Even before Hu Jintao's visit to these shores, we
had got used to the constant extolling of China's
economic performance. There is method and purpose
behind such admiring accounts. Rarely, if ever,
is the long view taken, as Amartya Sen repeatedly
insisted that it should. From 1949 to the first
stage of reforms in 1978, whatever the horrors of
China's undemocratic political system, its
command economy carried out a more fundamental
land redistribution programme than in India on 20
per cent less arable land, provided a basic
minimum of food, shelter, clothing, employment,
more-or-less complete public-health coverage,
primary and secondary education for all children
and social security for the elderly.
This silence about China's 1949-78 economic and
social experience is demanded by the purposes
which the contemporary admiration of China's
post-1978 performance is meant to serve. One can
discern three main purposes. First, it is
necessary to egg India on to try to match, even
surpass China. Only then will India achieve its
'rightful' place as a 'great power'. This is
psychologically of great importance to an Indian
elite that identifies its own sense of self-worth
with that of the Indian State. The goal is
greatness via 'strength'. Poverty eradication is
therefore necessary because its continuing
existence would be an embarrassment, a public
refutation of 'greatness'. This stated commitment
does not betoken the emergence of a more humane,
kinder, more moral and sensitive Indian elite -
far from it.
Second, highlighting China's economic success
serves the purpose of affirming the supposedly
general and enduring virtues of neoliberal
economic policies, thereby justifying India's
acceleration on a neoliberal path of reform with
further privatization and commodification of
ever-more spheres of human activity and
existence, ever-freer capital flows, 'labour
market flexibility' (shorthand for promoting
greater job insecurity), de-unionization and more
contract work, less regulations about maintaining
proper work and environmental conditions, a
longer working week, and so on.
China has embarked (as has western Europe and
Japan) on a neoliberal trajectory. But because
the starting points and the socio-economic
character of western Europe and east Asia (Japan,
China, South Korea and Taiwan) were so different
from that of Britain and the United States of
America, the impact of neoliberalism on these
societies remains very different. The role of the
State in western Europe and Japan, for example,
with respect to macro-economic management,
distributive arrangements and provision of
welfare remain very different and generally
superior to the American model. Since, in India,
the American theoretical model of neoliberalism
dominates discourse, there is invariably a
misreading of the lessons that the Chinese
experience are meant to provide.
Third, India is one of the few countries where
there continues to exist a politically
significant left able to influence national
policies. The left's main bastions are more
social-democratic than radical, but in these
right-wing times this is bad enough. China's
openness to foreign direct investment and its
anti-democratic restrictions on labour are a
stick with which to beat the 'pro-China' Indian
left for not learning from its 'hero'. But at
other times, its 'pro-China leanings' can be
highlighted to attack its 'inadequately
nationalist' credentials. A more sober
balance-sheet of the Chinese economic performance
over the last decades is therefore always of some
value.
The first wave of reforms began in 1978 and
started in agriculture. The commune system was
dismantled through the establishment of the
'household responsibility system', allowing
long-term land leases and freedom to market
surpluses greater than State-demanded quotas of
produce. The town and village enterprises were
also created out of assets held by the
communes.The TVEs became centres of
entrepreneurship, producing inputs for
State-owned enterprises and markets for the
outputs of SOEs and other TVEs. Credit finance
for TVEs, SOEs and the growing private sector was
provided by the state banking system. Between
1978 and 1984, rural incomes grew by an
astonishing 14 per cent per annum.
In the late Eighties and Nineties, market
mechanisms expanded to cover more and more areas
of production in town and country, foreign
capital came in massively in the Nineties, while
'labour market flexibility' increased
dramatically with urban dwellers being favoured
with 'residency permits' assuring them of certain
welfare benefits. Those without such permits
became part of an ever-growing pool of internal
mass migrants, now numbering over 100 million and
estimated to reach 300 million by 2020. Rural
incomes, since the beginning of the Nineties,
have stagnated with remittances from the towns
having become crucial for the survival of much of
the rural population, and the income disparity
between town and country now being one of the
worst in the world.
In the early Nineties, it was the TVEs that
provided the real dynamism of the Chinese
economy, employing 128 million people by 1995.
They set the model, producing light manufactures
for export. In contrast, the SOEs fell into debt,
were bailed out by non-performing loans from the
state banking system and from 1993, large and
medium SOEs were being turned into
limited-liability or shareholding companies. SOEs
that had accounted for 40 per cent of total
manufacturing employment in 1990 accounted for
only 14 per cent of such employment in 2002. Now
TVEs and SOEs are open up to full foreign
ownership. By the early Nineties, more than
two-thirds of FDI was being brought in by the
Chinese who lived overseas. By the end of the
millennium, the 'efficiency' of market
competition, far from generating massive
employment opportunities, created huge labour
surpluses, not least through waves of
bankruptcies in the TVEs and SOEs.
The way the Chinese government has sought to deal
with this social and economic time-bomb is
through debt-financed mega-infrastructural
projects - huge dams, subway and railroad
networks, a highway system that in 20 years will
exceed that of the US, and frenetic real-estate
and construction activities in urban China. Since
all this is debt-financed (Keynesian style),
there will be an acute fiscal crisis if the
investments do not pay off. None of this would
even have been possible without a massive
expansion of its financial system (doubling of
bank branches to over 140,000 in less than a
decade) and capital and exchange rate controls.
China's growth pattern is much more heavily
reliant on FDI than that of South Korea, Taiwan
or Japan (the least reliant, of all advanced
economies, on FDI). Inter-regional trade (despite
massive investments in communication systems) is
underdeveloped, with the Guandong province
trading much more externally than within China.
China now relies on taking in 30 per cent of the
world's coal production, 36 per cent of the steel
production, 55 per cent of the cement production,
and is the second largest oil importer after the
US. Besides such external dependence, China faces
increasing over-accumulation of fixed capital and
ever-growing over-capacities in sectors like
electronics and autos, as well as a boom-bust
cycle in urban development.
If it has coped so far, it is because of a system
of macro-economic management that is still
Keynesian, provided by China's strategic control
over capital flows and exchange rates. But
Chinese integration into the world economy via
the World Trade Organization, though still able
to benefit from the allowed transition period of
adjustment, means it will eventually become
impossible to pursue such counter-cyclical
measures. Its banking system is gravely
threatened by having half of its loan portfolio
non-performing. Only its huge trade surpluses
protect it financially. The other side of the
US's dependence on Japanese and Chinese lending
is the Chinese dependence on the US's fiscal and
monetary policies. China is now one of the most
unequal and labour-repressive societies in the
world, with one of the most rapidly deteriorating
public health and ecological situations.
First published in The Telegraph (Calcutta) © 2007
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