http://www.isj.org.uk/index.php4?id=3D430&issue=3D118
China's growth pains
Issue: 118
Posted: 31 March 08
Charlie Hore
This year will see the thirtieth anniversary of Deng Xiaoping=92s
announcement of China=92s =93Four Modernisations=94, the economic reform
programme that laid the basis for China=92s economic boom. This summer=92s
Olympic Games, planned to be among the most spectacular ever, will
underline the extent to which China has become a major economic and
political power. But 2008 may also be the year when the long-predicted
recession finally hits world capitalism=97and that would have a profound
effect on the Chinese economy. One way and another China will be much
in the news this year.
One constant theme in that news coverage is the =93threat=94 of China
overtaking the US to become the world=92s dominant economic power. The
most obvious aspect of China=92s recent economic growth has been its
sheer speed, and it is this that largely fuels the idea of the
=93threat=94 (with a barely hidden undercurrent of =93yellow peril=94
racism=
).
However, what has less often been recognised is the unpredictability
of China=92s economic development. Time and again the direction and pace
of China=92s economic growth have taken Western capitalists and
academics, as well as China=92s rulers, by surprise. As the introduction
to one academic survey ruefully noted:
Where in 1989 the consensus appeared to urge a policy of rapid
privatisation, trade and foreign exchange liberalisation, and rapid
stabilisation through drastic cuts in subsidies and the money supply,
China=92s economic dynamism appeared to result from strategy that
ignored such advice.1
In this compendium review of a number of new and recent books on China
I aim to do three things: to give an overview of China=92s current
position in the world economy and how it got there; to look at the
limitations and constraints on China=92s future growth; and to give a
sense of what the past 15 years of breakneck growth have actually
meant for peasants and workers in China. Readers should be aware that
this is a very small selection of what has been published on
contem****ary China in the past couple of years. I have chosen these
books because I think they are both interesting and accessible
accounts of particular aspects of China, and all are worth reading for
getting a greater sense of the scale, effects and limitations of
China=92s growth.
China risen
James Kynge and Ted Fishman are business writers concerned with China
as a competitor with Western manufacturers. Their books, China Shakes
the World and China, Inc, are both works of re****tage, rather than
deep analysis, and their treatments of Chinese history are spotty and
often inaccurate. But they are worth reading, both for snapshots of
China=92s industrial growth and for a sense of how China both fascinates
and frightens Western capitalism. As Fishman explains:
Since China set about reforming its economy a generation ago, it
has grown at an official rate of 9.5 percent. Countries in the early
stages of economic reform often come up fast, but not like China. The
country is closing in on a 30-year run during which its economy has
doubled nearly three times over. The surge has no equal in modern
history.2
Both rightly identify ex****ts of manufactured goods to the US as the
motor of China=92s growth, and Kynge underlines the sheer range
involved:
Seventy percent of the world=92s photocopiers, 70 percent of its
computer motherboards, 55 percent of its DVD players, 30 percent of
its personal computers, 25 percent of its TV sets and 20 percent of
its car audios=97to name but a handful=97are made in largely brandless
factories.3
Both also acknowledge that foreign investment is central to the
expansion of the Chinese economy, and Fishman in particular is good on
the manifold contradictions that this poses for US companies. His
focus is almost entirely on US-China relations, while Kynge=92s book
also covers China=92s relations with Western Europe. Kynge also gives
useful pictures of some of the costs of industrialisation, in
particular environmental damage and the conditions of migrant workers
But while both are useful in focusing on the central dynamic of
China=92s growth, neither book places this in the context of the Chinese
economy as a whole. Nor do they really try to explain why China has
expanded so fast, beyond suggesting that the =93innate=94 Chinese flair
for entrepreneurialism inevitably flourished once state restrictions
on private enterprise were lifted.
Interestingly, they do not really argue for Western governments and
businesses to do anything in particular about the =93threat=94=97because,
they imply, nothing can be done. The books=92 subtitles, The Rise of a
Hungry Nation and The Relentless Rise of the Next Great Superpower,
carry their essential message: China=92s sheer size and energy mean that
such growth can carry on indefinitely.
Will Hutton=92s latest book, The Writing on the Wall (now out in
paperback), is in part written as an explicit polemic against such a
view. He gives a more rounded view of China=92s recent growth than
either Kynge or Fishman, in part through crediting three factors which
they don=92t really acknowledge.
The first is the continuing role of the central and local state. Much
writing on China today wrongly assumes that the entire state sector is
moribund, and growth only comes from private capital, whether Chinese
or foreign. The village industries that powered economic growth
through the 1980s, and whose success attracted most of the foreign
capital invested in the 1990s, were almost all operated by one level
or other of the local state. Privatisation played no part at all in
China=92s industrial growth before 1997 and is far less im****tant today
than usually assumed. Hutton cites a World Bank study from 2001 of
enterprises listed on the stock exchange:
At first sight it seemed that the state had relinquished control
of more than 90 percent. However, once the labyrinth of the share
structure had been unravelled the opposite was the case: the state had
de facto control of 84 percent of the listed companies.4
The second is the im****tance of economic development prior to Deng
Xiaoping=92s =93modernisations=94. As he notes, =93Today=92s China could
not=
have started from nothing in 1978=94.5 The economy was not a complete
failure under Mao Zedong. There was substantial industrial growth, and
both living standards and life expectancy rose substantially after
1949.6 In particular, the decentralisation of industry under Mao was
crucial to the growth of village industries in the 1980s.
The third factor highlighted by Hutton is what he calls =93a significant
element of luck, which has then been cleverly exploited=94.7 For
instance, he cites the rise of =93globalisation=94 and in particular the
outsourcing of industrial production by Western countries, which
happened just as China was recovering from the crisis of 1989 and
actively seeking foreign investment. =93Contingency=94 might be a better
word, but there is no doubt that China=92s rulers have been adept at
taking their op****tunities when they found them=97in large part because
they have been determinedly pragmatic about how to achieve industrial
growth, rather than blinkered by neoliberal ideology. Another factor
that Hutton might have mentioned was the ready availability of capital
from the Chinese dias****a, both in Hong Kong and in South East Asia,
which provided most of the foreign investment before 2002.
The limits to growth
The most valuable parts of Hutton=92s book, though, are those where he
confronts head-on the arguments about endless growth. It is worth
quoting the central passage at some length:
If the current structure of growth continues, by 2020 Chinese
ex****ts would constitute nearly $5 trillion, or some 100 percent of
its then GDP=97and approaching half the likely merchandise ex****ts of
the world at that time. Since China=92s ex****t growth has mainly been
driven by non-Chinese companies, to reach this total we have to
suppose that there are sufficient non-Chinese companies with the
capacity to transfer production on such a scale to China, and that
Western markets have the capacity to absorb such enormous flows of
im****ts=85 So far, some 400 of the Fortune 500 in the United States and
a comparable number of European and Japanese producers have invested
in China. In other words, most of those who could move production to
China have done so already. Growth projections that extrapolate
current trends have to suppose that over the next 15 years Western
multinationals in China are going to be able to continue increasing
Chinese production and ex****ts at six or seven times the rate of
growth of their domestic markets. This is both a mathematical and an
economic impossibility.8
And he argues that the same is true for the American market, which
simply cannot carry on absorbing Chinese ex****ts at its current rate,
because of consumer indebtedness and the size of the US trade deficit.
9 This was written before the credit crunch of 2007, sparked by the
crisis in the US =93subprime=94 mortgage market, but Hutton=92s central
point is that saturation point would be reached even without an
economic slowdown.
Any slowdown in China would have widespread repercussions across the
rest of the world, and in particular South East Asia. The growth of
processing and assembly industries has led to a huge rise in im****ts,
as the domestic economy has not been able to supply the necessary
parts or materials. So China runs a trade deficit with the rest of the
world apart from the US.10 The scale of China=92s trade with the US has
drawn in many other countries across the region, which now trades as
much with China as with the US.11
There is an additional reason why China=92s growth cannot simply
continue as it has, which Hutton does not really investigate. The
ex****t processing industries have operated on the assumption of a
bottomless pool of cheap labour from the countryside, which may now be
drying up. A 2006 survey by a government research institute found that
in 74 percent of the villages surveyed there were =93no longer any
surplus labourers available to work in distant cities=94.12 In the past
couple of years seasonal shortages of migrant labourers have led to
minimum wage increases in most of China=92s coastal provinces, but it
now seems as though the problem is a structural one. I will consider
workers=92 conditions and the possibility of a fightback below.
Unfortunately, Hutton=92s book is only in part a polemic against the
dominant view of China=92s prospects. The useful sections are contained
within a rather confusing structure=97some chapters read like separate
articles which have simply been dropped in=97and an overarching polemic
in favour of =93Enlightenment values=94. This leads him to adopt, at
times, a simplistic Cold Warrior view of China as =93a Communist
authoritarian state=85 If China came shopping for companies and assets
in the United States in a major way, the reaction would be ferocious.
And, unless China changes, such a reaction would be partly justified=94.
13
Essentially, the argument is that it was the victory of =93Enlightenment
values=94 that led to Western capitalism spreading across the globe in
the 19th and 20th centuries. China=92s half-turn to the market has
allowed it to develop only so far, but state control of the economy
now blocks further development. Only if China abolishes Communist
Party rule and becomes a genuine democracy can it develop any further.
The argument about the divergent paths of European and Chinese history
lies outside the scope of this review, though I will note that
Giovanni Arrighi=92s recent Adam Smith in Beijing offers a much richer
and more stimulating view of this debate than in Hutton=92s sketch.14
The argument that China needs to open up politics and society in order
to stimulate further economic development is an old one, and fairly
definitively refuted by China=92s economic progress over the past 30
years. Chinese society has evolved considerably in this period, away
from the all-pervasive control and repression of the Maoist era, to
allow a considerable degree of economic and social freedom (including,
in practice, the right to strike), while keeping political power
firmly in the hands of the Communist Party. The model has been the
=93authoritarian market states=94 of East Asia, such as South Korea,
Taiwan and Singa****e, all of which grew rapidly through the 1950s and
1960s by combining state direction of the economy, a dictatorial
political regime and lax economic controls on petty capitalism.15 The
subsequent arrival of parliamentary democracy in South Korea and
Taiwan had far more to do with social movements than any perceived
economic bottlenecks, and the state remains a powerful player in both
economies.
Indeed, Western capitalism has no intrinsic interest in increasing
social and political freedom in China. As Fishman notes, =93China is not
home to the cheapest workforce in the world=85 China is the world=92s
workshop because it sits in a relatively stable part of the globe and
offers the world=92s manufacturers a reliable, docile and capable
industrial workforce, groomed by government enforced discipline=94.16 As
an illustration of this, when the government first proposed a new
labour law giving workers some minimal rights (which came into force
on 1 January 2008), it was actively opposed by practically every US
company investing in China.17
China=92s internal market
When the Chinese economy first opened up to the world market in the
early 1980s, the expectation was that this would primarily benefit
Western capitalism by opening up a huge consumer market. When this did
not happen, the explanation given was =93excessive state controls=94
imposed by the Chinese government. China=92s accession to the World
Trade Organisation (WTO) in 2001 removed most im****t restrictions, and
an im****t boom was again anticipated. It is now fairly obvious that
the WTO accession made almost no difference to the prospects for
Western businesses in China. The books referred to so far make only
passing reference to the WTO, but do not really ask where the elusive
=93Chinese market=94 went.
One fairly obvious answer is that it was never there. In late 2007 the
World Bank announced a new estimate for the size of China=92s economy
that was 40 percent smaller than previous estimates.18 This was not
the first such re-evaluation=97in 1998 the World Bank made a similarly
huge adjustment.19 In both cases, this was because the World Bank had
used a method called =93purchasing power parity=94 (PPP) to work out the
size of China=92s economy. Essentially, this is an attempt to work out
the relative size of national economies by looking at what a unit of
the national currency will actually buy, rather than translating local
prices into dollars. As such, it has its uses in trying to estimate
real wages, but at the scale of a national economy there are far too
many variables for it to be any more than computer aided guesswork.20
It is often forgotten that China in 1978 was desperately poor, and
part of the reason for the stunning percentage growth figures is
precisely that very low starting point. But those growth figures have
not been matched by a corresponding increase in the living standards
of the mass of Chinese people. Elizabeth Croll, who died tragically
young last year, was a sociologist who wrote a number of insightful
books about the impact of the economic reforms on everyday life. Her
last book, China=92s New Consumers is an invaluable, highly detailed
study of living standards, showing that the key trait of the past 30
years has been a huge rise in inequality. She quotes a government
survey from 2005 showing that the richest 10 percent of China=92s
population owned 45 percent of the country=92s personal wealth, while
the poorest 10 percent had just 1.4 percent.21 As she points out:
Chinese society is more accurately represented by an income or
wealth pyramid showing a very small minority at the top, the majority
at the base and a small and burgeoning middle class sandwiched
between. Not only are those between fewer than commonly imagined, but
many are more likely to be downwardly than upwardly mobile.22
The crucial gap is still between town and country. The early years of
the economic reforms saw a dramatic rise in peasant incomes, but by
the mid-1980s this had stalled, and in the 1990s many peasants
experienced falling incomes. A 2003 study estimated that over 22
percent of peasants lived below the (very low) government poverty
line, and Croll notes that a much greater number, possibly the
majority, live only just above this.23 But she adds that there are
also huge differences between different regions of China, with rural
poverty concentrated in the most remote western provinces.
While urban areas are less poor than the countryside, the gap between
rich and poor is greatest in the cities. Despite the emergence of a
highly visible Westernised middle class, urban poverty has grown as
state-owned industries have closed or shrunk. Croll quotes various
estimates of between 9 and 12 percent of urban residents living below
the poverty line.24 None of those estimates include the tens of
millions of migrant workers. Since the mid-1990s urban incomes, apart
from those of the very rich, have grown more slowly, and disposable
income has grown slower if at all, as workers have had to meet greatly
increased housing and medical costs because of privatisation.
Her conclusion is that =93in 2005, it cannot be said that the mass of
China=92s population have become consumers in the accepted sense and it
would be premature to speak of mass demand [or] mass consumption=94.25
As the world economy slows down in 2008, more and more economists are
looking to China=92s growth to offset the start of recession in the
West. But as this book suggests, any serious increase in Chinese
consumption can only follow real and sustainable increases in workers=92
and peasants=92 incomes.
Peasant protests
Although most writing on the Chinese economy focuses on industry,
there are still some 325 million peasants, and most Chinese still live
in the countryside.26 Since the early 1990s there has been a huge
upsurge in peasant protests unparalleled since the early 1950s.27 At
the root of many of these is a double squeeze=97on the one hand stagnant
or shrinking incomes, as detailed above, and on the other local
officials levying extra taxes and other charges essentially to boost
their incomes.
Rightful Resistance in Rural China and Will the Boat Sink the Water?
both give accounts of some of these protests, though in very different
ways. The first is a mixture of a theoretical intervention into the
field of =93resistance studies=94, pioneered by James C Scott=92s Weapons
of=
the Weak, and an account of specific types of peasant struggles. They
define =93rightful resistance=94 as villagers =93struggling to defend
rights=
they had already been granted, or rights they believed could be
derived from the regime=92s policies, laws, principles and legitimating
ideology=94.28 There are clear parallels here with EP Thompson=92s
concepts of =93the moral economy=94 and =93collective bargaining by
riot=94,=
29
though the authors exclude violent protests from their analysis.
One crucial point is that local taxes are mostly illegal. From the
central government=92s point of view, excessive taxes that just pay
local officials=92 wages are a drain on productive resources, and a
disincentive to peasants to stay on the land. The central government=92s
dilemma in agriculture is that food production per head of population
is declining, which adds to im****t bills and threatens greater
inflation in the cities.30
Most of the anti-tax protests described here began with activists
publicising central government policies to persuade villagers not to
pay. This meant photocopying government documents and reading them out
through loudspeakers, or in one case taking over a traditional dragon
dance chanting anti-tax messages in rhymed verse as they paraded
through the village!31
When this didn=92t work (and it usually didn=92t), some campaigns folded,
but others turned to mobilising much larger numbers of people, either
in the village or lobbying the next higher level of government.
Numbers were crucial, the authors suggest, quoting a popular rhyme: =93A
big disturbance leads to a big solution, a small disturbance leads to
a small solution, and no disturbance leads to no solution=94.32
The idea that =93the emperor is fair, but his officials are corrupt=94 has
been around in China for more than 2,000 years, and its usefulness for
the central government is obvious. But it=92s double-edged=97while it can
deflect peasant anger, it does nothing to prevent the expressions of
that anger. And there is a very interesting discussion of the extent
to which activists actually believe it, as opposed to using it as a
mobilising tool.
Near the end of the book the authors quote a Chinese researcher
suggesting that =93since 2001 the focus of rural activism has ****fted
from tax to land disputes and from central China to more developed
coastal areas=94.33 More recent protests have posed a greater threat to
local officials, as they have often been larger and attracted much
more publicity. One example was the 2005 riot in Huaxi, Zhejiang
province, where some 20,000 peasants attacked police and local
officials at the end of a long campaign against a polluting factory.
The village then became a =93tourist destination=94, with tens of
thousands of people coming from nearby towns to learn from the
fightback.34 While the particular type of protest that the book
focuses on may have waned, it will be both useful and thought
provoking for understanding the dynamics of future peasant struggles.
Will the Boat Sink the Water? is utterly different. It is a gritty and
often grim series of re****ts from Anhui province, one of the poorest
in central China, which focuses on the greed of local officials and
their repression of any opposition. It became an instant best seller
when it was first published in China in late 2003, was banned a few
months later, and went on to sell millions in pirated editions. It
became so popular because of the sheer level of detail that the
authors recorded about rural life. In one section, for instance, they
try to list all the different taxes that peasants may be subjected to,
in a list that goes on for four pages. These include five separate
taxes on keeping pigs (which in some villages are charged to everyone,
whether they actually own pigs or not), and an =93attitude tax=94, levied
on those who =93dare to challenge or resist the tax collector=94.35
The level of detail about rural life may make it difficult going for
Western readers=97as indeed it did for many urban Chinese readers. But
it is well worth reading, not least for the powerful sense it gives of
why so many peasants leave the village to become migrant workers in
the cities and ex****t processing zones. While the numbers going may
have peaked, there are still tens of millions of migrants, usually
working in insecure and dangerous conditions. This recomposition of
the working class is one of the most im****tant developments of the
past 20 years.
China=92s new (and old) workers
Several hundred million rural dwellers have moved to the cities and
the new industrial areas since the early 1990s, in what must be the
biggest internal migration in human history, though for many this has
been a tem****ary rather than permanent move. Hutton quotes a recent
estimate of 150 million migrants in China=92s cities (against an
official figure of 112 million),36 but the real figure is unknowable.
These migrants have become essential to the new ex****t processing
industries of the south eastern coastal provinces, working very long
hours in atrocious conditions.37
At the same time, traditional state owned industries have been
=93restructured=94 in a process that has made at least 50 million workers
(and possibly as many as 80 million) redundant since 1996.38 In large
cities such as Beijing or Shanghai the impact of this was softened to
some extent by family sup****t and other job op****tunities (though
usually precarious self-employment). But in China=92s hinterland,
particularly in the north east where much traditional heavy industry
was located, the devastation was much greater, with real unemployment
rates of up to 80 percent.39
Both processes have given rise to the biggest upsurge in working class
militancy since the 1920s, with some movements of laid-off workers
becoming almost insurrectionary.40 Against the Law is, as far as I
know, the first book length account of this upsurge. The author draws
a clear distinction between two very different sorts of protests:
=93protests of desperation=94 in the =93rustbelt=94 (the old industrial
area=
s)
and =93protests of discrimination=94 in the =93sunbelt=94 (the new ex****t
processing areas).41
In the old industrial areas workers essentially accepted factory
closures=97there are no recorded instances of factory occupations or
work-ins. The protests were over the failure of management or local
authorities to pay pensions or other benefits. For the most part,
these were restricted to individual workplaces, though she details one
im****tant exception, when around 100,000 workers from workplaces
across the city of Liaoyang demonstrated after a local politician went
on national television to deny the existence of unemployment in the
city.42 She concentrates here on protest movements in Liaoning
province, though she has written elsewhere in more detail about
similar protests elsewhere, which included a number of attempts to
form independent unions.43
These protests essentially ended in 2001, in large part because they
won substantial national reforms. As she records in another essay, =93by
2001, nationwide, 98 percent of pensioners received their pension
through the bank rather than through the employer=94.44 Using a
combination of repression and concessions, the government could (at
some considerable cost) bring such movements to an end. They have far
greater difficulty in holding down strikes and other forms of workers=92
protests in the new industrial areas.
The crucial difference between the two forms of protests is not about
defensive versus offensive struggles. The vast majority of struggles
in the new industrial areas are defensive, triggered by things like
employers=92 failure to pay wages, violence against workers and layoffs.
The author here concentrates on the city of Shenzhen, on the border
with Hong Kong, but it is a reasonable assumption that Shenzhen is
typical of other such areas.
As with the peasant struggles against illegal taxes, many workers=92
movements start with simply demanding what the law entitles them to.
One striker told the author about being drilled by management in
advance of an inspection:
Workers were given model answers about the Labour Law and they had
to memorise them so that when customers come and ask they will deliver
the line, =93Five-day work week, eight-hour day, Sunday off, two hours
maximum overtime each day and not more than five nights per week. We
are all very satisfied with our work schedule.=94 It=92s the first time we
learnt the details of the Labour Law and what we were not getting.45
Shenzhen=92s development model was once described as one where
=93capitalism becomes barely distinguishable from piracy=94,46 and the
author details the many ways in which Shenzhen employers fail to meet
even the minimal legal standards laid down by the government. This is
not simply a matter of particular capitalists being nasty individuals,
but rather a structural fault in the ex****t processing industries. The
law is designed to allow for the normal operation of capitalism, both
by ensuring that workers receive sufficient wages to reproduce their
labour power, and by ensuring that capitalists compete with each other
on a level playing field. But because of systematic overproduction and
cut-throat competition leading to very low profit rates,47 there is a
pressure on all capitalists to lower costs to the absolute minimum.
But while the law promises better, it does not deliver. As the author
puts it, =93the law both empowers and disenchants migrant workers=94,48
because when workers try to get what they see as =93justice=94 through the
legal system, they find it is systematically biased against them. She
quotes one lawyer specialising in industry cases:
At the end of a court hearing, the judge said to me in public,
=93Lawyer Zhou, if the court adheres to all the laws and regulations of
the provincial government, all these factories would move elsewhere
and the local economy would collapse=94.49
Strikes, demonstrations and riots usually explode after the legal
route has proved to be a failure. Migrant workers have effectively won
the right to fight such battles, provided that they are restricted to
particular factories, and do not raise political demands or try to
organise independent unions. There are some fascinating descriptions
of such explosions, though there are only a few glimpses of how these
are organised inside the workplaces=97a greater focus on the mechanisms
behind =93spontaneous=94 outbursts would have sharpened her analysis.
Too many accounts of migrant workers see them as simply the victims of
globalisation, and that is where this book is different. While the
author is clear-sighted about the many obstacles to organisation, and
the numerous divisions between different groups of workers, she
balances these against the real victories that have been won, and the
capacity of workers to transcend their divisions.
Conclusion
Over the past 15 years the exceptionally dynamic growth of the Chinese
economy has tied both China and Eastern Asia into an excessive
dependency on the American economy. But it has also tied the US and
Western Europe into a very particular dependency on China. While cheap
im****ts have helped both the US and Europe to sustain shallow growth,
China=92s boom has not stabilised world capitalism=97quite the reverse.
China=92s arrival as a major economic power has only increased the
volatility and unpredictability of the world economy.
Inside China, too, greater dynamism has led to greater instability.
Worker and peasant protest movements have multiplied as the economy
has grown, reflecting both greater confidence and the fact that
promises of prosperity have not been kept. This is not an inevitable
upward trend=97strikes and protest movements are rooted in very specific
grievances, are usually quite isolated and die away as they are either
repressed or achieve partial victories. But the cumulative effect is
im****tant. Workers and peasants have won greater space to resist than
at any time since the 1920s, and the spread of television, mobile
phones and the internet means that millions of people can quickly
learn about particular struggles. Globalisation cuts both ways.
|
