No Reform or Relief in China

by Peter Kwong

Released: 27 Apr 2009

The Chinese economy is decelerating fast. Confronted by massive job losses and factory closures, her rate of growth this year is in danger of dropping to half of what it was for the previous five years. Yet western economists still think China is in a better position than most other countries in weathering the global economic storm because of its insular financial system. They particularly envy China’s centralized political system capable of injecting Keynesian-type stimuli without public debates. Besides, the country has no external debt and enjoys the largest currency reserve in the world.

However, one third of China’s two-year $586 billion-dollar stimulus package is set aside for last year’s earthquake disaster relief, and much of the rest for infrastructure construction. That leaves little direct assistance to people in economic distress, even though just in the last six months more than 20 million migrant workers have lost their jobs along with 6 million college graduates who cannot find work. On top of it all, the economy is still struggling to recover from the bursting of dual stock market and real estate bubbles that have devastated the savings of millions of middle-class families.

But even if the government were to give direct assistance, it has no existing infrastructure to deliver it. After three decades of neo-liberal policies, the government has stripped away all social welfare, retirement and health care benefits. Funds aimed for the needy would more likely end up in the pockets of corrupt officials.

The Chinese leaders’ primary concern has always been attracting foreign investments to induce rapid GDP growth by offering China’s cheap labor force. In fact, China’s recent spectacular expansion is predicated on the low cost of labor, made possible by the huge surplus of a rural population that is steadily coming into urban areas in search of work. The collapse of the Chinese rural economy has compelled 250 million farmers to migrate -- and millions more every year are expected to keep packing into the labor market.

Without labor protection, these workers are the source of huge profits for foreign investors. Profits made by multi-national companies from Chinese labor have greatly energized western consumption of products made in China and furthered investment in China. In due course, the deluge of foreign investments has expanded China’s productive capacity beyond the global market’s ability to absorb its products, thus creating a larger over-production bubble and leading to a much worse global crisis than would have occurred without China’s entry into the global economy.

Average Chinese income is too low for the domestic market to absorb the overcapacity. After all, three-quarters of China’s 1.4 billion people are impoverished. Even members of the growing urban middle class are not spending freely, opting instead to save in order to meet rising healthcare, retirement and children’s education costs.

A Keynesian-style stimulus could have helped to increase domestic income. But all indications are that Chinese leaders believe the current global crisis will be short. The government has allocated part of the stimulus to help export producers to manage until the massive global free trade resumes again.

If it were to increase domestic income, it would only undermine China’s low wage advantages internationally and erect obstacles to creating work for millions of rural migrants rushing to the cities for low-paying factory jobs. Meanwhile, China has been the most outspoken advocate for “free trade” at all international forums, even as other countries turn increasingly protectionist under domestic pressure.

The Chinese government could have reallocated the country’s huge foreign reserve to increase domestic spending. Instead, it is extending loans to resource-rich nations like Angola, Kazakhstan, Venezuela and Sudan in exchange for access to raw materials, in preparation for the resumption of export growth.

Because of these policies, Chinese leaders are facing domestic opposition. Labor unrest has surged, with workers demanding back pay. Frustrated citizens are blaming the economic downturn on government policies and demanding political reforms. At the end of last year, 300 academics, lawyers and even some party officials were brazen enough to issue the “Charter 08” calling for free elections and an end to one-party rule. Drafters of the Charter even dared to suggest that China become a “Federated Republic” by treating national minorities and others, including Taiwan, with a spirit of equality and fairness. More than 5,000 people coming from all walks of life, despite the obstacles posed by government censors, signed the document within seven days following the publication of the Charter.

The party’s response has been repression, accusing the dissidents of being dupes of poisonous foreign ideas and "counter-revolutionaries" bent on disrupting the unity of Chinese people during this period of national crisis. Meanwhile, the most vulnerable people in China today are labor organizers and human rights advocates. Strict censorship is imposed, including the deployment of thousands of cyber-police to block critical information from reaching the general public.

Many observers had hoped that the rise of domestic opposition during this economic crisis would lead the Chinese leaders to adopt more liberal policies -- as FDR had done during the Great Depression. Unfortunately, the current crisis has neither directed the Chinese leaders to focus on domestic-oriented economic growth, nor to bring about political liberalization.

Peter Kwong, a professor of Asian American studies at Hunter College, is co-author of Chinese America: The Untold Story of America's Oldest New Community.

Copyright © 2009 Peter Kwong -- distributed by Agence Global

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Released: 27 April 2009
Word Count: 860
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