China’s rise and the United States’ response: implications for the global order and New Zealand/Aotearoa. Part I: Using uneven and combined development theory to explain China’s rise

ABSTRACT

Part One of this article provides a novel condensed Marxist account of China’s rapid economic growth which underpins its rising geopolitical and military power. In the vast literature on China’s rise, pro-market reforms and/or state policy-making and interventionism are emphasised as causes, depending on whether a neoliberal or neomercantilist perspective is adopted. Although these accounts contain important elements of truth, Marxist economic theory and the theory of uneven and combined development emphasise the central role played by China’s comparatively high rates of exploitation and profitability in fuelling rapid economic growth. This Marxist perspective informs a critical analysis of China’s hybrid neoliberal policy regime, regionally decentralised system of government, huge trade surpluses and foreign currency reserves, inflows of foreign direct investment, state investment in infrastructure, rising socio-economic inequality, poor social provision especially of public health care, popular support for and potential sources of opposition to the CCP regime, and military modernisation.

KEYWORDS:

• China’s rise
• uneven and combined development theory
• Marxism
• neoliberalism
• international political economy

Introduction

The collapse of the Soviet Union gave rise to a period of unrivalled global supremacy of the United States (US) from 1990 to 2008. The moment of US unipolar supremacy was transitory, however, coming to an end with the economic decline of the US relative to China, a process that accelerated in the wake of the Global Financial Crisis (GFC). Attracted by comparatively low wages and the absence of free trade unions, foreign direct investment streamed into China in huge volumes. Trade barriers were reduced, culminating in China’s admission to membership of the WTO in 2002, and China benefitted from massive trade surpluses (Ziliang and Yongnian 2008, pp. 128–132; Glenn 2016). High levels of foreign and domestic private sector investment combined with heavy state investment in infrastructure have generated an extraordinarily high rate of economic growth over several decades. This has enabled China’s central government to expand and modernise its military. Hence China’s remarkable economic transformation propelled its rise to become the world’s second most powerful nation-state by the early-2020s.

The US responded to China’s rise with Obama’s ‘pivot towards Asia’ and so-called ‘strategic rebalancing’, redeploying military forces from Iraq and Afghanistan while committing 60 percent of its naval forces to the Asia Pacific region ‘to prevent the rise of a hegemon that could constrain the United States’ political, economic, and security interests in the Pacific’ (De Castro 2018, p. 191; see also Smith 2013, p. 25; Scappatura 2014, p. 1). The Trump Administration maintained this approach militarily while launching a trade war in 2018 – introducing a broad range of tariffs on Chinese imports (Steff and Tidwell 2020, pp. 402–405). So far, the Biden Administration has maintained Obama’s pivot and Trump’s tariffs while developing a comprehensive economic, military, and diplomatic strategy to counter China’s rise and reassert US hegemony (Steff 2021, pp. 14–15; Callinicos 2023, p. 91). Changes in the global political economy and international relations are likely to be propelled, to an increasing extent, by the intensifying geopolitical, economic, and military competition between China and the US which is generating escalating tensions (Tellis 2020; Callinicos 2023, pp. 86–105). This has interesting and important implications for the configuration of the global order and Aotearoa / New Zealand (NZ) given the configuration of its trade, security, diplomatic, and military relations.

The article is divided into two parts. Part One begins with a snapshot overview of the wider intellectual context of the paper, then provides an outline of the Marxist theory of uneven and combined development to provide the conceptual tools necessary to explain China’s rise. The unique qualities of this approach are highlighted via a brief consideration of mainstream explanations of China’s rapid growth provided by neoclassical economics and neomercantilism. Marxian economic theory and UCD theory are used to analyse China’s remarkable economic growth, societal changes, and military modernisation in the next section. Part Two of the article contains sections which consider the US response, the resulting reconfiguration of the global order, and the implications of this reconfiguration for New Zealand’s foreign policy stances towards China and the US.

Navigating a vast literature with a broad array of theoretical perspectives

The emergence of a multi-polar global order due to China’s rise has generated a vast scholarly literature seeking to make sense of the major changes involved. A broad range of theoretical perspectives have been deployed including: neoliberal/neoclassical economic theory by international economic agencies such as the IMF, OECD, and World Bank; realism, idealism, and constructivism within international relations (IR) (Burchell et al. 2005; Schieder and Spindler 2014; Anderson 2017; Weber 2020); and neomercantilism, American-style, British school, post-Keynesian, neo-Gramscian and Marxian approaches within International Political Economy (Cohen 2022, pp. 27–54).

Within Marxism, different schools of thought in the Marxist literature on imperialism, international relations, and the global political economy, such as uneven and combined development (UCD) theory, dependency theory, world-systems theory, and contemporary classical Marxism, have generated differing considerations of China’s rise and the US response, even though common themes and arguments can often be found (Callinicos 2009; Leoni 2021, pp. 7–48; Wigger 2021). The theoretical perspective underpinning the analysis in this article distinctively combines, among other things, orthodox Marxian economics with its emphasis on the contemporary relevance of Marx’s theory of surplus value and the central role played by the rate of profit in generating economic growth and crises (Harman 2010; McNally 2011, 2020, pp. 210–239; Mosely 1991, 2011; Roberts 2016; Shaikh 2016), an understanding of imperialism and international relations influenced by Callinicos (2009), Harman (2003), Harvey (2003), and Woods (2003), UCD theory (Callinicos and Rosenberg 2008), Marxist analyses of neoliberalism (Harvey 2005; Roper 2005; Callinicos 2010; Cahill 2014) and a neo-Trotskyist critical analysis of the Stalinist degeneration of the Russian Revolution and the ostensibly ‘communist’ and ‘socialist’ authoritarian regimes that emerged in its wake (Cliff 1988; Harman 1988; Callinicos 1990; Haynes 2002; Arnove et al. 2017; for less critical interpretations see Jacques 2009; Woodward 2017).

From this perspective, China was never socialist in the Marxian sense of a society governed democratically by workers and peasants, at the centre of which is democratic control of the means of production by the associated producers, but rather is a form of state capitalism (Hore 1991). China and the US are both imperialist powers pursuing their economic, geopolitical, security, and military interests on the global stage (Callinicos 2023). Both should be subject to fundamental and rigorous criticism and the political orientation associated with this view is succinctly conveyed by the slogan: neither Washington nor Beijing but international socialism. This kind of anti-Stalinist Marxist perspective has thus far been entirely absent from the literature discussing the implications of China’s rise and escalating tensions between China and the US for New Zealand foreign policy, the bulk of which is anti-China and pro-US.

The Marxist theory of uneven and combined development

One of the most distinctive features of Marxism as an approach to investigating international relations is that it views the behaviour of a nation-state in the international order as being determined by factors below, within, and above. Explaining why a nation-state adopts a particular approach in its foreign policy-making thus requires a consideration of the influence of domestic economic and socio-political pressures (from below), the policy-making roles played by state actors within the state apparatus (within), the sources of power and autonomy of the nation-state in question, and the influence on the nation-state under investigation being exerted by other nation-states and supranational agencies, international law, international capital flows, and the global media (from above). For the purposes of this article, the conceptual focus is mainly on UCD theory because this theory, supplemented by Marxian economics, enables a sound and illuminating explanation of the rise of China and the relative decline of US global hegemony (Leoni 2021, pp. 94–102).

Foundational to UCD theory, is a recognition that capitalism has a historically unprecedented capacity for economic growth and geographical expansion, as well as ‘space-time compression’ (Harvey 2000, p. 60), because the drive to maximise profits in conditions of market competition propels capitalists continually to invest in technological innovation and the mechanisation of as many forms of production, distribution, and exchange as possible. It is this, above all else, that has enabled capitalism to colonise the globe. Because capitalism operates with an impulsion ‘to eliminate all spatial barriers, to “annihilate space through time” as Marx puts it’,

capitalism thereby produces a geographical landscape (of space relations, of territorial organization, and of systems of places linked in a ‘global’ division of labour …) appropriate to its own dynamic of accumulation at a particular moment of its history, only to have to destroy and rebuild that geographical landscape to accommodate accumulation at a later date. (Harvey 2000, p. 59)

The drive to expand the geographical scope of capital accumulation is therefore at the heart of all forms of specifically capitalist imperialism but the precise nature of this drive varies and pertains to, and helps to define, each distinctive phase of capitalist imperialism and international relations.

While it is important to recognise the economic and geographical expansiveness of capitalism, the unevenness of capitalist development is also crucially important. At an empirical level, this is obvious given the existence, among other things, of huge socio-economic, military, and geopolitical disparities between countries. The theory of uneven and combined development (UCD) seeks to explain the existence of such disparities, but also how and why they change overtime. It recognises that societies and nation-states

develop at an uneven pace, so that in certain cases those which start with a lead over others can increase that lead, while in other cases … those left behind can catch up and overtake those which enjoyed an initial advantage. (Mandel 1991, p. 559)

The challenge is to identify, ‘in each specific case, the driving force(s) determining these differences in pace of development’ (Mandel 1991, p. 559). As this suggests uneven development has both spatial and temporal dimensions. So, while capitalism undeniably has greatly increased the pace of change in human history, UCD theory explains why the prevalence of continuities and discontinuities, and the pace of change, varies across different areas of capitalist societies, regions, and the global order.

The intellectual foundations of UCD are based on Marx’s Capital, Volume 3, Lenin’s Imperialism: The Highest Stage of Capitalism, and Trotsky’s (1969) Results and Prospects and History of the Russian Revolution (Ch.1, Vol.1). There has been a substantial upsurge of scholarly interest in UCD since 1996, generating a rapidly expanding body of literature that has greatly increased the sophistication of the theory (Rosenberg 2021). Limitations of space prevent a full review of this literature here. Instead, I will briefly sketch the answers that UCD provides to several important questions. The point of addressing these questions is that the answers provide the theoretical resources required to explain the rise of China and the relative decline of the United States.

What central aspects of the capitalist mode of production are potential causes of the unevenness of economic development on a global scale? All of them. As Mandel (1975) observes, ‘a crucial element … in the whole process of growth based on the uneven development of countries, regions and branches of industry is the mechanism that sets it in motion’ (p. 107). Because the main weight of ‘ramified uneven and combined development takes different forms in different epochs’, the identification of the underlying causal mechanism in each epoch requires an investigation of ‘all the basic variables of this mode of production’ (Mandel 1975, p. 103).

Capitalism is a system of profit maximisation. Centrally, it is propelled forward by the profit seeking behaviour of capitalists. The drive for profits motivates investment which generates simultaneously growth and uneven development. In Volume Three of Capital, especially in Part III which outlines ‘the law of the tendency of the rate of profit to fall’ and its ‘counter-acting influences’, Marx (1967, pp. 211–266) presents the conceptual categories and key value ratios that have subsequently become central to Marxist accounts of capitalist growth, uneven development, and crises. The general average rate of profit is ultimately co-determined by two key value ratios – the organic composition of capital which is the ratio of constant capital (fixed capital such as plant and machinery plus circulating constant capital such as energy and raw materials) to variable capital (labour power) and the rate of surplus value which is the ratio of surplus value (profit) to variable capital. But the counter-acting influences are equally important when it comes to explaining real world phenomena such as booms, slumps, and uneven development (Carchedi and Roberts 2023, pp. 92–102). These include: ‘increasing the intensity of exploitation’, driving down wages, ‘cheapening elements of constant capital’, ‘the cheapness and abundance of disposable or unemployed wage-labourers’, foreign trade, reducing the turnover time of capital through improvements to communications, transportation, and speeding up production and consumption (Marx 1967, pp. 70–76).

Please note that within Marxian economics the manner in which these conceptual categories and key value ratios are operationalised empirically in order to identify long-term trends raises complex issues which have to be largely glossed over in this article (Shaikh and Tonak 1994; Roberts 2016, pp. 273–276; Shaikh 2016). Also, whereas there are important empirical studies of the US economy that trace long running trend lines for the organic composition of capital, rate of surplus value, and rate of profit, there is currently no equivalent Marxist empirical study of China’s economy (Li 2016 is an idiosyncratic and problematic attempt to estimate Marxian value ratios). This means that there is a fair amount of guess work involved in my interpretation and suggests the need for further research.

The processes that combine to determine the average rate of profit generate uneven development precisely because investment is not permanently fixed but instead flows into and out of industries, regions, and countries in pursuit of a higher rate and/or mass of profit. For this reason, Lenin (1977, p. 241) considers ‘the uneven and spasmodic development of individual enterprises, individual branches of industry and individual countries is inevitable under the capitalist system’.

How do Trotsky’s concepts of the ‘whip of external necessity’ and ‘privilege of historical backwardness’ explain the capacity of countries to ‘catch up and overtake’ their more advanced rivals? As Rosenberg points out, Trotsky developed his conception of UCD to explain ‘against the majority Marxist view at the time – how and why the revolutionary overthrow of capitalism might begin in a “backward” society like Russia, rather than in the Western countries where capitalism was most “advanced”’ (Rosenberg 2021, p. 147). Trotsky recognised that capitalism ‘was taking hold in different countries at different points in time, and this spatio-temporal unevenness had generated a range of specifically international pressures and opportunities’ (Rosenberg 2021, p. 147). In the decades leading up to the Russia Revolution the absolutist Tsarist state presided over a still semi-feudal agrarian society, but to survive in competition with rival industrialising great powers such as Japan, Germany, France, United Kingdom (UK) and the US, it had to promote capitalist industrialisation. The more general point is that subject to the ‘whip of external necessity’, that is, intense geopolitical, military, and economic competition, absolutist states presiding over societies where feudal arrangements prevailed in agriculture, were forced to develop capitalism.

This didn’t mean, however, that these relatively backward countries had to progress through the same stages of development as older capitalist countries such as the UK. Potentially, they could take advantage of the ‘privilege of backwardness’, that is, they could adopt the most scientifically and technologically advanced industrial processes, production techniques, organisation of labour, and so forth, unencumbered by a large stock of aging fixed capital. In this regard, Trotsky observes ‘The European colonists in America did not begin history all over again from the beginning. The fact that Germany and the US have now economically outstripped England was made possible by the very backwardness of their capitalist development’ (Trotsky 2007, p. 27). Hence uneven development involves ‘ongoing rivalry between the great powers’ in which they constantly try ‘to “catch up and overtake” each other in a contest for supremacy that would continue as long as capitalism itself’ (Davidson 2015, p. 164). We will discuss this in more depth shortly, but first, it is necessary to define ‘combined development’.

What is combined development and why is it important? As Trotsky (2007, p. 27) observes,

The laws of history have nothing in common with a pedantic schematism. Unevenness, the most general law of the historic process, reveals itself most sharply and complexly in the destiny of the backward countries. Under the whip of external necessity their backward culture is compelled to make leaps. From the universal law of unevenness thus derives another law which, for the lack of a better name, we may call the law of combined development – by which we mean a drawing together of the different stages of the journey, a combining of the separate steps, an amalgam of archaic with more contemporary forms.

Although Trotsky was thinking of Russia, where by 1917 comparatively advanced large-scale industrial plants in the major cities coexisted with the persistence of feudalism and centuries-old techniques in agriculture, there are other more contemporary examples such as India’s advanced IT sector coexisting with underdeveloped peasant subsistence agriculture.¹ Such developments engender ‘an entirely new “combined” social formation in which the latest conquests of capitalist technique and structure’ become inter-fused with feudal or pre-feudal relations ‘subjecting them and creating peculiar relations of classes. [Consequently,] uneven and combined development affects the totality of a national society, not merely the economy’ (Davidson 2015, p. 168). The combined character of uneven development is important because it creates large socio-economic disparities, crises, and political tensions and, related to this, shapes the consciousness of class actors within the society and polity. ‘Thus, for Trotsky, the most important consequence of uneven and combined development was the enhanced capacity it gave the working classes for political and industrial organisation, theoretical understanding, and revolutionary activity’ (Davidson 2015, p. 169).

What are the effects of the unevenness of capitalist development on inter-state relations, geopolitical and military competition between nation-states, inter-state conflict and war, and powershifts between nation-states in the global order? Most obviously uneven economic development generates enormous disparities in the distribution of geopolitical and military power amongst the world’s nation-states. In what must now be viewed as a remarkably prescient analysis of the financialisation of capitalism, Lenin argued in 1916 that financialisation exacerbates, rather than ameliorates, these disparities, acting to increase ‘the unevenness and contradictions of the world economy’ (Lenin quoted in Callinicos 2009, p. 65). Lenin’s analysis of imperialism also remains relevant because it emphasises that the uneven development of capitalism has major impacts on the international dimension of social reality encompassing inter-societal relations and geopolitical multiplicity, and recognises that these impacts can involve dramatic shifts in the relative economic fortunes of great powers. (Callinicos and Rosenberg 2008, pp. 79–80) Lenin (1977, p. 295) poses the question: ‘Is it “conceivable” that in ten- or twenty-years’ time the relative strength of the imperialist powers will have remained unchanged? It is out of the question’. What rules this out ‘is not simply the immense disparities in the global economy, but the way in which the dynamic process of capitalist development continually alters the distribution of these disparities and thereby shifts the balance of power among states’ (Callinicos 2009, p. 65). This can generate conflict because there is no once-and-for-all sharing out of the spoils of imperialism ‘since rising powers will seek some of what established but declining powers had seized earlier on’ (Callinicos 2009, p. 65). This means that ‘there is, necessarily, a realist moment in any Marxist analysis of international relations and conjunctures: in other words, any such analysis must take into account the strategies, calculations and interactions of rival political elites in the state system’ (Callinicos 2007, p. 542).

How does UCD differ from mainstream neoliberal and mercantilist explanations of China’s rise? Although it is widely recognised that high levels of investment have fuelled China’s growth, it is less clear what has encouraged and shaped this investment. Is it the adoption and implementation of neoliberal policies providing for, among other things, free trade, free markets, low inflation, non-progressive taxation, labour market flexibility, low levels of social provision, greatly reduced barriers to foreign direct investment (FDI), and private property rights? Or is the implementation of a grand strategy for China’s development, centrally involving extensive state intervention to facilitate development? The first question is answered positively by neoliberals and mainstream neoclassical economists working in international economic agencies such as the IMF, OECD, and World Bank (see, for example, Hu and Khan 1997; Prashad 2004; OECD 2012, pp. 50–71; World Bank 2017, pp. 1–17; OECD 2022, pp. 68–108). The second expresses the view of neomercantilists in IPE who think that the highly sophisticated formulation and implementation of market liberal reforms combined with the state retaining the capacity to extensively shape economic activity has been the key to China’s economic success (Omatola 2023, pp. 11–122). Although both neoliberal policies and state intervention clearly have played important roles, Marxian economists and UCD theorists consider that the main drivers of China’s remarkably high rates of investment and growth have been the underlying factors that combined to generate a comparatively high rate of profit (ratio of surplus value to variable capital plus constant capital). These factors include a comparatively high rate of surplus value (McNally 2011, pp. 50–57), made possible by the size and nature of its rural reserve army of labour (Chuang 2020, pp. 5–31; Zhan 2020), an initially low organic composition of capital (a low ratio of fixed and circulating constant capital to variable capital), and reduced turnover time of capital due to rapid advancement of infrastructure. Neoliberal policies and state intervention have been so important precisely because of the resulting effects on the key variables that determine the rate and mass of profit, a point that is insufficiently recognised by both neoliberals and neomercantilists (Taylor 2017, pp. 174–193).

As we shall see, UCD provides a sound and illuminating explanation of China’s rise. Bearing some striking similarities to the earlier rise of Germany, Japan, and the US, but also some unique qualities, China’s rise is best understood as uneven and combined development unfolding on a historically unprecedented scale.

The rise of China since 1978

The Chinese government rejected the Stalinist model of a bureaucratically centralised command economy in 1978 and subsequently adopted a broadly neoliberal approach to economic management and public policy-making. According to Xi Jinping (2021) ‘This enabled China to transform itself from a highly centralised planned economy to a socialist market economy brimming with vitality’. Although the official line is to describe the government’s approach as ‘socialism with Chinese characteristics’, a more accurate phrase would be ‘neoliberalism with Chinese characteristics’ (Xi Jinping 2021).² Importantly, the national government gave more power and autonomy to the provincial governments at an early stage of the reform process ‘in order to encourage them to try out reforms and promote economic growth’ (Xu 2011, p. 5). It allowed the provincial governments to compete, among other things, to attract foreign direct investment and promote economic development. Initially concentrated in special economic zones concentrated in East and South China, the pro-market economic reforms were eventually implemented throughout China.

Attracted by comparatively low wages for relatively skilled labour, and the absence of free trade unions, foreign direct investment streamed into the country in huge volumes. As Chan et al. (2020, p. 13) observe,

by 1978, China’s wage levels were approximately 3 percent of those in the US and far lower than wages in neighbouring areas and countries including Taiwan, Hong Kong, and Singapore. The Chinese manufacturing wage advantage would be maintained for the next quarter century as the virtually unlimited supply of rural migrants became the primary source of industrial labour in general and electronics in particular. Indeed, the incomes of Chinese workers throughout the 1980s and 1990s remained far below the level of earlier East Asian industrializers during their periods of highest growth.

This gives an indication of the extraordinarily high ratio of surplus value (profits) to variable capital (real wages) prevailing throughout the manufacturing sector in China.

Although the national government’s overall approach is neoliberal, there are four key Keynesian elements that have been built into China’s comparatively unique neoliberal policy regime. First, the government maintained a fixed exchange rate relative to the US dollar until 2005 and, although ‘the renminbi has become more flexible since then, it is still carefully managed’ (Das 2019, p. 1). This has prevented huge trade surpluses from pushing up the international value of China’s yuan relative to the US dollar. Second, the Chinese government

strictly limited the extent to which private investors could take money out of the country and deplete its foreign-exchange reserves by imposing a tight regime of capital controls. These controls have so far succeeded in preventing its emerging wealthy class from exporting too much capital, protecting China from rampant capital flight seen in many developing economies, not to mention runs on its currency. (Shih 2019, p. 3)

In a nutshell, the Chinese government created a monetary and foreign exchange rate regime so that ‘China’s dollar surpluses and reserves … remained largely in the hands of the central bank, rather than private investors’ (Shih 2019, p. 3).

These reserves were mainly invested in US Treasury bonds and other forms of US government debt. These huge purchases of US government debt brought about an enormous increase in the supply of credit to the US compared with the demand for loans, and thereby drove down the cost of borrowing in the US. The Chinese central bank has thus not only pushed up the value of the dollar, but driven down US interest rates. As a result, US consumers were able to borrow more easily and with a more valuable currency. This pushed up the demand for Chinese exports in relation to US imports, further increasing China’s current-account surpluses and its dollar foreign-exchange reserves: a powerful virtuous circle underwriting Chinese expansion.

Third, the central bank (People’s Bank of China) and financial system have played a key role in facilitating China’s rapid growth through a corresponding rapid growth of credit, being able to do this without unduly increasing offshore debt because of trade surpluses. However, this has been done in a manner designed to ensure that financial capital has played a secondary role relative to industrial capital within the overall political economy. Fourth, the state has played a more directive role in relation to the flows of productive investment than is typical in Western capitalist countries. This element became especially important with respect to the Chinese government’s response to the global financial crisis (GFC) and COVID-19 recession.

The Chinese state – at local, municipal, provincial, and national levels – began an ambitious programme of infrastructural investment in the early 2000s but this moved to a qualitatively higher level in the wake of the GFC.

In addition to being employed to advance the longer-term development of the Chinese economy, infrastructure investment has also been used as a countercyclical policy tool to stimulate economic activity. This was most evident during 2008–09, when the government rapidly implemented a stimulus program targeted at infrastructure in response to the global financial crisis. (Wilkins and Zurawski 2014, p. 27)

Consumption of concrete is a useful empirical indicator of the scale of investment.

Bill Gates publicized a remarkable statistic in 2014: China had used more cement in the previous three years than the US did during the entire 20th century. US Geological Survey figures show China has sustained the pace since then, producing well over 2.2 gigatons of cement annually, compared with the estimate cited by Mr. Gates of 4.5 gigatons used in the US in the 100 years to 2000. Wall Street Journal, (April 3, 2021)

The main areas of infrastructural investment are: municipal infrastructure necessary to accommodate China’s rapidly urbanising population, such as roading, bridges, street lighting, subterranean infrastructure (water pipes, sewage works, flood management systems); utilities, particularly water, electricity generation and transmission networks; transportation, particularly roads and highways, railways, airports, and ports; and social infrastructure building such as schools, hospitals, museums, cultural performance venues, and stadiums. The highspeed rail network is another illustrative example of the scale and pace of infrastructural construction. In 2007, China had zero kilometres of highspeed rail network; by the end of 2020, the network was 37,900 kilometres long and carried more passengers daily than any other similar network in the world. The conventional rail network was also greatly expanded reaching 146,300 kilometres in length by 2020, a 20.9% increase on the corresponding figure five years earlier (Cuenca 2021, p. 1). The national and provincial governments have also invested heavily in IT infrastructure, for example, by extending high-speed broadband networks and establishing IT and other high-technology hubs such as Zhongguancun (China’s equivalent to Silicon Valley) in Beijing and Shenzhen Hi-Tech Industrial Park.

The Belt and Road Initiative seeks to apply this approach on a global scale. Indeed, China has become a world leader in developing infrastructure. As such,

The BRI is not a single coherent project but a vast and continually expanding catch-all programme involving trade and transport infrastructure projects (road, rail, sea and air), energy and power projects, and digital and fibre-optic telecommunications. It is estimated that $1 trillion dollars will be spent under the BRI over the next decade, and up to $8 trillion by 2050, on connecting 65 countries accounting for 30 percent of global GDP and 45 percent of the world’s population. (Budd 2021, p. 141)

The aim is both to provide economic benefits for China through reorientating the world’s trading networks in China’s favour and to enhance China’s regional and global geopolitical influence.

High levels of foreign and domestic private sector investment combined with heavy investment in capital formation and infrastructure by state agencies have generated an extraordinarily high rate of economic growth over several decades. The scale and extent of this growth have been central to a qualitative and quantitative economic transformation. For example, real GDP grew at an average annual rate of 10.4 percent from 2000 to 2010, and since then has ranged between 6.0 and 8.1 from 2011 to 2021 (excluding 2020). ‘Real per capita income increased 16 times between 1978 and 2014, and real output per worker increased by a factor of 12’ (World Bank 2017, p.V). Growth has not been confined to manufacturing and infrastructure; ‘China has had one of the highest annual agricultural growth rates in the world since the mid-1980s’ (OECD 2019, p. IX).

The benefits of economic growth have been unequally shared. Income inequality increased rapidly from the mid-1980s to 2008 but has declined slightly since then (OECD 2019, pp. 60–62; World Bank 2017, p.VIII). Comparative data suggests that the distribution of disposable income and wealth is more unequal than most OECD economies. For example, in 2015 the top one percent held 30 percent of personal wealth and the top 10 percent held 67 percent, while the bottom 50 percent held 6 percent (OECD 2019, p. 58). In 2022, there were nearly as many billionaires in China (698) as in the US (724), many with strong links to the ruling Communist Party, and four of the six cities in the world with the most billionaires were in China (ranked 2nd was Beijing with 83; 3rd Hong Kong 68; 5^th Shanghai 61; 6^th Shenzhen 59).³

Integral to this economic expansion and rising inequality is the largest process of proletarianisation and urbanisation in human history with a huge number of peasants migrating from the countryside to the cities and from less developed and poorer provinces to more advanced industrialising provinces. By 2021, the internal migrant population in China had reached 292.5 million.⁴ The largest labour migration in history has fuelled economic growth as industrial expansion has required a substantial increase in the availability of cheap labour-power, but it also explains much of the inequality in China because of the complex patchwork configuration of the provision of welfare payments, health care, public housing, education, and old age pensions. In a nutshell, the internal migration system, centred around mandatory hukou household registration, ‘has institutionalized a migrant population who are given unequal access to social (pension and health) insurance and public services in urban areas’ (World Bank 2017, IX).

At this point, it is worth noting the respects in which the overall policy regime introduced by China’s party-state, beginning with the pro-market reforms announced by Deng Xiaopeng in 1978, may be accurately depicted as neoliberal. Central elements of the neoliberal policy regimes prevailing in Western capitalist countries are clearly present in China, not least of which being: maintenance of low inflation; ensuring that private property rights are sufficiently secure to attract foreign direct investment; large-scale privatisation of former state-owned enterprises; agricultural de-collectivisation; prolonged incremental market liberalisation; the effective prohibition of genuinely free trade unions; scant social provision; very little progressiveness in the taxation regime; and the combination of a free economy and strong state. To this list can be added the intellectual influence of neoliberal economists on political leaders and the organic intellectuals of China’s ruling class.

Much of this is recognised by clear-eyed observers, but it is less commonly recognised that

At the early stages of the reforms, the central government delegated more autonomous power and provided stronger incentives to subnational governments [provinces, municipalities, counties] in order to encourage them to try out reforms and promote economic growth. Thus, regional competition has been a major component of China’s three decades of reform (Xu 2011, p. 1079)

Xu (2011) convincingly argues that the Chinese system of government is best understood as a ‘regionally decentralized authoritarian (RDA) regime. The RDA regime is characterized as a combination of political centralization and economic regional decentralization’ in which ‘central government has control over personnel, whereas subnational governments run the bulk of the economy’ and ‘initiate, negotiate, implement, divert, and resist reforms, policies, rules, and laws’(Xu 2011, p. 1078, 1076). Remarkably, ‘China’s authoritarian regime is one of the fiscally most decentralized countries in the world’ (Xu 2011, p. 1079; Landry 2008, p. 4). Not only does this regime ‘nurture interest groups of market-oriented and growth-oriented reforms within the party, which contributes to stable market reforms over several decades’ (Xu 2011, p. 1097), it promotes intense competition between subnational governments to attract mobile citizens and firms.⁵ No wonder that the decentralisation of economic management, fiscal policy (over 70% of total government expenditure is at subnational levels), and provision of social services is viewed positively by neoliberals; it provides foreign and domestic corporations with multiple opportunities to exert pressure on subnational governments to create the most favourable conditions possible for profitable capital accumulation, ensure a compliant workforce, and avoid measures like more generous provision of social services, tighter environmental regulation, and progressive taxes.

The decentralisation of economic governance and fiscal management, and the successful repression of working-class struggle, has led to the scant provision of public health, housing, welfare, and old-age pensions, especially for migrant workers who have moved from the countryside to the cities or from one province to another since such benefits are tied to geographical areas of origin. The situation with respect to the public provision of health care is particularly bad.

China’s government expenditure on health compared to that of countries at similar or lower economic development levels remains relatively low. As a result of inadequate government funding, out-of-pocket spending on health remains a financial burden for many, especially the disadvantaged. (Zhang 2023, pp. 19–20)

As the World Bank (2017, p. IX) observes, ‘public spending on core social safety net programmes … remains relatively low by international standards’.

Nonetheless, despite increasing socio-economic inequality, and comparatively low levels of social provision, economic prosperity has generated a rising material standard of living for a substantial majority of the population, lifting more than 850 million people out of absolute poverty by 2018, and ‘China’s bottom 40 percent of the income distribution experienced rapid per capita consumption growth, indicating that they have shared in the country’s rising prosperity’ (World Bank 2017, pp. V, VIII).

Economic prosperity and rising material living standards have helped to maintain popular support for the regime.⁶ Although reliable independent political polling is in short supply in China, the results of opinion polling from 2003 to 2020 by the Harvard Kennedy School Ash Centre suggest high levels of satisfaction with the performance of the central government, and satisfaction ratings that progressively decline from higher (national) to lower (subnational) levels of government (Cunningham et al. 2020, p. 3). For example, in the 2016 survey 93.1 percent of those polled were satisfied with the performance of the central government (Cunningham et al. 2020, p. 3). In the Alliance of Democracies 2021 poll, 71 percent of Chinese consider that China has ‘the right amount of democracy’ (Wintour 2021). Note that ‘Although state censorship and propaganda are widespread, our survey reveals that citizen perceptions of governmental performance respond most to real, measurable changes in individuals’ material well-being’ (Cunningham et al. 2020, p.II). High economic growth rates have been fuelled by an enormous expansion of debt, with most public debt being held by provincial governments rather than the central government. This, in conjunction with other factors such as declining profitability and increasing international trade barriers, could generate an economic crisis that would undermine support for the regime and possibly give rise to another mass pro-democracy movement. Alternatively, the pressures, contradictions and tensions generated by uneven and combined development could generate a revolt against exploitation, oppression, and authoritarian rule. It is the remarkable ‘success of the Chinese economy that has produced the internal strains and tensions that threaten to explode’ (Davidson 2015, p. 186).

Four decades of strong economic growth have enabled China’s government to modernise the five branches of the People’s Liberation Army (PLA) – ground forces, navy, air force, rocket force, and logistics. This has included: increasing military expenditure (in absolute terms rather than relative to GDP) to $US293 billion in 2021; reducing the size of the PLA army from 3.6 million in 1980–0.965 million in 2020 but introducing measures to make it much better led, educated, trained, equipped and provisioned (Bommakanti and Shivamurthy 2021, Table 1); greatly increasing the technological sophistication of all branches exemplified by ‘the indigenous aircraft carrier Shandong, the type-055 guided missile destroyer, the J-20 stealth fighter, the Y-20 long-range transport aircraft, the DF-21D anti-ship ballistic missile, and the DF-17 ballistic missile fitted with a hypersonic glide vehicle’; reform of command structures modelled on those used by the US military; and new base construction in the South China Sea (Wuthrow 2020, p. 13). To this list can be added China’s third and largest aircraft carrier (Fujian), increasingly sophisticated nuclear and diesel-electric powered submarines, destroyers (Type 052D, Type 055), and a large fleet of missile boats including the high-speed stealth Type 022 Houbei catamarans. The PLAN’s 052D and 055 super destroyers have similar capabilities to the ‘US Navy’s state-of-the-art cruisers and destroyers outfitted with the Aegis combat system – a combination radar, computer, and fire-control system capable of autonomously engaging multiple air and missile targets at long range’ (Yoshihara and Holmes 2018, p. 154). In perhaps the most authoritative study of the rapid development of the PLA Navy (PLAN), Yoshihara and Holmes (2018, pp. 220–247), emphasise the crucial importance of the rocket force, which is so large and technologically sophisticated that it could inflict a crippling blow against U.S. naval forces in the early stages of the conflict on a scale that would dwarf the losses inflicted by Japanese forces at Pearl Harbour, depending crucially on the currently uncertain effectiveness of counter-measures by U.S. forces (see also Gill and Ni 2019).

China has developed an increasingly close geostrategic relationship with Russia, exemplified by the creation of the Shanghai Five in 1996, the formation of the Shanghai Cooperation Organisation (SCO) in 2001 led by China and Russia which brings together states in their spheres of influence, and the 2022 joint statement by Xi and Putin announcing a comprehensive strategic partnership (Lin 2023). This has secured China’s Western land borders, enabling the PLA forces to concentrate on developing a formidable defensive deterrent along and beyond its coastline in which land-based missile systems and PLA air force squadrons can provide support to PLAN ships operating in the Sea of Japan and South China, East China, and Yellow seas (Wu 2019, p. 670). Even though assessments by US-based analysts tend to exaggerate China’s military strength in order to strengthen arguments in favour of increased expenditure on the US military, there is little doubt that the PLA forces have greatly surpassed the militaries of South Korea and Japan, and established an effective deterrent to the US launching maritime military operations against China inside the ‘first island chain’ composed of Japan, Taiwan, the Philippines. Goldman (2020, p. 128) thinks this makes war between China and the US unlikely because ‘America cannot win a war on China’s coast, and China has scant interest fighting anywhere else’.

Nonetheless, it is important not to exaggerate China’s current military might. China is on track to achieve military parity with the US within the next 20 years but currently, its overall military capabilities are still much weaker and, as we have seen, heavily concentrated in the vicinity of its Eastern maritime border (Achcar 2023, pp. 275–283). Among other things, the US still spends far more on its military than China. For example, in 2021 as a percentage of G.D.P US expenditure was 3.5 percent versus China’s 1.7 percent, in terms of absolute expenditure the figures are $US801 billion versus $US293 billion, and as a percentage of the world total 38 percent versus 14 percent. (Da Silva et al. 2021, p. 2) The US navy has more aircraft carriers (11) than the rest of the world combined and by far the largest and most technologically sophisticated air force. Precisely because the US is a global rather than a regional hegemon, its forces are geographically much more widely distributed than China’s, and consequently, its military power extends to important regions where China has little or no effective military presence.

Using UCD theory to explain China’s rise

China’s remarkable rise has provided a classic example of a relatively undeveloped country catching up and overtaking its more advanced rivals – especially Russia which China has surpassed economically, and the US which it is forecast to surpass economically by 2031 (CEBR 2022, p. 15). Although Russia and the US currently have more military strength than China, China ranked 3^rd in 2022 and is increasing its military power at a rapid pace (Global Fire Power 2022). The key concepts of the theory of uneven and combined development (UCD), outlined in Section 1, provide a sound and illuminating explanation of China’s rise and the relative decline of US hegemony.

It is beyond the scope of this article, however, to explain how and why a leadership faction led by Den Xiaoping abandoned the Stalinist model of a bureaucratic command economy. Writing from the same anti-Stalinist Marxist perspective that underpins this article, Hore (1991) provides a historical account that is broadly consistent with the non-Marxist accounts provided by Dryer (2012) and Larus (2012), but which places more emphasis on the underlying crises of Chinese state capitalism and the resulting seething unrest from below involving workers, peasants, students, intellectuals, and the urban middle classes. In a nutshell, Den Xiaoping and subsequent CCP leaderships implemented pro-market reform and a limited degree of political liberalisation because the successive attempts to accelerate China’s development during the Maoist era such as the first Five Year Plan from 1953 to 1958, the Great Leap Forward of 1958–1960, and the Cultural Revolution from 1966 to 1969, had been disastrous failures (Hore 1991, pp. 41–79; Dryer 2012, pp. 97–119; Zweig 2019). In order to maintain CCP rule, quell popular disgruntlement and unrest, and promote economic development, a new approach was clearly urgently necessary.

Another key factor was the ‘whip of external necessity’, that is, intense external competition with the Soviet Union, US, regional, and great powers, which, in combination with the factors mentioned above, prompted China’s government to abandon the Stalinist model of a bureaucratically centralised command economy and embrace free-market capitalism. As is widely recognised, a major initial driver of China’s high rates of economic growth during the 1990s and 2000s was an enormous volume of foreign direct investment. Foreign investors in China’s manufacturing sector were attracted by comparatively low wages and high profits. Indeed, all of the counter-acting influences on the tendency for the rate of profit to fall became active drivers of China’s growth. For example, as Chan et al. (2020, p. 66) show the hyper exploitation of the young workers manufacturing iPhones involves low wages and benefits with 64–72 percent of workers reporting that their wages did not cover basic needs in a Fair Labour Association 2012 survey. These workers are expected to work 12-hour shifts, seven days-per-week with 1.5 days off per month, subjected to compulsory overtime, and suffer from intense surveillance by line mangers, quality control checks, and an extensive division of labour creating boring and repetitive tasks with heavily policed time pressure for completion (Chan et al. 2020, pp. 5–10, 48-68). Additionally, there is a ‘lack of fundamental health and safety precautions, abusive treatment of teenage student interns, and managerial repression of workers’ attempts to press demands for securing rights guaranteed by employment contracts and national labour laws’ (Chan et al. 2020, p.xiv). Conditions such as these involve comparatively high rates of exploitation due to the rising production of relative surplus value (generated by increasing mechanisation of production boosting labour productivity without a corresponding rise in real wages) and absolute surplus value (due to longer working hours and poorer conditions than in Western countries).

With respect to the other counter-acting influences which boost profitability, foreign trade has played a key role as described above, and the turnover time of capital was reduced due to the rapid development of transportation and communications infrastructure. A ‘cheapening of the elements of constant capital’ took place due to increasing labour productivity in the production of manufacturing plant and machinery. The Chinese peasantry provides an enormous reserve of cheap labour with, as we have seen, the labour migration from the country-side and less developed provinces to centres of manufacturing constituting the largest mass migration in history. This illustrates Marx’s (1967, p. 236) point that over-population relative to employer demand for wage labour, ‘becomes so much more apparent in a country, the more the capitalist mode of production is developed in it’. The strong downward pressure that this reserve army places on wages explains that fact that after 26 years of rapid industrialisation, the monthly wage in China was still only 4.9% of the US equivalent (McNally 2011, p. 52). It is important to recognise that as well as involving comparatively high rates of exploitation (S/V) and profit (S/(C + V)), a world-historic increase in the mass of profit has taken place due to the size of the working class that is now being subject to exploitation. As McNally (2011, p. 52) observes, ‘so mammoth is China’s working class’, with 750 million members by 2010, that ‘it is one and half times bigger than the labour force of all the thirty rich countries of the OECD combined’.

As we have seen, China has been able to utilise its ‘privilege of backwardness’ to leapfrog its competitors in an increasing number of areas such as infrastructure, manufacturing, telecommunications, and space exploration. But there is now another respect in which its development has reached a stage that makes a sharp reversal of its comparative economic fortunes unlikely. This is due to cumulative growth which is achieved ‘once a certain threshold of accumulation of capital, industrialisation, technical training of workers, engineers, and scientists, etc, is passed’ (Mandel 1991, p. 559). As Callinicos (2009, p. 201) observes,

Contrary to the neo-classical orthodoxy, there are rising returns to scale. In other words, improved profitability depends on large-scale investments in technological innovation that raises productivity. Where this strategy works, the scale of production is likely to continue growing. Supply firms will cluster around successful large enterprises. The result will be also large concentrations of workers, at least some of whom will be well paid because of their productivity-enhancing skills. Because these workers are also consumers, the resulting market for consumption goods and services will attract further investment in production, retailing, infrastructure and so on, further increasing employment and widening local markets. The implication is that in economically successful regions, success breeds success, tending to concentrate investment, production and consumption in certain areas.

The sheer scale of China’s success is likely to breed further success given the rapidly growing size of, among other things, domestic demand for goods and services.

The US and its allies are now constrained by the fact that China has become too large to fail, without this dragging the global economy into a deep recession. The international effects on the global political economy of China’s rise have been substantial. As Rosenberg and Boyle (2019, p. 35) point out, because of its enormous scale.

Chinese industrialization was significantly impacting the wider world economy at a much earlier stage of its own development than had been the case for previous late industrializers. In 2014, China’s per capita GNI ranked 100th in the world; but because this was multiplied by almost 1.4 billion, it was already enough to make China – a ‘developing country’ - the world’s second largest economy. Its foreign reserves of $4 trillion – though once again lower in per capita terms than many of its neighbours’ – were easily the world’s largest. It was unprecedented for a developing country – whose per capita income reached only a seventh of America’s – to exercise such weight in the world economy. But the reason was simple enough: these were the early stages of an industrial take-off which, in demographic terms, was equivalent to the simultaneous rise of eleven new Japans, or even four new USAs.

In short, China, demographically four times as large as the US, is developing economically faster than the US did during its initial phase of industrialisation. It is fundamentally reshaping the geography of global capitalism (Rosenburg 2019).

Conclusion

The article began with an outline of UCD theory because, in conjunction with Marxian economic theory, it provides conceptual tools necessary to analyse and explain China’s rise. China’s comparatively high rates of exploitation and profitability propelled the high levels of foreign and domestic investment that have fuelled several decades of rapid economic growth. Unencumbered by a large stock of aging fixed capital, China’s manufacturers have been able to take advantage of the ‘privilege of backwardness’ – adopting the most scientifically and technologically advanced industrial processes, production techniques, and organisation of labour, while being supported by increasingly sophisticated infrastructure. As well as becoming the world’s largest manufacturer, China’s economy has become increasingly advanced in other areas such as information technology, renewable energy technologies and electric vehicle manufacturing, service industries, real estate, and financial services. Agricultural production has also grown rapidly. More advanced technologies are being deployed as horticultural and agricultural practices are modernised. The sheer scale of China’s economic success is likely to breed further success given the rapidly growing size of, among other things, domestic demand for goods and services. Although there are several sources of uncertainty, especially unsustainably high debt levels in China’s property sectors and the impact of the attempts by successive US presidential administrations to curtail China’s rise discussed in Part 2 of this article, it appears likely that China’s economic growth rates will remain higher than those of the US for the foreseeable future.

The Chinese government developed a predominantly neoliberal policy regime from 1978 onwards. It is, however, a unique and hybrid variant, incorporating several crucially important Keynesian elements such as management of the exchange rate, capital controls, and state investment in infrastructure. It’s regionally decentralised system of government has played a central role in the roll out of neoliberal policies. Since 1978 socio-economic inequality has increased and social provision especially of public health care has been poor. Despite this, the majority of the population has experienced a rising material standard of living over several decades. This has been a major factor in the high levels of popular support for the CCP regime at central government level. Nonetheless, there are important potential sources of opposition to the CCP regime, most obviously the Uyghurs in Xinjiang, prodemocracy movement in Hongkong, the independence movement in Tibet, the industrial working class, university students, and unemployed youth.

High rates of economic growth have enabled China’s central government to expand and modernise its military and this, in conjunction with its Belt and Road Initiative and formation of the Asian Infrastructure Investment Bank, has underpinned its rising geopolitical power and diplomatic leverage. The resulting reconfiguration of the global order, the US response to China’s rise, and the implications for New Zealand’s foreign policy-making, will be considered in Part Two of this article.

Finally, there is a key area that requires further research. Within the Marxist tradition, the analysis of China’s dramatic economic rise has failed to empirically operationalise and apply key concepts in Marxian economics such as the organic composition of capital (ratio of constant capital to variable capital), rate of surplus value (ratio of surplus value to variable capital), and the (Marxian) rate of profit (s/(c + v)). Until this work is done, Marxists will continue having to interpret what is happening with respect to China’s development largely on the basis of mainstream sources (OECD, IMF, World Bank, etc) and the largely non-Marxist secondary literature. According to Marx’s theory of the tendency of the rate of profit to fall, the rate of profit in China should decline as the ratio of constant to variable capital rises, due largely to the increasingly mechanised and capital intensive nature of manufacturing. But this is a speculative hypothesis for which there is insufficient data calculated in Marxian terms. Gathering such data and empirically operationalising Marxian categories and ratios is important because it will help to explain why China’s growth rate is likely to decline from the very high levels of recent decades as the Chinese economy further develops in the decades to come.

Acknowledgments

This article has benefited greatly from the very helpful and much appreciated comments of two anonymous referees. One referee criticised the earlier version of the article for not providing a sufficiently conceptually integrated Marxist analysis. I’ve done my best to rework Part One of the article in response to this helpful constructive criticism. It has also benefitted from illuminating conversations about China and international relations with my colleagues: Nicholas Khoo, Robert Patman, and Lena Tan. Thanks also to those who provided feedback and asked stimulating questions when an earlier version of this paper was presented to the 2022 Otago Politics Day School and the NZPSA 2022 annual conference. Before his premature passing, David Nielson had much to say that was typically intellectually sophisticated, informative, and insightful about China’s rise in our conversations. In particular, he helped me to better understand the importance of China’s enormous reserve army of labour.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 In 2015–2016, “marginal and small farmers – those cultivating less than 1 ha and between 1 and 2 ha respectively – constitute 86 per cent of operational holdings in India covering approximately 47 per cent of cultivated area” (Dasgupta 2021, p. 227).

2 In his speech to the CPC 20th congress in 2022 he urges the party to “unswervingly encourage and support the development of the privately owned economy, give full play to the decisive role of the market in the allocation of resources.” https://www.reuters.com/world/china/key-xi-quotes-chinas-20th-communist-party-congress-2022-10-16/.

3 https://worldpopulationreview.com/country-rankings/billionaires-by-country

4 China Labour Bulletin at https://clb.org.hk/content/migrant-workers-and-their-children.

5 For a fascinating account of how this configuration of China’s system of government gels with the post-WWII neoliberal preference for a multi-state global order see: Pederson (2021), pp. 39-58.

6 For an illuminating analysis of the role played by “propaganda and thought work” in reviving the legitimacy of the regime in the wake of the Tiananmen Square pro-democracy protests, see: Brady (2009, pp. 175–194).