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Issue 41, September 1999

What is happening in China?

    'Stabilisation' after Tiananmen
    China and the Asian crisis
    Revival of Chinese nationalism

According to the Chinese calendar, 1999 is the Year of the Rabbit, a year of calm and social progress. This is unlikely, however, as China faces many crises, not the least of which is rising mass unemployment. Hundreds of millions of workers and rural poor are struggling to keep their heads above water whilst the Communist Party regime is unable to deliver on promises of improvements in the living standards of the people. JOHN McNEILL writes.

This article first appeared in the Japanese Marxist newspaper, Kohusai Rentai, available from the CWI Japan, Urban Higashi Mikuni 9-406, Higashi-Mikuni 2-10, Yadokawa-ku, Osaka-shi. E-mail:

THE CHINESE Year of the Rabbit is also a year of Chinese anniversaries. It is eighty years since the May Fourth movement of 1919, when youth rebelled against domestic reaction and foreign imperialism. It will be fifty years, on October 1, since Mao Zedong inaugurated 'the People's Republic'. The hopes of that time for peace and prosperity were dashed by thirty years of Maoist misrule and chaos. Thirty million starved to death in the failure of the Great Leap Forward of 1958-1960, followed by virtual civil war during the misnamed Great Proletarian Cultural Revolution (1966-1976). This was the period when Mao, to advance his own power struggle against the bureaucracy, unleashed the revolutionary fervour of the youth, who were then put down by the army once they had served his purposes.

  It is also the fortieth anniversary of the Tibetan uprising against Chinese occupation and attacks against their language and culture. The Communist Party (CP) has implemented a policy of great-Han chauvinism throughout areas populated by minority nationalities. As China suffers the affects of economic slowdown, non-Han peoples question Beijing's rule when the benefits are few. The number of demonstrations and acts of individual terror in largely muslim Xinjiang as well as Tibet point to the failure of Chinese rule and once more puts the question of the right to self-determination on the agenda.

And, of course, this year also saw the tenth anniversary of the popular demonstrations against corruption, nepotism and the abuse of power of the CP, by the workers and students of China in 1989. This movement, drowned in the blood of thousands, remains a warning to the bureaucracy and the developing capitalist class in China that the workers and youth will not tolerate bureaucratic or capitalist dictatorship for ever. The movement was put down so savagely because it saw the development of independent trade unions and a new consciousness amongst workers that posed a threat to CP rule. On the tenth anniversary of Tiananmen we must also remember its lessons, that strong independent workers organisations must develop national and international links and have a clear class analysis and strategy to be able to challenge the ruling elite, whether they be Maoist bureaucrats or capitalists.

  top     'Stabilisation' after Tiananmen

THE REGIME MANAGED to stabilise itself in the period following Tiananmen because it was able to offer the urban population and sections of the rural population economic advances. The very rule of the CP depends on its ability to improve the living standards of the people, and through the 1990s China registered high growth rates, though unevenly balanced, with the coastal provinces seeing fast development whilst the hinterland saw stagnation. Today over 100 million rural workers are wandering around China in search of work, which when they find it is low paid, with long hours and poor health and safety conditions. Already many areas have reported riots and demonstrations and in some places there have been bombing incidents. Guangdong and Hunan provinces have been particularly hit, which no doubt sends dread down the spines of the leadership, as both provinces have a long history of revolt.

Official unemployment figures (at 3% of the workforce) mean little as many workers at state owned enterprises (SOEs) are still counted as employed but receive little, if any, pay and benefits. The real level of unemployment has been estimated at as much as 20%. In the countryside there has been some increase in rural incomes, but this is mainly due to increased mechanisation as richer farmers take over poorer farmers' land. The number of rural jobs has not increased in numerical terms, and as the population grows so does the number of landless and jobless.

At the 15th congress of the Communist Party in September 1997 'reforms' were announced for the state sector, as the president and CP general secretary Jiang Zemin proclaimed that reducing state ownership was compatible with socialism. These 'reforms' were to see the government bureaucracy halved from eight million to four million, for state owned enterprises to be sold off, and for state housing to be privatised. However workers' opposition and fear of social unrest have forced the CP to slow down the reforms. Their am is to prevent an East European-style collapse brought about by the restoration of capitalism. Instead they look to the South Korean model, a political dictatorship working hand in glove with capitalist corporations and multi-nationals.

  Government figures report that 14.7 million workers were laid off from state-owned enterprises in 1997, but Hu Angang, an economist with the Academy of Social Sciences, claims it is nearer to 20 million. Other statistics show the weaknesses in the economy, which means that the burden of crisis will fall mainly on workers' and farmers' shoulders. The government says growth in GDP of 8% a year is the minimum needed to provide new entrants to the job market as well as newly laid-off workers with jobs. Its reported figures were 8.8% for 1997 and 7.8% for 1998. Yet the state statistics bureau reported that the majority of China's provinces exaggerated 1998's growth figures (although its own were correct!).

In March this year, the national people's congress (NPC) lowered the 1999 growth target to 7%, which can only mean the economy is in worse shape than publicly admitted. The 1999 budget deficit was set at Y150.3bn (11.34bn), up 56% over 1998, as the government attempts to stimulate the economy through public works projects. In one of the biggest ever public works projects anywhere, this state-capitalist approach, 'Keynesianism with Chinese characteristics', is an attempt to head off slowing growth and provide much needed employment, to save the regime from workers' anger.

  top     China and the Asian crisis

EXPORTS, ONCE SEEN as one of the growth engines of China's economy, have slowed in response to the Asian economic collapse. In 1998 exports rose by only 0.5%, compared to 20.9% in 1997. Exports in January 1999 were down 10.8% year on year, but with a trade balance still of $9.9bn (6.2bn). This has been helped in large part by a government tax rebate of 17% on exports, effectively a devaluation of the yuan in all but name for exporters. On the domestic front, retail sales were down 20% year on year in the December-January period, reflecting the severity of the economic crisis on Chinese workers. They are afraid to spend money at a time when welfare is being attacked and mass lay-offs are a reality for tens of millions. This slowdown cannot be made up by exports so the crisis is only set to deepen.

At the same time, Chinese demand for imports also dropped, helping to produce a trade surplus last year of $43bn (26.9bn). Symptomatic of the economic crisis and the outright mismanagement and looting of state assets is that foreign reserves only rose from $140bn to $149bn (87.5-93bn). The rest of the money has largely disappeared into the bank accounts and real estate of the new capitalist class and their hangers on in the bureaucracy.

Foreign Direct Investment (FDI) is also falling as the global crisis affects investments and uncertainties in the Chinese market remain. In the first quarter of 1999 it fell 14.6% to $7.3bn (4.6bn). Citibank estimates it will fall to $33bn (20.6bn) for 1999 compared to $45.6bn (28.5bn) in 1998. Japanese FDI, mainly from small and medium size companies, is set to shrink as they are hit further by the crisis in Japan.

China's banking system is in a precarious state, much more so than Japan's, with estimates of bad loans of up to $100bn (62.5bn). At least 20% is outstanding loans, which compares to a level of 5% in Thailand at the time of the collapse of the baht. A recapitalisation plan in 1998 of $32.5bn (20.3bn) only exacerbated the crisis as it led to an increase in bad loans being made. Deutsche Bank estimates up to $430bn (269bn) is needed just to clear up the mess in the banking system, a greater problem, proportionately, than Japan's.

  1998 also saw the first bank in China to go bust since 1949. The Hainan Development Bank went under with heavy debts followed by the closure of the Guangdong International Trade and Investment Corporation (GITIC), where again mismanagement and speculation saw massive losses. Many other ITICs are harbouring losses and more are expected to go under. In January, Fujian Enterprises became the first provincial government backed company to default on a foreign loan, blamed on the credit squeeze that followed GITIC's collapse. Foreign banks are now calling in credit and offering very few roll-overs.

Following the 15th congress there was a 'big bang' of sales of SOEs, with local governments selling them to anyone who could put up the cash, no questions asked. In most cases SOEs were sold off without their debts, which are to be kept in the public sector. This mirrors the privatisation programmes in Britain and elsewhere, with spivs and speculators creaming off the best assets. In many cases managers forced workers to buy bonds in the newly privatised companies and in others workers still go without wages on time. This went hand in hand with asset stripping by managers and Communist Party cadres, selling publicly-owned property for personal gain. This was basically a mass transfer of ownership of the means of production, reaching up to 60% of small and medium size companies in heavily industrialised Liaoning province in the northeast, to almost 100% sell-offs in coastal provinces such as Guangdong and Fujian. Mismanagement and under-investment have seen SOE losses rise from Y3bn (226m) in 1985 to Y74bn (5.6bn) in 1997. The Brookings Institution estimates that all SOEs have a combined debt to equity ratio of 500%.

The government plan was for a transfer of up to 300,000 state owned enterprises to the private sector whilst it would retain control of the top 1,000 companies, with the ultimate aim of building chaebol (South Korean conglomerate) style groups. Sell-offs went with mass lay offs: in 1998 17 million workers were fired from SOEs and former SOEs, 20% of the total state owned enterprises' workforce. The Hong Kong based Asia Monitor Resource Centre says protests are now part of daily life, with hundreds happening all over the country, although at this time in an unorganised and un-coordinated manner.

  Corruption is endemic in the bureaucracy. In 1998 124,000 CP 'cadres' were investigated for corruption and 130,000 police were disciplined for bribe-taking. The previous mayor of Beijing, Chen Xitong, lamented when he was sentenced to 16 years for graft, 'you have accused me of being responsible for the graft in the capital, but who is responsible for the corruption of the entire party?'

The government benefits from an unorganised labour movement. There are hundreds if not thousands of independent but small unions and workers' groups throughout China at present. There are many more organisers learning their skills on the job as workers organise demonstrations and even factory occupations against lay-offs. But as yet there is still no national organisation and very few groups have been able to link up, not least because of state surveillance.

The government cracks down immediately on any form of organised political opposition, as seen by the arrest of the leadership of the nascent China Democratic Party at the end of 1998. In many cases, workers' actions lead to demands being met but often the leaders face dismissal, victimisation or arrest.

Nevertheless, it is due to the fear of further unrest that the government has slowed down its 'reforms' in an attempt to prevent the working class developing its own mass organisations. It was particularly shaken by the downfall of the Suharto dictatorship in Indonesia, where scenes of students and workers demonstrations obviously found an echo amongst many Chinese. The situation is similar to that pre-Tiananmen, when for years the state media had showed the fight of the South Korean workers and students against the dictatorship there, which was then to be emulated in a different form in the summer of 1989. The scenes of economic downturn around Asia followed by workers' movements, particularly in Indonesia and South Korea, shook the government, and so it calls for economic stability to be the number one priority in an effort to keep the workers' movement from growing.

  top     Revival of Chinese nationalism

THE GOVERNMENT CAN no longer claim legitimacy through improving living standards, which in many parts of the country are now declining instead. It has taken a tough law and order position, with many executions and a crackdown on any form of dissent. In the international arena it is pushing a more belligerent and nationalist line in the hope of whipping up support for itself on the basis of Chinese nationalism. As it cannot inspire workers with its 'socialism' any more, it is going down the well-worn path of overseas adventurism, with its bellicose threats against Taiwan, and in the South China sea, where it is in dispute with many nations over the ownership and therefore resourses of its many reefs and surrounding waters.

The Chinese government is preparing to build up large naval forces to enforce its claim to these waters and the scene is being set for further confrontation with the US. Further disputes will arise over US and Japanese plans to develop a Theatre Missile Defence (TMD) system which China sees as aimed against it. The NATO war against Yugoslavia alarmed China, as its leaders ask what is to stop the US claiming Chinese human rights abuses and mistreatment of non-Han nationalities as grounds for war against China? China now is strengthening its own forces, supposedly against US hegemonism in Asia, but actually to increase its own hegemony in the region.

At the National People's Congress session in March 1999 the private sector was raised in status in the constitution, being put on an equal footing with the state sector. From being a 'complement to' it is now 'an important component of the socialist economy'. With the plunder of the state sector and the increasing strength of the capitalists the CP had to legitimise privatisation to preserve its rule. By using the phraseology of socialism they hope to keep the support of the party membership, government officials and working class, at the same time developing capitalism in China. It hopes that the private sector can pick up some of the slack in employment, but with banks being saddled with so many bad debts it is unlikely they will lend to the private sector, minimalising further growth in this sector, already hit by lowered growth in exports and a slowdown in the domestic economy.

  The Chinese bureaucracy have given up any pretense of advocating socialism. The dynamic of the Chinese economy is now dominated by the capitalist sector, although the market has not been introduced in the same sweeping, anarchic way witnessed in Eastern Europe and the former Soviet Union. As capitalism expands its control over the country, workers movements, already spreading, will develop faster and once more the Chinese working class will take its place at the centre of Chinese life, as it struggles for the socialism denied it by the post-1949 Maoist dictatorship. This development cannot be mapped out clearly here as many subjective factors will shape the future; how long will the CP be able to hold onto power, will the economy see any pick up in the next year or two, how heavy will state repression be but, most importantly, how will the class develop its own consciousness?

The leaders of the movement are young, but they are groping towards an independent workers movement, one step of which will have to be the setting up of a genuine party of the workers and farmers that looks to the international working class for inspiration and support.

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