China's bureaucrats: profiting from chaos


By Ossi Rask

Something is wrong. It has something to do with the unofficial slogan of the lower-level bureaucrats: "The more chaos, the better".

The gross national product of China last year grew by 12.8%. In the first quarter of this year GNP reached 14%. Compare this with the 1-3 or 4% in member countries of the Organisation for Economic Cooperation and Development.

At the same time inflation has passed 10% in the countryside. In China's largest 35 cities it is estimated to be 17% or higher and on the increase.

Inflation arose from the new freedom to increase profits by increasing prices. "To be the first to be rich", as Deng Xiaoping said. Price controls have been gradually lifted since 1979, and "the market" now determines the price on 80% of all products.

The prices on grain, rice and other basic industrial products from the countryside are still decided by the government. In June the New China News Agency comfortingly assured us that the prices were "unreasonably low but the situation has improved". When the products from the countryside reach the city they are sold at a completely different price than when they were sold to the first bureaucrat.

Inflation also arose from the opening to the world market. From June 1 the government removed the price controls on the so-called swapmarkets [the term used in the Chinese press for currency exchange]. In the three weeks following, the yuan plunged more than 30% against the US dollar, although it then stabilised.

Thirdly, inflation and "growth" arose out of uncontrolled credit. Local banks and state companies lend and borrow money from each other, from the public and from foreign sources, without permission and at a rate of interest that can be three or four times higher than the central bank. The current symbol for this phenomenon is the trial of the Great Wall company, which borrowed 1 billion yuan from 200,000 citizens at a rate of interest of 24%. The trial drags on. There are too many people involved in the scandal who do not want a result.

Big profits

The cadres of the party-state strive to transform or split off the capital of the state and make it private; they look for short cuts in treating companies, institutions and funds as their own. Standard Chartered bank have reported that the comrades are now the biggest foreign investor and actor on the Hong Kong Exchange. The bureaucracy in China has also become the number one foreign player on the Hong Kong real estate market.

Who will benefit if there is a breakdown in the system? Marc Faber, a well-known capitalist in Hong Kong commenting on the fall of the yuan: "The economic changes in China have created a class of people who have invested in an economic collapse". The unskilled members of this "class" just change their yuans to dollars and wait.

In southern China the fields that were previously used for rice and other crops are being cleared for real estate projects. Speculation, corruption or sitting at the side and getting paid for helping is the natural reflex of the bureaucracy.

There will be high "growth" in real estate, the entertainment industry, durable consumer goods. Big profits will be made, or at least will be expected. In agriculture, the infrastructure, primary goods industry and energy, there is no money to be made and the problem is one of low growth. Capital is flowing from the latter to the former, form north to south. The railways can only meet 60% of the demand. Electricity is cut from time to time in many cities. In textiles and oil refining, one third of capacity lies idle.

In June, the minister for agriculture declared that the amount of farmland for summer grain harvests would be down by 167,500 hectares. Official economists have projected that this year land devoted to grain will be at least 1.33 million hectares less than in 1992. The comparable shortfall for cotton is 667,000 hectares.

The spring of 1993 saw more than 200 peasant uprisings against local authorities.

In May in Renshou county, Szechuan, more than 10,000 peasants besieged local authority buildings. Whole villages have revolted against local rulers. People who have been unable to get out their money from local post offices break in and beat up personnel. Violent arguments over who owns what land and the intervention of the army to stop fights bear witness to the tensions.

The security police report about secret societies in the countryside and "feudalistic peasant empires" being established. In a speech in April, the chair of the National Peoples' Congress, Qiao Shi, cited the growing influence of a "peasant emperor" in Hubei, a demobilised soldier.

Robbing the peasants

It is still the countryside which is the economic base of China. When the bureaucracy is accelerating its efforts to increase the gap between its own living standards and the majority, when it is going wild in its search for fast money and capital for speculation, when it is searching for a way to become a ruling class "for real", it is decisive that it lays its hands on an even larger part of the surplus from the countryside.

People talk of "duke economies" or "economic warlords". The bureaucrats, from provincial level down to the village, do what they like, sidestepping central government and higher authorities, fighting for spheres of influence against their colleagues.

These increasingly centrifugal forces result in a lack of money. For the peasant this means :

  • White IOUs" — When the peasant sells rice or another crop to the state-buyer, the payment is a white piece of paper which says how much money it can be exchanged into "later". No interest, despite inflation of over 10%.

  • "Green IOUs" — When people in the city send any money they have earned home to the village, the recipient will only get a green piece of paper when they attempt to cash the postal cheque. Again, no interest.

New taxes and fees are being imposed "in order to contribute towards the local build-up" — that is, the bureaucrats' local hotel projects or their purchases on the stock market in Hong Kong.

Land is bought, forcibly or not, and used for real estate projects. After this the peasants have nothing but their labour power to sell.

"I shall cut off the heads of those issuing 'green' and 'white IOUs', executive vice-premier Zhu Rongji shouted at an emergency meeting at the end of June. He had, at the same time, become the new chief for the scandal-ridden central bank.

"Forty-five different new fees which have been introduced locally are illegal and shall be immediately abolished", was the wording in another government statement. "The taxation of the peasants must not exceed 5%." This would be less than half what had been the practice in 1992.

Power struggle

Zhu Rongji will be starring in the coming power struggle after Deng. At the beginning of July, in his new post at the central bank, he stated that 100 billion yuan which had been lent out illegally must be paid back by the local banks before August 15. The goal was not achieved. But Zhu does not dare attack the leaders in the Special Economic Zones (SEZ), proteges of Deng Xiaoping. Not one word has been said about putting the corrupt bank officials on trial.

However, the threats from the top have created new speculation that there could be, perhaps, a 180 degree turn. References to ancient emperors and their bad advisers in magazines in June were interpreted as hidden attacks on the capitalist road of Deng. There have also been some open attacks.

In August, Beijing claimed that 1000 out of 1200 unofficial economic zones in the south, illegally opened by local bureaucrats, had been closed. The threat is to close more if they do not pass government inspection.

At the beginning of August there were horrendous explosions and fires in the Shengzhen, heartland of Deng's policy. Fifteen workers were known to have been killed on August 13. Many others were missing. For the first time local government spokespeople admitted that safety standards were inadequate. "The lust for profit was put before human life", the provincial Nanfang Daily said in a commentary.

There is a Chinese saying: "Heaven thunders, and no rain." The "closures" will not be effective with anything less than a head-on attack on Deng's line. Thus, a prognosis is: those without "connections" must comply with the campaign and stay calm for a while. Those with better connections will continue more or less as before.

The threat from the top is kept alive. But it never seriously challenges the fact that all the bureaucrats stand above the law and tend, more and more, to do what they like with "their" money.

The transformation — from bureaucrat to capitalist — must exist in many minds as a personal possibility. But how will it take place on a broad scale? As an individual fortune-seeker the bureaucrat divides and tears the market into small pieces. This is not a good basis for capitalism, rather a basis for "anti-feudalist" revolts. It is the connections upwards and sideways, the personal position in the bureaucratic network, that is the asset of the party cadre. If the bureaucrats break loose from the hierarchy, what then will they have to offer an American capitalist?


There is no serious opposition to the market reforms as such. The fear in the centre and the reaction among party leaders stems more from the threat against what once gave the party an important part of its legitimacy, perhaps the only legitimacy that remains: the party unified mainland China and kept the huge nation together.

Thus, market reforms, but in unity and with discipline? This is not easy. Who shall be criticised and attacked?

"The central leadership cannot deny that the major culprits of overheating the economy (are) the fast growing number of corporations affiliated with senior cadres, military officers and their offspring" says the South China Morning Post.

There are 100,000 millionaires in yuan in China today. Some 10,000 of these have the same family names as the veteran leaders of the Long March.

The son of Deng (in a wheelchair since the Cultural Revolution) has become a symbol for corruption through his transformation of the Chinese League for Disabled into a firm importing Japanese cars and fridges. The sons, and the sons of the sons of Deng are engaged in speculative business in Hong Kong.

But there are also other developments which could carry real capitalism into China.

In Hong Kong, Taiwan, Singapore and the whole of South-East Asia, the Chinese bourgeoisie who fled China in 1949 and their sons and daughters have already started. They have been responsible for 75-80% of capital investment in China during the last 12 months. In Indonesia the regime has complained about lost investments and the rich Chinese being disloyal, thinking too much of their homeland.

In May 1989, a nervous Li Peng came to the San Gong steel factory outside Beijing to give a speech. Leaflets from the Free Workers' Association were circulating: "We support the students' fight against corruption, but we also demand ..." Now the bureaucracy faces demands of a different kind. This "Capital Steelworks Ltd" has been introduced onto the Hong Kong exchange together with eight other big state companies. It is investors who are now making demands — for increased profits.


However, this is no longer alien to the bureaucracy. The bankruptcy law which has existed for some years has now started to be put into practice. In November of last year 3000 workers of a big textile factory in the south were fired and the bankruptcy was established by a court of law.

When the shares for a state industry have been introduced, the majority have been sold to foreign concerns. Today, less than half of China's companies are state-owned. In the city of Wuhan a capitalist from Hong Kong was allowed to buy 51% of the stocks in the Two Dyeing factory. Twelve hundred of the 2000 employed were fired. Workers younger than 35 could keep their jobs. The working day was increased from eight to 10 hours.

In this way the pressure increases on the traditional urban working class. To this is added the mighty pressure of 100 million escaping form the economy in the countryside. The "iron rice bowl' — the nickname for the former safe state employment — is cracking up. Over 20% of the work force in state-owned companies today can be contract workers.

But in their direct robbery the rulers in the cities seem to be a little more careful. The "white" and "green IOUs" of the countryside have their city counterpart in the "red IOU". When wages are collected, 20% has been subtracted by the management for "investments". The difference, however, is that the red paper promises interest and repayment by a fixed date.

All oppression in China seems at first sight to be unbroken. There are still thousands of political prisoners — authors and intellectuals — and hundreds of merciless death sentences are carried out publicly after arbitrary trials.

But there are some examples from spring of this year that show the rulers are nervous in the face of mass protests.

In June more than 1000 students at a university in Xian managed to stop a hated road project with their demonstrations.

In April the protests of students in the town of Loudi, Hunan, forced the police to release a popular professor from prison. He had been beaten up by the police on his way to work and then accused of violence against them. The court set him free with reference to "the riots in Beijing 1989", of which one should avoid a repetition.

In July, hundreds of workers went into several days of strike at a factory in Beijing. They were protesting against a transfer of their workplace following a part of the factory being privatised.

In all these cases the authorities have not dared to attack. They have negotiated.

To stop collective action against its power, the party has waged decades of fragmenting war against the individual. In this way it connected the collective in the minds of the people with humiliation, stupidity, murder, torture, whipped-up mass psychosis, denunciation and treachery within the family and amongst the closest friends.

Now "the individual" is celebrated. For the moment China is a continent where the new message of the bureaucracy — about personal success and getting rich — is hammered out through news and advertisements on television and other media.

This has met with a broad response and creates hope. The mass of intellectuals presently see the course set by the party as the starting point for democracy, rather than the mass movement. They hope that the party will self- destruct because of its economic policy and yet at the same time, ironically enough, they believe the party's uninterrupted propaganda about the USA and the "ideals of the West".

One can guess that the "get-rich-first" schema will lead to many disappointments, exposing it as yet another propaganda campaign from rulers who refuse to go. The numerical increase in the working class that will be created by the drive for capitalism will need time to come together, in concrete organisational forms, before it can dig a grave big enough for this dictatorship.

The monstrous and ludicrous rule of the bureaucracy is so transparently corrupt and discredited before the people that even a short period of economic disorder is felt as one provocation too many. The situation is extremely unstable. [Abridged from International Viewpoint.]