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Sweeping privatisation - where is it taking China?
Green Left Weekly - April 29, 1998
Eva Cheng – In recent years, many countries have been trying to denationalise a significant part of their public assets. Imperialist countries have been doing it, as have Russia, China and a number of Third World countries. That process speeded up with the currency collapses and the near collapse of some Asian economies since July.
All these countries seem to be doing the same thing, but in fact these privatisation processes are driven by different forces and will lead to very different results.
Many imperialist governments privatise the public sector for fiscal reasons. They liquidate longer term assets for cash to plug holes left by spending in excess of revenue and/or to please their capitalists by passing over to them lucrative assets and more strategic control of the economy.
In the Third World, fiscal shortfall is also a main cause. But the biggest push comes from their imperialist creditors (banks), helped by world policing bodies under their control, such as the International Monetary Fund, the World Bank, the World Trade Organisation and the Asian Development Bank.
Foreign capitalists buy these Third World public assets to facilitate their control, to turn these economies more into an outlet for their capital and a market for their technology and goods. In Asia in recent months, their main attention has turned to Thailand, Indonesia and South Korea.
In the imperialist countries and the Third World, privatisation doesn't change the fundamental nature of the social system. It merely shifts the control of some productive assets from the state to the capitalists. The structural dependency of Third World economies on the imperialist centre, a product of the colonial era, has not and will not be changed by privatisation.
Qualitative change
But denationalisation has a totally different political meaning in countries like Russia and China, where capitalist property and social relations had been overturned. In these countries, privatisation was part of a broader scheme to dismantle the planned economy and production for social needs, to restore production for profit and re-establish the rule of capital. In both Russia and China, privatisation was part of a conscious process of capitalist restoration.
But while the Russian bureaucrats openly gave up the rhetoric of communist or socialist objectives, the Chinese bureaucrats still make use of that rhetoric. This posturing has contributed to confusion on the nature of the social transformation that has been taking place in China.
Different Chinese officials have called private business a "necessary component in the primary stage of socialism to complement and foster the development of productive forces".
This statement can be true, but on one vital condition - that the state is working to strengthen socialist property forms and social relations, and in particular that it is trying to put into practice genuine workers' democracy.
That's not the case in China. No matter how many times the Beijing bureaucrats vow that they are defending the socialist order in China, a critical assessment of their policies - their social, economic and political implications - reveals a different story.
Mao's regime
After 1949, a significant section of private property in China was left untouched until the mid-1950s. But this existence of some private property did not invalidate the socialist nature of the state power in China. That state power was born out of a socialist revolution and was working to defend and extend the socialist order.
This process of socialist construction went on despite suffering from serious distortions under the Stalinist regime headed by Mao. The key problem was that workers' democracy was never truly practised.
In addition, there was a stream of brutal and extensive purges which only formally stopped after Mao died in 1976. They devastated Chinese workers and shook their aspirations for and confidence in socialism.
But in themselves, denationalisations - including those that have been taking place in China since Deng Xiaoping came to power in 1978 - are neither the ultimate nor the decisive measure of capitalist restoration. If there were consistent moves to implement workers' democracy and to defend China's socialist order, the privatisation of some state assets, on its own, would not automatically mean that capitalism is being restored.
Productive forces
Development of the productive forces is crucial to the achievement of socialism, which can't be reached without material abundance. A degree of private ownership and material rewards can help a socialist regime to acquire or retain some skills, buy it some breathing space, help stabilise a new socialist order.
This is particularly true in an underdeveloped country. The use of private capital can't be mechanically ruled out. It is a tactical question to be judged in a particular situation, taking into consideration the balance of class forces, within a country and internationally.
Whether a post-capitalist order is taking a qualitative leap back to capitalism is not measured by some quantitative limit: that is, before you reach a magical number or level, a country is still socialist, but beyond that, it's capitalist.
Yet the Chinese bureaucrats have been marketing exactly this mechanical proposition. They claim that China is still socialist because the state still owns more than 50% of the economy. Beijing does not say what assets are included in this measurement, or how they are measured.
If a state firm's liabilities - say, due to its social obligations to its workers - far exceed its assets, is it now a piece of junk? Yes, for a capitalist, because it's insolvent. Not so from the socialist point of view, if the firm forms part of a broader economic network assigned to play different socially useful roles.
But once divorced from such a broader scheme, deprived of credit and other support, and being forced to make a profit as its reason for existence, such a firm will face a hard choice: sack a lot of its workers, or go broke.
There is an important question: if these state firms turn profit-oriented, does the state's ownership of a majority of them make the economic system more socialist?
Competition
If compared mechanically and outside their social and political contexts, products produced by advanced capitalist economies are inherently more competitive than products produced by socialist economies. Why? The unit cost of capitalist products is usually lower because their production is based on the super-exploitation of labour, devastation of the environment and use of more advanced technology.
Socialist economies cannot exist in total isolation. So long as there's a need for imports, for example for crucial materials or equipment, there's a need for hard currencies and a need to export to earn them, in direct competition with capitalist producers and usually at a price disadvantage.
With capitalist production being reintroduced in China in a big way, especially that supported by foreign capital and technology, the capitalists' competitive advantage is posing an increasing threat to socialist production.
This situation is made decisively worse by the state power, which is acting less and less to safeguard and enhance the planned economy. Because such institutional support is decreasing, the planned sector is becoming a smaller and weaker part of the economy.
Also, within the so-called state sector, many firms - especially the biggest and most efficient - have been partially privatised, through stock market floats. Foreign capital owns a minority share in most cases, but that's often enough for it to influence, if not determine, the key decisions.
Overall, the state sector suffers critically because it's no longer part of a centrally planned economy guided by social priorities. Most state firms have been marginalised into stand-alone operations. Previous support in the form of state credit and other supplies dries up, and profits increasingly become the sole purpose of production.
In this new game, workers' welfare has become an unwanted luxury. If not already fired, many workers in state firms have long been redundant, paid a tiny fraction of their normal wage, or nothing at all. China's labour minister even said recently that up to half of state sector workers have to be sacked before these firms can operate "normally" again.
Privatisation also takes the form of new firms started by foreign capital. Previously, they had to have a Chinese partner and couldn't own more than half of the joint venture. That has changed.
Many foreign investors have increased their control. These are fully fledged capitalist operations, mostly low tech and labour intensive. But they also include very efficient facilities supported by powerful imperialist firms. If allowed to sell freely in China - which they are not yet allowed to do - they can easily out-compete the state sector.
Home-grown capitalists
In addition, home-grown capitalists are also in formation. There are three main categories: the so-called individual businesses (this covers all private operations which employ up to seven workers); private enterprises (all larger capitalist operations); firms that are "wearing the red cap" - capitalist businesses disguised as publicly owned.
This last category comes mainly from the collective sector, which is not part of a centralised, planned economy. Firms in this sector are geared to make profits. They are usually owned by a local administrative unit and, sometimes, part owned by their workers.
It has been reported that some private businesses manage to find ways to register themselves as state-owned firms. Disguised as state owned or collectively owned, they enjoy easier access to supplies, credits and tax concessions.
Official statistics are collected based on such nominal categories and do not capture some of these distortions and important adjustments. Still, they are a useful reference. Measured by gross value of industrial output, the state sector's share dropped between 1985 and 1995 from 65% to 34%.
The collective sector increased from 32% to 37%; individual sector (small capitalist businesses) jumped from 1.8% to 13%; and others (which includes all other capitalist enterprises - local or foreign) leaped from 1.2% to 16.6%. The picture is clear: the private sector has grown strong at the expense of the state sector.
Bearing in mind the private businesses in disguise, which are not captured by these statistics, the true extent of privatisation in China is greater. The restoration of capitalist production and the return of the rule of capital have gone much further than it appears.
This process is likely to get stronger. Almost 20 years down this road, despite some temporary setbacks and holding back as a result of mass pressure (as in 1989) and conflicts of interest within the bureaucracy, the new leadership under Jiang Zemin and Zhu Rongji shows no signs of changing course.
Impact of crisis
The Asian crisis has slowed privatisation in China, especially the high-profile sales through stock market floats. The much bleaker export prospect is hitting both the state and private sectors.
The huge drop in value of some Asian currencies has made products of these countries cheaper, more attractive than products of their direct competitors, including China. To protect China's exports and its vital hard currency earnings, Beijing has been under severe pressure to devalue its currency. But top officials have repeatedly stressed that they will not do that.
But they can stick to this promise only at a high price - much less demand for their products or selling them at a big discount. Slashing prices too much can cut into profits, or swallow them up. Even if they decide that the lesser evil is to cut prices, if they go too far, the imperialist countries - led by the US - are ready to teach them a lesson.
They can be charged for dumping and punished by being banned from exporting to key imperialist markets, by having concessionary trade credits withheld and by bans on investing in China.
On the other hand, if China does devalue, it runs the danger of destabilising the Asian economies further, hurting the exports of more Asian countries, a scenario the imperialist powers fear and have been pressuring Beijing not to bring about.
This is catch 22 for Beijing. A slowdown in exports means less productive activity at home, and this can worsen China's already massive unemployment.
To minimise the resulting threat to social stability, Beijing in March announced a plan to invest more than US$1000 billion in the next three years in infrastructure and other public works. Setting aside whether Beijing can fund this massive scheme, these projects, if implemented, will significantly increase the state sector share in the economy.
However, these fiscal injections, on their own, will not restore or strengthen the socialist content of the Chinese economy. After 1949, the Chinese economy was rebuilt on the basis of production to meet social needs with the help of central planning. But that system has been continuously undermined over the last two decades.
Markets
The structural problem China faces now is the lack of a sufficient market for its goods. Although the developed capitalist economies are targeting very different markets - mainly for their capital goods and technology compared to labour-intensive and low-tech productions of the Third World - the imperialists have also been facing a serious problem in finding a market for their goods.
Powerful productive forces would be a blessing to ease humankind's hunger and poverty if people's needs were prioritised.
But in the capitalist world, profits come first. As the productive machines become more powerful, they only bring super-profits for individual capitalists, for a short time. For the capitalist class as a whole, their fundamental problem of a lack of sufficient markets is made worse by more powerful productive machinery.
It's not difficult to understand why these capitalist producers heartily embraced China after Deng Xiaoping kicked off the pro-capitalist "reforms". They set their eyes on China's potentially enormous markets.
China could provide a much needed outlet for their machines and consumer products - if Chinese industries and Chinese workers can afford to buy, but not when factories are closing and workers are losing their jobs.
Foreign capital owners can make a handsome profit by investing in China, exploiting sweated labour. But that hinges on whether their goods can be sold - inside or outside China. On this crucial question of markets, after the initial honeymoon, many foreign investors started to have problems. The lack of an adequate market has resulted in overcapacity much sooner than expected.
Last year, China's 20-plus air-conditioner producers, reportedly using a fraction of their capacity, produced 6 million machines. Demand felt short by 1 million machines.
Idle capacity and unsold goods were reported for many consumer durables and cars, where considerable new production capacity was still being built. There is no evidence yet that overcapacity is a general problem in China, but that is bad enough.
Perhaps this worry about demand, rather than the squeeze on credit or other fallout from the Asian crisis, explains why foreign investment in China this year is expected to reach just over US$20 billion, half last year's.
However, this setback will not stop privatisation or Beijing's broader pro-capitalist agenda. The rhetoric of some top bureaucrats is less influential than the deep-seated self-interest of broad layers of Communist Party cadres and cronies who are doing well as capitalists.
Beijing announced last month that it planned to sack millions of cadres and soldiers from the state and military bureaucracy. This will probably speed up the growth of this fledgling capitalist class.
Pushed along by the capitalists of Chinese origin in Hong Kong, Taiwan and south-east Asia, this incipient capitalist class has come a long way over the last decade or so, actively engaging in primitive capital accumulation and reinvesting their profits in expanded capitalist production.
Within China, two social forces have the ability or potential social weight to stop this process - the bureaucracy and the workers.
But the more members of the bureaucracy are transformed into capitalists, the less it is in their interests to stall or reverse the capitalist agenda.
Some workers and unemployed who have turned into capitalists (mostly petty traders, service providers and small capitalists) can be a force supporting more capitalist "reforms". But the majority of workers and the increasing army of unemployed have more to lose if full-blown capitalism is restored. Whether they can act collectively in their class interests is a question that remains to be answered.