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Marketizing China

Factory relocations and land privatizations have put Chinese migrant workers on the defensive.

A factory worker in Beijing. Raphael Olivier / Flickr

Experts are saying the Chinese miracle is over, and while the country will probably avoid a full-blown economic crisis, the halcyon days of 8–10 percent annual growth are over.

As has been widely reported in recent weeks, there are a number of factors slowing growth, and the stock market crash is only one of the problems. The crisis is rooted in deeper issues stemming from China’s export-led growth model and debt-financed investment in the face of cutthroat global competition and declining profitability.

There has also been lots of talk about the crash’s impact on Chinese investors. But what will the slowdown mean for Chinese workers, and how will things be different from the 2008 global financial crisis?

It has only been seven years since the Great Recession, which started in the United States but immediately affected many other countries, including China. As orders from US and European buyers evaporated in late 2008, twenty million migrant workers were thrown out of work. This led to a massive upsurge in social unrest, as workers demanded back pay from bankrupt firms. Cities dependent on exports were rocked by wildcat strikes, road blockades, and riots, while courts were overwhelmed with labor disputes.

But then everyone headed home for Chinese New Year. Although migrant workers are often excluded from urban social services, most of them still retained land rights in the countryside, so unemployed workers went back to the villages and waited things out.

Before the economic crisis hit, the central government had been considering a proposal to push forward land privatization. But, confronted with millions of unemployed migrants in the city, the plan was quickly shelved as “conservative” elements (i.e. those suspicious of privatization) within the party argued that the socialist remnants of collective rural land would serve as an important shock absorber for the market.

Between late 2008 and early 2009, the government took a series of steps to encourage economic recovery in urban areas. Many local governments suspended recently passed labor protections, while the central government established relief funds for distressed exporters.

The centerpiece of the crisis response was an enormous stimulus package. Local governments took on a literally incalculable amount of debt to invest in infrastructure and other job-creating projects. Since local governments’ ability to directly take on debt is constrained by law, they created nominally independent companies to borrow on their behalf. Asset bubbles ascended to the heavens, and growth was reestablished.

With a rapidly expanding construction sector, millions of rural workers could find work without much trouble. Despite managerial apoplexy over increased business costs, exports resumed their upward trajectory, aided in part by government infrastructure investments and subsidies.

But the strategies used to quell dissent and restart growth in 2008 — collectively held land in the countryside and an expansion of debt in the cities — are increasingly unviable today. Since 2008, the capitalist transformation of agriculture has proceeded apace. While the government maintains a rhetorical commitment to collectively held rural land, agriculture has increasingly come under the control of capital.

Land rental markets have expanded, which allows agri-business firms to consolidate land holdings and employ wage laborers to work the fields. While peasants may generate some income by turning over land use rights to such companies, it also means they cannot return to subsistence farming if the market economy fails to produce employment opportunities.

Growth via urbanization has also entailed mass dispossession of the rural population. As local governments have come to depend on real estate to generate tax revenue, municipal officials have developed a strong incentive to put nearby rural land to more profitable uses.

Infrastructure projects such as high-speed rail, highways, and airports have all expanded rapidly since 2008, resulting in millions being thrown off their land. While resistance has often been intense, peasants are generally divested of their property with meager compensation. And if many peasants (and migrant workers) do retain rights to collectively-held land, this resource has been chipped away to facilitate further accumulation. An increasing share of the population has become truly proletarian, with no way of surviving outside the marketplace.

To cope with the current crisis, and boost confidence both domestically and in global markets, the Chinese state may turn to another credit expansion in the short term.

But a 2008-scale stimulus seems highly unlikely — China’s total debt has quadrupled since 2007, now clocking in at 282 percent of GDP. While opinions differ as to whether this debt load will bring about a financial crisis, China cannot continue to leverage its way to growth indefinitely. In addition, although the recent currency devaluation may boost exports for certain goods, currencies in many countries in the Global South have fallen, and in the current economic climate currency devaluation is mainly leading to decreased imports with no concomitant increase in exports.

At the same time, other countries in the Global South are emerging as serious manufacturing competitors. Samsung now produces more phones in Vietnam than in China, and Foxconn has announced plans to employ one million people in India by 2020.

Some claim that the service sector will absorb excess labor — like the US, services in China account for more employment than any other sector — but increasing competition for production will likely cost China many jobs.

All of this could make life more difficult for the Chinese working class. The wage increases of recent years have largely been wiped out by spikes in the costs of living. Recent research shows that the much-lauded 2008 Labor Contract Law has largely benefitted workers at the high end of the labor market.

The 270 million migrants that make up the core of the working class remain largely excluded from urban public services and are without social insurance — meaning that when they are in the city, they are entirely dependent on the market for housing, health care, and education. And very few workers have robust unemployment insurance, something which now seems like a pressing concern.

The squeezing of Chinese workers will also lead to more conflict. Indeed, most signs point to a recent uptick in class struggle as the still-embryonic working class resists its imminent unmaking. Yet whereas workers were on the offensive just a couple of years ago, strikes are increasingly about unpaid wages, factory relocations, and bankruptcies.

Some recent strikes in the manufacturing heartland of Guangdong illustrate this dynamic. One notable example is the series of worker struggles earlier this year at the Lide shoe factory in the city of Guangzhou, which attracted attention for workers’ high levels of organization and repeated strike actions.

But workers’ central demand was to ensure that they received their legally required benefit payments and termination compensation before the factory relocated.

Last year’s strike of up to forty thousand workers at the Yue Yuen shoe factory in Dongguan, though a major advance in the organizational capacity of workers, was also a defensive action — the chief demand was that their employer compensate them for years of unpaid social insurance contributions. And during the course of the strike, Adidas announced it would be shifting some of its orders elsewhere.

Most Chinese workers care little about the market crash. Compared to other countries, the Chinese indexes are a small part of the total economy, and workers generally don’t invest in stocks. But in the current economic climate, if people are thrown out of work, there won’t be nearly as many infrastructure projects or manufacturing jobs waiting for them, and fewer and fewer people will have land back in the village.

These are the makings of a desperate situation.

To make matters worse, Chinese leader Xi Jinping has ushered in the most repressive political environment since 1989. It goes without saying that worker self-organization is still viewed as a mortal threat to state power. But even decidedly moderate worker advocates in the NGO world and academia have faced stiff repression from the Chinese state over the last two years.

So while it seems likely that increased class struggle will materialize in the coming months, it seems equally certain that worker resistance will be met with state violence.

The situation could worsen even further for workers if the Party follows the seemingly unanimous advice of the Western liberal cognoscenti: more marketization. Market liberals think that diminished government intervention in the economy will help China advance “rebalancing,” i.e. decreasing debt and reliance on exports, and expanding services and domestic consumption.

The World Bank and others have complained that state-controlled banks allocate too much capital to the inefficient state sector, which hurts growth and job creation. “Liberating” capital markets and privatizing the remaining state firms, they insist, will overcome this impasse.

At the moment, farmers in many areas can lease their land, but market partisans like the Economist say this doesn’t go far enough. They argue that full, legally enforceable private property rights would allow farmers to be unburdened by the land, and to seek their fortune in the city with some startup capital in their pockets.

Land privatization would also create better economies of scale in agriculture, which would lead to a more efficient allocation of labor nationally. Efficiency would go up, wages would go up, and domestic consumption would go up.

But privatization has a poor track record in securing a more equitable distribution of resources in society — which will of course be necessary to increase domestic consumption. Instead, we have every reason to believe that further privatization would result in massive corruption and dispossession of public property, just as occurred in China in the late 1990s and early 2000s. It was precisely state control over finance that allowed China to avoid the most devastating effects of the 1997 and 2008 financial crises.

Diminished manufacturing and construction sectors and slower growth are undeniably in China’s future. While factory and construction workers have been militant in recent years, the long-term prospects for consolidating political and economic power are not good.

It is relatively easy for industrial workers to go on the offensive when the economy is booming and labor markets are tight — luxuries they are unlikely to enjoy moving forward. As leverage in the workplace diminishes and fewer migrant workers have land to return to in the countryside, the time is ripe for demands to extend social provisions and protect workers from the ravages of the market.