Russia and China: The Difference

One heavily neoliberal the other still socialist

Although Russia and China are allies, they are very different nations with very different political economies. Both nations experienced proletarian revolutions, in 1917 for Russia and 1949 for China. But in the Soviet Union the revolution was first undermined by the treachery of Khrushchev and then the victory of the bureaucrats and corruption under Brezhnev; with Gorbachev delivering the coup de grace through his incredibly naive policies. Then a kleptocratic revolution from above followed with a primitive accumulation that created an oligarchy, overseen by the oligarch puppet and Western vassal Yeltsin. Putin has managed to significantly ameliorate the impact of the oligarchs, but Russia is still very much a child of the 1990s disaster. In contrast, the Communist Part of China has kept power since the revolution, although there was a real possibility of a disastrous period of shock therapy in the late 1980s, through successive stages of economic and social renewal. China is a socialist country, Russia is a significantly neoliberal capitalist one.

Western mainstream economic textbooks, and political economy and sociology assume an independent state that represents the “will of the people”, the “national interest” or the “raison d’etat”, as this is the only way that their models produce beneficial results. But in the Western nations, since their bourgeois revolutions, the state has acted as a tool of the capitalist class. The is the lie that sits at the centre of all mainstream Western social science; that there is not a capitalist class that dominates society and that the capitalist class does not control the state as a tool of its domination. Mainstream economics also masks the huge role of the state in driving industrialization and ongoing technology upgrading (e.g. the US state in the post-WW2 period).

Markets and greed are very useful tools if they are kept within a straight-jacket of control and direction by a truly independent state that can competently contain their excesses and generally direct them without picking winners; state directed market competition. The Import Substitution Industrialization (ISI) of the South American states in the post-WW2 years achieved very significant success, even though its effectiveness was reduced by clientelist relations between the state and individual capitalists; as the state picked favoured winners behind high tariff walls. Even with such shortcomings, the massive gains in industrialization could have been significantly maintained if the “shock therapy” policies of the 1980s and 1990s, which included a sudden move to free trade and a removal of government industrial support, had been replaced with a much more nuanced and gradual approach. The US forced these policies through the 1980s Latin American Debt Crisis, together with comprador elites and intellectuals (e.g. economists trained at the Chicago School), explicitly to destroy the challenge of Latin American industrialization and to return these nations to the level of vassal resource exporters.

The economic share of manufacturing in Brazil, Argentina and Chile:

• 1970: Brazil 24.63%; Argentina 31.54%; Chile 25.47%

• 1980: Brazil 33.5%; Argentina 25.48%; Chile 21.43%

• 1990: Brazil 26.79%; Argentina 26.79%; Chile 18.51%

• 2000: Brazil 15.3%; Argentina 16.49%; Chile 16.88%

• 2010: Brazil 11.4%; Argentina 15.84%; Chile 10.77%

• 2020: Brazil 12.4%; Argentina 15.37%; Chile 9.93%

• 2025: Brazil 13.7%; Argentina 13.7%; Chile 9.01% (2024)

The Latin American development states had already been destroyed by 2000, before China had gained access to Western markets through WTO membership in 2001. The already weakened manufacturing sectors of these nations then collapsed further. While Brazil has experienced a small recovery in recent years with respect to manufacturing, Argentina and Chile have experienced further falls. But even in Brazil, very significant parts of its manufacturing sector are to all intents and purposes completely foreign owned; automobiles, tyres, chemicals/petrochemicals, machinery and equipment, appliances and electronics. Mexico’s level of manufacturing peaked in 1970 (22.04% of GDP) and fell to a low in 2009 (15.10%) before showing a small recovery since then, but foreign (mostly US) capital plays a dominant role in the manufacturing sector; with the maquiladora factories that enjoy access to duty free inputs.

When the Chinese Party-state opened up its economy it maintained ownership of the commanding heights of the economy (finance, energy, heavy industries), maintained capital controls, and also only allowed foreign companies to operate through 50/50 partnerships with Chinese firms with a commitment to transfer technology. With the use of designated export-oriented Special Economic Zones, and a massive devaluation of the Yuan against foreign currencies, to attract foreign capital. Land was also maintained under state (urban) and local cooperative (rural) ownership. The Party-state came close to losing control in 1998, after a “big bang” price reform lead to rapidly increasing inflation. A group of Chinese economists led by Wu Jinglian, supported by the World Bank, Western and European émigré economists, pushed for the type of rapid deregulation that later destroyed the Soviet Union and pushed its successor Russia into a hyper-inflationary depression. They were proposing a:

Completely new economic system [requiring] hard-hitting measures to supersede the dual-track system in a relatively short time … [with a privatization strategy that should] reform the legal government structure of state-owned enterprises … [such that] the government will only retain the role of overall management of society and the economy … no longer [being] the direct agent of public ownership, let alone interfere in the internal affairs of enterprises (Wu quoted in Weber 2021, p. 235).

Thankfully, Deng rejected the path of extremist liberalism, and rolled back the previous price liberalization “and imposed a strict [economic] retrenchment policy to regain control” (Weber 2021, p. 252). The CPC resisted an intellectual neocolonization and maintained control over the commanding heights together with limitations over foreign direct investments.

In this way, China was able to upgrade its manufacturing sector while also maintaining its domestic manufacturing base. Together with extensive investments in infrastructure and education etc., and targeted sectoral aid that did not pick winners, China was able to rapidly upgrade over a period of decades; becoming the “workshop of the world”. At all times, the Party-state maintained control, reinforced in the 2010s by Xi’s crackdown on state corruption and bourgeois elements that were attempting to amass social and political power. The state also took anti-trust very seriously, moving to maintain healthy competition between firms and to stop attempts at gaining market domination. This is why Chinese corporate profits are half the level of the highly monopolized and corruption-ridden US. China maintained its manufacturing share of above 30% of GDP in 1970 into the 2010s, with a small reduction to 25% in 2025; with a real GDP that has increased by over 70 times.

In the 1990s, the shock therapy unleashed on Russia at the behest of Western advisors destroyed much of Russia’s manufacturing industries; greatly aided by asset stripping and kleptocratic foreign and domestic capitalists. Manufacturing as a share of Russian GDP:

• 1990: 26.5%

• 2000: 17.8%

• 2010: 12.8%

• 2020: 13%

• 2024: 13.25%

In 2024, a manufacturing share on par with Brazil or Argentina. The Western policy proscriptions had destroyed manufacturing competitors across both Latin America and the post-Soviet economies. In Ukraine, the manufacturing centre of the Soviet Union, the GDP share of manufacturing had fallen to only 10% in 2020. In Belarus, which maintained a greater role for the state, the manufacturing share still fell, but to 20% in 2024.

Under Putin, there was some rebalancing between the oligarchs and the state, with those not accepting their reduced power being jailed and/or exiled, with their stolen wealth confiscated (e.g. Khodorkovsky, Berezovsky). The state owns a very significant part of the manufacturing sector through state-owned industries such as Rostec and and Almaz-Antey. The oligarchs still control significant economic sectors though, such as metals and chemicals (e.g. Mordashov, Lisin and Abramov in steel; Potanin in nickel; Deripaska and Vekelsburg in aluminum; Michelson and Timchenko in natural gas and chemicals; Melnichenko and Mazepin in chemicals and fertilizers). The oil company Lukoil is owned by foreign investors (e.g. Blackrock) as well as the oligarch Kerimov. In 2026, the combined wealth of the 155 Russian billionaire was US$696.5 billion. In China, the sources of economic rents are either owned by the state or strictly limited (e.g. anti-trust), in Russia much of those sources are in oligarch hands.

There has been some limited ISI due to Western sanctions, but that has done relatively little to increase the share of manufacturing in GDP. The manufacturing sector is very heavily concentrated within both state-owned and private behemoths that have very limited competition; especially with US sanctions removing much of the foreign competition. In many area, the exit of Western companies has been offset by Chinese suppliers (e.g. automobiles) rather than domestic ones. Outside of the military industrial complex (MIC), Russian manufacturing is dominated by second industrial revolution industries, lacking a presence in digital and green technologies.

The Russian central bank is run on neoliberal principles, with high real interest rates used to tackle any inflation rather than government fiscal policies directed at the better off. The government is also predominantly run along neoliberal principles, with a very low level of government debt (20% of GDP) that is funded through the banking system and even in war a budget deficit of only around 2.5% of GDP. There is no Chinese style 5-year comprehensive planning, and state-directed lending to designated industries (as in the case of Japan, South Korea etc. during their manufacturing takeoffs). The government is run by a troika of Putin’s own group (most from his days in St. Petersburg), the oligarchs and the siloviki (security and military sector), skillfully balanced by Putin. This balancing creates stability, but also a great deal of inertia with respect to any attempts to change the composition of the industrial sector; e.g. Putin’s attempt to pass climate change legislation was defenestrated by the oligarchy and liberal elements within the state.

Individual taxation in China is progressive, going from 3% to 45% (top tax rate kicks in for income over US$132,000), with corporate taxation going from 5% to 45%, and VAT of 13% with exceptions for necessities (9%) and services (6%). Also, the state receives significant income from its own corporations in finance, energy and heavy industry etc. Thus, profits from these sectors are not available to capitalists. Individual taxation in Russia runs from 5% to only 22% (for income over US$690,000), corporate taxation maximum is 25%, and VAT is 22% (with VAT providing 37% of government revenues). The Chinese income and value added tax system is much more progressive, especially with a much lower level of the highly regressive VAT. The capital gains tax in Russia is 15%, in China 20%, but China has an exemption for citizens trading in domestic A-shares and corporate capital gains are taxed at 25%; Russia is more regressive, but both countries tax capital gains at less than the income rate - which is regressive.

China is run by a highly competent Party-state that has successfully driven the technology upgrading and competitiveness of the country over many decades, through a combination of effective central planning and the maintenance of highly competitive domestic markets; with its exports being overwhelmingly of manufactured products at greater and greater levels of technological complexity from corporations that are increasingly Chinese. Russia sits with the legacy of the collapse and primitive accumulation of the 1990s, with Putin managing to rebalance power somewhat but having to share power with the oligarchs. There is no equivalent of the Party-state that was destroyed in the late 1980s and early 1990s. There is also an ideological resistance to anything “communist”, with the economy being run on significantly neoliberal grounds with limited government redistribution. Russian exports are overwhelmingly made up of fossil fuels, minerals and agricultural products. As Chinese incomes continue to increase, and the Chinese currency appreciates, Russia could become a “Mexico” to China; offering a relatively highly skilled but cheap workforce to Chinese corporations. That is probably a best outcome as the move away from fossil fuels in transportation accelerates over the next decade.