Chris Harman

Thinking it through

Bull market in China shop?

(June 1993)

From Socialist Review, No.165, June 1993, p.6.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘China, the making of an economic giant.’

‘New calculations could make China the second biggest economy in the world ... The fast growing economies of Asia have acquired a dynamic of their own ...’

The headline is from the front page of the Far Eastern Economic Review, the quote from Victor Keegan in the Guardian. But they could come from virtually any of the posh papers or business magazines – or even from a special issue of Ken Livingstone’s Socialist Economic Bulletin.

The message, it seems, is that the market may be making a mess of the former USSR, of the united Germany, of France, Italy, Spain and Scandinavia, and most recently of Japan. But don’t worry. It is working wonders in China, and that provides hope for what used to be called the ‘Third World’.

For good or ill, the real picture is rather different. The ‘sudden’ discovery that the Chinese economy is rather larger than used to be thought should not surprise anyone. The usual way of comparing the output of economies is based on official exchange rates. But anyone who travels from the West to most Third World countries discovers immediately that the dollar is worth much more there than in the West. That is why the United Nations set up a project 25 years ago to compare national outputs using real purchasing power. Economic journalists have suddenly seized on this to claim the world has changed enormously.

But there has been real economic growth in China, which has transformed the lives of hundreds of millions of people over the last 15 years. However, the way that growth has occurred is creating massive and recurrent economic and political crises.

The Chinese government turned to ‘reform’ in desperation in the late 1970s as the centrally directed command economy began to grind to a halt. For three decades it had forced the peasants to hand over to it any surplus from what they needed to stay alive, so that it could build up heavy industry, using a world record of close to 40 percent of national output for accumulation. This had previously achieved fast growth rates but could not any more.

Reform was double pronged. There was a relaxation of the squeeze on the peasants who were allowed to sell most of their crop freely and to spend their earnings as they wished. This reduced the overall accumulation rate to less than 30 percent. At the same time in industry state bosses were given a freer hand than before and entrepreneurs were encouraged to set up workplaces in both the cities and the countryside catering for unregulated markets both at home and, increasingly, abroad.

The immediate result was a boom in both agriculture and industry. The peasants saw, for the first time in decades, some point in toiling as hard as they could and increased output enormously, so that overall food consumption a head rose to about 25 percent above the Indian level (although still substantially below that in the West). Industrialists, old and new, began to take the opportunity to sell a range of very basic consumer goods to the peasants and to use the very low wages of Chinese workers to begin to cut into niches of the world market. A growing workforce in the cities was able to hope to buy a few of the consumer goods that workers in the West and eastern Europe had taken for granted for decades.

China, in short, experienced an old fashioned capitalist boom and this transformed the lives of many millions of people. But it soon got out of hand. All the industrialists began investing at once, forcing up the rate of accumulation close to the 1978 figure.

By 1988, the economy was out of control, inflation was close to 30 percent in the cities, food shortages were growing, peasants complained they could not get the fertiliser needed for their improved crops, and the government felt it had to do something. It took steps to replace the boom with recession. But this could not prevent the bitterness boiling over in the spring of 1989, when workers flocked to join the student protests at Tiananmen. Square.

There was nil industrial growth in the first half of 1990. Then the government allowed a new boom to take off. Once again there are high industrial growth rates. It is these which impress the worshippers of the market internationally. What they don’t notice is that there are also all the tensions of the run up to Tiananmen Square – and more besides.

As industrialists go flat out in competition with each other, investment is already running at record levels (it is reported to have risen 70 percent in the first quarter of this year), drawing vast numbers of people from the countryside into the industrial areas, creating shortages of raw materials and pushing up imports until they threaten the balance of payments. Yet food output is no longer rising at the speed of the early 1980s, and there are reports of increasing poverty in parts of the countryside away from the coastal boom regions.

Attempts to control the boom are leading to growing splits at the top of society. Conservative economists are saying the government is in danger of making the same mistake as in the ‘great leap forward’ of 35 years ago, when attempts at rapid growth led to economic breakdown and famine. Their ‘reformist’ opponents are saying the poorer inland regions must cut back their spending to allow the boom to continue in the coastal areas, whose export industries can attract foreign investment. Meanwhile in each province and city local bureaucrats are ignoring central government controls on investment and sometimes blocking physically the flow of goods to other provinces. In parts of the countryside there have been riots by peasants protesting at being paid for their crops with IOUs rather than cash. And supporters of the market repeatedly call for smashing ‘the iron rice bowl’ which provides industrial workers with minimum welfare benefits.

No one can tell whether the outcome will be a repeat of the upheavals of 1989. But the least likely outcome is the prolonged, stable advance promised by the journalistic hype. If some parts of the Chinese economy continue to go forward, it will be because other parts are allowed to regress.

This has been the conclusion of serious academic studies in publications like the China Quarterly and the Journal of Development Studies. But few journalists have hinted at the truth. For that would be to challenge head-on the idea that the market offers a future for humanity.

Last updated on 18 June 2010