National Sections of the L5I:

17th National Congress of the Communist Party of China

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Beijing has confirmed an important change of policy at the 17th National Congress of the Communist Party of China, which met in mid-October. The change was signalled by acceptance of President Hu Jintao’s policy that economic development must be guided by a “scientific outlook” in order to build a “harmonious society”. For “scientific outlook” read, “greater party control”. This represents a shift away from the policy of Hu’s predecessor, Jiang Zemin, which encouraged capitalists to expand production as fast as possible, by virtually any means.

By attracting investment, especially from the “overseas Chinese” of Taiwan and Hong Kong, and providing a range of tax breaks, hidden subsidies and state investment in infrastructure, China has achieved very high growth rates in export industries since the turn of the century. However, allowing economic growth to be determined by individual capitalists’ priorities has created a range of problems both at home and abroad. The most important of these is a historically unprecedented level of investment that Beijing has been trying to reduce but which is still above 45 per cent of GDP.

Now that China dominates world production of many goods, profitability is no longer a question of undercutting countries with higher production costs, especially wages. Now, companies in China are increasingly competing with each other. To capture market share and to reduce wage costs when wage rates are rising and skilled labour is scarce, they scramble to extend factories and install more efficient machinery. Hence the uncontrollable level of investment.

Boom and bust
These are classical capitalist boom conditions: output increases, the prices of individual commodities goes down – average prices for consumer electronics are now 25per cent lower than two years ago - but, inevitably, there is pressure on profit margins too. To bolster profits, firms turn to speculation in real estate or the stock markets. Today, on average, one-third of Chinese company profits come from speculation, not from production. Not surprisingly, the Shanghai stock exchange has risen by 400per cent in the last two years.

Party leaders are well aware of what follows the high point of a boom. That is why they now want greater control over development. In his report to Congress, Hu listed the problems flowing from unbridled investment, in particular the “excessively high cost of resources and (damage) to the environment and the imbalance between urban and rural areas”. He also recognised “difficulties in the administration of justice and public order”. In plain language that is acknowledgement of the scale of mass protests, some of which have developed into armed clashes with the police and paramilitary forces, over illegal land seizures and workers’ rights.

The party leadership is fearful that these will become uncontrollable unless there is a big turn towards development in the interior and more resources go into health and social security provision. Whether the Party has the power to achieve that, however, is questionable. The policy of encouraging the return of China’s capitalists, as well as subsidising the creation of a whole new class of bosses within China, has created a dynamic that will not easily be channelled into promoting the Party’s objectives. The Party has been trying to reduce the scale of investment for several years through taxation, banking regulations and planning controls but without success.

Illegal markets
The degree of independent power of the capitalists can be seen from the discovery of a completely illegal and unregistered banking operation based in Shenzhen, neighbouring Hong Kong. In August, it was reported that the bank had been in existence for at least eight years and that in the last 18 months alone it had handled business worth $544 million. One academic study suggested such underground banks were lending as much as $100 billion per year to help clients avoid government controls.

The formal adoption of Hu’s goal of a “harmonious society” suggests that the Party is preparing for a political offensive against those capitalists who are not willing to accept its economic policies. It will present itself as the defender of the “national interest”, fighting to overcome inequality between rich and poor and between the coastal provinces and the interior. This is complete hypocrisy, of course. The real objective is to stabilise the rule of the Party and we can expect the most reactionary propaganda campaign. Central to this will be the whipping up of chauvinist ideas and reliance on the most backward elements of traditional culture.

Order and stability
One indicator of this is the amendment of the Party’s own constitution to include its principles for guidance of “religious affairs”. In practice that means promoting those religious movements, most clearly the Buddhist temples, which agree to accept the Party’s leadership and the suppression of those that do not.

China’s boom has also created dangers at the international level. To secure open access to the most lucrative markets, China had to sign up to World Trade Organisation (WTO) rules. In the short term, this guaranteed the feverish growth of the export industries that Beijing now wants to dampen down but it also created the world’s biggest foreign currency reserves. These now stand at $1.44 billion, the greater part in US dollars, and the decline in the dollar is making them a wasting asset – except in the US. An obvious strategy would be to take advantage of the approaching downturn in the US economy to buy up US assets but this will stir strong protectionist forces that could undermine continued exports.

US decline
Moreover, the US decline is itself a threat to China; the World Bank, in its latest quarterly review, suggests that every 1per cent reduction in US consumption could mean as much as 0.5 per cent off China’s economic growth. To counter this, China is giving greater attention to the EU market, two-way trade grew by 25 per cent in the last year. That, however, is already provoking calls for protectionist measures from countries such as Italy whose own production is threatened. Worse still, the terms of trade with the EU are far worse for China than with the US because the yuan is effectively tied to the dollar and has lost 40 per cent of its value against the euro since 2000.

At the same time, the WTO’s rules were not drawn up to help poor countries but to remove obstacles to US corporations. The short transitional period China was allowed has ended and the biggest corporations on the planet are now planning their strategies for conquering “the last great untapped market on earth”. This is not just a matter of increasing sales of up-market consumer goods, as has been the case until now. Far richer prizes are at stake: postal and distribution services, health services, educational provision and, above all, the financial sector including merchant and retail banking, insurance and accountancy.

Hu’s policy shift is a recognition that China is entering a period of economic and political turbulence in which the Party’s rule will be challenged on both the national and international fronts. Particularly in the run up to the Olympics, repression will be increased against the working class and poor peasants who are fighting to defend their rights and living standards. But Beijing is already wary of any disruption to the Games – that is why less combative positions have been adopted on Darfur and Burma. There will not be a better opportunity for the workers and peasants of China to make their voices heard by building their own independent and democratically controlled organisations and, above all, a party committed to the overthrow of the CPC’s dictatorship, the expropriation of all large scale capital and the creation of a workers’ republic.

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