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Economic and social crisis in China

Wednesday 7 January 2009, by Robert Paris

Sun, 28 Dec 2008.
China will be hit hard by the unfolding capitalist crisis


2008 has seen a historic, global crisis of capitalism unfold. We have still only seen the beginning, especially as far as the political effects of this crisis are concerned. China has been rocked by a wave of protests symbolised by the taxi strikes in more than ten cities and sit-in strikes by migrant workers in Guangdong and Shanghai. Despite November’s 4 trillion yuan infrastructure package, several major economic forecasters are placing GDP growth for China next year at 6 percent or less. That would be the lowest level since 1990, in the aftermath of the political upheavals of 1989.

This is a confirmation of our analysis (Can China’s rescue package avert recession? chinaworker.info, 11 November 2008) that the 4 trillion yuan package, while it may have a certain temporary effect, is insufficient to avert an abrupt economic slowdown in China. The government’s package, dictated mainly by the interests of big state companies and the now crisis-torn property sector, also largely focuses on the wrong areas – only 1% of the package has been earmarked for increased health and education spending. It is a package to bailout struggling companies, in other words, rather than to ease the plight of the masses. ’Market-boosting’ measures that include buying shares of state-owned companies to staunch the hemorrhaging of the stock market, are accompanied by anti-worker measures such as the freeze on minimum wage rates, which are already extremely low, that forms part of the ’stimulus’ package.

Global crisis deepens

Everywhere the economic gloom is deepening. The Obama team in the US have expanded their planned stimulus package to create three million jobs at a cost of 800bn dollars. Just one month ago, the president-elect said he aimed to create 2.5 million jobs. But in 2008 alone 2.1 million US jobs have been lost. In 2009, US unemployment could rise above 9 per cent for the first time in 25 years. Like China’s leaders, the new US administration fears the radicalising effects of this recession on working people and the potential for big struggles that could dramatically reshape people’s attitudes towards capitalism and socialism. Obama’s number two, Joseph Biden, recently admitted the US economy was "in much worse shape than we thought". The next vice-president added that "The day we’re sworn in, the thing that we have to worry about is the further collapse of this economy. No president since Franklin Roosevelt would have had such an immediate, urgent obligation."

One of the most enduring images of the past year were the recent upheavals in Greece, with massive strike action and bitter street fighting provoked by the police killing of a 15 year old protestor. Sensing the shift in political realities, capitalist commentators have warned that "Greece could happen everywhere" – based on massive opposition to neo-liberal policies and antagonism towards politicians and the police, especially as the whole 27-nation EU bloc slides into recession. In France, President Sarkozy cautioned his own party, when they were demanding budget measures to completely shelter the wealthy from recent banking losses: “Look what is going on in Greece!” In contrast to his own strident position during the French riots of 2005, Sarkozy warned: “The French love it when I’m in a carriage with Carla, but at the same time they’ve guillotined a king.” This invocation of the spectre of revolution by one of their leading representatives, sums up the present mood of the capitalists internationally.

The Federal Reserve’s historic interest rate cut to zero on 16 December underlines the seriousness of the crisis facing US and world capitalism. The US capitalists now view deflation (falling prices) as the biggest economic threat to their system. Deflation would deepen the crisis by making debts more costly while investment and consumption would be restrained. Prices fell in the US in November. With zero interest rates, the US central bank can no longer use rate cuts as a means to boost short-term growth. This means that the Fed, which is close to becoming the world’s biggest bank following its huge bailouts and purchases of troubled companies and financial assets, has moved into uncharted territory.

A socialist alternative

This website and the CWI globally foresaw this crisis. We have always seen our task as Marxists to explain, to take initiatives and to build active support for socialist ideas. In 2009 this task will be both more urgent but also meet with a far bigger response among fighting groups of workers, students, farmers and migrants. We must spell out who – which class and social system – is responsible for the crisis and what a socialist programme to end the crisis means.

We demand that all companies threatening job or pay cuts should be taken into public ownership, with minimum compensation, under democratic not bureaucratic control. We demand work or full pay – the work should be shared out with shorter and more humane working hours, and no loss of pay. The books of companies pleading hardship should be opened to public inspection by representatives of the workers and small business subcontractors – let’s see how the money has been used. Workers should organise to fight job losses and pay cuts by building independent trade unions and linking up with workers in other factories and localities. To this end, workers must build underground workers’ committees as a first step, in order to protect their organisations from state and company repression.

Recent struggles by taxi drivers and migrant factory workers have squeezed some concessions out of the bosses and local organs of the party-state. This shows that struggle brings rewards, but more could be won with an organised labour movement able to resist the bosses’ attacks and fight for an alternative system based on public ownership and democratic socialist planning of the economy.

Big struggles ahead

The coming year could see the biggest struggles for decades erupting in China, with mass pressure for change growing. The scale of the economic crisis in China has taken all the highly paid ’sages’ of the government and its various think-tanks by surprise. The problems in the export industries are just the beginning. Exports fell by 2.2 percent in November, the first decline in more than seven years. Even more significantly, imports seem to have imploded, dropping 17 percent year-on-year in November. This sent tremours around the world as prices for raw materials such as oil and metals suffered sharp drops heavily influenced by China’s loss of appetite.

China’s car consumption has fallen for the first time in years. This shows the crisis is not just confined to exports and that China is caught up in a global capitalist crisis that effects all industrial sectors. Volkswagen of Germany, China’s market leader, has closed down two plants (in Shanghai and Changchun) for the next two months due to massive unsold stocks and falling demand. Workers in a range of industries from shipbuilding to energy to tourism are facing pay cuts and the threat of job losses. A development that should dispel any doubts about the intensity of this crisis are the widely circulating rumours that telecom giant Huawei is to lay-off ten percent of its workforce. Even skilled workers’ and managerial level jobs are not safe in the current downturn.

Four million migrant workers have already returned to their home provinces in recent months and some economists warn that one in five ’mingong’ – or over 30 million – could lose their jobs in the coming industrial shakeout. This reverse exodus is imposing new strains on these ’home provinces’ – on food supplies and other resources. Many farmers-turned-workers no longer have land to return to, making the search for work even more desperate in China’s inland.

The Chinese Academy of Social Sciences says that real urban unemployment in China is now 9.6%, not 4.4% as claimed by the government. CASS warns that even with November’s stimulus package and other market-boosting measures such as interest rate cuts (five such cuts in three months) it will be a tough challenge to prevent unemployment from rising above this level. Hu Jintao himself warned China faced a "grim" jobs situation next year. On the 30th anniversary of capitalist ’reform and opening’ (18 December 2008), however, Hu insisted, "There’s no way for us to turn back".

The ruling ’communist’ party is wedded to capitalist policies and the disputes within its top circles and between its factions centre on which mix of capitalist ’remedies’ to apply, rather than any break with capitalism. Workers in China must build their own political alternative through the mass struggles that loom. Socialists and labour activists face completely new times even in the political sense. A small but clear example of this is the explosive rise in searches for the word ’socialism’ on Google. We can be sure that 2009 will be a dramatic year full of unique possibilities for genuine socialists.

Chinese regime braced for ’mass conflicts’ in 2009

Thu, 8 Jan 2009.
One in four workers unemployed as global capitalist crisis bites

Vincent Kolo, chinaworker.info

As 2009 opens the official Chinese media has featured a number of high-level warnings about the risk of increased social unrest on the backs of the economic downturn. The gloomy mood was summed up in a headline in China Daily (6 January): “Grim times ahead”. Overseas commentators seem to agree. Many warn that the ruling ‘communist’ dictatorship is this year set to face its biggest challenges since 1989, when the country was shaken by the mass Tiananmen Square protests.

“We’re entering the peak of mass incidents,” warned one commentator in Outlook magazine. “In 2009, Chinese societies may face more conflicts and clashes that will test even more the governing capabilities of all levels of the Party and government,” he concluded. Outlook is an authoritative weekly published by the Xinhua news agency. In the latest edition it estimates that ten million migrant workers lost their jobs in 2008. This figure represents between 7-10 percent of the total manufacturing workforce.

Dire warnings now pepper the speeches of China’s top leaders. “The present situation of maintaining national security and social stability is grave,” admitted the regime’s ‘top policeman’, Public Security Minister Meng Jianzhu, at a conference of senior officers in Beijing held on 6 January. In a keynote speech in December, president Hu Jintao himself warned a gathering of party dignitaries celebrating three decades of capitalist ‘reform and opening’ that their nearly sixty year grip on power was not ‘immutable’ and that diffusing social conflicts caused by the economic crisis must be the top priority. But how to diffuse such conflicts? On this topic, Hu had little to say.

The last few months have seen a marked upturn in strikes and street protests including clashes with security forces. A wave of taxi drivers’ stoppages represents a new stage, with conflicts in one city spreading to another – ten major cities were affected. In the manufacturing powerhouse of Guangdong province, labour department officials reported a doubling of industrial disputes last year compared to 2007. These trends are likely to intensify as the economic outlook darkens. Export growth of zero is forecast in 2009, compared to 16.5 percent growth for last year. “This year is going to be characterised by much, much weaker growth in China than I think most people are anticipating,” predicts Jim Walker, chief economist at Asianomics in Hong Kong.

This heightened risk for social unrest is part of a global pattern. Governments and ruling elites everywhere are looking to the coming year with dread. The tumultuous events in Greece in December show that riots and mass protests against police brutality are not a uniquely Chinese phenomenon.

Unemployment – a time-bomb

“Faced with the spreading international financial crisis, our country’s employment situation is extremely grim,” Premier Wen Jiabao told a meeting of the State Council, or cabinet, recently. Because migrants are not counted – they are largely invisible to China’s officialdom until they take to the streets in protest – the government still claims a ludicrously low official unemployment rate of 4.5 percent. Yet according to the Chinese Academy of Social Sciences (CASS), a governmental think-tank, the real level of urban unemployment today is 9.4 per cent. Even this figure, however, does not give the full picture. A new study by a Professor Zeng Xiangquan from the Renmin University of China, calculates that the real unemployment rate in China has reached a staggering 24 percent. Professor Zeng predicts that this year due to the industrial crisis unemployment will reach 27 percent.

It is not surprising therefore that leading articles in the state-controlled media are warning about the risk of mass conflicts and stressing the importance of ‘stability’. “The biggest issue will be unemployment, and that can be a huge problem if not handled well,” warned Shi Mingshen, deputy head of the economic department at People’s Daily, the ruling Communist Party’s main newspaper.

“Definitely, this is the most serious problem we have seen since 1989,” argues Zhou Xiaozheng, also from Renmin University in Beijing. “You have millions of college students who can’t find jobs... You have migrant workers who have lost their jobs at factories and don’t have land to go back to.”

This year another 6.1 million college graduates will hunt for jobs in a labour market where 1.5 million of last year’s graduates have failed to find work. Competition for existing jobs, even extremely low paid factory jobs, is hardening as the crisis deepens. As a sign of the times, the Guangzhou Daily newspaper reports that thousands of university students in Guangdong province – China’s richest – have sought work as nannies and domestic helpers in the homes of the rich. For graduates to be chasing such low paid positions would have been unthinkable even five years ago.

Andy Xie, an independent analyst and former chief Asia economist for Morgan Stanley, predicts that a further 20 million migrants may leave China’s coastal cities in 2009 as factories close and jobs vanish. Many of the younger generation of migrants have no connection to the land and cannot simply return to farming in order to survive. This is yet another potentially explosive ingredient in the situation. As one of Outlook’s team of expert commentators warned: “If in 2009 there is a large number of unemployed rural migrant labourers who cannot find work for half a year or longer, milling around in cities with no income, the problem will be even more serious... Social conflicts have already formed a certain social, mass base so that as soon as there is an appropriate fuse it always swiftly explodes and clashes escalate quickly.”

This has been borne out by recent experience. Cases of police brutality or specific examples of official high-handedness have triggered large-scale riots and other violent upheavals. The common feature of these events is that seemingly small clashes with officialdom suddenly acquired mass proportions, drawing thousands and in some cases tens of thousands onto the streets. This is evidence of a massive social crisis rooted in the most extreme gap between rich and poor in the entire Asian continent, barring Nepal. Social tensions were stretched to breaking point even during the recent upturn, with GDP growth of ten percent plus for several years. What does this tell us about the coming period with a drastically reduced growth rate?

Abrupt economic slowdown

The Chinese economy grew by nine percent in the third quarter of 2008, the lowest rate in over five years, but figures not yet released for the fourth quarter may be as low as 5.5 percent according to some estimates. Most so called experts, from the Chinese government to Western financial institutions, have been stunned by the scale and speed of the slowdown. The huge manufacturing sector, which accounts for 43% of gross domestic product (GDP), is “close to technical recession” according to a new report from Hong Kong-based brokerage CLSA. Chinese factories slashed output and payrolls at a record pace in December and manufacturing activity overall fell for a fifth month, this survey showed. Even those in work are very much feeling the squeeze. Workers have been pushed to accept wage cuts on the mistaken premise that this will “save jobs” in industries ranging from energy to banking to tourism, at both foreign-owned and Chinese companies. The very elite of China Inc, companies such as Lenovo (computers) and Huawei (telecoms), have announced job cuts in recent days as their position in global markets has weakened.

The ruling group in Beijing are clearly alarmed by these developments, which they almost completely failed to foresee. A combination of blind and idiotic faith in capitalist economics on one hand, and the distractions of last year’s Olympic spectacle and related protests such as the upheavals in Tibet, on the other, left China’s leaders in denial as the economic situation worsened in the late summer. When they awoke to the new realities in late September, industry was already in the grip of a severe slowdown. Even more ominously, huge financial bubbles in stocks, property, excess capacity, commodities and much more besides, that had built up during the upturn began to burst as in most of the capitalist world. This post-bubble collapse marks a new period in China’s economic history, similar to processes elsewhere, in which yesterday’s speculative excesses must be ‘paid for’ by destroying part of society’s productive base and imposing terrible sacrifices upon the working class. This is the future, unless workers organise and fight to overthrow capitalism.

Even the resort to large-scale Keynesian measures such as November’s 4 trillion yuan stimulus package, which is second in size only to president-elect Obama’s plans for the US economy, while this can have a temporary effect (at the price of even greater problems further ahead) is unlikely to head-off a period of severe economic dislocation, and possible recession, with dramatically higher unemployment and lower living standards. The government’s room for manoeuvre has also been squeezed by the crisis, with total fiscal revenue falling by 3 percent in 2008, compared to a 32 percent expansion the year before. Local governments, which are expected to shoulder three-quarters of the cost of new stimulus measures, are generally in a worse position. This points to a Japanese scenario of ballooning public debt in coming years that the working class will be asked to pay for.

Keynesian measures

Increasingly, as more facts emerge, several leading Chinese commentators have come to see the limitations of Beijing’s stimulus package, something this website argued already in November. Han Kang, vice-president of the National School of Administration in Beijing, told Outlook magazine: “The 4-trillion-yuan stimulus plan, intended to boost the economy and ensure the 8 percent growth rate, may not create as many steady jobs as expected.” Another Chinese economist, Mao Yushi, explained that, “The government’s economic policy is still geared to producing high growth figures, but not to producing jobs or raising people’s disposable income.”

The planned expansion of the railway sector, for example, will create three million jobs over a three-year period according to government projections. These will be temporary, low paid jobs in the construction industry, as with most of the infrastructure projects that form the core of Beijing’s package. While on paper this appears to be a huge job creation programme, in the context of China and its vast ‘reserve army’ of unemployed, it is inadequate. More than 20 million new job seekers enter the labour market every year. Even if the regime’s package meets its main objective – to ‘protect eight’ (i.e. 8 percent GDP growth for the coming year) – this will only translate into eight million new jobs, according to Outlook magazine’s team of experts, far short of what is needed to prevent a leap in jobless numbers. As the widely quoted US economist Nouriel Roubini has argued, without 9 or 10 percent economic growth, China is heading for a ‘hard landing’ – another term for recession.

As the time nears for implementation, the contradictions in what is still a vague and largely unspecified package will become clearer. In the property sector, for example, which accounts for ten percent of all employment in China and is key to the wider economy, the government says its wants more ‘affordable housing’ for ordinary families, while at the same time it is trying to stop local governments and property companies cutting prices – as this of course exacerbates the downward spiral in the property market. Clearly, Beijing cannot fulfil both these objectives at the same time. Yet if property prices continue to fall – and this is the most likely trend based on a combination of chronic overcapacity, global recession, industrial contraction and falling incomes – this will at some point tip over into a banking crisis as non-performing loans multiply.

While November’s package purports to increase consumption, it contains anti-worker measures such as the freeze on pitifully low minimum wage rates that will rather have the opposite effect. New measures that will involve even more public funding are likely to be announced soon, perhaps in time for the Lunar New Year holiday. These measures will probably include tax cuts, presented as a way to increase consumer spending. But only one-third of economically active Chinese pay income tax – the remainder earn too little. Any consumption boost based on tax cuts will rest on a narrow strip of the population, the urban middle classes. In an environment in which these layers are suffering increased job insecurity, falling home equity, and huge losses on the stock market (down 66 percent in 2008), it is not certain such measures will translate into significantly increased spending as opposed to higher savings – a buffer against hard times.

Even allowing for Bejing’s planned stimulus measures, Goldman Sachs is forecasting GDP growth of six percent in 2009, while Moody’s warns it could fall as low as five percent. The World Bank, whose second-in-command is top Chinese bureaucrat Yin Lifu, is forecasting 7.5 percent growth, and warns that Beijing’s package will be insufficient to rescue economic growth unless accompanied by more social welfare spending. China currently spends a lower share of GDP on education than India, just 3.3 percent. Here there is a huge – almost unlimited – need for public financing to build new schools, expand teacher training, abolish crippling fees, and introduce new technology. The chaotic under-funded state of China’s education system has given rise to teachers’ strikes in at least eight provinces in the last half-year. But this crisis is not the focus of Beijing’s neo-Keynesian policies. The make-up of new stimulus measures is being dictated mainly by the interests of big state companies and the crisis-torn property sector. It is a package to bailout struggling companies, in other words, rather than to ease the plight of the masses.

External trends

Today the mood within China’s moneyed classes, and the government they have largely trusted to handle their affairs, is close to panic: “Everyone knows that 2009 is likely to be the most difficult year ever for developing China,” said Peng Yunliang of Shanghai Securities. “People are truly worried.”

For years, China’s top officials have enjoyed ‘star’ status among CEOs and the global business community. Now, this is changing. Financial commentators complain the government has ‘lost direction’. Huge pressure is mounting on the central government to produce new ‘rabbits out of the hat’ – as if such remedies existed for the crisis of capitalism. As with other governments, and in concert with them, Beijing can be expected to unveil even more ‘unorthodox’ policies – such as buying up its own debt (government bonds) and perhaps deliberately creating inflation, if the crisis (and especially the spectre of deflation) should reach the point where such measures are deemed necessary. The common denominator with such policies is that working people and the poor will be expected to pay the bill.

The almost superstitious belief in the powers of China’s economic ‘strongmen’ was summed up in the latest survey from crisis-hit US bank Citigroup, which states: “The most important reason supporting our confidence about 8 percent growth is the government’s will and ability.”

This idea was refuted by Bloomberg columnist William Pesek (7 January): “That’s the problem. Chinese officials have done a masterful job generating growth, creating jobs and reducing poverty. They have done so with impressive regularity and earned the trust of many economists and investors. It’s important to remember, though, that external trends made China’s success possible.”

While we socialists do not share Pesek’s and other bourgeois economists’ praise for the Chinese dictatorship’s pro-capitalist economic policies, he correctly identifies ‘external trends’ – processes within global capitalism – as the key factor behind the Chinese regime’s perceived ‘successes’. Today, China’s economy is more integrated into the global economy than most other large economies. When, in December, the US Congress initially blocked a rescue package for Detroit’s ‘Big Three’ motor producers, some auto components plants in Shanghai and southern China whose production is entirely geared to US market were forced to close down the following day. This example refutes all the ignorant theories about economic ‘decoupling’. Even during the so-called ‘Asian crisis’ of the late 1990s (actually it was a crisis of world capitalism for which the Asian economies bore the brunt), China was profoundly affected with GDP growth slowing to 7.1 percent in 1999. Many suspect that even this figure was inflated by China’s government. Today, however, China’s economy is far more integrated into the global capitalist system, with exports accounting for 37 percent of GDP now, compared to 21 percent then. Even in the financial sector, despite capital controls, the implosion of China’s stock and property markets shows how these sectors are part of a global – speculative – system.

Ghosts of history

The problems confronting the Chinese regime are not confined to the economic sphere, although this is of course decisive. This year will witness several extremely important anniversaries – dates that in today’s charged environment could provide the spark for broader anti-government moods and even social movements. The anniversary of the 1949 revolution, on 1 October, is one such occasion. While the regime’s spin doctors will want to portray this event in a sanitised form, as a landmark in ‘nation building’ devoid of mass struggle and any anti-capitalist content, there is a possibility that the 60th anniversary may give rise to open criticism and even protests against the government, especially if the economic crisis continues to worsen.

An even more poignant date is June 4 – “6/4” – the 20th anniversary of the Beijing massacre. Despite a cloud of official disinformation and censorship over the events of 1989 – a mass movement for democratic change that spread to 130 cities – there will be feverish discussion especially among youth on the internet as the anniversary draws closer. These illicit discussions could converge with other economic and political grievances into open protests.

An important sign of the political pressures building up was the launch in December of a pro-democracy petition, “Charter 08”, which demands civil liberties and multi-party elections. Initially signed by 300 lawyers, writers and grassroots civil rights campaigners, the total number of signatures now exceeds 1,000. This is the most daring public challenge to the regime for many years, and five of the signatories including Tiananmen veteran Liu Xiabao, have been arrested in recent weeks as a consequence. The authors represent a ‘market liberal’ i.e. pro-capitalist standpoint, demanding private ownership of land (a measure supported by some sections of the ruling party) among other measures. Despite these elements of their programme, which we socialists completely oppose, chinaworker.info demands the release of Liu and the other signatories, and defends their right to propagate for their ideas. Most of their democratic demands we would fully support, while we point out that only the masses, especially the super-exploited working class, can bring about real democratic change, and that such a mass movement for change poses an implicit threat to the interests of capitalism. This also explains why most millionaires in China support the ‘communist’ dictatorship.

In March, the anniversary of last year’s Tibetan upheavals will coincide with the 50th anniversary of the Dalai Lama’s flight to exile. The Tibetan national movement is in internal crisis as its leaders’ strategy of negotiations and diplomatic pressure to gain concessions from Beijing is increasingly exposed as barren. At the same time, Beijing’s most recent crackdown has only further polarised the situation inside Tibet, which was impoverished even before the economic downturn.

The Tibetan events highlight a wider dilemma for China’s rulers as they seesaw between using the ‘carrot’ or the ‘stick’ in order to contain popular discontent. Heavy-handed policing has on numerous occasions turned relatively minor incidents into major ones, such as in Gansu province’s Longnan district in November, when at least 10,000 farmers (some reports say 50,000) besieged government buildings after a small group of petitioners was manhandled by police. But offering the ‘carrot’, i.e. concessions, also entails risks for the ruling party. When Chongqing’s neo-liberal party boss and national Politburo member, Bo Xilai, held an unprecedented three-hour meeting with striking cabbies’ representatives, televised live, this event unintentionally led to a spate of copycat strikes with similar demands against crippling rental charges and fuel costs. Party hardliners feel they are vindicated that such ‘democratic’ stunts are not ‘appropriate for Chinese conditions’. As the economic crisis deepens, differences within the party tops and its local agencies over which mix of anti-crisis economic measures to follow, and how to prevent public protests, will increasingly spill out into the open, something that has not happened since the crushing of the 1989 opposition.

China has entered an entirely new period and socialists and labour pioneers must draw all the necessary conclusions from this. As Financial Times columnist Gideon Rachman aptly put it: “It would be a historic irony if the Chinese Communist party was thrown into crisis, not by the collapse of communism in 1989—but by the convulsions of capitalism in 2009.” [Financial Times, 15 December 2008]

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