China's Capitalists Join the Party


Aug 13, 2001

This commentary originally appeared in New York Times on August 13, 2001.

The defining event in China in the first year of the 21st century is probably not the aircraft collision near Hainan and its aftermath, or the trial and release of Chinese-American scholars, or the repression of the Falun Gong, or the award of the 2008 Olympics to Beijing. The defining event is the decision of the Chinese leadership to admit capitalists as members of the Communist Party. This decision raises the possibility of Communists co-opting capitalists -- or of capitalists co-opting the party.

At the party's 80th anniversary celebration on July 1, President Jiang Zemin declared that the party should formally accept private business owners. The point was reinforced three weeks later by Mr. Jiang's announcement that he would propose to the Central Committee in late September a change in the party's constitution to allow businessmen to join the party. To some extent, Mr. Jiang is recognizing reality: despite a 1989 ban, some owners of private businesses are already party members. But to welcome capitalists as a whole into the party is a huge step beyond the informalities of current practice. The new policy is intended to reflect Mr. Jiang's personal contribution to Communist theory, his "three representations" doctrine. This bit of esoterica requires the party to represent and promote "advanced productivity," "advanced culture" and the "fundamental interests" of China's broad masses -- including businessmen.

While Mr. Jiang's rhetoric recalls the labyrinths of medieval scholasticism, the bottom line is that clearing the way for capitalists to become party members also clears the way for a sharply different future in China.

Mr. Jiang's pronouncement is the culmination -- although perhaps not the end -- of a protracted debate within the party's leadership, one that has been accelerated by recent developments in China's economy: a rising proportion, probably more than 25 percent, of China's gross domestic product originating in the private business sector; the continuing privatization of state-owned enterprises; and the expected launching of a genuine stock market for trading private corporate equities. (China's existing stock markets in Shanghai and Shenzhen are anodyne versions of the real thing because more than 75 percent of the voting shares of stocks listed on them are owned by the government.) Establishment of the new market is likely to generate a surge of startup private companies, initial public offerings and entrepreneurs.

The debate has been protracted because there are strong, and strongly held, arguments on both sides. Those opposing Mr. Jiang's decision contend that the inclusion of capitalists would further compromise two pillars of Communist ideology: state ownership of the basic means of production (notwithstanding acknowledgment that markets must play an important role) and the doctrine of "classes" and "class struggle" (in which capitalists have figured as a class to be struggled against). So inclusion of capitalists risks further eroding what is socialist in China's "socialist market economy."

The evidently compelling argument on the other side is that excluding capitalists carries even greater risks. As one senior party theorist told me, "If these entrepreneurs are not included inside the party, they will be inclined to develop organizations and channels outside the party, and they will have ample resources to do so." If capitalists are excluded, the party will face a growing gap between itself and entrepreneurs, whose interactions with the global economy will be further enhanced by China's impending membership in the World Trade Organization.

Faced with this choice of further ideological compromise or increased estrangement from where the action is, the party has opted to accept the former risk in order to reduce the latter one.

With the gateway open to capitalists, their influence within the party will swell. The Communist Party may intend to co-opt the capitalists, which would perhaps result in still more corruption than that which already pervades the economy and society. One reason why capitalists may choose to join the 65 million party members is to secure preferential treatment in their business dealings -- access to credit, property (including state property to be privatized), licenses and contracts and generally more favorable administrative dispensations. Such possibilities may also help explain why some current party members would welcome capitalists. Party membership might well become a source of business connections.

While this result, with the party co-opting capitalists, could aggravate corruption, it might nonetheless help maintain rapid economic growth -- especially if it lowered the costs of business transactions with government. The party's political dominance would remain unimpaired and perhaps be strengthened.

An alternative result depends on the fact that capitalists, rather than being a homogeneous class, are extremely heterogeneous in China. There are vast differences in what they do and where they do it. They may be high-tech or low-tech, oriented toward external markets or domestic ones, connected or not connected to foreign capital, against the W.T.O. and market liberalization or for them, linked with the People's Liberation Army or averse to it.

Entrepreneurs typically have very different, often competitive and conflicting interests. These divergent interests could convert the party from a relatively homogeneous body to one that tolerates more pluralism. Admitting capitalists to party membership may even lead to greater political pluralism as well as a more dynamic economy. Along this road perhaps lies a stronger, but more "normal," China.

Charles Wolf Jr. is senior economic adviser and corporate fellow in international economics at the RAND Corporation and a senior research fellow at the Hoover Institution.

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