State of Struggles in China

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Lin CHUN*

China was once considered one of the poorest countries of Asia. But, in only a few decades, it has managed to construct a strong industrial base and create a system of social security which, while modest, has made a considerable improvement in the lives of the population. The reform process that started twenty years ago has led to a greater integration of the country into the globalized market. The consequences - increase of unemployment, poverty and urban/rural inequalities - have brought about a great deal of social protest and contributed to a political legitimacy crisis. It is now up to the country to redefine a development project, Chinese style, between socialism and the market reforms. This redefinition should include the different sectors of Chinese society, from NGOs to trade unions, including the grassroots social movements. From this angle, the timid democratic changes that have accompanied the process of economic opening constitute a real opportunity.


I. The present situation

The People’s Republic of China (PRC) has a population of nearly 1.3 billion people or 22 per cent of the world’s total. The urban-rural ratio is around 3:7, with a large number of rural residents actually living in new towns and engaged in non-agricultural activities. The country’s average annual growth rate, according to the official reports, was about 9 per cent between 1979 and 2001, including a downturn of 3.8 per cent in 1990, an overheat to 14.2 per cent in 1992, and a 1 per cent fall each year until it was 7.1 per cent in 1999 (“soft landing”). In 2001, the Chinese economy became the sixth largest in the world and its foreign exchange reserve was over $245 billion in 2002.

China’s Gross Domestic Product is now eight times more than that of 1978, when reform was first launched. Of this gross volume, agriculture accounts for roughly 15 per cent, industry 52 per cent, and the service sector 33 per cent (contrasting with 60-70 per cent in advanced economies). The annual disposable income of urban households grew from $41 in 1978 to $760 in 2000; the savings across urban and rural areas are almost 100 times higher than those of 1978 (based on constant prices). A still low but significantly increased per capita income of $1,000 in 2002 (about 1.7 per cent of Japan’s or 2.5 per cent of that of the USA) enabled the 16th Communist Party Congress in Beijing to proclaim the goal of “comprehensively constructing a xiaokang (moderately well-off) society” for China in the first half of the 21st century. Some of these statistics have been disputed by specialists.

However, China has not made great headway in moving into a knowledge and information technology-based, higher-value production. Except for IT hardware of which China is now the world’s third largest producer, exports remain mostly products of

labour-intensive assembly lines. Moreover, undergoing difficult structural changes and affected by the financial crises in its neighbouring countries, China has in recent years experienced sluggish growth, a real estate bubble, a setback in sustaining village and township enterprises (VTEs), an unfavourable environment for exports, lower consumption and massive job losses. Inflation was high in the late 1980s (which contributed to the Tian’anmen protest in 1989), reached 21.7 per cent in 1994, fell to 6.1 per cent in 1996, and turned into worsening deflation from 1997 onwards. The depression of prices for farm produce, for example, has cost the peasants 30 billion yuan

($3.7 billion).

The government’s macroeconomic measures, some Keynesian, some neoliberal, have not sufficiently stimulated domestic demand and productive investment. Government spending is frequently inefficient, while running large budget deficits. Economists inside and outside China have seriously warned against a potential debt crisis in the footsteps of Latin America. Huge public infrastructural projects, such as the Three Gorges or the “greatly developing the west” campaign, involve poor decisions as well as local government corruption. National weath lost through corruption, including illegal capital flight, is estimated as much as 8 per cent of China’s annual GDP. In 2000 alone, capital outflow amounted to $48 billion, exceeded foreign direct investment (FDI) of $40.7 billion and closely matched the record of Venezuela, Mexico and Argentina, the world’s largest capital-losing countries.

Also striking is China’s uneven development with ever greater regional and sectoral differences. For example, the provincial economy of Guangdong amounted to 1,000 billlion yuan in 2001 as contrasted with only 13.9 billion for the Tibet Autonomous Region. Developmental unevenness, regional disparities, locally perceived cultural distinctions and rising localism have inspired an emerging scholarship in “spatial politics” that rejects the single concept of “China”.

As far as human development is concerned, the general living standards have been considerably raised over the past 20 years. China figures in the category of “medium” in Human Development Indexes (HDI), ahead of scores of Third World nations with a similar level of per capita GDP. Life expectancy is 71 years for men and 73 for women; the literacy rate is 90 per cent and 71 per cent respectively. The 1997 UNDP report indicated that the country has completed its demographic transition from a high fertility, high mortality society. More than 200 million people have been lifted out of absolute poverty. The national anti-poverty plan announced in 1994, as the Report recognized, “constitutes a commitment, rare among the world’s nations, to basically eliminate absolute poverty by the end of the century”.

The task, however, remains unfulfilled and continues to be a priority in public policy. While rural poverty has been drastically reduced, the real income of farmers has not increased for a decade or even decreased due to lack of protection, while urban poverty has risen among the unemployed and migrant workers. The World Bank reports that 120 million Chinese currently live in poverty. By China’s own criteria, there are 30 million poor in the countryside and 20 million in urban areas. There are 16 million households in towns and cities entitled to receive government’s minimum living allowance. Some provinces, like Zhejiang, have committed themselves also to cover rural residents in the same scheme.

As a labour-surplus economy, at a time when it is changing from shortage to oversupply and overcapacity in certain industries (“sunset” and some household durable goods manufacturing), China’s problem in reforming its State sector is intensifying. While half of the state-owned enterprises (SOEs) lose money and operate by borrowing from government banks, SOEs still accounted (by 2001) for about 34 per cent of China’s annual economic output, 47 per cent of the nation’s tax revenue, 48 per cent of industrial assets, and 32 per cent of urban employment. Any further “market rationalization” here would cause more and larger waves of unemployment. Many SOEs do not, in fact, really suffer from inefficiency but rather an inherited welfare burden by running an internal system of social security and services. The overall environment for them is now grossly unfavourable for they continue to support the national economy financially, while competing with TVEs, foreign companies and privatized firms that may enjoy tax breaks and other incentives without comparable welfare commitments to their employees. In fact the single factor that the latter are more or less free to dismiss workers could make them more “efficient” than traditional SOEs.

Yet subsidies for SOEs have become unbearable for state budget and bank credit. Wavering between options of orderly bankruptcy and merger to “turning debt into stock” for recapitalization, the policy remains that of “grasping big enterprises and releasing small ones”. “Capital reconfiguration” points to the urgency of safeguarding state assets and upgrading their carriers into modern corporations. Such corporations, as stated in the 1993 State Council proposal, are expected to feature “clarified property relationships, definite rights and liabilities, separation between administration and management, and scientific management”. In actual practice, however, the attempts at reform have involved errors and corruption on the part of official-managers and caused labour unrest threatening social instability. Downsizing comes along with the abandon of work-unit based welfare arrangements (known as the “iron bowl” of “work-unit socialism”), contrasting sharply with the “high employment, low wage” policy of the old days.

Whether or not the latter policy was economically irrational by keeping more people than needed at the expense of productivity is debatable. The official unemployment rates were 2.3 per cent in 1991, 3 per cent in 1995, 4 per cent in 1998 and around 5 per cent in 2000. Specialists working for the government publicly estimate the figure for 2001 as 7 per cent or more. Given the size of the population, these percentages are extremely alarming. Worse still, millions more dismissed workers are classified not as unemployed but as laid-off (xiagang), on contract without pay (liuzhi), or early retired (as early as 40 years, especially for women). Only a minority will be able to find comparable new jobs, despite the setting-up of numerous government or community sponsored re-employment centres. Redundant workers were over 10 million in 1998, and had jumped to 20 million by June 2002. Pessimistic Chinese researchers believe that the oversupply of labour across industries and agriculture amounts to nearly 200 million people or 28 per cent of China’s labour force.

There are also 90 to 100 million rural migrants seeking jobs in the cities, a “floating population” created by the new labour market, the dissolution of collective communes, and loosened residence control. In theory, they can return home where they are entitled to a plot of land - an important source of social security provided to avoid the typical Third World problem of an urban underclass originating from a landless peasantry. Yet many of them stay away from the land, and increasingly so because farming has become not only unprofitable but even unaffordable. While freedom to move is good in itself and a necessary correction of heavily urban biased policies, the vast inflow of rural migrants and immigrants also challenges city management and planning. It also contests the notion of equal citizenship, as these people’s right to work and respect are being violated on a daily basis, even though they mostly take unpleasant, low-paid and construction jobs.

Outside the OECD countries, high unemployment is usually associated with the following: (a) over-population that makes labour exceedingly abundant irrespective of the level of economic development; (b) former “workers’ states” where over-employment was planned and unemployment and under-employment were invisible due to political and ideological constraints; (c) fast-growing economies in which structural upgrading and the spectacular advance of technology and productivity inevitably removes traditional jobs. China is experiencing all three conditions. Globalization only reinforces the trend of unemployment in an increasingly unprotected domestic market. Predictable developments, such as infrastructural projects in southwest China, expansion of the service sector, the rise of small business in the private and cooperative sector and new IT and knowledge industries, would absorb a portion of currently surplus labour but they will be unable to resolve the problem.

If today’s China is to be situated in a broader historical context, there are two widespread myths about its development trajectory that have to be tackled. First, did China begin to develop only after the market reform embarked on in the late 1970s? The answer is clearly « no ». In 1949, China was a peasant society and among the poorest countries on earth. By the eve of the reform, in less than three decades, it had already built a solid industrial base and bidden farewell to being the « sick man of Asia ». Between 1952 and 1978 the Chinese economy grew at an annual pace of 4 to 6 per cent and for the first time in its history became capable of feeding its population. Development, in terms of economic transformation and meeting basic needs, was very evident. The question is, rather, about the political costs and whether self-reliance could be sustainable in the long term. Without making simple generalizations, it is clear that socialist “internal accumulation” was geopolitically imposed by Cold War conditions. The exhaustion of Maoist strategies in a changing world ultimately explains the momentum of the reform.

Next, has the reform been purely economic? Have there not been fundamental political reforms as well, although not those typical of “third wave” democratization? In spite of the prevailing view the simple fact is that any radical economic change would require political determination and struggles between different social forces and interests. It is also plain that political liberalization, however evaluated, went far in getting the ruling ideology reformulated and the role of the Communist Party redefined. The “emancipation of the mind” campaign from above, the democracy movement from below, with strong backing from within the party, and the opening up of the country to the outside world amounted to a profound revolutionary reorientation. Subsequent institutional reforms were also significant: the massive rehabilitation process between 1978 and 1980, the gradual empowerment of the National People’s Congress, legal measures moving toward the rule of law, steps taken to separate the party and the government, the professionalization of bureaucracy, and the development of local elections.

Genuine political reforms do not have to consist of (or be limited by) multi-party electoral politics. The so-called “double transition” to free market and liberal democracy (or “triple transition” to include also new nation-building after the break up of former communist multinational states) cannot be the yardstick for China, where the goal of the reform is so far not defined in these terms.

Yet, democracy remains the key word if China’s reform project is to be successful. Taking 1989 as the demarcation date, the reform course has since become seriously distorted, reversing many of its initial gains. While the accumulated effects of official corruption, inflation and declining public services led to the Tian’anmen protest, the post-Tian’anmen era has witnessed only more and deeper development predicaments, ranging from demographic to ecological problems, from class polarization to regional disparity, from sweatshops to the despair of the jobless, from the mafia to moral decay. More than ever, the Chinese polity needs to be thoroughly democratized so ordinary people have a voice in debating major policies and are able to combat social injustice.

II. China in the global system

After decades of “delinking” and then the open policy of “relinking”, “seeking global linkages” (jiegui) is today’s catchword in China. It is everywhere, in business, in consumer culture, even in government offices and indeed it is the desire of many NGO and “civil society” activists. The women’s movement, for example, has introduced such powerful terms and phrases as “gender”, “women’s human rights” and “global justice” in its discourse, sometimes at the expense of neglecting a precious tradition of its own for women’s liberation. Globalization, in contrast to its reception or rejection elsewhere in the Third World, has more or less been seen as a positive force in Chinese political and intellectual circles. The strategic idea that Deng Xiaoping initiated is that a “socialist market economy” must and can “make use” of foreign capital, as well as foreign, advanced management and technologies without sacrificing national sovereignty and local interests. The Seattle or Washington protests, for example, for many Chinese were not anti-capitalist but organized by a US labour aristocracy demonstrating against development benefits to be shared by other peoples. The irony is exemplified in China’s drive to join the World Trade Organization (WTO) and other official as well as popular efforts in jiegui on the one hand and, on the other, the anti-American demonstrations against NATO bombing of Belgrade, the US-Taiwan arms trade or the US-Japanese defence treaties.

In terms of the degree of transition from a command to a market economy, a main indicator is price reform. By 2001, state price control was largely removed, only 13 essential goods in public use still being subsidized or monopolized. As a fast growing market, China is the second (after the US) largest FDI recipient, taking $46.4 billion in January-October 2002 and having used more than $400 billion in accumulation since 1990. Over 300,000 foreign-invested companies have been operating in the PRC proper during the reform period, and they are responsible for at least 40 per cent of the country’s exports. Foreign trade mounted to $509 billion in 2001 or 23 per cent of GDP, as compared to 11.8 per cent in 1989. The US bilateral deficit with China rose in the 1990s, reaching $84.4 billion in 2002, despite WTO restrictions - mainly on the latter partner.

Multinationals have also made headway in the Chinese market, pushing government regulations increasingly to the sidelines. Initiated in the coastal Special Economic Zones, they have enjoyed tax and trading privileges to the extent of putting domestic firms at a disadvantage because of unequal competition. The protracted negotiations over the management of China’s telecommunication industry between the Chinese government and giant European and American developers, for example, has become a battle in drawing boundaries for China to retain its economic independence while keeping its commitment to an open strategy.

It is remarkable that over one third of FDI in China is made by overseas Chinese. This is a unique benefit, envied by other transitional societies in the postcommunist and developing world. Economic ties with Taiwan, in particular, are not only economically but also politically positive for easing tensions across the Taiwan Strait. Moreover, the Taiwanese experience – along with the East Asian model of developmental states - of a “governed market” investing in human capital offers inspiring lessons. For example, Taiwan’s Industrial Development Bureau in the 1970s made sure that television manufacturing on its land, even by foreign owned companies such as Philips Electronics, must use domestically produced parts and required the transfer of needed technologies. After all, a common legacy for both mainlanders and the Taiwanese is Sun Zhongshan’s “Three People’s Principles” (nationalism, democracy and people’s livelihood) which highlights “restricting capital” and national strength. On the other hand, a large number of Taiwanese owned firms (along with others especially from Asian countries) do not meet China’s legal minimal standard for labour conditions.

A year after WTO entry, China lowered import tariffs from 15.3 per cent in 2001 to 12 per cent and experienced the first impacts on its domestic markets. But the Chinese also realize that they must adjust policies towards more protective measures for the nation’s infant industries and give more subsidies to agriculture. They also realize that some WTO regulations could be turned into weapons for self-protection, from using anti-dumping laws to raising quality criteria for imported goods. For China not to be excluded from rule-making is more crucial than exploring international market opportunities. Yet the prolonged negotiation was due to real obstacles, above all those demands on China with which the country could not afford to comply. So as not to endanger its economic security, for example, some concessions such as the promise of tariff reduction to zero on certain IT products from the US in five years’ time might have been misguided. Indeed, many in China felt that because of its sweeping impact, the country’s WTO membership in terms of short- and long-term costs, risks, benefits and possibilities should have first been subjected to public debate.

In an age of global casino capitalism, vulnerable to financial speculation and market volatility, any responsible national government should check as to possible negative effects of globalization on the domestic economy. The Chinese government, for good reasons, is aware of the danger of opening China’s capital market and equity sector, especially at a time when its banking system is burdened with excessive non-performing loans. The fact that China was not hit so badly by the Asian financial crisis 1997-78 as were most other countries in the region shows up the contradictions of globalization. Only the fact that its financial sector was not liberalized enabled China to resist the turmoil in the global market. In other words, the Chinese economy has experienced only “shallow integration” and therefore retained some essential means for safeguarding its security. Capital-account non-convertibility, foreign exchange controls, and the remaining distinction between A shares (for PRC residents only) and B shares in the stock market are notable examples.

However, while avoiding economic dependency, isolationism is also no longer an option. International trade and communication, foreign investment, loans and aid, transfer of technologies and managerial skills are all necessary tools for China’s own development. For the Chinese government, as for the ordinary citizens of the PRC, losing protection in the face of state retreat and gaining freedom in exploiting market opportunities might be a short-term trade-off which is yet to be reconfigured in the best interests of China and its people.

A strong position of China in the world economy is indispensable for global and regional stability without large-scale downturns. While market reforms have helped China out of various forms of economic deprivation, from within the party and society at large there have been voices against policies retreating from national sovereignty, economic security and public welfare. It is argued that because of its sheer size and dynamics, China must above all develop and rely on its domestic and especially rural market, which would also be an effective way of making a difference in the global order in which China has a big stake. Moreover, China can support the initiative by creating an international regulatory regime to oversee and impose restrictions on capital movements. It should endorse a crisis prevention mechanism, involving taxation and other requirements on speculative transactions and short-term portfolio investment. The proposal of a global central bank is not inconceivable, nor is an Asian Monetary Fund, given the region’s ample financial resources due to high savings rates and huge foreign currency reserves. A free trade zone to include ASEAN members plus their East Asian neighbours is being contemplated as a balance to the WTO-US domination.

In the light of global integration as a two-way interaction between the local and the global, the real problem of capital and surplus retention for the developing countries and the long-debated theories of dependency and unequal exchange retain much of their relevance. Contrary to the ideology of one single modernity model or the belief that room for local manoeuvre vanishes in an age of globalization, the globalizing processes only load more responsibilities on national and sub-national governments. Capitalism was never, and still is not, a homogenizing monolith. It is in flux at its expanding frontiers and open to local alterations, particularly where non-capitalist development has been successfully pursued.

III. A Chinese model ?

As earlier pointed out, the differences between reforms in China and in other transitional societies lie not in a contrast between gradualism and shock therapy but rather between a “socialist market” and liberal capitalism as their respective goals. Only by looking at the objectives rather than the pace of reforms, can we explain the meaning of “transformation” in China, in comparison with “transition” in its Russian and East European counterparts and understand why the Chinese Communist Party has not collapsed in the same way. Of course successive reformist regimes have repudiated many tenets of Maoist socialism, but they have, in the language of “primary stage socialism” and “socialism with Chinese characteristics”, also maintained their political and ideological basis of legitimation in the communist revolution of 1949. Here “Chinese” is not defined in cultural terms of tradition. Rather, it continues to be about a national road to socialism, recast (as explained by Deng Xiaoping) to denote eliminating exploitation and promoting common prosperity.

Is there, then, a Chinese model in the making? Has the reform amounted to an experiment in something recognizable as “market socialism”? Is it a “national social” project, a hybrid that is neither socialism nor capitalism? Or is the new path capitalist in nature and, more specifically, a “bureaucratic capitalism”? As the debate continues, it is too early to pass any definitive judgement on an attempt that is novel, unevenly developed and open-ended. It is perhaps safe to say merely that China is going to be different - it is historically too rich, too politically concerned (with an epic revolution and its social consequences) and too socially vibrant not to forge an alternative to both traditional socialist statism and renewed market fundamentalism.

The modern Chinese trajectory can be summarized as an alternative to the teleologically narrated “history”: it is a tireless search for an alternative, first to colonial modernity, later to Soviet socialism, and currently to neoliberal globalization. Each of these paradigms - foreign oppression, bureaucratic domination, market coercion - had to various degrees been refuted by China as the antithesis of development and indeed also of democracy. Revolutionary modernity reversed the course of imperialism and colonialism. Maoist socialism challenged Stalinist industrialization along with its peculiar forms of alienation and degeneration. The post-Mao “socialist market economy” was meant to “save socialism” from the destruction of the cultural revolution on the one hand and from the bombardment of global capitalism on the other. It thus sought to combine what were hitherto seen as two uncompromising socio-economic systems.

However flawed these models may have been, China can aim high because the Chinese revolution legitimized not only an ideology of equality, solidarity and social justice, but also a regulatory and redistributive state. Moreover, the socialist experience has nurtured a culture in which market values cannot dominate all spheres of life. Yet inside China there is also the consensus that Chinese socialism shares the same problem with other former socialist states in lacking democratic institutions, procedures, and the protection of individual autonomy and civil liberty. This was where historical communism was defeated most thoroughly by capitalist democracies as the Cold War ended with the latter’s claim for superiority. The obvious logic here is that to overcome liberal capitalism in the interest of a just society and liberated human life, what is needed is nothing less than liberal socialism.

Liberalization in China has rightly focussed on economic and political decentralization. However, decentralization can in reality be confused with privatization, with the latter distorting the former’s original purposes and benefits. This is seen in China in the rampant and illegal grabs of public wealth and local assaults on existing public services (e.g. arbitrary school fees and extra charges for hospital visits). University tuition, for instance, is now around 5,000 yuan nation-wide, which is only slightly less than the average annual urban wage (6,000 yuan). Since rural income level is only about 2,000 yuan a year, many students from the countryside cannot now go on to receive a higher education after having passed highly competitive national entrance exams, despite a small coverage by aid and loan schemes. As the “socialist State” must be a (not “the” – taking into account non-State provision) provider, protector and regulator, decentralization can go too far when it is pursued at the cost of undermining state capacity. The lack of funds for financing pensions and living allowances for redundant workers and the poor, for example, is nearly insurmountable when public spending has been severely impeded by the sharp reduction in tax revenue. While the State treasury received about 35 per cent of GDP in 1978, the figure is less than 12 per cent today.

As multinationals begin to invade China’s commanding height industries, as trade liberalization damages domestic producers and markets, as polarization, greed and corruption poison social cohesion, the Chinese model is at a crossroads. It is also vulnerable to economic dependency, a foreign debt crisis, state incapacity and the short-term behaviour of bureaucracy. While having taken shape with a mixed economy and an expanding public sphere and volunteer sector, Chinese society, as it embraces a “socialist market”, is in many ways pathological, explosive, and disoriented by the transformative power of market forces. The idea that public ownership can have multiple expressions including universalized shareholding in a stock market is imaginative if not misleading.

The PRC Constitution was amended in 2000 to legitimize private property, a symbolic move to confirm what had long been a reality. In the end, over twenty years of trial and error have not produced any definitive outcome. To rescue and sustain the Chinese model, the country’s fundamental comparative advantage must be found, not in export-oriented growth and cheap labour, but in a dominant public sector, State-financed research and development (R&D), a vast domestic market, a guarded terrain of welfare social policies to ensure an adequate level of human capital investment and human development, a splendid array of resources for effective organization, and a culture of “great harmony” (datong), translated into popular pressure from below for collective good.

IV. Social protest

It is ironic that the gradual dismantling of the Chinese “public good regime” occurred during a period of growth when the national wealth increased some eightfold, between 1978 and 2001. In fact, the arrangements for meeting basic needs worked better at a time of general scarcity. Except for the famine 1959-61 due to the serious policy mistakes of the Great Leap Forward, China was committed to a nearly universal maintenance system with a very low GDP through the iron rice bowl in the State sector and a collective support network through communes in the countryside. Housing, primary education and basic medical care (in particular, mass immunization and disease prevention) were largely free or inexpensive. So were many other public services, from transportation and cultural entertainment (eg. the Ministry of Culture had an active rural works department) to women’s “special-need subsidies” and poor relief. There were far fewer, if any, homeless people, drug addicts or prostitutes forced onto the streets before 1976.

While the institutionalized urban-rural divide and privileged bureaucrats made a mockery of socialist egalitarianism, the demise of the socialist State in the marketplace of “primitive accumulation” has, for example, resulted in the label “Made in China” standing for sweatshops. The national Gini index surpassed 0.45 in 2001, as compared to 0.25 in Japan, 0.32 in South Korea, 0.33 in France and 0.38 in India. HIV/AIDS erupted into an epidemic in some provinces (like Henan), when government-sponsored blood collection stations went in for profit-making and neglected sterilizing procedures.

Urban unemployment and rural over-taxation are outstanding problems that have triggered frequent labour diputes and protests, sometimes violent, on a scale that was last seen only in the doomed days of the ruling Kuomintang. As communist legitimacy was originally based on the commitment to the dignity and well-being of labour, the regime has suffered a legitimacy crisis since 1989. The underdevelopment of both non-State providers and institutional channels of collective bargaining only worsens the situation. Fraud and corruption in management that has caused job losses particularly enrages workers, for whom restructuring, unpaid pensions or even managerial incompetence are not the main issues. The sell-off of State firms at unbelievably low prices to managers or to those favoured as buyers, without consulting the workers concerned about revival strategies or compensation settlements is, for example, seen as outright robbery. It also shows that by protesting against unbridled privatization, workers reaffirm their identification with public property and a regulatory and protective state.

In the past few years, the quasi-religious Falungong, with an unknown number of followers, was politicized in its response to repression. The vigorous crackdown intensified hostility and resistance, while without such measures the movement could grow into an organized opposition. The damage to the image of the party both inside China and among international human rights watchers has been enormous. A more intelligent and effective handling of the matter would have required recognition and rectification of the social conditions in which the problem is rooted. These include diminishing free or low-cost medical service in cities and the lack of minimum care in many parts of the countryside (which was carried out by “barefoot doctors” during the cultural revolution); xiagang and subsequent loss of support from a work community and hence of a socially respectable identity - especially for female workers; and, more generally, alienation, social exclusion, and a “crisis of faith”. The newly invented theory of “three representatives”, i.e. that the communist party should represent advanced productive forces, advanced culture and the fundamental interests of the people, sounds hollow and hypocritical in light of these realities.

Meanwhile, Tibet and Xinjiang, among the minority regions, have seen increasing tension and conflicts since the early 1990s. Institutionally, without being a federal state, China does grant constitutional autonomy to its minority nationalities. The fear of disintegration, however, often blocks more liberal Beijing policies towards the local states in the non-Han areas. For example, the central government has not intervened to halt massive business migration to Tibet. If they had done so it could have calmed the Tibetans, who see such commercial development as corrupting their culture and invading their territories. As foreign forces are directly involved in arming the separatist movement in Xinjiang, the risk of military confrontation is even greater in that region. Increasing outside influences, spreading ethnic nationalism and the post-Cold War recomposition of the former communist empires all pose a deadly challenge to the multi-ethnic “Chinese socialist family” that has survived previous crises.

V. Crises and opportunities

As social discontent deepens in China, to restore confidence and cohesion requires no less a task than reorienting the course of reform. The fact is that without the necessary “civic restrictions” on the scope of the market, China will lose the human capital that has accumulated over decades of hard work and costly struggle. If the state and local governments tolerate sweatshops in the private sector, if security for the jobless, old age, illness and disability diminishes, if poor children, especially girls, cannot go to school and patients without enough cash are denied emergency treatment, then what is the point of economic growth?

And for what reason did the Chinese people fight a bloody revolution precisely to avoid the unjust, exploitative and repressive “capitalist stage” of development and to put an end to the “old society”? The rise of the general living standards for one-fifth of the world’s population is no doubt an extraordinary achievement, but something must be done to prevent it from becoming tarnished and indeed held back by the re-emergence of inequalities, injustice and social diseases.

It is true that some progress must be attributed to the party leadership and the government. To cope with the changes and keep their power base they aspire to a middle course that can combine the best, rather than the worst, elements of both worlds. The Labour Law of 1994 made workers’ assemblies and “democratic management” a requirement and it established minimum wages. The Trade Union Law subsequently called for the safeguarding of workers’ legal rights and interests. The union reforms aimed at a system of “consultation on the basis of capital-labour equal partnership and collective contract” to be implemented in all enterprises in both public and private sectors.

To ease the man-made difficulties of agriculture and the anger of farmers, the central government has repeatedly banned excessive taxes and locally imposed fees. On the social front, the People’s Congress revised the Marriage Law in 2001 to protect women (and children) at a time when female subordination results in rich men practising polygamy and poor women losing custody on divorce. Social security has become the first policy priority, along with state-financed efforts to reduce pollution and to maintain population control for ecological sustainability. Campaigns against corruption involving highly-placed officials are limited but persistent and publicized.

Yet much more needs to be done and done better. The classic tenet that the fundamental difference between capitalism and socialism is between production for profits and production for needs is no longer so straightforward in a “socialist market economy”. But ultimately Marx cannot be wrong in objecting to an anarchic (i.e. “free”) market system that is out of rational control, and therefore a primary source of crisis cycles and human misery. In this sense, “market rationality” can be incompatible with human rights and liberty. Thanks to China’s modern history of revolutionary and socialist struggle, political legitimacy cannot rely on a ruthless market system but rather its regulation and control by a public authority and democratic forces.

Hence there are grounds for cautious optimism. As Chinese wisdom has it, crisis (weiji) implies danger (wei), but also opportunity (ji). The creation of a social realm, aided by the country’s opening to the outside world and by the rapid development of communication technologies, from e-mail to internet, is among the most significant gains of the reform, in which associative life expands, grassroots activities flourish, and social movements arise. These are socially enabling advances thet can help revive shrinking public power both by countering unchecked private power and democratizing the State. It is popular participation that will, in the end, determine the future of China’s modern transformation.

Debates over the content and direction of the Chinese reform model, focussing on neoliberal hegemony and its alternatives, continue to engage China’s political and intellectual elites on all sides. The core contention remains whether and how - institutionally - the socialist commitment might be congruent with market mechanisms in capitalist conditions and their intrinsic, but also transformable contradictions. While the “socialist market economy” is still without any clear vision and facing mounting difficulties, it is also open to constructive innovations and may succeed, although the very concept of “success” is itself arguable and can be decided only by the participants themselves in this grand project.

There has been strong social support for the communist veterans in the industrial city of Shenyang who wrote in 1998 and 1999 to the Central Committee about the plight of the working class, as well as for the strikes and protests in Liaoyang, Daqing and elsewhere. The “triple problem” of agriculture, the countryside and the peasants (sannong wenti) has been at the centre of media attention. “Equal citizens’ treatment” to migrant workers meets increasing consensus among the broader population. The play “Che Guevara”, recently produced by three young professionals in Henan and then shown in Beijing and other places, moved tens of thousands of people. Such social forces and voices putting pressures on the government may lead to a new path that would eventually transcend the market logic of global capitalism on the one hand and, on the other, the bureaucratic logic of state socialism.

Lin Chun

Article on the subject by the same author :

« Socialisme et marché :Chine,Vietnam, Cuba », Alternatives Sud, Vol. VIII (2001), No.1

 

 

Lin CHUN*

China was once considered one of the poorest countries of Asia. But, in only a few decades, it has managed to construct a strong industrial base and create a system of social security which, while modest, has made a considerable improvement in the lives of the population. The reform process that started twenty years ago has led to a greater integration of the country into the globalized market. The consequences - increase of unemployment, poverty and urban/rural inequalities - have brought about a great deal of social protest and contributed to a political legitimacy crisis. It is now up to the country to redefine a development project, Chinese style, between socialism and the market reforms. This redefinition should include the different sectors of Chinese society, from NGOs to trade unions, including the grassroots social movements. From this angle, the timid democratic changes that have accompanied the process of economic opening constitute a real opportunity.

I. The present situation

The People’s Republic of China (PRC) has a population of nearly 1.3 billion people or 22 per cent of the world’s total. The urban-rural ratio is around 3:7, with a large number of rural residents actually living in new towns and engaged in non-agricultural activities. The country’s average annual growth rate, according to the official reports, was about 9 per cent between 1979 and 2001, including a downturn of 3.8 per cent in 1990, an overheat to 14.2 per cent in 1992, and a 1 per cent fall each year until it was 7.1 per cent in 1999 (“soft landing”). In 2001, the Chinese economy became the sixth largest in the world and its foreign exchange reserve was over $245 billion in 2002.

China’s Gross Domestic Product is now eight times more than that of 1978, when reform was first launched. Of this gross volume, agriculture accounts for roughly 15 per cent, industry 52 per cent, and the service sector 33 per cent (contrasting with 60-70 per cent in advanced economies). The annual disposable income of urban households grew from $41 in 1978 to $760 in 2000; the savings across urban and rural areas are almost 100 times higher than those of 1978 (based on constant prices). A still low but significantly increased per capita income of $1,000 in 2002 (about 1.7 per cent of Japan’s or 2.5 per cent of that of the USA) enabled the 16th Communist Party Congress in Beijing to proclaim the goal of “comprehensively constructing a xiaokang (moderately well-off) society” for China in the first half of the 21st century. Some of these statistics have been disputed by specialists.

However, China has not made great headway in moving into a knowledge and information technology-based, higher-value production. Except for IT hardware of which China is now the world’s third largest producer, exports remain mostly products of

labour-intensive assembly lines. Moreover, undergoing difficult structural changes and affected by the financial crises in its neighbouring countries, China has in recent years experienced sluggish growth, a real estate bubble, a setback in sustaining village and township enterprises (VTEs), an unfavourable environment for exports, lower consumption and massive job losses. Inflation was high in the late 1980s (which contributed to the Tian’anmen protest in 1989), reached 21.7 per cent in 1994, fell to 6.1 per cent in 1996, and turned into worsening deflation from 1997 onwards. The depression of prices for farm produce, for example, has cost the peasants 30 billion yuan

($3.7 billion).

The government’s macroeconomic measures, some Keynesian, some neoliberal, have not sufficiently stimulated domestic demand and productive investment. Government spending is frequently inefficient, while running large budget deficits. Economists inside and outside China have seriously warned against a potential debt crisis in the footsteps of Latin America. Huge public infrastructural projects, such as the Three Gorges or the “greatly developing the west” campaign, involve poor decisions as well as local government corruption. National weath lost through corruption, including illegal capital flight, is estimated as much as 8 per cent of China’s annual GDP. In 2000 alone, capital outflow amounted to $48 billion, exceeded foreign direct investment (FDI) of $40.7 billion and closely matched the record of Venezuela, Mexico and Argentina, the world’s largest capital-losing countries.

Also striking is China’s uneven development with ever greater regional and sectoral differences. For example, the provincial economy of Guangdong amounted to 1,000 billlion yuan in 2001 as contrasted with only 13.9 billion for the Tibet Autonomous Region. Developmental unevenness, regional disparities, locally perceived cultural distinctions and rising localism have inspired an emerging scholarship in “spatial politics” that rejects the single concept of “China”.

As far as human development is concerned, the general living standards have been considerably raised over the past 20 years. China figures in the category of “medium” in Human Development Indexes (HDI), ahead of scores of Third World nations with a similar level of per capita GDP. Life expectancy is 71 years for men and 73 for women; the literacy rate is 90 per cent and 71 per cent respectively. The 1997 UNDP report indicated that the country has completed its demographic transition from a high fertility, high mortality society. More than 200 million people have been lifted out of absolute poverty. The national anti-poverty plan announced in 1994, as the Report recognized, “constitutes a commitment, rare among the world’s nations, to basically eliminate absolute poverty by the end of the century”.

The task, however, remains unfulfilled and continues to be a priority in public policy. While rural poverty has been drastically reduced, the real income of farmers has not increased for a decade or even decreased due to lack of protection, while urban poverty has risen among the unemployed and migrant workers. The World Bank reports that 120 million Chinese currently live in poverty. By China’s own criteria, there are 30 million poor in the countryside and 20 million in urban areas. There are 16 million households in towns and cities entitled to receive government’s minimum living allowance. Some provinces, like Zhejiang, have committed themselves also to cover rural residents in the same scheme.

As a labour-surplus economy, at a time when it is changing from shortage to oversupply and overcapacity in certain industries (“sunset” and some household durable goods manufacturing), China’s problem in reforming its State sector is intensifying. While half of the state-owned enterprises (SOEs) lose money and operate by borrowing from government banks, SOEs still accounted (by 2001) for about 34 per cent of China’s annual economic output, 47 per cent of the nation’s tax revenue, 48 per cent of industrial assets, and 32 per cent of urban employment. Any further “market rationalization” here would cause more and larger waves of unemployment. Many SOEs do not, in fact, really suffer from inefficiency but rather an inherited welfare burden by running an internal system of social security and services. The overall environment for them is now grossly unfavourable for they continue to support the national economy financially, while competing with TVEs, foreign companies and privatized firms that may enjoy tax breaks and other incentives without comparable welfare commitments to their employees. In fact the single factor that the latter are more or less free to dismiss workers could make them more “efficient” than traditional SOEs.

Yet subsidies for SOEs have become unbearable for state budget and bank credit. Wavering between options of orderly bankruptcy and merger to “turning debt into stock” for recapitalization, the policy remains that of “grasping big enterprises and releasing small ones”. “Capital reconfiguration” points to the urgency of safeguarding state assets and upgrading their carriers into modern corporations. Such corporations, as stated in the 1993 State Council proposal, are expected to feature “clarified property relationships, definite rights and liabilities, separation between administration and management, and scientific management”. In actual practice, however, the attempts at reform have involved errors and corruption on the part of official-managers and caused labour unrest threatening social instability. Downsizing comes along with the abandon of work-unit based welfare arrangements (known as the “iron bowl” of “work-unit socialism”), contrasting sharply with the “high employment, low wage” policy of the old days.

Whether or not the latter policy was economically irrational by keeping more people than needed at the expense of productivity is debatable. The official unemployment rates were 2.3 per cent in 1991, 3 per cent in 1995, 4 per cent in 1998 and around 5 per cent in 2000. Specialists working for the government publicly estimate the figure for 2001 as 7 per cent or more. Given the size of the population, these percentages are extremely alarming. Worse still, millions more dismissed workers are classified not as unemployed but as laid-off (xiagang), on contract without pay (liuzhi), or early retired (as early as 40 years, especially for women). Only a minority will be able to find comparable new jobs, despite the setting-up of numerous government or community sponsored re-employment centres. Redundant workers were over 10 million in 1998, and had jumped to 20 million by June 2002. Pessimistic Chinese researchers believe that the oversupply of labour across industries and agriculture amounts to nearly 200 million people or 28 per cent of China’s labour force.

There are also 90 to 100 million rural migrants seeking jobs in the cities, a “floating population” created by the new labour market, the dissolution of collective communes, and loosened residence control. In theory, they can return home where they are entitled to a plot of land - an important source of social security provided to avoid the typical Third World problem of an urban underclass originating from a landless peasantry. Yet many of them stay away from the land, and increasingly so because farming has become not only unprofitable but even unaffordable. While freedom to move is good in itself and a necessary correction of heavily urban biased policies, the vast inflow of rural migrants and immigrants also challenges city management and planning. It also contests the notion of equal citizenship, as these people’s right to work and respect are being violated on a daily basis, even though they mostly take unpleasant, low-paid and construction jobs.

Outside the OECD countries, high unemployment is usually associated with the following: (a) over-population that makes labour exceedingly abundant irrespective of the level of economic development; (b) former “workers’ states” where over-employment was planned and unemployment and under-employment were invisible due to political and ideological constraints; (c) fast-growing economies in which structural upgrading and the spectacular advance of technology and productivity inevitably removes traditional jobs. China is experiencing all three conditions. Globalization only reinforces the trend of unemployment in an increasingly unprotected domestic market. Predictable developments, such as infrastructural projects in southwest China, expansion of the service sector, the rise of small business in the private and cooperative sector and new IT and knowledge industries, would absorb a portion of currently surplus labour but they will be unable to resolve the problem.

If today’s China is to be situated in a broader historical context, there are two widespread myths about its development trajectory that have to be tackled. First, did China begin to develop only after the market reform embarked on in the late 1970s? The answer is clearly « no ». In 1949, China was a peasant society and among the poorest countries on earth. By the eve of the reform, in less than three decades, it had already built a solid industrial base and bidden farewell to being the « sick man of Asia ». Between 1952 and 1978 the Chinese economy grew at an annual pace of 4 to 6 per cent and for the first time in its history became capable of feeding its population. Development, in terms of economic transformation and meeting basic needs, was very evident. The question is, rather, about the political costs and whether self-reliance could be sustainable in the long term. Without making simple generalizations, it is clear that socialist “internal accumulation” was geopolitically imposed by Cold War conditions. The exhaustion of Maoist strategies in a changing world ultimately explains the momentum of the reform.

Next, has the reform been purely economic? Have there not been fundamental political reforms as well, although not those typical of “third wave” democratization? In spite of the prevailing view the simple fact is that any radical economic change would require political determination and struggles between different social forces and interests. It is also plain that political liberalization, however evaluated, went far in getting the ruling ideology reformulated and the role of the Communist Party redefined. The “emancipation of the mind” campaign from above, the democracy movement from below, with strong backing from within the party, and the opening up of the country to the outside world amounted to a profound revolutionary reorientation. Subsequent institutional reforms were also significant: the massive rehabilitation process between 1978 and 1980, the gradual empowerment of the National People’s Congress, legal measures moving toward the rule of law, steps taken to separate the party and the government, the professionalization of bureaucracy, and the development of local elections.

Genuine political reforms do not have to consist of (or be limited by) multi-party electoral politics. The so-called “double transition” to free market and liberal democracy (or “triple transition” to include also new nation-building after the break up of former communist multinational states) cannot be the yardstick for China, where the goal of the reform is so far not defined in these terms.

Yet, democracy remains the key word if China’s reform project is to be successful. Taking 1989 as the demarcation date, the reform course has since become seriously distorted, reversing many of its initial gains. While the accumulated effects of official corruption, inflation and declining public services led to the Tian’anmen protest, the post-Tian’anmen era has witnessed only more and deeper development predicaments, ranging from demographic to ecological problems, from class polarization to regional disparity, from sweatshops to the despair of the jobless, from the mafia to moral decay. More than ever, the Chinese polity needs to be thoroughly democratized so ordinary people have a voice in debating major policies and are able to combat social injustice.

II. China in the global system

After decades of “delinking” and then the open policy of “relinking”, “seeking global linkages” (jiegui) is today’s catchword in China. It is everywhere, in business, in consumer culture, even in government offices and indeed it is the desire of many NGO and “civil society” activists. The women’s movement, for example, has introduced such powerful terms and phrases as “gender”, “women’s human rights” and “global justice” in its discourse, sometimes at the expense of neglecting a precious tradition of its own for women’s liberation. Globalization, in contrast to its reception or rejection elsewhere in the Third World, has more or less been seen as a positive force in Chinese political and intellectual circles. The strategic idea that Deng Xiaoping initiated is that a “socialist market economy” must and can “make use” of foreign capital, as well as foreign, advanced management and technologies without sacrificing national sovereignty and local interests. The Seattle or Washington protests, for example, for many Chinese were not anti-capitalist but organized by a US labour aristocracy demonstrating against development benefits to be shared by other peoples. The irony is exemplified in China’s drive to join the World Trade Organization (WTO) and other official as well as popular efforts in jiegui on the one hand and, on the other, the anti-American demonstrations against NATO bombing of Belgrade, the US-Taiwan arms trade or the US-Japanese defence treaties.

In terms of the degree of transition from a command to a market economy, a main indicator is price reform. By 2001, state price control was largely removed, only 13 essential goods in public use still being subsidized or monopolized. As a fast growing market, China is the second (after the US) largest FDI recipient, taking $46.4 billion in January-October 2002 and having used more than $400 billion in accumulation since 1990. Over 300,000 foreign-invested companies have been operating in the PRC proper during the reform period, and they are responsible for at least 40 per cent of the country’s exports. Foreign trade mounted to $509 billion in 2001 or 23 per cent of GDP, as compared to 11.8 per cent in 1989. The US bilateral deficit with China rose in the 1990s, reaching $84.4 billion in 2002, despite WTO restrictions - mainly on the latter partner.

Multinationals have also made headway in the Chinese market, pushing government regulations increasingly to the sidelines. Initiated in the coastal Special Economic Zones, they have enjoyed tax and trading privileges to the extent of putting domestic firms at a disadvantage because of unequal competition. The protracted negotiations over the management of China’s telecommunication industry between the Chinese government and giant European and American developers, for example, has become a battle in drawing boundaries for China to retain its economic independence while keeping its commitment to an open strategy.

It is remarkable that over one third of FDI in China is made by overseas Chinese. This is a unique benefit, envied by other transitional societies in the postcommunist and developing world. Economic ties with Taiwan, in particular, are not only economically but also politically positive for easing tensions across the Taiwan Strait. Moreover, the Taiwanese experience – along with the East Asian model of developmental states - of a “governed market” investing in human capital offers inspiring lessons. For example, Taiwan’s Industrial Development Bureau in the 1970s made sure that television manufacturing on its land, even by foreign owned companies such as Philips Electronics, must use domestically produced parts and required the transfer of needed technologies. After all, a common legacy for both mainlanders and the Taiwanese is Sun Zhongshan’s “Three People’s Principles” (nationalism, democracy and people’s livelihood) which highlights “restricting capital” and national strength. On the other hand, a large number of Taiwanese owned firms (along with others especially from Asian countries) do not meet China’s legal minimal standard for labour conditions.

A year after WTO entry, China lowered import tariffs from 15.3 per cent in 2001 to 12 per cent and experienced the first impacts on its domestic markets. But the Chinese also realize that they must adjust policies towards more protective measures for the nation’s infant industries and give more subsidies to agriculture. They also realize that some WTO regulations could be turned into weapons for self-protection, from using anti-dumping laws to raising quality criteria for imported goods. For China not to be excluded from rule-making is more crucial than exploring international market opportunities. Yet the prolonged negotiation was due to real obstacles, above all those demands on China with which the country could not afford to comply. So as not to endanger its economic security, for example, some concessions such as the promise of tariff reduction to zero on certain IT products from the US in five years’ time might have been misguided. Indeed, many in China felt that because of its sweeping impact, the country’s WTO membership in terms of short- and long-term costs, risks, benefits and possibilities should have first been subjected to public debate.

In an age of global casino capitalism, vulnerable to financial speculation and market volatility, any responsible national government should check as to possible negative effects of globalization on the domestic economy. The Chinese government, for good reasons, is aware of the danger of opening China’s capital market and equity sector, especially at a time when its banking system is burdened with excessive non-performing loans. The fact that China was not hit so badly by the Asian financial crisis 1997-78 as were most other countries in the region shows up the contradictions of globalization. Only the fact that its financial sector was not liberalized enabled China to resist the turmoil in the global market. In other words, the Chinese economy has experienced only “shallow integration” and therefore retained some essential means for safeguarding its security. Capital-account non-convertibility, foreign exchange controls, and the remaining distinction between A shares (for PRC residents only) and B shares in the stock market are notable examples.

However, while avoiding economic dependency, isolationism is also no longer an option. International trade and communication, foreign investment, loans and aid, transfer of technologies and managerial skills are all necessary tools for China’s own development. For the Chinese government, as for the ordinary citizens of the PRC, losing protection in the face of state retreat and gaining freedom in exploiting market opportunities might be a short-term trade-off which is yet to be reconfigured in the best interests of China and its people.

A strong position of China in the world economy is indispensable for global and regional stability without large-scale downturns. While market reforms have helped China out of various forms of economic deprivation, from within the party and society at large there have been voices against policies retreating from national sovereignty, economic security and public welfare. It is argued that because of its sheer size and dynamics, China must above all develop and rely on its domestic and especially rural market, which would also be an effective way of making a difference in the global order in which China has a big stake. Moreover, China can support the initiative by creating an international regulatory regime to oversee and impose restrictions on capital movements. It should endorse a crisis prevention mechanism, involving taxation and other requirements on speculative transactions and short-term portfolio investment. The proposal of a global central bank is not inconceivable, nor is an Asian Monetary Fund, given the region’s ample financial resources due to high savings rates and huge foreign currency reserves. A free trade zone to include ASEAN members plus their East Asian neighbours is being contemplated as a balance to the WTO-US domination.

In the light of global integration as a two-way interaction between the local and the global, the real problem of capital and surplus retention for the developing countries and the long-debated theories of dependency and unequal exchange retain much of their relevance. Contrary to the ideology of one single modernity model or the belief that room for local manoeuvre vanishes in an age of globalization, the globalizing processes only load more responsibilities on national and sub-national governments. Capitalism was never, and still is not, a homogenizing monolith. It is in flux at its expanding frontiers and open to local alterations, particularly where non-capitalist development has been successfully pursued.

III. A Chinese model ?

As earlier pointed out, the differences between reforms in China and in other transitional societies lie not in a contrast between gradualism and shock therapy but rather between a “socialist market” and liberal capitalism as their respective goals. Only by looking at the objectives rather than the pace of reforms, can we explain the meaning of “transformation” in China, in comparison with “transition” in its Russian and East European counterparts and understand why the Chinese Communist Party has not collapsed in the same way. Of course successive reformist regimes have repudiated many tenets of Maoist socialism, but they have, in the language of “primary stage socialism” and “socialism with Chinese characteristics”, also maintained their political and ideological basis of legitimation in the communist revolution of 1949. Here “Chinese” is not defined in cultural terms of tradition. Rather, it continues to be about a national road to socialism, recast (as explained by Deng Xiaoping) to denote eliminating exploitation and promoting common prosperity.

Is there, then, a Chinese model in the making? Has the reform amounted to an experiment in something recognizable as “market socialism”? Is it a “national social” project, a hybrid that is neither socialism nor capitalism? Or is the new path capitalist in nature and, more specifically, a “bureaucratic capitalism”? As the debate continues, it is too early to pass any definitive judgement on an attempt that is novel, unevenly developed and open-ended. It is perhaps safe to say merely that China is going to be different - it is historically too rich, too politically concerned (with an epic revolution and its social consequences) and too socially vibrant not to forge an alternative to both traditional socialist statism and renewed market fundamentalism.

The modern Chinese trajectory can be summarized as an alternative to the teleologically narrated “history”: it is a tireless search for an alternative, first to colonial modernity, later to Soviet socialism, and currently to neoliberal globalization. Each of these paradigms - foreign oppression, bureaucratic domination, market coercion - had to various degrees been refuted by China as the antithesis of development and indeed also of democracy. Revolutionary modernity reversed the course of imperialism and colonialism. Maoist socialism challenged Stalinist industrialization along with its peculiar forms of alienation and degeneration. The post-Mao “socialist market economy” was meant to “save socialism” from the destruction of the cultural revolution on the one hand and from the bombardment of global capitalism on the other. It thus sought to combine what were hitherto seen as two uncompromising socio-economic systems.

However flawed these models may have been, China can aim high because the Chinese revolution legitimized not only an ideology of equality, solidarity and social justice, but also a regulatory and redistributive state. Moreover, the socialist experience has nurtured a culture in which market values cannot dominate all spheres of life. Yet inside China there is also the consensus that Chinese socialism shares the same problem with other former socialist states in lacking democratic institutions, procedures, and the protection of individual autonomy and civil liberty. This was where historical communism was defeated most thoroughly by capitalist democracies as the Cold War ended with the latter’s claim for superiority. The obvious logic here is that to overcome liberal capitalism in the interest of a just society and liberated human life, what is needed is nothing less than liberal socialism.

Liberalization in China has rightly focussed on economic and political decentralization. However, decentralization can in reality be confused with privatization, with the latter distorting the former’s original purposes and benefits. This is seen in China in the rampant and illegal grabs of public wealth and local assaults on existing public services (e.g. arbitrary school fees and extra charges for hospital visits). University tuition, for instance, is now around 5,000 yuan nation-wide, which is only slightly less than the average annual urban wage (6,000 yuan). Since rural income level is only about 2,000 yuan a year, many students from the countryside cannot now go on to receive a higher education after having passed highly competitive national entrance exams, despite a small coverage by aid and loan schemes. As the “socialist State” must be a (not “the” – taking into account non-State provision) provider, protector and regulator, decentralization can go too far when it is pursued at the cost of undermining state capacity. The lack of funds for financing pensions and living allowances for redundant workers and the poor, for example, is nearly insurmountable when public spending has been severely impeded by the sharp reduction in tax revenue. While the State treasury received about 35 per cent of GDP in 1978, the figure is less than 12 per cent today.

As multinationals begin to invade China’s commanding height industries, as trade liberalization damages domestic producers and markets, as polarization, greed and corruption poison social cohesion, the Chinese model is at a crossroads. It is also vulnerable to economic dependency, a foreign debt crisis, state incapacity and the short-term behaviour of bureaucracy. While having taken shape with a mixed economy and an expanding public sphere and volunteer sector, Chinese society, as it embraces a “socialist market”, is in many ways pathological, explosive, and disoriented by the transformative power of market forces. The idea that public ownership can have multiple expressions including universalized shareholding in a stock market is imaginative if not misleading.

The PRC Constitution was amended in 2000 to legitimize private property, a symbolic move to confirm what had long been a reality. In the end, over twenty years of trial and error have not produced any definitive outcome. To rescue and sustain the Chinese model, the country’s fundamental comparative advantage must be found, not in export-oriented growth and cheap labour, but in a dominant public sector, State-financed research and development (R&D), a vast domestic market, a guarded terrain of welfare social policies to ensure an adequate level of human capital investment and human development, a splendid array of resources for effective organization, and a culture of “great harmony” (datong), translated into popular pressure from below for collective good.

IV. Social protest

It is ironic that the gradual dismantling of the Chinese “public good regime” occurred during a period of growth when the national wealth increased some eightfold, between 1978 and 2001. In fact, the arrangements for meeting basic needs worked better at a time of general scarcity. Except for the famine 1959-61 due to the serious policy mistakes of the Great Leap Forward, China was committed to a nearly universal maintenance system with a very low GDP through the iron rice bowl in the State sector and a collective support network through communes in the countryside. Housing, primary education and basic medical care (in particular, mass immunization and disease prevention) were largely free or inexpensive. So were many other public services, from transportation and cultural entertainment (eg. the Ministry of Culture had an active rural works department) to women’s “special-need subsidies” and poor relief. There were far fewer, if any, homeless people, drug addicts or prostitutes forced onto the streets before 1976.

While the institutionalized urban-rural divide and privileged bureaucrats made a mockery of socialist egalitarianism, the demise of the socialist State in the marketplace of “primitive accumulation” has, for example, resulted in the label “Made in China” standing for sweatshops. The national Gini index surpassed 0.45 in 2001, as compared to 0.25 in Japan, 0.32 in South Korea, 0.33 in France and 0.38 in India. HIV/AIDS erupted into an epidemic in some provinces (like Henan), when government-sponsored blood collection stations went in for profit-making and neglected sterilizing procedures.

Urban unemployment and rural over-taxation are outstanding problems that have triggered frequent labour diputes and protests, sometimes violent, on a scale that was last seen only in the doomed days of the ruling Kuomintang. As communist legitimacy was originally based on the commitment to the dignity and well-being of labour, the regime has suffered a legitimacy crisis since 1989. The underdevelopment of both non-State providers and institutional channels of collective bargaining only worsens the situation. Fraud and corruption in management that has caused job losses particularly enrages workers, for whom restructuring, unpaid pensions or even managerial incompetence are not the main issues. The sell-off of State firms at unbelievably low prices to managers or to those favoured as buyers, without consulting the workers concerned about revival strategies or compensation settlements is, for example, seen as outright robbery. It also shows that by protesting against unbridled privatization, workers reaffirm their identification with public property and a regulatory and protective state.

In the past few years, the quasi-religious Falungong, with an unknown number of followers, was politicized in its response to repression. The vigorous crackdown intensified hostility and resistance, while without such measures the movement could grow into an organized opposition. The damage to the image of the party both inside China and among international human rights watchers has been enormous. A more intelligent and effective handling of the matter would have required recognition and rectification of the social conditions in which the problem is rooted. These include diminishing free or low-cost medical service in cities and the lack of minimum care in many parts of the countryside (which was carried out by “barefoot doctors” during the cultural revolution); xiagang and subsequent loss of support from a work community and hence of a socially respectable identity - especially for female workers; and, more generally, alienation, social exclusion, and a “crisis of faith”. The newly invented theory of “three representatives”, i.e. that the communist party should represent advanced productive forces, advanced culture and the fundamental interests of the people, sounds hollow and hypocritical in light of these realities.

Meanwhile, Tibet and Xinjiang, among the minority regions, have seen increasing tension and conflicts since the early 1990s. Institutionally, without being a federal state, China does grant constitutional autonomy to its minority nationalities. The fear of disintegration, however, often blocks more liberal Beijing policies towards the local states in the non-Han areas. For example, the central government has not intervened to halt massive business migration to Tibet. If they had done so it could have calmed the Tibetans, who see such commercial development as corrupting their culture and invading their territories. As foreign forces are directly involved in arming the separatist movement in Xinjiang, the risk of military confrontation is even greater in that region. Increasing outside influences, spreading ethnic nationalism and the post-Cold War recomposition of the former communist empires all pose a deadly challenge to the multi-ethnic “Chinese socialist family” that has survived previous crises.

V. Crises and opportunities

As social discontent deepens in China, to restore confidence and cohesion requires no less a task than reorienting the course of reform. The fact is that without the necessary “civic restrictions” on the scope of the market, China will lose the human capital that has accumulated over decades of hard work and costly struggle. If the state and local governments tolerate sweatshops in the private sector, if security for the jobless, old age, illness and disability diminishes, if poor children, especially girls, cannot go to school and patients without enough cash are denied emergency treatment, then what is the point of economic growth?

And for what reason did the Chinese people fight a bloody revolution precisely to avoid the unjust, exploitative and repressive “capitalist stage” of development and to put an end to the “old society”? The rise of the general living standards for one-fifth of the world’s population is no doubt an extraordinary achievement, but something must be done to prevent it from becoming tarnished and indeed held back by the re-emergence of inequalities, injustice and social diseases.

It is true that some progress must be attributed to the party leadership and the government. To cope with the changes and keep their power base they aspire to a middle course that can combine the best, rather than the worst, elements of both worlds. The Labour Law of 1994 made workers’ assemblies and “democratic management” a requirement and it established minimum wages. The Trade Union Law subsequently called for the safeguarding of workers’ legal rights and interests. The union reforms aimed at a system of “consultation on the basis of capital-labour equal partnership and collective contract” to be implemented in all enterprises in both public and private sectors.

To ease the man-made difficulties of agriculture and the anger of farmers, the central government has repeatedly banned excessive taxes and locally imposed fees. On the social front, the People’s Congress revised the Marriage Law in 2001 to protect women (and children) at a time when female subordination results in rich men practising polygamy and poor women losing custody on divorce. Social security has become the first policy priority, along with state-financed efforts to reduce pollution and to maintain population control for ecological sustainability. Campaigns against corruption involving highly-placed officials are limited but persistent and publicized.

Yet much more needs to be done and done better. The classic tenet that the fundamental difference between capitalism and socialism is between production for profits and production for needs is no longer so straightforward in a “socialist market economy”. But ultimately Marx cannot be wrong in objecting to an anarchic (i.e. “free”) market system that is out of rational control, and therefore a primary source of crisis cycles and human misery. In this sense, “market rationality” can be incompatible with human rights and liberty. Thanks to China’s modern history of revolutionary and socialist struggle, political legitimacy cannot rely on a ruthless market system but rather its regulation and control by a public authority and democratic forces.

Hence there are grounds for cautious optimism. As Chinese wisdom has it, crisis (weiji) implies danger (wei), but also opportunity (ji). The creation of a social realm, aided by the country’s opening to the outside world and by the rapid development of communication technologies, from e-mail to internet, is among the most significant gains of the reform, in which associative life expands, grassroots activities flourish, and social movements arise. These are socially enabling advances thet can help revive shrinking public power both by countering unchecked private power and democratizing the State. It is popular participation that will, in the end, determine the future of China’s modern transformation.

Debates over the content and direction of the Chinese reform model, focussing on neoliberal hegemony and its alternatives, continue to engage China’s political and intellectual elites on all sides. The core contention remains whether and how - institutionally - the socialist commitment might be congruent with market mechanisms in capitalist conditions and their intrinsic, but also transformable contradictions. While the “socialist market economy” is still without any clear vision and facing mounting difficulties, it is also open to constructive innovations and may succeed, although the very concept of “success” is itself arguable and can be decided only by the participants themselves in this grand project.

There has been strong social support for the communist veterans in the industrial city of Shenyang who wrote in 1998 and 1999 to the Central Committee about the plight of the working class, as well as for the strikes and protests in Liaoyang, Daqing and elsewhere. The “triple problem” of agriculture, the countryside and the peasants (sannong wenti) has been at the centre of media attention. “Equal citizens’ treatment” to migrant workers meets increasing consensus among the broader population. The play “Che Guevara”, recently produced by three young professionals in Henan and then shown in Beijing and other places, moved tens of thousands of people. Such social forces and voices putting pressures on the government may lead to a new path that would eventually transcend the market logic of global capitalism on the one hand and, on the other, the bureaucratic logic of state socialism.

Lin Chun

Article on the subject by the same author :

« Socialisme et marché :Chine,Vietnam, Cuba », Alternatives Sud, Vol. VIII (2001), No.1

 

 


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