Today's China Has Much in Common with the NEP (New Economic Policy)-Era Soviet Union

The state’s dominant role in investment is evidence of a desire to “occupy the commanding heights.” This is a strategy originally described by Lenin in a 1922 address to the Fourth Congress of the Communist International on his New Economic Policy. The NEP, introduced in the previous year, was a retreat from earlier attempts to achieve a “direct transition to purely socialist forms,” as Lenin put it. These attempts, combined with the disastrous effects of the Russian Civil War, resulted in an economic collapse. The Soviet government had no choice but to restore a measure of private participation in the economy.

The fact that command economy methods had failed was not taken as a sign that they were unworkable. For Lenin, the problem was simply that their time had not yet come. He decided that a preliminary period of “state capitalism” would be necessary before “full communism” could be realized.

Retaining state control over key sectors was necessary to prevent a return to the prerevolutionary status quo during this transitional period. In his address, Lenin advocated (1) keeping the land and the “vital branches of industry” in the hands of the state, (2) leasing out “only a certain number of small and medium plants,” and (3) forming “mixed companies,” in which “part of the capital belongs to private capitalists—and foreign capitalists at that—and the other part belongs to the state.”

Surprisingly, despite being considerably more advanced economically, today’s China has much in common with the NEP-era Soviet Union. All land is state owned, as are many strategic sectors. The largest plants are almost all part of central government-controlled enterprises. Mixed companies, like those listed on the Hong Kong Stock Exchange, are quite common.

--Mark A. DeWeaver, Animal Spirits with Chinese Characteristics: Investment Booms and Busts in the World's Emerging Economic Giant (New York: Palgrave Macmillan, 2012), 24.