Enter the Dragon: The impact of China

In 1978 the Chinese Communist Party under Deng Xiaoping embarked on reforms that would steer China’s economy toward transition from state-run to free market capitalism.

Since then China’s Gross Domestic Product (GDP) has grown by an average of 9.5 percent per year, faster than any other country. China joined the World Trade Organisation (WTO) in December 2001 and now accounts for 13 percent of world output with a GDP likely to overtake Japan by 2016 and America by 2020, making China the world’s largest economy.

Economic “openness”
This prodigious growth is attributable to foreign investment that has utilised the country’s remarkably ‘liberal’ business climate to exploit low wage labour as a platform for the manufacture of goods and then their export to world at cheap prices.   Put simply, manufacturing has been relocated to China to undercut competition and raise profits – attracted by the almost ‘inexhaustible’ supply of cheap labour, well-developed infrastructure, tax concessions and brutally repressive state.

China’s economic ‘openness’ makes it the world’s largest recipient of foreign investment, which increased 35 percent in the year to September 2004 alone. It is further exemplified by the country’s import tariffs, which “have, on average, fallen from 41 percent in 1992 to 6 percent after it joined the WTO in December 2001, giving it the lowest tariff protection of any developing country.” (The Economist, 2 October 2004, p.6)

Joint ventures between Chinese companies and foreign multinational corporations produce 27 percent of manufacturing output (there are 4,000 involving UK companies alone) and a flourishing private sector accounts for 50 percent of Chinese GDP.
Rich v poor
Although most of the population still exists at basic subsistence levels, the purchasing power of a minority of better paid workers (but still measured in tens of millions) and the development of an indigenous capitalist class have nurtured a sizeable domestic market.  China in fact has the world’s fastest growing consumer market and sales are soaring. If income distribution remains unaltered, “by 2020 the top 100 million households will have an average income equivalent to the current average in Western Europe. This will open up a vast market for consumer goods.” (The Economist, 2 October 2004, p.11) An increasing number of American and European corporations are now investing to sell directly to this growing market.

China’s market has also encouraged the emergence of a Chinese capitalist class, comprising many who already have close ties with foreign capital and political patronage from Beijing. Within this class a small number have amassed staggering levels of wealth. 

This picture looks set to continue. Though productivity is still low compared with the developed world, running at approximately one-eighth of that in America, economic ‘openness’ is encouraging the rapid transfer of manufacturing technology that will enable China to use the industrialised countries as a springboard to raise productivity. Production will also rapidly climb the “value added” chain, utilising the 10 million graduates who join the Chinese working class each year.

But more important is the abundant supply of the resource essential to profits – human labour power. China has a population of 1.3 billion or 20 percent of the world’s population and the political elite has worked hard to mobilise this labour power to create the conditions to fuel capitalism. 

State industry has rapidly shrunk and thousands of enterprises have been sold or bankrupted and their workers sacked. An estimated 40 million have been made jobless to join the countless millions made redundant from native private industry by relentless foreign competition.

Town v country
In rural regions, where over 60 percent of the population still live, the free market deregulation of agricultural prices has driven millions from the land. Here, over 150 million destitute people are waiting to migrate and seek work at any wage, while farmers are often compelled to take unskilled temporary work between harvests to supplement meagre earnings.

It will take 15-20 years to absorb this labour power, which means that, unlike some parts of South-East Asia, where labour scarcity could raise wages, Chinese based capitalism can probably hold down unskilled wages for many years. 

To most the transition from state-run capitalism to the free market variety means low wages, poor living conditions and repression. While a minority of higher paid workers has access to consumable goods, the free market has devastated the lower paid who do not have money to buy those goods. Services including education and medical care, formerly provided by the state, are now ‘fee based’, while housing is controlled by private landlords.    

The main manufacturing belt lies in the region of Guangdong and along the Pearl River Delta, where workers slave 15 hours a day, seven days a week with mandatory overtime enforced by coercive factory regulations. Migrant labour is estimated at over 100 million, more than half women from impoverished inland regions. Industrial disputes are not uncommon. 

Sometimes disputes erupt into riots as happened at the Taiwanese Stella International factory at Dongguan in the spring of 2004. The factory, employing 70,000 workers, makes shoes for Nike, Reebok, Clarks, Sears and Timberland. Factory property was allegedly damaged and ten workers were subsequently jailed for 3½  years but later freed when the company, fearful of repercussions, secured their release.

Long-term disregard for poverty and the impoverished plight of working people and peasantry may well pose a significant threat to government authority. The government has been compelled to ameliorate worker conditions and in some places unemployment insurance has improved and minimum wages increased, while cities have endeavoured to increase employment – generally by offering assistance to new enterprises to employ redundant workers. But funding is still minimal and official corruption widespread.

Nowhere is the contrast between rich and poor more stark than in Shanghai, a city of 17 million and the centre of Chinese capitalism. Here poor living conditions, overcrowding and poverty are “…a far cry from the empty streets of the gated communities in the east end of Pudong, where high walls and a plethora of guards provide a safe, insular heaven for those living within.” (China Daily, 28 April 2005)

One of China’s main weaknesses is electricity generation and the rapid increase in demand, exacerbated by household appliances and air-conditioning, has caused shortages, blackouts and power rationing.  China’s electricity generation is 70 percent dependent on coal and miners were forced to increase output by 54 percent in the four years to 2003. Rudimentary safety is ignored and a twelve-hour day, 28 days a month is the industry standard. “There were more than 6,000 deaths last year from explosions, floods, cave-ins and other accidents in China’s mining industry, accounting for 80 percent of the world’s total fatalities. Independent estimates, however, say up to 20,000 workers are killed every year as they toil underground in poor conditions for little money.” (http://www.chinalaborwatch.org)

The ‘All China Federation of Trade Unions,’ is the only legal trade union and controlled by the Chinese Communist Party (CCP). Independent trade unions are banned and workers agitating for better conditions are routinely jailed. But despite the lack of organisation, skill shortages have enabled some to make gains after strikes, as in Shenzen in October 2004 and Panyu in November 2004. 

Knock-on effect
The ‘Chinese miracle’ has had a detrimental effect on many workers outside China. While the international class who live by profits has benefited immeasurably by transferring operations to China, many workers in other countries have paid the price with the loss of their jobs. Worst hit have been workers who barely survive in undeveloped countries where imports and exports mirror those of China.  The abolition of import quotas on textiles in January 2005, for example, is set to decimate jobs in Bangladesh and Cambodia where companies will be unable to compete. Another casualty has been the Mexican working class where an estimated 225,000 jobs, originally transferred from America after the introduction of the North America Free Trade Association have moved to China since 2001. Likewise, production transferred to South Korean and Taiwanese based corporations is ‘out-sourced’ to China for labour intensive assembly and then re-export.

But China’s capitalism is also influencing the world’s working class in other ways. Worker conditions in developed countries are under attack. As The Economist euphemistically puts it: “Individual countries can maximise their gains from Chinese integration and minimise their losses by making their own economies more flexible, increasing mobility between sectors and improving education.” (2 October 2004, p.12).

Political control
The development of capitalism in China looks set to remain firmly under the political dictatorship of the Communist Party. Although in practical operation for years, free market capitalism was officially reconciled with ‘communism’ at the 16th National Congress of the CCP in November 2002 when the Party’s constitution was amended to open membership to China’s ‘business elite’ to protect the “legitimate rights and interests” of business and property owners.  The CCP has become the instrument of multinational corporations and of this ‘business elite’ and seeks to perpetuate its rule with the support of those who benefit from the system of exploitation in the world’s largest sweatshop. The Party has warned it will make no concession to ‘democratic aspirations.’ At the Central Committee meeting in September 2004, Hu Jintao, China’s President and Party leader asserted that “China would never have its own Gorbachev,” or countenance erosion of the CCP’s ruling position. Denouncing those who “fly the banner of democracy and political reform,” he warned the Party would be “pre-emptive” and “strike when they rear their heads.” (Time 31 January 2005, p.45).

In practical terms the political elite is seeking to tighten control over local government to block independent legislatures and plans to “improve the political thinking of university students to elevate the Party’s ruling power” (People’s Daily, 19 January 2005). Websites exposing corruption have been shut without explanation. Newspapers are banned from publishing anything negative about the police, government or judiciary and journalists have been ordered to stop criticism.

In this way capitalism in China is an investors’ paradise and a workers’ prison camp. Enormous profits are attained at staggering human cost, and with the growing gap between rich and poor the class struggle is set to intensify.  The integration of China into world capitalism has also had profound effects. It has drained away jobs from other parts of the world, lowered global unskilled wage rates and eased pressure on wages in other countries by reducing prices of consumable goods. These world-wide reverberations will continue.


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