PoliticsMar 23, 2026·7 min readAnalysis

The Country That Forgot Its Own Ideology

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This exact pattern has played out so many times it should have its own Wikipedia disambiguation page.

A ruling party built on the labor theory of value — the idea that workers create all wealth and capitalists merely extract it — presides over one of the most systematic compressions of labor compensation in modern economic history. The share of labor compensation relative to total economic inputs in China fell from 21 percent in 1987 to 15 percent in 2023. That is not a statistical wobble. That is a structural program running exactly as designed, inside a country whose founding ideology exists specifically to prevent it.

Yasheng Huang, writing in Foreign Affairs, traces this arc with the precision of someone who has spent decades mapping the gap between what Beijing says and what Beijing does. The result is not a polemic. It is an autopsy of ideological amnesia — the kind that happens not through ignorance but through deliberate, sustained choice.

The Ghost of Deng Liqun

In the early 1980s, when rural Chinese incomes were surging under economic liberalization, a Communist Party official named Deng Liqun did something almost quaint by current standards: he actually read Marx.

Citing Das Kapital, Deng Liqun warned that private enterprises would inevitably exploit workers — that any employer with more than seven employees was, by Marx's own framework, extracting surplus value from the proletariat. This was not a fringe interpretation. It was the theoretical foundation on which the entire Chinese revolution had been built. Marx's argument that capitalists appropriate the difference between what workers produce and what they are paid was supposed to be the reason the Communist Party existed in the first place.

The Party's response was instructive. It did not refute the argument. It did not engage with the theory. It simply moved on. The "7-person rule" became a historical footnote, Deng Liqun was sidelined as a conservative relic, and private enterprise continued its expansion.

This is the moment to mark. Not because Deng Liqun was right about everything — rigid ideological application makes for poor economic policy. But because the Party did not replace the old framework with a coherent new one. It just stopped reading the manual. The ideology was not updated. It was abandoned in practice while being preserved in rhetoric, which is the most dangerous configuration for any governing philosophy: a zombie framework that still moves but no longer thinks.

The Numbers Underneath

Strip away the rhetoric and watch the structure.

China's labor share of GDP — the proportion of national output that goes to workers as wages — fell from approximately 53 percent in 1992 to below 40 percent by 2006. In specific provinces, the compression was even more dramatic: Guangdong, the manufacturing heartland, saw its labor share drop from 49 percent to 39 percent between 1997 and 2007. Sichuan fell from 56 to 46 percent. Chongqing from 57 to 48.

These are not the numbers of a workers' state. They are the numbers of a system optimized for capital accumulation, running the same extraction pattern that Marx described in 1867 — only now operating under his banner.

The mechanism is straightforward. China's productivity growth consistently outpaced wage growth. Between 2000 and 2012, average worker output increased at a compound annual rate of 9.6 percent, while real compensation grew at 8.2 percent. That 1.4 percentage point gap, compounded over more than a decade, represents a massive transfer of value from labor to capital. Textbook surplus extraction — the exact phenomenon Das Kapital was written to describe.

And it gets worse when you look at who specifically is doing the producing.

The Hukou Machine

Nearly 300 million Chinese migrant workers — about 40 percent of the urban labor force — operate under a system that would make a 19th-century factory owner blush with recognition.

The hukou, or household registration system, was established in the 1950s to tie government services to place of residence. In practice, it creates a two-tier labor market: workers who migrate from rural areas to cities provide the backbone of manufacturing, construction, and service industries but are systematically denied the social services, healthcare, pensions, and education access available to urban residents. They are, in the precise Marxist terminology the Party claims to follow, an exploited class — differentiated not by the means of production but by an administrative designation that functions identically.

Rural migrants earn consistently less than urban hukou holders even when performing identical work with equivalent education. According to CSIS analysis of national labor data, nearly 60 percent of all non-agricultural workers now operate in the informal economy, up from 40 percent fifteen years ago. Real wages in this sector grow more slowly than formal sector wages and lag behind GDP growth — meaning these workers are falling behind as the economy advances.

This is not a market failure. It is a policy architecture. The hukou system has been "reformed" dozens of times. The reforms consistently benefit high-skilled migrants who were already closest to formal employment, while leaving the structural inequality intact for the hundreds of millions who actually need relief. Announce reform, implement selectively, preserve the extraction mechanism, repeat.

The Common Prosperity Paradox

Xi Jinping's "common prosperity" campaign, launched in 2021, seemed for a moment like it might close this circle — the Party finally noticing that its ideology and its economy were running in opposite directions.

It did not.

What common prosperity actually delivered was a crackdown on visible wealth — tech billionaires brought to heel, tutoring companies shuttered, conspicuous consumption discouraged. What it did not deliver was redistribution. No significant expansion of social safety nets. No meaningful hukou reform. No structural increase in labor's share of national income.

As analysts at Stanford's Center on China's Economy and Institutions observed, common prosperity operates in an era of deepening wage polarization. The initiative substitutes populist optics for genuinely redistributive policy — saying, in effect, "we cannot afford adequate welfare provisions, so we will crack down on some rich people instead." The Party suppresses worker organizing as destabilizing while simultaneously claiming to champion workers' interests. Performance Marxism: the aesthetics of class consciousness without the structural commitments.

This is where Huang's analysis cuts deepest. The contradiction is not accidental. It is the operating system. The Party requires ideological legitimacy (hence the Marxist vocabulary) and economic growth (hence the capital-favoring structure). Resolving the contradiction would require choosing one over the other. Instead, it maintains both in permanent, productive tension — productive, that is, for the Party. Not for the workers Das Kapital was written to defend.

The Pattern Beneath

Here is what makes this story structural rather than merely Chinese.

Every governing ideology eventually confronts the gap between its founding narrative and its operational reality. The United States was founded on "all men are created equal" and built on enslaved labor. The Soviet Union promised worker liberation and delivered state extraction. The European social democracies preach solidarity while constructing fortress borders. The pattern is not hypocrisy — it is something more mechanical than that. It is the way power structures metabolize the ideologies that legitimize them, keeping the language while inverting the function.

China's version is distinctive only in its scale and the precision of its internal contradiction. A state that teaches Das Kapital in every university while presiding over one of the largest sustained compressions of labor value in economic history is not confused about Marx. It understands Marx perfectly well. It simply decided, sometime between Deng Liqun's warnings and Xi Jinping's common prosperity theater, that the theory was more useful as decoration than as policy.

The labor share data is the fossil record. Same pattern, different stratum. The names change — feudalism, industrial capitalism, state socialism, socialism with Chinese characteristics — but the extraction architecture persists because it serves whoever operates the levers, regardless of what they call the machine.

What Actually Changed

Huang's deeper argument, developed across decades of research, is that something genuinely different was happening in China in the early 1980s. Rural entrepreneurship was real. Income growth was broad-based. Political reforms under Zhao Ziyang — party-state separation, transparency, bureaucratic depoliticization — created conditions where economic liberalization actually benefited workers.

Then Tiananmen happened. And the political reforms were reversed while the economic liberalization continued, creating precisely the configuration that Deng Liqun had feared: capitalism without the political checks that even Marx acknowledged were necessary for workers to protect their interests.

The reform era, as Huang defines it, ended not with economic failure but with political choice. The removal of constitutional term limits under Xi was the final seal — not because it changed economic policy directly, but because it eliminated the institutional mechanism that might have forced the contradiction into the open.

The country that forgot its own ideology did not actually forget. It remembered perfectly well. It just decided the ideology was for the textbooks, not the spreadsheets. The spreadsheets tell the real story: labor compensation falling, informal employment rising, migrant workers denied basic services, productivity gains captured by capital.

Marx would have recognized the pattern instantly. He described it 159 years ago. He just did not predict it would happen under his own flag.

Sources:

Source: Foreign Affairs — Yasheng Huang

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