The development logic of capital under socialism with Chinese characteristics Open Access

Capital is a product of human society’s development at a certain historical stage. With ongoing social and economic development, the form and function of capital also change. Therefore, it is crucial to comprehend and grasp the theoretical logic behind capital development under socialism with Chinese characteristics. The crux lies in accurately understanding the distinctive features and the behavior patterns of capital within a socialist system and recognizing the historical conditions and theoretical origins that shape capital theory.

The capitalist mode of production gradually emerged in Western Europe in the late Middle Ages. The commodity-money relations continuously developed, and merchants and commercial capital began to play a significant role in social and economic development. Mercantilism, focusing on commercial capital, considers that the essence of capital is money and that capital appreciates during the circulation of commodities. Addressing the limitation of mercantilism that confines capital to the realm of circulation, the physiocrats shifted their focus on the study of capital from circulation to production. As a prominent representative of the physiocratic school, Quesnay divided the capital for agricultural production into “annual advances” and “original advances”, thus separating money from the capital. However, he still restricted capital to agricultural production. In the mid-17th century, the rapid development of the British bourgeoisie prompted a renewed consideration of the nature of capital. In the context of the monetization of social life at the time, Petty argued that money does not inherently generate wealth, and capital is like a “hen that lays eggs”. He also proposed that “land is the mother of wealth, labor is its father”, underscoring the importance of labor in the augmentation of social wealth. With this foundation, Adam Smith and David Ricardo began to explain the origin and accumulation of capital from the labor perspective. However, both equated capital with the means of production, confusing capital with its material form and neglecting the attribute of capital as a relation of production.

Karl Marx and Friedrich Engels applied the methods of historical materialism and dialectical materialism to critique and reconstruct the concepts of capital from classical political economy and other schools, pointing out the generality of capital “as a relation distinct from that of value and money”, i.e. “the incarnation of the qualities which distinguishes value as capital from value as pure value or money” (Marx, 1995, p. 269), advancing people’s understanding of capital to a new stage. Unlike mainstream Western economists who only regard capital as a production factor that generates wealth, Marx and Engels believe that “capital is not a thing, but a social relation between persons, established by the instrumentality of things” (Marx, 2001, pp. 877–878); that is, capital refers to the value that generates surplus value through the purchase of means of production and labor power, embodying a specific relation of production and manifested through the use-value form of a production factor. On the one hand, capital as a production factor can generate material wealth in society, exerting a positive role in promoting the development of productive forces. Capital “posits its material form as a consumable, but also as a new productive factor, or, more precisely, as a factor of reproduction” (Marx, 1998, p. 128) and continually reinvests the produced use-value and surplus-value into the system of production and reproduction, thereby endlessly generating material wealth in the society and continuously developing productive forces during generating surplus-value (Lu and Luo, 2005). On the other hand, with its nature of profit-seeking and expansion, capital is a value that can generate surplus value. Under the capitalist mode of production and the capitalist system, capital is essentially “the command over unpaid labor” (Marx, 2001, p. 611) with “an unceasing movement aimed at creating more surplus value” (Marx, 1995, p. 297). The overall power of capital relative to labor and other production factors in social production is inherently endowed by its profit-driven, accumulative, fluid, and expansive nature. In the capitalist market economy, this overall power is specifically manifested as capital not only exerting absolute control over surplus value but also determining its distribution, essentially reflecting a social relation of labor exploitation by capital.

Based on the above, it is evident that Marx and Engels primarily studied the issue of capital within the capitalist mode of production and lacked exploration of the concept of capital in socialist society. The capital theory constructed by Marx and Engels serves as a theoretical source for the development of capital under a socialist system, with significant reference value and important insights for historically, developmentally, and dialectically understanding and addressing the issue of capital under a socialist system.

According to the future society Marx and Engels envisioned, there is no need for the existence of capital in a socialist society where productive forces are highly developed, material products are extremely abundant, and means of production are publicly owned. However, the socialist society in which China currently exists is fundamentally different from the socialist society envisioned by Marx and Engels, making the existence of capital in the socialist system reasonable.

Firstly, the mode of production characterized by the coexistence of commodities and market economy in the primary stage of socialism makes the existence of capital possible. On the one hand, capital is a historical factor unique to the market economy, provided that labor-power is a commodity. Marx (2001, p. 198) indicates, “The historical conditions of capital’s existence are by no means given with the mere circulation of money and commodities. It can spring into life, only when the owner of the means of production and subsistence meets in the market with the free laborer selling his labor-power.” The fundamental characteristics of the current development of productive forces in China dictate the inevitability of a market economy, implying that socialism cannot bypass the market economy (Rong, 2017). In the socialist system, labor power as a commodity provides the precondition for money to be transformed into capital, thereby satisfying the potential for the existence and development of capital. On the other hand, China’s current basic economic system, in which public ownership is dominant while diverse forms of ownership develop together, is determined by commodity production and a market economy in the primary stage of socialism, which recognizes the rationality and legality of private ownership to some extent. Capital is compatible with the diversity and mix of ownership forms as a factor of production, necessitating various forms of capital, such as state-owned capital, private capital, and mixed capital, in the primary stage of socialism.

Secondly, the basic national condition that the productive forces are still underdeveloped in the primary stage of socialism determines the objective necessity of the existence of capital. China, emerging from a semi-colonial and semi-feudal society based on backward agriculture, inevitably has to go through a stage of “building socialism under the conditions of underdeveloped productive forces and an underdeveloped commodity economy” (Zhao, 1991, p. 12). Both Marxism-Leninism and the leaders of the CPC and the state have fully acknowledged the critical role of the development of productive forces in promoting social progress. The objective necessity of the existence and development of capital in the primary stage of socialism comes from the great role of capital in promoting the development of productive forces. On the one hand, capital, as a fundamental element in social production and reproduction, is also an important tool for combining other production factors and promoting optimal resource allocation. It plays a vital role in generating material wealth and value and is an important force in promoting the development of productive forces. On the other hand, the nature of capital to pursue profit and expansion dictates its unremitting pursuit of surplus value, which objectively provides an internal driving force for the development of social productive forces. As long as capital does not stop its movement, the accumulation of material wealth and value in society will continue incessantly. Therefore, unless the advanced stage of socialism characterized by highly developed productive forces and abundant material products is realized, capital has its value of existence.

Finally, the laws governing human societal development determine the necessity of capital in the socialist system in China. Lenin (2017) pointed out that “merely destroying capitalism cannot fill our stomachs; we must obtain the entire culture left by capitalism and use it to build socialism”, which first elucidated the idea of utilizing and learning from capitalism to build and consolidate socialism. Based on the new international and domestic situations since the reform and opening-up, Deng (1998) also proposed that “learning certain good things from capitalist countries, including business management methods, does not mean implementing capitalism; instead, it is socialism using it to develop social productive forces. Using this as a method will not affect the entirety of socialism, nor will it lead back to capitalism”. This discourse supports the notion that China can utilize beneficial elements of capitalism under the demand for developing social productive forces and, to some extent, supports using capital as a tool and method during the primary stage of socialism. However, in the socialist system, while capital and labor are equally regarded as production factors serving socialist modernization, the sharp interest conflict and exploitation relationship between labor and capital are abandoned at the level of relations of production. Facing the transformation of the social principal contradiction in the new era, the Communist Party of China deeply realizes that China is still in the primary stage of socialism and that continuously enhancing communication and mutual learning with developed capitalist countries and drawing on the excellent achievements of their civilizations remains an inevitable choice to fully leverage the positive role of various types of capital in participating in international competition.

It is not difficult to see that allowing the capital’s existence during the primary stage of socialism is a result of combining the fundamental principles of Marxism with the reality of China, which has enriched and developed the theoretical achievements of adapting Marxism to the Chinese context with practical feasibility, objective necessity, and situational imperative, representing a significant theoretical innovation made by the Chinese Communists based on China’s practices.

Since the founding of the People’s Republic of China in 1949, the CPC has continuously explored and explained the characteristics and patterns of capital in the socialist system through practical experience based on changes in China’s principal contradictions and central tasks during different historical periods. This has led to a monumental leap in the capital theory in the socialist system, evolving “from nothing to something, and from something to excellence” ^[1]. This significant leap is primarily reflected in the gradual deepening of the understanding of the nature of capital in the socialist system, a more comprehensive recognition of the role of capital, and a more scientific grasp of capital patterns.

To build China into a socialist modernized nation, Chinese Communists, with Deng Xiaoping as the principal representative, scientifically addressed the fundamental issue of “what is socialism and how to build socialism” by applying materialist dialectics. They established the socialist market economy system and initially formed the capital theory of socialism with Chinese characteristics, achieving a significant leap “from nothing to something” regarding the capital theory under the socialist system. To be more specific, firstly, they clarified the historical positioning of the primary stage of socialism, emphasizing the importance of maintaining the leading role of public capital and the supplementary role of non-public capital, thereby laying the foundation for a comprehensive understanding of the nature of capital in the socialist system. Since the reform and opening-up, the Central Committee of CPC has recognized that adopting the “traditional socialist model” in the early stage of socialist construction in China is unfeasible. The view that socialism does not need capital would hinder unleashing the potential of productive forces and stimulating endogenous economic growth. Throughout the reform and opening-up process, China has consistently adhered to the socialist orientation, emphasizing the dominance of public capital. Simultaneously, under the circumstances of a shortage of public means of production and a surplus of labor force, the idea of “developing some individual economy, absorbing foreign funds and technology, welcoming Sino-foreign joint ventures, and even allowing the establishment of wholly foreign-owned factories in China” (Deng, 2001a, p. 138) gradually gained recognition, given the essential requirement of liberating and developing productive forces, and non-public capital became an important part of capital in the socialist system. Secondly, they affirmed the positive role of capital as a production factor in promoting the development of productive forces. With major propositions like “planning and market are both economic means” and “the essence of socialism is to liberate and develop productive forces”, the Central Committee of the Party placed capital on an equal footing with other production factors like labor and technology, “to unleash all the vitality contained in work, knowledge, technology, management, and capital and give full play to all sources of social wealth for the benefit of the people” (Hu, 2008, p. 20), affirming the contemporary value of capital and providing theoretical support for operating capital in a socialist market economy. Thirdly, they accurately grasped the behavior patterns of capital’s increasing integration into globalization and financialization. In the context of sustained expansion of opening up and intensifying international competition, “our country’s utilization of foreign capital faces both new opportunities and new challenges.” The continuous progress of economic globalization brings advanced technology, management experience, and substantial funds to our country, but it may also cause macroeconomic instability and unpredictability. The central leadership increasingly realized the importance of strengthening capital operation and regulation. Thirdly, they accurately grasped the behavior patterns of capital increasingly integrating into globalization and financialization. In the continuous expansion of opening-up and intensifying international competition, China’s utilization of foreign investment is faced with both new opportunities and new challenges (Jiang, 2006, p. 91). While the ongoing process of economic globalization brings advanced technologies, management expertise, and substantial funding to China, it may also lead to macroeconomic instability and uncertainty. The central leadership has gradually recognized the importance of strengthening capital operation and regulation.

Since the 18th National Congress of the CPC, General Secretary Xi Jinping has delivered a series of significant discourses on regulating and guiding the sound development of capital. These discourses represent a breakthrough in the theory of capital under the socialist market economy in the new era, improving the capital theory of socialism with Chinese characteristics and achieving a qualitative leap in the capital theory in the socialist system from merely existing to becoming refined. Firstly, there is a correct recognition of the various types of capital existing in Chinese society, leading to a deeper understanding of the nature of capital in the socialist system. In the new era, based on a scientific grasp of the overall operation of the Chinese economy,Xi (2015) pointed out that various forms of capital, such as state-owned capital, collective capital, private capital, foreign capital, and mixed capital, exist in China, corresponding to the structure of ownership with public ownership as the mainstay and multiple forms of ownership coexisting in China and emphasized that the comprehensive deepening of reform should “facilitate the advantages and complementarity and promote mutual advancement and common development of various ownership forms of capital”. This remark underscores the dominant position of public capital, especially state-owned capital, and fully recognizes the significant role of the mutual complementarity and promotion between various ownership forms of capital. Secondly, while the positive role of capital as an important factor of production is emphasized, the potential negative impacts of the profit-seeking nature of capital are also acknowledged, leading to a more comprehensive understanding of the role of capital. Based on an accurate grasp of new domestic and international situations and changes, General SecretaryXi (2022b) called for giving full play to the positive roles of capital as a factor of production in “promoting technological progress, prospering the market economy, facilitating people’s lives, and participating in international competition” and also clearly recognized that “capital has a profit-seeking nature, and if not regulated and constrained, it will bring immeasurable harm to economic and social development.” This concept provides theoretical guidance for coordinating development and security, as well as efficiency and equity, under the conditions of the socialist market economy in the new era. Thirdly, the grasp of the behavior patterns of capital has become more scientific and comprehensive. In social and economic development, capital proliferates in movement and shows different movement regularities in competition. Due to insufficient understanding and lack of regulation, some areas in China have seen disorderly capital expansion, wanton manipulation, and profiteering (Xi, 2022a). Coping with the increasing instability in the knowledge economy era (Ren, 2001), it is necessary to regulate and guide the sound development of capital such that “‘not allowing capital predators’ act recklessly, while giving full play of capital as a factor of production, which is a major political and economic issue that cannot be evaded” (Xi, 2022b). This discourse highlights both the new problems faced by capital development in the new development stage in China and points to the main orientations for setting “traffic lights” for capital, deepening capital market reforms, and strengthening anti-corruption efforts based on a scientific understanding of the behavior patterns of capital.

As the Central Committee of the Communist Party of China continues to deepen its understanding of socialism and capital, the capital policies of China in different periods are accordingly adjusted. Systematically analyzing the evolution of capital development in the socialist system and dissecting the logic behind shifts in capital policies is crucial for comprehensively summarizing both positive and negative experiences related to capital, as well as for enhancing governance capabilities in capital operation.

The century-long struggle led by the Communist Party of China in China’s revolution, construction, and reform is closely intertwined with capital policies. In the early stages of the New Democratic Revolution, constrained by its limited understanding and the urgent need to save the nation from peril, the CPC regarded capital as the root cause of the exploitation and plundering suffered by the working class. Hence, the then capital policies were characterized by exclusion and confiscation of capital. However, with the outbreak of the Anti-Japanese War of Resistance, the national conflict between China and Japan gradually became the primary social contradiction, and some Chinese communists came to realize that the direct consequence of indiscriminately rejecting capital would be an expanded scope of suppression. The capital policies were then adjusted to utilize capital, a strategy that continued through the late Chinese Civil War. Notably, during this period, the CPC’s policy of using capital meant allowing capital to operate within a specific scope, while the notion of restricting capital did not disappear. The changes in capital policies during the New Democratic Revolution gave the CPC valuable lessons for formulating and adjusting capital policies in the socialist system while keeping pace with the times.

To smoothly transition from New Democracy to socialism after the foundation of the People’s Republic of China in 1949, “we [Chinese people] had no choice but to copy the Soviet Union in terms of economic construction” (Mao, 1962). In 1953, the CPC officially proposed the general line and task for the socialist transition period. As the core of the general line for the socialist transition period, the proposal of “One Industrialization and Three Transformations”, i.e. realizing socialist industrialization and the socialist transformation of agriculture, handicrafts, and capitalist industrial and commerce, embodied the organic unity of developing productive forces and transforming relations of production. However, at the same time, the CPC Central Committee stated that the task of China’s revolution in the second stage is to establish a socialist society in China and eliminate the components of capitalism in urban and rural areas (Publicity Department of the CPC Central Committee, 1993, p. 695), and the essence of CPC’s general line during the transition period is to make the socialist ownership of the means of production the only economic foundation of the state and society of China (Publicity Department of the CPC Central Committee, 1993, p. 702). This theoretical cognition seriously deviated from the basic national condition that China was then an underdeveloped agricultural country and overlooked the rationality of the private ownership of means of production. Besides, the concept of “capital” began to be replaced by “funds”, and the attributes of capital as a productive force and relation of production were nominally eliminated.

Since the basic completion of the three major socialist transformations, the policy of negating and eliminating capital persisted until the period before the reform and opening-up. Although the CPC Central Committee tried to correct ideological perspectives during this period, these efforts did not succeed significantly. Finally, the Eighth National Congress of the Communist Party of China, given the domestic and international situations, made an accurate assessment of the principal social contradictions — It pointed out that “the primary contradictions in China are between the people’s demands for building an advanced industrial country and the reality of a backward agricultural country, and between the people’s needs for rapid economic and cultural development and the fact that the current economic and cultural development cannot meet the people’s needs” and further made a scientific decision of “focusing on economic development and advancing the productive forces of society” (Xi, 2012, p. 389). Unfortunately, the correct line established by the Eighth National Congress of the CPC did not persist. The basic program of CPC quickly shifted to “continuing revolution under the dictatorship of the proletariat” and “taking class struggle as the key link” (Liu and Fan, 2022). Campaigns such as the “Great Leap Forward” and the people’s communes arose in China. In particular, the Cultural Revolution re-ignited a frenzy of criticizing capitalism across China, which resulted in the full-scale implementation of policies aimed at eliminating private and individual economies and prohibiting household sideline businesses as well as fairs and markets to achieve a fully socialist public ownership system, in which capital was eliminated.

After the end of the Cultural Revolution, the urgent question facing socialist China was determining its future path. In December 1978, the Third Plenary Session of the 11th Central Committee of the Communist Party of China decisively rejected the erroneous “Two Whatevers” policy, re-established the guideline of seeking truth from facts, shifted the focus of the party and the nation’s work to economic development, and made the historic decision to implement reform and opening-up. This laid an institutional foundation for the return of capital to China. Unlike the approach during the period of socialist revolution and construction that adhered to the “traditional socialist model” aiming at the negation and elimination of capital, the CPC central committee adopted policies related to supporting and operating capital in the new era of reform, opening-up, and socialist modernization. During this period, capital policies mainly focused on promoting the development of productive forces and driving China’s rapid economic growth.

Essentially, the changes in capital policy were attributable to the CPC Central Committee’s vague understanding of “what is socialism and how to build socialism”, specifically manifested as categorizing capital and market economy as economic factors exclusive to capitalist societies. However, policies that negate and eliminate capital neither stimulate the vitality of various market entities nor prove the superiority of the socialist system. Therefore, the Third Plenary Session of the 11th Central Committee pioneeringly proposed that “private plots, household sideline businesses, and market trade are necessary supplementary parts of the socialist economy” (Renmin Ribao [People’s Daily], 1978), affirming the rationality and legality of private ownership and the market, and heralding the rehabilitation for capital in the new era. With the CPC Central Committee’s deepening understanding of the socialist path, the Third Plenary Session of the 12th CPC Central Committee stated that the socialist economy is “a commodity economy based on public ownership with planned management”, and that “implementing a planned economy and utilizing the law of value to develop a commodity economy are not mutually exclusive but unified. It is wrong to pit one against another” (“Zhonggongzhongyang guanyu jingjitizhi gaige de jueding [The CPC Central Committee’s decision on economic system reform]”, 2008, p. 350). This significant judgment provided practical possibilities for leveraging the productive properties of capital. Meanwhile, the plenary session also advocated for “multiple economic forms and modes of operation”, significantly propelling the development of private and individual economies, with private capital, foreign capital, and capital from Hong Kong, Macao, and Taiwan rapidly recovering and developing.

With the establishment of a socialist market economy, the Central Committee of the CPC has deepened its understanding of capital, and policy instruments have been diversified in China, mainly reflected in the following aspects: Firstly, leveraging the positive role of capital as an important production factor to drive high-speed economic growth. In the report to the Fifteenth National Congress of the CPC, Jiang (2000) proposes “focusing on developing markets for production factors such as capital, labor, and technology, and improving the mechanism for the formation of the factor prices of production”, emphasizing the role of capital as a production factor in resource allocation. Besides, capital plays a significant role in promoting the development of productive forces and advancing social progress. To fully unleash the potential of capital, China has continued to introduce multiple policies to encourage the development of various forms of capital, including “improving the foreign exchange settlement and sale system, strengthening cross-border capital flow regulation, and steadily promoting the convertibility of the capital account” (Wen, 2009, p. 309) and “breaking monopolies, relaxing market entry barriers, and encouraging, guiding, and regulating private capital to enter the financial services sector, participating in the restructuring and capital expansion of banks, securities, and insurance institutions” (Wen, 2013a, p. 773). Secondly, vigorously developing the capital market. The opportunities presented by economic globalization and financialization urgently require China to develop the capital market. In response to this, Deng (2001b, p. 373) remarked during his southern tour, “Are securities and the stock market good or bad? Do they entail any dangers? Are they unique to capitalism? Can socialism adopt them? We allow people to reserve their judgment, but we must try these things out.” The significance of capital has been continuously enriched in the socialist system. “The capital market should actively and prudently facilitate bond development and equity financing” (“Zhonggongzhongyang guanyu shehuizhuyi shichangjingji tizhi ruogan wenti de jueding [The CPC Central Committee’s decision on some issues concerning the establishment of a socialist market economy system]”, 2008, p. 737), marking the beginning of China’s active attempts to develop the capital market. With more profound insights into the behavior patterns of capital, the document titled “Several opinions of the State Council on promoting the reform and opening-up of the capital market and ensuring its stable development” issued by the State Council of China (2005, p. 747) states that “vigorously developing the capital market is an important strategic task and holds significant importance for achieving the strategic goal of quadrupling China’s GDP within the first 2 decades of the 21st century”. It fully underscores the importance of vigorously developing the capital market from several perspectives, such as: “beneficial for improving the socialist market economy system, allowing the capital market to better play its role in optimizing resource allocation, and effectively transforming social funds into long-term investments”, “conducive to the structural adjustment and strategic reorganization of the state-owned economy, as well as accelerating the development of the non-state-owned economy”, and “facilitating increasing the proportion of direct financing, improving the financial market structure, enhancing the efficiency of financial markets, and maintaining financial security”. Thirdly, strengthening capital operations of state-owned enterprises (SOEs). During the reform of SOEs, the CPC and Chinese government have emphasized the joint efforts of “strengthening management, reducing losses and increasing profits, and improving efficiency”. To effectively improve the economic efficiency of SOEs, it is necessary to “enhance fund and cost management and improve the efficiency of capital operation” (State Council of China, 1997), encouraging SOEs to actively engage in capital operations. As the reform and opening-up continue to advance, there is a need to “continue to promote the strategic adjustment of the state-owned economy, and establishing a rational mechanism for state-owned capital to enter and exit” (Wen, 2013b, p. 247), signaling a new stage in the capital operations of state-owned enterprises.

Since the new era began, the Central Committee of CPC, with Xi Jinping at its core, based on the actual development of capital, demanded efforts to regulate and guide the sound development of capital in China according to law, signifying that China’s capital policies have entered the stage of regulation and guidance. During this period, capital policies primarily focus on continuing to promote the development of productive forces, promoting coordinated development of capital, and preventing the disorderly expansion of capital.

Firstly, leveraging the leading role of capital and driving various factors of production to promote the development of productive forces jointly. Based on the new development stage, General Secretary Xi (2022a) indicated, “Capital serves as a vital tie for the aggregation and allocation of factors of production in the socialist market economy. We should harness the positive impact of capital as a major force in promoting the development of productive forces.” His insightful summary of the positive role of capital clarifies that in this new stage of development, regulating and guiding the sound development of capital in China must fundamentally serve the development of productive forces. With the deepening understanding of the CPC Central Committee on the characteristics of capital in the socialist system, for facilitating the development of all types of capital,Xi (2013) suggested that “the investment and operation of state-owned capital should serve the country’s strategic goals, with more investment in industries and key areas crucial to national security and the core of the national economy,” and “encouraging non-public enterprises to participate in the reform of SOEs, and encouraging the development of mixed-ownership enterprises controlled by non-public capital and the establishment of modern enterprise systems in eligible private enterprises”, expanding the scope of activities of non-public capital, facilitating the full deployment of non-public capital while emphasizing the critical roles of state-owned capital in improving people’s livelihoods, supporting technological innovation, and safeguarding national security.

Secondly, prioritizing the coordinated development of different types of capital and preventing systemic financial risks. With the rise and development of a new wave of technological revolution, new forms of capital, such as platform capital and ecological capital, have emerged. To address the potential economic risks posed by the unchecked expansion of fictitious capital (Xu and Gao, 2000), General Secretary Xi (2016) emphasized at the Central Economic Work Conference in 2016 the necessity to “decisively dispose of risk points, focus on preventing and controlling asset bubbles, and strengthen and improve regulation to ensure that no systemic financial risks will occur”, initiating China’s efforts to maintain capital security and control financial risks. With deeper insights into the behavior patterns of capital, Xi (2017a), during an inspection tour in Guangxi, indicated for the first time that “China is a large country that must develop the real economy, continuously advance industrial modernization, and improve the capability of manufacturing without diverting funds out of the real economy”, which highlights the critical importance of the real economy while also addressing the need to prevent from diverting funds out of the real economy. Regarding the relationship between capital, finance, and the real economy, it is noted that “the capital market plays a crucial role in financial operations, affecting the entire system” (Xi, 2018). Therefore, it is necessary to “promote the sound development of a multi-level capital market to serve the real economy better and hold the bottom line of preventing systemic financial risks” (Xi, 2017b), indicating the necessity for the coordinated development of different types of capital and attention to the potential systemic risks triggered by the trend of “diverting funds out of the real economy” and the unrestrained growth of fictitious capital (Hong, 2022).

Thirdly, strengthening the regulation of capital behaviors and preventing the disorderly expansion of capital. In recent years, with the rapid rise of big data, the Internet of Things, and the platform economy, new situations and challenges related to capital have emerged in the production and circulation process, such as market monopolies, “too big to fail”, and the collusion between capital and power. In response to emerging challenges in the digital economy, Xi Jinping, at the Central Economic Work Conference 2020, explicitly proposed for the first time to enhance efforts against monopolistic practices and prevent unchecked capital expansion, including a call to “improve legal norms related to the identification of the monopoly, management of data collection and use, and protection of consumer rights and interests regarding platform companies” (Xi, 2020), setting a solid tone for regulating capital movement. In light of the CPC’s increasingly comprehensive understanding of the role of capital, at the Central Economic Work Conference 2021, Xi (2021) stressed the necessity to accurately understand the characteristics and the behavior patterns of capital, leverage the positive effect of capital as a factor of production while effectively managing its negative impact, set up “traffic lights” for capital to strengthen the effective regulation of capital according to the law, preventing the uncontrolled expansion of capital. This is the first systematic discussion by the Central Committee of CPC on the issue of capital in the new era, and the establishment of “traffic lights” represents the initial ideas of the Central Committee on regulating the capital movement. In recent years, faced with the risks and challenges brought about by the rapid rise of the platform economy, to achieve the stable and sustainable development of the national economy, theState Council of China (2022) issued the Notice of the State Council on Distributing the Package of Policies and Measures for Solidly Stabilizing the Economy on May 31, 2022, which stated that “specific measures should be introduced to support the well-regulated, sound development of platform economy, and ‘traffic lights’ should be set up against the disorderly expansion of capital to maintain market competition order, promoting the regulated and sound development of platform economy through fair competition.” The issuance of relevant policies will benefit the regulated and sound development of capital.

Since the advent of the new era, China has faced issues in capital development, such as the collusion between capital and power, “diverting funds out of the real economy”, and increasingly severe monopoly in the market. Regulating and guiding the sound development of capital is imperative to addressing these new challenges. To this end, when putting in practical effort, China should take a path that upholds the leadership of the CPC, guided by the capital theory of socialism with Chinese characteristics, with the aim of common prosperity.

Capital inherently seeks profit and, in its relentless pursuit of surplus value and continuous expansion, seeks to influence various key aspects of the political process, which leads to collusion between capital and power. When examining the economic history of Western developed countries like the UK and the US, it is evident that the rapid industrialization and urbanization of the “Gilded Age” were often accompanied by rampant corruption, indicating the excessive interference of capital in politics, sometimes even leading to the hijacking of national interests by capital.

Since the reform and opening up, the CPC and Chinese government have been working on capital operations for more than 40 years, during which there have been instances of capital interfering with political power, such as bribery of government officials, shielding political brokers by power, and leveraging political connections to evade regulation. In response, the CPC Central Committee has proposed enhancing party building through ideological campaigns, organizational construction, and conduct improvement. This involves applying stringent standards for CPC members and seriously cultivating CPC cadres to improve the CPC’s governing capacity in every aspect, which manifests the party’s advanced nature and purity and is a critical assurance for duly addressing the issues arising in capital operations. In recent years, with the continuous growth of capital scale, the collusion between capital and power has intensified, manifested in the capital seeking political influence through exchanging money for power. Currently, capital’s interference with political affairs takes many forms, such as meddling in candidate selection and official appointment, influencing policymaking, interfering with policy implementation, and exploiting policy loopholes to dodge regulation, with specific methods including vote-buying, forming the “clubs” of the rich and powerful to influence the political process, legislative corruption, and abuse of authority to disrupt market competition. Adhering to the leadership of the CPC is the political assurance and fundamental support for managing the relationship between capital and power in the socialist system, addressing the confluence of capital and power. First, it is necessary to enhance the CPC’s comprehensive and unified leadership over economic work under new circumstances to prevent capital from capturing regulation. The CPC must continuously improve its leadership and governance capabilities and first strengthen its supervision and guidance over state capital while consolidating its leadership role in state-owned enterprises by establishing and improving incentive mechanisms such as “two-way entry and cross-appointment”, ensuring that Party organizations participate in the major decision-making and personnel selection of state-owned enterprises at the institutional level, thereby curbing the source of capital’s interference in politics. Furthermore, it is crucial to bolster Party building and improve the system for selecting Party cadres to prevent the capital’s interference in politics. Only by constantly enhancing party-mindedness, fostering the sense of resisting corruption and moral degeneration, and improving the ability to resist temptation can the members of the CPC eliminate the influence of capital over power and achieve the unity of economic development and human development. Finally, the CPC must implement the strategic guideline of comprehensively strengthening Party self-discipline, with high attention paid to political ecology issues, with high attention to political ecology issues. Only by intensifying anti-corruption efforts against capital-power collusion in relevant fields, severely punishing government officials who abuse power for personal gains, and resolutely cracking down on capital’s unscrupulous pursuit of profit with the backing of power can the negative impacts of capital interfering in politics such as weakening the country’s governance capacity, breeding official corruption, and threatening the security of the regime be minimized.

In the context of increasing global economic downturn risks and increasingly intricate relations among major powers, excessive virtualization and financialization of capital have led to a marked tendency to divert funds out of the real economy in China and may even bring about systemic risks to the country’s economic operation. First of all, capital is more focused on short-term gains under the combined effect of the motivation of intrinsic value growth and the pressure of external competition. In recent years, the operating costs of Chinese real-economy enterprises have continued to rise while their business profits have declined significantly. In contrast, the investment return rate in the financial sector is relatively higher, which has led capital to flow more toward the financial industry to obtain returns or has caused some real economy enterprises to change their business scope to benefit from financial activities. In addition, finance can also operate independently of the real economy, accelerating the accumulation of financial capital and expanding the financial industry’s scale. This can give rise to regulatory arbitrage, illegal fundraising, and even the hollowing out of the real economy.

In fact, whether it is Sun Yat-sen’s proposal for regulation of capital during the later period of the “Old Democratic Revolution”, ^[2] or the CPC’s regulation of the development of capital markets and strengthening of capital operation and supervision since the reform and opening up, it shows that the awareness of preventing capital risks has never been eliminated. Based on the need of socialist modernization and effective risk prevention, the CPC began to experiment with and continuously improve capital operation, strengthen capital regulation, steadily develop capital markets, and safeguard financial security. In recent years, with the continuous growth of the total volume of fictitious capital in China has grown, there has been a trend toward diverting funds out of the real economy, giving rise to serious events threatening economic security and social stability, such as the real estate bubble, Ponzi schemes, and the 2015 stock-market crash. Therefore, adhering to the guidance of the theory of capital under socialism with Chinese characteristics is an important practical basis for the CPC to calmly address new problems in capital development in the new stage and overcome the tendency of diverting funds out of the real economy, and further prevent and resolve systemic risks. First and foremost, it is essential to understand the nature of capital under a socialist system correctly. Based on recognizing that capital is a form of value, movement, and relation of production — the “general” concepts of capital — we must correctly grasp the special characteristics of capital in the socialist system. This involves clarifying the specific forms of capital in the socialist system, identifying the dominant forms of capital at different stages of the socialist system and their relationships, and understanding the relations of production represented by these specific forms of capital, which is the basis for the sound development of capital in the socialist system. Secondly, there must be a comprehensive understanding of the roles of capital under a socialist system. We should consider capital within the context of social production and reproduction, analyzing its positive and negative roles across the stages of production, circulation, distribution, and consumption, and fully and dialectically understanding and managing the various types of capital and their roles in China’s society, which is a prerequisite for the sound development of capital in the socialist system. Last but by no means least, it is crucial to grasp the patterns of capital behaviors scientifically. Under the intrinsic motivation of value appreciation and external competitive pressure, capital exhibits specific patterns such as the continuous reshaping of power systems, the evolution of dominant forms of capital with the progress of the times, and the innovation of production methods through technological changes, which is evidence of the sound development of capital in a socialist system.

Under the intrinsic motivation of value appreciation and external competitive pressure, capital will attempt to achieve rapid accumulation through new technologies; however, excessive accumulation of capital can easily lead to market monopolies (Hu, 2022). Once such a monopoly is established, capital owners can leverage their dominant position to expand their monopoly scope and gain additional profits by setting monopoly prices, which inevitably leads to several issues, including widening wealth disparity. Looking at China, with the consistent advancement of reform and opening up, the level of productive forces and economic strength has continuously improved but has been accompanied by the widening gap between the rich and the poor and unbalanced and inadequate development. In response, to build China into a great modern socialist country, the CPC Central Committee remains steadfast in leveraging capital and harnessing the dynamism of various types of capital while emphasizing the gradual realization of common prosperity, which is the essence of socialism. As China’s digital economy continues to develop, the network externalities and two-sided market characteristics of the platform economy have given rise to new types of monopolies, significantly shortening the time it takes for market monopolies to form and giving birth to a new form of capital known as platform capital. Platform enterprises can use their advantages in traffic and data to drive out other market players and obtain greater excess profits. Additionally, they employ data and algorithmic advantages to implement precise price discrimination against consumers, thereby capturing more consumer surplus and affecting the income distribution structure, further widening the wealth gap. Therefore, under the conditions of a socialist market economy in the new era, it is important to clearly define the scientific connotation of common prosperity and balance the relationship between economic efficiency and social equity, which is crucial for dismantling monopolies and promoting the sound development of capital.

Achieving common prosperity is the practical goal of strengthening anti-monopoly regulation, preventing unchecked capital expansion and growth, and balancing efficiency and fairness in the new area. First, it is crucial to improve the fundamental system of the socialist market economy for better utilizing capital as an important link in resource allocation, thereby releasing more room for the development of various types of capital. The socialist market economy is a rule-of-law-based economy, which necessitates adhering to the principle of competitive neutrality, requiring continual enhancement of fundamental institutions related to property rights, market access and exit, and fair competition to provide robust institutional support for high-quality economic development. On this foundation, capital, as a link in resource allocation, not only helps generate more material wealth under equal conditions but also promotes technological progress, fostering a virtuous cycle of continuous development of productive forces and constant increase in social wealth. Second, it is crucial to improve the capital regulation system by setting up “traffic lights”. This involves strengthening market supervision and anti-monopoly regulation under laws and rules, establishing a comprehensive, multi-level, and multidimensional regulatory system to ensure full-spectrum, end-to-end oversight of capital and maintain market order. Only throughex ante, interim, and ex-post regulation of monopolies and unfair competition throughout the process, identifying sectors where different forms of capital are allowed or prohibited from entering, along with dynamic adjustments, can the country better foster a market environment conducive to the development of all types of capital, and further enhance economic efficiency and share the “cake” fairly while making it bigger. Finally, it is vital to adequately address the issue of capital involvement in profit distribution. Such efforts include prioritizing people’s interests in social distribution and establishing appropriate institutional arrangements that coordinate primary, secondary, and tertiary distribution. While focusing on the quality of economic development, it is necessary to ensure that different forms of capital can achieve reasonable appreciation in the profit-distribution process for realizing common prosperity with development outcomes shared by all.