GLW-- What is left of China's `socialist' economy?

Green Left Parramatta glparramatta at
Tue Jun 6 19:10:24 MDT 2000

The following article appears in the latest
issue of Green Left Weekly (,
Australia's radical newspaper.


CHINA: How much is left of the planned economy?


The final major hurdles to China's attempts to be fully
reintegrated into the global capitalist trading system have been
removed. In late May, the US House of Representatives granted
China permanent ``normal trade relations'' status and a bilateral
trade agreement with the European Union was reached.

China's readmission into the World Trade Organisation (WTO), the
main institution through which capitalism's global trade order in
maintained, is expected within months. China left the WTO's
predecessor, the General Agreement on Tariffs and Trade, shortly
after the 1949 Chinese Revolution.

Technically, US Congress (the US Senate is likely to vote on the
issue in a few weeks) cannot stop China's accession. However, a
US refusal to grant permanent normal trade relations, which would
have put at risk the access, with minimal tariffs, of Chinese
goods to the world's biggest economy, would have made China's WTO
membership much less meaningful.

To protect its fragile economy in the wake of long semi-colonial
devastation, China's post-1949 government controlled foreign
trade through a state monopoly. Today, that measure would be
necessary to defend China's economy against the advanced
capitalist countries, whose productivity and technological levels
are far higher.

However, by 1998-99, only 35 commodities remained subject to
import licensing and 59 to export licensing. In October, limited
rights to import and export directly were extended beyond the
designated foreign trading corporations to other mainland firms,
including private ones. Never before had that right been granted
to foreign firms.

That is going to change under the normal trade relations deal; US
firms will have that right. Given the WTO's rules against
discrimination between members, it is only a question of time
before the remaining 134 WTO member countries will also have that

Armed with its new ability to export to China at much lower
tariffs and distribute products in China through its own
networks, foreign capital (from imperialist countries, in
particular) will be able to push many Chinese industries into
insignificance. The resulting loss of jobs will be massive.

China's agriculture, which provides a living for 75% of the
Chinese population, will also be endangered. Given its reliance
on small-scale cultivation and primitive technology, it is
unlikely that Chinese agriculture will withstand the onslaught of
price and quality competition from advanced capitalist countries'
mass production and superior technology.

In the city and country, the ruling bureaucracy's pro-capitalist
measures have caused significant job losses, a decline in the
majority's living standard and major social dislocation. These
problems are poised to get much worse after the WTO accession.


The ruling Communist Party has not dropped its claim that it is
promoting a market economy which preserves its ``socialist''
nature. It points to the continuing existence of the state sector
as proof of this claim, on the premise that state ownership of
key industries and strategic firms defines whether or not an
economy is ``socialist''. It does not spells out which industries
and firms fall into this strategic category and the number of
``key state firms'' varies from a few hundred to a few thousand in
various pronouncements.

In fact, Beijing has been partially privatising key firms --
maintaining a majority state ownership -- and turning them into
profit-oriented enterprises.

It has been very keen to strip firms of various social welfare
functions -- such as housing, education, medical care, child-care
and old-age pensions -- that they had long delivered. The state
sector's ability to serve social needs is further undermined by
Beijing's 1998 plan to ``turn around'' key loss-making state firms
by the end of 2000.

These attempts to rid the state of responsibility for the meeting
of basic social needs exposes as false Beijing's claim to be a
``socialist'' government.


Privatisation intensified with the 1999 formation of four ``asset
management corporations'' (AMCs), each designated to salvage the
sour loans of the four major state banks -- the Construction
Bank, the Agricultural Bank, the Industrial and Commercial Bank
and the Bank of China. For decades, each bank was in charge of
key lending to different economic sectors, encapsulated in their
names (the Bank of China specialised in foreign exchange

The banks' key clients are prime state firms, many of which were
the main source of the state banks' bad loans. Under an extensive
``debt-equity swap'' arrangement, the AMCs became partial owners of
many state firms that could not service their debts. The AMCs are
empowered to sell shareholdings in the state firms to other
investors, including private and foreign ones.

Because the AMCs have no obligation to disclose their dealings,
it is difficult to know how far these equity swaps have gone.
However, judging from snippets in the official press, it involves
much more than loose change. Sheng Huaren, minister of the State
Economic and Trade Commission, said in January that 78 state
firms had engaged in such swaps, worth 112.2 billion yuan
(US$13.5 billion). Another 601 firms had been approved to follow
suit with equity swaps worth 460 billion yuan ($55 billion).

Major state firms that have lost part of their public ownership
include China First Automobile Group (China's biggest automobile
manufacturer) which swapped 7.9 billion yuan, Shanghai Electric
Apparatus, a ``heavy weight'' in China's electricity industry (4.55
billion yuan), Qinghai Aluminium Industry Co. (1.08 billion
yuan), Liaoning Panjin Ethylene Industrial Co. (1.07 billion
yuan), Guizhou Metallurgical Holdings (831.5 million yuan) and
Anhui Military Industry Group Holdings (207 million yuan).

Not surprisingly, foreign capital is keen to ``help out''. In
Liaoning alone, a key industrial province, foreign capital has
``assisted'' in the restructuring of 40 billion yuan worth of state
assets, according to the September 19-25 China Daily Business
Weekly (CDBW). In December, Britain signed a £19 million (US$31.3
million) program to ``help restructure'' 48 state firms in Sichuan
and Liaoning.

How much China's state sector has shrunk is unclear because
official figures shy away from specifying whether the ``state
sector'' includes the privatised portions of state firms. However,
with that important qualification in mind, the extent of the
shrinkage can be gauged by the statement in the March 1 China
Daily editorial: ``The state economy ... generated less than 40%
of the GDP''.

More welfare attacks

The Chinese people's right to a job is also no longer guaranteed.
Officially, there will be 11-12 million workers laid off from the
state firms by the end of 2000 (6.5 million from last year and 5
million to be dismissed this year), but it is no secret that the
number of hidden unemployed and underemployed (including those
already outside the state sector and not covered by regular state
statistics) is many times higher.

If laid-off workers register with the re-employment centres of
their old firms, (about 95% have), they are entitled to a basic
allowance of 273 yuan (US$33) a month. Although this is barely
enough for subsistence (the 1999 minimum wage was 310 yuan a
month), it is often not paid in full or on time. Nor are old-age
pensions. According to the Ministry of Labour and Social
Security, the overdue pension payments owed to April totalled 38
billion yuan.

Public housing is also under attack. In Beijing, for example, the
tripling of rent (to 3.05 yuan per square metre per month) in
April is only the latest move to pressure tenants to buy their
homes. Housing is selling at 360,000 yuan for an average 60
square-metre unit, or 15 times the 24,000 yuan annual income of a
double-income family.

The lifting of the ban on the trade of housing units will force
housing costs up. More than 30 Chinese cities have allowed such

The provision of housing, however truncated and inadequate, is,
in the main, a privilege reserved for state employees in the
cities. Farmers are expected to manage with their tiny plots of
allocated land. However, the degeneration of irrigation and other
infrastructure, unfavourable prices and backbreaking taxes and
charges, have forced a massive number of farmers off their land
and into the city to eke out a living. They have no rights to
basic entitlements and are confined mainly to the lowest paying

A report by the Communist Youth League last year put the number
of rural migrants at 50 million, of whom more than 70% are under
35 years old. Even officials of the Ministry of Agriculture
expressed concern that such a high loss of productive labour and
talent could further stall the much needed modernisation of

Worsening situation

With China's re-entry into the WTO, the plight of both workers
and farmers is going to get much worse. Even the official press,
quoting ``economists'', has estimated that within seven years of
entry into the WTO, 9.66 million jobs will be shed from the
agriculture sector (3.6%), 498,000 from the automobile industry
(14.5%) and 582,000 from machinery and equipment industries
(2.5%) (CDBW, December 12-18).

But the ``economists'' insisted that there will be an overall gain
of 12 million jobs. From where?: small and medium-sized firms in
labour-intensive industries in which China has ``comparative
advantages'', such as textiles, toys and shoes. They also
suggested that farmers could shift to producing more cash crops,
another of China's ``comparative advantages''.

The history of the Third World is littered with sad stories of
how a reliance on labour-intensive industries and cash crops has
reduced countries to little more than junior partners at the
mercy of imperialism.

More information about the Marxism mailing list