In 1989/90 the Japanese economic bubble burst and precipitated a market crash across South-East Asia. China assumed the dominant role within the region. Convinced that its privatisation policies had underpinned its success, the CCP accelerated the process. In common with neo-liberals everywhere the CCP hierarchy firmly believed that private firms were more efficient than state-operated ones. Their Stalinist approach meant that the only kind of state-owned industries they could imagine were those that existed under a state bureaucracy, with all the mismanagement that this involved. They could not envisage efficient state-owned industries under workers’ control.
By 1991, China had become the second-largest recipient of foreign capital investment after the US, and by 2012 it would beat the USA into second place with an inflow of US$258 billion against US$193 billion.[23] The amount of direct foreign investment in China is a clear indication of the confidence of imperialists in the new capitalist relations.[24]
The direction in which China was now moving was very clear. In January 1992, old and half-paralysed, Deng Xiaoping visited the Shenzhen SEZ, presenting it as an exemplar of the economic reforms that should be undertaken in all China and launched the slogans by which he is best remembered: “Enrich yourselves!” and “As long as it makes money it is good for China.”[25]
At 14th Congress of the CCP in October 1992 a tough economic programme was agreed with advice from the IMF and the World Bank; the market economy and the law of value as operated in the SEZs were to be applied across the entire economy. The central state economic plan was downgraded in priority to below those of the provincial authorities, each of whom was to develop its own markets in competition with other provinces. The public sector was to gear itself for commodity production. From now on the market would decide prices.
The 14th Congress officially abandoned the idea that a national state plan should dominate the economy. From now on the federal umbrella would guarantee the free flows of goods, capital and labour nationally, while the autonomy of the provinces and major cities such as Shanghai meant close cooperation between local government and business in pursuit of regional development. The Chinese provinces would enthusiastically promote economic growth using their powers over local banks, infrastructure, wage rates, the application of labour law, the unions and police.
The 14th Congress also officially decided to substantially shrink the size of the state sector and privatise all remaining SMSOEs under the slogan of introducing the so-called Modern Enterprise System (MES). The government’s slogan now became “the state retreats and the private sector moves forward”. The MES introduced many Western practices such as boards of directors and shareholders and it is no coincidence that in this period there was a marked trend for top Chinese managers to have been educated in capitalist universities.[26]
Many of the sell-offs were for a song. Chan cites the case of one general manager who is now receiving about US$3 million a year in dividends, more than he paid for the business.[27] Within a decade, the World Bank analysed data from a sample of six cities and concluded that if these were typical of the rest of the country then the privatisation process had gone further in China than in many East European and former Soviet countries.[28]
Finally, the 14th Congress agreed in principle to end the state monopoly of foreign trade, though it would take another two years before this had been fully implemented.[29]
In 1997, under the slogan “Grasp the large, let go of the small”, the state adopted a policy of retaining control of the 1,000 largest SOEs which held 38% of the industrial assets of the entire country, employed many millions of people, some of which provided large revenues for the state, but to let go (privatise) all other SOEs.[30] Thus, in July 2000, the Beijing City Council, for example, determined that state and collective ownership would be phased out in all SMSOEs within three years. Through such privatisations state controlled industry progressively diminished; in 1988 the state controlled sector produced 41% of GDP, by 2003 it had declined to 34% and by 2011 was 26%.[31]
At the same time large SOEs were given a qualitatively greater degree of management autonomy and told to shift their emphasis from meeting production targets set as part of the central national plan to making profits.[32] This was accompanied by a process of rationalisation which, when completed nationally, meant the proportion of the national urban workforce employed in SOEs had dropped from three-quarters to only one third.[33]
1997 was the year of the Asian Financial Crisis. Dr Kai who was a participant in the events revealed how a mix of short-sighted desperation and conservatism, not planning, were the major determinants of the actions of the Chinese leadership. One result of the crisis was that China desperately needed to boost its foreign exchange reserves. Hurried meetings were called of the top level advisors – including Morgan Stanley – and it was agreed that the least controversial action would be to launch a new company, China Telecom on the Hong Kong stock exchange. Those taking the decision did so on the basis of their belief that mobile phones were a peripheral consideration and their actions would have no major consequences! The company was launched for US$4.2 billion. Today that company is China Mobile, one of the largest companies in the world.[34]
By the late-1990s, market determination of commodity prices had become the norm. Although government intervention remained common, it was market forces that determined the pricing and distribution of commodities.[35]
The bulk of the Chinese economy was now functioning on a capitalist basis with only one quarter of GDP being produced by the state sector. However, restoring capitalism is not simply the process of selling state enterprises, and whilst property relations are the decisive factor in social transformations, the relative percentages of state and private ownership are not the only features to be considered, since questions concerning how the various sectors are functioning, and with what aims are relevant. After the Second World War, the UK Labour Government extensively nationalised key industries and introduced several major social reforms – not to introduce socialism, but rather to assist the British capitalist class. Hence, it is necessary to look at the overall direction of the process, and in China this was inexorably towards capitalism.
At the moment there appears to be a consensus amongst the Party tops: the rationalisation process whereby the 1000 largest remaining SOEs under state control was reduced to only 112 will be continued until only about 40 are left. The reduction will likely be achieved through mergers and rationalisations not sell-offs. Most of these SOEs have been partially floated on the stock exchange so that their shares are traded, but the proportion of their capital in private hands is always less than 50%. These companies attempt to operate according to the laws of the market but have to fall in line with government requirements when so ordered. Shares in SOEs are considered blue chip since they are 100% safe, but return on capital invested is as low as half that in the private sector. These SOEs are largely confined to banking where the government must retain the Big Four banks because of all the bad debts they have accrued, and a mix of telecommunications (security reasons), energy (to guarantee supply) and heavy industry (debt laden).[36]
As the newly privatised enterprises were streamlined for greater efficiency, the workers paid dearly, with the loss of millions of jobs; with women over 43 and men over 48 being the initial targets. Indeed, during the decade 1994-2003, as many as 60 million workers were made redundant.[37] These have generally found alternative employment in the expanding capitalist sectors but usually with lower pay, with no job security and the accompanying loss of important benefits. Likewise, the flow of rural workers who poured into the cities has been largely absorbed, and although they generally took the lowest paid jobs, they still earned at least twice what was paid in the rural areas.
The 20th People’s National Assembly met in Beijing in March 2003 to confirm Hu Jintao as General Secretary and approve changes in the leadership of the executive bodies of the People’s Republic of China. This was accompanied by the dissolution of the State Commission for Planning and Development, responsible for the five year plans. The content had disappeared ten years previously but now even the symbol of a planned economy was eradicated, and with it the market was publicly installed as the regulatory mechanism of the Chinese economy. “Guidelines” were introduced in 2006 after the tenth, and final plan.
The scale and speed of economic development was phenomenal. In 2004 China consumed half of the concrete used in the world. It was possible to drive from Hong Kong to Shenzhen, through the SEZ, along a modern eight lane motorway and as far as the eye could see on either side was an unbroken gigantic construction site where factories, warehouses, offices, shops and blocks of flats for workers were being constructed in their thousands and millions.
Until the present time, there has been no national bourgeoisie capable of managing the major manufacturing corporations on the scale of, for example, Pfizer or GlaxoSmithKline (both of which now operate in China), without the help of the state. However, in 2013 the PRC announced that many of the large SOEs that are profitable, such as the China National Pharmaceutical Corporation which appears on the Fortune 500 list, are to be privatised. These companies are already stock exchange listed because they have minority shareholders, but private shareholders will now become the majority and company structures will be radically changed by the profitability imperative.[38] This move suggests that while investment in certain strategic areas will remain tightly controlled, the CCP believes it is on the last lap of creating a Chinese bourgeoisie that can adequately support itself without state assistance. By 2014 the 112 remaining SOEs employed about 20% of the national workforce.
The service industries, however, are outstripping their western counterparts. In 2014, Alibaba which handles 80% of all online commerce in China, is bigger than Amazon and EBay combined and claims annual profits of over US$1 billion, was floated on the US stock exchange.
In principle the capitalist transformation of China is complete, there is no longer either monopoly of foreign trade or a central economic plan, and those nationalised industries that can are being progressively privatised.[39]
-
OECD, FDI in Figures, 2013, latest figures available at time of going to print.
-
Reuters, Jan 2014.
-
Wikipedia.
-
Cheng, L. China’s Changing Political Landscape, Brookings Institution Press, 2009.
-
Chan, A., and Unger, J. A Chinese State Enterprise under the Reforms, China Journal, No. 62 (Jul., 2009), pp. 1-26.
-
Garnaut, R., et al., China’s Ownership Transformation, International Finance Corporation, World Bank, 2005.
-
China’s Foreign Trade, www.china-embassy.org/eng.
-
Garnaut, Op. cit.
-
Lardy, N. The Rise of Private Business in China. Institute for International Economics, 2014.
-
Sweetman, A. and Zhang, J. Economic Transitions with Chinese Characteristics, McGill, 2009.
-
Lardy, N. Markets over Mao, Peterson Institute, 2014.
-
In Nicholas Lardy on Markets over Mao, www.youtube.com.
-
Carpenter, T, and Dom, J. China’s Future: Constructive Partner or Emerging Threat? Cato Institute, 2000.
-
Economist Intelligence Unit, Grappling with Leviathan, 12 January, 2015.
-
IMF, Country Reports, China, 2004; Hurst, W. The Chinese Worker after Socialism, CUP, 2009.
-
Economist, 30 Aug 2014.
-
Walker, R and Buck, D. The Chinese Road, New Left Review 46, July-Aug 2007.