set prices) and devolved power from a central authority down to local and regional government authorities. China also opened up to foreign trade and foreign direct investment. It also began to invest in foreign currencies. Its transformation was facilitated by the overall neoliberal international market taking shape in the 1980s.

In the section entitled “Internal Transformations,” Harvey describes the domestic policies China undertook to reform its economy. These reforms took place incrementally, in contrast with the “shock therapy” quick market reforms that were implemented elsewhere, such as in Russia after the fall of the Soviet Union. Rather than to create an economic elite class, China chose to make these reforms in order to improve its competitiveness on the world stage. The reliance on foreign direct investment, limits on financial markets, and state ownership of industries also reduces the possibility for capitalists to form a class. The opening of the economy was not, however, paired with greater social and political freedom, as demonstrated by the murder of student protesters in Tiananmen Square. Despite limits, market growth sometimes went uncontrolled by the Communist Party.

In 1978, most of China’s economy was controlled by relatively profitable state-owned enterprises (SOEs). Agricultural was run on a commune system and was not very productive. The economy was largely centrally planned. Under reforms, agricultural communes were dissolved, and township and village enterprises (TVEs) were formed instead. State-owned banks lent money to support development of SOEs, TVEs, and private companies. Initially, rural workers made more money under this system but after 1984, there was substantial inequality between rural and urban areas. As a result, rural workers moved to cities (where they were not permitted to live) and formed a massive labor pool that was easily exploited. The decline of rural areas is an enormous challenge for the Chinese economy. However, TVEs were a source of major innovation in the Chinese economy. In the 1980s, SOEs were also a powerful engine for economic growth, but they changed from a protected worker system to a flexible labor one, resulting in less job security and fewer protections. Later in the decade, SOEs began to falter and had to be bailed out by state-owned banks. In the 1990s, many SOEs were gradually privatized, and in the early 2000s, they were opened to foreign ownership.

Foreign direct investment was initially only permitted in southern coastal economic zones. By 1995, after the failure of many foreign companies in these areas, FDI was permitted throughout the country. In 1997-8, many TVEs and some SOEs went bankrupt, resulting in a wave of unemployment. China absorbed this excess labor through massive spending on state-financed infrastructure projects such as roads and urban development. As a result, real estate development is a site of massive state-backed spending and speculation, resulting in the state being investing property bubbles that subsequently require bailouts.

China has pursued investment in education and science to make their economy a site of research and development. Since the 1990s, many international companies have done R&D in China, including IBM and General Motors, as well as Japanese, Korean, and Indian tech companies. The communications equipment company Huawei, which sells products internationally, is an example of their success in the tech sector.

In the section entitled “External Relations,” Harvey describes China’s international economic policies. Since 1978, an increasing amount of China’s GDP has come through foreign trade. In 1987, following an experiment in the Guangdong region, the Chinese government decided to pursue export-led growth. After 1992, Deng decided to open up further to foreign trade and FDI. In the mid-1990s, China was particularly reliant on Hong Kong for FDI, which primarily invested in TVEs for labor while providing “the machinery, the inputs, and the marketing” (136). Later, FDI became more diversified. By the 1990s, foreign capital was also interested in investing in China’s growing consumer market. Unlike Japan or South Korea, China is dependent on FDI and there is limited inter-regional trade. In the 1980s and 1990s, China was attractive to foreign producers because of its low wages and resulting low need for capital investment. In the 1990s it also had growth in the tech sector, attracting highly skilled workers from other countries. While China used to be self-sufficient in production, economic growth has made it more dependent on importing raw materials and energy from around the world. China uses its large economy to impose its influence on other economies, such as in the case of Argentina’s textile and leather industries, which declined due to cheap Chinese imports. Due to its size, when the Chinese economy experiences slow growth, as in 2004, this has a negative impact on markets internationally. Chinese companies are increasingly integrated into the world economy, such as Chinese television sets being assembled in North Carolina.

While most of these changes are in line with neoliberal policies, China is reliant on Keynesian policies of state-led investment in infrastructure and other fixed capital (non-liquid assets like equipment, plants, etc.). This could lead to excess development and makes it hard for China to limit the amount of Chinese yuan entering the global economy, which could destabilize their currency controls. In order to ensure the state-run banks do not default despite the amount of non-performing debt they have, they have to massively export to the United States, which as of 2004 was taking on massive amounts of debt. Harvey questions whether this dynamic is sustainable.

In the section “Towards a Reconstitution of Class Power?,” Harvey discusses the growth of inequality and the formation of an elite capital class in China. In addition to large disparities between the urban rich and the rural poor, greater flexibility in the labor market has been created by reducing the welfare state and funding to state-supported services such as schools. In this way, China is a traditional neoliberal state with “a large, easily exploited, and relatively powerless labour force” (144). Wealth accumulation in China is complex but is largely driven by corruption, privatization of formerly state-owned companies, and state-backed bailouts of failing companies. Large tech firms that work internationally, such as Lenovo, are also generators of wealth. Real estate development, particularly the privatization of rural commune land from underprivileged individuals and urban real estate speculation, has been a method for a small minority to extract wealth and indulge in conspicuous consumption. Wage theft (non-payment of labor wages) is also rampant in the Chinese economy. This has resulted in protests and strikes that are violently put down by the police.

While China is nominally Communist, the Chinese Communist Party has pursued many neoliberal economic reforms, albeit paired with nationalism that echoes the American neoconservative movement.