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International Socialist Review Issue 2, Fall 1997

China: Deng's Legacy

by Ahmed Shawki

This is the second of a two-part article by Ahmed Shawki (the first, China: From Mao to Deng, appeared in ISR #1) that looks at the Deng Era and shows how China’s enormous growth rates so lauded by the West are creating gross inequality, unemployment and regional imbalances that threaten the reemergence of instability and struggles even more explosive than those of Tiananmen Square in 1989.

In 1994, Business Week produced a special issue on "21st Century Capitalism." The editors could hardly contain themselves:

The death throes of communism clearly gave birth to the new era, leaving most nations with only one choice–to join…the market economy…Almost 150 years following the publication of the Communist Manifesto…the bourgeoisie has won.1

Unbridled greed was, according to Business Week, the only–and most moral–way to ensure human progress. Strangely, though, despite all the talk of the victory over communism, the symbol of this "new age" capitalism was, and still is, a "Communist" country. Less than a decade after the brutal massacre of protesters in Beijing’s Tiananmen Square, China has become the toast of western capitalism and the mass media.

The following description of China by the New York Times is typical of the salivating adulation which litters the press:

There is not an adjective that soars high enough or detonates with enough force to describe China’s economic explosion or the promise of its future. One fifth of humanity, for decades locked in the dungeon of Mao Zedong’s proletarian revolution, where for decades they were whipped and exhausted by meaningless mass movements, are now fully unleashed in an epic pursuit of material wealth.2

In these "We’re all pro-market" times, Reaganite supply-siders and ostensibly left-wing academics have found common ground in admiring China. A recent article in the Wall Street Journal, for example, by a senior fellow at the Hoover Institution, argues that China is the model to emulate. In what can only be described as a rather idiosyncratic article, Alvin Rabushka concedes: "It is somewhat ironic that Communist China... provides the best evidence of the supply-side approach."3

Conservatives are not the only ones to have caught "China fever." There are some on the left who accept the view that China’s market reforms have produced miracles–and they simply declare them "socialist." As a recent article in New Left Review put it:

Born-again post-Maoist China scholars now discourse about entrepreneurship, market efficiency and rationality. Marxist philosopher John Roemer applauds China’s market-oriented township and village industries (TVEs) as models of "egalitarian" "market" socialism.

And Paul Bowles and Xiao-yuan Dong, writing in the same issue of NLR assert without irony, that "China is not simply a case of successful state-led development, it is an example of successful socialist state-led development."4

China has certainly experienced rapid growth. But for those who want to look below the surface, severe contradictions underlie the process. The glitter of China’s new-found wealth belies growing extremes of wealth and poverty, both regionally and between social classes. Moreover, China’s "miracle" economy is riven with contradictions which threaten to throw the country into massive economic, social, and political crisis.

The origins of market reform

The origins of Deng Xiaoping’s post-1978 market reforms lie not in some disagreement between pro-socialist and pro-capitalist bureaucrats, but in the economy’s increasingly poor performance after the First Five-Year Plan (1953-57). Mao’s brainchild, the "Great Leap Forward," produced an economic disaster and famine in the countryside. It also produced a sharp battle within the leadership of the Chinese Communist Party (CCP). This battle involved all the key figures who shaped the major political events in the three decades before Deng’s accession to power.5

The basic framework of China’s command economy was modeled on Russia’s and set up with Russian help during the First Five-Year Plan, and remained intact until the late 1970s. Overcoming China’s economic backwardness was the new regime’s central preoccupation.

The bulk of state investment in the Mao era went to heavy industry; only 12 percent of total state investment went to agriculture and barely 5 percent to the development of consumer goods industries. Not surprisingly, therefore, while the gross output of heavy industry increased ninety-fold between 1949 and 1979, light industry only increased twenty-fold and agriculture a pitiful 2.4-fold.

The fundamental problem with the "Great Leap Forward" was not simply that it emphasized heavy industry over agriculture; it was an unmitigated disaster which led to the deaths of millions–even as Chinese leaders were trumpeting China’s leap from feudalism to communism.

It is only possible to understand today’s "reforms"–and the various roles played by key individuals–by understanding the monstrous scale of the disaster that Mao willfully inflicted on China.

Mao’s Great Leap Forward caused grain yields to decline by 25 percent–41 percent for wheat yields alone, and the number of pigs declined by almost half. Yet during this same period Mao’s regime exported almost 12 milion tons of grain and record amounts of pork and other products.6

Not until after Mao’s death in 1976 did per capita grain production reach the level of 1957.7 Millions of peasants died in the famine caused by Mao’s policies. A Washington Post reporter, Daniel Southerland, reports:

One government document that has been internally circulated and seen by a former Communist Party official now at Princeton University [Chen Yizi] says that 80 million died unnatural deaths–most of them in the famine that followed the Great Leap Forward.8

By the end of 1960, it was no longer possible to ignore the death that stalked the countryside–with the exception of Mao, who still insisted that all was proceeding well.

China is not going to sink into the sea and the sky won’t tumble down simply because there are shortages of vegetables and hairpins and soap. Imbalances and market problems have made everybody tense but this tension is not justified, even though, I am tense myself.…You ought to try sleeping pills if you feel uptight.9

The regime was in real danger of collapse. Liu Shaoqi and Deng Xiaoping successfully challenged Mao and began implementing a nationwide emergency program which allowed production teams –though not individual peasants–to contract out fields. Most of the cadres who had been denounced as "right opportunists" and purged were now rehabilitated. The collective farming system was modified to allow peasants to raise their own livestock and grow food on small plots of wasteland. They could trade everything in open markets except grain, which went to the state. Peasants were permitted to grow a certain amount of grain for the state on communal land but also to sell the remainder.

Mao launched a counterattack to regain his diminished authority. Between 1962 and 1966, the country was effectively paralyzed by the bitter fight at the top. Jasper Becker writes:

For twenty years after the famine China stagnated. The population grew rapidly but little was built…After the famine, Mao ruled for another fourteen years but remained obsessed with justifying his Great Leap Forward and rooting out those whom he felt had betrayed him. Huge numbers were killed or imprisoned in the Cultural Revolution.10

As Simon Leys commented bitterly, but not inaccurately: For Mao, "The ruin of China was a small price to pay if, in the end, this savage chaos could enable him to recover the power that the Central Committee had forced him to relinquish."11

The Road to Deng

Deng Xiaoping’s rehabilitation after the fiasco of the Cultural Revolution (see ISR #1) was made necessary by the fact that he more than anyone else of the old timers carried enormous political weight, not only among the party bureaucracy, but critically among the leaders of China’s military, the People’s Liberation Army (PLA). Deng had another strength: He had always pushed for more systematic economic policies and development. In the early 1970s, Deng stressed the need for a return to order, the re-establishment of the leadership’s authority over the party, and the party’s authority over society–and in particular over economic matters. As Deng had said to a Communist Youth League gathering in 1962:

In the past, we’ve had too many political movements…When it comes to ways of optimizing the relations of production, I think we should take this attitude. Adopt whatever pattern will restore and develop agricultural output in each locality quickly and easily.12

Mao Zedong died in September 1976. But in many respects "Maoism" had already died–under the weight of its own failure and through the efforts of other members of the bureaucracy. Mao’s body would be embalmed and he would be hailed as the "Great Helmsman," but the ruling bureaucracy had to marginalize him and his policies in order to assure the survival of the regime that he had played so large a role in creating.

On September 18, 1976, Hua Guofeng delivered the official eulogy on Mao, establishing himself as Mao’s legitimate successor. In it, he called for a deepening of "the struggle to criticize Deng Xiaoping." Hua claimed Mao had told him on his deathbed, "With you in charge, I am at ease," to promote himself as Mao’s legitimate succesor. Hua and his associates further and rather rashly pledged in a highly publicized declaration in February 1977 "to support whatever decisions were made by Chairman Mao," a declaration that was to earn them the name the "whateverist faction."

Hua’s power was based on a precarious balance that could not last. Relying heavily on Mao’s alleged favorable nod toward him on his deathbed, he balanced between attacking the Gang of Four and denouncing Deng. But once Hua had arrested the Gang of Four, he was inevitably forced to open the door to Deng. Hua’s fortunes were further compromised when his proposed ten-year economic plan–ironically, modelled on earlier plans proposed by Deng himself–overheated the economy and forced the regime to halt a number of major capital-intensive construction projects. In a short time, Deng was able to sideline Hua and ease himself into positions of party leadership. The Eleventh Party Congress placed the official stamp on Deng’s victory. The Congress called for an effort to "bring about great order" across the country.

Launching the Reforms

At a national party meeting in 1978, the Third Plenum of the Thirteenth Central Committee, the centrality of economic development was made paramount. The meeting declared: "Economic construction is the core of our national work; on the one hand, we pursue reform and the open door policy; on the other, we uphold the Four Cardinal Principles." The Four Cardinal Principles were the CCP’s political "commandments" formulated in 1979: unwavering alliegiance to socialism, the people’s democratic dictatorship, Communist Party leadership, and Marxism-Leninism, Mao Zedong Thought. Deng’s meaning: the bureacracy should combine market reforms with strict, centralized party control. All the talk of politics was useless. In fact, socialism was not about political power or workers’ control of society. The Third Plenum set the course declaring, "The aim of the party in leading the whole nation in making revolution and taking over political power, is in the final analysis, to develop the economy." Deng put it even more plainly: "The purpose of socialism is to make the country rich and strong."14

Deng and his fellow reformers targeted agriculture first. In the mid-1970s, per capita output of grain was no greater than two decades earlier. The slow growth of farm output, combined with strict controls over the nonfarm activities of the peasantry, led to near stagnation in farm incomes. By 1978, China was no longer self-sufficient in grain and had to import grain to feed about 40 percent of its urban population. In 1978, 200 million Chinese peasants–one in four–were not getting enough to eat, and productivity had fallen to levels lower than during the 2,000-year-old Han dynasty.14

To turn this around, the "responsibility system" was adopted. Each peasant household would now farm its own land and undertake responsibility to produce a given output, on a contractual basis, which the state guaranteed to purchase. The first major step in the reforms was to increase farm prices by 25 and 40 percent in 1979, the first significant adjustment in farm prices in twelve years. The multitiered price system that was set up provided better prices, increased production, and boosted marketing through state channels. This constituted a massive transfer of wealth from the state back to the peasantry.

These reforms proved initially successful. By the end of 1983 about 95 percent of farm households were managing their own plots under contracts from collectives. Grain output grew from 305 million tons in 1978 to a record 407 million in 1984, an average annual rate of almost 5 percent. Grain production per capita has exceeded both the government’s benchmark level of 302 kilograms per capita in 1957 and the level of per capita achieved in the early 1930s–the last normal years before World War II.

Another key feature of the new economic order were the Special Economic Zones (SEZs). These zones would allow foreign companies to operate free of high taxation or government restrictions–allowing them to institute new labor policies.

In 1984 the bureaucracy moved into a second, more intensive phase of reform that set three interrelated goals–enterprise profitability, creation of a free labor market, and price deregulation. One aim of the bureaucracy was to intensify the rate of exploitation of workers by abolishing any guarantee of life-time job security and welfare benefits for state workers, or what Deng’s economic advisors referred to as "the iron rice bowl." Enterprises were now expected to produce a profit or sink. In line with this, managerial methods and disciplinary codes became more stringent, and enterprises began to lay off workers.

Bureaucratic capitalism

Many observers failed to understand what was becoming obvious in China. The reforms were not against the interests of the bureaucracy, but primarily benefited them. Those sections of the bureaucracy who were suspicious of Deng’s reforms were not concerned about defending "socialist" principles. Rather, as Maurice Meisner puts it:

Their desire to preserve their positions and privileges, reinforced by a preference for the bureaucratic virtues of predictability and stability as well as by simple habit and inertia was sometimes disguised as a defense of "socialist principles." But if there were initial suspicions of the reform program, it soon became apparent to China’s bureaucrats that they were in a uniquely favorable position to personally profit from the new market mechanisms. Many hastened to do so.15

This did not simply apply to the state-controlled sections of the economy but also to the newly-privatized sector. As a recent study put it: "[T]he private economy is still under the control of officials–everything must be done through them."17 Liu Binyan, an investigative journalist fired by the People’s Daily and twice expelled from the CCP, explained the process this way:

After the economic reform was implemented in 1979, the market economy and open [door] policy created even more opportunities for officials to use their power for private ends. In foreign trade alone, these people make shockingly illegal profits from sales commissions provided by foreign businessmen…Many of the foreign trade projects were monopolized by children of high-ranking officials. Within a few years’ time, China has produced a new bureaucratic bourgeois stratum.17

China’s bureaucrats haven’t only enriched themselves individually. State allotments have been so severely cut that whole bureaucracies have thrown their lot in with the market. Government departments, elementary schools–even the People’s Liberation Army–have been instructed to balance their budgets by going into business for themselves.

So, for example, the Ministry of Public Security owns luxury hotels in joint ventures with foreign capitalists; the State Security Ministry operates an import-export company, an employment agency servicing foreign companies, and several domestic businesses. The biggest of the bureaucratic capitalists is the PLA, which is estimated to own more than 20,000 businesses, including for example, the deluxe five-star Palace Hotel in Beijing. There are even more bizarre examples: the All-China Federation of Women, an organization originally founded to combat sexual inequality and oppression, hires Russian prostitutes to boost business at its luxury hotel.

The reforms have not replaced one type of system with another. Rather, China has moved from bureaucratic state capitalism to a mixture of state and private capitalism, in which both sectors are dominated by the CCP bureaucracy and their relatives.

The effects of market reform

By 1985, Deng had become the darling of the Western press. He was Time magazine’s "Man of the Year." But while Deng was becoming more popular in the West, China was hit with severe economic and social problems. High growth rates caused extreme imbalances in the economy:

The economy was out of alignment, and indeed out of control, regulated neither by state nor by market.…Shortages of energy and raw materials grew increasingly severe over the year, threatening to close factories and idle workers. Production of coal, oil, and electricity could not satisfy the increasingly voracious appetites of the booming industries.18

Rapid growth produced rampant inflation and drastic cuts in living standards. The official national inflation rate for 1988 was 19 percent, triple the already high rate of the previous year and by far the worst since 1949. The actual inflation rate was probably in the range of 25-30 percent, and considerably higher in the cities. The burden fell hardest on those dependent on state salaries–workers in state enterprises, teachers, intellectuals, and minor governmental functionaries. The government had already acknowledged that living standards fell for 20 percent of urban families in 1987.19

Other social problems became more acute, especially in the coastal cities and other growing cities where an estimated 400 million people–more than a third of the total population–now live. Seven milion children dropped out of school in 1988, along with tens of thousands of unpaid teachers. The crime rate increased by almost 50 percent in the same year–exacerbated by a proliferation of youth gangs.20

The bureaucracy and their hangers-on enriched themselves through rampant corruption, whose scale has become grandiose. A book by Cheng Li, Rediscovering China, reports:

Before I left the United States in 1985, most corruption in China consisted of petty bribery of a few hundred dollars; now officials steal several million or even several hundred million dollars. Chen Xitong was accused of embezzling over $1 billion. Some high ranking government officials and children of revolutionary veterans have turned state-property, including China’s large international corporations, into their own private firms.21

Meanwhile, in response to growing inflation and sagging profits, state enterprise managers began reducing wages and laying off workers. In Shenyang municipality alone, 400,000 workers were laid off from 700 factories in the spring and summer of 1988.22

The combination of–and obvious relation between–deteriorating economic conditions and ever-more brazen corruption among party officials hardened the attitudes toward the bureaucracy of much of the population, especially in the cities. It was a combination of these factors that underlay the biggest revolt to take place under Deng’s rule: the protests at Tiananmen Square.

The Tiananmen Square revolt

The Tiananmen Square protests had a rather innocuous beginning. Former party premier Hu Yaobang–a loyal lieutenant of Deng who had helped push economic reforms, but who had been removed in 1987 after being accused by hard-liners of being soft on student protests–suffered a heart attack during a Politburo meeting on April 8. Hu’s death one week later acted as a spark igniting student unrest. Beijing students quickly began planning a march organized for the evening of April 17, two days after Hu Yaobang’s death. Student protests adopted the form that had been a political tradition for the CCP, to embark on "long marches" to Tiananmen Square, the center of state power and also a traditional center of protest against the government. By the time the march got to the square it had swelled to some 4,000. On April 18, 1,000 students staged a sit-in and refused to leave until members of the National People’s Congress received their petition, which demanded, among other things, a reevaluation of Hu Yaobang’s role; publication of the salaries of top party and state officials and their offspring; freedom of the press and public expression; and increased salaries and stipends for students, teachers, and educational programs. During the day the number of people in the square had grown to 10,000. As the demonstrations grew larger, the government announced that the public would not be allowed into the square on the day set aside for Hu’s memorial service, April 22.

The students took the government by surprise when, on the night of April 21-22, they funneled thousands of students into the square. When soldiers and the police arrived at the square at 6:00 A.M. they found more than 10,000 students camped. An estimated 100,000 people joined them in the morning. Party leaders were forced to conduct services for Hu Yaobang in front of an audience of 10,000. Beyond the square, some 1 million people lined the route of the motorcade that transported Hu’s body to its burial site. The regime strongly denounced the demonstrations, but they only grew in size.

Students were organizing in several cities, but all attention was focused on Beijing, where students were organizing in Tiananmen Square just as China’s top leaders were preparing to receive Soviet president Mikhail Gorbachev.

The regime was split over how to deal with the demonstrations, with party general secretary Zhao Ziyang offering some sympathy to the students, and Prime Minister Li Peng firmly calling for an end to all public protest. As the scale of the protests grew, party leaders began to worry about their ability to maintain control of the capital. There was much concern that many rank-and-file soldiers might be unreliable in a showdown.

The student protest began–in many ways despite some of the efforts of student leaders–to give confidence to others to fight. Maurice Meisner recounts:

Workers not only marched by the hundreds of thousands in the massive demonstrations in the capital on May 17-18; they also established their own organizations. The Beijing Workers’ Union was organized in April, and the Beijing Workers’ Autonomous Union was founded in Mid-May...23

But it was the massive participation of factory workers in protests on May 17 and subsequently that alarmed party leaders. The fear of a "Polish revolt" had haunted them for a decade–and is what finally prompted them to crack down.

The regime declared martial law and on May 19 began moving thousands of as yet unarmed troops into Beijing. Alerted by protesting students, massive numbers of Beijing residents came out into the streets to block the army’s entrance into the city, immobilizing many army units in a sea of people. On May 21, a million Beijing residents demonstrated against martial law. Many ordinary soldiers were shaken, but the army did not disintegrate. In a matter of days, the regime was able to arm and position tens of thousands of loyal troops for a planned crackdown.

Spring 1989 in Beijing was reminiscent of Poland in 1981 on the eve of martial law when "Almost no one believed that Polish soldiers could be used against Polish workers."24 But this belief among Beijing residents, like that held by many Solidarity activists in Poland in 1981, proved equally misplaced. As the participation of nonstudent groups increased, Deng was able to convince those party leaders who hesitated to use force that a crackdown was necessary. The regime–led by Deng Xiaoping and other party veterans–moved the troops into action on June 4. Hundreds were killed in the military crackdown as Beijing citizens fought pitched battles at makeshift barricades set up to stop the army’s advance on Tiananmen square.

The Tiananmen Square demonstrations showed how deep was the hatred for the regime. This was a tremendous mass movement, but it had serious weaknesses, not the least the elitism of the student activists. According to one historian, workers "were not, for example, permitted to use student facilities to publicize their call for a general strike; and they were repeatedly reminded that the protest movement was under the control of students, not workers."25 The movement was also unable to draw in Chinese peasants, an enormous part of the population. In the end, the regime was able to crack down before workers were able to gather their forces and organize effectively in the factories and workplaces, though they participated in large numbers in street demonstrations. Tiananmen was not the end, but the beginning, of future, even more explosive, social unrest in China.

Tiananmen doesn’t halt reforms

The Beijing Spring strengthened those in the bureaucracy who believed the reform process had gone too far and would further undermine party control. The balance shifted even more in their direction after the Soviet coup attempt in August 1991. Deng was temporarily thrown on the defensive as those in favor of slowing the reforms and strongly opposed to any "Liberalization"–dubbed as the "leftists"–pointed to the Tiananmen Square demonstrations as proof that the party’s ideological and political control had slipped too far.

Deng regrouped and launched a counterattack. The problem in Eastern Europe, he argued, was not liberalization or reform, but the lack of it. He reminded his opponents that Romanian leader Caucescu had opposed reforms in 1989 and had lost his life.

In February and March 1992, Deng–then aged 87–took an imperial tour (called nanxum) of the South to advance his case for expanding and accelerating market reforms. Pointing to Guandong province’s efforts to "catch up with Asia’s four little dragons [South Korea, Taiwan, Hong Kong, and Singapore] in 20 years," Deng called for not just a resumption of market reforms but their acceleration, saying, "We must speed up the reforms starting now.26 Deng’s nanxum reinvigorated the reform process. The 1992 14th Party Congress endorsed all of Deng’s proposals.

Chinese living outside the mainland played a pivotal role in financing the majority of projects, but also provided much needed funds in the aftermath of the Tiananmen square massacre. According to official Chinese figures, of the $44 billion foreign investment in China between 1979 and 1993, almost half of that came after the beginning of 1992. Of that, Hong Kong investors accounted for over half, and overseas Chinese for 80 percent of the total foreign investment.27

Speaking to a conference of overseas Chinese businessmen in Hong Kong on November 22, Lee Kuan Yew, a former prime minister of Singapore, identified the turning point:

After Tiananmen on June 4th 1989, Japan and the West stopped their tourists and investors from going into China. During this critical period, ethnic Chinese from Hong Kong, Macao and Taiwan seized the opportunity and increased their trade and investments, profiting from China’s increasingly free-market economy. After they succeeded, ethnic Chinese from South-East Asia joined in. Three years later, in 1992, the results startled the world. China’s growth went up to 12 percent per annum. This has revived American, European and Japanese interest in China.28

The U.S. coddles butchers and Tyrants

Yew was right. A little repression never did stop a good investor. The "protest" by western powers was mild and short-lived. While on the campaign trail in 1992, Clinton promised that if elected his administration would "not coddle tyrants, from Baghdad to Beijing," in the way that George Bush had.

Predictably enough, he not only coddled but defended the tyrants in Beijing. On May 26, 1994, Clinton moved from a policy which linked trade preferences granted by the United States to China’s human rights to a policy which did not link them. Yet another disheartened Democratic staff member in the House of Representatives figured out what was obvious: "It turned out that MFN was useful as a tool only to bludgeon George Bush."

Clinton gave a lead to the other advanced capitalist countries. The World Bank, for example, resumed lending on new projects, largely because of the U.S. announcement in January 1990 that it would no longer oppose all lending to China. Aside from a brief hiatus after Tiananmen, the World Bank has rapidly expanded its lending activities to China, and the country is currently the bank’s largest single borrower ($13.5 billion as of May 1996).

Clinton soon dispatched Warren Christopher to China to patch things up with China’s butchers. On leaving Beijing, Christopher announced that his discussions with the Chinese leaders were "businesslike and productive."

"The differences between China and the U.S. were narrowing somewhat," Christopher informed the press, though he "was hard put to point to examples of specific progress on the vexed human rights issue beyond a memorandum of understanding on trade in prison labor products," the Financial Times commented.29

What has happened to the chinese economy?

The scale and scope of the transformation taking place in China is massive. China has recorded one of the world’s highest growth rates since reforms began in 1978. Real Gross National Product (GNP) grew by 9.3 percent per year in the period 1979-1993. In 1993 and 1994, its growth rates exceeded 13 percent–making it the fastest-growing economy in the world.30

At the outset of its economic reforms in the late 1970s, China was an insignificant participant in the international market for goods and capital. In 1977, the sum of its imports and exports, or its total trade turnover, was less than $15 billion, and it was only the thirtieth largest exporting country in the world. Its share of world trade in that year was only 0.6 percent, significantly less than in 1927-29, when China’s trade attained its peak pre-communist levels, accounting for little more than 2 percent of world trade.

By the early 1990s, China’s role in the international economy had been totally transformed. In 1992, China’s total trade exceeded $165 billion, accounting for 2.2 percent of world trade. In 1993, turnover was $196 billion, accounting for about 2.5 percent of world trade. By 1992, China was the world’s tenth largest exporter, lagging behind only the largest and most advanced industrial states. It was also a significant recipient of foreign aid and a major borrower on international capital markets. For example, in both 1992 and 1993, it was the single largest borrower from the World Bank and sold large quantities of bonds on the international bond market.31

China is particularly exciting for those who worship the market because it apparently proves their case. But China’s growth, though impressive, is hardly unprecedented. China’s growth is comparable to that of other economies at a similar stage of development, like Japan in the 1960s, for example.32

China has experienced such high growth rates because it began at such an economically low level. It seems impressive to say that China’s car production has almost doubled in the last five years. Yet that growth rate still puts China’s car production–and car market–far below that of the advanced industrial countries. If the U.S. increases its GNP by 1 percent, per capita income in the United States increases by $180. By contrast, if China’s GNP increases 10 percent, per capita income in China increases only $30.

Contradictions of the chinese boom

The Chinese "miracle" economy has several fault lines and, not unlike yesterday’s miracle economies–Mexico, Thailand, Japan, and South Korea, to name a few–China’s economy is not capitalism’s savior. The July 1997 Wall Street Journal put it this way:

China’s own economic picture isn’t rosy. Unemployment is rising. Many state-owned factories are idle. Domestic growth is relatively weak. High levels of foreign investment and an earlier era of cheap credit have left China with a painful hangover: excess capacity in autos, televisions, textiles, petrochemicals and a score of other major industries. Chen Zhao, editor of the economic monthly The China Analyst, says the average Chinese factory uses less than 60 percent of its capacity, a level that would be considered depressionary in other countries.33

Moreover, the growth process has been accompanied by a wildly fluctuating business cycle. Writes Cyril Lin of the Oxford Review of Economic Policy,

China’s high growth has been characterized by persistent macroeconomics instability and stop-go cycles. Each downturn brings into question the sustainability of its dynamism…[T]he emergence of socially divisive and politically explosive problems such as corruption, high-level unemployment, worsening urban-rural and coastal-inland income disparities, etc., give rise to concerns about the prospects for further reform, political stability and the integrity of the Chinese State.33

Let’s take each aspect of the crisis in turn:

Uneven development between regions

Probably the most striking feature of China’s growth is its extreme unevenness. The coastal cities account for most of the country’s growth rate, while other regions have experienced little or no growth at all–or have even declined. For the first part of the 1990s, economic growth in the delta has been a third higher than in China as a whole. Between 1990 and 1993, industrial output in the Delta grew, in real terms, by 67 percent according to official figures.

Significant regional disparities highlight differential growth between interior and coasts. Per capita income in the rural, coastal Zhejiang was 1,015 yuan in 1991, almost 50 percent again the national rural average of 701 yuan, and almost three times that of a poor hinterland province such as Yunnan (329 yuan). In 1990, 119 of China’s counties reported a per capita income of less than $43; one-fifth of China’s peasants are without electricity, and one-tenth are not served by public roads.

The province of Guangdong is more its own country. Guangdong covers an area of 180,000 kilometers and has a population of 63 million (only fourteen countries have larger populations). Although Guangdong is only one of China’s twenty-two provinces and autonomous regions, by 1991 it contributed 20 percent of China’s gross domestic product (GDP). In 1978, 90 percent of Guangdong’s income came from farming, today 90 percent comes from industry, and only 10 percent from farming. During the 1980s the province more than trebled its output from industry and agriculture, from U.S. $14 billion to $44 billion, an average growth of 12.5 percent.34 Fueled by foreign capital and trade, Guangdong enjoyed over 22 percent growth last year.

Shanghai alone accounts for 1 percent of China’s population, but 8 percent of its GDP and more than 20 percent of its foreign investment.35 The town of Shenzhen is perhaps the most spectacular example of growth. Orville Schell describes the growth of Shenzhen since 1978:

In 1978, Shenzhen was a small fishing village of 70,000 between Hong Kong and Canton. In 1980, it was designated as one of four Special Economic Zones (SEZs). By 1990, Shenzhen had been transformed into a city of more than 2 million. In 1991, Shenzhen’s GDP hit $3.16 billion, an average growth rate of 50 percent since 1980, and its exports reached $3.4 billion, having grown an average of 75 percent annually.36

The Chinese bureaucracy is grafting onto China the most modern development in industry, through foreign, state, and private investment, yet the effects are by no means uniform. William Greider captures the contradiction when he writes,

Stunning advancements were surrounded still by the primitive. Higher education was expanded dramatically in the 1980s, yet according to Canadian scientist Vaclav Smil, China would have to double or triple its pace to catch up with the university-educated citizens of India or even Indonesia. Most urban homes now had electricity, but three fifths of them lacked indoor toilets. China’s railroad system was approximately the size of America’s in 1863.37

Though Trotsky’s reference point was early Twentieth Century Russia, his insights apply equally well to China:

Although compelled to follow after the advanced countries a backward country does not take things in the same order.…Unevenness, the most general law of the historic process, reveals itself most sharply and complexly in the destiny of the backward countries. Under the whip of external necessity, their backward culture is compelled to make leaps. From the universal law of unevenness thus derives another law which, for the lack of a better name, we may call the law of combined development–by which we mean a drawing together of different stages of the journey, a combining of separate steps, an amalgam of archaic with more contemporary.38

Regionalism Gone Mad

The uneven development of the country is creating tensions, not only between different regions and the government, but sharp conflicts between the various provinces as they compete with one another for virtually any advantage. One commentator writes:

Regionalism poses major challenges for China, especially as interprovincial tensions and trade protectionism rise. World Bank research shows many provinces trading more with the outside world while trade with domestic counterparts falls, both in real terms and as a percentage of a province’s total trade. At the same time, higher wages in coastal regions allow provinces such as Guangdong to buy material and labor from the hinterland, increasingly without central control. There have been numerous clashes, such as the "rice war," when Guangdong used military units to ensure access to cheap rice in Hunan. A number of provinces have set up inspection stations along rail lines to restrict domestic imports. Others, such as Hubei, Hunan and Jiangxi, have used their own de facto currencies.39

As they have grown rich, the southern coastal provinces–and because of them, other provinces as well–have become increasingly independent of Beijing. The central government’s tax revenues as a percentage of the GDP have plummeted from 34 percent in 1978 to less than 15 percent over the last five years.

The coastal provinces have also begun to bypass Beijing when dealing with international economic matters. Guangdong, whose growth rate is twice the national average, has on occasion bought oil on the international spot market and hired its own tankers to deliver it. When Beijing determined that Shanghai would be the site of the communist mainland’s first stock exchange, Guangdong simply went ahead with its own plans and opened its exchange a day earlier.40

China’s rulers live in mortal fear that the centrifugal tendencies will lead to anarchy and breakdown–both politically and economically–within China. An eighty-six page report, written for the Chinese Academy of Sciences in 1993 held out the possibility of disintegration after Deng’s passing from the scene. The report claimed: "It is possible that a situation like post-Tito Yugoslavia will emerge. In ten years, at the soonest, and at the latest between ten and twenty years, the country will move from economic collapses to political breakup, ending with its disintegration."41


Although the Chinese economy is growing, productive capacity is growing even faster. The result is that many industries are using only a small proportion of the capacity they have built. As a result, price wars are common as firms try to dump excess stock. The price wars cut into profits, threatening some of those enterprises involved with collapse.

The amount of excess production over what Chinese consumers can buy is staggering:

The country manufactures one million men’s shirts a day, joining the glut of 1.5 billion already stashed in warehouses. There are also 10 milion unsold watches, 20 million extra bicycles, and 100,000 stockpiled autos and other vehicles.42

The auto industry is perhaps is a classic–although by no means exceptional–example of extreme overcapacity. China now boasts eight foreign companies which between them have fifteen ventures making vehicles in the country. But none of the companies are making any money, and the prospects of making any soon don’t look good. One of the first companies into China has decided to pull out of its South China venture in Guangzhou. Volkswagen has a successful joint-venture with Shanghai Automobile Industry Corp. (SAIC), but it is running up heavy losses in its partnership with First Auto Works in Changchun. Two years ago, Mercedez-Benz was ecstatic about snatching a contract from Ford and Chrysler. Now the $1 billion investment it made has stalled.

China’s auto market currently isn’t very big. As recently as 1993, 96 percent of all vehicle sales in China were to government departments or state enterprises. The trickle of private buyers since then has seen car sales growing at around 20 percent a year, compared with overall vehicle sales growth of only 8 percent. But this is from a tiny base. China has only two vehicles for every 1,000 households. The total market for cars is below 400,000 vehicles. The cost of a car prices the vast majority of Chinese workers and peasants out of the market.

This doesn’t even begin to take up the problem of where to drive cars in China. The country is desperately short of roads: for every 1 million Chinese, there are 900 km (560 miles) of roads, 11 percent of them paved. Compare this to the U.S., with 24,000 km (14,930 miles) of roads, 42 percent of them paved, for every 1 million Americans.43

The unrestrained growth of China’s consumer industries has contributed to an inventory glut which accounts for 8 percent of gross domestic product, according to Economic Daily, and has masked a slowdown in growth. Economists estimate that economic growth would have been 1-2 percentage points lower without the artificial build-up of inventories. China’s GDP grew in 1996 at 9.8 percent.

China’s economy over the past two years has undergone a sharp slowdown in demand which has been accompanied by massive inventory growth. Says one economist, "Many industrial commodities may never be sold because their quality does not meet market demand; grain stocks may perish."44

The State Sector

The state-owned enterprises (SOEs) are one of the regime’s biggest headaches. Up until now, the regime has avoided carrying out full-scale privatization and market reforms, to the disappointment and frustration of the likes of the World Bank.

An economist from the Organization of Economic Cooperation and Development (OECD) pulled no punches in reporting his views of China’s state sector in 1992. "[U]nambiguous evidence paints a picture," he wrote, "of widespread technological stagnation, high costs, low efficiency, poor management and low skills in most industrial sectors."45

In 1978, the state sector accounted for 78 percent of China’s industrial output. By 1992, the non-state sector accounted for 52 percent of gross industrial output and more than 57 percent of non-agricultural employment; government expenditure as a share of GNP has dropped from 41 percent in 1978 to 20 percent in 1992.

Despite the decline in output, however, state-owned industries still employ the bulk of China’s 170 million-strong urban workforce–despite the further drop of their share of industrial output to less than a third by 1995. Among some 103,000 larger state-owned enterprises, employment grew from 31 million in 1978, when reform began, to 45 million in 1992.

And certain aspects of the "marketization without privatization" policy of the central government has only made things more chaotic. The decentralization of control of certain aspects of production from central to local officials has produced a situation in which massive duplication of effort takes place. Thus, for example, China still has more than 120 television manufacturers, 700 beer companies, and 30,000 rubber-belt makers.

The state sector acts as a massive drain on the rest of the economy. According to official figures, the percentage of enterprises that lose money rose from 27 percent in 1990 to 43 percent in 1995. A World Bank report issued in June estimates that something like one-half of state enterprises lost money in 1996. Furthermore, 70 percent of new investment capital in China was going into state-owned factories, and their claim on the new capital rose sharply during the investment boom of the 1990s. State-owned enterprises absorb 60 percent of national investment and receive subsidies totaling one third of the budget.

Bad Debts

Perhaps 80-90 percent of all the loans by state banks are made to state-owned enterprises. The money lent by banks to the state sector has risen, from 500 billion yuan ($86 billion) at the end of 1993 to over 1 trillion yuan ($120 billion) today. Conservative estimates put the increase in bad debts each year at 50-60 billion yuan. Total bad debts may be more than the 25 percent of the banks’ assets. Last year banks increased their lending to state companies by 18 percent, after inflation. Much of the borrowing went just to pay wages.

So at present, one part of the state–the SOEs–-is massively bilking another part: the banks. Then there is the mutual bilking among SOEs known as "triangular" debts: debts that are owed to other SOEs but which go unpaid because of insufficient funds. These come to over 800 million yuan.

State industry owes the state banking system a great deal of money. For a start, the 5 trillion yuan ($600 billion) of bank loans outstanding in China, nine-tenths of it to state industry, account for an unusually high proportion of all financing, equivalent to about 70 percent of GDP.

Since China has only one private bank, investment is financed by state banks. Those banks also have an unusually high proportion of bad loans stuck on their books– equivalent to well over 30 percent of GDP. For comparison, the bad loans that arose from America’s savings and loan crisis were equivalent to 2 percent of GDP, and those of Japan’s banks are less than 10 percent of GDP.46

Crisis in Agriculture

China’s initial takeoff in growth was spurred by a transfer of wealth from the state to the peasants, producing, as we have seen, improvements in agricultural production up to 1985. But the shift in emphasis to agriculture in the late 1970s soon gave way to a return to industry. The grain harvest declined from 407 million metric tons in 1984 to 379 in 1985. By 1987, the country had reverted to being a net importer of grain, and in 1988 the grain harvest declined to 394 million tons. In 1989, per capita grain consumption was actually lower than it had been four years earlier.47

Since 1990, annual growth rates of industrial output, gross domestic product, and population have averaged 22.8 percent, 11.4 percent, and 1.16 percent respectively. Grain output on the other hand has edged up an average of only 0.1 percent. Government investment in agriculture, mainly in infrastructure, has fallen sharply, from 13 percent of total fixed investment in 1978 to 1.8 percent last year. And cultivated land has fallen by about 2.7 percent since 1985, in the wake of rapid urbanization and as peasants try to find jobs in the cities.

The Myth of a Mass Consumer Market

The idea being peddled by many corporations–the new market of 1.2 billion customers–is an illusion. As William Grieder explains:

The labor ministry reported in 1994 that notwithstanding the industrial boom, the nation would have 268 million unemployed by 2000, most of them in the underdeveloped countryside. Something like 100 million surplus workers were already adrift in rural areas, many trying to get to the cities in search of wage jobs.48

While China has 1.2 billion potential consumers, some studies estimate that 120 million or so urban Chinese have enough money (with an annual income of more than $1,000) to afford even such modest items as detergent or packaged food.49

The gap between potential and reality is becoming clearer to some of the companies that have invested in China on the basis of its potential and are facing losses in the present. A big investor in China, Yaohan, a Japanese retailer which planned to open more than 1,000 supermarkets and stores there by 2005, went so far as to move its group headquarters to Shanghai, where it now operates one of the world’s largest department stores. It is now faced with mounting debts and has put any further expansion on hold.

And it is not likely that consumer spending will be growing or spreading out to larger numbers. The Wall Street Journal reported June 18, 1997:

Officially, joblessness is just 3 percent, but it is many times higher if furloughed workers and idled farmers are included. The number of industrial jobs, at 147 million, has fallen steadily. But now private factories are laying off workers at a faster rate than state-owned companies, recent government statistics show. And we can expect the layoffs to go on in the state sector. In March the prime minister, Li Peng, said reforming the state-owned enterprises (SOE’s) was the country’s most pressing issue.

Reforming the state sector, though, will not be easy, because it promises to increase social unrest sharply. By 1997, the government had decided to try to put aside some money for those laid off, for fear that layoffs will produce an eruption of class struggle. Business Week commented in 1996:

Signs of restiveness are everywhere. Workers have been demonstrating over unpaid salaries, rising unemployment, and falling standards of living. In early December, 500 migrant workers from the interior clashed with police in a bloody riot in Guangdong. To minimize unrest, Beijing’s leaders want to decentralize power. The government, for example, is beefing up a new tax system to ensure that Beijing gets a bigger slice of the pie from the richer provinces, which would allow it to pour more funds into inland areas for infrastructure, agriculture, and education.50

But collecting taxes is proving to be not so easy, despite Beijing’s efforts to beef up its 600,000 tax collectors. The government’s revenue from taxes is still quite low. From 31 percent in 1979, the ratio of taxes collected to GDP fell to 10.7 percent, but last year it edged up to 10.9 percent and this year is expected to top 11 percent. (In the U.S., federal tax receipts as a percentage of GDP averaged about 19 percent in recent years.) And there is considerable resistance to paying. In the countryside as many as thirty tax collectors have been killed in the last decade, and hundreds are beaten up every year.

And even if successful, these "welfareist" policies are very unpopular with foreign investors. Again, the Wall Street Journal comments:

Last year, foreign investment totaled a massive $47 billion. But for the first time since the 1990s boom began, the government expects foreign investment to fall this year to $40 billion. Says a Japanese official involved in trade with China. "We need stable policies for three to five years, but every six months, they change their policies. This gives foreign companies a bad impression."

The rich get richer

Deng Xiaoping liked to talk about the virtues of wealth. "To get rich is glorious," he announced, leaving out a minor detail–that for a few to get rich, many must be further impoverished. And the few are getting rich in a massive way.

There are two Chinas in the 1990s. One is the China of the expanding cities, the coastal boom, and the entrepreneurial ethic promoted by Mao Zedong’s successor and veteran political survivor Deng Xiaoping in his final years.…The second China lies further inland, in the provinces away from the coast, and within each province in the more remote rural areas away from the towns. Here millions of Chinese peasants continue to live at the mercy of their traditional enemies: flood, drought, and official corruption which has returned to plague them. The effects of modernization and change are patchy and uneven, widening the gaps between urban and rural China, between rich and poor.51

Wealth is flaunted in China today as it is in Los Angeles or Monte Carlo. One writer comments:

The "new wealth" enjoyed by many leading party and state functionaries, military officers, public enterprise managers, and especially business people, is increasingly apparent. Many of these people can be found in the top hotels and the Pierre Cardin stores, flaunting their cellular phones and beepers, fancy western-style clothes, and air of self-importance and indulgence…

It is they who can afford to join the new Jingnan Yongle golf facility in Beijing with dues of $12,000, and the Country Horse Racing Club, where membership in 1993 cost 80,000 yuan, or almost $14,000.52

The regime and the press acknowledge the massive inequality that uneven economic development produces. Writing in the Beijing Review, Lui Guoguang explained that socialism and egalitarianism are incompatible:

Socialism promotes the development of the productive forces, whereas egalitarianism hinders them. Therefore socialism and egalitarianism are not compatible. This is not a new form in theory, but merely a reversal of the reversed Marxist truth.53

The Workers’ Daily editorialized in 1983:

The discrepancy in prosperity in the present-day countryside is only a matter of "some get rich first and others get rich later." In no way can this be considered polarization. We adhere to the road to general prosperity. But it is illusory to think that early one morning over 800 million peasants could find themselves in affluence.54

But some obviously get rich first and others don’t get rich at all. This is perhaps made most obvious by looking at China’s mostly rich coastal provinces and mainly poor inland ones. Shanghai is eighty times wealthier than Guizhou, and Guangzhou is three times wealthier than Guizhou. The differences even within the provinces are massive. Within the single province of Guangdong Zuhai city, a favorite with foreign investors, is thirty times richer than the province’s poorest county.55

It is not known how many millionaires China has at present, although some scholars place the figure at 1 million. Altogether, 340,000 luxury apartments or houses (each unit costs over 1 million yuan) were sold in the country by 1993; approximately half of the purchasers were Chinese citizens. Shenzhen City alone has 1,000 millionaires; one in ten of them has more than 10 million yuan ($1,724,000).

In industry, the gap between workers and managers would make even U.S. bosses pause. In pre-reform days, enterprise managers received salaries only three or four times higher than the pay of the average worker. Now they can earn up to 300 times more, not counting wealth gained through corruption, connections, and outright theft.


Western commentators who praise China’s economic changes write as though the introduction of the market will automatically produce democratic reforms, making China less repressive. They have to gloss over what really takes place. The Economist reported on April 5, 1997:

Every year about now China’s official press trumpets the country’s progress on human rights…The trumpeting is timed to coincide with the annual six-week sitting of the United Nations Human Rights Commission in Geneva. Every year since the Tiananmen massacre of 1989, resolutions have been put forward condemning China’s human rights record. Each time, China calls in favors from those many little countries it has assiduously courted over the years and the motion fails.

This year it looks as if China may not even have to bother. France, a relatively big country, has announced that it will no longer co-sponsor resolutions censuring China for its human rights abuses. The West’s change of tack can hardly be attributed to improvements in the situation in China... The government’s "Strike Hard" anti-crime campaign, now over a year old, has led to mass arrests and executions, with scant regard for due process.

All trials concerned with "counterrevolutionary activities" may be held in secret. The judicial system permits sentencing before the actual trial. The concept of innocent until proved guilty is considered a "bourgeois western aberration."

Today, China has some 2,000 labor camps with a total population of 10 million. Number Thirteen Labor Reform Detachment, has some 20,000 inmates and is seventy kilometers wide, sited in Qunghai province on the edge of the Gobi desert. The government’s figures show that there are an average of 200,000 new admissions to labor camps every year.

Far from economic growth bringing with it more democracy, the opposite has taken place. As The Economist put it:

On the contrary the forces of incipient capitalism appear to have bred a whole new list of crimes with severe punishments. In 1980 some 21 crimes were punishable by death. Today 68 are. People have recently been executed for, among other things, hooliganism and reselling VAT receipts. Two peasants in Henan province were shot for stealing 36 cows…

The number of imprisoned dissidents, labor activists and human-rights promoters is hard to pin down. The justice ministry admits to holding 2,700 in jail for "counter-revolutionary offenses."56

According to Amnesty International, China executed at least 4,367 people in 1996–more than all other countries combined. The judicial process is fast and brutal. In one case, a man was arrested, tried, sentenced and executed in the space of six days.57

Deng Xiaoping made his views on the government’s "Strike Hard" policy clear: "Generally speaking, the problem now is that we are too soft on criminals. As a matter of fact, execution is one of the indispensable means of education."58

The Working Class

China’s economic miracle is not the result of some newfound vigor or promise to the world capitalist system, but rather is a sign of how economically underdeveloped China was as of 1978. It is also testimony to the level of exploitation that China’s workers and peasants are subjected to. It is of course the case that the standard of living has gone up. From 1978 to 1994 the annual net per capital income of peasant farmers more than tripled, to $146. Urban net incomes in the state sectors more than doubled to $380. But as the latest World Bank report showed this year, more than 300 million Chinese still earn less than $1 a day. Other studies estimate that only about 10 percent of the population have incomes greater than $1,000 a year.59

Some 17 million Chinese are employed in coastal factories funded by foreign investors, largely from Taiwan, Hong Kong, and South Korea. The workers, the great majority of them women from rural areas, make shoes, toys, garments, and other products for export, often under sweatshop conditions. Low wages are not the worst of the workers’ problems. The most repugnant abuse is physical punishment, including beatings inflicted by supervisors or private guards, some carrying electric batons. As a result, even verbal threats are intimidating.

In some cases, the coercive regulations that management imposes on workers during and after working hours are unbelievably detailed: prohibitions on talking, even while eating; marked routes for walking within the factory-dormitory compound; bans on leaving the compound at any time without special permission; prohibitions against getting pregnant, married, or even engaged. In one factory, anyone using the toilet more than twice in a work day forfeits nearly a fifth of her monthly wage. Violating such rules can bring not just fines but also physical punishment, psychological harassment, the deduction of at least two weeks’ pay or even dismissal.

Workplace health and safety in such enterprises is often scandalous. In the Xiamen Jiamei Cutlery Company, a Taiwanese-owned factory in Fujian province, nearly a quarter of the 400 workers have been maimed or injured. Unable to get jobs elsewhere because of missing fingers or arms, some continue working under the same hazardous conditions and sustain additional injuries. In November 1993, a fire at the Zhili Toy Factory in Guangdong killed 87 workers and injured more than 60, their escape blocked by barred windows and locked doors.

In foreign-funded factories, which employ about 6 million Chinese in the coastal provinces, accidents abound. In some factories, workers are chastised, beaten, strip-searched, and even forbidden to use the bathroom during work hours. At a foreign-owned company in the Fujian province city of Ziamen, 40 workers–or one-tenth of the work force–have had their fingers crushed by obsolete machines. According to official reports, there were 45,000 industrial accidents in Guangdong last year, claiming more than 8,700 lives.60

In Guangdong alone, the number of fatalities in industrial accidents climbed to 836 in 1992, jumping 63 percent in just one year, while throughout China 15,000 workers died, up 3.3 percent from 1991.

Though less publicized, sweatshop conditions have also permeated China’s state-owned enterprises. Sociologists Zhao Minghua and Theo Nichols, writing in the July 1996 China Journal, detail three state textile mills in Henan province, describing the crushing daily routine of 200,000 workers, most of them women. Their situation resembles the plight of most workers in the foreign-funded sector: exhausting hours, no overtime pay, complex work rules, fines for breaking them, ever increasing quotas, draconian sick leave policies and so on, all under the guise of "scientific management."

A practice common in Asian foreign-invested enterprises in southern China, a "secretive wage system" has spread to town and village enterprises as well as the state sector. Now pay day is often a day of mystery. A worker in Henan explained, " You never know how much money you will be given for the month."61

Inflation has drastically cut living standards for workers. In 1993, inflation averaged 13 percent nationwide and 23 percent in the largest thirty cities. Prices for meat went up 33 percent, for grain staples 40 percent, and for vegetables 54 percent. To compensate, the government has raised officials’ salaries 36 percent and military salaries somewhat more than that. At the beginning of 1994, the leadership vowed that it would keep nationwide inflation to under 10 percent; in April the goal was revised upward to 15 percent.

Growing unrest

The predictable result has been, and will continue to be, social unrest–with class conflict increasingly at center-stage. Readers may be surprised to learn (although it was reported in the Chinese-language press around the world) that one year ago 100,000 peasants in Renshou County, Sichuan, protested new taxes and delayed grain payments by confronting officials with scythes. The protesters took hostages and set fire to the house of deputy Party secretary. During 1993, peasant protests occurred in twenty of China’s twenty-nine provinces; in the same year industrial workers, according to a classified government report, staged more than 6,000 illegal strikes and joined more than 200 "riots."

Layoffs are fueling workers’ anger. The government got a taste of worker anger recently in the northeastern province of Heilongjiang, where some 2 million workers lost their jobs in 1993. According to Hong Kong and diplomatic sources, in March some 100,000 workers took to the streets in the province’s two major cities, Harbin and Quqhaer, to protest pay cuts. In mid-April, China’s economic czar, Vice-Premier Zhu Rongji, visited the province and sacked its governor, these sources say. That won’t deter workers, who have engaged in unpublicized strikes or slowdowns across China to demand such things as decent wages and better working conditions.62

John Gittings cites a volume of Chinese government documents on party-peasant relations that the previous occupant of a hotel room left behind. The book was classified as confidential, and in earlier years its loss could not have gone unnoticed.

The book contained all the confidential material prepared for a conference called to investigate the breakdown of Party authority in Lingxian County to the south of Anyang. Its conclusions were startling: the Party had not only lost control of the peasants but of many of its own members, and the "new contradictions between the masses and the cadres [were] emerging all the time."

"The Party has become ineffective," the handbook admits, " and some Party branches play no role at all…Problems are especially serious with family planning, state purchases of grain, taxation, house building, and planned crop production…The masses have no respect for the cadres and retaliate against them. They even abuse the cadres’ families, beat them, steal their crops, cut down their trees, and threaten their property…"

The Party’s aim is to reimpose its authority where it has lost control. "We must arouse initiative with one hand," says one document, and "confine excess with the other."63

After Deng

China is today’s miracle. But judging from past successes, it will become one of the world system’s biggest nightmares. This is just beginning to become clearer to some commentators. In August, a study by DRI/McGraw Hill argued that China was one of the world’s most dangerous emerging stock markets because of the danger of a banking crisis. The recent plummeting of other formerly bouyant stockmarkets in Thailand, Malasia and elsewhere may be a foretaste.

It will be extremely difficult for the regime to continue reforms in the state sector. The Wall Street Journal reported August 6, 1997:

According to state statistics, 10 million workers lost their jobs in the first half of the year, but only half of them have found new jobs. In the same period, labor disputes have jumped 59 percent, and demonstrations by unpaid state workers like those in Sichuan last month provide a foretaste of the trouble to come if these masses don’t find new jobs in the private sector."64

Maurice Meisner describes it this way:

The reformist zeal that was so evident in the autumn of 1993 dissipated over 1994 as workers’ protests, especially in the interior cities, made Party leaders fearful of the consequences of massive unemployment that would surely follow from the wholesale capitalist restructuring of state enterprises, especially in a land lacking an adequate social welfare system. Thus little was done to reform the urban state sector in 1994, and by the early months of 1995 Party leaders had grown silent on the matter of economic reform, instead stressing the need for social and political stability.65

In spite of these worries, the regime is pushing ahead with further reforms. Deng Xiaoping’s successor, Jiang Zemin, is making sure that he is true to "Deng Xiaoping Thought." The British Financial Times reported in August, 1997:

China’s offficial press has beaten the economic reform drum so insistently recently the reformist mainstream could be accused of overkill. Scarcely a day passes without press commentary about the desirability of market reform with Chinese characterisitics... President Jiang Zemin, at best a lukewarm reformer, seems intent on burnishing his reformist credentials before a National Party Congress due in September, and in the process outflanking opponents on both left and right.66

This overkill has produced innovations in what the ruling gang in China call "Socialism" that match some of Deng’s memorable pronouncements such as "To get rich is glorious." In August, the government paper, the People’s Daily announced on its front page editorial that "the words ‘market ecconomy’ have been writ large on the flag of socialism for the first time." At their annual retreat at the seaside resort of Beidaihe, the leadership of the Chinese Communist Party was preparing itself for the Fifteenth Party Congress, the first national party gathering to take place since the death of "the paramount leader" Deng Xiaoping last February. The central concern of the party chiefs is how to achieve a "restructuring" and "downsizing" of the state-owned industries–without provoking a massive rebellion from below.

The propaganda campaign began with a speech by Jiang Zemin to the elite Central Party School on May 29. Jiang openly attacked notions that until recently were still repeated by leaders of the CCP including himself. It was a masterful piece of double-speak. Jiang argued that "non-public ownership… including private individual and foreign investment," is not the same as "privatization." "Some people," he continued, "are concerned that the rapid development of non-public ownership may shake the leading position of public ownership." Zemin rushed to reassure anyone who might be under such an impression, adding,

This concern is unnecessary. China is a socialist country, therefore public ownership should be preserved. We cannot go down the path of privatization. This is firm and unshakable.

Zemin then proceeded to outline how private insurance funds were really a form of public ownership, and their establishment would actually "uphold public ownership" as the leading component of "the socialist market economy." "The State should withdraw step by step from fast-growing competitive industries and concentrate on the key fields of the national economy."68 In short, Zemin’s speech was a declaration of the government’s intent to privatize large chunks of the economy.67


The changes in China do not at all mark a change from a socialist to a capitalist society. China was not socialist under Mao–and it clearly isn’t now. China is a capitalist society–run by a bureaucratic capitalist class that embraces both state and private enterprises; a class that seeks to squeeze Chinese workers and peasants in order to rapidly expand China’s industrial and military capacity vis-a-vis its world rivals.

Massive rebellion in China is not some distant possibility. In order to sustain high growth rates, the Chinese ruling class will be forced to reform the state sector–which now acts as an enormous drain on China’s capital expenditures. Meanwhile, China’s massively overinflated production rates are bound to produce periods of slowdown.

As growth slows, China’s economic contradictions will come to the fore even more glaringly–overcapacity, unemployment, disparities of wealth between provinces and within them. Rather than privatization bringing greater democracy, further reforms will require an even harsher response to growing anger and resentment from below. The regime is continually forced to zig-zag between "opening up" society in order to continue pushing the reforms, and violent repression in order to prevent an explosion of discontent created by those reforms. This process– combined with a sense of rising expectations among workers and peasants–cannot but create an atmosphere of chronic instability and rising discontent.

This explosive combination may provoke what Chinese leaders fear most, a mass revolt of workers. Tiananmen gave them a taste of what is to come, before Deng snuffed it out. The future of socialism in China lies in the hands of these workers–and over the ruins of China’s "socialism with Chinese characteristics."

It is worth remembering that all the talk of free markets is not new to China. In the 1840s, it was called the open door policy. Britain imported opium into China in order to gain access to markets. But the economic boom of the coastal cities did not produce stability. Quite the opposite. It led to the emergence of one of the biggest rebellions and civil wars yet seen–the Tiaping rebellion.

1. Cited in David Korten, When Corporations Rule the World (London: Earthscan Publications, Ltd., 1995), p. 85.

2. New York Times, January 2, 1994. Cited in Richard Smith, "Creative Destruction: Capitalist Development and China’s Environment," New Left Review, No. 222 (March-April, 1997), p. 5.

3. "The great tax cut of China," by Alvin Rabushka, Wall Street Journal, August 7, 1997.

4 Smith, op. cit., pp.5-6

5. See Ahmed Shawki, "China from Mao to Deng," International Socialist Review No. 1 (Summer, 1997), for background.

6. Jasper Becker, Hungry Ghosts: China’s Secret Famine (London: John Murray, 1996), p. 239.

7. Ibid., pp. 257-258.

8. Ibid., p. 274. Becker quotes a number of apologists. C.K. MacDonald’s textbook, Modern China, states boldly: "Between 1960-62 famine hit China. This was due mainly to the bad weather. In some parts of China there were floods, in other parts drought.…It is difficult to judge how many people died in the famine. But one thing is certain; the big improvements made in farming in the 1950s saved millions more Chinese people [from] starving to death." Cited in Becker, ibid., p. 301.

9 Ibid., p. 89.

10 Ibid., p. 255.

11 Simon Leys, The Burning Forest (New York: Henry Holt and Company, 1986), p. 145.

12 Orville Schell, Mandate of Heaven: The Legacy of Tiananmen Square and the Next Generation of China’s Leaders (New York: Simon and Schuster, 1995), p. 351.

13 Maurice Meisner, The Deng Ziao Ping Era: An Inquiry into the Fate of Chinese Socialism 1928-1994 (New York: Hill & Wang, 1996), p. 99.

14 Becker, op. cit., pp. 260-261.

15 Meisner, op. cit., p. 304.

16 Ibid., p. 338.

17 Ibid., pp. 305-306.

18 Elsbeth Thomson, "Reforming China’s Coal Industry," China Quarterly, No. 147 (September, 1996), p.726. When China launched its economic reforms in 1979, coal shortages were crippling almost every sector of the economy. Some 30 percent of China’s industrial capacity was idle because of the lack of energy.

19 Meisner, op. cit., p. 304.

20 Ibid., p. 385.

21 Cheng Li, Rediscovering China (Lanham, Md.: Rowman & Littlefield, 1997), p. 308.

22 Richard Baum, Burying Mao: Chinese Politics in the Age of Deng Xiaoping (Princeton, NJ: Princeton University Press, 1994), p. 228.

23 Meisner, op. cit., p. 450.

24 Adam Michnik, Letters from Prison (Berkeley, Calif: University of California Press, 1985), p. 31.

25 Baum, op. cit., p. 272.

26 John Gittings, Real China: From Cannibablism to Karaoke (London: Simon and Schuster, 1997), p. 271.

27 The Economist, November 27, 1993, p. 33.

28 Ibid.

29 Cited in Noam Chomsky, World Orders, Old and New (London: Pluto Press, 1994), p. 177.

30 Cyril Z. Lin, "The Assessment: Chinese Economic Reform in Retrospect and Prospect," in Oxford Review of Economic Policy, Vol. 11, No. 4 (Winter, 1995), p. 1.

31 Nicholas Lardy, China in the World Economy (Washington, D.C.: Institute for International Economics, 1994), pp. 1-2.

32 Paul Hirst and Grahame Thompson, Globalization in Question (Cambridge, U.K.: Polity Press, 1996), pp. 107-108.

33 Wall Street Journal, July 14, 1997, p. A10

34 Lin, op. cit., p. 2.

35 Dick Wilson, China: The Big Tiger: A Nation Awakes (London: Abacus, 1997), p. 273.

36 Financial Times, June 16, 1997, Hong Kong Survey, p.xiv.

37 Schell, op. cit., p. 332.

38 William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon and Schuster, 1996), p. 162.

39 Leon Trotsky, The History of the Russian Revolution (London: Pluto Press, 1977). pp. 26-27.

40 Richard Hornik, "Bursting China’s Bubble," in Foreign Affairs, Vol. 73, Number 3, May/June 1994, p. 37.

41 Newsweek, July 17, 1997.

42 The Economist, September 25, 1993, p. 44.

43 Washington Post National Weekly Edition, August 11, 1997, p. 23.

44 The Economist, June 8, 1996, p. 63.

45 Financial Times, March 21, 1997.

46 Quoted in Wilson, op. cit., p. 273.

47 The Economist, March 8, 1997.

48 Meisner, op. cit., p. 238-240.

49 Greider, op. cit., p. 162.

50 The Economist, January 25, 1997, p.62.

51 Business Week, January 15, 1996, p. 45.

52 Gittings, op. cit., p. 1.

53 Robert Weil, "China at the Brink, Part II," Monthly Review, Volume 46, Number 8, (January 1995), p. 11.

54 Gerald Greenfield and Apo Leong, "China’s Communist Capitalism: The Real World of Market Socialism," The Socialist Register, 1997 (London: Merlin Press, 1997), p. 104..

55 Wilson, op. cit., p. 277.

56 Ibid., p. 288.

57 The Economist, April 5, 1997, p. 36.

58 The New York Times, August 26, 1997.

59 Richard Evans, Deng Xiaoping and the Making of Modern China (London: Penguin Books, 1995), p. 260.

60 Washington Post Weekly National Weekly Edition, August 11, 1997, p. 23.

61 Business Week, August 1, 1994, p. 40.

62 Anita Chan and Robert Sanser, "China’s Troubled Workers," in Foreign Affairs, March/ April, 1997, p. 109.

63 Business Week, Agusut 1, 1994, page 40.

64 Gittings, op. cit., p. 44.

65 "Swimming in China," Wall Street Journal, August 6, 1997, p. 14.

66 Meisner, op. cit., p. 490.

67 Financial Times, August 14, 1997, p. 56.

68 Ian Johnson, "China’s Jiang Outlines Privatization Steps," Wall Street Journal, July 31, 1997.


"We should not be the slaves of democracy"

In an article published in 1993 called "A Millionaire a Minute," Business Week celebrated the pursuit of profits in Asia.

Wealth. To most Asians just a generation ago, it meant moving to the U.S.–or selling natural resources to Japan. But now, East Asia is generating its own wealth on a speed and scale that is probably without historical precedent. The number of non-Japanese Asian multimillionaires is expected to double to 800,000 by 1996.…to find the nearest precedent you need to rewind U.S. history 100 years to the days before strong unions, securities watchdogs and antitrust laws.

This apparently is the best capitalism can offer: a return to 19th century sweatshop conditions under the protection of an authoritarian state.

Western politicians and capitalists don’t seem in the least bit bothered that the "Asian Tiger" economies can hardly be described as "free market" economies and are wholly lacking in democracy. After all, there’s money to be made.

Indeed, the gangsters who run these countries are explicit in their rejection of such "liberal" notions.

Here are some of the thoughts of some of the key players.


Lee Kuan Yew, Singapore’s former prime minister, visited the Philippines in November 1993 and told his hosts (who included President Fidel Ramos) that they had made a mistake in embracing American style democracy:

What a country needs to develop is discipline rather than democracy. The exuberance of democracy leads to undisciplined and disorderly conditions which are inimical to development.


Mohammed Mahathir, Malaysia’s intolerant and authoritarian Islamic prime minister says: "We should not be the slave of democracy; in Malaysia we accept democracy, but we must not be too extreme. Unlimited freedom is dangerous."

Mahathir goes on to argue that the "West would do well to learn from the success of East Asia and to some extent Easternize. It should accept our values, not the other way around."

Mahathir is not keen on free markets. "We are told we must open up, that trade and commerce must be totally free. Free for whom? For rogue speculators?" Mahathir told the July, 1997 meeting of the Association of South-East Nations (ASEAN). "Or for anarchists wanting to destroy weak countries in their crusade for open societies, to force us to submit to the dictatorship of international manipulators."


In a speech shortly after the crackdown in Tiananmen Square, Deng Xiaoping declared:

[B]ourgeois liberalization…exponents worship the ‘democracy’ and ‘freedom’ of western capitalist countries…This cannot be allowed. China…must absolutely not…liberalize…Firm measures must be taken against any student who creates trouble at Tiananmen Square…No concessions should be made…if any of them disturb public order or violate the law, they must be dealt with unhesitatingly. We cannot do without this dictatorship.…If we… back down, we shall only have more trouble down the road. We should not be afraid that it will damage our reputation abroad… the trouble-makers amount to just 1 or 2 percent of all college and university students. The democracy in capitalist societies is bourgeois democracy–in fact, it is the democracy of monopoly capitalists.

From China’s Peoples Daily:

It is imperative to persist in the four cardinal principles [adherence to socialism, the dictatorship of the proletariat, the leadership of the Communist Party, and Marxism-Leninism and Mao Zedong thought], oppose bourgeois liberalism, smash the ‘peaceful evolution’ schemes of antagonistic international forces and inspire patriotism and socialist consciousness.

Industrial Capacity Utilization rate 1996; Percent of Total

Below 25% Electrical power equipment; personal

computers, microwave ovens

25-37.5% Air conditioners, photo copiers, cars color televisions

37.5-50% Tape recorders, washing machines, bicycles, sugar, cameras

50-60% Refrigerators, cooking oil products

The Specter of Class Struggle

There are a growing body of reports from China that indicate that clashes with the regime are on the rise in the wake of factory closings and non-payment of wages to state workers.

According to the Chinese goverment’s Labor Ministry, the number of labor disputes has risen this year 59 percent over the previous year. The ministry has heard 26,600 cases and resolved 24,873.

In July, according to New York based Human Rights in China, 100,000 workers clashed with police in the Sichuan town of Mianyang after being laid off from their state jobs. Police arrested 80 workers and injured 100. At a state-run silk factory in the Sichaun town of Nanchong, thousands of workers took their manager hostage. They hadn’t seen a paycheck in six months. A state-owned bank was ordered by the government to lend the factory money to pay the workers’ wages.

In Guandong province in late August, farmers who complained of being underpaid for grain rioted. Earlier this year there were reports that the army had to be called in to crush a Guandong village protesting against the interference of Party officials in a local election.

Dozens of similiar protests have been reported by journalists, diplomats, human rights groups and ordinary Chinese.

It isn’t clear yet to what degree these struggles have produced new workers’ organizations. Human rights groups report that Shen Liangqing, a know dissident and labor activist, was arrested at the end of August for issuing a statement in support of abused workers.

President Jiang Zemin is expected to reaffirm at the Fifteenth Congress the CCP’s comitment to privatize the vast majority of state enterprises.

The September 6 issue of the Chicago Tribune reported,

Local media reports indicate the leadership wants to privatize the vast majority of state enterprises, whose number could reach up to 400,000, while devoting state funds to ensuring the survival of 2,000 to 3,000 core enterprises. The exposure of so many enterprises to market forces could push even more people out of work, but economists say the government has no choice because it cannot afford to prop up these businesses any longer

The Chinese government recently revised its estimate of urban unemployment from 3 percent to 7.5 percent–a massive increase.

The latest phase of "reform" are creating pressure-cooker conditions in China; and in the inevitable explosions ahead, workers are replacing students as the focal point of struggle.

Hong Kong

Britain’s handover of Hong Kong back to China took place at the end of June 1997. The flurry in the press over the event might give the uninitiated the impression that Hong Kong is giving up a great democratic tradition. That is a lie. Britain ruled over Hong Kong as a colony for 156 years, never showing any inclination to let the Hong Kong Chinese take part in the politics of the island. The colony’s governor appointed the members of Hong Kong’s Legislative Council, insisted on his right to approve public gatherings, scrutinized the local press, and sometimes threw editors in jail for objecting to British rule.

In the negotiations between Britain and China on the terms of the handover, British negotiators convinced Beijing that, although Britain had not done so, Beijing should institute a significant degree of democracy in Hong Kong. In 1989, Beijing and London solemnly agreed that, within a year of the July 1 transfer, Hong Kong’s people would for the first time elect their Legislative Council. But Chris Patten, the last British Governor jumped the gun by staging elections in Hong Kong in 1995, two years before the handover. These were the first elections to ever be held in British-controlled Hong Kong.

Though millions of ordinary Hong Kong resident’s have an interest in fighting for democratic rights regardless of who runs it, the Hong Kong bourgeoisie is not worried about their new rulers in Beijing. On the contrary, they are looking forward to the stable business climate that they expect integration with China to produce. Speaking of China’s hand-picked new millionaire governor of Hong Kong, Tung Chee-hwa, Henry Tang, Chairman of the Federation of Hong Kong Industries said, "We have full confidence in him. There are many people in the business community who want more emphasis on strong government and economic issues and not on politics. They feel political struggles have done a lot of damage."

Tung Chee-hwa is clearly impressed by the example of Singapore–a dictatorial society with a market economy. He says: "In the past five years we have become too politicized as a community. Politics should be a means to an end, not an end in itself."

Hong Kong had already become a vital economic component of China’s phenomenal growth over the last several years. Hong Kong’s investments in China now total more than $100 billion, making it by far the largest source of outside capital.

The new legislature that took office on June 31 is solidly pro-business. More than two-thirds of its members are company directors or major shareholders–the most impressive is "Trouser King" Yeung Chun-kamm, a textile magnate who holds 211 directorships and has shares in 258 companies.

Hong Kong workers and political activists will be the ones to suffer under the new arrangement. Under the new laws, demonstrators require a notice of no objection for planned rallies and police are empowered to ban protests on grounds of national security.

Hundreds of demonstrators marched in Hong Kong in mid-July in a growing dispute over plans by the post-colonial government to suspend laws strengthening labor rights. The laws, passed in the final days of British sovereignty, give workers the right to collective bargaining in pay negotiations. The new government argues that they were passed hastily and threaten to blunt Hong Kong’s competitiveness. In the face of criticism, the government agreed finally to allow several days to debate the laws, rather than impose an immediate suspension.

Business leaders have urged the government to suspend the laws, arguing that they threaten to disrupt peaceful industrial relations between management and employees. Sir Donald Tsang, financial secretary, has also criticized the laws, arguing that they could damage the investment climate in Hong Kong.

Bottom line, the "investment climate" is what concerns capitalists worldwide–not least those in the U.S. The U.S. stake in Hong Kong is large: U.S. investments there total $14 billion, more than 40,000 Americans live in the city, and bilateral trade tops $24 billion, much of it flowing originally from China. The rumblings in the U.S. about "freedom" in Hong Kong are no less hypocritical than those about human rights in Beijing. Profits come first, and in the last analysis, democracy should not be allowed to get in the way of profits.

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