Chinese
Capitalism:
Industrial Powerhouse Or
Sweatshop Of The World?
By John Chan
31 January 2003
World
Socialist Website
When
Beijing entered the World Trade Organisation (WTO) in December 2001,
it undertook to remove most of the remaining barriers to the operation
of foreign corporations inside China by 2006. The resulting flood of
investment into the country has given rise to glowing predictions in
international financial circles that China is emerging as the new industrial
powerhouse of world capitalism.
The October issue
of the British-based Economist magazine, for example, lauded the southern
Chinese province of Guangdong, which is adjacent to Hong Kong, and the
countrys major export region, as the contemporary equivalent
of 19th century Manchestera workshop of the world.
In similar vein,
the Los Angeles Times enthused: Poor and isolated 30 years ago,
China is emerging as the worlds factory floor. The countrys
middle class, though just a sliver of the population, is estimated at
more than 100 million and growing rapidly. Even now, China buys more
cell phones than any other country. Its expanding industrial sector
is becoming a major buyer of raw materials, machinery and high-tech
equipment.
Nicholas Lardy,
a professor from the US-based Brookings Institution, told the Los Angeles
Times: The pace of Chinas industrial development and trade
expansion is unparalleled in modern economic history. While this has
led to unprecedented improvements in Chinese incomes and living standards,
it also poses challenges for other countries.
The Wall Street
Journal noted that some 50 percent of cameras, 30 percent of air conditioners
and televisions, 25 percent of washing machines, and 20 percent of refrigerators
in the world are now being produced or assembled in China. Andy Xie,
a Hong Kong-based economist for the investment house Morgan Stanley,
told the newspaper: Chinas rise as a manufacturing base
is going to have the same kind of impact on the world that the industrialisation
of the US had, perhaps even bigger.
But the claim that
China is undergoing an economic transformation analogous to Britain
in the 19th century or the US in the 20th century ignores some basic
facts. The impressive rates of growth and statistics on industrial output
are dependent on a huge flow of foreign direct investment into the country
and a flood of cheap manufactured goods out of the country. Far from
being the new workshop of the world, China is more like a giant sweatshop
for the worlds major corporations.
The high rates of
economic growth in China during the 1990s were not driven by the expansion
of an internal consumer market or native industrial development. The
combination of plentiful labour, low wages, low taxation and brutal
police-state repression made China one of the most attractive investment
sites for transnational corporations.
Since the early
1990s, more than $US800 billion have been invested, overwhelmingly in
a string of free trade zones located along Chinas coast. The US
retail giant Wal-Mart Stores, for example, purchased about $14 billion
in products from its Chinese subsidiaries last year, which represents
about 13 percent of total US imports from China. The electronic conglomerate
Philips operates 23 plants in China and exports $5 billion worth of
goods each year to Western markets.
Foreign firms now
account for 81 percent of Chinas technology exportsa global
market share of 54 percent of DVD players, 28 percent of cellular phones,
13 percent of digital cameras, 30 percent of desktop computers, 12 percent
of notebook computers and 27 percent of colour televisions. Transnationals
and their local contractors also dominate in other major exports such
as machinery and textiles.
Up to December,
Chinas volume of foreign trade increased by 21 percent from 2001
to $620 billion, ranking it as the worlds fifth largest trading
nation. Chinas exports stood at $266.2 billion for the year to
December and its imports at $212.6 billion, a 17.2 percent increase.
However, the character of Chinas trade is demonstrated by the
fact that more than half the imports were associated with export processingin
other words, the materials or ready-made components needed for manufacturing
export goods.
A study published
on January 15 by a US-based think tank, Hale Advisors LLC & China
Online, noted: Fifteen years ago, intra-Asian trade inflows were
simple. Capital goods and components were shipped from Japan to newly
industrialising countries for processing and then re-exported to industrialised
countries. The opening of China has added a new link to this chain.
Capital goods are now shipped to Taiwan and Korea, which in turn send
capital-intensive inputs to China and [South East] Asia for labour-intensive
processing and assembly before re-export to developed markets.
Social costs
The chief function
of the Stalinist bureaucracy in Beijing has been to offer terms and
conditions that have transformed China into the worlds most attractive
sweatshop. Many transnationals have shifted their labour-intensive operations
to China from South East Asia or Latin America, because of favorable
labour costs and other financial concessionswith devastating results
in many countries. Mexico, for example, is estimated to have lost 230,000
manufacturing jobs since 2001, most of them to China.
At the Association
of South East Asian Nations (ASEAN) meeting in November, many governments
and business leaders expressed hostility to Chinas cutthroat competition
for investment and export markets. Two-thirds of Chinese people are
living on less than $1 a day and the average factory wage is just 40
US cents an hourone-sixth that of Mexico and one-fortieth of the
US.
As an article in
the Financial Times noted: In Singapore, Malaysia and other South
East Asian countries, wage inflation followed as labour resources were
stretched. In China, the supply of labour seems almost inexhaustible.
This inexhaustible labour supply has been created at enormous
social cost. Over 40 million workers once employed in state-owned enterprises
have been sacked due to restructuring or bankruptcy. Millions more have
been made redundant by the entry of foreign competition into virtually
every area of the domestic market.
In rural China,
the deregulation of agricultural prices and production has forced tens
of millions off the land since the mid-1980s. In the largest internal
migration in human history, an estimated 150 million rural Chinese have
flooded into urban areas in a desperate search for workat any
wages. At the same time, five to 10 million youth graduate from schools
each year, joining the labour market.
Despite its huge
population, Chinas internal market remains relatively small, as
most people are unable to afford the goods being produced. Only a small
social layer has profitted from the exploitation of the worlds
largest cheap labour force. According to official figures released last
November, there are now just over two million private firms in China,
employing 70 million workers and with an output of $232 billioncompared
to only 800,000 private companies in 1988.
While the average
annual urban income is just $1,200, some five to seven percent of the
Chinese populationpredominantly the owners of small businesses,
well-to-do farmers, professionals and state functionariesearn
between $3,000 to $12,000 a year. One percentsome 12 million peopleearn
over $20,000. An even smaller number of capitalist entrepreneurs, those
with close ties to the global corporate giants and also to Beijing,
have amassed staggering levels of wealth. There are now some 10,000
individuals in China whose assets exceed $10 million.
Urban and rural
inequalities are also widening because 88 percent of foreign investment
occurs in the coastal cities of Chinas south and east. Only 9
percent goes to the underdeveloped central region and 4.6 percent to
the west. As a result, 57 percent of Chinas gross domestic product
is produced in the east, compared to only 26 percent in the central
region and 17 percent in the west.
Chinas economic
development is completely geared to the requirements of foreign corporations.
In fact, the domination of foreign capital over economic life is assuming
dimensions far greater than when China was a semi-colony of the major
capitalist powers in late 19th century and early 20th centuries.
A senior economic
official commented on Chinas economic dependency in the Peoples
Daily on September 3, saying: First is the great technological
dependence on developed countries. Second, Chinas manufacturing
is still at a low level. Third is the lack of resources and a big demand
for foreign material supply. Among these are 100 percent of fibre optics
imports and integrated circuits, 80 percent of oil and oil processing
and 57 percent of mechanical products. Fourth is a lack of large international
[China-based] enterprises.
Chinas dependency
on international capital was the overriding reason for opening up its
domestic markets to foreign investors as part of the WTO agreements.
Beijing is desperate to ensure that the rate of foreign investment does
not fall. In the first nine months of last year, the Chinese government
approved 24,771 foreign investment projects, a 33.4 percent increase
over the same period of 2001. The official figures of the Ministry of
Foreign Trade and Economic Cooperation valued new foreign investment
in the last 10 months at a record $55 billion.
The owners of foreign-financed
companies operating in China are reaping huge profits. Their owners
were paid $27 billion in dividends in 2002 compared to just $6 billion
in 1996. Transnationals now dominate the domestic markets for a range
of industriesfrom auto and mobile phones to retail.
Chinas entry
into the WTO has dramatically increased the ability of foreign firms
to operate in its stock and financial markets. The previously protected
domestic A-index shares for Chinas largest domestic companies
are now open to overseas investors. These include large, flagship industrial
corporations in strategic sectors such as energy and natural
resources. The State Administration of Foreign Exchange announced in
late November that it was setting an investment minimum of $50 million
for Chinas stock exchangesa measure that directly favours
the major global investors.
China is highly
vulnerable to any international downturn. Already analysts have pointed
to a plunge in the growth of Chinas exports following the collapse
of the US stock market bubblefrom 27.8 percent in 2000 to just
6.8 percent in 2001. Growing economic difficulties in US, Japan and
the EU are expected to see further falls in world demand and a sharp
contraction in Chinas export sectors. Cong Liang from Chinas
State Statistics Bureau told the Dow Jones Business News last month
that he predicted a drop in the official economic growth rate to 7.5
percent this year from 7.9 percent in 2002 due to a US war with
Iraq, as well as rising unemployment and weak consumption by the rural
population.
Any economic slowdown
will rapidly expose the myth that China is the worlds new industrial
powerhouse and have far-reaching economic, social and political consequences.
Above all, it will bring to the surface the underlying tensions created
by the vast social gulf between the impoverished masses and the tiny
minority who have benefitted from the regimes embrace of international
capital and its needs.