Inside China's economic miracle

April 11, 2014

China’s Rise: Strength & Fragility
By Au Loong Yu
Resistance Books, IIRE
Merlin Press, 2012
316 pages

The transformation of the Chinese economy a 20-fold rise in the size of the economy between 1979 and 2010 and huge development of private enterprise has been one of the most significant and remarkable phenomena in recent history.

However, neither the Western media and academia, nor the Chinese regime itself, provide much credible analysis on what is involved in this transformation.

China’s Rise: Strength and Fragility is a collection of essays. Most are by Hong Kong-based labour researcher Au Loong Yu, with contributions from several others. The authors write from a Marxist perspective critical of the Chinese regime in both its current and earlier form.

It provides the most credible and measured analysis I have read of the nature of the Chinese economy and where it is going. It also dedicates a substantial proportion of the book looking at labour and political resistance in China.

With the growth of private capital and two rounds of major privatisation of state enterprises since the 1990s, the state sector shrunk from 80% of industrial output in 1979 to one third. It should be noted, though, that in absolute terms the state sector actually grew.

A 2002 report cited in the book said that when state enterprises were privatised, their previous leaders became their main investors and/or chief executives in 95.6% of cases.

Au says the nature of the Chinese economy is best described as “bureaucratic capitalism”. The ruling class mainly consists of those who are both state bureaucrats and private capitalists.

Au says the “bureaucracy simply refuses to be content with playing the role of compliant apparatus in the service of the bourgeoisie in return for a fixed amount of salary … it is simultaneously bureaucrats and capitalists, and therefore it wants a fixed salary and maximized profit at the same time”.

A significant step in locking China further into capitalism was its entry into the World Trade Organisation in 2001. This required China to sacrifice to the global market much of its freedom to set its own economic agenda on such matters as setting tariffs.

The sort of free trade that signing up to the WTO offered is always sold as promising development, but for poorer countries it has generally meant locking them into semi-colonial status.

Since embarking on the capitalist path and signing up to the WTO, China has become the world’s largest recipient of Foreign Direct Investment. Au says that to date, however, China has avoided the fate of becoming a mere semi-colony.

As well as a rapid growth in foreign investment, there has also been a rapid growth in domestic investment. The share of foreign investment in manufacturing in 2002 was 27.7%. By 2009 this had risen to only 28%.

Among the 39 branches of industry, foreign capital has a greater than 30% market share in just one of them.
China’s growth has also had significant success in shifting from labour-intensive export processing industries to more capital-intensive and technological industries. As a result, between 2004 and 2007, the value added by Chinese employees per capita almost doubled from US$9726 to $17,913.

Supplying this shift, the number of Chinese university graduates increased 4.6 times between 2000 and 2009.

We should not, on the other hand, take this to mean that China is simply taking a place in the world economy equivalent to that of the wealthy capitalist countries. In a chapter by Bruno Jetin entitled “China: Unavoidable rise or possible decline”, he suggests that China is heading towards becoming the world’s largest economy. But, with more than four times the population of the US, it will still have less than a quarter of the US’s GDP per capita.

China’s expenditure on research and development has risen from 0.71% of GDP in 1990 to 1.7% in 2009. This is still well behind countries such as the US, Japan, Germany and South Korea, which in 2009 spent between 2.8% and 3.5%.

Also, the research proportion fell from 30% in 1995 to 17.2% in 2008. This means China is heavily geared toward adapting foreign innovations for production rather than creating its own cutting-edge technology. By comparison the US is steadily around 40% research.

Au points to several bottlenecks which stand in the path of China’s continued high economic growth.

One bottleneck is the shocking impact such growth has had on the environment. For example, due to pollution, 400 out of 660 cities no longer have sufficient fresh water.

China is also starting to run into a shortage or workers, or, at least, a shortage of workers willing to work for low wages.

Another bottleneck is the persistent problems of overproduction leading to plant closures and mass layoffs. The 23% average annual growth in exports it enjoyed was inevitably going run into the limits of possible international markets.

With much of China’s growth dependent upon the supply of low-wage labour, there isn’t sufficient domestic consumption to buy the excess production. Booming investment has meant that the proportion of the economy going to private consumption fell from 49% in 1978 to 37% in 2009.

The spectacular growth in the economy has been matched by an equally spectacular growth in inequality. The labour share of China’s GNP fell from 52% in 1997 to 40% in 2007. The Gini coefficient of inequality rose dramatically from 0.25 in 1985 to 0.47 in 2008. This made China one of the most unequal countries in the world, on a par with the US.

This, along with privatisations and mass lay-offs and often appalling working conditions, has unsurprisingly led to resistance.

There has been a sharp rise in the number of what are called “collective incidents” basically protests and strikes. In 1993 there were 8709, 32,000 in 1999 and 87,000 in 2005.

However, since the crushing of the 1989 democracy movement in Tiananmen Square, these struggles have been almost entirely limited to individual issues and individual factories. No broader independent labour or political movement has emerged.

Nonetheless, the book details some quite inspiring struggles that have taken place, some even winning impressive victories.

Probably the most impressive victory was in Wukan village. As is common in China, their land was taken by corrupt officials and sold to developers.

The villagers responded with a demonstration, stormed local government offices and drove out the party secretary. They kept up repeated demonstrations in the face of violent repression by security forces including the killing of one of their leaders.

The officials who sold their land were eventually replaced when the villagers won the right to hold a genuine election for their village committee something previously unprecedented in China.

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