Comparing South Africa to China is a bit like comparing an ant with a dragon. China has 1,3 billion people – that’s 25% of the world’s population. Just one city could soon be home to more than South Africa’s total population. An industrial centre, Chongqing currently has 31,5 million people, but there are plans to double that within the next 20 years.
Factory sizes dwarf our biggest auto assembly plants like VWSA and Daimler Chrysler. In China you will find a shoe factory with 30 000 workers.
Likewise its trade union federation with 134 million members and 1 713 000 affiliates, is the largest national trade union organisation in the world. Potentially massively powerful, it has been denied membership of the International Confederation of Free Trade Unions (ICFTU) because of allegations that its trade unions are ‘yellow’ and too close to the government.
Direct comparisons are not possible. And yet, with discussions about an interventionist and developmental state, a glance eastwards is informative.
Since 1978, China has gradually opened up its economy to the west. Guided by one of the old guard of the Chinese Communist Party, Deng Xiaoping, the government announced that from then on “development is the absolute principle”. As Deng himself admitted in 1982: “We have been making revolution for several decades and have been building socialism for more than three. Nevertheless, by 1978 the average monthly salary for our workers was still only 45 Yuan, and most of our rural areas were still mired in poverty. Can this be called the superiority of socialism?”
But development took a very different route from free market capitalism. Focusing on developing the forces of production, the Chinese government followed a “gradualist reform” model.
Action on the groundThe legacy of communism and central planning makes implementing government policy easy:
“The government will go into an area where peasants are living because it wants the peasants to live somewhere else,” says van Meelis. “It will just relocate 7 million people.In another area, peasants are growing wheat but then the government decides they should grow apples for food processing. It tells them they must stop growing wheat, gives them wheat for the next three years so they don’t starve and so the peasants plant apples!”
“They did scenario planning in party structures and worked out how they would liberalise their economy,” says Cosatu’s Tanya van Meelis. “They said they would open the door gradually and look to see what happens and then open it a little more.”
China’s rapid growth can be attributed to a number of economic factors. ANC research coordinator Michael Sachs describes these as “a virtually unlimited supply of cheap and educated labour, well developed human resources, very high rates of saving, a stable and undervalued currency, relatively closed capital markets and favourable geographic location.”
State interventionsThese factors were bolstered by the communist state’s interventionist stance. Sachs describes these interventions as key to the Chinese ‘miracle’. The state invested heavily in public and economic infrastructure. In this way it managed to encourage foreign and domestic investment into “clearly identified development priorities” and into particular areas. In some cases the government gives land to investors at 25% of its market value.
It used political measures to control key prices such as the “interest rate, the exchange rate, wages and the prices of agricultural products and domestically sourced natural resources. The state also maintains strategic subsidies (on food, transport, education, housing) and price controls to facilitate poverty alleviation (eg. subsidised micro-credit).”
China has pegged its currency, the yuan to the US dollar. There is general agreement that the yuan is undervalued against the US dollar by 40% – this makes all its exports relatively cheap.
The state also facilitates, coordinates and directs “private investment across economic sectors and geographic regions.” In this way it builds linkages while strong industrial policies ensure transfer and diffusion of technology. The state controls banking institutions and so can direct credit and capital allocations. It invests in “human capital” especially in the fields of science and technology, is committed to ‘learning by doing’ (ie. ensuring that foreign investments lead to the transfer of technology and the acquisition of skills amongst Chinese themselves).
Top marks!The results of this ‘controlled free market socialist’ experiment are:
a growth rate averaging 9,3% over the last 25 years (a growth rate of at least 7,5% per year is needed to avoid unemployment increasing)
the lifting of 400 million people out of poverty.
in 30 years time, China could be the biggest economy in the world
an unemployment rate of less than 10%
a country which although holding 25% of the world’s population, now consumes 19.7 percent of the world’s copper (up from 10.4 percent in 1998); 32.7 percent of the world’s cotton (up from 22.2 percent); 34 percent of the world’s cigarettes; 50,8 percent of the world’s pork; 32 percent of the world’s fish and just over 20% of the world’s cellphones.
But some are starting to predict meltdown… environmental disasterPan Yue from China’s environment ministry, told German magazine, Der Spiegel, earlier this year that the “Chinese miracle will end soon” because the environment can no longer keep pace. He said that acid rain was falling on one third of the country, half of the water in the largest seven rivers in the country was “completely useless”, 25% of the population had no access to clean drinking water, 33% of the population were breathing polluted air and five out of ten of the most polluted cities in the world are in China.
He said the cost of this pollution was holding back GDP growth and causing health costs to soar – in Beijing alone “70 to 80% of all deadly cancer cases are related to the environment.”
…unemployment rising, inequality growingUnemployment is beginning to rise and the gap between the rich and the poor is growing rapidly. Much of the poverty is in the rural areas where 70% of the population still live. To escape the poverty, more than 100 million of these rural dwellers who are young and relatively educated, have left their homes to find work in the cities.
“A form of ‘influx control’ is maintained,” says Sachs where you get state services at your permanent place of residence. “Temporary migrants” are denied these services. With temporary migrants forming up to a third of the urban population in some areas, wages are being pushed downwards.
…China caught in capitalist clutchesGeorge J Gilboy, a senior manager at a major multinational firm in Beijing since 1995 suggested in magazine Foreign Affairs last year, that the US need not worry anymore about China.
Not only had China opened up its economy to foreign investments, joined the WTO and welcomed imports, it was also working with US companies just the way the US wanted!
While early Chinese reforms had encouraged joint ventures with foreign firms, revisions since the 1990s have allowed wholly-owned foreign enterprises (WOFES). These now accounted for 65% of new foreign direct investment (FDI) in China and were the leading players in high-tech exports. With joint ventures the transfer of technology was likely. But WOFES would want to keep a hold on their technology and so perpetuate Chinese dependence on outside technology. Should the ant follow the dragon’s trail? You decide!