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The most important reason to be critical of China’s market reform polices is that they have created a growth process underpinned by increasingly brutal working and living conditions for the great majority of Chinese. Most surprising perhaps is the fact that the country’s rapid growth has failed to generate adequate employment. The ILO has divided urban employment into five main categories: employment in traditional formal enterprises such as state and collective enterprises; employment in emerging formal enterprises such as cooperative enterprises, joint ownership enterprises, limited liability corporations, shareholding corporations and foreign-funded enterprises; employment in small-scale private registered enterprises; employment in individual registered businesses, and irregular employment.[6] Table 5 shows the employment trends in these categories over the period 1990-2002.
Perhaps most striking is not the decline in employment in the traditional formal sector, which is a logical consequence of the reform process, but the lack of significant job creation in the “emerging” formal sector. Even with the employment contribution of small and individual private enterprises, the Chinese economy managed an overall increase in “regular” employment of only 1.7 million workers over the entire thirteen year period.[7] This was far from sufficient to match the growth in labor supply. Thus, growing numbers of Chinese workers have been forced to accept employment as irregular workers; with an increase of 80 million over the period 1990-2002, they now comprise the largest single urban employment category. This growing informalization of employment parallels developments in Africa and Latin America, areas where (in contrast to China) capitalist accumulation is said to be stagnant (Hart-Landsberg and Burkett 2007).
The massive increase in irregular employment is even more shocking given that workers have actually been leaving the urban labor market; the labor force participation rate of urban residents fell from 72.9 percent in 1996 to 66.5 percent in 2002 (Ghose 2005: 8). In addition, outright unemployment remains a serious problem. Official government figures understate the extent of the problem in part because of the narrow definition used. Using more commonly accepted international definitions, the ILO estimates that the 2002 unemployment rate for long term urban residents was in the 11–13 percent range (Ghose 2005: 13).
The reform process has taken an especially heavy toll on state workers. According to the Social Relief Division of the Ministry of Civil Affairs, state-owned enterprises laid off 30 million workers over the period 1998 to 2004. As of June 2005, over 21.8 million of these workers were struggling to survive on the government’s “minimum living allowance.” Laid-off state workers normally receive a “basic living allowance” for three years from their former state enterprise. If they are unable to find employment during that period, they are able to draw unemployment insurance payments for two additional years. Only after exhausting those payments do they become eligible to receive the minimum living allowance, the basic welfare grant given to all poor urban residents. According to Ministry figures, in June 2005, this allowance was approximately $19 a month; by comparison, the average monthly income of an urban worker was approximately $165 dollars (China Labor Bulletin 2005).
Of course, there has been job growth in the private sector, especially at firms producing for export. However, most of these are low paid jobs with poor working conditions. “Even after doubling between 2002–2005, the average manufacturing wage in China was only 60 U.S. cents an hour, compared with $2.46 an hour in Mexico” (McClenahen 2006). A recent report on labor practices in China by Verite Inc., a U.S. company that advises transnational corporations on responsible business practices, found that "systemic problems in payment practices in Chinese export factories consistently rob workers of at least 15 percent of their pay" (Simons 2007). Workplace safety is an even greater problem. According to official Chinese government sources, about 200 million workers labor under “hazardous” conditions. “Every year there are more than 700,000 serious work-related injuries nation-wide, claiming 130,000 lives” (China Labor Bulletin 2008).
Employment conditions at Foxconn, a Taiwanese-owned firm, typify the new work environment. Foxconn is a major electronics and computer parts manufacturing subcontractor for firms such as Apple and Dell, and employs over 200,000 workers in China, a majority in Shenzhen (a major manufacturing center in south China). Foxconn assembly line workers in Shenzhen earn approximately $32 for a 60 hour work week. An examination by Apple-hired investigators of a Foxconn plant that builds iPods found that its mangers routinely used corporal punishment to discipline workers. It also revealed that workers labored more than six consecutive days 25 percent of the time despite the fact that Chinese law requires at least one day off each week (Simons 2007).[8]
One critical factor keeping Chinese manufacturing internationally competitive is that approximately 70 percent of all manufacturing work and 80 percent of all construction is done by migrants (China Labor Bulletin 2008). According to official estimates, some 200 million rural workers have moved to urban areas in search of employment over the last 25 years. That number is expected to climb by another 100 million over the next several years (Wu 2007a). Although the great majority of these migrant workers have moved legally, they suffer enormous discrimination. For example, because they remain classified as rural residents under the Chinese registration system, not only must they pay steep fees to register as temporary urban residents, they also have no rights to the public services available to urban born residents (including free or subsidized education, health care, housing and most employment based social security benefits such as pensions). The same is true for their children, even if they are born in an urban area. As a consequence migrant workers are easily exploitable. They typically work 11 hours a day, 26 days a month. Most receive no special overtime pay and commonly earn one-quarter to one-half of what urban residents (China Labor Bulletin 2008; Ngok 2008).
In 2005, the Ministry of Public Security (which oversees the registration system) gave local governments the power to reform the registration system, including if they wished ending the distinction between urban and rural residents. But, local governments have refused to do so. The reason: it would be bad for business. The change would require an increase in spending on social services which would have to be funded by higher or new taxes. Providing a social safety net would also likely enhance migrant worker security, encouraging demands for higher pay and improved working conditions (Wu 2007a).[9]
The effectiveness of Chinese labor policies (which have been designed to boost export competitiveness) are well illustrated by recent trends in private consumption and wages. Private consumption as a percent of GDP has fallen from approximately 47 percent in 1992 to 36 percent in 2006. This is the lowest percent for any large economy. By comparison, private consumption as a share of GDP tops 50 percent in Britain, Australia, Italy, Germany, India, Japan, France, and South Korea; it is over 70 percent in the U.S. Chinese wages as a share of GDP have also plummeted, from approximately 53 percent of GDP in 1992 to less than 40 percent in 2006 (The Economist 2007).
The fall in Chinese private consumption is not the result of an increase in savings by Chinese workers. In fact, household savings rates have been declining. Savings as a percent of personal disposable income has fallen from over 30 percent in the mid-1990s to 25 percent in 2006. China’s total domestic savings rate has indeed gone up but this is because of growing firm and government savings. As The Economist explains, “the decline in the ratio of consumption to GDP... is largely explained by a sharp drop in the share of national income going to households (in the form of wages, government transfers and investment income), while the shares of profits and government revenues have risen.” In fact, according to The Economist, “Many countries have seen a fall in the share of labor income in recent years, but nowhere has the drop been as huge as in China” (The Economist 2007). And, the lower the share of income going to workers, the more economic forces reinforce the export orientation of the Chinese economy, thereby encouraging further policies to suppress worker standards of living.
Of course, China’s growth and industrial transformation has also generated great wealth. This is reflected in an explosion of inequality and the formation (or solidification) of new class categories and social relations. In a study of inequality covering 22 East Asian developing countries, the Asian Development Bank concluded, using the Gini coefficient as its measure, that China had become the region’s second most unequal country, trailing only Nepal (Asian Development Bank 2007a: 3).[10] This is not surprising considering that over a roughly 10-year period (from the early 1990s to the early 2000s), China recorded the region’s second highest increase in inequality, again trailing only Nepal (Asian Development Bank 2007a: 6). Using other measures of inequality, such as the earnings of the top 20 percent relative to the bottom 20 percent of the population, China recorded the greatest growth in inequality (Asian Development Bank 2007a: 7).[11]
Such general figures do not adequately convey the real concentration of wealth that has accompanied and motivated China’s market reform program. According to the Boston Consulting Group, China had 250,000 US dollar millionaire households (excluding the value of primary residence) in 2005, the sixth greatest national total in the world. Although they made up only 0.4 percent of China’s total households, they accounted for 70 percent of the country’s wealth (Wu 2007c). The number of US dollar billionaires is also growing rapidly, from 1 in 1999 to 106 in 2007; China now has more billionaires than any country in the world except the U.S. (Kwong 2007).
This new elite is hard at work exploiting its new wealth, embracing “every aspect of luxury pursuits, whether it's hunting, gambling, jets or yachting” (Shen 2006). Not surprisingly, then “LVMH Moлt Hennessy Louis Vuitton, the world's largest luxury goods maker, plans to open two to three stores a year in China, where sales are rising 50 percent annually. Financiиr Richemont, the world's second-biggest, expects to quadruple sales in China within five years by selling more Cartier jewelry and Piaget watches” (Shen 2006).
Yachts are perhaps the fastest growing luxury item. China has become a regular host of major yacht shows, the largest of which draw thousands of visitors and hundreds of exhibitors. And, local governments are doing all they can to accommodate this new interest:
The American Mercury Club, located on East China's Taihu Lake is one of the largest in China. The club has 144 berths, about 400 registered members and about 30 private yachts. With a membership fee of more than 130,000 yuan (US$15,700), it is not likely that many ordinary people will apply for membership in the club....
The local government is taking steps to encourage the new activity. Shanghai will build five marinas by 2010, at the mouth of the Yangtze River, on Dianshan Lake and along the coastline. The marinas near the downtown will have berths for about 10,000 yachts by 2010....
Nanjing, another important city in the Yangtze River Delta, plans to build yachting facilities along its riverfront, including a five-storey complex to be used for yacht exhibitions, conferences and other recreational events.
Southeast China's Xiamen City will build an international yachting centre able to berth 900 yachts. The project will include entertainment facilities and a five-star hotel. (Li 2005)
There are clear signs that the Communist Party is becoming concerned that the immizeration of the working class in the face of such open flaunting of wealth is adding fuel to a growing popular anger over deteriorating employment, housing, environmental, income, and health conditions. However, the debate within the Party over how to respond to this situation “does not appear likely to derail China's market-led growth [strategy]. President Hu Jintao, in what Chinese political experts and party members said was a clear reference to the debate, told legislative delegates [in March 2006] that China must ‘unshakably persist with economic reform’" (Kahn 2006).[12]
The sentiment of many Communist Party leaders was captured in a magazine article written by Zhou Ruijing (a retired senior newspaper editor). “’A widening gap between rich and poor is not the fault of market reforms,’ he wrote. ‘It's the natural result of them, which is neither good nor bad, but quite predictable.’ He said most of the complaints leading to social unrest, like the high cost of education and medical care, land seizures, pollution and poor public safety, tended to be problems of inefficiency and government corruption, not shortcomings of the market” (Kahn 2006).
An obvious reason that many in the leadership of the Communist Party have steadfastly pushed and defended the reform program despite its devastating effects on working people is that they have been some of its biggest beneficiaries. Their ability to shape the reform process and dominate decision-making at key state enterprises and institutions has enabled them to use state assets for personal gain, place family and friends in lucrative positions of authority in both the state and private sector, and ensure that the rapidly growing capitalist class remains dependent on the Party’s good will (Hart-Landsberg and Burkett 2005a: Chapter 2). This has led to a fusion of party-state-capitalist elites around a shared commitment to continue the advance of a capitalist political economy with “Chinese characteristics.”[13]
The results of this development are easy to see: most of the top positions in major state monopolies (dominating industries such as oil and gas, electricity, airlines, and telecom) have gone to the children of party leaders. “This has prompted even the state media to decry the rise of ‘special privileges’ and the emergence of a ‘new class of monopoly state capitalists’ at a time when friction among disparate socioeconomic groupings is threatening to tear apart the social fabric” (Lam 2007). “Of the key positions in the five industrial sectors—finance, foreign trade, land development, large-scale engineering and securities—85% to 90% are held by children of high-level cadres” (Hotz 2007).
The outcome is also reflected in China’s wealth statistics. For example, one-third of the 800 richest people in China (according to a 2007 listing) are members of the Communist Party (including 38 who are delegates to the National People's Congress). While the majority of those on the list are described as “first-generation, self-made entrepreneurs,” most have connections to party and state leaders “through longstanding family ties” (Kwong 2007).
China’s elite has been willing to share the fruits of the country’s production with international capital--although struggles over distributional issues are growing sharper as international capital strengthens its position within China--because international capital’s participation has been critical to the establishment and continued growth of China’s new political-economy. However, China’s elite appears determined to ensure that they will be the primary national claimant. Thus, at the same time that the “Chinese Communist Party has opened up an unprecedented number of sectors for foreign-equity participation... the authorities have... tightened control over other aspects of the economy. This has resulted in the truncation, if not atrophy, of thousands of [small and medium sized] private firms. These are in danger of being edged out by powerful monopolies and oligopolies that are controlled either by the party-and-state apparatus or by senior cadres and their offspring” (Lam 2007).[14]
In sum, it appears that those driving China’s economic strategy have been remarkably successful in using the reforms to shape an accumulation process responsive to their interests. And, consistent with the underlying capitalist nature of this process, their gains have come at ever greater cost to the majority of Chinese working people. As a result, Chinese leaders must now contend with an explosion of strikes and demonstrations; according to Chinese government figures, the number of large scale “public order disturbances” has grown from 58,000 in 2003, to 74,000 in 2004, 87,000 in 2005, and an estimated 94,000 in 2006 (Einhorn 2008a).[15] It remains to be seen whether such actions will threaten future foreign investment and export production, the two most important pillars of China’s growth strategy. Perhaps most noteworthy is the fact that working people have begun openly defending the accomplishments of the Mao period as part of broader discussions and debates over how to renew a genuine effort to build socialism in China (Gao 2008). Regardless of what happens, it is difficult to see on what basis progressives would want to celebrate and promote China’s reform experience.
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