The Social Costs of Neoliberalism in China

Han Deqiang is a prolific economist at the Economics and Management School, Beijing University of Aeronautics and Astronautics, and one of a growing number of Chinese scholars critical of the country’s neoliberal development strategy. Han, however, did not just arrive at this stance.

He has been critical of neoliberal ideology in China for almost two decades and has written many books and articles on the social crises that rural and urban workers have faced under China‘s new economic regime. When I first met Han, in 2000, he was making his way around the country delivering sharp and eloquent lectures to university students refuting the then- dominant faith.


At the time, I was conducting research on workers’ protests against privatization in Zhengzhou, and most of the labor activists and workers’ leaders I met were familiar with Han’s devastating critiques of the privatization craze that swept China in the late 1990s and early 2000s. It would not be wrong to characterize him as a Chinese Noam Chomsky, albeit with his own oratorical flair!


In September 2005, I interviewed Han for about three hours. Our discussion focused on the impact of China‘s 2001 entry into the World Trade Organization and on the social costs, both in and outside of China, of the accelerated neoliberal development that followed that milestone.


In January 2007, I followed up with a second interview. What follows is a translated and edited version of both interviews.


STEPHEN PHILION: The last time I met with you was during the height of the East Asian financial crisis. At that time, we discussed the consequences you foresaw for China of entering the World Trade Organization (WTO). Five years later, which of those consequences have come about?


HAN DEQIANG: At the time, I argued the greatest damage would be to China‘s capacity to control its industrial and technological development autonomously. I think it’s safe to say these last five years have more than proven that true. In China, any industry that wants to develop its own technology or markets has encountered increasingly great barriers.


Second, I predicted that unemployment would rise dramatically; this has also shown itself to be a reality.


Of course, some say that there has been a shortage of migrant workers from the countryside recently, which allegedly proves that the WTO has not produced greater unemployment. But this requires a more careful analysis.


In the late 1990s, agricultural commodity prices fell, and taxes became heavier. Hence the large mass of migrant workers and the ensuing rise in urban unemployment we saw then. However, starting around 2002-2003, the government implemented new tax cuts for farmers and increased education subsidies in poor rural districts. As a result of these new policies, the contradictions in the countryside were mollified some.


Also, when the price of rice plummeted, large numbers of farmers stopped producing it. As a result, the price rebounded, improving the livelihood of farmers in 2003 and 2004. So rural dwellers now had less motivation to accept the kind of exploitation that exists in the for- export sector of urban industry, much less migrate to the cities in search of it! However, this doesn’t nullify our argument that when foreign companies conquer national industries, greater unemployment results. The opposite actually. When Wal-Mart goes to Gweiyang or Beijing, say, they knock out, in an instant, four or five department stores. By 2006, there were already more than 50 Wal-Mart stores in China.


PHILION: And smaller shops?


HAN: Hah! Don’t even go there! Medium-size department stores, neighborhood sellers, ones that were supposed to be able to dominate local markets by virtue of their size-they saw those advantages disappear.


Third, I have always acknowledged that WTO entry would provide China certain short-term gains. For example, increases in investment and exports undoubtedly occurred.


But I argued that WTO entry was the equivalent of drinking moonshine to deal with thirst. This has two outcomes. One, of course, is the removal of thirst.


After all, if there are no other liquids around, I have no choice but to turn to moonshine. But the other result, of course, is your death! So Chinese industry has resolved its investment problem, but that has been accompanied by its death knell. From what I see, the social crisis facing China will continue to intensify, as will the neglect of China‘s economic autonomy, in addition to the eventual breakdown of the country’s financial system. This is entirely foreseeable; it’s only a matter of time before China faces something along the lines of the 1997 East Asian financial crisis. We cannot predict exactly when it will occur, but I suspect it isn’t that far off in the future.


PHILION: How has the WTO affected large state-owned enterprises?


HAN: State-owned enterprises (SOEs) fall into two categories. The first are SOEs, like Shenyang Machine Factory or Luoyang Tractor Company, that are subject to competition with private companies. These quickly went bankrupt. Monopoly-sector SOEs, such as petroleum producers, are less directly affected by China‘s membership in the WTO.


PHILION: The Chinese leadership seems to be working under the assumption that as long as the SOEs that produce the greatest revenues remain vital, Chinese socialism can be sustained.


HAN: First of all, China‘s not socialist now.


PHILION: Yes, right. I mean in their sense of the phrase, socalled “socialism with Chinese characteristics.”


HAN: Not likely either. It is true that in terms of tax contributions and profits, the small and medium-size SOEs are not great, but in the absolute numbers they employ, they are considerable. Their influence on local employment and finances is pretty substantial.


So, in the aftermath of the near complete collapse of these small and medium-size SOEs, for the central state to rely on large enterprises alone for maintaining the subsistence of China‘s population of 1.3 billion becomes extremely difficult.


PHILION: It seems as though the leadership’s hope is for local and foreign private capital to replace these small and medium-size companies as the source of investment and to resolve the unemployment problem in the process.


HAN: What I would contend is that for every one job saved by foreign capitalist investment, three to four will be lost unless the foreign investment produces for foreign export alone. This situation does exist, assuredly. Right now 60% of our export is fueled by foreign companies’ For China, WTO entry was the equivalent of drinking moonshine to deal with thirst.


However, the potential for foreign investment to instigate future Chinese economic growth is weak. It can only largely resolve a segment of the unemployment problem. It can’t do much in terms of advancing the upgrading or expansion of China‘s industrial system.


And its use to resolve the fiscal crisis facing China is even more problematic. From ’49 on, we built our nation by using state enterprise to supplement or replace foreign enterprise’s contribution to the economy. The idea of doing the opposite is a fantasy.


PHILION: China‘s leaders also seem to believe that as long as the monopoly-based state-owned enterprises are run well, their ability to determine the direction of the economic development will be strong.


HAN: This is a twofold issue. First, whether or not it’s possible for the political leadership of a country with no state-owned enterprise to control the direction of the national economy. I think it might be possible. It’s the European model, after all, and even in a certain way the American model. In these economies, by and large, control of enterprises is in the hands of private parties. But this doesn’t have that much impact on the state’s tax receipts and its role in regulating the economy.


If the state is powerful, it can play a crucial role in the management of the economy even if it doesn’t control much enterprise.


On the other hand, where the state controls a major portion of enterprises but is weak, it has a difficult time managing the economy. And if the collaboration between that weak state and private interests is deep, the result is distortion of policy by capitalists to the point that the state loses more and more capacity to control the economy and the direction of economic development. The key factor here is the strength of the government, not how many companies it controls.


Stephen Philion is Assistant Professor, Department of Sociology and Anthropology, St. Cloud State University, St. Cloud, MN.

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