Tuesday, 25 November 2008

Chinese State intervenes amid sharp falls in growth.

Chinese State intervenes amid sharp falls in growth.

One paradox of the global financial crisis is the speed with which
China has been hit. Thousands of factories have closed down as a
result of falling orders from foreign outlets. Last week officials
claimed that 50,000 firms in Guangdong province closed this year, this
was revised on November 18th to 7000. These massaged figures cannot
conceal the fact that there is a radical shakeout in the export

Laid off migrant workers are flooding back to the interior. Some will
find employment in similar labour intensive factories, now opening to
serve the local market in the interior. Others will return to the land
until new employment prospects open up.

After initially appearing to accept the closure of these labour
intensive factories, as part of the process of -climbing the technical
ladder, improving labour rights, and shifting employment to the
interior- government fear of unrest has led to a radical shift in

In a move likely to be emulated across the country, the provincial
governments of Shandong and Hubei have banned layoffs in firms
employing more than 40 workers. This measure follows several local
cases where company owners ran away, leaving the state to foot the
bill. In Shandong province unemployment has risen by 680,000 this

Private company owners claim that falling export orders, mean there is
less work to do, the natural laws of capitalism dictate factory
closures and job losses.
At the Qingdao Jintian Textile Co Ltd, a firm employing more than
1,000 workers, General Manager Li bemoaned the new laws,
"The factories aren't getting enough orders, so some workers have
nothing to do," Li said.
"I have been thinking of getting rid of some of them to cut costs. But
if the government doesn't agree to my layoff plan, what can I do? I
can't afford to pay them all."
(China Daily 18th Nov 2008)

As yet there no talk of nationalizations, but encroachment on the
operations of private companies by the state, will inevitably lead to
the takeover of many private companies to prevent social instability.
In Hubei Province, state owned enterprises seeking to reduce costs in
adverse market conditions, have been told to cut salaries rather than
staff. This in turn opens the way for conflicts inside these
enterprises, to determine if wage cuts are made from higher or lower
paid groups.

In October the national government launched a massive programme of
state investment in public works. 5 trillion yuan ($730 billion) is to
be spent on road and port infrastructure projects over three to five
years, and 2 trillion yuan ($292 billion) on railroads. On Nov 9th a
more detailed 2-year plan was announced to include; more
infrastructure projects, low cost housing, expansion of welfare
services, increased spending on health and education and a rise in
average incomes.

"In a sweeping move at a time when major projects are being put off
around the world, Beijing said it would spend an estimated US$586
billion by 2010 on wide array of national infrastructure and social
welfare projects, including constructing new railways, subways,
airports and rebuilding communities devastated by an earthquake in
southwest China in May."
"The package, announced by the State Council Sunday evening, is the
largest economic stimulus effort ever undertaken by the Chinese
government and would amount to about 7 percent of the country's gross
domestic product during each of the next two years."
China Daily 10th Nov. 2008.

This latest plan will obviously stimulate the demand for raw materials
in economies of countries dependent on such Chinese demand. However
the overall external impact will be small. The temporary euphoria of
global market traders was misplaced.

The spending will increase the influence of the state in employment,
after a prolonged period of sharp declines. Tens of millions were made
unemployed by downsizing and closure of state industries between 1995
and 2005; now tens of millions will be employed by the state to soak
up unemployment amongst rural migrants and urban workers. Urban
employment opportunities alone must rise by 10 million new jobs a
year, if unemployment and consequent threats to social stability are
to be controlled.

All fundamental transitions take place through sharp contradictions.
Theoretically the Chinese economy can shift toward the new model of
increasing state domination, from a period of decreasing state sector
influence, without upheaval. In practice such a shift engenders a new
balance of class forces and new relations between the state and
private sector. This must have repercussions inside the Communist
Party and the bureaucracy and on the fundamental determinant of
policy, social stability.

As if to highlight this, on Monday and Tuesday last week in Chongqing,
(a city of 5 million in a municipality of 31 million) cab drivers
demanding better conditions went on strike. Such is the intensity of
demand on transport, that the cab drivers strike caused chaos in the
city. The drivers demanded cheaper fuel, restrictions on illegal cabs
and limits on the penalty systems imposed on them. Strikers attacked
scabs, cars were overturned in clashes with police, and a number of
other violent incidents occurred.

The local state did not respond by force and instead made concessions
to pacify the discontent. The opportunity to lean on this discontent
was not lost on the secretary of the Chongqing Communist party Bo
Xilai, who met with the protestors and broadcast the discussions with
striking cab drivers on live TV.

Bo Xilai is the son of the revolutionary veteran Bo Yibo and has been
positioning himself within the national leadership, assiduously
cultivating his image and popularity as a new breed of political
operator, distancing himself from the old guard's modus operandi. Of
course what is good for one city party secretary may not be good for

Increasingly we will see explosive disputes between conflicting social
forces not only being pacified, but also being represented. This will
pave the way for factional conflict inside the official Trade Unions,
the Communist Party and the state apparatus. This may also lead to the
creation of genuine representative organs of the working class.