Fanitalist restoration in China
On June 30, 1997, British colonial rule in Hong Kong ended. In the 155 years of occupation, British rule was politically repressive, and exploitative of labour. Activists fighting against imperialism and colonialism suffered severe repression through laws and regulations like the Public Order Ordinance.
Why did British rule over Hong Kong managed to continue until almost the end of the 20th century, rather than ending soon after the Second World War, like many other
British colonies? Above all because the ruling Communist Party of China chose to tolerate its continuation!
After the 1949 revolution, economic development in mainland China was slower than in Hong
Kong. Not because of the superiority of British rule, but due to a combination of many factors. Including the hard work of ordinary Hong Kong workers. Similar economic "take-offs" took place in Taiwan and South Korea, neither of which were under British rule.
The removal of the constraints of British colonial rule should have given the people of Hong Kong greater mastery over their lives. But such possibilities have been thwarted by the imposition of domination and repression from the Beijing authorities who now control Hong Kong. Undemocratic and anti-democratic
The formulation "one country, two systems" is used to promise no changes in the Hong Kong social system. Though the formulation and implementation of the policy -from above - is in itself a deprivation of the right of the people of Hong Kong to decide on the social system they prefer.
The whole process of transition was undemocratic. the Basic Law Drafting Committee was appointed by Beijing. Not surprisingly, it proposed laws in the interests of Beijing bureaucrats and corporate capitalists. Hong Kong's new Chief Executive and Provisional Legislature were not elected democratically.
Some repressive parts of the old colonial Public Ordinance Bill have even been restored! The clear intention of the new authorities is to intimidate and restrict struggles by the people for their rights. 14 International Viewpoint #291
The change-over will not mean There is no doubt that the that the majority of the Hong Kong Chinese Communist Party will people will enjoy more rights and keep its promise of 'one country freedoms, liberated from the fetters two systems' now that Hong of colonial rule. Instead, rule by a small minority of Beijing bureau- Kong is again part of China. As crats and corporate capitalists Lau Yu Fan*explains, Beijing has means a new period of repression the upmost respect for the British of political freedoms and social and economic rights. administration's free-market policies. The social and political struggle
The incoming government has already demonstrated its reluc- Beijing has appointed a local tycoon, Tung tance to improve social welfare or Chee Wah, as the chief executive of the Hong increase public expenditure on Kong Special Administrative Region (SAR). health, education or housing. Even It has also appointed a Provisional legislathough Britain has transferred the ture, in which the majority are business men colonial government's US$90 billion and women. The reason for this, according to reserves to the new Hong Kong the former head of the New China News government. Agency who fled China after the Tienanmin
While the new regime has Square massacre is that "preserving capiexplicitly rejected more spending talism in Hong Kong means capitalists on social weltare or social con- ruling". The Chinese Communist Party cerns, "Celebrations" of the hand- forged a holy alliance with the Hong Kong over cost horrendous amounts of bourgeoisie a long time ago. Their common money. The fireworks display on aim is to crack down on the civil liberties of July 1 alone cost US$40 million Hong Kong people, and to wipe out any
The people of Hong Kong must potential threat of grass root movement. actively take matters into their own The ruling party's Hong Kong policy is hands rather than wait for bene- extremely right-wing. It equates any increase volent changes from above. in social welfare expenditure to "the
Political and social issues are addiction of opium". " According to China's closely linked. Struggles for more Communist leaders, the rights of Hong Kong spending on health, education, people to gamble on horse racing and specuhousing and social welfare cannot late in the stock market will be guaranteed be separate from the struggles to while freedom to criticise the Party will not safeguard the political democratic be tolerated. New laws on public order and rights of decision-making, access the right of associations, which became to information, free expression, free effective on Ist July, crack down on the right association and political of assembly and associations. Any political organisation, and so on. organisation which merely has a link' with Democracy for Hong Kong! foreign political organisations will now be breaking the law.
An appropriate focus for the Only the naive could still believe the struggles for political and eco- Chinese Communist Party (CCP) claim that nomic rights could be the demand China remains a socialist state, and that its for the democratic election of a market economy is "socialist with Chinese Hong Kong People's Congress.
characteristics" This body should make the major decisions relating to Hong Kong.
The people of Hong Kong are now much more linked to people on the mainland. Now that they face common enemies, joining hands against the rule of bureaucrats and capitalists will be much CHINA easier. But it will be a hard struggle. * October Review Vol.24 Issue 3 GPO Box 10144, Hong Kong email: [email protected]
"Deng the Short" and his fake socialism
When Chinese leader Deng died, the bourgeoisie media all over the world praised him as a great man who opened up China and reformed her economy, so that for the past 15 years, China experienced an impressive annual growth rate of 9%.
Inside China, people had for several years been singing a bastardised version of the famous pro-Mao Song, the Eastern Sky is red'. The new version went " The western sky is red, the sun is going down. In China rises a man, Deng the short. He seeks fortune for himself, he teaches people to be everyone for himself."
The Gini coefficient, a measure of inequality rose from 0.31 in 1979 to 0.434 in 1994. The latter figure is higher than USA. Yet some Chinese scholar even suggested that the figure is well past 0.5 today. In this sense one may regard Deng as the chief architect of capitalist restoration, with terrible bureaucratic distortion. In the words of another popular rhyme, "a deep rooted feudalism, a fake socialism, a hidden capitalism." The development of private capital
The CCP 'proved' its adherence to socialism through upholding public ownership. According to officials, although the state sector today only accounts for 40% of Gross Domestic Product, the collective sector (which accounts for a slightly higher proportion) must also be regarded as a form of public ownership, which would make "socialist public ownership" the dominant element of the economy.
According to official statistics, most of the private sector falls into the category of self-employed or family ownership, and there are only about 430,000 capitalist enterprises in the whole of China (except Hong Kong), accounting for only 10% of gross industrial output.
These are very deflated figures. From the beginning of the market reforms, the 'Communist' regime deliberately gave a very loose definition to "self-employment" ', defining those employing up to seven workers as self-employed. "Small capitalists" would be a much more accurate description.
Furthermore, much of what is formally described as collective ownership is also fake. Some sources estimate that as much as 83% of rural industrial collectives are in fact capitalist enterprises.
Given that the CCP deliberately hides the facts, no one knows the exact figures. But it is clear that the weight of private capital far exceeds the modest levels • Even official statistics reveal the limited size of the state sector in industrial output and commerce. [see table on Ownership] • The total assets of the capitalist sector, privately owned stocks, and foreign investment, are an estimated 1,000 billion
Yuan, which means that private capital amounts to 1/4 of state assets.
• China also has an estimated 1,600 billion
Yuan worth of private financial assets.
Around 600 billion Yuan, 40%, belong to capitalists and those officials who engage in business, directly or indirectly. This social group numbers 30 million, or only
2.8% of the population. The strength of the capitalist class is clear. Pro-bourgeois "Communism"
The rapid development of private capitalism is a direct result of the Chinese Communist Party's pro-bourgeois policy. This is more than a 'live and let live' policy. It has been a green light for the bureaucracy to pump resources from the state and collective sectors into the private sector.
The earliest privatisation could be traced back to rural reform in the early eighties, when the People's Communes were being dismantled. Much of the collective property, such as agricultural machinery, was privatised by the officials!
But it is in industry and commerce where the capitalist economy has developed the fastest. Capitalist continue to hire labour, and buy land and various means of production from the state and collective sectors, generally at rock-bottom prices. Every year the state looses an estimated 20-30 billion Yuan because of the under-pricing of land in sales to private interests.
The existence of a Chinese capitalist economy is the only explanation for a situation where the country consistently experiences high growth rates, yet only 1/3 of state firms are profitable!
One of the reasons for China's success, relative to the former Soviet bloc, is that China is much more backward. The weakness of China's state sector has been transformed into an advantage — not for the state sector itself, but for the capitalist sector.
Rapid industrialisation in 1949-78 failed to modernise the rural sector. The state could hardly provide the rural with sufficient industrial goods. Peasants still mainly used manual labour. In 1949, 89.5% of the population were peasants. By 1978, the proportion had declined only slightly, to 87.5%. While the rural world was formally organised in collectives, in productive terms the rural economy was still dominated by the small peasant sector. When the communes were dismantled in the early 1980s, the rural world immediately returned to its "true" situation: a sea of individual economic activity. It was through the economic polarisation of this individual economy that capitalism began to flourish. A rise of productivity and a rise in purchasing prices of agricultural products contributed to a growth in the peasantry's purchasing power. The country's new capitalists thus benefited immediately from a largely expanded market. The resurrection of bureaucratic capital
Private capital is only one (major) component of the capitalist sector. Another important component is "bureaucratic capital," (the private assets of profit-oriented officials and those assets which belong to the state in name but in fact are freely controlled by the profit-oriented official in charge. and of which officials are able to 'pocket' consi derable portion.)
Indeed, what is so different from the prereform period is that today's bureaucrats are not content with appropriating consumer goods. Nowadays they want to appropriate profit, and to achieve this they have to appropriate capital. This is the origin of bureaucratic capital.
They achieve this accumulation either through setting up their own business, or through utilising state funds in a profit-oriented way. In the context of the "socialist market economy", more and more state firms and all levels of government bodies are madly investing in high return sectors anyway, so the bureaucracy can easily manipulate state funds and reap huge profits.
Planned investment now represents a negligible proportion. of total investment. [see table on Investment] The biggest sources of investment are now the self-raised funds of local governments and state firms. It is this source of capital which is responsible for China's repeated crisis of over-production in various branches of industry, from televisions, refrigerators, washing machines and the plastic industry to real estates. Privatisation
Privatisation in the narrowest sense: the direct sale of state assets into private hands, is still relatively small, although recently it has been accelerating. Li Peng has just announced that up to 240 thousand medium or small state firms will be transformed into joint stock companies, contracted out or sold. Needless to say, most of these privatisations will take place at rock-bottom prices. In Xian state, one state firm which worth 60 million Yuan was sold at 3.85 million. Land in particular is often "forgotten" or undervalued when the assets of a state firm are assessed prior to privatisation.
In any case, the main form of privatisation in China is not the outright sale of state firms, but rather the establishment of joint venture companies using state resources and private capital. Outright corruption and theft would come close behind
When state firms enter into joint ventures with private capital, especially with foreign investors, it is common for the officials in charge to transfer a large part of the assets to
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the private firms in questionable or illegal ways, including deliberately deflating the amount of state assets, refusing to take into account intangible assets like patent, brand name, and sales network, or agreeing to distribute a lower dividend to state shares than to private ones.
An estimated 90% of state assets are not taken into account when joint ventures are founded. In 60% of China's 10,000 joint venture formations to date, there was no prior assets assessment at all! The estimated loss to the state is about 60 billion Yuan. Only 60 joint venture agreements have taken into account the intangible assets (brand name, patent and so on) of the state partner.
Through these channels, bureaucrats have pumped enormous state assets into the hands of private capital and the bureaucracy itself. Indeed, a substantial number of joint ventures are fronts, fake companies set up by officials for the sole purpose of cheating the state.
Nobody knows just how many state assets have been privatised by the bureaucracy. Several years ago one source estimated that between 1982-1992, as much as 5 billion Yuan went 'astray.' More recent estimates have been in the region of 800 billion Yuan. But some specialists believe that the real figure is much higher than this.
Some left commentators have argued that capitalism has not been restored by a long way in the former Soviet bloc, because the private capital needed to privatise the state sector is lacking. This is certainly not the case in China. Private capital on the mainland is already strong enough to buy a substantial portion of state assets. With the addition of Hong Kong capital, this is truer than ever.
But this is not the main point. The bottom line is that, that in a country where there is no tradition of rule by law, let alone democracy, the bureaucracy and the capitalists need not wait until they have saved enough money before asking privatisation. They can just go ahead, and privatise state property through outright corruption and theft. The invasion of foreign capital
China now has 170,000 foreign enterprises, accounting for 12.8% of gross industrial output. As much as 30-50 billion US dollars flow into China every year. Before 1984, foreign investment generated less than 4% of annual fiscal revenue. But in 1995 and 1996 it generated more than 60% of taxes and other fiscal revenue.
The inflow of foreign capital means bankruptey for more and more local enterprises. This often takes the form of the "collapse" of a state enterprise into a joint venture with a foreign partner which takes more than 50% of shares in the new company. As a result, many traditional or famous Chinese products have already disappeared from the domestic market.
The detergent industry is now mostly controlled by the multinationals. The output of 15 joint venture now accounts for half of gross output. Popular Chinese brands like Panda and Twin Cat have vanished, to be 16 International Viewpoint #291
Ownership assets output sales
% % State 54 34 30 Collective 16 37 19 individual 13 13 30 Joint venture 0.6 0.4 -Other 16 17 20 HK, Macau Taiwan 4 other foreign 8 other categories 4 Total 100 100 100 Investment during 1995, by ownership Source: Pioneer Review Investment
1978 1995
State budget 62 3
Domestic loans 2 21
Foreign invest. 4 12
Self-raised funds -- 52
Other 32 12
Total 100 100
The origin of investment in fixed assets of state owned units. Source: Pioneer Review replaced by the products of Proctor & Gamble, Unilever (British) and Kao (Japanese).
In the beer industry, 70% of plants with an output exceeding 50 thousands ton a year have become joint ventures. In most cases, the joint venture agreement specifies that the Chinese brand becomes the property of the multinational partner. It is then withdrawn from production. Foreign beers like Carlsberg are rapidly driving Chinese brand like Shanghai and Swan from the market.
There are at least 1,000 joint venture and foreign-owned companies in the medical industry. These companies now control the production of 40 of China's best selling medicines.
The 200 joint venture companies in the bicycle industry are driving Chinese brands like the Flying Pigeon and Everlast off the road. The same phenomenon is occurring in sectors ranging from television manufacture to paper, tyre, integrated circuit, and household electric appliance production.
And yet, China has no "objective" economic need to surrender its economic sovereignty. As well as the largest domestic market in the world (in human, if not dollar terms), the country has a savings rate of 45%, and private capital assets of 1,600 billion Yuan. Market, socialism, and Hong Kong
Until the 1980s, China's economy was excessively restricted. But now there is a market for means of production, a labour market, a partial capital market, and the monopoly of foreign trade has been largely dismantled, to the point where multinationals are beginning to dominate whole sectors of the economy. Capital flight from China is accelerating.
The Chinese Communist Party still claims that the country has a "socialist market economy." This is clearly false. In an economy where labour, land, capital and others means of production can enter the market, major production and accumulation decisions will inevitably be guided by the rate of profit. A market, but not a socialist economy. There has already been repeated over-production in many branches of the economy. The Party still maintains 'macro-regulation' but this is not evidence of a planned economy. Each and every capitalist government also uses economic levers like interest rate, fiscal policy or taxation for 'macroregulation.' In China today, the state no longer directly allocates investment funds according to a conscious plan.
When the Sino-British agreement was signed in 1984, one leading tycoon remarked that, "politically Hong Kong will be annexed by China. But experience will prove that economically it is China which will be annexed by Hong Kong.
To a certain extent this prophecy has come true. Because of it's strength, the Hong Kong bourgeoisie has contributed greatly in promoting the change of nature of the CCP. Hong Kong's population is only 0.005% of China's, but it's GDP is 20% of China's.
Since the 80s, the economic fusion between Hong Kong and China has been going on rapidly. In just 10 years, more than half of Hong Kong industry moved into southern China to exploit the cheap labour there. In 1980, there were one million industrial workers in the colony. By 1992 there were only 400,000. Hong Kong capitalists now employ more than 3.5 million workers in southern China.
Capital from China is flooding into Hong Kong. The city has returned to its old status of an entry port for China, as it was before the 1949 revolution. What is new is that Hong
Kong has also become a financial centre for mainland China's new capitalists and bourgeoisified bureaucracy.
A process of convergence has been taking place, ever since the policy of "one country two systems" was announced, to the point that China is no longer one country and two systems. It is one country one system. One capitalist system, to be precise. The perspective of mass movement
China ammended its constitution in 1988, to legalise the capitalist economy. But, of course, the state character of China had already started to change. In the economic arena, the capitalist restoration is now largely completed, in the sense that the rate of profit has become the chief regulator of the Chinese economy.
Does this restoration of capitalism mean that the Chinese working class has suffered a historical defeat? That for a long time to come we should not expect the upsurge of the working class? We not agree with such a position. The further degeneration of the CCP is of course a blow to the working class. But this does not mean that the working class has been defeated in the struggle for power.
In reality, the Chinese working class never took hold of state power. They cannot be said to have lost something that they never had.
The bureaucratic socialism developed by the Chinese Communist Party brought certain advantages to the workers. But it never reinforced the political strength of the working class.
When the CCP abandoned bureaucratic socialism and adopted capitalism, the treatment that the workers receive worsened. But although workers now face rising unemployment and cuts in weltare, this does not, in itself, constitute a direct destruction of the political strength of the working class. In this sense, therefore, the restoration of capitalism has not brought about the demoralisation of the working class.
In fact, the political and economic struggles of the mainland Chinese working class have been very weak for decades. Workers have never been able to rise up on a large scale. They have experienced neither great victories, nor big defeats. The Communist Party is still afraid of workers' resistance. It dare not push too far and too fast.