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Some Thoughts on the Economic Development in China from a Socialist Perspective

Fri, 2012-07-20 15:57 — subhanil

A blogpost on the current Chinese growth process and its implications for socialism in that country.

One of the most contentious issues in the literature of socialism is what are the basic features of a socialist economy? There exist major debates about the basic characteristics of a socialist economy. However, we think that according to Marxist theory, the main features of a socialist society will be the following:[1]
 
1.      All means of production are ‘socialized’
2.      Socialist society must replace ‘anarchy in social production’. A logical corollary of this is that there should not exist unemployment or unutilized capacity in the economy.
3.      Moreover, inequality should not exist or even if it exists, inequality must decline with time.
4.      Socialism must continuously expand production at a much higher rate than would be possible under capitalism.
 
One of the most important questions of our times is how to look at the developments in China. In order to have any idea about whether these developments are strengthening socialism or not, we have to have some criteria by which we can judge the developments in China. Such a criterion indeed exists in the classical Marxist literature, as has been enumerated above. It is well understood that to demand that an economy has to follow all the four criteria fully in order to qualify as a socialist economy is incorrect, since socialism as a world system does not as yet exist and therefore the socialist countries have to travel through lot of contradictions. But the moot point should be whether the above-mentioned criteria are being strengthened in China or are they being weakened or dismantled.
 
Let us take the criteria one by one. First let us see the situation with regard to social ownership of the means of production. The ideological document of the CPI(M) notes that by 2005, 50% of the total value added in the industrial sector was accounted for by the private sector and the employment in the private sector was double that of the public sector. Moreover, if we look at the data on the second economic census in China (conducted in 2008) we will find that
 
“Compared to the first economic census in 2004, there were 1,709,000 more legal units, up by 52.6 percent. Of this, the number of state-owned corporations was 143,000, down by 20 percent or a decrease of 36,000, that of collective corporations 192,000, down by 44 percent or a decrease of 151,000, share-holding cooperatives corporations 64,000, down by 40.2 percent or a decrease of 43,000, that of joint-operation, limited liability and share-holding corporations was 659,000, up by 52.5 percent or an increase of 227,000, private enterprises 3,596,000, up by 81.4 percent or an increase of 1,614,000, other domestic funded enterprises 119,000, up by 116.3 percent or an increase of 64,000, that of enterprises with funds from Hong Kong, Macao and Taiwan was 84,000, up by 13.5 percent or an increase of 10,000, and 102,000 for foreign funded enterprises, up by 30.2 percent or an increase of 24,000.” (emphasis mine)
 
Between 2004 and 2008, the number of state owned corporations decreased by 20% and that of private enterprises increased by 81.4%. In other words, clearly the state ownership of economic firms is reducing in China. However it is true that the biggest companies and the strategic sectors are still owned by the state-owned enterprises. But the point is that employment in these enterprises is very small. Again if we look at the data on the second economic census of China, we will see that:
           
“Of the total employees in industrial enterprises, 9.2 percent were employed by state-owned and state sole funded enterprises, 2.9 percent by collective-owned enterprise44.4 percent by private enterprises,10.7 percent by enterprises with investment from Hong Kong, Macao and Taiwan ,11.7 percent by foreign-funded enterprises, and 21.1 percent by enterprises of other types of ownership” (emphasis mine)
 
It is seen clearly from the above that while the strategic sectors are held by the state-owned enterprises, the percentage of employment in these enterprises are much lower than that of the private enterprises. Therefore, most of the workers in China are working under private players.
 
While indeed it is the case that such ownership of crucial sectors by the government is not possible under neo-liberal capitalism, it is perfectly possible under state capitalism. We have seen in the case of India that during the Nehruvian era the strategic sectors were owned by the government. But slowly all of that was dismantled. In the case of China on the other hand, it is far removed from the Indian experience. None the less it is hard to believe that social ownership of means of production is getting strengthened in China.
 
The more important issue however is what the economic outcomes of the Chinese growth trajectory are. Let us try and focus on some of the issues pertaining to the economic outcomes of this high growth.
 
1.      Inequality in China has increased drastically over the reform period—all forms of inequality between the rich and the poor, between the rural and urban areas, between coastal and inland areas have increased at a rapid pace in China.
 
2.      The condition of labour has worsened in China. This can be shown from the fact that in 1983 the share of wages in China's national income was 56.5%, which has come down to 36.7% in 2005. This huge decline in the wage share in China is the mirror image of a concomitant increase in the profit share in the country. This explains to a large extent the worsening inequality in China. There have been major labour unrests in China in factories like Honda, Toyota etc in 2010. Only with the strike action and other militant action by the workers in these factories, they managed to increase their wage.
 
3.      Let us now see if Chinese workers are better off than their brethren in other countries. A study by the Bureau of Labour Statistics shows that the average hourly wages of workers in the industries in China was lower than Mexico, Philippines, East Asia, Japan etc. (China's Employment and Compensation Cost in Manufacturing Through 2008, Bureau of Labour Statistics, USA). Another study by the same agency has found that the average hourly wage in China is less than that of the organized sector in India, in the manufacturing sector. (International Comparison of Hourly Compensation Costs in Manufacturing, 2010)
 
4.      The other issue with regard to the condition of workers is the question of employment generation. According to an ILO study by Prof. Ajit Ghosh, it is estimated that between 1990 and 2002, the employment growth was only 1%, with the formal employment shrinking and the entire increase in employment happening in the informal sector. Such a dismal performance, even with a very high growth rate of GDP, only shows that growth has bypassed the workers in China. This decline in formal employment and rise in informal employment is showing an increasing trend in China. In 1995, only 8.9% of the urban workers were informally employed. In 2005, the proportion of informal employment in urban employment has increased to 36.1%. (Formal and Informal Employment and Income Differentials in Urban China, Guifu Chen and Shigeyuki Hamori, Journal of International Development, 2011). Moreover, there has been a huge increase in rural urban migration in China. It is estimated that migrant workers accounted for 46.5% of total urban employment. Moreover, the migrant workers have to work for more hours and get less wage than non-migrant workers. Additionally, the social security coverage of the migrant workers is also minimum. In other words, they are the super-exploited workers in China and their number is increasing. (Employment and Inequality Outcomes in China, Cai Fang, Du Yang, Wang Meiyan)
 
5.      It is estimated by the ILO that 28.2% of local workers and 60.8% of migrant workers were employed with low wages in China. Moreover, 42.7% of local workers and 67% of migrant workers working under private employers received low wages. Around 29.8% of the local workers and 60% of the migrant workers earned less than the statutory minimum wage in China. (Global Wage Report, 2010-11, ILO)
 
6.      Land acquisition has also become a major issue in China with the farmers rising up in protest against such acquisitions of land in various places, the most famous being the case of Wukan. However, there are also reports that more than 180000 protests and cases of rioting have been reported in China in 2010.
 
From the above it is clear that the conditions of the workers remain at an abysmal level in China. It is the existence of such low wages in China compared to other countries that international companies prefer China as an attractive investment destination. The question is why is it the case that even with such high levels of GDP growth, the situation of the workers have not improved, in some cases it is showing signs of deterioration. In order to understand that, we have to look at the Chinese growth process.
 
The Chinese growth is hugely dependent on its exports, particularly to the advanced capitalist countries and USA. In fact, the USA is the biggest export destination of China. Now, in order to continuously export a higher volume of commodities in the world market, Chinese firms have to face stiff competition from other countries. One of the main way to deal with such competition is to reduce prices. Now, prices of manufactured products are essentially composed of prices of raw materials and price of labour, i.e. the wage rate. It is difficult to reduce the price of raw materials since those are fixed by the producers of raw materials. Therefore, in order to remain competitive in the world market, China has to ensure that wages do not rise. This can be ensured if there exists massive unemployment or informal labour in the economy. On the other hand, due to technological progress even with high exports and high growth, these unemployed workers and informal workers cannot be absorbed by the growth process. Therefore, the inherent nature of the Chinese growth process must give rise to a deterioration of the conditions of the workers and a barrier to a growth of wages relative to other countries. All this has happened in China. As long as the model of growth remains one of export led growth, such problems in the economy will remain.
 
The fact that the USA remains the largest export destination of China has important ramifications for the economy of China. A slowdown in the growth rate of the US economy will have adverse impacts on the growth rate of GDP on China. Therefore, the Chinese economy is dependent on the USA for its growth. At the same time, the US economy also has beneficial relations with China. For example, the real value added by US Multi-national manufacturing companies increased their total value added in China from $8.1 billion in 1999 to $40.8 billion in 2009, with an annual average growth rate of 17.5%. China accounted for only 2.1% of world-wide value added of the US manufacturing MNCs, which increased to 9.7% in 2009. This is the second highest share of value added in the world, after Germany, for these companies. (Operations of US Multi-national Companies in the United States and Abroad: Preliminary Results from the 2009 Benchmark Survey, Bureau of Economic Analysis, Government of USA) Therefore China is a very important market for US MNCs. In order to protect the interests of these companies, it is important also for the USA that there is no major problem in China. In other words, China and the USA share a symbiotic relationship with each other. It is therefore not surprising that while there exist difference of opinion between China and USA on many issues, the two countries do not oppose or try to interfere in their core economic issues. It is also not surprising therefore, that for China, which depends significantly upon the US for its exports and caters to the needs of US multi-nationals; imperialism no longer remains a relevant category. Therefore, the CPC has dropped the concept of imperialism from its understanding.
 
The political problems however do not end with this. The CPC has allowed Chinese capitalists to become members of the party. There are reports that many millionaires are being inducted into the National People’s Congress where the net worth of the 70 richest delegates at the NPC, the country's 3,000-member legislative house, rose by a stunning $11.5 billion last year, according to a new report from Hurun, a Shanghai-based company that publishes a Chinese rich-list every year. While the NPC's delegates are chosen by the Communist Party of China (CPC) they have been drawn from China's biggest State-run and private enterprises, which explains their riches — six of China's 10 richest individuals serve on either the NPC or the Chinese People's Political Consultative Conference (CPPCC), a political advisory body that could be loosely compared to the Rajya Sabha. Moreover, there are also reports that Liang Wengen, China's richest man and chairman of the Hunan-based heavy machinery producer Sany Group, looks set to become the first private entrepreneur to enter the Central Committee of the Communist Party of China (CPC).
 
Irrespective of the pitfalls of the Chinese growth process and the increasing burden on the poor people, there is a view that the high growth rate of GDP attained in China is a proof that socialism exists in China through an increase in the productive forces. It is true that China has witnessed a very high rate of growth of GDP for the last 30 years. But an economy should not be judged solely on the basis of a development of productive forces. The point is that if the development of the productive forces jeopardizes the class relations where the basic classes are facing tremendous misery then that attainment of the high growth remains only as a statistical artifact and has no relation with socialism. Even in India we have witnessed a very high growth phase. But solely on the basis of that to even remotely suggest that India is moving towards socialism is blatantly absurd. In other words, socialism cannot be equated merely with a high level of growth of GDP, when the system is highly inequalizing. To quote Prof. Prabhat Patnaik,
            “The third implication is, as a result, socialism is seen essentially as a system that will work better from a productive point of view. This is something which was put forward in a very crude way, critiqued by Mao Tse-Tung. It was put forward in a very crude way by Alexi Kosygin, the Soviet Prime Minister of the time, who said, socialism is 7% growth rate, that capitalism cannot achieve this continuous 7% growth rate but socialism can.”
 
To sum up, what we are witnessing in China is a process whereby the social ownership of means of production is getting reduced, where inequality is increasing with worsening conditions of the workers, imperialism has been dropped from the understanding of the CPC and super-rich people have entered the communist party at very high levels. Such developments are not pointing towards a situation where socialism is getting strengthened in China.
 
 

[1] This is based on the arguments present in Irfan Habib’s Appendix essay in the volume ‘On Socialism’, edited by him
 

 

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Comments

by Anonymous on Sat, 2012-07-21 14:53

Subhanil's article on Socialism in China

It appears that the author has made a superficial critique focusing on bits and pieces and giving scanty data in support of his contention that socialism is not being "strengthened" in China. Even so, he does not seem to make out a case that there has been a reversal from the socialist path or that there has been reinstatement of the capitalist system in China. Very little has been mentioned by him about the character of the Chinese work force and the changes in the work profiles as well as productivity. A comparison with India should include detailed comparisons of the shop floors in the two nations, housing, education, transportation facilities made available to workers in the two countries; share of income spent by working class families on food, shelter, clothing and essentials, and the surplus if any and the manner of its utilisation. Portraying China as being hopelessly dependent on exports to the United States is childish at best. The vast sums of money being spent on infrastructure of world class in China is surely a factor that would weigh on companies seeking to set up shop there. Moreover, the large holdings by China's Central Bank in the U.S. securities undoubtedly influences policy-making in the United States and reduces stridency. We would do well to copy China's best practices while being ruthless in our criticism of anti-working class measures, if any!

by Anonymous on Fri, 2012-07-20 16:14

The Liberalists vs New Leftists Debate in China

But the Neoliberals, continue to argue (are also highly critical of the New Left, for being 'utopian') that the subsidies to the SOEs should go and that further and further opening up is needed. This essentially means that the government should go forward with more and more market-oriented refroms. Many of them also complain that the CPC and Government are getting weighed down in the New Left arguments. Also, a good section in the CPC also support the Liberals. This link throws more light on the debate between the Liberals (many of them vocal about the need for further market reforms) and those from the New Left, from the point of view of the former. http://csis.org/files/publication/110728_Freeman_ChinaNewLeftists_Web.pdf

- Anand P.K