Thirty years of Capitalist Reform in China by Pao yu Ching

Prof. Pao-yu Ching speech at NDFP office in Utrecht 21 st October 2008.

It has been over thirty years since Deng Xiao-ping began his capitalist Reform; here are some of the voices of the Chinese people.

Ordinary Chinese people ask: “What good is the health care reform? Now we can no longer afford to see the doctors.”

And: “What good is the education reform? Now we can no longer afford sending our children to school?”

Tens of millions of workers laid-off from former State enterprises say: “You took the factories we built with our blood and sweat and sold them to new capitalists, or foreigners; destroying buildings and machinery and then taking the land; you squandered away our country’s wealth and left us nothing to survive on.”

Peasants say, “We worked so hard for 30 years to build socialist agriculture and overnight we are back to pre-liberation days.”

Progressive intellectuals say, “The Reform has cloaked itself in socialist clothes but in fact it is capitalism of the worst kind – turning an independent socialist China into one that is increasingly polarized between the rich and the poor, and one that is dependent economically and politically on Western powers.”

With the exception of perhaps a very small minority, Chinese people agree that the current regime is corrupt to the core.

The Reform has cost human lives and caused human suffering, wasted China’s precious resources, devastated the environment, and turned China into a neo-colony of foreign powers. China has transformed from a socialist country, which supported oppressed people all over the world into one, which is allied with the oppressors in Asia, Latin America and Africa in order to acquire resources and expand its economic and political influence.

On the other hand, the Reform has taught Chinese people what capitalism really is all about. Thirty years after the capitalist Reform began the majority of workers and peasants have not only endured much suffering but also have realized that if the capitalist Reform continues, their sons, daughters and grandchildren will have no future. Progressive intellectuals have also realized that the future of China is indeed at stake. With this real life education Chinese people have finally understood the meaning of the two-line struggle and Mao’s warning of the return of the bourgeoisie.

I. China’s economy – imbalanced and unsustainable

Thirty years after the Reform began, China’s economy is grossly imbalanced, making it impossible to continue along the path set forth by the reformers. China’s economy is out of balance with the rest of the world and as well as domestically.

Internationally, China in the past 15 years has maintained very large trade surpluses, especially with the United States. China’s foreign exchange reserves increased rapidly since the early 2000s, then until this summer, accelerated in the past three years – from $659 billion in March 2005 to 1,682 billion in March 2008 – a 155% increase in only three years1. By the end of the third quarter of 2005 China became a net capital exporter.

China, Japan, South Korea and other Asian countries with United States trade surpluses have in fact loaned the US money in order for the US to buy their products. Common sense tells us this practice cannot be sustained for an extended period of time. Also, it is grossly unjust for the Chinese people. China is still a poor country that needs capital for its own development and for the immediate needs of its people – such as clean water, basic health care, and basic education to export its capital, yet a great part of China’s capital has been exported most of which goes to the United States, the richest country in the world. China’s trade surplus accelerated until it reached 11% of its GDP in 2007 meaning during that year, 11% of what China produced was not consumed domestically, nor was it invested in China or spent by its government; the net export of 11% of the GDP was simply changed for additional foreign exchange, which amounts to a stack of foreign IOU’s, sitting idly in China’s Central Bank.

Obviously, the gross imbalances would have to be dealt with2. The adjustment of China’s economic imbalances with the rest of the world started this past year, when the growth of China’s exports slowed, from over 20% to 7% a year from June 2007 to June 2008 (http://business. theage.com. au/business, July 11, 2008). According to Bai Jing-fu’s report, 60% of China’s GDP growth came from the growth of its exports3. Therefore, lower growth rates of exports slowed the growth rate of China’s industrial production to the lowest point in the six years (http://bloomberg. com, September 11, 2008). China’s currency, the RMB, has been devalued by 18 percent since July 2005, thus raising the price of China’s exports (http://iht.com, July 10, 2008). The prices of energy and raw materials China needs to import for its exports have increased significantly. Also, Western nations have stepped up their efforts to restrict Chinese imports. Finally, the global crisis of capitalism has slowed down the demand for Chinese exports. The repercussions of the slowing down of China’s export growth have been serious especially in the coastal region where most export industry factories are located. Many factories, which have served as contractors for foreign multinationals to produce shoes, clothing, toys, furniture and consumer electronics, were earning very thin profit margins to begin with, and now many are losing money and have to close their doors. There were many large laid-offs in these factories.

China’s domestic economy has also been imbalanced. The high rates of GDP growth have been fueled, on the one hand, by the fast growth in the export sector and, on the other hand, they have been the result of high growth rates in investment – especially the tremendous investments in infrastructure by different levels of government. The share of GDP that goes to domestic consumption is extremely low by any standard. Bai Jing-fu estimated that the domestic consumption share of GDP for 2003 was merely 43.4%. Another more recent figure given by Xin Zhiming of the People’s Daily was even lower – a mere 37%, almost 5% lower than the 41.6% of the investment share of the GDP (http://chinadaily. cn, December 11, 2007). This distorted distribution of the GDP is another way to show the extremely unequal income distribution, and concretely it means that except for a rich minority, the majority of the working population cannot enjoy what their labor has produced due to low wages, lack of benefits, and low earnings from farming.

The imbalances of China’s economy both externally and internally mean that, as the recent development has proven, more severe adjustments are yet to come, and that it is not sustainable. There are other equally important factors for the un-sustainability of China’s capitalist Reform. One of these factors is the deterioration of China’s agricultural production (See Section III), and the other is the depleted natural resources and the devastation in China’s natural environment caused by the Reform (See Section IV).

II. What has Reform meant for workers and other urban dwellers?

After the Reformers broke up the communes, they started to fundamentally change the relations of production in the industrial sector. Labor reform was a necessary component of that change. The goal was to dissolve the permanent employment system and turn workers in State enterprises into wage laborers and their labor power into a commodity.

The Reform first attempted to change the basic eight-grade wage system by adding bonuses to entice workers to compete. Workers resisted this change by sharing the bonuses equally to compensate for rises in the costs of living. They also resisted the Reformers’ attempts to replace monthly wages with piece-work wages, because they recognized it as a tactic to divide them; workers learned a great deal during the Cultural Revolution about how material incentives could be used against them.

During the 1980s the Reformers were able to gradually change workers’ permanent employment status by assigning temporary contract status to newly hired workers. The big push came in the early 1990s when large-scale privatization and restructuring of the former State enterprises began, and by 1999 the percentage of workers in former State enterprises (including a small number of urban collectives) decreased to 47.5%. This great wave of lay-offs and/or forced retirements from factory closings and restructuring threw tens of millions of workers out on the street. The majority of these workers were paid only a small severance pay. Many of them lost their pensions or only receive a meager amount to barely keep them afloat. These pensions – 500 RMB to 600 RMB a month often have to be stretched to support the workers themselves and their unemployed sons and/or daughters.

Most of the laid-off workers also lost their benefits, and with the cost of medical care skyrocketing, most can no longer afford any medical care. Hospitals, which have been changed into profit making institutions, charge a great deal of money to run mostly unnecessary tests before dispensing expensive imported medicine, so that doctors can receive bonuses. Without health insurance or any preventive health care, people often delay seeking treatment until their minor medical problems progress into major emergency cases. When they are finally rushed to the hospital, they are refused admission unless they pay a large sum of money up front.

The housing reform began before the big wave of laid-off and sold each housing unit, which workers and families lived for decades, to the workers. But once housing was privatized, factories no longer provided housing for its workers as they had done during the socialist era. Since the end of the 1990s, only a little more than half of the workforce was still employed in the formal sector. Today workers are lucky if they still hold regular jobs, and their wages are often too low to afford rent. The cost of housing has increased by between fifty and a hundred times, and rent has closely followed. Younger workers either continue to live with their parents or have to double up in very crowded quarters.

Those who work outside the formal sector find whatever odd jobs they can to support themselves and many of them live on or below subsistence levels of income. A lot of them work as small vendors selling food or other low cost items on the street4. Many others are also hired for a few hours or a few days at a time.

These temporary and casual jobs pay below subsistence level wages – usually about half of the minimum wage of regular workers in the formal sector. Successful food peddlers may earn a higher income, but to begin with they need capital and may have to pay high rent for a small space to do business. They also have to endure the harassment from the police. In order to avoid arrest, they have to use a substantial portion of their income to bribe corrupt police. People no longer see the police as their protectors but rather as abusers, who do not hesitate to use brutal force to evict people and charge people large fines and pocket the money.

In addition to workers who lived and worked in China’s urban areas, more than 200 million migrant workers from the countryside have flooded into the cities looking for work. The majority of female migrant workers have been hired by export industries located in coastal areas or work in the service sector including domestic work for rich families. Most of the male migrants work for the construction firms. These workers are forced to leave home, because (as described below), they can no longer subsist on what they earn from growing crops. Migrants come to the cities and take the hardest, dirtiest, and most dangerous jobs to send money home in order to support their families. Since they do not have legal urban resident status, they are often mistreated or abused by their employers and owed back wages. If a family migrates together, their children cannot attend city schools for lack of legal status. Factories in the export industry provide often dangerously over-crowded dormitories, and those who work in construction often are forced to sleep in tents near the construction site. The treatment they receive in their own country is not too different from the treatments that undocumented foreign migrants receive around the world.

Even more critical, workers in China have lost the dignity and respect they once had. In the socialist era they were referred to as the “masters” of the country and had a lot of power to make decisions and control their workplace. During the Cultural Revolution, most factories went through struggles to eliminate unreasonable rules and regulations. Workers were empowered to speak out against management and did not fear dismissal or punishment. Workers had a high level of political consciousness and debated important issues amongst themselves.

The status of workers in society and in the workplace has sunk to a pre-Liberation level. Workers are constantly afraid of losing their jobs. Older unemployed workers are outraged when the former State enterprises that they built with many decades of hard work are squandered away by the privileged few, who have connections with the politically powerful. They feel a very strong sense of injustice. A former model worker now in his seventies told me how they used to volunteer for overtime work on Sundays without any overtime pay or bonuses. He also said that older workers in his factory routinely went to the factory on Sundays and holidays just to make sure everything was all right. They put forth best efforts and treated the factory as their own. When the Reformers claim that State enterprises were inefficient due to lax and lazy workers as an excuse to institute the Labor Reform, these workers are infuriated.

At the same time that workers lost their health insurance, they have been increasingly subjected to hazardous and toxic working conditions. Many high-tech firms, which relocated to China to take advantage of the low wages, also went to escape environmental regulations in their home countries. The loss of lives and injuries caused by working in unsafe and contaminated environment are staggering. People of different ages work without any protection to extract toxic metals from hazardous electronic waste exported by the United States, while miners work in dangerous coal mines suffering high fatality rates. According to the official record in 2003, four miners died for every million tons of coal mined, ten times the death rates of all Western countries as well as Russia. (China.org.cn)

In addition to a small minority of extremely rich people – corrupt bureaucrats and the new capitalists – who live extremely luxurious lives, there is also a segment of the urban population, around 20% to 30% who have also lived well in the past 30 years. Some are professionals who work for large domestic and foreign businesses. They receive high salaries and are able to afford a high standard of living comparable to the so-called middle class in Western countries. Not only are their salaries high, they also have large expense accounts, which they use to enjoy expensive meals in upscale restaurants. Most of these people own lavishly furnished apartments and many also own a car. Others in this class of the urban population are current or retired middle level government bureaucrats, including university professors. The government deliberately favored these intellectuals in order to buy their support. They also enjoy high salaries and (unless retired) sizable expense accounts. Majority of these “middle class” individuals are very satisfied with their lives and support Reform policies. However, they are not a homogeneous group; despite their rather comfortable living, a small but growing number are increasingly critical of the Reform and have recently become very vocal, voicing sharp attacks.

The opinions of the well-to-do urban population are bound to change when they experience the increasingly worsening economic crisis. Some of them have already started to complain about the government’s lack of action when they lost their savings in the stock market, which fell about 60% in the past year. The impending bursting of the housing market bubble, the increasingly depressed economy and the ongoing higher cost of living is going to further hurt the interests of this group.

III. How have the peasants suffered under the Reform?

The Reformers moved to dissolve the commune as soon as they consolidated their political power in 1979. The Rural Reform first used higher grain purchase prices to entice peasants to leave collectives and go out on their own, so they could pocket the extra income from selling their crops themselves. Peasants took the bait and worked hard to increase production, resulting in a substantial gain in crop production from 1979 to 1984. By 1984, the land had been largely redistributed to individual peasant households.

After the communes were dismantled, China’s agricultural production continued to increase for a short period of time then it has stagnated. One reason is that the agricultural infrastructure built during the commune years began to fall apart and there has been very little investment available in agriculture for even any kind of repairs. In addition, the collapse of the communes has meant that labor can no longer be organized for such agricultural infrastructure projects. Moreover, agricultural machinery bought by production brigades and communes began to age quickly, and individual peasant households did not have the money to invest in new ones. Moreover, in some areas, such as the Yangtze Delta, where land was been subdivided into small strips5, it is no longer possible to use agricultural machinery. Peasants in these areas went back to the ancient ways of farming their land before collectivization, each with simple farm tools. In central and northwest China, where individual land plots average around one mu (1 mu equals 0.067 hectare), major crops (wheat and corn) are still harvested by combines. Private individuals invested in combines, and they harvest (or hire drivers to harvest) crops from farm to farm, charging 40–45 RMB per mu. Combine owners can earn tens of thousands of RMB during the harvest season, and make a substantial profit6.

Another very important factor has been the rapidly shrinking arable land, which has been diverted to industrial and commercial uses and has also been abandoned by peasants because of the low return on farm production. As explained below, natural disasters, both floods and drought, and environmental pollution, have claimed large areas of land and exacerbated problems in agricultural production7 (See Section IV). Moreover, after the large outflow of productive labor from the countryside to the cities, there have been labor shortages in China’s countryside. China has also started to import more grain and other agricultural products since 2003, to meet one of the conditions required for China's ascension to the World Trade Organization. (See Ching, August, 2008)

In the late 1980s, peasants’ lives, especially those who sell crops as their main source of income, have become poorer and more precarious. As the government took further measures to liberalize the agricultural market, the price of crops fluctuated, while the price of agricultural inputs continued to rise. Beginning in the 1990’s increasing number of people started to migrate to cities. Today many of the 320 million peasants who still depend on selling crops as their main source of income suffer from a low and unstable income with little hope for a better future. Moreover, until recently, the peasant population had a heavy tax burden. Even though the central government eliminated taxes on agriculture two years ago, local governments have continued to collect high fees and other levies.

The burden of such collections is too heavy for the peasants to bear. In the past two decades more and more people have been forced to migrate to cities to work and sent money home for their families to survive. As stated earlier, today, nearly 200 million peasants work as migrants in cities. This shows that China’s agriculture can no longer support its rural population; just like other Third World countries, poor migrants in the cities are the sign of agricultural bankruptcy.

While younger and stronger family members leave to find work in cities, the children, the elderly, and the weak have been left behind, subsisting mainly on the money sent home. A recent report indicated that one of the three biggest barriers to agricultural production is the shortage of labor. The other two are the high price of inputs and backward agricultural infrastructure. The report said that without the labor, even if peasants could afford to buy fertilizer, they have no way to transport it or to apply it to their land. (Jing-ji can kao bao, March 26, 2008)

The cooperative hearth care system that was set up as soon as the commune system was established collapsed as communes were dismantled. After the breaking up of the commune system over 20 years ago, former commune members lost their health and other benefits that had carried them through hard times. As far as health care is concerned, peasants in the countryside suffer even more than city residents. According to the Status of Rural China – 2003 –2004, participation rates for peasants in any kind of insurance are very low. In 2002, the participation rate for the rural population in old age insurance was 7.7% but only 1.4% of the insured actually received an old age pension (about one tenth of 1% of the rural population)8. Only about 5% of rural residents participate in cooperative health insurance, because they cannot afford the high premiums and co-pay. In 2002, 170 million people were affected by natural disasters, but only 9.4 million, about 5%, received any kind of disaster relief (Li, 63).

The absence of any preventive healthcare has meant that infectious diseases, such as tuberculosis, schistosomiasis, and many others, which were basically wiped out in the 1950s, have returned in full force9. In addition, new infectious diseases, such as HIV/AIDS and SARS have caused suffering for tens of million people, not only from the effects of the disease, but also from government denials and cover-ups, and the low priority government places on public health.

After the collapse of the communes, the rural education system organized and managed by the communes also fell apart. The commune welfare fund, which supported elementary and secondary schools in the countryside, is gone. Support from the Central government, which paid for building schoolhouses and teachers’ salaries, was also reduced or completely cut off. (There is currently a plan for the Central government to increase its spending on education in rural areas.) Some rich villages have built their own schools, but the many more poor villages do not have the resources. In the early 1990s their schoolhouses were already falling apart, badly in need of repair. Many teachers continued to teach even when they did not get paid for many months, until schools in many villages closed down altogether.

After thirty years of hard work, peasants in China are again on their own, often working with primitive tools, and they are helpless when disasters, either natural or man-made, strike. The government no longer supports nor protects them. Instead, government bureaucrats collect fees and evict them when they make deals with developers.

IV. Thirty years of Reform has devastated China’s environment and depleted China’s natural resources

China has limited natural resources and very scarce arable land. Any sustainable development has to be based on the conservation of natural resources and arable land. Thirty years of capitalist Reform has implemented policies opposite to what is required for a country without plentiful natural resources to develop.

China has only 9% of the world’s arable land and has to feed 22% of the world’s population. Its per capita arable land is only one third of the world average. As stated earlier, significant land loss occurred since the Reform began through converting agricultural land to industrial and commercial use, as well as due to land abandoned by peasants. The speed of land loss has accelerated from a yearly loss of about 335,000 to 469,000 hectares in 1981 to 1984 to a yearly loss of 2,546,000 hectares in 2003, equaling 2% of the total arable land.10 In 2006, Worldwatch estimated that the total land loss since the Reform to be around 7% of the total arable land. (See Worldwatch, 2006, 15)

The average water available per person in China is 2,200 cubic meters, a quarter of the world’s average. The high growth of industrial production and urbanization has increased water usage, drawing water away from agricultural irrigation and rural residents. According to the Ministry of Water Resources, factories and urban residents used 34% of the total water supply in 2004, up from 25% in 1998. (Bloomberg.com, February 22, 2006) Since the late 1990s, more than 300 of China’s 617 major cities have faced ongoing water shortages. Studies show that with water demand for residential use continuing to rise, less and less water will be available for agriculture. Moreover, the problem of water shortage has been compounded by serious water pollution. The Water Resources Ministry stated in its publication, China’s Water Resources 2000, that of all the water in China’s rivers, a total length of 114,000 kilometers, only 28.9% is of better quality (ranked class I and II), and 29.8% is of lesser quality (ranked class III). About 16.1% of water is dangerous for human to touch (class IV) and the rest, or 25.2% of all water in rivers, is too polluted to use for any purpose (class V). The serious incidents of chemical spills in the Song-hua River and the cadmium spill by a zinc smelter in the Yangtze River caused international attention and alarm.

The dwindling water supply from rivers became critical when in the late 1990s the Yellow River, which provides water needed by 170 million people in this region, ran dry (not reaching the sea) for a record breaking 226 days. Not only is water supply from rivers dwindling, China is also rapidly depleting its groundwater from overuse. The Ministry of Water Resources stated that the fast rate of ground water depletion has increased the risk of earthquakes and landslides and speeded up the already serious problem of desertification. (Bloomberg.com, February 22, 2006)

As the rate of export growth has accelerated since the early 2000s, China’s energy consumption has also increased rapidly. China’s oil consumption increased 100% and its natural gas consumption went up 92% from 1990 to 2001. China’s oil consumption surpassed that of Japan in 2005 and became the second highest oil consumer in the world, second only to the United States. In order to produce huge volumes of exports, during the same period (1990 – 2001), China’s consumption of steel, copper, aluminum, and zinc increased 143%, 189%, 380%, and 311%, respectively. (See Bai’s Report, point 5)

The tremendous consumption of these metals, lax environment regulations, and corrupt government officials has all contributed to the devastation of China’s environment. The situation with air pollution and ground pollution are just as serious as the water pollution. Of the 20 most polluted cities in the world, 16 are in China. Air pollution has caused serious respiratory diseases for city dwellers, and water and ground contamination are more damaging to the rural population; in some villages, cancer rates are 20 or 30 times the national average.

The over-consumption of natural resources and the deterioration of China’s natural environment are the direct result of China’s mindless strategy of pursuing high rates of GDP growth via accelerating growth of exports. More and more people are now aware of the adverse consequences of this strategy of pursuing growth at any cost. Opposition voices have pointed out the dangers of the Reform strategy of pursuing this kind of growth, and more and more people are organized to oppose actions such as setting up polluted factories in their communities.

V. Chinese people are fighting back

As I stated above, the Reform has educated the Chinese people on what capitalism really is through their experiences during the past thirty years. No one really believes anymore that China is still a socialist country. The attacks launched by the Reformers on China’s working population have been brutal and relentless. The process of destroying the socialist economy by forcing former State workers into waged labor in the industrial sector, and forcing peasants off the land to work as migrants is similar to the primitive accumulation phase of early capitalist development in European countries. There is, however, an important difference: primitive accumulation in Europe was able to release labor from the control of the feudal lords. In China, workers and peasants have already gone through thirty years of socialist transformation, and they know what they can accomplish by working collectively under the leadership of the real Communist Party following the proletarian line of Mao Zedong.

In the past 15 years, more and more people have been organizing themselves in resisting Reform policies. Many laid-off workers take over their factories to protest against their sale and/or closing. Older workers forced into retirement have protested against authorities for back wages and for better benefits. Peasants protest against land confiscation without adequate compensation and against factories being built in their neighborhoods that cause serious pollution. Many people both in urban and rural areas have protested against the brutality of police and local officials. In 2005, the official numbers of demonstrations involving 100 or more people reached 200 to 300 a day, or 74,000 over the year. By 2006 the figure reached over 90,000, after which the government stopped publishing the data – undoubtedly because the number has continued to rise.

Also important is the increasing numbers of intellectuals who have risen to challenge the many lies broadly spread by the Reformers. Many of these intellectuals were fooled in the early stages of the Reform, believing the line that the Reform was “socialism with Chinese characteristics” . Many, including some who had joined the 1989 student movement (ending in the Tiananmen Massacre), also believed that the free market approach would solve many of China’s problems.

In the last 15 years, progressive intellectuals started to challenge the Reformers by refuting many lies told by them. For instance, the Reformers claimed that there was little development during the socialist era, but these intellectuals proved that the opposite was true by publishing data showing tremendous accomplishments during the thirty years before the Reform. The Reformers have also falsely claimed that China’s development based on self-reliance during the socialist era was self-imposed isolation, which led to China’s backwardness. These intellectuals have repudiated such claims, accusing Reformers of being over-dependent on foreign capital, foreign technology, and foreign markets, handing the country over to the foreign monopolies, and causing China to lose its economic and political autonomy.

In the past two years, discussion and debate in China, online, in publications, and in public forums, have been lively and intense. The scope and the depth of these discussions and debates have been much wider and deeper than anytime since the Reform began. Attacks on the Reform have also become much bolder and more direct, putting those who still advocate continuing the Reform on the defensive.

In a letter written and signed by 170 prominent people in September 2007, and submitted to the Delegates of the upcoming 17th Congress of the Chinese Communist Party, the signatories openly charged that power holders of the Chinese Communist Party no longer represented the interests of China’s proletariat, and that they betrayed the principles of Marxism, Leninism, and Mao Zedong Thought11. Developments in the past two years show the forces opposing China’s capitalist Reform are gaining strength. Although there is no doubt that the struggle for socialism in China, like elsewhere is going to be long, hard, and treacherous. China’s socialist legacy and the theory and practice Mao left behind will carry the struggle to triumph in the end.