Joseph E. Medley
Economics University of Southern Maine
Portland, Maine 04103
(207) 780-4293
MEDLEY@USM.MAINE.EDU
Introduction
Many in the West have concluded that China's embrace of markets means it has also embraced capitalism (Business Week 5/17/93, Kahn and Perkins 1993, Unger 1993). Victor Lippit (1992, 1993), on the other hand, has argued that China's economic reforms are consistent with producing a more effective socialism. Gabriel and Martin (1993) point out that reforms in China's agricultural sector "...represent the genesis of ancient class relations..." (p. 108) and mean that surplus labor appropriation in China is not primarily socialist or capitalist, but contains the "seeds" for both. This paper focuses on how Chinese state policy integrates China into the global economy and points out that the purported transition to a "socialist market economy" establishes conditions which support foreign-funded capitalism at a high cost to the welfare of significant segments of the Chinese population. The Chinese state (P.R.C.) is establishing and reproducing political, economic and even cultural conditions to support foreign capitalist production in China and permit transfers of surplus from China through international capitalist networks. Firms operating out of Hong Kong, Taiwan, Japan, the US and elsewhere receive direct support from the Chinese state to establish and expand their operations in China. The Chinese state has not been directly forced into these activities. Instead, the Chinese state has taken these steps in an attempt to promote the economic development of China in a world in which the way that a country's economic activities are integrated into the global economy (i.e., not whether they are) is a major influence on its population's economic and social welfare. The Chinese state claims that it is building "socialism" with a Chinese character, i.e., a "socialist market economy". The 7th National Peoples Congress (1988) legitimized aspects of the private economy including private control and transfer of land (BR 4/26-2/93). In March 1993 the 8th Congress formally amended the constitution to sanction a socialist market economy instead of a planned economy based on public ownership. This "... change in the essence of China's law and social development..." provided a legal basis for China's current economic reforms so "...both the Chinese people and foreign investors..." can be confident that "[China] can develop a commodity economy with perfect assurance" (BR 4/26-2/93: 16). Deng Hsiaoping and the Chinese Communist Party have turned to market mechanisms to build up China's productive forces and the Chinese economy. "All matters, including ideology, theory and politics, guiding China's construction and reform, must be concerned with whether they help the development of the productive forces or not" (BR 12/19-25/88: 21). In their view implementing the market mechanism and associated changes in property relations involves privatization and commodification of land, raw materials, labor and agricultural and industrial goods. In addition, it includes changes in the nature of government intervention within the economy and specific corresponding modifications of regulatory systems, the monetary system, the legal system, and the social welfare system. With these changes the Chinese central government seeks to promote foreign investment (FDI), technology transfers, exports and income growth which together will augment China's productive forces. Special economic zones (SEZs), coastal cities and other related development zones cluster processes which secure the conditions for foreign-funded capitalist production. In early 1992 on an inspection tour of Guangdong Province, Deng argued that the special zones would enable China to catch up with the "four dragons" within the next 20 years and that the zones' "special policies" and "flexible measures" were necessary to increase efficiency and improve China's productive forces (BR 5/25-31/93). The development of foreign-funded capitalism in these zones inserts China into the global capitalist economy and amounts to a "guided imperialism" designed to build up the Chinese economy, people and state. Land China is home to 900 million peasants. Their livelihoods depend on access to and use of land. Land is increasingly being transformed into a commodity in both rural and urban China. Long term (50-70 years) leasing of land and lease transfers are now permitted (FEER 8/12/93). Use rights are available to the highest bidder. Due to the initial effects of reforms, farm incomes increased in the early 1980s. However, in recent years local taxes and the increasingly market prices of agricultural inputs have been rising. In combination with stagnant output prices the result is widespread and increasing stagnation (and even reduction) of rural incomes, increased rural poverty, land lease sales and discontent. Chinese agriculture itself has been polarized. Some farmers near urban areas have been able to diversify their output (high value fruits and vegetables in place of grains), utilize machinery and other manufactured inputs, hire day-workers and prosper by selling their output in rapidly growing urban markets. Except for those successful farmers, there has been a rapid decline in the land available for cultivation near urban areas as local development zones and real estate projects crowd farmers off the land. The loss of income and access to land, and the consequent loss of the ability to earn a livelihood, has led to massive migration by the "freed" rural labor force to look for jobs and income in the coastal provinces, cities and development zones (FEER 7/15/93, BW 5/17/93). Many poor farm villages survive only on remittances from the rural migrants. "When the winners and losers of 15 years of reforms are counted, China's rural majority clearly are not among the winners" (FEER 7/15/93: 69). In development zones, land is primarily leased to foreign (or joint-venture) enterprises. The local governments grant leases for a fee. For example, Canton received $1.6 billion for leases in 1992, up four times from the level in 1991 (FEER 8/12/93: 71). With the gains from land leases the local areas often build up infrastructure to support more industry. For example, Changan village (resident population 30,000) in Guangdong province converted its agricultural land into factory space. It now rents industrial plants to approximately 700 foreign and joint-venture firms which together employ over 100,000 workers drawn from the rest of China. The village's rental income is about $40 million a year (BW 5/17/93: 55). In 1992 Shanghai registered 201 leases (compared to 7 leases in 1991) involving 21 million square feet. These leases produce revenue of $2 billion, of which 15-30% will go to the city and the remainder to the local district (FEER 8/12/93: 72-73). Real estate has been very lucrative for local governments and officials. Consequently, a building boom to provide infrastructure and prepared (factory and office) space for foreign-funded firms has ensued. It has been fueled by a rapid expansion of credit. Broad money supply has grown over 30% in 1992 and at a rate of more than 50% in early 1993 (FEER 9/2/93: 36). Investment in capital construction in the 1990's has increased nationally about 20-30% per year and increased to a yearly rate of 60% by mid-1993 (FEER 8/12/93: 69). Referring to the changed relationship between the coastal development areas and the countryside, the Far Eastern Economic Review quotes a Chinese government researcher: "... the current crisis is the direct result of giving so many incentives and privileges to the southern coastal areas without regard for development in the vast interior" (FEER 7/15/93: 69). Labor Labor power is becoming a commodity in China as people lose access to means of production (especially land) and to the right to a job in the communal or state sector. The privatization of land, the increase in the size of land holdings and income stagnation in the countryside will add 210 million entrants to China's wage-labor market by the year 2000 (FEER 11/4/93: 13). Reforms in the late 1980s to increase efficiency and "profits" in the state industries pushed out over 20 million employees (BR 12/19-25/88: 22). Further restructuring to eliminate "surplus" workers and optimize production is expected to make another 60 to 70 million workers redundant during the 1990s (FEER 9/2/93: 36). Already China's reserve army counts in excess of 80 million out of work, nation-wide (BW 5/17/93: 64). Guarantees of employment and livelihood have effectively been eliminated and working conditions are deteriorating. According to government officials "... the state is no longer solely responsible for the welfare and job assignments of all workers" and "... unemployed [workers] can organize their own enterprises or become self-employed" (BR 12/19-25/88: 21). A large portion of the unemployed have gathered to seek work in the coastal cities and development zones. In the Shenzhen SEZ near Hong Kong the total population has swelled beyond 2.5 million, with only the 700,000 official residents entitled to legal rights. (FEER 11/12/92: 47). In this environment it is not surprising that China has an increasingly dismal health and safety environment and that many factories resemble 19th century sweatshop conditions (FEER 8/19/93). China's labor market allocates labor-power to those firms willing and able to pay to hire the best from China's huge labor supply. Government (usually local) operated labor exchanges funnel workers to the private sector, primarily to foreign firms, for a fee (up to 10,000 RMB per worker - approximately $1800 at official exchange rates) (FEER 9/9/93: 48). In Shanghai, over half the employees (out of a total of 2.1 million) in more than 1,000 foreign firms were employed this way (BR 2/1-7/93: 13). "Foreign-funded firms find it easy to solicit staff for any positions they need to fill" (BR 2/1-7/93: 13). Firms can set wage levels (BR 11/23-29/92) and they are allowed to contract labor by qualification (BR 12/19-25/88). A prospective employee of a foreign firm described the situation she sought in the following words: "those who are successful must exert their utmost or otherwise face dismissal" (BR 2/1-7/93: 14). Means of Production Chinese policy concerning the allocation of means of production has shifted dramatically. They have moved to "...flexibly use price mechanisms to reasonably distribute resources..." (BR 11/23-29/92: 25). The majority of resources are now allocated by the market to those with the necessary capital. The market allocates 90% of the resources in the coastal cities and development areas and 75% of the resources allocated to key industries (BR 7/5-11/93: 14). The portion of means allocated by mandatory plan will fall to 7% in 1993 (BR 1/18-31/93: 21). The government plans to continue to "...promote the all-round development of the capital goods market system..." (BR 7/-11/93: 16). Prices for means are now set at the enterprise level for a wide variety of goods from chemicals to farm machinery (BR 7/5-11/93) to scientific and technological information and services (BR 1/18-31/93). The effect of the commodification of means is that costs and the conditions of access have changed. For example, the increase in oil prices (FEER 11/12/92) reduces the implicit subsidy to state industries and cuts into their supplies. The shift to market prices thus increases the actual supplies of oil to the highest bidders - usually foreign firms. The commodification of means of production therefore makes China's means readily available to foreign firms at internationally competitive prices. Foreign Direct Investment, Markets and Trade The Chinese are counting on FDI to organize production in China more effectively, transfer technology and increase the level of productive forces and income. To support these efforts the government is improving the "investment environment". They are delegating full control of decision-making to foreign firm managements, guaranteeing protection of intellectual property rights and granting access to domestic markets, especially if the foreign firms bring in advanced technology (BR 4/26-2/93). Foreign firms are allowed to source means, labor and other production imports at competitive market prices (FEER 11/12/92). Finally, income from domestic Chinese sales can be readily converted into foreign exchange and freely repatriated. From 1979-1992, the Chinese government, at different levels, approved the operation of about 70,000 foreign-funded enterprises, most of which were small to medium export processors (BR 1/18-31/93: 12). In 1992 alone they approved approximately 50,000 projects, $58 billion in contracted FDI and $11.2 billion in actual investment up 160% from 1991 . Overall, in 1992 FDI (at official rates) accounted for more than 10% of China's total investment (FEER 9/2/93: 38). FDI in early 1993 continued to sky-rocket. An estimated $50 billion in new contracts were signed during the first six months of 1993 with the total expected to reach $80 billion by the end of the year (BR 7/26-1/93: 14-20). The Chinese partners of foreign-funded firms get cheap access to a partnership share of the surplus in return for providing access to resources (land, infrastructure, labor, materials), access to domestic markets and the freedom to repatriate profits. Providing access to infrastructure and space often counts towards part of the Chinese contribution in joint ventures. In addition the foreign partner's contribution is made in foreign exchange at official rates. The official rates overvalue the Chinese currency. The Chinese partners (especially if they include local government officials) can convert the forex on local markets at up to twice the official rate to raise the "extra" funds needed to meet their participation requirements (FEER 9/2/93). China has decisively opened its markets. The new openness is reflected by reductions of tariffs and quotas and significant easing of administrative restrictions on trade (e.g. licenses, access to foreign exchange). Increased FDI, and increased access to domestic markets granted to foreign trading companies, has stimulated dramatic expansion of China's two-way trade. China's exports rose 18% in 1992 to $85 billion (with manufactured goods 80% of the total), while imports rose 26% to $81 billion (BR 1/18-31/93: 10). During the first three quarters of 1993 total trade volume rose 17% (over the first three quarters of 1992) to $130 billion. Exports rose 7% to $61 billion. Imports, increasingly capital goods imported via Japanese trading companies, rose 30% to $68 billion. Electromachinery imports were the largest category, rising 51% to $32 billion (BR 10/25-31/93: 5-6). This dramatic increase in capital goods imports pushed China's trade into deficit for the first time since the late 1980s. Conclusion China's economy is now beginning to reflect a classic pattern of uneven capitalist development. The coastal cities and development zones are rapidly growing. However, the benefits are not spreading to interior. China's GNP grew an average of 9% during the 1980s (FEER 7/15/93: 74). Real GNP was up about 11% in 1992. Industry (located mostly in the coastal areas) grew approximately 20%, and investment in fixed assets was up 31% (to about 30% of GNP) (BR 1/4 10/93: 16). On the other hand, total agricultural output was only up 3.5% over 1991, with most of the increase coming from cash crops sold in urban areas (BR 1/4-10/93: 16). The income gap between rural and urban areas increased by 100% from 1985 to 1991 (FEER 7/15/93: 69). In 1992 average real per capita income grew approximately 2% in urban areas while it shrank in rural areas (BR 1/4-10/93: 17). Thus, the income gap continued to widen. The only sectors with high real growth are industry (with most of the gains from exports) and the service sector in the coastal cities and development zones (BW 5/17/93, BR 1/4-10/93). The growth of foreign-funded firms continued to drive the economy in early 1993 (BR 5/2 9/93). Overall China's prosperity is now founded on rapid growth of the foreign funded industrial export sector, which in turn is based on expansion of infrastructure, partnerships and growing FDI. The rapid growth of these sectors conceals stagnation in other urban areas and in the countryside (FEER 7/15/93). If loans and preferential treatment for foreign-funded firms are reined in and their growth is slowed, or if resources and benefits are reallocated from the development zones to the countryside to address growing problems there, then FDI will likely decrease as foreign-funded firms "reassess the investment climate" (FEER 7/15/93). The Chinese economy will collapse. The Chinese state, without external compulsion, exerts its powers to secure conditions for foreign-funded and directed capitalist production in China. The various levels of Chinese government receive shares of the surplus in return for providing access to land, labor-power, credit, foreign exchange, markets, etc. Chinese policies in the countryside effectively displace much of the peasantry from land and livelihood and make land available to the highest bidder. These policies create a surplus of "freed" labor-power and make low-cost market supplies of raw materials and consumption goods available to capital. That is, the Chinese state creates conditions which support a primary accumulation of capital and a commodification of basic inputs. China's new approach to building socialism attempts to utilize foreign funded and directed capitalist production to support domestic development and integration into the international capitalist economy. However, China's attempts to "guide imperialism" are not producing all the hoped for benefits. The side effects of creating the conditions for capitalist production are increased landlessness, unemployment and poverty for many. Only the few who are able to secure privileged positions with foreign-funded and related firms benefit. In order to achieve its proclaimed goals, China's state must structure its domestic and international policies to meet the needs of its people instead of subordinating them to the needs of capital.
References
Beijing Review (BR) (dates indicated).
Business Week (BW). 1993. China. May 17: 54-68.
Far Eastern Economic Review (FEER) (dates indicated).
Gabriel, Satyananda, and Michael F. Martin. 1993. Ancient Production and the Baogan Daohu System in China. Review of Radical Political Economics 25(1): 108-128.
Kahn, Mumtaz, and Lucy Perkins. 1993. Investors Please Apply. China Business Review May-June: 27-29.
Lippit, Victor. 1992. China's Economic Reform in Comparative Perspective. Review of Radical Political Economics 24(2): 132-138. 1993.
But What About China? Rethinking Marxism 6(1): 128-138.
Unger, Jonathan. 1993. China: Taking the Plunge. The Nation. November 29: 30-31.