China’s transformation

Like other Bolshevik countries, China has undergone a change in the direction of private capitalism, but in a very different way from nations of Eastern Europe. Firstly, the ‘Communist’ Party has remained in control, and secondly, there has been no introduction of any form of parliamentary democracy or multi-party system.

The economic changes in China can be dated from 1978, and it is useful to divide them into changes in industry and those in agriculture. It should be borne in mind that even today China is a predominantly agricultural country and most of the population live in villages rather than towns or cities. However, the population living in urban areas is now growing, with many workers from the countryside migrating to cities.

The “reforms” were applied first in agriculture. Previously, rural workers (the term ‘peasant’ is hardly appropriate) had been grouped in communes, and income depended on a whole production unit rather than the performance of individuals. A series of changes was introduced gradually from 1978 on. Communal plots have been done away with and replaced by household plots of land, with each household making a contract for selling grain to the state. What are called ‘sideline occupations’ have become more important, i.e. growing other kinds of crops, especially cash crops. Some people have become prosperous through this system, but others have become poorer and no longer have the communal safety net to fall back on. Average incomes in the countryside are about one third of those in cities.

Starting in 1980, parallel changes were introduced in industry. While state-owned industries remain dominant, they are run on a much less centralised basis, with a lot more managerial control. Private companies have been encouraged, and overseas investment has been invited in at ever-increasing rates (enticed by the prospects of masses of cheap labour).

The growth in the private sector is unsurprising, given that nearly half of state owned enterprises make a loss. A number of Special Economic Zones have been set up to attract foreign investment, with favourable tax and trade regulations. China is second only to the U.S.A. in terms of attracting overseas investment – £16 billion was invested in 1994. Over 20 cities now have stock exchanges, with over 200,000 people working in the security and capital market sectors.

Rates of Gross Domestic Product (GDP) growth have been high since the move away from state control of the economy. Between 1986 and 1990, the annual growth rate of GDP averaged 8%. Between 1991 and 1995, the figure was 12%.

China’s two way trade with the United States last year amounted to $57 billion compared with $40 billion with the European Union.

One consequence of all this has been inflation. Inflation was 21% in 1994 and 14% in 1995.

Another has been unemployment.

Official statistics say that 2.8% of China’s urban working population currently has no job, and that the unemployment rate will rise to 4.8% by the end of the century. That is an embarrassing enough figure for a Communist government to admit to, but no one believes that it reflects the true picture.

The problem has been especially acute among the uprooted farm workers forced to migrate to cities. Rural unemployment has, according to most estimates, led over 100 million people (about 1 in 12 Chinese) to migrate to cities. Beijing (Peking) alone has over 3 million of these ‘transient’ workers. Many are homeless or live in appalling conditions. Workers have lost their previous job security and subsidised housing. There have been drastic price rises in some goods and workers have been forced to buy government bonds with part of their wages (this has been much resented).

In 1991 over 14,000 workers were killed in industrial accidents. In 1993, 81 workers were killed in a fire at a factory in the Shenzhen Special Economic Zone; the factory’s doors had been locked to prevent unauthorised breaks from work.

Corruption has been endemic, with many top government and Party officials (and, in particular, members of their families) implicated. There can, of course, be no doubt, that China is a class-divided society. While 70 million people live below the official poverty line, earning less than 300 yuan per year, there are one million people who have assets of over one million yuan. Seventeen Chinese capitalists were listed by Forbes magazine in 1994 as among the world’s richest people. The wealthiest are four brothers who own the Hope Group (the largest private company in China), and are worth 600 million yuan each. (£1 UK Sterling = C13 yuan)

The 1989 protest movement, which led to the June massacre in Beijing, was the biggest of a number of such dissident activities over the last two decades. The protesters had a variety of goals, mostly centering on an expansion of democracy and an end to corruption. Some workers were starting to make a class analysis and to set up independent trade unions. The violence with which the protests were met was aimed not just at the participants but at the whole population of Beijing. Prominent protesters have since been hunted down and imprisoned or executed, and a campaign of lies and intimidation has endeavoured to impress on all Chinese that no opposition will be tolerated.

Author: Paul Bennett

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  • (1) The Economist – May 11th – 17th 1996
  • (2) The Economist – October 14th – 20th 1995
  • (3) The Economist – July 6th – 12th 1996

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