Lu Di: Can China Surpass the Change of Capitalist Hegemony?

Speech at the China Political Economy 40 Forum 2025

Dr. Lu Di—Professor at the School of Oriental and African Studies, University of London, and Professor at Lingnan College, Sun Yat-sen University

A few weeks ago, I promised to publish some translations of some speeches made by Chinese political-economists. The long essay by Lu Feng was well received despite its length. Today, we have a not too longish speech by Lu Di that was presented at the annual China Political Economy 40 Forum, which this year was held at Xiamen University, a public university in Siming, Xiamen, Fujian, China founded in 1921. The one aspect I find difficult to fully translate are the graphics, although their information is provided in the descriptive text by the speaker. The speech’s title is provocative but it’s not some fiery polemic and ought to be at an intellectual level compatible with those who subscribe to the Gym. Here we go:

The topic I would like to talk about today is the political economy of socialism with Chinese characteristics in world history. The theory of "world history" is the basic principle and concept of Marxism in the study of the process of global history. In the evolution of modern history, the "history of the world", the world capitalist system is universal.

Today's speech attempts to examine Chinese modernization within the framework of "world history" in order to emphasize that the subjectivity of China's economic system and the practice of economic reform inevitably face the constraints of the world capital system, and to explain the characteristics, logic, and contradictions of these constraints, so that it is possible to guide practice beyond capitalism, which is the mission of socialist political economy with Chinese characteristics.

Next, I would like to discuss the following four topics

(1) Backward development and the logic of capitalism on a global scale;

(2) the current stage of economic development and overcoming the "middle-income trap";

(3) Comparative Perspective: The Limits of Capitalism and China's Practice;

(4) Systems Perspective – Hegemony beyond capitalism.

It is hoped that we can explore the characteristics of cosmopolitanism from multiple perspectives, and how China can explore the construction of a socialist market economy and the path of modernization for itself and the world.

Backward development and the accumulation logic of capitalism on a worldwide scale

As I have just said, in the basic category of Marxism, modern history is "world history", and Chinese-style modernization is also carried out in the face of this existence. Even if it is the formulation of the construction and development strategy of the first 30 years of the Republic, it is also based on the premise of coping with the encirclement and pressure of this system to a large extent.

Let me share with you a very simple table. Table 1 shows the average annual real growth rate of GDP per capita, and we can see that the growth of developed countries in the OECD has declined significantly from 3.03 to 1.59% in the two time periods 1960-1980 and 1980-2023. But even so, compared with other countries outside China, the developed countries of the OECD are still ahead of the curve. In general, it indicates that the global economic development outside of China has fallen to a considerable extent.

Figure 1 illustrates the divergence of growth around the world, with China being a special case, growing at a very fast rate. The red line is the ratio of Chinese's per capita GDP level to the per capita GDP of OECD developed countries, and the blue line is the proportion of China and global developing countries outside the OECD to the per capita GDP of OECD developed countries. It can be seen that the proportion of the developing world excluding China in 2023 is lower than in 1960. It can be seen that the divergence in global development is obvious.

The reason for this decline and divergence needs to be explained, so as to better explain why China is a special case, and by extension, what are the characteristics of China's socialist market economy and Chinese-style modernization, and make China a special case in the systemic sense of the world.

One possible explanation is that globalization on a global scale is actually a process of financialization of the economy, especially the political creed of neoliberal reforms that are widely pursued around the world: market liberalization, privatization of public assets and public services, and various kinds of deregulation, in the final analysis, allow capital to pursue profits as freely as possible, which leads to the financialization and speculation of the economy.

As a result, on the one hand, the underinvestment in the world, combined with the deterioration of income distribution, which has suppressed consumption, has made systemic underdemand the norm, which forms the basis of the crisis. On the other hand, speculation’s nature is only to distribute profits rather than generate production profits, and in the case of squeezed production, systemic crises often erupt first in the form of financial crisis situations.

In this process, the expansion of the capital system in global space has brought in a wide variety of productive resources, especially cheap labour and the natural environment. Capitalist countries have gained "predatory accumulation", but have moved polluting industries to developing countries, leading the developing world into the development trap of low-technology, low-labor income.

What we have to think about, then, is how China has overcome these constraints so far, in terms of institutions and policies, and whether it is well equipped to deal with similar constraints in the future.

The current stage of economic development and overcoming the "middle-income trap"

A related topic that has been discussed more often is, can China survive the middle-income trap?

The World Bank's World Development Report 2024, with the theme of "The Middle-Income Trap", makes a very unoptimistic judgment on the actual performance of world development in the era of globalization and looks forward to the future. China is at the top of the report's list of a large group of countries facing daunting challenges.

Their pessimism about China is based on the fact that the share of high-income economies in the global population has been declining unabated, from 30% in 1960 to 17% in 2023.

Why is this happening? The prevailing explanation is that middle-income economies lack a competitive advantage in the world market: they cannot compete with low-income economies in labor-intensive, low-value-added industries (because of higher labor costs). It is not possible to compete with high-income economies in capital-intensive, high-value-added industries (because of the lower level of technology).

So they think China is facing such a challenge. How to deal with it? The World Bank's report proposes a "3i" approach, the core of which is through the so-called investment + introduction of foreign technology + innovation (investment + infusion + innovation). This is an emphasis on capacity-building, which is to say that it is a fundamental departure from the dominant political tenets of the preceding peak of liberalism: neoliberal maxims such as "the right relative prices" and "the right property arrangements", emphasizing that as long as the market-determined "inducements" automatically lead to competitiveness, they will naturally avoid the pitfalls and promote development.

This shift in thinking has also taken place elsewhere, such as the European Union's industrial policy debate, the United States' "New Washington Consensus" or the OECD's "mission-oriented innovation policy", and so on. The core idea is also to emphasize the importance of building "capacity", and to judge that the market alone is not enough to achieve things, and that the state needs to intervene and play a key role.

To a large extent, this is a tendency to learn from China, that is, to overcome the crisis and to develop in the future depends on a combination of "efficient markets and promising governments".

However, be aware of the "synthetic fallacy" here: in a worldwide systemic downturn, everyone is more competitive, which means canceling each other out, and thus cannot be used as the right direction.

China's development goals or missions are far more systematic and profound than those of developing countries facing the threat of the "middle-income trap" and developed countries facing crises, which are manifested in the new concept and pursuit of innovative, coordinated, green, open and shared development, as well as the construction of a corresponding new development pattern. This means that the task of development is heavier, the requirements for systems and policies are more stringent, and there is a long way to go.

The limits of capitalism and the practice in China

If we look at the challenges facing China from a comparative perspective, are there any lessons we can learn from around the world? According to the historical literature of capitalism, the world capitalist system has undergone hegemonic succession and cyclical reincarnation since its rise in the 16th century. So far, the long cycle under US hegemony has included the "golden age of capitalism" nearly 30 years after World War II, and the era of neoliberal globalization since 1980.

In terms of the economic and social development of the developed countries, the Golden Age is undoubtedly far superior: sustained economic growth, near-full employment, equalization of income distribution, basic livelihood security at the bottom of society, universal health care and education, etc., are all in stark contrast to the performance of the neoliberal era.

However, the Golden Age did not last after all, or rather, the Golden Age model was inherently unsustainable within the limits of capitalism.

Institutional arrangements such as the welfare state, state-owned enterprises, industrial policy, development-oriented finance, and centralized labor-management negotiation can contradict the logic of profit at the micro level, and can contradict the logic of overall profit in the short term, but cannot go against the prescriptive nature of capitalism - the logic of total profit in the long run.

Then, even in terms of economic development alone, China's socialist market economy has not only been, and will continue to be, surpassing neoliberalism, but certainly beyond the Golden Age model.

Going back to the superficial level, there is pessimism about development around the world, and one of the direct causes is the lack of productive investment. China has long been an exception, but in recent years it has shown signs of convergence towards the world normal.

If you look at the table above (as shown in the chart), the rate of investment in developing countries outside of China has either stagnated or declined. China is the exception, but this exception is not necessarily the case. We know that since entering the new normal we have seen a downward trend in the rate of productive investment, which reflects the shortcomings of market efficiency and government promising, that is, relative to our goals, the sluggish investment at the market level is because investment is limited by the logic of speculation and profit. The lack of investment at the government level is due to the lack of financial power, that is, the asymmetry of fiscal rights and responsibilities in the economy and society.

This may mean that among the many constraints facing China's economic development at this stage, there are also elements of economic financialization and the constraints of the golden age model manifested in fiscal constraints.

That is to say, the socialist market economy is fundamentally different from capitalism, and if we say that speculation and financialization have appeared, it is not because of endogenous development, but because of the constraints of capitalism at the source.

To overcome these constraints, then, it is necessary to transcend the historical model of capitalism, which is the subject of the entire process of Chinese-style modernization.

Beyond the hegemonic change of capitalism

The backward development of the world is difficult to advance and even hindered and suppressed in the context of the global domination of the neoliberal capitalist system, and it is necessary to seek an alternative order and development path.

The final point is to pin our hopes on China.

China is of great significance to the development of the world. Chinese modernization and China's socialist market economy are not something that we can build on our own. On the one hand, the world should learn from China's lessons and learn from China; on the other hand, it is expected that China can provide a systemic role in the reshaping of the world political and economic order. That is, China as a force to reshape the world political and economic order, promote productive investment, technological development, and freedom from the manipulation of financial hegemony in the Global South.

It is clear that China has so far been trying to influence the direction of systemic development around the world in an economic sense, and we are mainly building connectivity around the Belt and Road Initiative, and through the construction of transportation networks, spatially connecting the fragmented economies of the Global South. This leads to the investment and construction of infrastructure, electricity, telecommunication networks, transport conditions, etc., also in order to connect these economies, establish productive activities, and participate in the professional division of labor under the scale of demand that is thus promoted.

On top of the Belt and Road Initiative (BRI), which provides a platform for the development of the countries of the Global South, China does not seek to interfere with the intentions of its partners, but rather believes that all economic and social development decisions are determined by their own political and economic internal characteristics. This is especially true in the area of social development, where income distribution, social welfare, labour security, environmental protection, etc., not to mention respect for sovereignty and territorial integrity are the primary norms of the "non-intervention" position.

On this basis, even if we pursue purely economic activities, and we promote equal and free market activities and interconnection, we are likely to fundamentally shake the existing world political and economic order, especially the more developed countries are, and the more they rely on the monopoly rents of globalization to maintain the current level of economic activity and social development.

Under such circumstances, there is no monopoly or monopoly in our various foreign economic activities, but the developed countries inevitably need to make fundamental self-adjustments, especially to abandon their pursuit of hegemony, so that Chinese-style modernization can be completed.

epilogue

From the perspective of a long period of time and big history, according to the study of the literature of "historical capitalism", the normal state of capitalism is monopoly, the combination of capital and state power, the construction and implementation of hegemony within the scope of the system, and the absorption of monopoly rent. This norm has permeated the entire history of capitalism since the sixteenth century, with long cycles or hegemonic systems, including those dominated by the Mediterranean city-states, the Netherlands, Great Britain, and the United States.

China's rise is an anomaly, its political and economic characteristics are far from transnational monopolies and hegemony, and it does not draw monopoly rents from the outside world but promotes its own development and the development of the world through productive activities and equal competition. Transcending the characteristics of historical capitalism and implementing Chinese modernization itself and its systemic impact on the development of the world, China should be the core topic of socialist political economy with Chinese characteristics.

I hope that the above shallow discussions can provide a meaningful reference for the construction of socialist political economy with Chinese characteristics, thank you! [My Emphasis]

Yes, there’s a lot of presumed prior knowledge within the audience that will make the above confusing to non-experts as many terms demand definition. Those Gym readers who have followed the writings of Michael Hudson and diligently watched the weekly chats between him and Richard Wolff will have a much better understanding. Today’s chat ended with the issue of the conflict between China and the Outlaw US Empire that’s alluded to above. Much discussion into why developing nations are struggling to develop has transpired over the last 30 years and includes the argument why Neoliberal—or Corporate as it was called—Globalization was a bad gig for developing nations and is equated as an escalation in neocolonialism. What’s happened, however, is the neoliberal offshoring/deindustrialization of their host nations as part of Corporate Globalization enabled the low-end industrialization mentioned above that has grown significantly and reached a point where the core of the BRICS nations were finally able to free themselves from the debt bind and use the incoming capital flows for their internal investment—even low-end manufacturing requires a certain level of infrastructure support owned by the state, so the state was able to capture the monopoly rents on that infrastructure and reinvest it.

China and Russia have shown that it’s possible to have state owned banks provide disbursement of treasury produced monies in the form of investments for a host of projects all aimed at national development. A good case study is now happening within Russia—it’s development of a high-speed rail network from the ground-up. China has built more than 40 thousand kilometers of high-speed railroads and adds 3-4,000 kilometers annually, while Russia’s project isn’t nearly as aggressive, “In 2045, the length of the high-speed rail network will exceed 4.5 thousand kilometers.” Some of the component manufacturers will be private SMEs, but the entire project is state-owned and financed. The aim of both political-economies is to eliminate rent seeking and avaricious greed and behaviors that have a negative effect on developmental investment, growth and societal harmony. There’s a very good reason why almost all non-OECD nations have joined the BRI and want to join BRICS. But those nations also need to do housecleaning at home by ensuring strict government control over the financial sector or nationalizing it completely; and for those nations having odious debts to declare those debts odious and cease servicing them. Once freed from their debt-bondage, those nations can then direct monies their governments create into development projects built by their citizenry who then spend the wages they received back into the economy, and the economy grows.

Ultimately, when the financial basis for investment and development is owned and managed by the people, the major means of production are also owned and managed by the people. There can still be privately owned business within such a system, although IMO many will take on a cooperative nature since that’s the national ethos. Capital as such doesn’t need to be made into an ism as it exists in all economies as a tool. A cooperatively/socially owned enterprise still needs to generate a profit to pay its owners and invest in modernization of its plant. The key is to prevent excesses and monopsonistic situations, and when the latter occurs to nationalize that market segment so economic rents can be captured by government. The ultimate goal is to establish and perpetuate harmony within society and globally between all societies.

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