Tuesday, 27 August 2013 00:00
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By R.M.B. Senanayake
Many of our intellectuals think of China as a socialist or communist economy. Make no mistake, it is not a democracy where the rulers are elected by the people and held accountable to them at periodic elections. But that refers to the polity, not the economy.
Somewhere in 2005 or so I attended an International Research Conference in Hong Kong called by a Chinese free market oriented think tank which was attended also I recollect by Senior Lecturer of the University of Colombo, Abeyratne. China had applied to join the WTO and only free market-oriented economies could qualify. Note that for economists, free market economies are synonymous with capitalist economies. At the conference several Chinese speakers explained why and how China was a free market economy.
The debate inside the Chinese Communist Party on opening up the economy to foreign investment started in 1977-’78 shortly after the defeat of the so-called ‘gang of four’ (arrested on 6 October 1976) who, after the death of Mao, were demanding a continuation of the ‘Cultural Revolution’. Deng Xiaoping came to power in 1979.
A specific appeal was made by him to the Chinese diaspora, a community of 60 million Chinese in Taiwan, Thailand, Malaysia, Indonesia and even the USA. He opened up the Chinese economy to foreign investment and set up Special Economic Zones where they could operate freely. So a large number of American and European foreign companies set up industries in China to take advantage of the cheap labour.
These foreign enterprises exported the products of their factories to their home countries in USA and the West. China obtained much-needed foreign exchange and also modern technology transfers (China was very backward then in production processes).
While capitalism was firmly established in the Special Economic Zones, the transformation of the rest of the Chinese economy to capitalism and free market principles was a slow and contradictory process and is still ongoing in adopting the macro-economic controls.
The first qualitative step came in the early 1980s when collective land worked by the communes was rented out on a long-term basis to peasant families and in the mid 1980s when price controls were removed from the bulk of goods and services. Agricultural production grew rapidly and foreign investment started pouring in.
Between 1980 and 1985 100 million televisions were sold. Between 1985 and 1990, 50 million washing machines and 40 million fridges were also sold. It was in this period that the sons and daughters of high-ranking bureaucrats started to study abroad, mainly in US and British universities.
The first Stock Exchange was opened in Shenzen in 1988, with the second opening in Shanghai in 1990. In the meantime the massacre of Tian An Men took place where the army killed hundreds of youth and workers in Beijing on 3-4 June 1989 (China was not and is still not a democracy where leaders are elected directly by and accountable to the people). A part of the Communist Party apparatus asked Deng to slow down the opening up of China to capitalism in 1989.
After a year of debating the issue he did not accept the calls of the party.
In fact, precisely to overcome the impasse that the repression had created, he decided to open up all the coastal provinces and the capital Beijing to foreign investment. On the island of Pudong in Shanghai (500 square kilometres) plans were set up to create a new Manhattan. Today it has become the most important commercial hub of China with its four million square metres of skyscrapers built in a period of 10 years. Foreign investment in 1990 had reached six billion dollars.
In October 1992 at the XIV Congress of the CCP this turn to a capitalist economy was given the name of ‘socialist market economy’. It went on to say that, “It is necessary to keep to the principle of combined development of multiple economic sectors in which public property maintains the dominant role; it is necessary to further transform managerial techniques in the state owned enterprises and set up a modern entrepreneurial system that meets the needs of a market economy.” At that time a heated debate ensued on how the government and the party would maintain “macro-economic control”.
But in the end the line did not change. In 1996 the remaining vestiges of centralised planning were abandoned.
The last serious attempt at any resistance to this new course to a capitalist market economy was overcome between 1998 and 1999 when an official decision was taken to drastically reduce the weight of the state sector of the economy with mass layoffs and sackings, combined with a further opening up to foreign investment, but with no loosening up on the question of democratic reforms.
State-run companies were turned upside down and inside out, with either the fusing of companies into one or the breaking up of others. The purpose of this was to separate the profitable sectors from the loss-making ones. The former were privatised and the latter were left to rot. It is not by chance that throughout this period the top party officials and their families grabbed the lion’s share. As a result of this process at least 70 million workers in the public sector have lost their jobs.
In line with all this, on 1 July 2001 the formal decision was taken to allow private capitalists into the party. In November of the same year China joined the WTO.
In 1993 GDP grew by 13.7%. Since then average annual growth has been 8% until last year when it fell to 7.5%. The continuing economic growth that allowed a minority of Chinese capitalists to enrich themselves while allowing at the same time an improvement in the living standards of hundreds of millions of rural peasantry flowing in from the rural areas was possible only because of capitalism. Their wages went up from 20-25 euros in the rural areas to 80-180 euros in the cities.
The Chinese Government not being a democratic government was able to prevent the inflow form the country side into cities in a controlled manner through a system of passbooks which alone entitled the rural peasantry to move in to the cities. So no uncontrolled movement from the countryside to the cities was allowed.
The highly competitive nature of Chinese goods is possible because they are produced with the most advanced technology (thanks to the huge level of investment over the last 20 years, of 600 billion dollars in 480 companies) combined with wage levels 10 or even 20 times lower than in Europe or the USA. The rapid growth in exports is matched by that of imports, with massive investment in the infrastructure (35,000 kilometres of motorways were built between 1994 and 2004 alone.
But Chinese consumption is low and is only 8% of the GDP while in Africa it is 16% of GDP. The Chinese model of development is based on unchecked profiteering and a few Chinese who are allied to the Communist party are a modern rich capitalist class. The trial of Bo Xilai now going on in China shows how Chinese leaders amassed huge fortunes through corruption.
Bo Xi Lai was an egalitarian in his politics. He promoted egalitarian values and the achievements of his ‘Chongqing model’ made him the champion of the Chinese New Left, composed of both Maoists and social democrats disillusioned with the country’s market-based economic reforms and increasing economic inequality. But he was found to be corrupt. The Chinese economy now has to cope with the business cycle which is part and parcel of the capitalist economy.
