China’s ‘Communist Capitalism’: a Monster Created by Economic Globalization

October 14, 2019 Updated: October 23, 2019

Economic globalization has cast a huge shadow across the world. After the Chinese Communist Party (CCP) joined the economic globalization, it turned the process into a tool for its global domination. 

Many Western scholars believed, wrongly, that economic globalization would lead the CCP down the road of democratization. At present, the new trade policy of the United States tries to reduce the negative effects of economic globalization on the United States and guard against the CCP’s strategic warfare.

Is There Anything Wrong With Economic Globalization?

Economic globalization has always been regarded as the highest state of human society’s progress. In the eyes of some leftists, it has even been crowned as “political correctness.” Anyone who criticizes economic globalization is acting “incorrectly.” 

Ever since the outbreak of economic and trade conflicts between China and the United States, there has been overwhelming argument in favor of economic globalization. From Western economists, to anti-Trump media in the United States, to European and Asian governments, and most companies in the business community, they’ve basically all expressed the same view and hope to return to economic globalization and void the tariffs on China. Their argument is that it negatively affects the stability of the global economy. 

The New York Times’ May 16 article titled “The Global Economy Was Improving. Then the Fighting Resumed” exemplifies this view. If so many people share the same voice, does it become a sound conclusion? On the contrary, their voices represent a misperception that has developed over the decades.

The root of this view is the wrong understanding of economic globalization’s natural defects and the trend of the CCP’s system. Furthermore, this misconception deliberately ignores the adverse consequences of the entry into economic globalization of large economic entities dominated by a centralized government, and the negative effects brought by multinational corporations’ overseas investment.

After World War II, many third-world countries became independent, and some of them, especially in Asia, embarked on a road of rapid economic development. Economic globalization was formed gradually in such a process. 

At a cultural level, the impact of Western civilization and business culture on developing countries has made a lasting impression. While in the aspect of investment and international trade, it’s the transfer of investment and technology from developed countries to countries suitable for investment, with cheap products from developing countries flooding into developed countries. Whichever developing country has hitched a ride on globalization will prosper. So, isn’t economic globalization a win-win situation for both developing and developed countries? What’s wrong, then?

So far, economic globalization has not been able to eliminate national borders. National borders mean that a country’s government should protect the welfare of its citizens rather than give priority to the needs of people outside its borders. 

On the other hand, voters in democratic governments vote for their own governments, not for a global one, and one of their main criteria for choosing a government is whether the ruling party can protect the well-being of its citizens rather than sacrificing them to achieve some of the government’s global goals. It’s here that Western economists have a blind spot. They comprehend economic globalization from the perspective of microeconomics only, and see the benefits of it from the standpoint of enterprises only, but forget to see problems from the viewpoint of national voters.

This mistake is manifested in two aspects. First, Western economists believe that in the context of free trade and free investment, enterprises will pursue maximum benefit and bring the greatest gain to the global economy. However, if it’s not only Western companies that are participating in economic globalization, but also centralized governments like China’s, how can Western companies in China that are tied up by the Chinese government outcompete it? 

Second, enterprises from developed countries can indeed reduce costs and increase profits by investing in and transferring production lines to developing countries, but the synchronous actions of many enterprises may cause a sharp decline in domestic manufacturing jobs. While these companies make money from globalization, they don’t necessarily pay taxes at home. The companies take advantage of offshore financial centers to evade taxes, while taxpayers in their home countries lose out. Since governments in the developed world don’t have enough revenue, they have to borrow more, and future taxpayers have to pay for it.

How a Centralized Super Economy Manipulates Economic Globalization

Another mistake Western economists have made is that they never took into account the possibility of economic imbalances between countries at the macro level in terms of the negative effects of economic globalization. However, the process of economic globalization so far has preliminarily demonstrated possible consequences of the manipulation of economic globalization by such centralized super-economies.

If a super-economy whose labor force accounts for 1/6 of the global joins the economic globalization, this large economy can attract investment and technology from every country, form a complete industrial chain, and then use cheap goods to squeeze the manufacturing enterprises of developed countries. It then occupies the global markets, and finally causes the global economy’s dependence on this country’s economy. 

This would be unsustainable even from a purely international trade perspective, as it would result in shrinking manufacturing and large trade deficits in many countries, ultimately making international payments difficult, at which point this super-economy would no longer be able to make money. 

On the other hand, for countries that have long relied on Chinese goods, with their own manufacturing vanished and a lack of foreign exchange for Chinese imports, there is little choice but to seek the support of the CCP and accept its political manipulation. In the long run, is this a win-win international economic and political situation, or a win-lose situation? The answer is obvious.

Furthermore, if the government controlling the super-economy is an authoritarian communist government, since such government has a strategic objective ideologically, namely, “socialism to eventually win over capitalism,” then at the executive level, this centralized government will have a global strategic target. 

It will aim at the main and the most powerful democracy in the world, trying to weaken it, hit it, and this target is without a doubt the United States. 

One of its important means to weaken and attack the United States is to use the domestic market of the super economy and the manufacturing capacity accumulated in the process of economic globalization to blackmail the U.S. The trade war is a war game in which Beijing tries to get American companies that import Chinese-made goods to lobby on its behalf, while also directly manipulating the American election system by stopping or resuming imports of American agricultural products.

Currently, both sides are facing an unprecedented international pattern. Although the United States faces all sorts of infringement from the CCP, it can’t deal with China in a similar manner as during the Cold War with the Soviet Union, because the CCP has joined the economic globalization for many years. The economy of these two has formed a mixed situation of mutual dependence. Once friction between these two upgrades, each side will suffer.

WTO Versus CCP: Who Constrains Whom?

It was an illusion of governments and World Trade Organization (WTO) officials that the CCP would consciously keep all the promises it made prior to joining. They even believed absurdly that the CCP’s entry into economic globalization will lead to its democratization. 

It now seems that rather than being effectively constrained by WTO rules, the CCP has set a precedent for successfully circumventing WTO rules. Most WTO members don’t want to take up with the CCP due to their own financial interests, and the result is that the WTO keeps making concessions to Beijing’s foul play. In this sense, the WTO has lost its ability to restrain violations, and its continued existence is therefore in doubt.

Before China came onto the global stage, economic globalization had already been in place without any major issues. This was not only because the countries participating were basically free societies, but also because they were not large economies, with neither the ambition nor the ability to challenge international rules. 

After economic globalization treated China as an important cooperative entity, things changed significantly. Economic globalization was originally the cooperation of transnational enterprises between free countries, and the WTO provided rules and guidance around such economic cooperation. What needs to be emphasized in particular is that economic globalization is not economic cooperation between governments, but cooperation between enterprises of different countries. This is important because all participants in economic globalization are free countries. Other than market economy, the so-called free countries do not directly manipulate all economic activities, nor do they use government manipulation to achieve their own global goals. 

In other words, the participation of free countries in economic globalization does not, by and large, turn economic globalization into an instrument of their governments’ global domination. As a result, WTO rules were never written with the goal of how to prevent participating countries from becoming a threat to the global economic and political order. Behind this benign vision of economic globalization lurks an old dream of global leftists: a global commonwealth.

Unfortunately, due to the naïveté of the world’s major democracies, economic globalization has set itself a bomb due to explode in the future. 

There are two aspects of the naïveté. First, it’s assumed that all countries with market-oriented economies would embrace liberal democracy. Second, it’s assumed that after the end of the Cold War, there will no longer be a realistic possibility of a major power threatening the global economic and political order. 

While it’s true that the Soviet Union of the Cold War era was a constant threat to world peace and order, the Soviet Union fully rejected market economy, and as such, members of the Soviet Bloc didn’t engage in long-term, comprehensive economic cooperation with enterprises of free countries. 

After the collapse of the Soviet Union, many naïve Westerners celebrated that the world would never again have an authoritarian power that threatens world peace and order. In their view, since China has adopted a market economy already, it will join the free world sooner or later, as the “panda huggers” in the U.S. and Europe have argued.

Their biggest mistake was failing to see before the CCP joined the WTO that it had built a unique basic institutional framework of “communist capitalism” by promoting a market economy (full privatization of state-owned enterprises and abandonment of planned economies). 

My article published in 2015 put forward the system of “communist capitalism” for the first time, but at that time, I focused on ownership, namely, how the CCP cadres became oligarchs by misappropriating formerly state-owned assets, without further digging to analyze what kind of consequences will be produced once such communist capitalism entered economic globalization. 

Now it seems that “communist capitalism” is neither a normal market economy nor a free society. Through economic globalization, it not only attracts enterprises, equipment, and purchase orders from various countries, forming the “world factory,” but also makes Western countries’ enterprises rely on China economically. 

On the other hand, under such a system, the communist regime will surely try to influence and manipulate the international economic order, to challenge the United States in order to keep and expand its power. 

Therefore, it can’t be a real partner with the United States or a fair competitor acting in accordance with international rules, but instead treats the U.S. as an imaginary enemy, strategically. By continuing to weaken the United States with nonviolent means, the CCP is also practically disintegrating WTO rules and their binding force.

Strategic Significance of Sino–US Trade Dispute

After Trump took office, he began to clean up the negative legacies of his predecessors, among which the most important item is the reset of U.S.–China relations.

After the CCP’s accession to the WTO, its global economic scale kept increasing. When China thought it had gained enough strength, it began to control global trade according to its own needs, such as taking technology from other countries and enacting policies harmful to other countries such as the United States. The WTO was helpless in the face of an unreasonable and rogue state.

On the surface, the Sino–U.S. trade dispute looks like many other trade frictions we’ve witnessed around the world, but there is one important factor frequently overlooked: out of the need to perpetuate its nationalist and ideological propaganda, the CCP is targeting both the economy and the military of the United States. 

It took advantage economically, scientifically, and technologically, and then used its resources to strengthen its military, putting pressure on the United States. 

This approach bears some resemblance to Japan’s diplomatic and trade relations with the United States before the outbreak of the Pacific theater of World War II. So it’s ill-advised for the United States to view existing problems from an economic perspective only. 

Many of the United States’ strategies deployed against China not only focus on economic relations, but also have an eye toward politics and the military. Although no one in American politics has explicitly made this point yet, the underlying consensus is becoming clearer.

Should the global economic order change? The relative positions of countries are very different. For the CCP, it’s better to stay the course, so it can continue to take advantage of other countries. Many small and medium-sized developed countries are afraid of offending the CCP, yet they also want to keep taking economic advantage of the United States, so they waver. 

The United States, which has suffered greatly, is the only country with the incentive to change the global economic order. The change of global economic order can only be done by the United States, which at the moment is a bigger economy and has more global clout than China. 

Facing a country that only takes advantage of others and doesn’t keep its promises, the WTO now can only make empty threats and wait patiently for the CCP to take the initiative to change. The CCP, on the other hand, is only willing to make changes that are not harmful to itself, and won’t give up its existing practices so easily. 

In this case, the United States, which suffers the most from globalization, can only safeguard its interests alone. In fact, no other country cares about the United States’ losses. The American interests can only be protected by the United States itself.

The new trade policy of the United States has revealed the dark side of economic globalization that has long been covered up. The weakness of the WTO in front of the “Red Terror” fully shows the miserable situation of economic globalization. It may be said that economic globalization has passed its peak and is now entering into the shadow created by itself. People will have to re-understand the future global economic pattern in order to extricate themselves.

Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. He also served as chief editor of the journal Modern China Studies. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Cheng Xiaonong
Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. He also served as chief editor of the journal Modern China Studies.