China since Mao is one of the great success stories of modern capitalism. Thirty years ago the Chinese economy was growing slower than China’s population and accounted for less than 1 percent of world trade. Earlier this year China overtook Germany as the world’s largest exporter, and the economy has continued to grow throughout the world recession – almost the only economy in the world to do so.
The reasons for this are hotly debated. The standard picture is that China has grown, uninterrupted for the past 30 years and that the primary reason for this is privatisation. Neither of these is true.
There have been two distinct phases of growth since 1978. The first, which started in the late 1970s, began with effectively privatising the land and giving peasants incentives to grow much more. That led to the growth of rural industries to produce first consumer goods and then basic exports.
This was a pragmatic strategy centred on taking up the slack that existed in the economy – getting the peasantry to work much harder and using existing investment more efficiently. It worked for a while, but its very success caused major problems, including the worst inflation since 1949. By late 1988 the economy had gone into convulsions which helped to trigger the Tiananmen Square movement of 1989, the largest and most widespread protest movement in China since the 1920s.
When growth restarted in the early 1990s it was on a very different basis – export-led and concentrated in the south eastern coastal provinces, exporting firstly consumer goods and then electronics essentially to the US. This was made possible by very high levels of foreign investment and tens of millions of migrant workers from China’s inland provinces. It was also heavily dependent on imports of components (from South East Asia) and raw materials and oil (from Latin America and Africa).
Even before the crisis hit in 2008, it was obvious that this model of growth couldn’t continue indefinitely. It was entirely dependent on US consumers continuing to buy ever greater amounts of Chinese exports, which Will Hutton in his book The Writing on the Wall accurately called “both a mathematical and an economic impossibility”.
Although land use has been privatised, the same is not true of industry. The rural industries that boomed in the 1980s were mostly owned by local governments and, even with the recent influx of foreign capital, the state still has decisive control over the most important sectors of the Chinese economy.
While much of the economy is now run on market principles, a key part of that process was devolving economic power from Beijing to local governments. This did help to stimulate economic growth, but at a cost – duplication of investment and Beijing losing control over local spending.
However, central state control has remained far greater than in any other major economy, which has given the government the ability to weather economic storms better than its competitors. This was true in the Asian currency crisis of 1997 and the bursting of the “dotcom” bubble in 2001.
So far it also seems to be true of the current economic crisis. China’s exporting industries suffered very badly in 2008, with over 20 million migrant workers losing their jobs and thousands of factories closing. A government survey found that at the worst point last winter one in seven firms had either stopped or cut production.
But despite the continuing drop in exports, the economy is still growing. The key reason for this is state spending. According to the World Bank, government-influenced investment in early 2009 was 50 percent higher than in 2007.
Some of the money has come from the export surplus, but there has also been a huge increase in bank lending, which cannot be sustained indefinitely. But as most of the spending has gone into improving the infrastructure – and the railway network in particular – it is immediately creating or sustaining jobs and stimulating further investment.
However, the World Bank is probably right when it argues, “There is a limit to how much and how long China’s growth can diverge from global growth, given that China’s real economy is relatively integrated in the world economy.”
One of the key limitations here is that household consumption has fallen as a proportion of economic output. In the 1980s it accounted for over 50 percent of output, but by 2005 it had fallen to just 38 percent – the lowest percentage of any leading economy (the equivalent figure for the US is 71 percent).
For the government to significantly increase the amount of goods that Chinese workers and peasants consume, it will have to restore the minimal state provision of education and health services that existed before 1978. Almost all social provision is now run by the market, and funding health emergencies and children’s futures is one of the main reasons why workers and peasants save so much of their wages.
Social spending has increased greatly over the last year, but to nothing like the level needed. And even if the government did commit the sums necessary, there are deeper, structural limits to China’s continual growth, in particular scarcity of resources and the growing impact of climate change. Glaciers are retreating faster on the Tibetan plateau than anywhere else on earth, and water shortages are now spreading to all the major rivers.
China’s resilience is accelerating an already shifting balance of world power, in which the US is steadily losing strength. China has become both a huge investor abroad (not least in the US itself) and a huge market for exports from South East Asia, Africa and Latin America.
This has led to a steep rise in China’s political influence, which some governments have used to increase their independence from the US and world economic institutions.
One of the reasons why Hugo Chavez in Venezuela can defy the US is the knowledge that China would buy all of Venezuela’s oil in the event of a US embargo.
For some on the left this shows that China is creating a newer, better world order free of US domination. But this view ignores the extent to which China works with, as well as against, US power. The government supported the invasion of Afghanistan and has worked with successive US administrations in trying to remove North Korea’s nuclear weapons.
China has also joined the World Bank, the International Monetary Fund, the World Trade Organisation and other key institutions of the world economy, and has so far shown no signs of trying to alter the way they act. The US economy is vital to China’s continued growth – no other economy can absorb so much of its exports, or provide the investment opportunities for China’s dollar mountain.
China is not seeking to supplant the US as the major world power, but rather to assert its own power within a US-dominated world. This process has gone furthest in Asia, where China has been central to constructing various political and economic alliances which exclude the US – and include some of the world’s most repressive regimes in central Asia.
China is equally supportive of such repressive regimes as Zimbabwe and Sudan. Far from offering an alternative to imperialism, China is itself becoming an imperialist power in Africa and Latin America.
The increasing economic and diplomatic tussles between China and the US are about how to manage their conflicting and competing economic interests across the world, rather than a clash between different visions for the world economy.
The huge changes in the economy have led to equally huge changes in society. One of the most important of these has been an upsurge in mass protests and demonstrations on a scale not seen since the 1920s.
The main reason for this has been the growth in inequality and corruption. Although almost everyone is better off than 30 years ago, life for most workers and peasants is more precarious and uncertain than before, while senior officials and managers have grossly profited from the growth of the market.
These “mass incidents” have had multiple causes. From the early 1990s there were mass demonstrations by peasants across southern and central China protesting against corruption and illegal taxes. The late 1990s saw the same tactics used by workers who had been laid off, with some industrial complexes and cities seeing near-insurrectional movements.
Since 2002 there have been fewer of both of those types of protests, largely because the government made major concessions. But there have been growing numbers of strikes in the newer exporting industries and among service workers as well as urban riots over a variety of injustices, and peasant protests over land-grabs and environmental crimes.
According to government figures, there were some 58,000 “mass incidents” in early 2009, almost twice as many as in 2008. This includes a greatly increased number of strikes over factory closures but also a growing tendency for urban crowds to take on the police.
In June thousands of protesters fought police for two nights after a suspicious death in the central city of Shishou. A month later some 30,000 steel workers in north eastern China demonstrated against plans to privatise the factory.
Between these events came the ethnic violence in the far western city of Urumqi. Although the state has now clamped down hard on the whole province, the nationalist protests coming just a year after far bigger protests in Tibet illustrate that the government’s problems with minority nationalities are getting worse.
These outbreaks of resistance don’t amount to a coherent threat to the government or ruling class. But the state cannot repress such outbreaks and, as most protests win something, the examples become increasingly contagious.
This may still be China’s century, but the Chinese ruling class will not have everything their own way. The last 30 years have shown both workers and peasants the possibility of greater prosperity and better lives, and they have proved increasingly willing to fight when the market reneges on its promises.
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