The Telegraph
Since 1st March, 1999
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- The purpose behind the current Indian admiration for China

Even before Hu Jintao’s visit to these shores, we had got used to the constant extolling of China’s economic performance. There is method and purpose behind such admiring accounts. Rarely, if ever, is the long view taken, as Amartya Sen repeatedly insisted that it should. From 1949 to the first stage of reforms in 1978, whatever the horrors of China’s undemocratic political system, its command economy carried out a more fundamental land redistribution programme than in India on 20 per cent less arable land, provided a basic minimum of food, shelter, clothing, employment, more-or-less complete public-health coverage, primary and secondary education for all children and social security for the elderly.

This silence about China’s 1949-78 economic and social experience is demanded by the purposes which the contemporary admiration of China’s post-1978 performance is meant to serve. One can discern three main purposes. First, it is necessary to egg India on to try to match, even surpass China. Only then will India achieve its ‘rightful’ place as a ‘great power’. This is psychologically of great importance to an Indian elite that identifies its own sense of self-worth with that of the Indian State. The goal is greatness via ‘strength’. Poverty eradication is therefore necessary because its continuing existence would be an embarrassment, a public refutation of ‘greatness’. This stated commitment does not betoken the emergence of a more humane, kinder, more moral and sensitive Indian elite — far from it.

Second, highlighting China’s economic success serves the purpose of affirming the supposedly general and enduring virtues of neoliberal economic policies, thereby justifying India’s acceleration on a neoliberal path of reform with further privatization and commodification of ever-more spheres of human activity and existence, ever-freer capital flows, ‘labour market flexibility’ (shorthand for promoting greater job insecurity), de-unionization and more contract work, less regulations about maintaining proper work and environmental conditions, a longer working week, and so on.

China has embarked (as has western Europe and Japan) on a neoliberal trajectory. But because the starting points and the socio-economic character of western Europe and east Asia (Japan, China, South Korea and Taiwan) were so different from that of Britain and the United States of America, the impact of neoliberalism on these societies remains very different. The role of the State in western Europe and Japan, for example, with respect to macro-economic management, distributive arrangements and provision of welfare remain very different and generally superior to the American model. Since, in India, the American theoretical model of neoliberalism dominates discourse, there is invariably a misreading of the lessons that the Chinese experience are meant to provide.

Third, India is one of the few countries where there continues to exist a politically significant left able to influence national policies. The left’s main bastions are more social-democratic than radical, but in these right-wing times this is bad enough. China’s openness to foreign direct investment and its anti-democratic restrictions on labour are a stick with which to beat the ‘pro-China’ Indian left for not learning from its ‘hero’. But at other times, its ‘pro-China leanings’ can be highlighted to attack its ‘inadequately nationalist’ credentials. A more sober balance-sheet of the Chinese economic performance over the last decades is therefore always of some value.

The first wave of reforms began in 1978 and started in agriculture. The commune system was dismantled through the establishment of the ‘household responsibility system’, allowing long-term land leases and freedom to market surpluses greater than State-demanded quotas of produce. The town and village enterprises were also created out of assets held by the communes.The TVEs became centres of entrepreneurship, producing inputs for State-owned enterprises and markets for the outputs of SOEs and other TVEs. Credit finance for TVEs, SOEs and the growing private sector was provided by the state banking system. Between 1978 and 1984, rural incomes grew by an astonishing 14 per cent per annum.

In the late Eighties and Nineties, market mechanisms expanded to cover more and more areas of production in town and country, foreign capital came in massively in the Nineties, while ‘labour market flexibility’ increased dramatically with urban dwellers being favoured with ‘residency permits’ assuring them of certain welfare benefits. Those without such permits became part of an ever-growing pool of internal mass migrants, now numbering over 100 million and estimated to reach 300 million by 2020. Rural incomes, since the beginning of the Nineties, have stagnated with remittances from the towns having become crucial for the survival of much of the rural population, and the income disparity between town and country now being one of the worst in the world.

In the early Nineties, it was the TVEs that provided the real dynamism of the Chinese economy, employing 128 million people by 1995. They set the model, producing light manufactures for export. In contrast, the SOEs fell into debt, were bailed out by non-performing loans from the state banking system and from 1993, large and medium SOEs were being turned into limited-liability or shareholding companies. SOEs that had accounted for 40 per cent of total manufacturing employment in 1990 accounted for only 14 per cent of such employment in 2002. Now TVEs and SOEs are open up to full foreign ownership. By the early Nineties, more than two-thirds of FDI was being brought in by the Chinese who lived overseas. By the end of the millennium, the ‘efficiency’ of market competition, far from generating massive employment opportunities, created huge labour surpluses, not least through waves of bankruptcies in the TVEs and SOEs.

The way the Chinese government has sought to deal with this social and economic time-bomb is through debt-financed mega-infrastructural projects — huge dams, subway and railroad networks, a highway system that in 20 years will exceed that of the US, and frenetic real-estate and construction activities in urban China. Since all this is debt-financed (Keynesian style), there will be an acute fiscal crisis if the investments do not pay off. None of this would even have been possible without a massive expansion of its financial system (doubling of bank branches to over 140,000 in less than a decade) and capital and exchange rate controls.

China’s growth pattern is much more heavily reliant on FDI than that of South Korea, Taiwan or Japan (the least reliant, of all advanced economies, on FDI). Inter-regional trade (despite massive investments in communication systems) is underdeveloped, with the Guandong province trading much more externally than within China. China now relies on taking in 30 per cent of the world’s coal production, 36 per cent of the steel production, 55 per cent of the cement production, and is the second largest oil importer after the US. Besides such external dependence, China faces increasing over-accumulation of fixed capital and ever-growing over-capacities in sectors like electronics and autos, as well as a boom-bust cycle in urban development.

If it has coped so far, it is because of a system of macro-economic management that is still Keynesian, provided by China’s strategic control over capital flows and exchange rates. But Chinese integration into the world economy via the World Trade Organization, though still able to benefit from the allowed transition period of adjustment, means it will eventually become impossible to pursue such counter-cyclical measures. Its banking system is gravely threatened by having half of its loan portfolio non-performing. Only its huge trade surpluses protect it financially. The other side of the US’s dependence on Japanese and Chinese lending is the Chinese dependence on the US’s fiscal and monetary policies. China is now one of the most unequal and labour-repressive societies in the world, with one of the most rapidly deteriorating public health and ecological situations.

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