By Eva Cheng
Readers of the western press are told that the economy in China has been "booming" in recent years and the people living in increasing "prosperity" due to their new-found economic freedom. The tens of millions of workers in foreign-funded sweatshops are supposedly benefiting too, thanks to the previously denied "option" of working harder and for longer hours.
All is credited to the "economic reform" since 1978 and, ultimately, to Deng Xiaoping, the "architect" of the whole scheme, who died on February 19.
The Economist hailed Deng as "brilliant" though "brutal" in his rule, but added that the "reform" is incomplete and needs to be pursued with further vigour. Time credited Deng with setting off the "the most remarkable transformation of the modern age", an "economic miracle", stressing also that Deng's work is unfinished. The Far Eastern Economic Review said Deng was able to give China "more prosperity than it had even known" by turning capitalism "from a social evil to a social tool".
These commentators are right on one point: the reintroduction of significant profit-driven production is the cause of the fundamental changes in China's economic and social order. But the rest is mostly fiction.
Prosperity for some
"Prosperity" applies to the less than 3% of the population — the "entrepreneurs" and other members of the "new rich" — who hold 28% of the nation's private savings.
But 65 million people are struggling under the official poverty line (annual income of 300 yuan, or US$36, way below subsistence even in China), half of them well below that line. What does "prosperity" mean to the 200 million or so unemployed or underemployed and the hundreds of millions more who officially have a job but are often paid below subsistence and are threatened with the sack?
Though with gaps due mainly to great material poverty, after the 1949 revolution the government implemented a priority of providing a job and means of subsistence and basic welfare to the people. Beginning in 1978, that priority was seriously eroded under the "reform", which was extended to the cities in 1984. A Communist Party resolution on poverty released early this year calls on the poor to be "creative" and "self-reliant" in solving "their own" problems.
Under Deng and the disguise of providing material incentives, production and allocation have increasingly been decided by private profits rather than social needs. The process is brought about by allowing an increasing extent of private and quasi-private ownership of the means of production.
Not surprisingly, the bulk of the new rich are members of the bureaucracy — the 57 million Communist Party members — and their hangers-on, who were in a position to translate their quan xi (connection with the power centre) into cash — kickbacks and access to crucial supplies and approvals for their private business ventures or joint ventures with foreign investors.
As a rough indicator of the wealth amassed by this layer, China topped the World Bank's list of countries suffering from capital flight, to the tune of about US$4.4 billion a year between 1981 and 1991. Based on UN and Chinese official figures, one US academic estimated the outflow to be $15-25 billion in 1990, $13-28 billion in 1991 and $40 billion in 1993.
This does not mean that these entire amounts have been withdrawn from productive activities in China. A significant portion is believed to have been "round-tripped" back to China as "foreign direct investment" in order to take advantage of lucrative tax holidays and other benefits reserved for foreign investors.
Though two-thirds of the state firms have been officially in the red for many years, their real state may not be as bad as it appears, because of a common practice of under-reporting profits to minimise taxes. However, the fact that more than 50% of key industries are officially part of the planned sector is not a reliable measure that China is more "socialist" than capitalist.
A far more crucial factor is the extent to which the bureaucracy is motivated to defend the public ownership system. Up until 1978, that system was the primary basis on which the bureaucracy derived its material privileges. But that is increasingly less the case under the "reform", which made profiting from private business ventures possible.
Foreign policy
Despite the drastic change in economic policies, the bureaucracy during the Deng period barely touched the basic foreign policy framework set by Mao. Rivalry with Moscow has dominated Beijing's foreign policies since the late 1950s, shaping its 1972 move of allying with Washington and the accompanying need to reduce support for revolutionary struggles in the Third World.
Deng pursued the alliance with the US with greater vigour — most dramatically with the invasion of Vietnam in February 1979, assisting Washington's venture to weaken the gains of the popular forces in Indochina following its defeat in 1975.
This alliance has given China access to the huge US market, not dissimilar to that Washington granted previously to political allies such as Japan, South Korea and Taiwan. In this political context, Washington allowed a huge deficit to build up in its trade with China. On the other hand, China is now the biggest market for important US products like aircraft, power plants and telecommunications facilities, which are getting harder to sell.
Japan and the key European countries have a similar overproduction problem. They place a lot of hope in China as an outlet for such capital-intensive products. They have an interest in seeing that China's pro-capitalist policies continue.
But the working people of China may yet intervene collectively, as they have done before, most noticeably in 1989. Shortly before Deng's death, the Communist Party said in a public document that some of the key factors most likely to lead to social unrest were "opposition and confrontations arising from gaps in regional developments and in the income of different social strata"; "resistance to the party and the government arising from the large number of [worker] dismissals, [forced] early retirement or people 'awaiting' re-employment at state enterprises"; and "aggravation of the rural problems, and increasing organised protests, demonstrations and unrest".