Recession in China
N THE REPORTS on the national economic plan and government budget by the Chinese State Department in March 1990, the economic situation was described as "relatively good", even though they also mentioned briefly that there were still some difficulties. However, the real situation, especially since the second half of the year, is much more serious than the picture painted, and can even be described as crisis-ridden.
The causes of this situation clearly include the impact of the 1989 democracy movement, but the deeper reasons lie within the ten years of economic reforms and with the rule of the bureaucracy. The effects of the economic crisis on the society and the lives of the people are now even more serious, and are directly threatening the rule of the Chinese Communist Party (CCP) regime.
The way the CCP regime has guarded Tiananmen Square since April this year reflects its feeling of sitting on a volcano that can burst at any time.
The official reports said that the Gross National Product in 1989 was 1567.7 billion yuan (Renminbi), a growth of 3.9% over 1988, while the National Income, Gross Agricultural Product and Gross Industrial Product grew by 3.7%, 3.3%, and 8.3% respectively; the foreign trade deficit has decreased, the foreign currency reserve has increased by $2.2 billion; the economic rectification process was said to have achieved results; fixed capital investments have decreased, the rise in prices was less than in 1988, and social consumption demands were under effective control.
Regime boosted by good grain harvest
Presumably, the result that the CCP regime is most happy about is the good grain harvest, the gross amount being slightly above the historic peak in 1984, even though the per capita grain production is still lower than 1984 because of population growth. Moreover, production of vegetables, fruits, meats and aquatic products has increased. However, the downward trend in the production of cotton, oil seeds and sugar products has not been reversed.
To deal with the so-called overheated economy, the CCP has continued the rectification policy started in the fourth quarter of 1988, and achieved some apparent results. The industrial growth rate that has been too high for several years has begun to come down, from 20.7% in 1988 to 8.3% in 1989. The severely unbalanced industrial production structure has improved slightly; the production of energy, important raw materials, electricity
ONE YEAR after the Tiananmen Square massacre, the crisis of the
Chinese economy, a key detonator of the pro-democracy revolt, remains profound. The article published below analyzes the economic problems underlying the continuing instability of the
Beijing regime. It first appeared in the March/April
1990 edition of October
Review, a revolutionary Marxist journal published in
Hong Kong.
### YANG HAI and transportation of goods has increased by between 3% and 7.2%, although still lower than the average industrial growth rate. The value of completed fixed capital investments has fallen by 11% compared to 1988, although this is still less than the reduction requested by the plan. Nonproductive construction investments have also decreased, and the construction of luxury houses and apartments has been restrained. Prices still rose very sharply in the first half of 1989, but slowed off in the second half; the annual inflation rate was still a high 17.8%, only slightly lower than the 22.2% in 1988.
At the same time as the so-called overheated economy cools off, problems that have accumulated over the years have broken out, accompanied by the impact of the 1989 democracy movement, causing severe and contradictory economic difficulties. While huge demand still exists, the market has gone very weak, industrial production has decreased and economic efficiency has dropped massively.
Starting from May 1989, consumer spending has fallen, and sales figures
THI
have continuously dropped; since August, the growth rate has become negative. The total social goods retail sales volume has actually decreased by 7.6% compared to 1988, after taking inflation into account. The weak market situation has continued into the first quarter of this year. As a result of this, unsold goods have begun to massively accumulate, resulting in a huge increase in industrial and commercial
CHINA stocks of over 100 billion yuan in 1989. Industrial and commercial enterprises have thus experienced problems in circulation funds, and there is a severe problem of debts between various enterprises. Industrial production has also started to slow down since May 1989, and in October had dropped by 2.1% compared to October 1988. Starting in May, light industrial production began to fall, and since September, has repeatedly been lower than the production for the same months in 1988. The drop in demand for productive goods from light industry, together with the squeeze in fixed capital investments and other factors, has begun to affect heavy industrial production; starting in September, heavy industrial production has decreased in individual months, although the scale of decrease has not been as severe as in light industry.
CCP tries to arrest fall in Industrial production
In order to turn around the fall in industrial production, the CCP has released massive loans in the fourth quarter of 1989 to the amount of 120 billion yuan, twice the total for the previous three quarters. But it could only barely arrest the falling trend. In January and February this year, industrial production dropped again by 0.9%, with the daily production for February dropping by 6.5% compared to January and by 5.7% compared to February of last year. Therefore, the CCP has resorted to relaxing the "buying power of social groups" and other methods so as to stimulate production, especially light industrial production; as a result, industrial production in March increased by 1.4% compared to March 1989.
There are many reasons for the sluggish market and the fall in industrial production and economic efficiency. The 1989 democracy movement and the June 4 massacre have in several ways accelerated and aggravated the outbreak of these problems. The 1989 democracy movement has shaken the entire CCP bureaucracy. The people generally feel extremely dissatisfied with the speculation, corruption and grandiose consumption by bureaucrats, forcing the CCP leadership to order the bureaucrats, big and small, to reduce somewhat their conspicuous consumption, control the so-called buying power of local "social" [bureaucratic] groups, and restrain the construction of luxury houses. Since June 1989, retail sales to "social groups" dropped, especially in August, September and October. However, the sales amount for the year still totalled 69.3 billion yuan, an increase of 4.2% over 1 25 1989 (a decrease of about 11% after June 18, 1990 • #187 International Viewpoint
CHINA accounting for inflation), still very much higher than requested by the CCP leader-
Furthermore, the CCP has intensified the crackdown on bureaucratic speculation companies after June, closing down over 70,000 companies, about a quarter of the total. It has also increased taxes or monopolized the sale of some speculated goods, restraining to a certain extent the speculation, and the income and consumption resulting from it.
On the other hand, the CCP has intensified its control and tax collection on individual businesses and the overhauling of rural enterprises. Under the pressure of tightening up, many people, especially those who have enriched themselves during ten years of reforms, have reduced consumption, especially luxury consump-
Under the influence of several factors, the sale of high grade consumer goods has dropped severely, especially cars, color TVs and refrigerators; the production of these three products in the first quarter of this year has consequently dropped by 34%, 32% and 49% respectively, compared to the first quarter of 1989.
As for the general masses, several factors affect their consumption power or propensity to consume. It was apparent that after June 4, the morale of citizens suffered a heavy blow, and their consumption was reduced. Since 1988, the introduction by the banks of inflation-linked savings has absorbed some of the consumption power. Under the austerity measures of the CCP, the wages and bonuses of workers have been restrained; the reduction or even stoppages in production in factories, as well as the forced subscription to state bonds by the workers because of the financial difficulties of the government, have also seriously affected the income of workers.
Passive resistance in factories
What is more difficult to estimate, is the effect of the passive resistance in the factories by the people, especially the workers in big cities like Beijing, to the CCP regime after the blow of June 4. In the official figures for 1989, the overall labour productivity in industry only increased by 1.6% over 1988, compared to a growth of 9.3% in 1988, while the overall labour productivity in construction has actually dropped by 1.5%, compared to a rise of 1.8% in 1988. Together with the massive increase in enterprise losses and the fall in economic efficiency, these figures might reveal, besides falling or stopped production and other factors, the effect of a further drop in work enthu-
26 siasm of workers.
Under the impact of June 4, income International Viewpoint #187 • June 18, 1990 from tourism has dropped significantly, official figures indicate a decrease of $410 million compared to 1988, or a drop of 19.6%. However, compared to a projected continuation of the 20% growth in 1988, the loss in income would amount to
Moreover, foreign government bank loans to China have virtually stopped since June 4 and sanctions only began to be relaxed at the beginning of this year. Figures from the state budget report indicate that "income" from foreign loans last year fell short of budget by 3 billion yuan, a drop of 18.3%, but figures released by the Foreign Economic and Trade Ministry revealed a much more serious effect; total agreed loans last year were $4.8 billion, a drop of over 50% from 1988, and actually used loans were $5.9 billion, a drop of nearly 10%.
In view of the instability of the rule of the CCP regime, most foreign capitalists have taken a hesitant attitude towards expanding investments in China. Official figures show that "actual foreign business investments" have only grown by 4.1% in 1989. As a close comparison, the "actual amount of foreign investments used" in 1988 grew by 16.4% over 1987. Had there not been a massive increase in investments in China from Taiwan capitalists looking for opportunities to invest outside of Taiwan, the situation would
A deeper cause of the weak market and fall in production lies in the change in industrial structure as a result of ten years
In recent years, all over China, many production lines for high grade consumer products have been imported and are producing on a massive scale cars, color TVs, refrigerators, high grade drinks and so on, to supply the consumption of bureaucrats and those who have enriched themselves during the reforms. Now a serious excess has appeared in productive capacity for these products. For example, it was reported that total productive capacity for color TVs in China is now 16 million sets per year. Last year 7.89 million sets were produced and 7.03 million sets sold; this year the plan is to produce 6 million sets, that is, at only 37.5% of total productive capacity. The distorted development of consumer goods production has become a heavy burden for the economy.
Moreover, the CCP central government has for years practised a policy of granting power and the right to profits to the provinces and enterprises. To promote regionalism and to satisfy the huge demand for light industrial consumer goods neglected for decades, regional bureaucracies have blindly developed light industry, resulting in excess productive capacity and low efficiency.
Neglect of larger scale Industry
At the same time, traditional large scale light industry and heavy industry have been neglected; machinery and technology have become worn out and obsolete, production efficiency has dropped. Basic production infrastructure has also become seriously unbalanced; the production of raw material and energy, transport and road facilities and so on, are seriously inadequate. This is the situation behind the so-called overheated economy. It also reveals that the apparent boom brought about by ten years of economic reform is actually financed to a very large extent by massive internal and foreign loans, with distorted development fostered by the high grade consumption of the bureaucrats and the nouveau riche, and whose effects and influence are clearly shown now.
In reality, the basic needs of the people are far from being satisfied. At the same time as the market becomes weaker and some stocks increase massively, people's savings in urban and rural areas have increased by 35%, reaching 513.5 billion yuan, the equivalent of three quarters of the annual social consumer goods retail
Ten years of economic reforms have also made the Chinese economy, especially in the coastal provinces and the processing industry, rather dependent on the capitalist world market. At the current regulated foreign exchange rate of about $1 to 6 yuan (not just the exchange rate of 4.73), the total import and export trade amounts to an equivalent of over 40% of the Gross National Product. Last year's restriction of imports has not only affected domestic production but also restricted the capacity to increase exports; the slowing down in the US economy in the second half of last year has undoubtedly also had an effect on the slowing down of Chinese exports.
All these transformations were not made overnight, nor can they be changed easily.
Czechoslovak left honours Tiananmen victims
ON JUNE 3, 1990, some 3,000 demonstrators gathered in Prague's Old
Town Square, responding to a call from anarchist groups and Left Alternative to commemorate the anniversary of the Tiananmen massacre. The marchers went to the Chinese embassy where they vainly asked to be allowed to hand
And the entire process of change has resulted in heavy internal and external debt burdens. A great mass of workers and rural labourers have come to depend on the new economic structure for their living, and any adjustments or economic cri-
CHINA in a statement of protest about the massacre.
significant
SIS will have very
A speaker from Left Alternative, Vratislav Votava, had this to say to the demconsequences.
The weak market and the fall in industri-
"We are today commemorating the anniversary of what happened last year al production and economic efficiency, in Beijing's Tiananmen Square. This was a demonstration of the brutal and combined with the changes after ten years violent methods used by totalitarian regimes against their own peoples. It is of economic reforms, have caused necessary to go beyond partial measures which liberalize these tyrannies extremely severe pressure on the finances without destroying the bureaucratic structures that form the backbones of of the Chinese government, especially on these regimes. After the years of the terrible Stalino-Maoist dictatorship, a parthe central government. Not only was the tial liberalization took place in China, described at the time as the four moderngovernment unable to get more income izations of opening to the world. This means that there was both an internal from tax and profits from the enterprises, and external liberalization; but this liberalization was unsatisfactory and everyit had to greatly increase its subsidies to one knew that retrogression to the old order was always possible.
cover enterprise losses to 60 billion yuan
When last year intellectuals, students and workers confronted Deng Xiaoplast year. Together with 37 billion yuan of ing's gerontocracy, a type of insurrection took place. The Chinese governprice subsidies, they use up one third of ment intervened, using the methods proper to Stalinist-Communist totalitarian the government's financial income. Moreover, the military and special administra-
From the point of view of Left Alternative-Movement for Independent and
Self-Managing Socialism, the Chinese regime has nothing in common with a democracy movement, along with the socialist or Marxist regime, even with a "Chinese Marxism", as the Chinese reduced income because of foreign sancleaders tried to pretend. What you have there is Chinese Stalinism.
tions, have altogether caused the govern-
We have assembled here to remember, but also to make sure that the old ment deficit to reach 37 billion yuan (not bureaucratic structures that sustained the old regime here do not survive after counting the money raised from debts as the elections. These structures must be dismantled to prevent any return to
"income" as the CCP used to do) which the past. We are on the side of the Chinese students and workers, on the side amounts to over 10% of government of the Paris Commune and democracy."
income and an increase of 8.2% from
1988.
Government debts soar
The huge increase in the deficit and the halting of foreign loans have forced the
CCP to raise internal debts by every means, resulting in an increase of 26.2% above budget in 1989. Total government internal debts have now reached 80 billion yuan, excluding the debts raised by banks and enterprises. The official foreign debt is over $40 billion, which does not include the reported $70 billion foreign loans made by companies and enterprises and guaranteed by the Chinese government.
This year, the financial situation of the government is even more gloomy.
Besides the economic difficulties affecting income and expenditure, military and administrative expenditure have to be maintained at a high level, and China has entered into the peak period for repayment of internal debts this year. Reportedly, the government has to repay 26 billion yuan of loan and interest this year, but the government budget intends only to repay 12.4 billion yuan of state bonds sold to individuals, while postponing the repayment of bonds sold to enterprises, units and banks.
Even so, the government budget deficit for 1990 is 42.3 billion yuan, 14.5% more than the 1989 high.
This year, the government will also have to massively borrow to repay old loans.
The budgeted new internal loans will be
17 billion yuan, 21.3% more than the
What makes the CCP central government feel powerless is also the fact that its control over financial income and material resources has been greatly reduced during the ten years of reforms. Income from the central government is now less than half of the total state financial income, while all local difficulties end up as problems for the central government
Over the last year the fall in production, the government financial crisis and other affected the lives of the broad masses.
Because many factories have reduced or even stopped production, the incomes of many urban workers have been reduced significantly; workers in factories that have stopped production receive only 70% of their wage, not to mention any bonuses. The situation in rural industries and individual businesses is even worse. It can be calculated from official figures that the real income of the urban masses has dropped by 4.7% on average, while the real income of the average peasant has dropped by 8.3%. Total sales of consumer goods have dropped in real terms by 9.4%, falling back to the level of
The government financial crisis has also hit the standard of living of the broad masses. On the one hand, the government has to raise more loans from the people, even using forced subscription to state bonds; on the other hand, price subsidies of many important daily necessities such as meat, cotton wadding, soap oil, coal for civilian use and so on, have begun to be reduced or even removed, adding hardship to people already living on a reduced income.
of unemployment has become more serious, causing great concern within the CCP regime, would seriously threaten social stability and the rule of the bureaucracy.
The number of unemployed and partially unemployed urban citizens has grown significantly. In February this year, some Chinese newspapers estimated that about 6% of state enterprises have stopped or partially stopped production, affecting over 4 million workers already; in the coastal provinces it is worse, with the ratio reaching over 10% in some provinces. Other reports talked about 80% of enterprises in Guangdong province as not having enough work and an unemployment rate of over 10%. Official estimates say this year's "waiting-for-employment" rate in urban areas will grow from 2% to 4-5%, that is, from over 3 million to 6-7 million people or more.
Rural labourers return to countryside
Because of a serious drop in urban employment opportunities, especially because the construction industry has been under serious pressure, many rural labourers have returned to the countryside or moved around throughout the country, forming "blind flows". Moreover, about 15% of rural enterprises have gone bankrupt or merged, and of the 95 million rural labourers employed by them, over 3 milrural and urban individual businesses have 27 rural and urban individual businesses have June 18, 1990 • #187 International Viewpoint
CHINA
CHINA
THEORIAND@SENTINE SUME also closed, reducing 3.6 million jobs out of 20 million. Rural unemployment is thus especially serious. In Sichuan province with a population of 100 million, 15 million are reportedly "waiting for employment", and several other provinces are in a similar situation.
The 1989 democracy movement and the June 4 massacre have enabled the people to see clearly the true face of the CCP bureaucracy, thus laying a more solid foundation for the next wave of the democratic movement. The crisis brought about by ten years of reforms has deepened the difficulties of CCP rule and forced it to shift the cost of the crisis onto the workers and peasants, causing even greater pressure on people's living standards. The struggle of the people for democracy and the struggle to defend their living standards have become the two main motive forces for the overthrow of the rule of the CCP bureaucracy. Since June 4 relations between the people and the bureaucracy and the army have been very tense. News of people passively resisting the bureaucracy is frequently reported, for example, the boycotting of the CCP campaign to investigate participants in the democracy movement, Beijing citizens refusing to buy "patriotic cabbages" last winter, and so on. The success of Chai Ling and other democracy movement activists in hiding all over China for ten months, receiving broad protection from the people, and finally arriving safely in France and the USA, shows clearly the general attitude of the people. News about underground organizations that include, students, workers, intellectuals, party members and soldiers is also often reported.
Moreover, news of soldiers and their families being insulted, attacked or even 28 killed is often heard; the army even complains to the government about these International Viewpoint #187 • June 18, 1990 attacks and has requested the government to step up security.
The fear of the CCP bureaucracy about the sharpening crisis, the bitterness of the people and the unstable situation can be clearly shown by all the nervous measures to guard Tiananmen Square and Beijing, Guangdong and other big cities since April this year. Various signs also indicate that there are many internal conflicts inside the bureaucracy; the Party rectification campaign fizzled out, no common position or final judgement on the question of [demoted "liberal" Communist Party leader] Zhao Ziyang has emerged, and so on. In the intensified economic and social crises, the conflicts between central and regional bureaucracies, especially those in the coastal provinces and special economic zones, will only become more serious
There are also signs of instability inside the army, to the extent that the Party bureaucracy has had to appeal many times in the newspapers for increasing discipline in the army, for maintaining unity, for the Party to direct the army, and so on. National question breaks out again
On the other hand, the national question has broken out on a larger scale. Demonstrations and bloody repression broke out in Xinjiang on April 5 this year, Xizang (Tibet) can still explode at . any time, and there are also signs of instability in Inner Mongolia. Besides the Han chauvinism of the CCP bureaucratic rule leading to national oppression and hard conditions for the national minorities, the situation there could also be a result of the encouragement from democratic and national movements in Eastern Europe, the Soviet Union and Mongolia. The national question may even be the trigger for the entire Chinese people to rise up against the rule of the bureaucracy.
Another serious potential threat to the Chinese economy and CCP rule is the probability of recession or even depres sion in the world capitalist economy. Because of the degree of dependence of the Chinese economy on the world capitalist market today, a world-wide recession would seriously affect production inside China, especially the processing industries, and employment and entire societies in coastal provinces would be most affected.
The CCP regime is already forced into a corner by economic, social and political crises. Facing the fall in industrial production and its consequences, the CCP has even had to resort to encouraging "consumption of social groups", using feasts and grandiose consumption to stimulate demand, thus risking the danger of deepening the hatred by the people of the bureaucracy. The CCP certainly knows the danger and therefore constantly increases its work inside the army, because the army is now the only pillar left for the bureaucracy.
Last year's good grain harvest is indeed the only consolation for the CCP. With its control and influence in the countryside greatly weakened by ten years of reforms, the CCP can only continue to look to the sky this year, praying that at least the ques tion of food can be solved. Thus, the CCP central government has "greatly" increased its basic investment in agriculture by 30%, an increase that turns out to be only 1 billion yuan, as compared to 69.3 billion yuan of "social group consumption" in 1989! The contradiction, crisis and instability of the CCP regime are certainly revealed by this trifle. *