Reports from the Economic Front

a blog by Marty Hart-Landsberg

The Chinese Economic Experience–Part I

A lot of attention is being paid to China during this crisis.  One reason is that it appears to be one of the few countries able to maintain a relatively high rate of growth.  Some analysts take this as more evidence for the superiority of the Chinese economic model.  Some US workers even view Chinese workers as benefiting at their expense.  These conclusions are largely based on a misreading of the Chinese experience.

Despite claims by the Chinese government, China is not a socialist country.  While the government remains a powerful force, its actions have created an economy that is dominated by markets and privately owned enterprises, and driven by foreign produced exports which are largely sold to the US, European Union, and Japan.  Exports now account for some 40% of Chinese GDP.  Approximately 55% of all exports and 88% of all high-tech exports are produced by multinational corporations operating in China, a growing number of which are 100% foreign owned.  In other words, China has become a capitalist country with “Chinese characteristics.”

While China’s growth strategy generated rapid growth and industrial transformation, these gains have come at high cost for Chinese workers.  One indicator: Chinese wages as a share of GDP fell from approximately 53% of Gross Domestic Product in 1992 to less than 40% in 2006. Private consumption as a percent of GDP also declined, falling from approximately 47% to 36% over the same period.

According to the Economist magazine, “the decline in the ratio of consumption to GDP . . . is largely explained by a sharp drop in the share of national income going to households (in the form of wages, government transfers and investment income), while the shares of profits and government revenues have risen. . . . Many countries have seen a fall in the share of labor income in recent years, but nowhere has the drop been as huge as in China.”

Despite strong state repression, workers have been anything but passive in the face of deteriorating living and working conditions.  According to official Chinese government statistics, the number of large scale “public order disturbances” grew from 58,000 in 2003, to 74,000 in 2004, 87,000 in 2005, and 94,000 in 2006.

Things have only intensified since the global crisis began.  The number of disturbances reached 120,000 in 2008 and 58,000 in just the first quarter of 2009 (which would produce a record 230,000 for the year if the current trend is maintained).

Concerned by growing popular resistance to its growth strategy, the Chinese government introduced a new labor law in January 2008 which was designed to force employers to sign contracts specifying  hours and wages and pay required overtime and health and retirement benefits.  However, more concerned about maintaining corporate profits in the face of the current world crisis, the government recently told employers that the law will not be enforced.

Chinese migrant workers account for approximately 70% of all manufacturing employment and these workers have been hard hit by the decline in Chinese exports.  Up to 30 million have lost their jobs over the last year, and millions more have been forced to accept lower wages.  Urban unemployment has also spiked for non-migrant workers—rising to double digit levels according to conservative estimates.

In short, even when China’s economy was booming it was far from a model for workers.  Wealth was created, but most of it went to multinational corporate owners (including those from the US) and their Chinese allies inside and outside of the Communist Party.  Now that China confronts a global crisis, living and working conditions for the majority have sharply deteriorated.

The significance of the above is that we need to think more globally and less nationally.  Business and government elites in both countries tend to share a common interest in maintaining a system that benefits them at majority expense.

This brings us to China’s still strong GDP growth rates.  In Part II, I discuss reasons to doubt these figures and thus the soundness of the Chinese economy.

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