#9 in a series on THE FUTURE OF TIBET

Many Chinese leaders are happy to identify China’s unique fusion of political and economic power as “state capitalism.” Ironically, this term began life as a deliberate joining of opposites, as a term of abuse, coined by the left, to critique supposedly socialist or communist regimes that considered themselves progressive, yet actually oppressed workers. State capitalism was a negative depiction of revolutionary economies that nationalised production but still disempowered workers, cared little for environmental impacts, and focussed only on speedy industrialisation.

Now “state capitalism” has lost its negativity, embraced by some in China as a way of expressing the inner dynamic of the “China model”. But there is an underside. The fusion of politics, state power and the economic engine, all in the hands of the party-state hybrid, is an extraordinary concentration, open to abuse. Concentrations of power depend on exclusion, disempowering those who stand in the way of wealth accumulation. And that includes the Tibetans, whose silencing is increasingly necessary for economic, as well as political reasons.

In the mineral supply chain, opportunity abounds  for arbitrageurs to capture supply, create artificial shortages, reroute crucial inputs to favoured clients while depriving others. This was especially true in the second half of the 1980s, when the best arbitrage opportunities centred on trading in minerals and other industrial materials essential to making anything manufactured. At that time, there was still an awkward twin track pricing system under which state owned enterprises could buy inputs such as minerals at largely fixed, regulated prices, but had to sell much of their output also at regulated prices.  One of China’s highest profile economists, Wu Jinglian, has said this was a great opportunity for speculative arbitrage, for creating ways that products designated for state control could be diverted to favoured subsidiaries and easy profits. (Wu Jinglian, China’s economic reform: retrospect and prospect, HK University of Science & Technology)

The late 1980s was a period of inflation, partly driven by price making arbitrageurs. Inflation, as well as the pervasiveness of official corruption, were among the reasons one million patriotic students camped in Tiannanmen Square in 1989.

Centrally planned allocation of minerals and the materials of manufacturing was subverted from within, by the managers of the state owned enterprises, firstly through establishing privatised subsidiaries to do the profitable work, then by the SOEs themselves directly seeking a slice of the action. As social scientist Lin Yi-min says: “The profits that backyard profits centres derived from arbitrage provided a clear indication of the opportunity cost incurred by producers of capital goods –especially industrial materials- for adhering to the plan. They wanted to make the profits themselves instead of letting backyard profit centres get all the extra gains. The decline of the plan is due to the corrosive effects of state agents’ self-seeking behaviour.”

As planned allocation unravelled, and minerals moved closer to becoming a market, the arbitrageurs moved on to other areas of shortage and profit, especially real estate speculation in farmland close to fast growing cities which, in a stroke, could be converted to valuable urban land after being coercively acquired from farmers for a pittance. That has steadily become the biggest source of grievance and unrest ever since.

China’s mining companies remain largely state owned, usually with a minority shareholder equity stake providing capital for expansion, and often vertically integrated, and are often huge, especially in coal, oil and steel. Yet these same companies helped undermine the command economy and  benefited, wherever they could, from privatising their own sources of profit. Now that these large corporations have been encouraged to “go out” and source minerals globally, the planet is the platform for private wealth accumulation by corporate managers. The world is now their backyard, and their “backyard profit centres” these days are legally domiciled in British Virgin islands, Cayman Islands or other well known tax havens that refuse to release information and allow dubiously acquired wealth to accumulate.



It has thus been in the interests of the mining SOE managers, paradoxical as this at first seems, to promote the full privatisation of property rights at all stages of the mineral exploration, deposit testing and mining cycle. The model, as always, is the capitalist world. The objective, as usual, is to marketwise not only the buying and selling of minerals but also the trading of exploration rights, orebody tenements, and operating mines. The ultimate goal is to make maximum use of China’s geographic and population size to become the dominant player globally, reducing even the biggest of multinational mining giants to the simple and restricted role of digging up ores and transporting them, with as little processing as possible, to China, where all the value adding will take place.

China will beat the world at its own game. Already, by 2012, it was clear China was impacting the core business model of even the biggest of global commodity corporations, forcing them out of the smelter business. This was first evident in the bauxite to alumina to aluminium commodity chain. Vertical integration was common in this global industry, with huge corporations doing the mining, refining, shipping, smelting and marketing on a planetary scale. But by 2012 it became obvious that smelters located anywhere but in China could no longer compete. Smelter after smelter closed or scaled back its production, with more closures likely.

The result is a China with global reach, led by its minerals and energy corporations to go out to the remotest regions, which ship back to China all commodities needed as inputs to the world’s factory. The finished products, such as wooden furniture, cars, computers and mobile phones are then shipped back to where the commodities came from.

The fusion of state and corporate power is integral to this effective business model. No longer does it make much sense to distinguish state owned from privately owned Chinese corporations, because officially registered legal ownership is far less important than who has actual control. In reality actual control is in the hands of state officials using the state’s regulatory powers as a market for their individual enrichment. Even fully privately owned corporations succeed by maintaining close relations with the party-state, at all levels, some even to the extent of having internal cells of the party within the human relations department of the enterprise. Far from private entrepreneurs resisting efforts by the Communist Party to install itself within corporations, a case study of Christian entrepreneurs in Wenzhou, at the forefront of private capitalism in China, finds that having a party cell is good for staff discipline and a workforce focussed on production rather than labour rights. (Nanlai Cao, Constructing China’s Jerusalem: Christians, power, and place in contemporary Wenzhou, Stanford, 2011)

China’s unique fusion of public and private is aptly known simply as state capitalism. The China model has accrued wealth to an elite with every reason to persist with the tight political constriction on what is permissible, coupled with a highly entrepreneurial culture that rewards insiders, players, gamers, whether their formal title is manager of a state owned enterprise, official regulator or private entrepreneur.

The profit potential of the minerals sector has long been held back, by central planning and allocation of resources, then by production quotas in a vertically integrated model of both political and economic power in which mines were no more than necessary sources of industrial inputs. Gradually, it has become clear that there are profit opportunities at every step of the minerals commodity chain. Chinese mining companies that have learned to “go out” and operate globally have often made massive profit from the global rise in the prices of almost all metals since 2003, despite ups and downs due to global crises of the capitalist cycle.

So there is now increasing pressure to marketwise every step of the commodity chain. In February 2012 the Ministry of Land and Resources announced a trial marketisation of trading in mining rights. The ministry openly espouses: “bidding, auction and transfer of mineral rights for sale and trading institutions to sign a commission contract. The central leadership has repeatedly suggested that efforts to promote the construction of land and mining rights market. Outline of 12th Five-Year Plan orders that we ‘regulate the development of prospecting and mining rights market’, to ‘promote the orderly transfer of resources and the environment property and an open, fair, fair trade ‘. There will be new and higher requirements to promote the construction of the mining rights market and improve the trading system.”

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