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East Asia: crisis spurns revolution

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East Asia was hailed as the most dynamic region of the capitalist world in the early 1990s showing the rest of the "emerging markets" the shape of their own future. Now, as Michael Proebsting reports, that future is likely to be rather different as slump provokes misery and revolutionary crises.

East Asia is in the throes of a mighty crisis. The sudden reversal of fortunes in East Asian "tiger" economies from mid 1997 has capitulated the young and combative working class into a series of economic and democratic struggles. This includes the world's most industrially developed semi colony, South Korea, and the world's fourth largest country Indonesia. Japan, the regional superpower, has gone from recession to depression in the same period. Its ruling class is poised to attack the post-war compact with the more privileged sectors of the working class in the big multinationals. Meanwhile, the most populous nation in the world, China, has come to the end of two decades of convulsive growth which has created a huge working class that is now finding its trade union and political voice again, ten years on from the bloodbath of Tiananmen Square.

While East Asia has been one of the most politically stable areas of world capitalism and class struggle over the past 20 years it has now turned into the epicentre of the world revolutionary process. Economic and political developments in East Asia are the sharpest and clearest expression of the revolutionary potential of the new global political phase which opened after the mid 1990s.

Japan: from stagnation to slump

Japanese capitalism1 is in its worst crisis since the second world war. Seven years of sluggish growth and stagnation have now turned to three consecutive quarters of decline. Output fell by over 2 per cent in 1998 after a decline of 0.7 per cent in 1997. Industrial output fell even more sharply in October 1998 by 8.0 per cent. This year could see a further reduction of 1 per cent.

The recession threatens to turn into an outright deflationary slump. The recovery cycle of the 1980s was in part driven by a huge expansion of debt and a speculative boom in both equities and property. As a result the stock market has collapsed by one third since the early 1990s and property prices which tripled between 1985 and 1990 have plummeted by 60 per cent. Financial sector debt is now estimated at $1000 billion, roughly equivalent to 30 per cent of GDP.

'While the corporate sector doubled its sales after 1980, its debts tripled. The number of bankruptcies per month has exploded from 500 in 1990 to 1,500 in 1998. The government has used monetary policy to alleviate the situation, for example, by lowering the 2 month Interbank interest rate to below 0.5 per cent. Investment credit has never been cheaper. But it is the supply of credit that is in decline not the demand. This is due to the fact that the banks are very reluctant to lend money given their books are heavily weighed down with bad debts. As a result business investment has decelerated and fallen from 20 per cent of GDP to 14.4 per cent and machinery orders have been in continuous decline, since summer 1997. Despite the big injections of public money into the economy, personal consumption is still declining given the fall in real wages for most of 1998.

The East Asia crisis has certainly deepened and broadened Japan's recession because this region was its most important export market taking around 40 per cent of the total. Furthermore, Japanese banks were the single most important provider of loan credits and they have been severely knocked back by the string of company collapses in the region; in 1997 Japanese bank assets totalled $l9lbn in East Asia, compared with $257bn held by all European Union banks and a mere $38bn for US banks.

In the 1990s successive Japanese governments have tried to revive growth thorough a series of measures which included tax cuts, public investment projects, soft loans etc. Between 1992 and early autumn 1998 packages worth Yen75,000bn were announced, equivalent to 15 per cent of annual GDR In November last year the new LDP government of Keizo Obuchi even announced one stimulus package of $193bn equivalent to 4.8 per cent of GDR

While these packages have failed to reflate the economy they have made the budget deficit balloon; it climbed to an astronomical 9.3 per cent last year. The gross debt ratio is expected to reach 113 per cent of GDP this year up from 64.8 per cent five years ago.

All the packages have proven unable to solve the prolonged stagnation. So the real roots of the crisis are not to be found in a lack of demand. The causes lay elsewhere, namely, in the decline of profitability as a result of overinvestment.

After it set new records in the late 1960s the net profit rate of Japanese private business declined sharply to around a third of these peaks between 1975 90 and has fallen by a further third since.2 For 1998 the mass of profits in manufacturing declined by 5 per cent and are projected to fall by 16 per cent in 1999.

For the first two post war decades the tendency for the rate of profit to fall was counteracted by an increasing rate of exploitation; productivity grew on an annual basis by 8.9 per cent during 1960 69. The mass of new investment during those decades cheapened constant capital and labour power sufficiently to boost profit rates dramatically. But by the 1990s the marginal effect of new investment on productivity had declined dramatically. Productivity stagnated at 1.1 per cent (1990 - 1996).

There is no doubt that Japanese business is desperately looking for a way out of the crisis. The core of the solution for them lies in increasing the rate of exploitation of the working class which means fundamentally an increase in the share of unpaid labour time compared to paid labour time. This is an urgent problem given the fact that labour costs have risen since the beginning of this decade by 40 per cent. As a result The Economist reports that: "pay as a share of GDP is now higher than it was in 1991. In America and Europe it has fallen by three percentage points over the same period. "4

To regain profitability capital has to reverse this trend dramatically.

To understand the likely way the bosses will set about this it is necessary to look at the structure of the Japanese labour market. Ever since the major and lasting defeats inflected on the Japanese unions in the early post war years, the working class has been sharply polarised between a mass of workers who are low paid, enjoy few social benefits and no job security and a significant, relatively privileged, upper layer of workers who are employed in the big keiretsu companies (i.e big monopolies) like Nissan, Toyota or Honda. They account for roughly one third of the work force in these companies and enjoy job security and higher wages (which are raised regularly according to length of employment). They are therefore highly motivated and loyal to the company. This layer has provided the main point of social support within the working class for the so-called "Japanese model" of social peace and low class struggle.

Any long term solution to the crisis of capital accumulation in Japan lies in part in deliberately breaking with this social contract and the imposing a huge restructuring process in both industry and the financial sector. This would involve mass lay offs, an end to the principle of job security, a reduction in pay and flexibilisation of the wages system. While unemployment has grown from 3.3 per cent in January 1997 to 4.3 per cent in September 1998 most of the redundancies occurred in the small and medium sized companies but not the big ones.

Here the process of raising the rate of exploitation has still to start, although one Japanese academic forecasts an increase in unemployment to 10 per cent within the next three to five years. 5 So over the next few years we can expect massive attacks on the working class, and above all on its core and upper layers in the big keiret-su.

Equally vital for big business if investment is to pick up again even to 1 980s levels, is the destruction of the mass of bankrupt and non-competitive capital both in the industrial and the financial sector. A series of banks and other financial institutions as well as corporations particularly in the construction and real estate sectors whose rate of return is far below the average rate of profit and are saddled with a mountain of bad debts will also go bust.

This will go alongside a process of deregulation of all aspects of commerce, retail and the capital markets. More competition, both between domestic enterprises and between them and foreign capital, is necessary to lower the cost of doing business for the monopoly bourgeoisie. This again means the weakest sections of business being allowed to go to the wall.

If ruthlessly pursued by the government and the big keiretsu the consequences will not only affect the working class but also the peasantry, which traditionally has an influential position in Japanese policy making, and on the weaker sections of business. All in all, a root and branch reform of the system of post war cross class alliances is on the cards.

This has enormous implications for the present shape of Japanese bourgeois parties. The Liberal Democratic Party (LDP), which is the traditional party of Japanese bourgeoisie and has ruled since the 1950s (with the exception of a few years in the 1990s), is under immense strain. It is a classical bourgeois "peoples" party comparable to the German CDU in which the large monopolies participate alongside the small business sector, the middle class, the civil service and the peasantry. (Due to Japan's reactionary electoral district system the peasantry is given a disproportionate number of votes). The LDP's largest financial backers are the bosses of the construction industry and of the agricultural co-operatives. The influence of these layers has so far determined the policies of the government faced with the creeping depression. The public spending packages have been designed to boost construction projects in LDP MP districts when many "advisers" in the US and Europe have counselled tax cuts and rigorous enforcement of bankruptcy on insolvent financial institutions.

It is the indecision and vacillation of Japan's bourgeois parties and big business, which is at the root of the political crisis which began in 1992/93. Repeated government scandals, a succession of ministerial resignations and even the first non LDP government in 1993 96, all failed to produce a strong government with a mandate to restructure capital and push through the dc regulation process which the monopoly bourgeoisie needs to regain its competitive status on the world market.

It should not be forgotten, however, that Japan is an imperialist power with immense financial reserves, until a few years ago the banker to the world, including the USA. Some deregulation has occurred, some liberalisation of the financial markets and changes in the tax structure have been pushed through. Furthermore three financial institutions have been nationalised with the aim of bailing out their bad debts, re capitalising them and then privatising them again. If there is no resolute intervention of the working class, in the end monopoly capital will implement its will over the weaker sections of capital and the state bureaucracy after a further period of crisis and ruptures.

The path back to pre eminence for Japan's multinationals will be, as in the past, an export offensive to enable them to regain world market shares at the expense of the USA and EU.

The necessary massive restructuring in the industrial and financial sector will result in rapidly growing unemployment and stagnating or declining real income in the domestic market. Moreover, Japanese capitalism cannot continue to add to the mass of public debt at the present rate. Already the Japanese budget deficit is much higher than in all other imperialist countries. This is not only a drain on public finance but also deters inward investors. As a result every bourgeois government will be forced to slash public and social spending another form of attacking the working class and depressing domestic demand.

Given the weak and increasingly recessionary state of the world economy a new export offensive means standing up to the trade war rhetoric and threats of the US, Western Europe and South Korea.

This will probably increase the drive of Japanese monopolies to secure South East Asia as its backyard placing it directly in conflict with the USA. Capital exports to the region will rise again and an attempt to build a yen-bloc as a counter weight to the dollar and euro will probably occur. Until now Japanese banking capital was by far the biggest lender to South East Asia but given the weak political and military status of Japan this has not been translated into political hegemony something US imperialism won in the war and is reluctant to surrender.

But this could change soon. Japan's proposal for setting up an Asian Monetary Fund (in opposition to the US dominated IMF) indicates that Tokyo is starting to flex its muscles. In response Washington waves the big stick. But this idea is still on the table and there are also ideas discussed in Japanese leading circles to recreate an "East Asian Stable Currency Group" where the currencies of the South East Asian semi colonies are pegged not only to the US Dollar but also to the Yen. Also the latest issue of Malaysian government bonds in December 1998 worth $560 million was nominated in Yen and guaranteed by the Japanese government indicated the continuing strategy of Japanese capital.

Another example is the latest Miyazawa initiative which will spend $30 billion on short term capital projects and export help (which of course helps in the first instance the Japanese MNCs' exports and investments in the region). As one bourgeois economist noted correctly:

"It's a very important step because it does demonstrate that the Japanese government is stepping up to support Asian governments."6

If this trend continues Japanese capital could regain influence in the region. The terrible crisis of South East Asian capitalism means that these semi colonial bourgeoisies will be forced to accept stronger subordination under a leading imperialist power in exchange for economic support. And if US imperialism continues with its restrictive policy Japan could benefit. On the other hand, it is unlikely that the ruling class of the only remaining superpower will accept such a development without a hard fight. In short, South Asia (and China) will become a battle ground between Japanese and US imperialism for hegemony.

These developments will be reflected in important political changes inside Japan. A split in the main conservative party the LDP seems more or less inevitable. The main multinationals need to free themselves from the influence of the more backward sections. The present Obuchi government is merely transitional. Two bourgeois currents look likely to dominate Japanese politics in the future: the left liberal alliance around the Democratic Party of Naoto Kan (which is supported by the reformist Japanese Communist Party) and the right wing conservative forces within the rightist opposition inside the LDP around Seiroku Kajiyama and Shizuka Kamei, the Liberal Party of Ichiro Ozawa and the Buddhist Komei. Ozawa's recent decision to join the government (he originally split from the LDP) might strengthen Obuchi for a while but in the long term it will exacerbate the divisions inside the LDP.

The Democratic Party led bloc can be compared with the Italian Prodi government, standing for a consistent policy of deregulation and driving out the weaker sections of business, while not fearing to take on the bureaucracy and the peasantry. It hopes to get the support for this strategy not only from the big, export orientated firms but also from the working class. It has already built significant links with the Rengo trade union bureaucracy. On international questions it would probably continue the present policy of cooperation with US imperialism and appeasement with China and South East Asia.

The right wing conservative bloc favours deregulation too. But it would probably try soften the pain for the stricken (petty)bourgeois layers by sharper attacks on the working class (cuts in social spending). Furthermore, it would ratchet up its chauvinist rhetoric and follow a more aggressive foreign policy both against the US and China. At the same time stronger efforts would be made to build a anti-western Yen bloc encompassing the South East Asian semi colonies under Japanese leadership. This does not necessarily mean a break with the formal military alliance with the US in the short term but certainly a more fragile, tense relation would ensue. Taken as a whole it would mean a reactionary, openly aggressive variant of bourgeois crisis policy while the alliance around Naoto Kan represents the variant which tries to hold onto inter imperialist collaboration.

But both camps are handicapped by the fact that the Japanese bourgeois political terrain is strongly landmined and littered with the corpses of many faction fights. This is a result of decades of more or less one party rule (LDP) in which sectional interests were articulated inside the parties through forming factions and buying loyalty. In addition such a system has meant that the distinction between the state bureaucracy and the governing party is hard to see, which also impedes alternative parties and programmes establishing a grip on the machinery of state.

However the break up of the traditional political regime of Japanese capitalism will result in decisive changes, which will have enormous consequences both for the class struggle and for Japan's role on the world stage. 'While the working class will face heavy attacks, the future evolution of capitalism will also rip apart the stable class bloc of the bosses and with it the whole reactionary stability which characterised the last five decades. This will create better conditions in which the working class can regain its political and trade union independence. In short, Japan will cease to be the bedrock of economic and political stability that it has been over past decades.

Crisis of semi colonial capitalism in East Asia

The most dramatic event since the downfall of Stalinism in 1989 9 1 has been the crisis of the so called "New Industrialised Economies" (NICs). It was these few countries which were praised as a model for other "emerging economies" and as disproving the Marxist theory of imperialism. As one bourgeois propagandist claimed, "the Asian NICs are delivering a second shock to Marxism. 7 Now these semicolonial countries are going through a massive slump similar to that experienced by the USA, Europe and Australia during the Great Depression of 1929 32.

GDP in South Korea shrank 7 per cent in 1998 after growth of 6.9 per cent and 7.8 per cent in the years before. Thailand slumped by 8 per cent, Malaysia by 5.8 per cent and

Indonesia worst affected by the crisis experienced a decline of 15 per cent, after 4.6 and 8 per cent growth in 1996 and 1997. Industrial production fell even more. 8

'While the crisis hits the profits of foreign and domestic firms it crushes the lives of millions of workers, peasants and urban poor. Unemployment, which was generally low in these countries because of the growth of labour intensive industries over the past 20 to 30 years, soared in a few months. In Indonesia it tripled in just one year to 14.8 per cent, in South Korea to 7 per cent and will soon reach 10 per cent, in Thailand 8.5 per cent of the workforce have lost their jobs.

In Indonesia, where the regime claimed success just two years ago in reducing poverty, official sources now admit that 100 million people cannot afford adequate food. In some rural areas in Thailand hunger is rife. In South Korea the most industrialised Asian country after Japan the parliament had to pass a law allowing parents to leave their children at state run orphanages because many families can no longer feed them. Millions of children in Asia are dropping out of school because their parents cannot pay the fees and have to send them to work. Prostitution, domestic violence and crime is increasing. Suicide is seen as one way out; in South Korea an average of 25 people a day take their own lives.

How could this happen in countries for which individual forecasters and official institutions such as the IMF and World Bank projected long term rapid growth well past the year 2000? Michel Camdessus, the managing director of the IMF, said in May 1997: "The economic fundamentals of Korea's economy themselves are sound", and even on 14 August 1997 the IMF estimated the South Korean economy would grow by 9 per cent in 1998. Defending itself in January 1999 against criticism that its forecasts were rubbish the IMF Board of Directors said that "realistically pessimistic forecasts would have exacerbated the difficulties facing these countries'), admitting the purely propagandistic character of its so called scientific forecasts. Even after the crisis hit, people such as the chief economist of the Asian Development Bank predicted that, "these economies should be growing again at a fair clip in the second half of 1998 and thereafter. "10

There have been several attempts to explain the sudden and deep crisis. Neoliberal economists blame "crony capitalism" in the East Asian countries for the failure: the level of corruption, state influence both in the financial and industrial sector, protection of domestic market. The huge outflows of speculative financial capital and the banks who lent billions of US dollars of course take no responsibility.

This attempt at exculpation is ridiculous. Neither corruption nor the role of the capitalist state were new but inherent, decade long characteristics of "The East Asian Miracle" as the World Bank called it in 1993. Everyone remembers how the same neoliberals praised the East Asian countries for their monetary and fiscal discipline, their openness to foreign capital (with the partial exception of South Korea), their disciplined labour force etc. Connected with this the neoliberals now demand more liberalisation both for financial flows and productive capital (i.e. more openness for imperialist capital), less corruption (because it depresses profits in a period of world wide decline in profits). All this demonstrates that the neoliberals directly express the interests of financial and multinational monopoly capital. And it was this outlook that informed the IMF's teams when they visited Jakarta, Seoul and Bangkok last year to negotiate the billion dollar structural aid packages.

While the neoliberal orthodoxy still represents the majority view of international monopoly capital and its think tanks, the failure of IMF policy in East Asia, Russia and Brazil and the growing recognition of the dangers of the inflated financial sector in the imperialist centres for the whole capitalist system, has led to alternative explanations and answers to the crisis. A growing layer of bourgeois economists like World Bank chief economist Joseph Stiglitz, US professor at MIT Paul Krugman or even repentant neoliberals like Jeffery Sachs or the speculator George Soros also understand that an increasing dependency on financial capital flows has played an important role in the crash. As a result some have made proposals to restrict short term financial capital movements, tax speculative capital investments or or even to reform the whole international financial system.

Finally there are the petty bourgeois "new growth" theoreticians who in the past have praised South Korea especially for its state interventionist policy as an example of how third world countries can escape backwardness. They now criticise the Korean government for having liberalised its financial sector too fast and having pegged the won to the dollar.

All these explanations refuse to come to terms with the fundamental cause of the crisis. Certainly the peg of the domestic currencies to the US dollar was a disadvantage for exports in a period of a rising dollar and a devaluation of the yen; and the extreme volatility of the financial markets contributed to the crisis too. But they were more the trigger than the cause. The crisis was a result of failing profit rates as a function of a huge overinvestment. Over production, lack of demand, the need to take on new debt to expand capacity and markets again and to try to lower unit costs all this was the result of the specific process of capital accumulation.

The whole course of the recovery cycle in the world economy between 1990 95 led to huge over capacity in key industries like semi conductors, cars, shipbuilding and petro chemicals. Combined with this was the huge decline in raw material prices such as oil (which was important for Indonesia's exports). Given these circumstances it was no surprise that the crisis started at the weakest link in the chain in East Asia. Here capital is less competitive than the imperialist multinational concerns because it is less productive, has accumulated huge levels of debts and was therefore forced to hand over a significant proportion of its profits to the banks.

Over accumulation in South Korea resulted in a situation where industrial capacity utilisation was just 70 per cent in mid 1997. Profit on sales in manufacturing industry in 1996 was just 1 per cent compared to 3.6 per cent the year before. A long term fall in the rate of net profit in manufacturing 39.7 per cent (1963 71), 27.7 per cent (1972 80) to 16.9 per cent (1981 90) meant that by the mid1990s the mass of profits were no longer sufficient to guarantee an adequate rate of return on the fixed investments coming on stream.

To counter these declining rates of profit South Korean capital and particularly the monopoly sector the chaebols increased their already high level of borrowing which was possible because of the active support by the state. In 1997 debt to equity ratio of the chaebols reached 400 per cent hardly sustainable. Once this became internalised in the consciousness of those abroad who held short-term corporate and government debt then they began to withdraw their funds, causing a massive and sudden credit crisis throughout the region. 11

Previous articles on the South Korean "economic miracle" in this journal had already identified the problem stemming from the growing debt of the chaebols. The probability of a stock and currency market crisis in the near future was underlined. 12 'While South Korean monopoly capital had partially succeeded in catching up with imperialism it faced enormous problems given not only the corporate debt problem but also increasing imperialist competition, a world market with limited growth and finally a battle hardened working class. And it was the working class which effectively stopped the bourgeoisie's attempt at the beginning of 1997 to change the labour law to allow a wave of mass sackings to restore profitability.

At the end of the boom in 1996 97 firms invested more and more of their newly borrowed capital in unproductive, speculative sectors such as real estate, stock and currency markets. It is therefore a one sided approach to root the cause of the financial crisis only in the movement of loan and equity capital in and out of the region. For example, in South Korea the majority of speculators in the financial markets were nationals not foreign dealers.

In Thailand, Indonesia and Malaysia the crisis has already laid waste their economies. Here again the cycle of capital accumulation has reached its limits. Their production has been concentrated in low and medium tech sectors with low profit margins and their opportunity to expand was limited by strong competition in the high-tech sectors coming from Japan and South Korea, and in the labour intensive sectors by firms in China or Vietnam. Again a strengthened and young working class made it more and more difficult for capital to cut costs as much as they would have liked. Like Korea, in the short term firms in Thailand, Indonesia and Malaysia increased their borrowing dramatically to stave off the crisis but in the end only guaranteed that when it finally broke it would be all the more savage.

Other South East Asian economies were less badly infected by the "Asian contagion". Taiwan is industrially much more developed than the rest although it does not possess such a concentrated and sizeable monopoly capital as South Korea. The fact that it is not in crisis stems from its stronger links to China. However, the slowdown in its industrial production already indicates that not even Taiwan can escape the crisis entirely.

The future of semi colonial East Asia

Understanding the cause of the crisis enables Marxists to see the main contradictions and the possible future lines of development. A package of measures to stimulate demand will not fit the bill, nor can closer state regulation or more national protection against "globalisation" change anything fundamentally for either the working class or the bourgeoisie. The key to a bourgeois solution even though such a solution would be temporary given the protracted period of crisis ahead of us is a restoration of the profit rate which means increasing the rate of exploitation of the work force, particularly in the core industries and a devaluation and even physical destruction of plant and equipment in the industrial and the financial sector. Only then could a new cycle of capital accumulation begin and measures to increase demand (e.g. tax cuts, public works etc.) deepen and broaden the recovery.

It does not take a lot of imagination to see that such a process implies major attacks on the working class and the peasants. Increasing the rate of exploitation means cutting wages, mass lay offs, compulsory overtime, "flexible" working (i.e. unsocial shift patterns). Furthermore, it means closing many financial institutions and nationalising their debts; this way many workers and middle class people lose out twice, first by being defrauded of their savings and then by subsidising the big creditors through higher taxes. Finally, through these measures mega conglomerates will emerge as the multinationals swallow up the smaller firms and become even bigger.

In South Korea relatively strong domestic monopolies have emerged over the past 20 years to compete strongly on the world market in some industries (e.g. cars, semi conductors, shipbuilding). 13 The chaebols dominate the whole economy. Their turnover is equal to four fifths of GNP and they own more than 40 per cent of all the country's economic assets. The ten biggest chaebols account for half of all exports. The relative strength of South Korean capital can be seen by the fact that between 1990 94 its FDI averaged 2 per cent of GNP (in imperialist Austria this was 0.77 per cent in 1993) and on a list of the 25 most industrialised so called "developing countries" South Korea was by far the most active in cross border purchases in 1997.14 However, the present crisis has not left the chaebols untouched and it is certain that several will go bankrupt. But it is not clear if this will lead to a further concentration process between the Korean chaebols or whether foreign MNCs will take them over.

To date most of the sackings and bankruptcies in South Korea have occurred in the small and medium sized enterprises not in the bigger monopolies. The chaebols tried in the summer of 1998 to push through mass layoffs in the car industry. Hyundai, as the biggest and traditionally most aggressive conglomerate, provoked a fight with the unions and threatened to sack 1,600 workers. After a mass strike and occupation, backed up by threats of a general strike, the bosses backed down and reduced the number of workers they wanted to sack to 277. But the big corporations have had more success on the wages front and the unions have agreed to significant cuts.

But the depth of the crisis and international competition mean that wage cuts alone are not enough and firms like Hyundai are acutely aware that they must try to reduce their workforce massively if they are to regain profitability. But since the last confrontation they have shied away from further frontal attacks. It is clear that the decisive battles lie ahead.

The situation is similar in other South East Asian countries. While real wages in Indonesia fell last year by 40 60 per cent, the bigger state owned PT enterprises have not laid off workers on a mass scale. Again this is primarily the result of determined opposition from the workers in these sectors. In Hong Kong, HK Telecom wanted to cut the wages of its workers by 10 per cent but had to withdraw its plan after massive labour protests. Also in Thailand, and even more so in Malaysia, an attempt to push through significant lay offs in the bigger private and state owned companies lies ahead of us.

In the same way, the process of closures and takeovers has been slow and uneven. While many smaller enterprises were forced to close most of the bigger enterprises have survived up to now. The reason for this is that the latter have access to extended credit lines and are able to restructure their debts to the banks. In addition the larger companies are well connected to government officials and have been able to extract promises of financial support. In extreme cases, such as the South Korean conglomerate KIA or several financial institutions in Thailand and Indonesia, the government has stepped in and nationalised them. The government in Thailand nationalised 56 financial institutions in 1997, restructured them and is selling them off in public auctions. South Korea has witnessed a similar process.

But the process of capital restructuring remains in its infancy throughout the region. Enterprise and bank debts remain huge. (See Table 1).

Table 1: East Asian Company Debts

Country Total Loans Bad Loans
Indonesia $58bn $36bn
Thailand $167bn $80bn
Malaysia $106bn #35bn
South Korea $369bn $122bn

The repayment burden is enormous. According to same source they are estimated at 31 per cent of annual GDP in the case of Indonesia and Thailand, 17 per cent in Malaysia and 19 per cent in South Korea. A number of big South East Asian enterprises have already been forced to stop servicing their foreign debts examples in Thailand include Thai Oil, Thai Petrochemical Industry PCL and Telecom Asia Corp. 16

For the moment, the various regimes have succeeded in stabilising the stock market and the exchange rates and have been able to rebuild their official foreign exchange reserves. 17 But this is mainly due to the fact that export revenues remained high during the crisis, thanks to massive increases in export volumes due to currency devaluations, while imports have collapsed as a result of IMF inspired austerity policies. Much of domestic industrial output has collapsed. In Thailand 47 per cent of industrial capacity is idle and throughout South East Asia the car industry is using just 25 per cent of its plant capacity. 18

The path out of this crisis is certainly a long and arduous one and is strewn with obstacles in the form of working class resistance to the attempt to restore profitability at the expense of their jobs, and via higher taxes (to finance the state hand outs to cover the bad debts of the capitalists.

How will the course of the crisis effect relations between the G7 states and these semi colonial countries? In general the western banks and MNCs will tighten their grip over domestic companies and capital markets. The reason is clear; most of these economies were already highly dependent on imperialist capital. US and Japanese direct investment played an important role both in the industrial and the financial sector. In addition foreign debt is high and is set to increase as a result of the recent IMF brokered agreements.

This means that while the process of industrialisation in South East Asia was real and not the imagination of some neoliberal propagandists l'~ the present crisis underlines the Marxist view that in general semi colonial countries cannot escape their subordination to and exploitation by imperialism. Only a socialist revolution and a planned economy on a world wide level can close the development gap between the rich and the poor countries and the gulf that divides the living standards of the poorest from the wealthiest inside these countries. The alternative outcome one guaranteed to increase social inequality within these states and between them and the G7 countries is the further takeover of national assets by foreign MNCs. International investors have already spent over $1 billion buying private shares in the region's companies in the first 10 months of 1998.

While this kind of money has allowed the western MNCs to takeover several companies, by and large foreign MNCs have not bought a lot of South East Asian enterprises.20 This is due mainly to the lack of restructuring. The monopolies first want to see the South East Asian capitalists defeating their working class and writing off the debts. If and when they make progress in this direction we can expect a wave of buying and a consequent strengthening of imperialism's grip over productive and financial assets in most countries of South East Asia.

In the meantime the G7 club will use South East Asia's financial dependency to increase their hegemony. The US despite the fact that their banks were much less involved in East Asia than those of the Japanese or Europeans was able to dictate the terms of the restructuring which were part of the IMF deals because of their hegemony inside this "world financial gendarme". They were able to force the countries to adopt policies which in the first instance protect the interests of US financial speculators.
China: the impending conflict

Growth in China in the past 20 years has been the most rapid experienced by any country in modern history. Since the introduction of Deng Xiaoping's reforms GDP grew by 9 per cent annually and GDP per capita rose from a quarter of the world average to half. As a result the Chinese share of world GDP doubled to 10 per cent.

This has led a series of bourgeois and reformist commentators to glorify the economic policy of the Chinese government. Bourgeois experts like the US bank analyst William Overholt praised China as the "Giant of the future" and the notorious bourgeois charlatan John Naisbitt claimed that "the Cold war is over and the Chinese have won." 21 While these bourgeois commentators wrongly believed that China is in an uninterrupted process of becoming a capitalist power, other reformist theoreticians die hard Stalinists, German Brandlerites such as Theodor Bergmann or German PDS leading member Joachim Bischoff claim that China's market reforms will lead to a successful transformation into a socialist state.

As we wrote more than four years ago in reality the opposite is true.22 China is heading towards a tremendous crisis. This is not to deny that there has been impressive growth over the past two decades. China in the decades before 1978 had not experienced similar growth to the other degenerate workers' in Eastern Europe nor even the USSR in the 1950s and 1960s. Political faction fights and failed bureaucratic projects like the "Great Leap Forward" or the Cultural Revolution took their toll on the economy. So a degree of pent up demand existed. In addition there was a favourable environment in East Asia such as Hong Kong, Taiwan and others which offered both markets for Chinese goods and a source of foreign direct investment.23

Of particular importance was the process of initial capital accumulation in the agrarian sector undertaken by the regime, followed later by a similar process in the light industrial and service sectors.24 These reforms were bolstered by the provision of cheap raw material from the subsidised state industry.

In addition, the regime increased the oppression of the working class in the enterprises by implementing a new contract system which ended the commitment to life long employment and other advantages of the old system (known as the "iron rice bowl").25 Furthermore, workers in private industry and particularly in foreign companies were deprived of all labour rights. The workforce for these new sectors was mainly made up of tens of millions of workers who migrated from the countryside to the coastal cities. This led to a massive increase of surplus labour and profits. Meanwhile, continued expansion of state industry was increasingly financed by growing debts.26

But these developments contain enormous contradictions. First state industry and the state banking sector cannot continue much longer in this way. Between 1988 and 1995 the relation of debt to equity rose from 82 per cent to 570 per cent and has accelerated since then. The banking sector is close to bankruptcy; three of the four big state banks are technically insolvent. Bad loans are said to have risen to between $270 360bn which is between 30 40 per cent of GDR One of the best selling books in China by He Qinglian argues that 60 per cent of all loans are bad and half of all personal savings have been lost by banks in unrecoverable loans to state industry. Moody's, the credit rating agency, said in a recent report: "China has long had, by most measures, by far the weakest banking system among the major Asian countries."27 Additionally there are uncovered pension claims which are, according to the World Bank, as high as 50 per cent of G13.

Another expression of the structural problems of bureaucratic planning is that the state industry is working part time; capacity utilisation is now below 50 per cent. Additionally much of the output cannot be sold. Reports suggest that about $SOObn worth of goods, totalling 55 per cent of GDP, are piled up in warehouses.

But the crisis of the bureaucratically planned sector of the economy is just one aspect of the explosive situation facing the country. The capitalist sector too is entering a period of slump and capital destruction. Shanghai one of the centres of the boom faces the collapse of its real estate market. Huge investments both domestic and foreign have materialised in the form of a thousand skyscrapers since 1992. But now 70 per cent of the office space is empty and property prices have halved since 1995.

The recent collapse of the famous finance corporations GITIC and CITIC the latter once labelled as the "jewel of the crown of China incorporated" by the western press demonstrated the fragile status of the Chinese capitalist sector. Estimates suggest that half of all credit extended to the approximately 200-240 "Itics" must be considered as "bad loans".

Competition between enterprises including state owned ones is becoming more and more ruinous. As a result prices have fallen for thirteen straight months resulting in deflationary pressures. Corporate earnings are falling too. An article in Business Week reported that Chinese carmakers are so cash strapped that they partly pay their suppliers not with cash but with cars making barter trade 20 per cent to 30 per cent of the total business.28

Even Western commentators who were always optimistic about China recognise the coming troubles: "For China's freewheeling red capitalists, the end of an era is at hand." 29 And Gerald Segal, director of the London based International Institute for Strategic Studies, described China's problems pointedly: "China's current economic woes are a lethal mix of a Japan like bubble and a Russia like rusting state sector. "30

It is not only domestic contradictions which slow Chinese turbo growth but also the regional Asian crisis. As a result of massive devaluations in the region Chinese exports are stagnant. Exports rose by just 3.9 percent in the first nine months of 1998 compared to 20.9 per cent for the whole of 1997. And the "flight to quality" by western fund managers after 1997 has led to a dramatic fall in inward foreign investment. Whereas it grew annually in the 1990s at double digit rates, it rose by just 0.9 per cent in the first ten months of 1998 compared to the previous year. Meanwhile, future pledges of FDI even shrank by 1.5 per cent. FDI in Shanghai has fallen from $lObn to $6bn.

As a result of all these developments growth is slowing, although the bureaucracy has tried to compensate for falling export throughout 1998 by boosting domestic demand. Even so the official announcement in January 1999 of a figure of 8 per cent GDP growth in 1998 was treated with widespread scepticism in Europe and the US and many commentators suspect a massive manipulation of the statistics. Many experts think that real growth is just 3 4 per cent and the Montreal based Chinese Analyst estimates that output could even have slumped by 2 per cent in Q4 1998 if stock building is excluded.

The social consequences of these statistics are important. Every one percent less growth means another 5 million unemployed. Faltering growth accelerates mass sackings in state owned industry and the millions of migrants entering the big cities like Beijing or Shanghai are doomed to poverty. Despite the official claim that just 3 per cent are jobless, according to one Chinese expert close to the government unemployment has already reached 8 per cent and will reach 18 million or 9 per cent in 1999. Of the 200 million urban population 12 22 million are living in "absolute poverty" despite the fact that 90 per cent of them are working or have done so until recently. According to the Chinese author He Qinglian the disparity between rich and poor has been greater in China than in the USA since 1994.

In rural areas where most of the population lives social hardship is increasing. Farm incomes are growing by only 1 per cent a year and many can only survive with the support of relatives working either in state industry or the urban private sector. This poses serious problems for the bureaucratic caste both because of the sheer weight of numbers involved and because they provide the traditional base of the Chinese Communist Party (CCP). Recently the government announced several reforms which should lead to rising grain prices and a boost to farmers' income. But at the same time this means more expensive food for the urban population which had been subsidised.

In addition to the regime's fear of social unrest the central government is alarmed by the growth of provincial power centres. The number, and influence, of regional and local bureaucrats has increased at the cost of the centre. As a result national tax revenues declined from 34.4 per cent in 1978 to 11.8percent in 1995. Thecoming crisis will certainly deepen this problem. To counter this the Beijing bureaucracy has issued new government bonds to the value of 600bn renminbi (PM) which is a substantial increase on the already record level of RM 1OObn worth of bonds issued in 1997. With the markets being offered in the region of RM350 450bn of bonds annually in the future the government could face a major repayment burden especially when growth slows dramatically.

So where is China headed? What does it mean for the fate of capitalist restoration? Given the interconnection of large parts of the Stalinist caste with the capitalist sector and the huge financial interests that many bureaucrats have already acquired during the process of market reforms, it is highly unlikely that the majority of the bureaucracy will re orientated to a new phase of Stalinist planning and giving up the project of the restoration of capitalism. We only have to remember the determination of the ruling castes in the USSR and Eastern Europe to carry out capitalist restoration which at the time (1989 91) were much less integrated into an already existing capitalist sector than is the case in China. This situation is even more marked now given the incorporation into Chinese rule of Hong Kong and its rich bourgeoisie in 1997.31 Their goal remains the creation of a capitalist China with a significant state capitalist sector and a continued oneparty dictatorship. This would allow them to increase their wealth without facing the risk of losing power.

But it is quite possible and even probable that the Stalinist leadership will delay several measures that would take capitalist restoration forward. In the past few months it has already reimposed several planning mechanisms and slowed down some market reforms. For example, after agreeing to privatise the state's housing stock by 1 July 1999 it has now put off the raising of rents until the end of the year and in Guandong which is one of the centres of capitalist restoration even until the end of the century. Plans to liberalise grain sales have also been suspended.

In 21 industries such as electronic appliances, cars, three wheel farm trucks, loading machines or computerised machine tools, the bureaucracy has reintroduced price controls and minimum prices. State authorities have also imposed new restrictions on foreign capital in the telecommunication sector and sharper controls on foreign exchange transactions so as to make it more difficult for domestic and foreign firms to move short term capital out of China.

In spring 1998 the government adopted an ambitious public investment plan of $1 trillion over the next three years. Loans for state industry have increased since July. This prevented a further deceleration of growth in the Q3 1998. This policy is based on the motto of the bureaucracy that "China does not have a low growth option". 32 But the problem is that while these investments accelerate the growth of plant and equipment much of the output is destined to be stored or mothballed.

The continued commitment of the Zhu government to restore capitalism can be observed in the swiftly implemented, if ambitious, plan adopted in March 1998 to reduce the number of ministries from 40 to 29 and to cut the number of staff by half.

The future of China is determined by several factors, of which the strong pro capitalist character of major sections of the bureaucracy is but one. But there are important challenges to and obstacles in the path of the restoration of capitalism. The coming convulsions present both the biggest threat as well as a great opportunity to those in business and government who wish to push on with the transformation of the property relations.

Certainly, the coming crisis will narrow the scope for the kind of compromises within the bureaucracy which kept both state industry running and the private sector booming. Now neither is growing sufficiently. The pressure is mounting to make sharp cuts in subsidies, loans and wages in the public sector. The pro capitalist section around premier Zhu Rongji will try to implement its programme of restructuring the state enterprises over the next three years with many million workers being laid off as a consequence. According to the Chinese Labour minister up to the half of state sector workers must be sacked before these enterprises can make a profit. Over the same time scale Zhu also wants to clear the state banks of their debts and start lending purely on commercial terms. If the bureaucracy succeeds with this programme then production for profit and the extension of credit for profit would finally reign over the whole accumulation and circulation process in China. Irrespective of the degree of public ownership of industrial and banking assets it would mean that capitalism would be finally restored in China.

But this programme will intensify tensions between the bureaucrats of the eastern and southern coast provinces, where capitalism already has deep roots, and those of the interior who remain in charge of the rust belts of state industry. The path of capitalist restoration has led to increasing power and influence for several provincial bureaucracies. It has undermined the power of the central bureaucracy.33 This process has also led to:

"the use of self protective measures of 'import' substitution industrialisation to stem the interregional transfer of value from the western regions with their low priced raw materials to the eastern regions and their high priced manufactured goods."34

Certainly the coming crisis will reduce both central and provincial tax revenues and also both domestic and foreign investment. Therefore the drive of the provincial governments to look first to their own local interests and only secondarily to those of the centre and the other provinces will increase.

This centrifugal process has certainly accelerated with the incorporation of Hong Kong in the summer of 1997 which created a powerful financial centre adding to the already existing ones in Beijing and Shanghai.

But there are also other intra-bureaucratic tensions. The purging of army generals from the inner circle of party leadership and the recent campaign of Jiang Zemin to drive the PLA out of its business links are evidence of this. The new leadership wants to consolidate its position against the influential military bureaucracy and to stop its huge illegal dealings which add to the deflationary pressure in the economy.

Obviously this development is contradictory. On one hand, the leadership wants to cut the PLA's business activities; on the other, it has declining tax revenues out of which to meet increasing costs. Certainly, cutting the 3 million strong army by 500,000, as Jiang announced, could help but this would at the same time add more to the "surplus population" and weaken the army and its morale in a period where social and political unrest is to be expected.

The sharp social consequences of the economic crisis have increased unrest both in the cities and in the countryside. This means an erosion of the political stability which is essential for the maintenance of the present dictatorship. It could try to keep the dictatorship in power while changing its ideological justification and loosening to some degree the clamp it maintains on any dissident expression; in extreme form a faction may emerge which resembled a kind of Gorbachevite tendency which would aim to absorb both the growing social and political unrest and the centrifugal tendencies. But in outcome it may well build a regime something akin to its authoritarian neighbours in Hong Kong, Singapore or Taiwan.

Or the centrifugal forces could lead to a more complete break up in the coming years. This does not necessarily mean the break up of China; this is rather unlikely. But a decomposition of the bureaucracy along regional lines, a weakened centre and a permanent tug of war between the centre and the provinces and between the provinces themselves is a realistic scenario.

Of course, it is also possible that the bureaucracy tries to hold absolute
power as long as possible until an explosive revolt but given the already weakening centre and army this is not the most likely variant. In the end, what form such a process of limited democratisation takes, whether it can be reversed and what this means for capitalist restoration all this depends on the ability of the Chinese working class to rise and to fight for its interests.

It is no surprise then that even the usually optimistic editors of The Economist are increasingly worried:

"The real issues are whether China's growth is slowing or even grinding to a halt; whether the resulting unemployment will prompt political unrest, or a power struggle among the leadership; and then whether that will send China in a disturbingly nationalistic direction. The right bets, on current evidence? Yes, yes and probably."35

Class struggle and the workers' movement

Nowhere has capitalism had better conditions for success in recent times than in East Asia: pathetic wages and working conditions, massive imperialist support (financial aid, trade exemptions) and severe political repression of all potential opposition forces. But all the dictatorships and bayonets were not able to stop the working class rising and bringing down repressive regimes as they did in South Korea 1987 and Indonesia in 1998.

The Chinese "Marxist" bureaucracy should know that capitalism produces its own gravedigger - theirs too! A huge and young working class has emerged throughout the region. In South Korea the share of the manufacturing workforce increased from 8.2 per cent of the total labour force in 1964 to 23.4 per cent in 1985.

Meanwhile, the agricultural workforce decreased from 62 per cent to 24.9 per cent of the total in the same period. 36 In Thailand today there is a powerful urban working class of 15 million. 'While they represented only around 12 per cent of the whole population in 1960 their share increased rapidly to around 40 per cent by the early 1990s.37

And in China the industrialisation and modernisation of the past period has turned an estimated 100 million peasants into waged workers. 38

The rapid pace of industrialisation and the growth of monopolies, particularly in South Korea, led to a massive concentration of the industrial workforce similar to what happened in Russia at the beginning of this century. In Korea huge conglomerates (chae bols) bring together tens of thousands of workers in one site. Cities like Ulsan are known as "Hyundai City" because nearly all factories (car plants, shipyards) are owned by this chaebol.

So too in China, the Stalinist industrialisation drive and the waves of foreign investment have created a huge iron belt in Central China and many new factories in the coastal provinces.

Against this background the working class developed the necessary strength to stand up and fight. In South Korea a series of strikes and the formation of a militant workers' movement started in the mid 1980s, in Indonesia and Thailand in the early 1990s. In China the first signs of a new radical labour movement emerged around the uprising at the Tienanmen Square in 1989. This became a key target of Stalinist repression. 39 But in recent years the procapitalist ambitions of the bureaucracy have again provoked a series of local strikes and the formation of underground regional trade union networks.

South Korea has without doubt the most developed and militant organised workers' movement in the whole of Asia. The South Korean class struggle reached its first post war high point in the second half of 1987 after the overthrow of the military dictatorship.

Since then the industrial working class has succeeded time and again in its fight for significant wage increases. The Kim Young sam government provoked a new upsurge of struggle at the end of 1996 and the beginning of 1997 when it threatened to introduce new anti labour laws which sanctioned mass lay offs in the big factories.

'While amass strike was able to force the government to retreat, the slump in 1998 moved the bourgeoisie to reintroduce this law and other antiworking class measures. This has led to a new series of strikes.

'While the government succeeded in using the sense of "shock" that greeted the first major recession in South Korea to push through the law the chaebols have not really been able to implement them and sack the tens of thousands that they hoped. In the summer of last year more than 120.000 car workers went on strike and the Hyundai workers in Ulsan occupied the factories and again forced the owners to back pedal.

The strikes were mainly organised by the militant union federation, KCTU. While the KCTU organises 560,000 workers mainly in the big factories and some public sector workplaces like telecommunications or banks the more conservative and moderate FKTU claims a membership of one million, which are concentrated in the small and medium sized enterprises.

Together they represent 14 per cent of the employed workforce. This may not seem very much by European Union standards but in the European Union the labour movement has had one or two centuries to build up its strength. Also South Korea has a higher degree of unionisation than exists for example in France or the USA. And, finally, what counts is not only the absolute number who are organised but the fact that the Korean proletariat is highly concentrated in huge factories and that the militant federation KCTU is very strong in the chae bols.

The KCTU's weaknesses

The struggles over the last year have highlighted the weaknesses of the KCTU. Certainly, it is not a very bureaucratised and right wing reformist union as is normal for any imperialist country or even of the type we find in many developed semi colonial countries (e.g. Argentina). It is not dominated by a developed labour bureaucracy and it has a considerable degree of democracy. Nevertheless, its policy is heavily marked by reformism and economism.

At the highpoint of the last major national struggle in February 1997 the KCTU leadership of Kwon Yong kil called off the mass strike instead of generalising it in face of the nationalist government and media campaign. When the students led a popular mass movement for the resignation of the presidency some months later the KUJU leadership did not join it. And when the government staged a hysterical campaign against the big Stalinist student federation (Hanchongryon) in autumn 1997 the union leaders refused to show solidarity.

In February 1998 the Kwon Yong kil leadership even agreed to participate in a Tripartite Commission with representatives of government, the bosses and the unions in which the KCTU signed a package which gave the green light for mass sackings. The fact that the leadership was immediately ousted at an extraordinary delegate conference by a two thirds majority underlined both the relatively democratic culture within the KCTU and the degree of rank and file organisation.

The newly elected Emergency Executive Committee under Lee Gap Yong and Dan Byong Ho (both coming from the militant metal workers' union) left the Tripartite Commission and tried to organise a general strike but climbed down in face of a hostile public mood.

But again this more militant leadership itself joined the Tripartite Commission in June, called off the strike wave in July 1998 and agreed to the compromise at Hyundai in August despite a rejection of the deal by a two thirds majority of Hyndai union members.

The origins these vacillations lie not so much lie in any privileges enjoyed by the officials let alone their integration into the negotiation apparatus of the state. Rather they lie in a complete lack of revolutionary perspective. The KCTU leaders are characterised by a combination of nationalism, reformism, economism and labour aristocratic sectionalism. Nationalistic reformism insofar as the KCTU leadership gave in to the mood of national grievance in face of the first corruption scandals in spring 1997 and again when the economy nose dived in 1998. While many of the rank and file members want to see an end to capitalism and are committed to the struggle for a classless, socialist society, the official programme of the KCTU is permeated with typically reformist conceptions such as, "We will enhance control against domestic and foreign monopolist capitals, and instead we will protect and build up small and medium enterprises and agriculture." 40

This cross class policy which envisages an alliance with sections of the bourgeoisie became very clear in the recent crisis. In its official "KCTU Proposal for an Agreement to Overcome the Economic Crisis", which was published at the beginning of the crisis, the leadership said:

"The government, employers and trade unions undertake to establish a "Tripartite Commission for Economic Crisis Management and Employment Security' composed of equal number of representatives from the three partners."

The statement also declared it readiness "to restrain from excessive wage increases and to improve productivity" and argued that:

"employers undertake a firm commitment to engage in consultation in good faith with employee representatives, even in cases where there is urgent need to lay off employees, in a genuine effort to exhaust all other means such as reducing working hours, to avoid dismissals."

This policy reflects the desire of sections of the KCTU leadership certainly the right wing around Kwon Yong kil to move in the direction of established left reformist European trade unions like the German IG Metall; indeed, they regularly send functionaries to Germany to study their policies and methods of organisation They use the tactic of threatening general strikes and mass demonstrations as an instrument to strengthen their negotiating stance rather than launching general strikes to force the bosses and government to surrender. When the government indicated a willingness to open negotiations the leadership of the KCTU therefore called off the strikes.

'While other sections of the KCTU appear to reject this policy they share other weaknesses. There seems to be no desire to integrate the workers of the small and medium enterprises into the struggle. These workers are certainly more backward than the relatively class conscious industrial workers in the chaebols. It comes as no surprise that the conservative FKTU is much stronger in these sections. But for exactly this reason it is self defeating for the KCTU to direct it calls mainly to the workers and ignore the strikes of the workers of the small and medium enterprises as happened in early 1997.

Their labour aristocratic prejudices can be seen in the argument of the union leadership that flexibilisation of labour law is not necessary because already 47.2 per cent of all waged workers are temporary workers.41 This is particularly worrying given the relatively privileged position of the chaebol workers who have much higher wages than the average industrial worker.42 For this reason the KCTU must do whatever possible to counter the demagogy of the government, the bosses and the FKTU bureaucrats that it only represents a privileged elite which does not care about the rest.

It can only do this by actively extending the struggle to embrace the weaker layers and advancing their specific demands; demands such as an immediate increase in the minimum wage, its extension to the workers in the small enterprises, a cut in the working week to at least 40 hours and for nationalisation under workers' control over all enterprises which declare lay offs or announce closure plans.

Furthermore the dramatic economic crisis has demonstrated the limits of purely defensive struggles confined to the enterprises. The union movement must resolutely enter the political arena and build a workers' party. Already in the last presidential elections in December 1997 the candidature of the union's president Kwon Yong kil on the KCTU supported People's Victory 21 list was a first step despite the low number of votes polled.

Finally the whole crisis demonstrates that if the union does not have a clear anti capitalist perspective it is doomed to capitulate to the logic of the market. Therefore a workers' party must fight for a revolutionary programme, for a fundamental alternative to the capitalist system. Not for a "market economy minus the chae bols" but a system where the workers and peasants organisations exercise government and the economy is under their control.

The workers' movement in Indonesia had to operate in the past under very different circumstances. Until the overthrow of Suharto it was faced with semi legal or illegal conditions and severe repression. However, workers started to resist their exploitation by launching strike waves in the early 1 990s, mostly focused on economic demands such as for wage increases or for better working conditions. In 1992 an independent Indonesian Prosperous Trade Union (PBI was formed under the leadership of Muchtar Pakphahan.

In February 1994 the independent unions called a one hour nationwide strike and one month later it organised a general strike in Medan the third largest city in which ten thousand workers took part. In 1995 the left wing Indonesia Centre for Labour Struggle (PPBI), which is affiliated to the left wing Peoples Democratic Party (PRD), was founded. It organised a series of industrial strikes. Its leader Dita Sari was thrown into jail after she led a 20,000 strong workers' demonstration in the industrial city of Surabaya in July 1996.

With the onset of the economic crisis in 1997 the class struggle grew hot and in November 40,000 workers at the Gudang Garam clove cigarette factory struck for four days and won all their demands. In spring 1998 a wave of mass demonstrations and riots erupted when the regime tried to solve the crisis by increasing fuel prices. Many workers joined the student demonstrations which led to the fall of Suharto. Not suprisingly the workers decided to utilise the newly won democratic freedoms to launch strikes. A series of economic struggles broke out aimed at securing wage increases to offset rising inflation and to try and stop lay offs.

'While in the first half of 1998 protesting workers followed the lead of the students, in the autumn the workers themselves took the lead. A second phase of the revolution started which culminated in the mass demonstrations at the MRP meeting in November where students, workers and urban poor demanded the resignation of the Habibie government, a trial for Suharto and the end of the "dwi fungsi" the combined political and military roles of the ruling bureaucracy.

Since May 1998 many factory committees have been formed which in some areas have created networks, called Workers' Committees for Reform Action (KOBAR). This has a strong base in the factories of the Tangerang industrial area outside Jakarta, in north Jakarta and in the city of Bogot A Workers' Committee for Reform which was set up during a strike of 7,000 workers at the Tryfountex Indonesia factory in Solo called for the nationalisation of the enterprise and invited student leaders to address the workers.

Compared with South Korea the specific weight of the unions and workers' organisations is certainly smaller. This is no surprise given the smaller weight of the proletariat in the whole population and the lower level of industrial concentration. The urgent task is to broaden the network of workers' organisations both unions and factory committees and to link them together nationally. But while the social composition of Indonesian society might be not so favourable the general dynamic of the whole political process is very favourable. The general intense political debate, the burning democratic grievances and the courageous struggle of the students are turning the face of all active workers to political questions.

PBI leader Pakphahan has already called for the formation of a Labour Party. But despite his personal courage his political perspective is quite confused and dangerous for the workers' movement. He offered tactical support for the neoliberal IMF policy to weaken the "cronies" around Suharto and Habibie. And he has now asked the bourgeois oppositionist Megawati Sukarnoputri to become the leader of a Labour Party. Furthermore, he suggests that the workers' movement would be better if it focused more on negotiations with management than fighting against the government.

In reality workers must build on their class independence and should not trust any bourgeois politician. Amien Rais and Megawati Sukarnoputri, leaders of the muslim movement and the PRI main opposition party respectively, did not want a mass uprising or revolution during May 1998.

The workers need a party which unites the struggle for consistent democratic reforms with a programme for the peasants and the oppressed peoples and which links these struggles to the fight for a social revolution and a workers and peasants' government based on directly elected democratic councils the length and breadth of the country. In short, they need a revolutionary workers' party. Such a party must fight for the unification of the many enterprise level and local unions into one nationwide fighting and democratic union federation.


The working class in China certainly faces extremely difficult conditions in which to organise and fight against mass lay offs and wage cuts and for democratic rights. However even here the number of strikes and protests has increased since the defeat of 1989. Mostly the protests are small and local, involving just some hundreds or even just dozens of workers. They normally focus on protests against sackings or demands for unpaid wages:

"There have already been numerous reports of isolated strikes, demonstrations and sit ins by disgruntled workers. In the three years to the end of 1997, more than 6,000 such incidents occurred."43

In one case the protest took the form of an insurrection. After not receiving their wages 1,000 workers in the munitions factory No. 818 in Gansu province went on strike in April 1998 and occupied the local Party and government building. When the army sent 1,000 troops, armed police and helicopters workers found weapons and fought back. In the end the uprising was suppressed and an army regiment is now garrisoned there.44

There are repeated reports of underground unions being organised and recently some activists even tried to form a "China Labour Party". Of course, the organisers were immediately arrested and put on trial. Nevertheless, this and the fact that another bourgeois opposition group recently issued for the first time a declaration against social injustice and the exploitation of workers indicate the growing level of unrest and mass anger.45

Recently riots by thousands of farmers against corrupt local bureaucrats highlighted that China is a powder keg. Bourgeois commentators are increasingly worried:

"But far more important is the American fear, not of China's power but of its weakness, even of its possible collapse. This fear is an amalgam that Beijing might devalue the renminbi thus dramatically deepening the East Asian crisis, and of concern that the country could be torn apart by widening peasants and workers'unrest and by splits between hard liners, reformers and military factions about how China should be governed."46

Hong Kong was long quiescent, but no longer. A city which has hardly seen any class polarisation for decades is now engulfed by growing anger against the consequences of free market policies. When HK Telecom wanted to cut the wages of its workers by 10 per cent its workers protested and the management had to withdraw its plan. This public mood has also led the government to undertake more state intervention in the economy.47

Given this social environment and the lack of a workers' party in Hong Kong, divisions have now erupted inside the bourgeois oppositionist Democratic Party. This party is the biggest in Hong Kong; it received 43 per cent at the elections in May 1998 but got only 13 out of 60 seats thanks to the reactionary electoral laws handed down from Beijing. Dissidents inside the party demand that it must become the "representative of the workers and the middle classes" and focus on "mobilising the masses" for street demonstrations and protests. While the future development is unclear it demonstrates that social and class questions are gaining prominence again.

In Hong Kong it is of particular importance that the union forces inside the Democratic Party break with any kind of bourgeois faction be it pro western or pro Beijing. They must build their own class party a workers' party.

Such a party must do its best to build links to the workers and underground unions in mainland China. The fate of the whole Chinese working class rests on the unity of the workers in the state owned large scale enterprises in Central China with the workers of the domestic and foreign private companies in the coastal provinces and those in Hong Kong.

At the moment the enemy is clear the pro capitalist bureaucrats in Beijing. But it is certain that either a spontaneous explosion will fragment the bureaucracy or open splits in it will call forth mass uprisings. The danger is that conservative, bureaucratic or open pro capitalists factions will drag "their" sections of the working class into conflict with one another.

They will also try to play the urban workers against the peasants. To meet all these challenges a revolutionary leadership with a clear programme for proletarian revolution must be built straightaway.

East Asia has entered a period of intense class struggle and revolution. The heroic students and workers who perished in Tienanmen Square faced with the Stalinist tanks and special army forces proclaimed in their "Joint Declaration", "With our blood we will reconstruct the walls of the Paris Commune."

While the bureaucrats succeeded in suppressing that revolt it is clear that millions of workers and peasants will rise up again in China, Indonesia, South Korea.

The example of their struggles, and especially of their successes, will immeasurably assist the rebuilding of a class conscious and combative Japanese workers' movement. Then the slogan of 1989 will be repeated by millions.

It is the task of the LRCI to help build a revolutionary workers' party armed with a programme that links the present struggles with the only goal that can once and for all end the need to fight exploitation and oppression the socialist revolution. *


1 Japanese output is still over three times bigger than that of China which in turn is as large as the combined GDP of Spain and the Netherlands.
2 See R Brenner, The Economics of Global Tur bulence London 1998, p8
3 "Japanese Industry Survey" Financial Times, 8 December 1998. According to the same source profit decline in the whole economy excluding the financial sector will be 2.8 per cent (1998) and 12.4 per cent (1999). Also the return on equities quoted on the Tokyo Stock Exchange declined continuously from nearly 14 per cent in 1980 to 3.5 per cent in 1997.
4 "Corporate Japan goes to waste", The Econo mist 29 August. 199 8
5 Financial Times, 3 June 1998
6 International Herald Tribune, 11 December 1998
7 Staffan B. Linder: The Pacific Century, quoted in Peter Nolan: "Assessing Economic growth in the Asian NI Cs"; in Journal of Contemporary Asia 1/199 0, p.45
8 Industrial Production slumped in USA 192930 by 18 percent, in Germany by 14 per cen. Paul Kennedy: Aufstieg und Fall der Grossen Moechte, Frankfurt a.M. 1991, p.451
9 IMF, IMF and theAsian Crisis, January 1999.
10 Quoted in: Paul Burkett and Martin HartLandsberg: "East Asia and the Crisis of Development Theory", in Journal of Contemporary Asia Vol. 28 No.4 (1998), p435
11 Both figures are taken from Shin GyoungHee, "The Crisis and Workers Movement in South Korea", in International Socialism 78, London 1998, p40 41.
12 Michael Prbsting: "Kapitalistischer Aufholprozefi in Sdkorea und Taiwan"; in Revolu tionaerer Marcismus Nr.20 (Winter 1996), p3839. A shorter version appears in TrotskyistInternational No. 21
13 ibid
14 According to UNCTAD sources; see The Economist 14 November 1998, p142
15 Far Eastern Economic Review, 17 December 1998, p43
16 "Thai Oil Halts Debt Payment for 6 month", International Herald Tribune 17 November 1998
17 For example South Korea was able to increase its foreign exchange reserves from $10 billion in December 1997 to $46.9 in September 1998.
18 "Report Card on Asia," Business Week 23 November 1998 p25
19 As several left groups such as Lutte Ouvriere in France claimed in the past.
20 "Investing in Asia: Here come the good guys", The Economist 7 November 1998, p94
21 William Overholt: Der Gigant der Zukunji Chinaa Wirtachaft vor dem groflen Sprung, Munich 1994; John Naisbitt: 8 Megatrenda, die unaere Welt verdndern, Vienna 1995, p.41
22 "Chaos in the new world order", in Trotskyist International 15, p20 fit
23 Most FDI in the past decades came from Hong Kong and Taiwan. Nevertheless imperialist FDI accelerated over recent years. It has to be said that a significant proportion of FDI is fake in so much as Chinese enterprises invested in the past in Hong Kong and then re invested as a "foreign" company in China to become eligible for tax breaks.
24 For a more detailed analysis of the process of capitalist restoration in China see our articles in Trotskyist International 11, Peter Main, "China: 'Socialism' with capitalist characteristics" and Trotskyist International 22, Peter Main, "Stalinsts draw near their capitalist goal".
25 On this see the informative article by Qiu Lihua: Reform of China's State Owned Industries. "Smashing the Iron Rice Bowl", 1993 (Internet:
26 "The Crisis deepens, the workers respond"; Workers Power, Arbeitermacht and Arbeiterln nenstandpunkt, September 1998.
27 Quoted in "China Survey", Financial limes, 16 November 1998
28 Business Week, 30 November 1998
29 Business Week, 26 October 1998
30 International Herald Tribune, 28 September 1998
31 In December 1999 the smaller Portuguese colony of Macao will also revert to China.
32 Yukon Huang, head of World Bank office in Beijing; Quoted in "China Survey" op cit
33 Pak K. Lee, "Local Economic Protectionism in China's Economic Reform" in, Development Policy Review Vol. 16(1998), p288
34 ibid, p299
35 The Economist, 24 October 1998
36 Frederic C. Deyo: Beneath the miracle. Labour Subordination in the New Asian Indus trialism, London 1993, p30
37 Ji Ungpakorn, The struggle for Democracy and Social Justice in Thailand, Bangkok 1997, p.105 and 122
38 Lau Yu Fan, "Capitalist Restoration in China", in International Viewpoint 291 July l9Si7pl7
39 A lively report on the radical workers particularly the Beijing Workers Autonomous Federation is given in Qiu Lihua, op cit
40 KCTU, Fundamental Tasks and Objectives,point 17; see KCTU web site
41 Korea Labour and Society Institution, Labor on the Second Tripartite commission: Why Kore an labor was so reluctant to participate? 8. June 1998 (see )
42 Workers in manufacturing enterprises with less than 100 employees earn just 57 per cent of the wages of workers in enterprises with more than 5.000 employees.
43 "The world in 1999", The Economist p66
44 "Insurrection Strikes Heavy Artillery Factory in Gansu"; in Inside China Mainland, Taiwan, August 1998, p42 44
45 Ding Zilin, Lin Mu, Jiang Qisheng, Jiang Peikun, Wie Xiaotao, "Declaration on Civil Right and Social Justice", in China aktuell, September 1998, p938 39
46 Jonathan Mirsky, "China Holds a Weak Hand, but U. S. Won't Raise Stakes" in International Herald Tribune 15 January 1999
47 "Disillusioned Hong Kong starts to ask for more government", Financial Times 6 January 1999