OXFORD, England — There has been much discussion recently about whether China is heading for a soft landing or hard landing. My first reaction to such discussions is always to ask landing from what? In this case the answer is relatively easy, the Asian financial crisis of 1997, from which China allegedly escaped because of its brave decision not to devalue the yuan.
In fact it did not escape the crisis. The government just forced the adjustment costs onto those sectors that lost competitiveness from the overvalued currency, such as marginal cotton and tobacco growers and shipbuilders and miners.
But let that be. The overall impact of the failure to adjust the economy immediately to the crisis has involved a heavy price for the economy. China is in the middle of a hard landing, but in Humpty Dumpty language (“When I use a word,” said Humpty Dumpty, “it means just what I want to mean, nothing more.”) everything is fine according to the government.
Fine? The government reports that last year there were a 120,000 public demonstrations by workers complaining about nonpayment of wages, forced redundancies without adequate compensation, nonpayment of unemployment benefits and failure to refund medical expenses.
In each of the last two years, around 6 million workers were made redundant by failing state-owned enterprises; this year, the government expects around 12 million will lose their jobs. As about two-thirds of newly unemployed find a job within a year (mostly in the private sector), this means that the restructuring will have added about 16 million to the 6.3 million long-term unemployed already recognized.
But in addition to these officially recognized unemployed — largely those made redundant by the SOEs — must be added the 100 million floating population of rural unemployed looking for work, mostly illegally, in the cities, the millions of workers paid a pittance to stay at home because there is no work for them to do, the millions of early retired workers forced out of state-sector jobs at 45 for women and 50 for men, and the millions of jobless school leavers who do not count as unemployed as they never had jobs.
Who knows what the total number of people without regular income of any sort is in China? Nobody, but it is a lot by any definition, hence the growing number of demonstrations and the numbers seeking solace in religion and the practices of Falun Gong.
Chinese economists reckon that a 30 percent growth rate in fixed investment is needed to produce the rate of growth that would create job opportunities at the same rate as the growth in the labor force. But, apart from a mysterious blip in 1997, fixed investment has been on a continuous decline since 1993, dropping to 9.3 percent in the first quarter of 2000 on a year-on-year basis.
Weak domestic investment was for many years compensated for by foreign investment, but that too is now on the slippery slope, falling 11.4 percent in 1999 and continuing to fall by 8.1 percent in the first quarter of 2000.
People are not spending because they are engaged in defensive savings to cover health and education bills, and for their old age, lacking confidence that public pension schemes will ever cover a meaningful share of the population.
The ensuing deflation has the government puzzled. It has decided to try to stop the growth in unemployment by forcing the “commercial” banks to continue lending to loss-making SOEs, forcing people to take more holidays, and engaging in a massive “Go West” campaign, financed largely by the forced sale of bonds to the banks and the diversion of aid funds to dubious infrastructure investments in the western provinces. A cynic might suggest that the primary aim of the investment in airports, roads and railways, a major part of the investment now going into the west, is primarily aimed at speeding up the reaction time of the Peoples’ Liberation Army’s response to insurrection and “splittist” unrest in the distant western provinces. Whatever, the 30 percent dream figure is out of reach, so we can expect unemployment, open and hidden, to rise.
At the moment, there is a lot of euphoria about WTO accession, which is now being confidently predicted to take place this year, although there are still a lot of hurdles for China in the negotiations on the Protocol of the Treaty of Accession. What does not seem to have been realized is that while truly a win-win development in the long term, in the short term China has had to make a lot of one-way concessions in order to catch up with the concessions the existing members of the World Trade Organization have made to each other over the last 50 years. China has a lot of past dues to pay.
On the other side, the United States expects to gain a lot of business in the short run by increasing sales of agricultural produce, automobiles and telecommunications equipment.
Look for increasing unemployment in these sectors in China. The increased employment in the financial sector, in law, accountancy, insurance and distribution will partly involve workers in Chinese firms changing employers and partly in new skilled immigration, but in the short run it will offer no succor to the poor farmers pushed out of labor intensive farming by the U.S. agro-industrial complex.
The irony of the situation is not lost on the International Communist League. In a meeting last week at the University of London, they called for the establishment of a Leninist-Trotskyist party in China to lead a proletarian political revolution against the Stalinist bureaucracy, which in its capitalist counterrevolution has brought about “the immiseration of hundreds of millions of workers and peasants.” Soft landing? They also claimed “victorious political revolution in China would reverberate among the proletariat of Japan.” You have been warned.
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