Vol. 74/No. 32      August 23, 2010

With the Chinese Revolution, workers and peasants overturned feudal and capitalist property relations. New economic relations were established based on state property, economic planning, and state monopoly of banking and foreign trade.

Draped in socialist phrases and pretense, the ruling caste of the Chinese CP, which rode the revolution’s crest to power in 1949, administered and corrupted these conquests for their own narrow interests. From the beginning, the possibilities for social and economic development on new foundations of the toiling classes were undermined.

An expanding world market and China’s social conditions provided an opportunity for the Chinese rulers to entice foreign capital to the country’s source of cheap labor. The levers of the capitalist market over the past three decades spurred economic growth and technological advances. China’s gross domestic product increased at an average rate of about 10 percent per year, compared to 6 percent in the previous two decades. This development, based on the exploitation of labor for profit, has brought with it a rapid rise in the size of the working class, and deep economic and social contradictions that are leading to crises and class battles.  
 
Corruption of state property
Over the last three decades, the role of state and collective property has diminished. As recently as 1978, state-owned enterprises accounted for more than three-quarters of industrial output, while all but a tiny fraction of the rest came from collectively owned rural establishments under the direction of local governments.

State-owned firms continue to play a significant part in the Chinese economy, particularly in key sectors of heavy industry, transport, and tobacco processing. But in other areas of industry, such as light manufacture, various forms of private ownership now predominate. Between 1995 and 2005, the number of state-owned enterprises declined from 118,000 to about 27,500, as many, particularly the smaller ones, were privatized.

According to government statistics, the percentage of industrial workers in state-owned enterprises declined from 68 percent in 1995 to 36 percent in 2003. A recent U.S. congressional report gave the following breakdown for industrial output in 2005: state-owned enterprises, 38 percent; foreign-invested private firms, 28 percent; domestic private companies, 18 percent. The remaining 16 percent represents two other types of ownership: mixed ventures owned jointly by the state and private parties, and collectively owned enterprises run by local governments.

The administration of state property has become more capitalistic alongside the rise of privately owned domestic and foreign ventures. Managers of state-owned enterprises receive a share of company profits as an incentive to maximize the extraction of value from workers’ labor. Alongside such legal avenues for personal gain, has risen the pilfering of state property through forms of corruption that typify the development of capitalist property relations.

State-owned enterprises have also become involved in a range of financial speculation as they seek avenues to increase their rate of return. Major state companies buy and sell shares on the Chinese stock market. A number are simply run by state holding companies and operate much like private firms, including selling their stock in overseas exchanges such as the United States.  
 
Financial bubble in real estate
The state retains legal ownership of urban land. Rural land is considered collectively owned by peasants from a given area, but is administered by local governments.

Today, much of farming in China is organized by leasing land rights to peasant households, often for 30-year periods. Long-term leases are also issued to individuals and companies—both domestic and foreign—for commercial, industrial, and residential development. Depending on the purpose, land use rights are issued for as long as 70 years.

Real estate development and speculation have become major avenues for investment, resulting in a massive financial bubble. Local governments disproportionately sold land rights to urban developers building luxury dwellings where they could charge the highest prices. Developers have been able to turn a profit even if whole buildings remained vacant, as speculative home buying became the most popular and lucrative investment option for wealthy individuals. This drove up prices. As prices rose, land hoarding by developers increased, raising prices further. And all this was facilitated by periods of easy credit from state banks looking to “stimulate” the economy and their bottom lines.

Average house values in 70 Chinese cities rose nearly 18 percent over the course of one year beginning April 2009. This trend has been particularly acute in major cities in the east, where economic development and foreign investment has been concentrated. In Beijing over the same period average housing prices increased by more than 95 percent. Today a large glut in commercial and luxury real estate and a growing financial bubble in the housing market reveal one of the growing vulnerabilities in the Chinese economy.  
 
Peasants driven off land
Collusion of local governments in the confiscation of rural land for development projects has been commonplace, sparking many protests each year by peasants in defense of their collective ownership rights. As officials and developers enrich themselves, many peasants were forced off the land and sought work in industrial centers. In major cities as well, local officials have schemed to evict working people to make room for profitable development projects.

In 2008 the government began to allow the direct transfer of land rights from peasants to developers, which served to both stem the social consequences of rampant land grabbing and take another step toward private property.

Meanwhile, an acute housing crisis for working people has been mounting in China’s major cities, where many live in shantytowns or employee dormitories.

This year the government tightened credit and implemented other measures in an attempt to reduce housing inflation caused by speculation and to begin building desperately needed working-class habitation.

The Chinese economy has been fueled in large part by foreign investment and a strategy of capturing the largest possible share of the world market for its exports. Today China is one of the top destinations for foreign investment, and the biggest exporter in the world.

Since 1979 the value of China’s exports has increased more than 100 fold, reaching $1.4 trillion in 2008 and comprising more than 30 percent of the country’s gross domestic product.

Beginning in 1980 the government established economic zones for foreign investment in more than 50 major cities, the entire island province of Hainan, and several areas along the Yangtze River valley. They are run by local governments and provide lucrative incentives for would-be investors, namely cheap land and labor.

In addition, hundreds of smaller zones have been set up by provincial and municipal governments throughout China.

During this period, more than $880 billion in utilized direct foreign investment has been funneled into China, according to government figures. In 2008 this amounted to $92 billion. (Some Chinese investors are believed to disguise their funds’ origin in order to take advantage of preferential policies for foreign capital, making this figure a little higher than the actual amount.)

More than half of foreign investment in China is directed to manufacturing; nearly a quarter is in real estate development.

A large portion of foreign-invested industry is directed toward the production of consumer goods for export. Some 55 percent of the country’s exports are produced in foreign-invested companies.

It is the great weight placed on maximizing exports and foreign investment in the Chinese economy that is responsible for a substantial portion of China’s rapid—and uneven—economic growth; and for driving tens of millions of peasants from the countryside to the cities to work in huge industrial centers that have sprung up out of nowhere amid a vast sea of rural backwardness.

It is also a driving force behind stiffening trade competition and declining profit rates worldwide, as well as a growing crisis of capitalist-style overproduction in China, and the increasing grind on Chinese working people.

Ironically, it is also these two linchpins of the Chinese miracle—the maximum export model and reliance on foreign investment—that are the most directly impacted by the unfolding worldwide economic crises.

The next article will discuss the conditions of the working class, as well as the impact of the world financial crisis in China, what it reveals about the imbalances in the Chinese economy, and consequences of the government’s “stimulus” efforts, which should help to unmask some of the myths behind the Chinese economic “miracle.”  
 
 
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