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More Capitalism for the Chinese

A deeper integration into the world capitalist system appears to be the goal of the Chinese Communist Party, a decision obscured but not occulted by the ritual “all hail the party” slogans littering the “communiqué” the party issued following this month’s much anticipated planning meeting.

Nonetheless, the gradually mounting contradictions of China’s heavy reliance on exports and investment, and the larger implications for global living standards, remain in place. China’s role in global capitalism, despite its impressive growth figures, has been an assembly platform for foreign multi-national corporations. This system has brought wealth to a minuscule layer of Chinese capitalists while enormously profiting Western and Japanese companies, and their East Asian contractors.

Two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. In high-technology industries, the ratio is higher: Wholly owned non-Chinese corporations account for 68 percent of high-tech exports and, if firms partially owned by foreign companies are included, the total is 83 percent.

And in contrast to misleading trade statistics, most of the money captured by this Chinese production is taken by Western and East Asian multi-national corporations, not by China. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is.

Socialist rhetoric, but capitalist content

The communiqué referenced above is the official statement released by the Chinese Communist Party following the “Third Plenum” of the 18th Party Congress. The plenum, a meeting of the entire party Central Committee that concluded on November 12 in Beijing, was intended to re-orient the Chinese economy in a new direction. The corporate media predictably issued downcast reports in the wake of China not immediately adopting International Monetary Fund diktats.

The communiqué is full of long-winded sloganeering and short on details. Nonetheless, in between the repeated ritualistic panegyrics to the party’s guidance and the “magnificent progress” it has bequeathed China, there are clear indications that the party intends to continue down its capitalist path. That no significant backtracking is contemplated is signaled by this oxymoronic formulation:

“The Plenum stressed that to comprehensively deepen reform, we must hold high the magnificent banner of Socialism with Chinese characteristics, take Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the important ‘Three Represents’ thought and the scientific development view as guidance.”

The “Three Represents” reference is an official line announced in 2001 the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. Promulgated by former President Jiang Zemin, it is a declaration that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously. One can of course enunciate such a program if one wishes, but such a theory has nothing in common with Marxism. “Three Represents” follows naturally from the policies of President Jiang’s predecessor, Deng Xiaoping, who firmly pushed China on to its capitalist path.

Also noteworthy is the one Communist leader omitted from the list — Hu Jintao, the president between Jiang Zemin and current President Xi Jinping. President Xi is seen as a protégé of former President Jiang, who is believed to have helped pack the Politburo Standing Committee, China’s highest political body, with his followers. The references to Marxism-Leninism and Mao Zedong Thought are ritualistic references, necessary to establish the party’s right to continuity in power and thus its authority to continue to rule.

That only “Three Represents” had the adjective “important” in front of it can be interpreted as to the importance of that line. Moreover, President Jiang was elevated to power following the massacre in Tiananmen Square, which smashed dissent and enabled paramount leader Deng to dismantle social protections. During the 1990s, when President Jiang was in power, state- and collective-owned enterprises were privatized, millions were laid off, peasant rights were revoked and dislocation induced a steady stream of migrant workers into the urban sweatshops. No basic change to this pattern should be expected.

Exalting the party but the market, too

Some of the key ideas put forth by the communiqué are these:

• “The Plenum pointed out that we must closely revolve around the decisive function that the market has in allocating resources.”

• “The Plenum pointed out that to comprehensively deepen reform, we must base ourselves on the largest reality that our country will remain in the preliminary stage of Socialism for a long time, persist in this major strategic judgment that development still is crucial in resolving all of our country’s problems.”

• “We must relax investment access, accelerate the construction of free trade zones and expand inland and coastal openness.”

• “[W]e must strengthen and improve that Party’s leadership, fully give rein to the Party’s core leadership function in assuming all responsibility for the entire picture and coordinating all sides.”

The corporate media was unified in grumbling over the last of these, and although the party will certainly maintain a tight grip on political power, the direction of the party over the past three decades is what has granted Western and East Asian multi-national corporations opportunities for massive profiteering on the backs of Chinese workers.

In contrast, Xinhua, the official Chinese news agency, focused on the word “decisive,” declaring the use of that word to describe the role of markets a development from the party’s previous use of “basic.” Xinhua wrote:

“The role of the market in China has officially switched from ‘basic’ to ‘decisive,’ and is key to understanding the reform agenda. [The party] communique … stressed profound economic reform, with the market to play the decisive role in allocation of resources. The previous socialist market economy — official policy since 1992 — attributed only a ‘basic’ role to the market. … [A] unified market for both urban and rural construction land and an improved financial system are definitely in the pipeline.”

More market capitalism then. But as there are no perpetual-motion machines, how long can China continue to its current path?

Export-based economy can’t be easily changed

China’s economy continues to be overly dependent on investment and unable to easily shift toward more household consumption, and thus dependent on exporting. Its ability to be the world’s workshop rests on its ultra-low wages, which are in turn based on systematic exploitation of its rural population.

For China to re-orient itself to producing for internal consumption would mean having to allow dramatic growth in workers’ income. But doing so would mean ending foreign capital’s reason to move production to China. China could try to switch to high-end manufacturing — to some degree, it is trying to extend its mix of production to do that — but it doesn’t have the capabilities of non-Chinese companies that are already making such products and it would have to compete by muscling out foreign competitors. (Much of China’s machinery is imported from Germany.)

As their own populations become more restless, foreign governments could find it politically difficult to continue to allow themselves to be swamped by cheap Chinese imports. Moreover, the internal demand for such high-end products is limited within China, so it would be right back to having to rely on exports. Considerable Chinese demand for high-technology products comes from government infrastructure projects and there comes a time when such a high level of investment ceases to be prudent and becomes wasteful spending, as has happened to Japan.

The Chinese Communist Party can continue to apply repression to keep wages and working conditions low, but such policies directly contradict its supposed reliance on Mao Zedong Thought, which produced the now-shredded social safety net known as the “Iron Rice Bowl” — an achievement not lost to collective memory. If the continual drip of scattered local rebellions organizes enough to force competitive wages, Western capitalists would still want to sell their products in China, but would produce at least some of them elsewhere.

Chinese industry could step in and build new capacity, or acquire the capacity that Western capitalists abandon, but the upward pressure on wages would undercut China’s ability to export cheaply, and without much increased internal demand China would have a glut of capacity that would face shuttering.

Chinese workers endure long period of low wages

Household consumption — all the things that people buy for personal use from toothbrushes to automobiles — constituted about 36 percent of China’s gross domestic product in 2012, only two percentage points above China’s bottom three years earlier and far below the 51 percent in 1985. In comparison, household consumption is 58 to 72 percent of the economy of the world’s largest advanced capitalist countries. Fixed capital investment continues to account for large and growing portions of China’s GDP — 46 percent in 2012, a figure more than double countries like Japan and the United States.

What those numbers signify is that China, despite the repeated proclamations of its leaders, has made no progress in re-orienting its economy.

The share of labor income in China’s gross domestic product shrank to 37 percent in 2005 (the latest for which I can find statistics) after having been consistently above 50 percent in the 1980s. A bigger proportion of China’s surplus is being taken by capitalists, but not necessarily Chinese capitalists.

Illustrating this, a paper written by Yuqing Xing and Neal Detert found that almost all of the value created by iPhone production in China goes to manufacturing corporations outside of China, where only the final assembly is conducted. The paper, “How the iPhone Widens the United States Trade Deficit with the People’s Republic of China,” argues that conventional trade statistics are highly misleading because the value of the entire product is assigned to the country where the final assembly is conducted, rather than allocated by the value of the various inputs. The paper reports:

“The US also has an absolute advantage in the smart phone category. … [T]heory would suggest the US should export iPhones to the [People’s Republic of China], but in fact the PRC exports iPhones to the US. All ready-to-use iPhones have been shipped to the US from the PRC. Foreign direct investment, production fragmentation, and production networks have jointly reversed the trade pattern predicted by conventional trade theories. Chinese workers simply put all these parts and components together and contribute only US$6.50 to each iPhone, about 3.6% of the total manufacturing cost.

If the PRC’s iPhone exports were calculated based on the value-added, i.e., the assembling cost, the export value as well as the trade deficit would be much lower, at only US$73 million, just 3.6% of the US$2.0 billion calculated by using the prevailing method. … Bilateral trade imbalances between a country used as a final assembler and its destination markets are greatly inflated by trade in intermediate products. … The Sino-US bilateral trade imbalance has been greatly inflated.”

The paper argues that the other $162 of the total manufacturing cost of iPhones (all of the cost other than the $6.50 contributed by underpaid Chinese labor) came from U.S., German, South Korean and Japanese manufacturers who supplied the parts and shipped them to the final assembly plant, which itself is owned by a Taiwanese corporation that is a subcontractor to Apple. The iPhone is designed and sold by Apple, which enjoys a large profit from it. Thus, the money from trade deficits fills Apple’s, and not necessarily Chinese, coffers.

Rural exploitation drives sweatshop exploitation

The dramatic increase in Chinese manufacturing is driven by multi-national corporations from the U.S., East Asia and Western Europe. State-owned enterprises account for 25 percent of China’s industrial output, down from 75 percent in the mid-1980s.

Exploitable workers are needed in those factories, and China’s supply of labor comes from rural wages being consistently 40 percent or less that of urban wages and that local and regional officials continually take and sell off farming land to developers, partly for their own enrichment but also to generate revenue to fund local government. According to a Reuters report, about four million farmers lose their land annually — and those farmers receive an average of $17,850 an acre from local governments, which resell it for an average of $740,000 an acre.

The vast disruptions, vicious exploitation and cavernous inequality of early capitalism is being repeated in China, at an accelerated pace. Earlier industrializing countries did so during a time when capitalism covered only a portion of the globe and thus had considerable room for growth. Wages could eventually rise because of the scope for expansion via exporting, capital controls and the difficulty of moving production to other countries. Mass organizing, including the creation of then-militant unions, leveraged those factors into rising living standards.

Capitalism no longer has places into which to grow, having blanketed the Earth, and the capitalist class has succeeded in eliminating barriers to their moving production at will, accelerating a race to the bottom. The rise of China, or any other country, can only come by taking market share away from somebody else, and the growing mass of low-wage workers drags down wages globally. The alliance of party-connected Chinese capitalists with Western capitalists is profitable for them, but at the expense of working people in those countries and around the world.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.

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Pete Dolack writes the Systemic Disorder blog and has been an activist with several groups. His book, It’s Not Over: Learning From the Socialist Experiment, is available from Zero Books.

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