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WSWS : News & Analysis : Asia : China
Unemployment and poverty spirals
Beijing accelerates market reforms as economic growth and investment
slows
By James Conachy
20 May 1999
The economic policy adopted by China's National People's Congress in
March, and developed further during World Trade Organisation (WTO)
membership negotiations over the past months, is designed to
accelerate the expansion of the capitalist market and private
property, and further open the economy to transnational investment.
The plans of the Beijing Stalinists were symbolically embodied in the
major constitutional change endorsed by the Congress. Fifty years
after Mao Zedong led his Red Army into Beijing and proclaimed the
Peoples Republic, his heirs altered the Constitution to elevate
private ownership of property and land to equal legal status with
state ownership.
Another key legislative measure also advanced the interests of capitalist firms and
entrepreneurs. New national contract and bankruptcy laws were implemented, replacing
all previous national, regional and local laws gover
ning commercial activity. The changes bring China more into line with the commercial
laws elsewhere in the world that guarantee the rights of private investors.
Beijing made further concessions to international capital in April to try to secure
Chinese membership of the WTO. The Ministry of Foreign Trade and Economic Cooperation
announced that foreign financial institutions will
be permitted to open branches throughout the country and that the telecommunications
and retail sectors will be opened to foreign investment.
Joint ventures between foreign companies and Chinese firms will be permitted across
the country as well, not just in defined Special Economic Zones. Significant cuts to
tariff protection levels were promised over the comi
ng years to 2005. Tariffs on vehicle imports are to be reduced from 100 percent to 25
percent. Agricultural tariffs will also be lowered, allowing imported foodstuffs to
compete in China's markets.
The National People's Congress also reaffirmed the wholesale dismantling of most of
China's state-owned economy. The budget presented by Prime Minister Zhu Rongji, and
adopted with virtually no dissent, called for no slow
down in the privatisation or shutdown of state-owned enterprises first outlined at
the landmark 1995 National People's Congress.
China's government, at all levels, is divesting itself of virtually any ownership of
industry. At the highest level, the central government is aiming to eliminate state
ownership of all but 1,000 of the large state-owned
firms by the end of next year, down from 11,000 in 1994. After last year's directive
that China's military end any direct control of business enterprises, this year Zhu
ordered the country's multitude of regional and loca
l authorities to do likewise.
The closure or sale of state-owned companies will compound the country's growing
social crisis. With most of the state firms being either obsolete or over-manned by
commercial standards, analysts estimate a further six mi
llion more jobs will be eliminated over the coming 12 months due to layoffs or
outright closures—on top of million of jobs eliminated from state-owned enterprises in
1998.
Job-shedding on a mass scale is also underway within the government bureaucracy in
order to slash government expenditure. After mass layoffs in the national public
service during 1998, the 1999 budget has called for local
government authorities to shed 50 percent of their staff.
Economic decline
This year's National People's Congress took place as the Asian economic turmoil
undermined the assumptions on which the government's economic plans were based.
Beijing had counted on continuing high levels of foreign dire
ct investment and economic growth to absorb some of the millions of workers laid off
from state-owned enterprises, thus averting a potential social explosion.
China's state-owned enterprises provided more than employment to hundreds of millions
of people. They also provided essential social support in the form of pensions, health
care, housing, education facilities and even sub
sidised food. Millions of people now out of work not only have lost their jobs but any
form of financial support. They have been plunged into complete poverty.
In the past, the government was able to use state-owned banks to extend loans to
state-owned industries awaiting restructuring to enable them to continue to pay
workers' wages. But a slowing of the economy and a massive a
ccumulation of debt has compelled Beijing to speed up its restructuring, regardless of
the social consequences.
The 12.4 percent average economic growth recorded from 1990 to 1995, when investment
was flooding into China, has become a distant memory. The official growth rate fell
again, from 9 percent in 1997 to only 7.8 percent fo
r 1998. According to some economic commentators, however, the actual figure is even
lower.
Levels of foreign direct investment have begun to fall over the last two years. In the
first two months of this year investment dropped by 48 percent. Some worst-case
scenarios predict that foreign investment could fall f
rom $45 billion last year to only $15 billion this year.
Industries like garments and plastic products have seen orders shrink by over 20
percent in the first months of 1999. Exports of toys, textile and footwear have fallen
by more than 10 percent and the machinery and electri
cal products sector has experienced a drop in sales of 1.9 percent. Over-capacity
across manufacturing is estimated to be as a high as 50 percent.
A growing social crisis
The economic slowdown is leading to a mounting social crisis and growing hardship for
tens of millions of workers and peasants. In the countryside, a vast pool of surplus
labour produced by the breakup of the commune syst
em in the 1980s is predicted to reach 200 million people by next year, or 30 percent
of the workforce.
Some 90 million rural migrants seeking work have flooded into China's cities. An
“urban poor” of more than 20 million people, who cannot afford even basic food,
shelter and clothing, had developed even before the onset of
the current economic crisis throughout Asia. Many were workers laid off by
state-owned industries.
Now the huge internal migration is grinding to a halt and even being forcibly thrown
into reverse, as the cities no longer have labour shortages. Municipal governments,
with rising urban unemployment, are evicting migrant
s from their jurisdiction and forcing them back to the villages and townships. At the
same time as laid-off workers return, employment in the countryside is contracting.
Each year another 4 million join the ranks of the r
egional unemployed.
The increasing difficulties faced by China's rural masses are reflected in the
staggering rise in the suicide level. The World Bank estimates the suicide rate in
China to be 30.3 per 100,000 deaths, three times the world
average. The rate for women is five times the world average. Each day 500 Chinese
women commit suicide, overwhelmingly in rural areas.
Protests and demonstrations are growing over a range of issues, including the payment
of road tolls, school fees and mistreatment by local police. According to one
estimate, over 10,000 separate incidents have taken place
in rural areas over the last year alone. In China's major industrial cities, protests
by unemployed workers or those threatened with layoffs are said to be a daily
occurrence.
To hold back social discontent, the National People's Congress authorised a 56 percent
increase in the budget deficit in order to establish minimal social security payments
for the growing army of unemployed and infrastru
cture programs to provide temporary, low-paid jobs. On April 20, IMF official Michael
Mussa indicated temporary support for this welfare policy but made clear that such
measures should be wound down next year.
As the policies rubberstamped at the National People's Congress are implemented and
the full impact of the market reforms demanded by international investors is felt, the
Beijing bureaucracy is presiding over a political
and social crisis of colossal proportions.
See Also:
Mass demonstrations in China express outrage at NATO bombing
[10 May 1999]
Business pressure prompts Clinton to restart US-China trade talks
[17 April 1999]
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