An
Analysis of China’s Capitalist Reform
China's fast GDP growth has depleted its natural resources and damaged its
environment. Workers and peasants in China have suffered. Even the
fortunes of the "middle class" will fall. The rapidly growing protests to
plant closings, land grabbing, wage and benefit cuts, and corrupt and
abusive government officials can only intensify.
By Prof. Pao-yu Ching
Posted by Bulatlat
 |
News reports
on China have appeared frequently in the mainstream media in recent years.
Many of these reports paint rosy pictures of China's economy, and others
tell stories of demonstrations and protests in different parts of China.
There have also been more reports on China's environmental disasters. But
visitors touring China’s large cities are likely to be impressed by the
endless blocks of modern new high-rise buildings, crowded restaurants and
well-supplied stores. Some conclude that capitalism has worked for China,
and Western capital and technology were what China needed to become a
modern country. Others predict that China may soon become the next
economic power to compete with the United States, the European Union, and
Japan.
China’s thrust toward capitalist
“reform” is bringing
the Chinese people to impoverishment, decades
after they won a revolutionary struggle for socialism |
The
prediction that China is becoming an economic superpower is as much
grounded in reality as the earlier predictions that the “Asian miracle”
was going to make the 21st century an “Asian century”. However,
in the summer of 1997, before the 20th century even ended, the
bubble burst in Thailand, Malaysia, Indonesia, Singapore, and the
Philippines. The crisis that began in Southeast Asia quickly spread to
Korea, Hong Kong, Russia, Brazil and other countries in Asia and Latin
America. Today, nine years later, people in Southeast Asia are still
struggling to recover from the crisis. But their governments are telling
them that they must make more sacrifices, because the global market is
slowing and their new competitor, China, has the upper hand. The
credibility of these forecasters is questionable, when their margin of
error was as big as it was when the predicted prosperous Asian century
quickly vanished after a short growth spurt in just one short decade. Now
similar forecasts about China are pouring out of the same international
securities firms and financial institutions.
That China’s
economic growth in the past two decades has been impressive or even
spectacular is not in question. China’s GDP continues to grow at around 9%
or higher in real terms,
and its exports growth rates have stayed around 30% for the past three
years. China’s trade surplus continues to hit new records – it reached
$102 billion in 2005 tripling the $32 billion in 2004. For the first 7
months in 2006 its trade surplus reached $75.95 billion, another 51.9%
increase from the same period last year. Since 2002, China has surpassed
the United States to become the largest recipient of foreign direct
investment, and at the same time it has also exported capital. China is
the world’s largest producer of more than 170 products, including steel,
aluminum, cement, etc. The amount of energy it consumes is second only to
the United States.
The fact
that China has been able to achieve such rapid GDP growth in the past
quarter of a century seems to confirm the development myth created by the
dominant capitalist ideology. Global monopoly capital and the imperialist
powers have used the “Asian miracle” earlier and the “China miracle” now
as propaganda to perpetuate a myth about economic development. The myth is
that when global capital hops from one country to another, it creates
wealth for that country and develops its economy. All these countries need
to do is to open their door to the pools of international capital and
adopt the advanced technology transferred to them by the multinationals.
Then, these less developed countries can expect miracles to happen by
joining the international division of labor and exporting themselves into
prosperity.
Monopoly
capital needs this myth to justify imposing neo-liberal policies, which
are so vital for its global expansion, on developing countries. When it
comes to pushing doors to these countries open for monopoly capital, few
countries have been left behind. Taking down all barriers for the
expansion of the monopoly capital on a global scale is the coordinated
work of international capital, the imperialist powers, and the
international trade and financial institutions, namely, the International
Monetary Fund (IMF), the World Bank (WB) and the World Trade Organization
(WTO). Despite the fact that this strategy of development has spread
crisis around the globe, the myth has persisted.
A critical
analysis of China’s economic growth at this point in history is of great
importance. A critical analysis of what has happened in China since the
capitalist reform began in 1979 presents us the opportunity to dispel the
myth about development perpetuated by global monopoly capital. Analyzing
what has happened in China also gives us an opportunity to point out the
difference between short-term GDP growth and long-term sustainable
economic development. This paper argues that short-term GDP growth, rather
than helping long-term economic development, actually deters it.
During the
past two decades China has implemented reform policies that transformed
its economy from a socialist economy based on self-reliance – to a
capitalist economy is now well integrated into the world's capitalist
system. On the surface, China's fast economic growth seems to confirm that
the development strategy advocated by monopoly capital has worked. China
has replaced the "Asian four little dragons" and became, in recent years,
a model for other developing countries to emulate. But looking more
carefully beneath the surface, points to a different conclusion. In this
essay, an assessment of China's capitalist development and its impact, is
based on the answers to the following questions:
How do we
assess China's economy after it went through two decades of fast GDP
growth? What has China's GDP growth meant to China's 1.3 billion people?
How does this path of growth affect China's sustainable long-term
development for the future? What is the chance for China to become a
strong capitalist economic power? Is China headed toward an inevitable
crisis? Why? What would be the potential impact of such a crisis? And what
have been the forces that have been behind China's capitalist reform and
its fast GDP growth?
I. China's Capitalist Reform – An Overview
Deng Xiaoping seized power after Mao’s death and officially began his
Reform
after the
conclusion of the Third Plenary Session of the Eleventh Congress of the
Chinese Communist Party in December of 1978.
While in
certain circles outside of China the debates about the nature (capitalist
or socialist) of Deng's reform may continue, but the majority of people in
China recognize the fundamental differences in their society before and
after the 1979 reform. Most people know that they live in two
fundamentally different societies, because they have experienced and are
keenly aware the fundamental changes in the class relations between then
and now. The Reform could not have proceeded the way it did had there not
been that fundamental change.
Deng’s
Reform program consists of "Gai-Ge" and "Kai-Fang". The two components of
Reform can literally be translated to: reform and opening up.
What it
meant was that China was to develop capitalism and connect its economy to
the world capitalist system. Deng and his supporters believed capitalism,
even though the word “capitalism” was never used (instead the Reform was
supposed to be "socialism with Chinese characters"), would be able to
develop China's productive forces in order to catch up and surpass other
economic super powers in the world.
Deng's
capitalist reform consisted of several parts, all of which belong to a
well- integrated plan designed to deconstruct the socialist system built
during the first 30 years of the People’s Republic. The capitalist reform
aimed to fundamentally change the relations of production systematically
by (1) dissolving the communes, thus breaking up the alliance between
workers and peasants; (2) dismantling the State and collective ownership
of the means of production and (later privatizing them) turning them into
profit making institutions; and (3) labor reform which would turn labor
power into commodity, which could be hired and fired at will by new
factory management teams. The Reform was meant to open up China and
connect it to the international capitalist system, by lowering import
tariffs and eliminating import quotas to promote trade and by granting
favorable treatment to welcome foreign investment capital.
Moreover, in
order to deconstruct socialism and build capitalism, reformers had to
change the superstructure as well. They rescinded from the Constitution,
workers' right to strike and the basic rights of the masses
that were newly gained during the Cultural Revolution. Mass movements,
which had been encouraged and organized by the government as a way to
resolve problems and contradictions in society since the beginning of the
new Republic, were banned. In order to show that the new regime had no
tolerance for any mass action from below, they brutally crushed the
demonstrations and protests in many cities in China during the spring of
1989 by opening fire on the unarmed students and workers in Tiananmen
Square.
As described
later in this paper, the reformers were able to change the basic class
relations in China by passing legislation and imposing them on workers and
peasants from above. Despite efforts made by workers and peasants to
resist these reform programs, the Reform was able to accomplish all its
aims as planned. Although there were occasional patriotic voices calling
for caution when dealing with foreign capital, opening up China to foreign
capital continued, and international trade expanded. By the time China
joined the WTO at the end of 2001, China had opened itself up and taken
down barriers for foreign capital to expand. Even a mainstream economist,
Nicholas R. Lardy of the Brookings Institution, admitted, "By the time
China entered the WTO it was already perhaps the most open of all
developing countries." In the forward of his book he also said,"…under the
pressure from industrialized countries, China has granted WTO members
unprecedented authority to limit imports of Chinese products." (Lardy,
vii)
However,
while reformers succeeded in carrying out the capitalist reform as
planned, the results turned out to be very different from what the
reformers and their supporters had expected. What had been their
expectations when the reform began? What are the results? And why the
results are so different? Some answers will be provided in this section
and the rest will be given in the rest of this essay.
In the
post-revolution China, there was no argument amongst its leaders that
China needed to develop its economy to become a strong industrial modern
nation, so China would never again have to suffer the aggression and
humiliation inflicted by the foreign powers during the previous one
hundred years. However, by the late 1950s, fierce arguments and struggles
over how China should achieve economic development to become a strong and
independent nation had begun within the Communist Party. There were two
diametrically opposing ideologies within the Party on the course of
China's development. To Mao Zedong and his supporters, the Chinese
Communist Party was founded on the basis of Marxism and Leninism and its
goal was to achieve first socialism and then communism in China. The CCP,
as the vanguard of the proletariat, led and won the revolution with the
support of workers and peasants based on the strong alliance between them.
Therefore, China's economic development could only be socialist. Mao and
his supporters also believed that the masses, once liberated from their
oppression would release their tremendous potential and build a strong and
independent China.
On the
opposite side were Mao's opponents, Liu Shao-qi and his supporters. Liu
strongly disagreed that socialism could develop China's productive forces
to build a strong economy. Liu and his supporters, including Deng Xiao
Ping, believed that China's productive forces would develop much faster,
if it were to adopt the capitalist strategy of development. Fierce
political struggle began in the late 1950s when China's economy reached a
cross-road, searching for a clear direction to move forward. Mao won the
struggle and proceeded to transform China's economy by State (and some
urban collective) ownership of the means of production in industries and
collective ownership of means of production in agriculture. In the process
of the socialist construction, class relations in the new Chinese society
were transformed. However, until Liu died, he never gave up his idea of
developing China along the capitalist road, and class struggle continued
after the transfers of ownership to the State and to the communes. The
struggle of which way China was going to go turned fierce during the
Cultural Revolution. Finally, after Mao died in 1976, Deng Xiao-ping had
the opportunity to carry out the capitalist reform in 1979.
For the
followers of Liu and later Deng, the process of socialist development was
too slow, despite the fact that China had made great accomplishments in
developing its industry and agriculture during the socialist period. From
the early 1950s until the late 1970s China's industrial output grew at 9%
a year. China was able to modernize its agriculture and its grain
production grew at 3% a year (faster than the rate of population growth)
during the same period to achieve self-sufficiency in food. Moreover,
China was able to achieve a great degree of modernization in agriculture.
The most important achievement made during the socialist period was the
tremendous improvement in the lives of the majority of Chinese people. The
overwhelming majority of Chinese workers and peasants saw how their lives
had been improved. They lived very secure lives with little worry of
meeting the basic necessities of life – food, clothing, housing, health
care, and education. China's healthcare system in both urban and rural
areas during the socialist period was so widely praised that even the
World Bank had to admit its accomplishment. Life expectancy nationwide
doubled within a generation, from 35 to 68 years, due to better nutrition,
better living conditions, and preventive health care.
However, when Deng proposed his Reform in 1979,
he had the
support of many people in the Chinese Communist Party. These
leaders believed that China could develop faster if it adopted a different
strategy of development. They were impatient and felt that China did not
seem to have much to show the world. There were not many modern high-rise
buildings nor were there super highways in China's cities. Shanghai, the
largest city in China, looked rather shabby compared to other modern
cities in the US, Europe, or Japan. They also believed that China's
isolation was self-imposed, in spite of the fact that, led by the United
States, Western countries chose to isolate China politically, and that US
had imposed trade embargo against China until the Vietnam War ended in the
1970s.
Many
supporters of the Reform thought that when China began the capitalist
reform, it already had a rather strong industrial base, and by adopting
State capitalism, China would have enough strength to fend off advances
made by global monopoly capital. They believed that China could make use
of foreign capital and foreign technology without subjecting itself to the
domination of the industrial powers. They also thought that because
foreign capital wanted to expand into China's huge market, China could
negotiate acquiring foreign advanced technology in exchange for part of
China's market. During the 1980s and the beginning of 1990s, the reformers
made efforts to protect China's national interests, and for that reason
the negotiations for China to join the GATT did not go smoothly.
By the
mid-1990s and especially after the Asian crisis in 1997, the Chinese
government had to give up many of the conditions it had insisted upon
earlier and accepted the terms set by global monopoly capital. It meant
that by the end of the 20th century, international capital was
too strong to let any developing country to develop capitalism
independently. By this time the import substitution model of capitalist
development in Latin America had already collapsed, and the bourgeoisie in
developing countries, China included, realized that in their own interest,
they had to cooperate with the global monopoly capital. In China the State
had fallen into power groups all pursuing their own interests, grabbing
whatever they could get their hands on. These power groups also realized
that cooperating with foreign capital was (and still is) one of the most
lucrative endeavors to accumulate wealth.
The grabbing
of power and wealth by those in power can best be demonstrated by the
reform of China's former State enterprises. The majority of corruption
cases have been related to the reform of the State enterprises. The reform
took several steps – the first was to transform the State enterprises into
independent, profit seeking legal entities.
On October 20, 1985, the Twelfth Congress of the Central Committee of the
Chinese Communist Party passed legislation entitled The Economic
Structure Reform. This legislation reaffirmed the temporary
regulation, which granted managers in State enterprises the autonomy to
manage their own affairs.
It allowed individual enterprises to retain portions of their profits and
to re-invest the profits as they saw fit. The managers were allowed to
dispose of unused productive facilities by renting, leasing, or selling
them. In addition, management was given the right to discipline and
promote workers, and, under the broad guidelines, to dictate their own
wage system. This legislation declared that the State would no longer
intervene directly in the affairs of individual enterprises; the State
would only influence production through indirect policies, such as price,
taxes, and credit/loan policies. The passage of The Economic Structure
Reform meant that even though the State still "legally owned" these
enterprises, it relinquished the economic ownership of the means of
production to the management; it fundamentally changed the meaning
of State ownership of the means of production. Each enterprise thus became
a separate entity, and management had considerable autonomy to run it like
a business enterprise. The goal of each enterprise was no longer to
fulfill an overall economic plan but to pursue its own profits.
Following
the passage of the Economic Structure Reform the State began
to contract out State enterprises to individuals or teams of managers. Who
had the opportunity to contract these enterprises? Only those who were in
positions of power or those who had close connections could obtained such
contracts. After the enterprises were contracted out, the State took
another step by "fang quan rang li" – meaning the State broadened the
power it relinquished to management and gave management a bigger portion
of the profits. Later, "li gai sui" was implemented, which meant the
management no longer needed to hand in any portion of the profits.
Instead, they paid the State taxes on the enterprise's earnings.
The
contracts stipulated that managers would be rewarded based on their
performance. However, the contracts often did not specify what kinds of
responsibilities management needed to fulfill, and how they would be held
accountable for their business decisions and operations. As it turned out
these new managers of the "State" enterprise were all rewarded handsomely.
The managers' performance was not judged on how efficiently they ran the
enterprises, but by investment project and the size of the projects
completed during their terms. The bigger the projects, the bigger were the
rewards. Moreover, before there was time to evaluate whether these
investment projects were viable and profitable, managers were often
promoted to take on management positions of bigger enterprises, or to
higher positions in the government. Therefore, management had strong
incentive to invest in additional facilities or building new plants
without serious concern for the consequences. As a result, overinvestment
became a very serious problem. (See discussion in later section.)
Networking
between high level government officials and management in the enterprises
made it possible for both parties to acquire and accumulate wealth. It
became apparent that many cases of corruption were related to the reform
of former State enterprises. Contracted management often used fraudulent
accounting to cover up illegal selling of assets and sharing of "profits"
with government officials. The government officials who benefited from
these deals had good reason to conceal where the "profits" came from. The
frequent personnel transfers between government officials and management
teams made it difficult to track down who was responsible for what.
Actually, people were being transferred back and forth frequently, so they
could avoid taking responsibility.
One of the
schemes management teams used to acquire wealth was/is to separate the
profitable parts of the enterprises and set them up as separate
subsidiaries. They would then reap the "profits" from these "separate"
companies. The management could also separate the non-profitable part(s)
of the enterprises and declare them bankrupt. The separation of failed
subsidiaries was another way to clear the management of their
responsibilities.
Because
making profits was the enterprise’s new goal, management then used
efficiency as a means to increase profitability as an excuse to lay off
half or more than half of the workers. They also used the opportunity to
cut wages and benefits for the remaining workers. In the process of
reforming the State enterprise permanent employment system was eventually
destroyed and replaced by contract workers in order to for the management
to have the flexibility to run a profitable business.
Heavy losses
in these former State enterprises continued, despite laying off large
numbers of workers, because management kept investing in projects and
making fraudulent deals. Then another phase of the reform came, called "bo
gai dai". It meant that the State no longer appropriated funds to the
enterprises. Instead enterprises would obtain loans from State banks for
the funds they needed. This was implemented, because the State no longer
had the financial resources to support the enterprises. Under this reform,
managers obtained loans from banks, and they were supposed to be
responsible for paying interest on loans and returning the principal when
loans came due. However, "bo gai dai" did not solve the problem; the State
simply shifted the problem to the State banks. For instance, an enterprise
would borrow money from a bank for an investment project. Government
officials as well as the management would be rewarded at the completion of
these projects. However, before the project began to realize profits,
there would be several round of management turnovers. Later, when problems
became apparent due to wrong investment decisions, bad management, or
large payoffs were siphoned off from the coffer of the enterprise, the
management teams that were responsible were long gone. The loans were bad
– delinquent on payment. One way or another management of these
enterprises cooperated with government officials and all were able to
obtain large amounts of wealth.
In the late
1990s when large quantities of loans were defaulted, and there was little
hope that the principal or the interest would ever be repaid, the reform
entered into another phase. This phase called "zhai zhuan gu", meant that
the bad debts would be forgiven, so enterprises could issue stocks to get
the funds they needed. It started in 1998 and was supposed to cancel all
bad debts over three years, so the enterprises could get over their
financial difficulties. The State paid out trillions of RMB to clear the
bad debt, but no one was held responsible for the huge cost. The clearance
of debts also cleared all the responsibilities of management and related
government officials. In addition to the clearance of debt, the State also
financed writing off bad assets from the enterprises' books. When
enterprises got rid of their debts and worthless assets, they were able to
borrow more and make more investments. Putting a brake on investment has
proven very difficult, because people in power are getting rich from the
continuous investing and building; the problem of overinvestment is a
problem that has been built into the very structure of the "State"
enterprise reform.
What is true
with former State enterprises has also been true with infrastructure
projects built by different levels of government. The upward mobility of
government officials depends on accomplishment made during their terms.
Such accomplishments are again based on the number of infrastructure and
other projects built – the construction of highways, airports, large
office buildings, exhibit centers, or even a whole new districts adjoining
a city.
A paper
written by Bai Jing-fu, the vice-chair of a Research Center in the State
Council,
gave a rather gloomy picture of the current state of China’s economy and
reflected the problems accumulated during the 26 years of reform. He
listed ten major contradictions that exist within it. Bai wrote this paper
in November 2005, as the 10th Five-year Plan (2000-2005) was
coming to an end and the 11th Five-year Plan (2006-2010) was
about to begin. Due to the importance of Bai’s position, his paper had to
be approved officially. Therefore, Bai’s assessments on the current state
of China’s economy represent the views of at least some high-level
government officials.
According to
Bai, China's economy is facing serious problems, despite high rates of GDP
growth. China is very much dependent on continued foreign investment and
the external market to sustain its high growth rates. China's development
of advanced technology is disappointing. After spending tens of billions
of dollars on foreign technology imports, China has not made much progress
in upgrading its technology and is nowhere near a position to compete with
foreign multinationals. In addition, China has to continue to assume its
role as assigned by the multinationals in the international market. In
other words, China has to continue exporting large volumes of low valued
products at the expense of its low wage labor, its scarce and dwindling
natural resources, and its deteriorating natural environment. Bai's report
further indicated that the problems of dependence on foreign technology
and foreign markets could not be easily corrected. His conclusion implied
that the chance for China to become a strong and independent economic
power is not promising.
Domestically, Bai explained that the economy has become increasingly
uneven and unbalanced. The growth of GDP has generated increasingly
smaller growth in employment. The unemployment in the countryside,
according to Bai, means that between 2001 and 2010 there will be an
estimated 106 million to 108 million additional people migrating to urban
areas to seek work. High unemployment rates and highly unequal income
distribution has resulted in slow growth of domestic consumer demand. In
addition, investment has continued at a fast pace, despite the fact that
excess capacity now exists in more than 75% of China's industries.
Bai not only
pointed out all the problems and contradictions in the economy, he also
indicated that these problems and contradictions are getting worse instead
of getting better. Bai did not offer any solutions. These problems and
contradictions that Bai pointed out resulted from the Reform and they have
become structural, thus, they cannot be resolved by simply making
adjustments here and there. There have been growing numbers of
publications in China expressing similar concerns for the problems raised
by Bai, as well as other important problems in the Chinese economy.
In the
following sections, when discussing the obvious problems in the China's
economy, I offer my own explanations of why these problems are inherent to
the development strategy of the capitalist reform. To a certain extent,
Chinese policy makers chose this strategy when they embarked on the
capitalist reform that began in the last 20 years of the 20th
century. However, their choices, like the choices of other developing
countries, were rather limited. When the import substitution strategy of
capitalist development in Latin America finally collapsed in the 1980s
under the pressure of global monopoly capital and the imperialist states,
developing countries which wanted to develop capitalism only had one
choice: opening up their economies and breaking down all the barriers for
global monopoly capital. It is not surprising that development under the
conditions prescribed by international monopoly capital leads to a GDP
growth based on a growing dependence on foreign investment, foreign
technology, and external markets, rather than the development of an
independent capitalist economy.
The Reform
of the past 26 years and the way the Reform was carried out resulted in a
very polarized society. There is a small rich and powerful group on top
enjoying all the wealth and privileges the society offers. Roughly 20% is
in the middle, consisting of mostly professionals, government employees,
and small entrepreneurs. They can afford a comfortable standard of living,
including spending on the growing availability of luxury goods. The
majority of the people, including the unemployed and low wage urban
workers and the majority of rural people, stay at the bottom. The
corruption at the top is rampant but has spread through all different
levels of governments. They rob public resources to enrich themselves and
have abused their power. They make decisions that have stripped tens of
millions of workers of their jobs and thrown them onto the streets, and at
the same time reduced wages and cut off the benefits of remaining workers.
They also occupy land in both urban and rural areas, often without the
permission of the current occupants and with very little compensation.
These decisions and actions have spurred increasing numbers of
demonstration and protests – several hundred protests a day – through-out
China.
In response
to questions and concerns raised by many members in the Communist Party,
including those in positions to formulate and implement policies, and also
fearing a general uprising, China's current leaders – Party Chairman Hu
Jintao and Premier Wen Jiabao – announced a new direction for future
development. They proclaim that a scientific view of sustainable economic
development should be adopted, and such development should be based on the
needs of people as well as environmentally sound. They also call for a
“harmonious society”, indicating that China's top leaders have realized
the seriousness of the problems resulting from the development of the past
twenty-six years, including a seriously
polarized
and divided society. The goals of capitalist reform were accomplished, but
the results were not what had been expected. It is thus ironic that after
twenty-six years of reform China has come to a full circle. Hu and Wen are
now calling for China to return to a sustainable development that is based
on the people. Wasn't that the kind of development China had had during
socialism before the Reform began? If China stays on the same course of
continuing capitalist economic growth, so narrowly defined by the
international capital in today's global environment, how can China expect
to accomplish the kind of people based sustainable development that Hu and
Wen have proposed?
II. The Impact of the Capitalist Reform on the Chinese economy, its People
and Society
1. Imbalances between China's economy and the rest of the world
After more
than two decades of high rates of export growth, especially during the
five years since 2001, there are now serious imbalances between China's
domestic economy and the rest of the world – especially its imbalances
with the United States. By the end of June 2005, China accumulated $711
billion in foreign exchange reserves from its trade surpluses in the past
years – then its reserves went up further to $769 billion at the end of
October 2005.
The majority of the foreign exchange reserves are in foreign currencies
(the majority is in US dollars), foreign stocks, bonds, and securities
(mostly US government bonds and Treasury Bills), and other foreign assets,
all of which is debt owed by foreign countries. Therefore, most of China’s
trade surpluses from these past years were exchanged into foreign IOU’s
and now sit as foreign exchange reserves in the Central Bank.
By the end
of the third quarter of 2005, China became a net capital exporter. China
received a total of $570 billion in foreign investment (capital imports),
but had $769 billion in foreign exchange (capital exports).
Due to the large capital exports of China and other Asian countries,
Monique Morrissey and Dean Baker of the Center for Economic and Policy
Research, concluded that by 2000, the developing countries as a whole,
became a net capital exporter to developed countries.
Putting it
in another way, in the first half of 2005, China’s current account surplus
(mostly from trade) jumped to 8.1 % of GDP, a nine times increase from the
first six months of 2004.
This sudden jump of trade surplus means that in the first half of 2005,
8.1% of what China produced was not consumed domestically, nor was it
invested in China, or spent by its government. The capital, which equals
to 8.1% of GDP was simply exported (in net, after deducting imports) with
nothing in return but more promissory notes to be paid sometime in the
future. This is a serious imbalance between China and the rest of the
world, especially the United States. China is still a poor country that
needs capital for its own development and for the immediate needs of its
people, such as clean water, basic health care, and basic education, but
it is exporting capital, most of which goes to the United States, the
richest country in the world, at an accelerating rate. Even though other
economies, such as South Korea and Taiwan, have also exported capital,
China's capital exports, both the absolute quantity and relative to GDP,
is astonishing.
During the
socialist period, a balance between China's economy and the external
sector was maintained. China's debt owed to the Soviet Union during the
1950s for importing machinery and equipment and for financing the Korean
War was quickly paid off. Therefore, China did not have to export large
quantity of capital like most less developed countries have to in order to
pay the interest on the debt they owe. This financial independence freed
China from the domination of rich and powerful nations, as well as from
international financial institutions. It was a very important part of
self-reliant socialist development strategy. After twenty some years of
Reform, China's current high rate of GDP growth depends on the large
volumes of products it exports to the rest of the world, especially to the
United States. However, the large volume of exports has to be financed by
China's capital exports. More plainly put, it means that China has to
continue loaning money to the US in order for the US to buy its products.
Common sense should tell you that this is not a viable development
strategy.
2. High rates of GDP growth sustained by high rates of growth in
investment and exports
Rapid export
growth has become the major contributor to China's high GDP growth rates.
According to Bai’s report, 5.7% (or 60%) of the 9.7% GDP growth rate in
2004 was due to increased demand in the external market.
This shows how much China is dependent on the fast growth in its exports
to sustain the continuing high rates of growth in GDP.
Within
China's domestic economy, there have been serious imbalances as well.
China has maintained high rates of investment (foreign, domestic, and
government) growth to boost its GDP. The estimated investment has been
over 45% of GDP in recent years –an extremely high rate unseen in any
developing or developed economies. On the other hand, consumption as
percent of GDP has been low by any country’s standard: a mere 43.4% in
2003.
The large
amounts of investment, both foreign and domestic, in manufacturing
facilities and large amounts of government investment in infrastructure,
together with the high rates of export growth, were the major sources of
the aggregated demand that has been driving high rates of GDP growth.
Recent
figures show that the government spent around 22% of GDP, but half of that
figure was in fact government savings and was used for investment in
building offices, residential housing, highways, airports and other
infrastructure, much of which are currently under-used. The other half
(only 11% of GDP) was spent on purchasing goods and services. (“The Frugal
Giant,” The Economist, September 24th –30th,
2005, 12)
Government
investment in buildings and infrastructure has been one major source of
stimulus that helped maintain the high rates of GDP growth. Shanghai, the
largest city in China, boasts of 450 large-scale projects completed in the
past twenty years, including the development of Pudong area and the
building of the second tallest tower in Asia.
In addition, there is a new light rail system, built by the Germans, that
runs with few people on it, between the city and the Pudong airport.
But mega
size projects have not been limited to large cities; many airports built
in the last two decades are in much smaller cities and many of them lie
unused.
The Economist reported another example of these mega construction projects
in Henan. The provincial government is building a new district east of its
capital, Zhengzhou, called Zhengdong. The report reads: "The towering
half-finished buildings of its central business district encircle an
artificial lake and an exhibition center that will be one of China's
biggest when it opens later this year. Plans are afoot for a hexagonal
pyramid-shaped hotel that would be nearly as tall as the Eiffel Tower.
Broad highways are spreading across former farmland….. " (The Economist,
January 7th-23rd 2006, 34)
Henan, is
one of the several provinces in central China, which in recent years have
experienced one of the worst economic crises in the country, when the
majority of its former State enterprises went bankrupt. The building of
Zhengdong is considered to be a "dragonhead" project that is supposed to
lift Henan out of its current stagnation. The over-building of these kinds
of mega projects has spread all over China. Moreover, there is no
mechanism that can prevent the building of the Zhengdong and other similar
projects. Even when there is serious water shortage in Henan, there the
artificial lake in the Zhengdong district will have to be filled.
At the same
time Hu and Wen are advocating sustainable people based development, they
are in fact accelerating construction in infrastructure. A report from the
current issue of The Economist, said that China has a plan to spend 2
trillion RMB on building railways and several new subway lines in Shanghai
and 24,000 km (15,000 miles) of expressways by 2010. And in addition to
the nine nuclear power stations it already has, China is planning to build
another 21 nuclear power stations by 2020. (The Economist, April 8th
–24th , 72-73)
3. Labor reform and the reserve army of the unemployed
Labor reform
was part of the overall capitalist reform that began in 1979. The goal of
labor reform was to turn labor power into commodity by dissolving workers'
permanent employment status (breaking the iron rice bowl) in State
enterprises. As part of the reform of State enterprises, new factory
managers were gradually given more and more autonomy to run the factories,
including the right to hire and fire workers and replace permanent workers
with temporary workers.
Permanent
employment was a fundamental right of workers in the State enterprises. It
was the first step for workers in State ownership to assert their
influence in managing factories. If the working class is to become the
real masters of their socialist countries, they must start by being
masters of the factories they work. In the transformation of relationship
between those in management position and those being managed took place
during and since the Cultural Revolution, guaranteed employment had to be
a prerequisite.
During the
socialist period workers were paid moderate wages, but the benefits they
received covered them from cradle to grave. They paid a token sum, a few
RBM for their housing and utilities, they had free medical care, and their
families were also covered by the health care plan (with a small fee).
They ate low cost food in the factory cafeterias and paid low prices for
their rationed food, clothing, and other supplies. Childcare and education
for their children were practically free.
There were few luxuries, but their lives were vastly improved during the
30 years of socialist reconstruction. Workers were able to save a small
amount each month and use their savings over time to buy radio, bicycles,
sewing machines, watches, and a few other luxury items. When they retired
(men at 60 and women at 55), their monthly pension equaled 80% of their
former wages with full medical and other benefits. As the production of
communes increased, commune members received more cash from the
work-points they earned, and they spent more on buying consumer goods
supplied by the State sector. During the socialist period, the steady
growth of the purchasing power of workers and peasants supported the
steady expansion of China's light industries.
When the
Reform first began, workers in State enterprises resisted the efforts of
the reformers to fundamentally change their status – but their resistance
eventually failed. Since the early 1990s, China’s employment structure has
undergone thorough and drastic changes. The new management in State
enterprises got rid of workers' permanent employment status and laid off
large number of workers. The percentage of workers in State owned units
and urban collectives decreased from 84.3% in 1992 to 47.5% in 1999. Since
employment in the private sector in 1999 only accounted for 8.5% of the
total number of workers, it did not make up for the employment loss in
other sectors. Therefore, in 1999 only 56% of workers were considered to
be working in the formal sector of the economy, while the rest (44%) were
in the so-called informal sector. (Hu, Table 1) Bai’s report (point 10)
provides figures for the numbers of workers in both State owned units and
urban collectives for the first six months of 2005. If we use Bai’s
figures to update Hu’s figures in 1999, then in less than six years,
employment in State owned units decreased another one third, from 99.88
million in 1999 to 66.38 million in the first six months of 2005. For
urban collectives, employment decreased almost half, from 16.52 million to
8.67 million during the same six years. Therefore, from 1999 to 2005 even
more workers flooded into the so-called informal sector or the large pool
of the unemployed.
These
laid-off workers try to find whatever odd jobs they could to support
themselves, and many of them live on or under subsistence levels of
income. They work as small vendors selling food or other low cost items on
the street. Many others are also hired for a few hours or a few days at a
time. The temporary and casual jobs pay below subsistence level wages,
which usually amount to about less than half of the low paid regular
workers in the formal sector. Successful food peddlers earn higher income
but they need initial capital and may have to pay high rent for a small
space to do business. They also take a big risk.
Officials
are well aware the serious problem of unemployment. In 2000 I gathered
information showing very high unemployment rates in some cities. For
example, cities in the northeast, where China’s heavy industries were once
located, saw unemployment rates skyrocket as a great number of former
State owned industries were closed down, and large numbers of workers were
permanently laid off. The unemployment rates for cities in Henan, Sichuan,
Anhui and others in central China were also very high. The unemployment
rates, if those who work in the informal sector were counted as
unemployed, in cities in northeast and central China provinces were as
high as 40% to 50%. Local people in these cities, said that more than 60%
to 70% of the workers in former State owned industries had been laid off.
These workers were either forced into early retirement or began working
subsequently in the informal sector. Large number of women in towns and
cities of these provinces migrated to Beijing and Shanghai to work as
domestic workers for well to do families.
Through
rounds of restructuring, China's enterprises have not only been able to
lay off large numbers of workers – they have also been able to cut wages
and benefits for the remaining workers. Despite high rates of GDP growth,
wages have stayed pretty much unchanged. Workers in large profitable
enterprises in large cities earn the highest wages, and their wages could
be around 1,500 to 2,000 RMB ($1 = 8 RMB) a month, but they represent a
very small portion of the total work force. Other workers in the formal
sector, including those workers in export industries located in coastal
cities earn much less –between 800 to a little over 1,000 RMB a month.
Most other workers in cities in northeast and central China, where there
are high rates of unemployment, earn about 600-800 RMB a month and workers
who do odd jobs in the informal sector are only paid 300-400 RMB a month.
Some of the employed are covered by the new insurance system and have to
pay a health insurance premium
and contribute to their retirement from their gross income.
The effect
of China’s economic growth on job creation was low and has decreased even
further in recent years, despite the fact that China has been exporting
labor-intensive products. According to Bai’s report, during the early
years of the Reform, every 1% GDP growth brought a 0.4% employment gain –
but in 2000 the rate dropped to 0.1%. (See Bai’s report point 10) Based on
the numbers of job lost in the State and urban collective enterprises as
stated above, and the fact that GDP growth has had less impact on job
creation, there is reason to believe that the unemployment situation is
likely to become worse.
4. Rural reform and backwardness in the agricultural sector
The biggest
challenge in Chinese agriculture was/is the lack of arable land. China has
one seventh of world's arable land, but has to feed a quarter of the
world's population. Therefore, preserving and improving agricultural land
should be one of the most important tasks for Chinese agriculture. During
the commune years (1958 – 1978), Chinese peasants worked very hard on land
improvement projects. However, since the 1979 Reform large areas of
farmland have been lost and continue to be lost to industrial use,
tourism, residential and commercial housing, desertification, and other
development.
Under the
former commune system, each person received a grain quota from his/her
production team, even if he/she was too young, too old, or too sick to
work. The communes used ”welfare funds” taken out each year from their
total revenue to provide their members low cost health care and low cost
education.
The "welfare funds" also paid other expenses for the needy families. The
State also allocated funds to pay for education (teachers' salaries and
school construction), as well as the training of teachers and healthcare
workers.
From 1958
until 1978, China was able to modernize its agriculture in many parts of
China's countryside. After pooling their land together, commune members
used the winter months to do intensive and extensive agricultural land
improvement projects. They took out "accumulation funds" from their annual
revenue to invest in land improvement projects, machinery, and equipment.
Peasants leveled the land and filled small creeks with soil, so later they
could use machinery to till large tracts land. Peasants built irrigation
and drainage systems and power stations, so farmland could be irrigated by
electricity. (Hsu and Ching, 28-34) Chinese peasants worked hard on
farmland construction projects by extending their workdays to the winter
month; the number of days they worked in a year increased from 119 days in
the mid-1950s to 250 days in the mid-1979s (Rawski, 7-8). In addition to
the efforts made by the peasants themselves, the State appropriated funds
to invest in large-scale irrigation projects.
The results
of the peasants’ hard work were very impressive. Machine cultivated land
increased from 2.4% in 1957, to 42.4% in 1979, irrigated land area
increased from 24.4% of all land area in 1957 to 45.2% in 1979. During the
same period, machine irrigated land (as percent of total irrigated land)
increased from 4.4% to 56.3%. In 1957 there were 544 electric stations –
by 1979 that number had increased to 83,244. During the same period,
numbers of large and medium size tractors increased 45 times, agricultural
combines increased 12 times, and small tractors increased from 0 to 1.67
million. (Hsu and Ching, 40) There were countless other improvements,
including agricultural research to improve seeds strains, using large
quantity of organic fertilizer to enrich the land, planting trees to fend
off desertification, and multi-cropping, and much work was done to
preserve forestland and increase production.
With the
exception of some very poor communes, most peoples' lives in rural China
improved immensely. The great improvement made on the fertility of land
increased grain yields per each mu of land. The newly built irrigation and
drainage systems made it possible for peasants, for the first time in
their lives, to look forward to a future when their production would no
longer be totally dependent on the weather. Mechanization made it possible
for many peasants to be finally freed from much of the most back breaking
work in the fields.
China was
able to increase grain production from 181 million tons in 1952 at the end
of the recovery period to 285 million tons in 1977. With the exception of
1959-1961, grain production increased on the average by more than 3%,
which was higher than the average population growth during the same
period. The rate of growth was higher than China's historical record and
the records of most developing countries. (Groen and Kilpatrick, 1978,
619) By the end of the 1970s China was able to achieve self-sufficiency in
food. Between 1975 and 1977 China imported an average around 4 million
tons of grain per year, a small fraction of its total production, and it
also exported grain and other agricultural products as well. (Groen and
Kilpatrick, 1978, 640)
In 1979
Deng’s agricultural Reform took several steps to break up the communes,
and by 1984 land was redistributed to individual peasant households.
China’s grain production increased rapidly during the first few years of
the Reform, when the government increased the purchasing price for grain
by 20% with another 50% bonus for above quota grain purchases. Grain
production
increased 22.5% between 1979 and 1984. During these earlier years,
agricultural machinery and other agricultural infrastructures, bought and
built during the commune years, were still functional. The fertilizer
plants built earlier increased fertilizer supply. Later the irrigation and
drainage systems and other land work began to fall apart due to lack of
maintenance. Agricultural machinery bought earlier by production brigade
and commune aged, and individual peasant households had no money to invest
in new ones.
Moreover, in
some areas, for example, the Yangtze Delta, where land has been subdivided
into small strips, it is no longer possible to use agricultural machinery.
These and many other peasants went back to old ways of farming their land,
each with a simple farm tool, as they had done before collectivization. No
wonder peasants say, “We worked so hard for thirty years to build up our
farmland, but overnight we returned to pre-Liberation days.”
In central
and northwest China, where individual land plots average around one mu,
major crops (wheat and corn) are still harvested by combines. Private
individuals invest in combines and then hire drivers to harvest crops from
farm to farm, charging 40 –45 RMB per mu. Combine owners can earn as much
tens of thousands RMB during the harvest season, and after costs are
deducted, make quite a large profit. A documentary made in 2003 called
“The Iron Reapers”, showed many poor peasants work as hand reapers during
the harvesting season in areas that are hard to reach by combine. These
peasants compete with the machines by lowering their price to 35 RMB per
mu.
The film showed four
men leaving home by long distance bus with their reapers to harvest wheat.
Each man working a 12 hours day in the hot sun harvested an average of 1.5
mu land and earned about 45 RMB for the grueling back-breaking work. Some
days they did not get work, so after the whole harvesting season, each man
came home with less than 200 RMB. (Iron Reapers, a documentary, 2003)
Quite a few
agricultural specialists in China have spoken openly about the so-called
“san – nong” problems, or the three related agricultural problems:
agriculture, rural villages, and peasants. They point out similar problems
as Brown in regards to grain production. Lu Xue-yi, a well-known author,
stated these problems in his recent book:
The first
problem is the massive loss of farmland. Since 1981 land loss has averaged
5-7 million mu a year (1 mu = 0.067 hectare). The second is the
deterioration of land fertility. In 1976 land area that used organic
fertilizer was 150 million mu and by 1987 land area that used organic
fertilizer decreased by 60%. The third problem is, after 1980, there has
been loss of irrigated land; before 1980, irrigated land area had
increased by 8 to 10 million mu a year but after 1980 no additional
irrigation was built and the old system lost its function due to lack of
maintenance. The irrigated land area has since continued to decrease. The
fourth problem is dated agricultural instruments. Between 1980 and 1986,
machine farmed land decreased 11.1%. The fifth problem is the loss of more
than 100 million mu of natural forest, the loss of 1 billion mu of pasture
land, and increasing desertification. (Lu, 5-6)
Chinese
agriculture will continue deteriorate, because it desperately needs more
investment. The central government has promised more investment, but it is
far from adequate. The modernization of agriculture during the commune
years came to a halt when the Reform redistributed land to individual
peasant households. As stated above, individual peasants lack the ability
to invest in large agricultural instruments. Moreover, with the collapse
of the communes, labor can no longer be organized as it was by the former
brigades and communes to work on intensive and extensive land improvement
projects. This explains partially the large number of unemployed and
under-employed peasants in the countryside.
The sharp
drop in grain production between 1998 and 2003 was the impetus for the
government’s emergency increase in the agriculture budget. The government
used an additional $3 billion in 2004 for a 25% increase to support the
price for wheat and rice and for improving agricultural infrastructure.
(Earth Policy Institute, Eco-Economy update, March 10, 2004) Grain
production went up both in 2004 and in 2005, reaching the output level of
1998. But the basic problems in agriculture are far from over. The
government also eliminated agricultural taxes in order to boost peasants'
income. However, without taxes the local governments have no way to
support themselves. Therefore, they will probably have to increase fees
charged to the peasants.
There are
several hundreds millions peasants who still rely on farming as their main
source of income. These peasants have had a very hard time making ends
meet. Many peasants have either lost or abandoned their land and many more
have suffered from natural disasters. As mentioned earlier, a large and
growing number of peasants migrate to cities to work and send whatever
they can from their meager wages home, so their families can live.
Small-scale
farming that relies mainly on labor means low labor productivity and low
peasant income. Since work on land improvement projects stopped, the
productivity of the land also has declined. Peasant income has been
further squeezed by unstable and often falling output prices and rising
input prices, and higher taxes/fees. Many rural families have to rely on
money sent home by migrant workers. The recent efforts made by the central
government to raise purchase prices and cut taxes will help to a certain
degree, but these measures will not solve the problems of small scale
farming: low labor productivity and lack of long-term investment to
modernize agriculture. When the income of peasants, who still make up the
vast majority of China’s population, is not improving, there is little
hope for China’s domestic market to expand. Therefore, the imbalances in
China's domestic economy due to over-investment and weak consumer demand
are likely to continue.
5. The failure of healthcare reform and its impact on the lives of workers
and peasants
In addition
to unemployment, unsteady jobs and low-income, workers and peasants lost
their protection from illness. Large numbers of working people do not have
any preventive health care, and when they get sick they cannot afford to
go to the doctors. China’s health care system during the socialist period
was widely praised. A recent newspaper report said, “For 30 years after
the Communist Revolution in 1949, China relied on a socialized health-care
system managed by collective farms and factory communities and staffed by
legions of lightly trained so-called barefoot doctors. It was threadbare
but functional, and life expectancy nationwide doubled within a
generation, from 35 to 68 years.”
(“Debt, Lines are Symptoms of China’s Frail Health Care,” Detroit Free
Press, October 5, 2005) Even the World Bank praised the “barefoot
doctor” saying for $3.00, each commune member enjoyed the equivalent
health care that would be worth of several hundred dollars in other
countries. (Sun, 106)
But now,
after 20 some years of health care reform, China's health care system is
in crisis. Even a top government think tank in China recently admitted
that medical reform started in the early 1980s was a failure.
(The Economists, November 19th- 25th, 2005,
29) The whole network of preventive health care built up during the
socialist period was totally eliminated. The majority of urban and town
residents now do not have health insurance, because, as I stated earlier,
almost all laid off workers from former State owned factories lost their
health benefits. The free market approach to health care reform made the
prices of doctor visits, medicine, and hospitalization skyrocket. People
cannot afford the high cost of medicine, let alone hospitalization for
serious illnesses. An operation can cost 40,000 to 50,000 RMB, which is
five to seven times that of the annual income of better-paid workers. No
medical treatment is given, including in emergency cases, unless the
patients and their families can make total cash payment in advance,
resulting in the deaths of countless treatable people literally at the
hospitals steps
As for
peasants in the countryside, the situation is even worse. After the break
up of the commune system some 20 years ago, former commune members lost
their health and other benefits that had carried them through hard times.
According to the Status of Rural China – 2003 –2004, the
participation rates for peasants in any kind of insurance are very low. In
2002 the participation rate for rural population in old age insurance was
7.7% but only 1.4% of the insured actually received an old age pension.
The percentage of people who received a minimum living expense relief was
only 0.5%.
Only about 5% of rural residents participate in cooperative health
insurance. In 2002, 170 million people were affected by natural disaster,
but only 9.4 million, about 5%, received any kind of disaster relief. (Li,
63) The absence of any preventive medicine has meant that infectious
diseases, such as tuberculosis and schistosomiasis (snail fever), which
had been eliminated in the 1950s, have returned in full force.
In addition, new infectious diseases, such as HIV/AIDS and SARS have
caused suffering for tens of million people, not only from the effects of
the disease, but also from government’s denials and cover-ups, and the low
priority government has place on public health. Moreover, people in rural
areas have suffered disproportionably from diseases caused by environment
pollution.
In China
today, there are still many tens of millions of people who do not have
clean water and/or adequate nutrition, which are basic requirements for
better health. They also have lost access to any preventative health care.
Under the capitalist reform, health care now become a commodity, which can
only be bought by the small minority who can afford to pay.
At the same
time workers and peasants lost their health insurance, they have been
increasingly subjected to hazardous and toxic working conditions. Many
high tech firms relocated to China to take advantage of the low wages of
Chinese workers and also to escape regulations in their home countries
limiting worker exposure to toxic materials.
Hundreds of thousands of young Chinese workers, mostly women, have flocked
to the Pearl River Delta, and in the last few years to the city of Kun-shan
near Shanghai, to work in electronics factories that assemble computers
and other electronic products for the world's major tech companies..
These workers work long hours with little or no protection from exposure
to high toxin levels. Moreover, Chinese workers also work to extract toxin
metals from hazardous electronic waste exported by the United States. The
United States has refused to adopt the international rule of the 1994
Basel Convention, which banned exportation of hazardous waste from
developed countries to poor countries. In the small city of Guiyu,
environmentalists found 100,000 people dismantling discarded electronics
without any protection from the highly toxic waste materials. According to
a study released in California in August 2005, high levels of toxic metals
were found in 70 samples collected from industrial waste, river sediment,
soil and groundwater around Guiyu, as well as in the suburbs of New Delhi
where workers also work with imported electronic wastes. (“American
Electronic Waste Contaminates China and India,” by Terence Chea,
Associated Press, San Francisco, August 17, 2005)
Even the
mainstream press in the West has been alarmed by the numbers of coal miner
deaths in mine accidents in China – known as the deadliest mines in the
world. According to an online report (China.org.cn) 6,434 coal miners died
in accidents in 2003. China produced 1.7 billion tons of coal and the
report calculated that for every million ton of coal produced, 4 miners
died. In contrast, the fatality rate (per million ton of coal) for Russian
miners was .34 and for developed countries was 0.4, about one tenth of
China's fatality rate.
While the
majority of Chinese are denied medical care at the same time they are
increasingly exposed to health risks, foreign healthcare corporations have
rushed to China to meet the high quality healthcare demand by China's
super rich.
A Wall Street Journal article reported that health care providers such as
China Healthcare Holdings of Hong Kong and Chindex International Inc. of
Bethesda, Maryland, have already invested in China’s big cities like
Beijing and Shanghai to provide health care for the well to do – among
them was a young lawyer in Beijing with an annual income of $250,000 (or
about two million RMB) and other high ranking executives. Pictures
accompanying the report showed the new health facility in Beijing, which
looks more like an upscale hotel than a health clinic. (Wall Street
Journal, August 18, 2005, B-1)
6. The education reform has deepened the class division
During the
socialist transition, the goal was to reduce the three great differences:
the difference between physical and mental labor, the difference between
industry and agriculture, and the difference between city and countryside.
Education reform during the socialist period, especially since the
Cultural Revolution, played a big role in the reduction of all three
differences.
The major
goal in education during the socialist period was to fundamentally
transform the traditional conception of education in Chinese society. In
the many thousands of years of feudalism, education was equated to book
learning and reserved for the very privileged few. Learned scholars went
through a series of civil servant examinations to be selected to serve the
imperial lord. Those who passed the examinations brought glory to their
families, which were the gentries of the landlord class. The learned
elites despised physical labor of any kind. When Western modern
universities first opened in China, students who took chemistry class
brought their servants to wash test tubes in the laboratory for them. This
concept of education and how education elevates one’s social status was
deeply ingrained in peoples' mind over thousands of years of feudalism.
This
traditional concept of education is diametrically opposed to in the needs
and ideas of a socialist society. In a socialist society, where the three
great differences have to be eventually eliminated, knowledge, know-how
and skills not only have to be related to the struggle for production, but
also have to be disseminated to the vast majority of masses.
Education
reform before the Cultural Revolution was not successful in making major
changes in the education system, because students for higher education
were still selected by entrance examinations. More attention was paid to
spread education to youth in worker and peasant families and the
universities not only did not charge tuition but also gave stipends to
cover students' living expenses. However, as long as entrance examination
decided who got in the universities, youth in worker and peasant families
clearly had a disadvantage when competing with youth in intellectual
families. It was not until the Cultural Revolution the education went
through an overhaul that eliminated the entrance examination as the way to
select students for higher education. High school graduates were required
to go to the factories or go to the countryside to work for two years or
more. Their work place would later decide whether to recommend them to go
to college.
During the
Cultural Revolution when the campaign for the educated youth and even
college teachers to go to the countryside was in full force, peasants were
able to receive an infusion of knowledge, and intellectuals were able to
relate their book knowledge to solve the practical problems in production.
The major task of spreading education in the countryside was made possible
by the central government shouldering the costs. The central government
paid the construction cost of schools and the teachers' salaries. The goal
was to have an elementary school in each production brigade (the size of a
village), a junior high school in each commune and a high school in each
county. With the exception of the very poor areas, those goals were
reached in most areas by the end of the 1970s.
The
capitalist reform that began in the 1980s moved China's education toward
exactly the opposite direction. As the communes collapsed, the State also
stopped financing education in the countryside. In the more well to do
villages where sideline business in manufacturing and commerce flourished,
they built their own private schools. In villages where agricultural
production increased in the mid-1980s, they were able to maintain their
schools. But when the increases in grain production slowed in the 1990s
and then declined in the late 1990s, villages had trouble maintaining
their schools. Teachers' salaries went unpaid and schoolhouses fell apart.
Moreover, since city intellectuals were no longer encouraged to go to the
countryside and educated youth from the countryside do not go back to
their own villages, it has become difficult to find teachers and has
resulted in the decline of teachers' quality. The gap of education between
city/town and the countryside, which had begun to shrink during the 1960s
and 1970s has now widened.
In today's
Chinese society education again becomes a necessary means in elevating
one's social status and increase one's income. The education reform
increased the number of colleges and universities and well as expanding
the enrollment of the existing schools. The costs of college education
went up to 40,000 to 50,000 RMB for the four years -- an equivalent to
several years of better paid workers' income. Parents will do everything
possible to get their children to colleges, but in today's job market with
the exception of graduates from the most prestigious universities college
graduates are having a hard time landing jobs.
7. Polarization of Chinese society, stagnated consumer demand, and the
potential crisis of overproduction
More and
more people outside China are noticing the polarization of Chinese
society. Bai quoted UN’s statistics that the current income share of the
lowest 20% of China’s population is only 4.7%, and 50% for those in the
highest 20%. The Gini index for China’s income distribution is 0.45. In
the past among all the developing countries, China had the most equal
income distribution. So what have been the changes in the capitalist
reform that resulted in this extreme inequality? Large lay-offs, low
wages, and lack of benefits for workers from restructuring State
enterprises, and low income for peasants are the main reasons for the
extremely lopsided numbers at the bottom. On the higher end of the income
distribution are high-ranking government officials, private
businesspeople, and some high salaried professionals. The official
statistics do not even reflect the real income inequality, because much of
the income of the very rich, most of which was obtained illegally, is not
reported.
Since 80% of
the population, more than one billion people, received only 50% of the
total income, many of them can barely make ends meet – and they do not
have money to spend on the large volumes of consumer goods that have been
flooding the Chinese market. The result is a stagnated domestic consumer
market. According to Bai's report, consumption was only about 44% of the
total GDP in 2004. This means 80% of the people who produced most of
nation's output only consumed not much over 25% of the total output..
The slow growth in personal consumption explains that why the contribution
of domestic consumption toward the growth of GDP fell drastically from 73%
in 2000 to 48% in 2001, 40% in 2002 and a mere 38% in 2004. The stagnated
consumption has caused over-capacity in the majority of industries that
produce consumer goods.
The high
rates of investment and the lack of growth in domestic consumption have
resulted in over-capacity, first in consumer goods industries, and lately
in producer goods industries as well. Even though the problem of
over-capacity (over-supply) is normal for any capitalist economy, the
scale and magnitude of over-capacity in manufacturing and in the
over-built infrastructure went unchecked for a prolonged period in China,
making the problem much more severe. In China's post-reform political
structure, profits are often made and rewards are often received at the
time of investment, before there is any proof that the investment is
viable or will yield a positive return.
The 2003
China’s Industrial Development Report stated that as early as 1995, a
general survey of industries showed that over 40% overcapacity of
productive facilities existed in more than half of all industries. For
example, the capacity utilization rates for color televisions, washing
machines, bicycles and air-conditioners was only 46.1%, 43.4%, 54.5%, and
20% respectively. (27) Bai’s wrote in his report (point 2), that a more
recent survey of 600 major consumer products showed similar problems.
Predictions in the report indicate that for the second half of 2005, only
172 (28.7% of total) products would be basically balanced in supply and
demand. In the other 428 (71.3% of total) product categories, supply would
exceed demand. In other words, in the majority of consumer good
categories, there would be many more goods than the total demand.
Before 2003
there were shortages in some of the producer goods industries, such as
steel, cement, and energy. Now those shortages have disappeared. The high
profits for steel production doubled its investment since 2003. During the
first nine months of 2005, demand for steel went up only 19%, but supply
went up 27%. As a result, the price of steel decreased sharply from March
(2005) on. However, investment in steel continued to go up another 28% in
the first nine months of 2005. Similar developments occurred in the cement
industry and even in the energy industry including coal and electricity. A
New York Times article in 2004 said that 90% of all industries in China
had over-capacity. (New York Times, July 4, 2004, 30)
The Chinese
authority now belatedly realizes that China’s economy is seriously
imbalanced. (See Bai’s point 9) Even many economists on the Right, who
advocate for the neo-liberal strategy of free market development, have had
to admit that a crash seems inevitable, and that it may happen mid-way
through the 11th five-year plan that begins in 2006. However,
within the framework of China's course of development, these imbalances
are structural and cannot be corrected by simply making adjustment here
and there.
8. Dependence on foreign technology and foreign markets
From 1999 to
2003, over a period of merely four years, China imported $75 billion worth
of foreign technology – but the technological innovation and development
of domestic firms since the beginning of the Reform has not improved
significantly. In addition to technology imports, China has also imported
most of the machines and equipment used to produce exports, as well as
certain raw materials, components, and parts. (Bai’s point 8)
However, the
original intent of using imported technology to upgrade domestic
technological capacity was not realized. The 2003 China’s Industrial
Development Report said that the development of the past decade (and
more), especially in the past three years, resulted in very serious
structural problems in China's industry. On the one hand, manufacturing
has grown at very fast rates. Yet the foundation of the industry that
produces machinery and equipment has remained very weak. The Report
further stated, "The capacity utilization of the industry that makes
machinery and equipment stays at only 50% on the average. The high demand
for high tech and specialized machinery and equipment could only be met by
imports." The report’s footnotes gave some examples: 80% of the machinery
and equipment in the synthetic fiber industry, 70% of the machinery and
digital control equipment in the petrochemical and passenger car industry
have to be imported. (The 2003 China’s Industrial Development Report,
28)
In addition
to the imported machinery and equipment, China has also had to import
specific technology, components, and parts for the products it produces
and exports. Even though China is number one in steel production, the same
report said that the domestic contents for certain kinds of steel are low:
it is 65% for a special kind of sheet steel and only 15% for stainless
steel. It also said that China has a strong capacity to produce high
quality consumer durables, but such production depends on the imports of
intermediate components and certain specific materials. (Ibid. 27)
According to
Bai, the reason for the problem related to the dissemination of imported
technology was lack of funding. He said that in Japan and Korea, for each
$1 spent on imported technology $5 to $8 was spent in the spreading and
absorbing such technology domestically. China has only spent $0.07 for
each $1 of imported technology. He said, therefore, China's ability to
disseminate foreign technology is very weak.
However, the
small expenditures allocated for spreading and absorbing foreign
technology are only small part of a much bigger problem. The 2003
China’s Industrial Development Report also admitted that the positive
impact of foreign technology on domestic industries has been very limited.
(Ibid., 56) The report said that in order to maintain their superior
position in advanced technology, the multinationals, have not exported
their most current technology to China, and the technology they have
exported to China is under strict controls to prevent dissemination. Both
Bai’s report (point 8) and the 2003 China’s Industrial Development
Report (56) concluded that foreign technology has helped very
little in terms of domestic technological development. They also
acknowledged that China’s over dependence on foreign technology is not
likely to change in the future.
There has
been no central comprehensive plan or specific standard with regard to
importing foreign technology or accepting foreign investment. The small
expenditures on technology dissemination are the result of not having an
overall plan. The acceptance of foreign investment and the adoption has
been done in an ad hoc manner. Multinational corporations often approach
local officials to present their investment plans, which contain elaborate
photos of "advanced" technology. Since the local officials have reaped big
benefits and rewards by the number and amounts of foreign investment they
are able to attract, they would be more than willing to offer the foreign
investment tax concessions, upgrading the physical infrastructure,
simplifying administrative procedures and providing the foreign businesses
with a low wage and disciplined workforce, and they also would look the
other way when it came to environmental regulations.
Under the
self-reliance development strategy of the socialist period, China also
imported technology from advanced capitalist countries. In a paper written
by Alexander Eckstein, who was an expert in China's socialist economy, he
said, "Complete-plant imports from Japan, Western Europe, and to some
extent the United States are making a major contribution to the expansion
of production capacity in the chemical fertilizer, petrochemical, and iron
and steel industries, as well as in power generation and commercial
aviation, in the 1970s." (Eckstein, 107) China benefited from the imported
technology, because it was able to use it to upgrade its own. In the past
after a complete-plant was imported, China was able to build a copy of the
plant in a fairly short time. Under self-reliance socialist development,
machine-building industry was regarded as the foundation of
industrialization and was given high priority in making policy decisions
and planning.
However,
since the Reform began there h
