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.[23]” (“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[24]. (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%.[25] 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[26]. 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.[27] 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.[28]. 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.[29]. 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
As I explained earlier, opening up China’s economy to the rest of the world has always been an integral part of the Reform. The reformers were inspired by the “success” of the export growth strategy of the so-called four little tigers (or dragons), the model of development of South Korea, Taiwan, Hong Kong and Singapore. The reformers believed that China could do better than these small economies due to its economic foundation and its size. Initially China’s strategy was to use foreign capital and foreign technology to produce products for exports to other less developed countries; the reformers believed that it would be a win-win situation for both China and foreign capital. They thought that foreign technology would help upgrade the technologies of domestic firms.
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 has been little planning or even coordinated efforts to use the imported technology to upgrade China’s own technology. Other capitalist States, such as South Korea, have done far better in assisting its domestic capital in their efforts to upgrade technology. China’s record of technology imports shows a complete failure, even if judged by the standard of the performance of a capitalist State, which often sets certain priorities and acts as a coordinator.
9. China Has Served as the Processing Center for the Multinationals
Monopoly capital not only controls the technology it exports to China, it also control the price of such technology, the price of capital equipment, the prices of components and parts, as well as the price of the finished products that China exports. Foreign invested enterprises control about 60% to 70% of China’s export value. Lower export prices mean higher profits for the multinationals when goods are sold in the retail market abroad[30]. One such example is China’s exports of toys. According to Dong Tao, an economist at UBS in Hong Kong that a Barbie doll imported from China costs $20 in the United States, but China only get about 35 cents of that. (New York Times, February 9, 2006)
In the same New York Times article Yasheng Huang, associate professor of the Sloan School of Management at the Massachusetts Institute of Technology said that goods that marked “made in China” are mostly made elsewhere – by multinational companies in Japan, South Korea, Taiwan and the United States. These multinationals moved to China to complete the final assembly of their products as part of their vast “global production networks”. He added, “the controls and therefore profits of these operations firmly rest with foreign firms.”
China’s role in the international division of labor dictated by global monopoly capital is not different from many other developing countries. China has been and will continue to be a processing center and as a processing center its assigned role is to produce (mostly assembly) low cost and low quality products. The 2003 China’s Industrial Development Report stated that China’s industrial product exports have increased in volume but decreased in value. China’s terms of trade for industrial products decreased 14% between 1993 and 2000. (Ibid, 87) This problem is very similar to that of other less developed countries. Thus, the earlier optimism and belief of the reformers and their supporters that China was on its way to become a strong independent capitalist country has not been and will not be achieved.
Before China joined the WTO, Han De-qiang, a well-known author, wrote a book that documented that by 2000 foreign firms had already taken over many industries in China. Han said that those industries with the least protection were taken over by foreign corporations first, and the examples he gave were the soft drink industry, the beer industry, the detergent, the bicycle, the clothing, the paper industry, etc. He also said that the foreign corporations were positioning themselves to take over many others. (Han, 40-56)
The conditions China negotiated in order to join the WTO in 2001, are not favorable to China. Even some liberal economists believe that in order to gain accession, China gave up too much for its own good[31]. The full effect of the privileges that the multinationals obtained through China’s accession, have not yet been felt in China. But China actually began its reforms much earlier to prepare itself for WTO membership. From 1982 to 2001, China lowered its import duty for industrial products from 56% to 15% and eliminated its import quota on many import items. Also, before China joined the WTO it already eliminated import duties on machinery and equipment of foreign direct investments in China, and beginning in 1997, eliminated import duties on scientific instruments imported for scientific research. In 2000 it included computer software as part of growing list of duty free items. Therefore, by 2000 less than 40% of its imports were subjected to any tariffs. (Lardy, 36)
When China joined the WTO, it agreed that, with the exceptions of a few items, it would continue to lower its import tariff on industrial products from 15% to 8.9% by 2004. The 8.9% import tariff is much lower than many other developing countries. For example the import tariffs for industrial products of the four large countries – Argentina, Brazil, India, and Indonesia, are 30.9%, 27%, 32.4% and 36.9%, respectively. China also agreed to lower its import tariff on agricultural products from 23% to 15%, which would be lower than that of Japan. When China joined the WTO, it already made the decision to give up the highly protected industries, such as the automobile. Not only did China agree to lower its import tariffs, it also agreed to “bind all tariffs” once they became effective. Even the US Trade Representative commented, “Very few countries have done this.” (Lardy, 79)
In the service trade China agreed to open its domestic service sector markets, including telecommunications, education, entertainment, banking, insurance, security and other financial trading, and other fields in consulting, such as legal, accounting, and management. It also agreed to let foreign engineering, architecture, urban planning, medical, and computer specialist firms to open businesses in China. Before China joined the WTO, foreign banks were only allowed to conduct their business in certain cities. They were also only permitted to deal with business customers, and only in foreign currencies – not in RMB. After 2005 China has to eliminate the restrictions on foreign bank locations, and in 2007 foreign banks will be allowed to do business in RMB. By 2008 foreign banks will be allowed to accept personal deposits and make personal loans. After 2010, foreign banks will enjoy national treatment as domestic banks. Foreign financial institutions have positioned themselves to compete aggressively for market share in China’s financial market. As more and more foreign banks continue to buy shares of Chinese banks, the future outlook is not good for China’s fragile financial sector.
