The Chinese Face of Neoliberalism

Peter Kwong

During the recent visit of Chinese President Hu Jintao to Washington, the White House seemed bent on trying in every way possible to extend him a cool reception. The Chinese expected a state dinner, normally accorded to a head of state on the first official visit to the United States. Hu got a lunch instead. The White House announcer introduced Hu as the president of not the People's Republic but the Republic of China, which is Taiwan's official name. A known Falun Gong supporter was allowed onto the White House grounds to hackle Hu during his formal reception speech. Adding insult to injury, Vice President Cheney was caught snoozing during Hu's press conference.

But while Hu received a frosty reception in Washington, D.C., he was treated as a superstar in the state of Washington by the kings of the computer industry (Microsoft), the world's largest coffee shop chain (Starbucks), and America's preeminent aircraft maker (Boeing), who know better than anyone that China is doing everything right by the global capital. Bush might have begrudged Hu the honor of a state dinner, but Bill Gates regaled the Chinese president with a formal banquet at his $100 million lakeside mansion. Among the guests were executives from Costco, Weyerhaeuser, and Amazon.com – all eager to show the Chinese leader their appreciation for his efforts in providing American businesses with an ample supply of cheap labor, a stable currency exchange and an affable investment climate.

For China and its communist leaders to come this far it has been a long, hard road that started in 1978, when Deng Xiaoping took control of the country. Deng had been purged from the party leadership as "China's No. 2 Capitalist Roader" during the Cultural Revolution on account of his pro-private enterprise leanings, because he had advocated that the peasants be allowed private plots within the people's communes to earn extra income. After Mao's death, Deng kicked off his version of "socialism with Chinese characteristics" with the maxim that individual initiatives must be allowed to flourish in order to increase productivity. His most notable slogan of the time was to "let some get rich first, so others can get rich later", openly condoning the inequality that would result from his reform process. If this sounds like Ronald Reagan's neo-liberal "trickle down economics," it's because that's exactly what it is: both Ronald Reagan and Deng Xiaoping were great fans of the neo-liberal guru Milton Friedman.

In 1980, I was a visiting professor at the People's University in Beijing, which was at the time the elite party cadre training school. In October of that year, the chair of my Scientific Socialism Department informed me that I was given the unique honor, as a China-born foreign expert teaching social sciences, to attend a lecture at the Chinese People's Political Consultative Conference that was to be given by the Nobel Laureate and America's best selling author of Free to Choose, Milton Friedman. When I arrived at the majestic conference hall, Friedman was already sitting at the dais, flanked by top Communist Party leaders and ministerial-level officials. His lecture focused on the inflationary crisis in the West, but his message to the Chinese was clear: inflation and slow growth are the results of intrusive government policies that hinder the functioning of a free market economy. To turn their economies around, countries had to cut taxes, shrink the size of the governments, and reduce labor costs. Friedman predicted that in November of that year his friend Ronald Reagan would be elected U.S. president and that he would enact policies according to that vision. He also prophesied that Ronald Reagan and Great Britain's Margaret Thatcher would lead the rest of the world into the promised land of growth and prosperity.

To me, Milton Friedman was a far-right neo-liberal economist who favored the opening of markets in developing countries by political means or military intervention, if necessary. It was his students from Chicago University that General Pinochet had invited to transform Chile's economy after he overthrew the legally elected president Allende with CIA help in 1973.

The "Chicago Boys" ordered a "shock treatment," which called for drastic reduction in the money supply and government spending. It also called for the privatization of state enterprises, abolished taxes on corporate profits, and welcomed foreign investment to exploit the country's natural resources. Under the gunpoint of the military junta, labor laws were suspended and political dissent was silenced. The "shock treatment" of the 1970s pushed Chile's unemployment rate to 22 per cent; real wages dropped by 40 per cent , and the country's industrial output fell by 12.9 per cent – making it Chile's worst depression since the 1930s.

But my Chinese hosts were not troubled by such facts. They wanted Friedman to show them how to jump-start their economy. It is intriguing how early the Chinese had searched out Friedman for guidance – only one year after Thatcher began her brutal "there is no other alternative" reforms. So just as Ronald Reagan started his "revolution" in America by stripping away social and welfare safety nets that had been in place since the FDR era, Deng and his supporters followed Friedman's recipe to "get the government off the people's back," ushering China into the neo-liberal universe.

China started its economic reforms by abolishing the people's communes. Suddenly, without the collectives, the peasants had to privately purchase seed, fertilizer and water rights, and to pay higher taxes to support a large cadre of local party officials. But the prices of farm products were kept low, forcing many to work as migrant workers in the cities. Others followed when their land was seized for urban and industrial development. Once in the cities, they were given neither residential status nor legal rights and protection, but they were nevertheless expected to be gainfully employed. Otherwise, under the "custody and repatriation" laws, beggars, vagrants and those with no employment were repatriated back to their villages, held at detention centers, or even used as forced labor. The Chinese version of the English "enclosure" process created approximately 150 million impoverished migrants who had to sell their labor cheaply in order to survive. Meanwhile, state enterprises were slowly privatized. Their employees no longer enjoyed the guarantee of "the iron rice bowl" and had to find jobs on the open labor market. The masses of rural migrants, joined by growing numbers of laid-off state enterprise workers, provided China with an endless supply of cheap labor.

Through all this, China's neo-liberal communist bureaucrats have been more interested in protecting employers than in enforcing labor laws. This is evidenced by persistent labor and safety violations that lead to spectacular gas explosions, mine cave-ins, and flooding that kill thousands of people every year. In 2003, for instance, there were 136,340 reported deaths from industrial accidents. But while China accounted for 80 per cent of the world's total coal mining-related deaths that year, it produced only 35 per cent of the world's coal. At the same time, nearly half of China's migrant workers were forced to work while their wages were held back – to the tune of roughly $12 billion collectively owed in back pay. Yet in China it is illegal to organize independent unions or strike. Labor leaders are regularly jailed and prosecuted as criminals; their families are harassed.

The secret of China's economic miracle is its browbeaten working class. The picture of China's Gilded Age of inequality is not pretty. On the average, the yearly income of a Chinese peasant in 2003 was $317. The monthly wages of factory workers ranged between $62 and $100 – only marginally higher than in 1993, even as China's economy grew by almost 10 per cent annually during the same period. On the other side of the social spectrum is the increasingly wealthy urban middle class that is emerging on the coattails of the coterie of the super-rich. In 2006 Shanghai held a "millionaire fair," featuring displays of luxury sedans, yachts, a piece of jewelry priced at $25 million, and a diamond-studded dog leash valued at $61,000.

To be sure, the wealth that can afford such luxuries was not created by enterprising efforts of individuals with unique abilities or skills. According to a report by the China Rights Forum, only 5 per cent of China's 20,000 richest people have made it on merit. More than 90 per cent are related to senior government or Communist Party officials. The richest among them are the relatives of the very top officials who had used their position to pass the laws that have transformed state-owned industries into stock holding companies, and then appointed family members as managers. In this way the children of top party officials – China's new "princelings" – took over China's most strategic and profitable industries: banking, transportation, power generation, natural resources, media, and weapons. Once in management positions, they get loans from government-controlled banks, acquire foreign partners, and list their companies on Hong Kong or New York stock exchanges to raise more capital. Each step of the way the princelings enrich themselves not only as major shareholders of the companies, but also from the kickbacks they get by awarding contracts to foreign firms. To call this "socialism with Chinese characteristics" is a joke. Even capitalism is not the appropriate term. A Chinese sociologist has defined it as "high-tech feudalism with Chinese characteristics."

As Confucius observed long time ago, when top officials are crooked, local level cadres are bound to follow suit, and rampant unchecked corruption ensues. Peasants complain that local officials seize their farmland with minimal compensation and then sell it off at high prices to developers who build high-rise apartments, factories and shopping malls. Workers complain of layoffs without pensions, abuse on the job, and work with no pay. The enormity of environmental degradation due to official indifference is only surfacing now. The Chinese public is not indifferent; demonstrations of discontent are on the rise. In 2004, the Public Security Bureau reported that the number of "mass incidents" had risen to 74,000. In 2005, the number jumped another 13 percent. "A protest begins in China every five minutes. If the protests run longer than five minutes, then there are two going on at the same time," observed David Zweig, an expert on Chinese politics at Hong Kong University of Science and Technology.

As the number of protests increases, so does the intensity of violence used to suppress them. The worst occurred last December, when a special paramilitary unit of the national police force shot and killed as many as 20 protesters in the Guangdong village of Dongzhou. This is the largest known killing of unarmed civilians in China since 1989, and has been dubbed as the "Mini-Tiananmen Massacre." The protest began over the forced eviction of villagers from their land to make room for the construction of a foreign-financed wind power plant. When the villagers rejected the official offer of $3 per family in compensation, which one resident described as "not enough to buy toilet paper to wipe one's ass," they were brought face-to-face with paramilitary policemen carrying AK-47 assault rifles and flanked with tanks. According to the New York Times, the police started firing tear gas into 1,000 demonstrators around 7 p.m. When that failed to scare the people, "at about 8 p.m. they started using guns, shooting bullets into the ground, but not really targeting anybody. Finally, at about 10 p.m. they started killing people." Vicious repressions similar to this have been reported all across the country.

Polarization, violence and political instability have been the well-known effects of globalization experienced by other countries whose regimes had come under the spell of neo-liberal ideology. Almost every country in Latin America, with the exception of Cuba, had been implementing neo-liberal policies lauded as the solution to poverty and stagnation for decades. Instead, as governments lost their sovereignty to the multi-nationals, U.S. banks and IMF, these policies only brought more poverty and misery. The resulting mass protests and the weakening of military regimes eventually opened up a political space for voters to express their views. In country after county, voters have been choosing to elect leftist candidates to lead them out of the neo-liberal trap. Voters in three of the most economically developed countries – Argentina, Brazil, and Chile – have done so. Among the poorer nations, Peru is going the way of Venezuela and Bolivia, where they have done so as well.

Unfortunately, there is no such option in China. The one-party system allows for no opposition candidates for Chinese voters to choose from. Instead, Hu Jingtao came into office in 2002 with the specific task of introducing a kinder and gentler policy to cool off public resentment. He and Premier Wen Jiabao promised to crack down on corruption and introduce welfare programs to provide relief to the rural poor. But these reforms can only go so far without threatening the privileges of the officials and undermining the very attraction China has to foreign investors. And, above all, the mandate of Hu is to maintain the political monopoly of the Chinese Communist Party, which, after all, did not order the June 4 Massacre in 1989 to let its power slip away. The party's greatest fear is that political relaxation would lead to a "colored revolution" of the type that has beleaguered so many ex-Soviet states – from Georgia and Ukraine, to Kyrgyzstan. Hu is very clear on that score, blaming the collapse of the Soviet Union on former Soviet president Mikhail Gorbachev. "When managing ideology, we have to learn from Cuba and North Korea. Although North Korea has encountered temporary economic problems, its policies are consistently correct", he has been heard to say. In the last few years under Hu, according to Robin Munro of China Labour Bulletin, "if anything, the numbers of arrests of dissidents, labor and rural rights activists and Internet free thinkers has been even higher than during Jiang Zemin's last years in office."

The rest of the world is so mesmerized by China's phenomenal growth that few foreigners are willing to be critical and find themselves on the wrong side – be it of an argument or of a lucrative opportunity. Others prefer to withhold judgment in the belief that authoritarian governments eventually evolve into democracies, as was the case in Spain, Taiwan and South Korea. Even Chinese leaders were at one time fascinated by Samuel Huntington's theory on "new authoritarianism," which advocated that developing countries should have benevolent dictatorship until they mature economically. The 1989 Tiananmen Square unrest stopped that way of thinking.

The party now does everything possible to preclude a "peaceful evolution. Rather than having to contend with opposition politics, ". It has preferred to toss aside Marxist tenets and incorporate capitalists into its ranks (as the new constitution allows). Chinese communist leaders are so obsessed with maintaining their rule that they are combing through Chinese dynastic histories for models. A few years ago the state-run CCTV aired a 44-part blockbuster docudrama on the life of Emperor Yongzheng in the Qing dynasty, which depicted him as a ruthless ruler who worked hard to improve the lives of his people, and who in the process rejuvenated the dynasty to last several generations after his death. The then President Jiang Zemin was believed to be trying to fashion himself as a modern Yongzheng. Currently, the Han dynasty is in telecasting vogue and Hu Jintao is said to be beholden to its most powerful and expansionistic ruler, who was also one of China's most able administrators ever, Emperor Wu. The narcissistic mindset of Chinese Communist leaders, preoccupied with holding onto power, is likely to lead to a catastrophe.

Self-serving as they are, however, China's Communist rulers also serve the interests of global capital. Foreign-financed companies, according to the latest Chinese customs data, control about 60 per cent of China's exports. Most of the profits go to foreign investors. Dong Tao, an economist in Hong Kong, estimates that while "a Barbie doll costs $20, China only gets about 35 cents of that." Yasheng Huang of the Sloan School of Management at MIT agrees. "[W]hile China gets the wage benefits of globalization, it does not get to keep the profits of globalization." The situation has generated a domestic chorus of complaints accusing the government of selling off Chinese banks and enterprises to foreigners and overseas Chinese investors to the detriment of homegrown competitors. During the last session of the National People's Congress, some delegates were brave enough to challenge the party's attempt to legalize the right to private property on the grounds that it ran counter to the founding principles of the People's Republic of China.

What's in it for America if all this discontent, until now kept under the lid, were to burst out into a political upheaval China's Communist rulers could no longer control? America's big business will almost certainly advocate intervention to prop up the Communist regime. China is, after all, the ultimate trophy of the neo-liberal globalists, who will not allow it to fall without a fight. Besides, the United States is the largest consumer of Chinese products, and China is America's largest creditor. The two economies are practically joined at the hip.

Come to think of it, China and the U.S.A. are two sides of the same coin – both disfigured by their respective neo-liberal policies. If China's face doesn't look pretty, neither does America's. After 25 years of the neo-liberal order, chief executives of America's largest companies, who once made 69 times more than their average employees, now make 431 times as much. After years of cuts in government spending, U.S. infant mortality rate is ranked 31st out of 32 industrialized countries – just slightly better than Latvia's. When our democratic government is willing to offer billion dollar taxcuts to the rich but has no money to purchase body armor for its irregular troops in Iraq, isn't it about time for the average, underpaid and underserved Americans to wake up and join forces with the increasingly global movement against the neo-liberal global agenda?

Peter Kwong is a professor of Asian American Studies at the Graduate Center and Hunter College of the City University of New York. His latest book is Chinese America: The Untold Story of America's Oldest New Community.

07 October 2006.

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