October 2005: The New Economic World Order (Part II: China)

Amazingly rapid economic growth has made China “world’s workshop”
October 1, 2005

China’s economic ascent over the last two-and-a-half decades has been nothing short of astounding. It now has the fastest-growing large economy in the world, having increased by an amazing 9% a year since 1979, a historical record. As one U.S. newspaper put it, “The world has never seen a nation as big as China rise as far and as fast as China has in the last 20 years.”

China has replaced the United States as the largest consumer market in the world. It is also the third largest trading nation, as well as the global manufacturing centre. China makes two-thirds of the world’s DVD players, copiers, microwave ovens, and shoes, and is the leading producer of steel, cement, and coal. Chinese exports to the U.S. have increased 1600% since 1990, and last year China ran a whopping $162 billion trade surplus with Washington. Beijing has quadrupled the average Chinese income since 1979, lifting 300 million people out of poverty. At the present rate, China is doubling incomes and output every decade. In 2004, China received $60 billion in direct foreign investment, more than any other country, and has become the second largest importer of oil; it is also the second largest holder of U.S. dollars in the world ($600 billion) after Japan, and, through its purchase of American Treasury bills, is literally keeping the U.S. economy “afloat.” As the [UK] Financial Times states: “China’s influence in global commerce is no longer merely significant. It is crucial.”

In 1985, Shanghai had one skyscraper; today it has more than 300. As one Chinese investor said, “You blink in China and another building goes up.” Shenzhen, a small town 20 years ago, is now a major city with a population of 12 million and forms the centre of China’s main export zone located in Guangdong province. Dozens of cities have been created across China, “seemingly overnight.” According to Asia expert Chalmers Johnson, “China is actually already the second-largest economy on Earth [after the U.S.] measured on a purchasing power parity basis--that is, in terms of what China actually produces rather than prices and exchange rates.” Nor is China burdened with $7.7 trillion in debt as the U.S. is (Beijing’s reserves comfortably exceed its external debt). By 2025, China is expected to have a GDP of $25 trillion, which will make it the world’s largest economy.

Le Monde points out that China is not just the “workshop of the world,” making low-grade products. The country is “turning into a competitive, quality manufacturer in an increasing number of fields: textile, toys, steel, and shipbuilding, but also in electronic devices, and very soon in cars, aerospace, and furniture. Industrial growth is particularly strong in information technology, electronics, steel, and motor vehicles.” In addition, a China that invents and creates as opposed to only copying from the West is emerging. China has four times as many engineers as the U.S., and in five years will graduate more Ph.D.s than the U.S.

As Le Monde describes it: “Without any restrictions in number…the country is cranking out scientists, researchers, doctors, engineers. Universities are overflowing and laboratories opening everywhere. The scientific level has become so elevated that big international groups such as Saint-Gobain or Philips are opening research centres there. Tomorrow, these centres will be able to sustain comparison to Western laboratories without any embarrassment.”

China’s Global Order

China’s rise has displaced U.S. influence all over the world as Beijing creates an alternative international economic system without invading and occupying other countries or overthrowing their governments. The Chinese way is to make bilateral and multilateral trade deals with countries, buying their resources and giving them access to its market so that it becomes the global economic centre, its prosperity thus assuming vital importance for many other nations.

Li Junru, vice-president of the Central [Communist] Party School, explains: “The policy of heping jueqi (merging peacefully) means other nations need not fear. China's rise will not damage the interests of other Asian countries because, as China rises, it provides a huge market for its neighbours. At the same time, the achievements of China's development will allow it to support the progress of others in the region.”

Given this policy, it is not surprising that Asian economies are integrating with China at their centre. Most significantly, China and the Association of South East Asian Nations (ASEAN) are creating an Asian trade bloc to rival the European Union. The ASEAN-Plus-Three (China, Japan, South Korea) summit meeting in December 2004 laid the groundwork for an East Asian Community (EAC) that “should build a free trade area, cooperate on finance, and sign a security pact…that will transform East Asia into a cohesive economic block.” This is a significant defeat for the U.S., which scuttled a similar intiative in 1990. The Asian agreement creates a market zone of two billion people, the largest global trading bloc, “dwarfing the EU and NAFTA.”

India has also become an ASEAN summit partner and wants an economic zone stretching from itself to Japan. Asian countries’ overall exports to China shot up by 50% in 2003, and India’s by 80% in 2004. According to the conservative journal Foreign Affairs, Japan “has become the largest beneficiary of China's economic growth…thanks to China, Japan may finally be emerging from a decade of economic malaise.” Japan exports 14% of its production to China today, as opposed to 2% in 1990, and 18,000 Japanese companies have invested in China. In the last quarter of 2003, Japan's GDP increased 6.4%, the highest growth of any quarter since 1990.

As Robert W. Radtke explains in the Christian Science Monitor, “China's peaceful rise was introduced to Asia by Chinese President Hu Jintao on his tour of south-east Asia in October [2004]--on the heels of President Bush's visit to the region that month. The contrast in tone between the two leaders couldn't have been more striking. In short, China's message was, 'We're here to help,' while the U.S. message was, 'You're either with us or against us' in the war on terror. It's not hard to imagine which was the more effective diplomatic strategy.”

An important example of China’s “merging peacefully” policy has been its historic rapprochement with India. The two Asian giants make up more than one-third of the world’s population and represent the two economies with the biggest potential. The countries have been rivals since 1962, when they fought a brief border war over boundaries. On April 11, 2005, India and China announced a new “strategic partnership,” pledging to resolve border disputes by “peaceful and friendly consultations.” China gave up its claim to Sikkim province, and the two countries signed agreements on trade, technology transfers, and economic cooperation. These steps followed a summit between Chinese Premier Wen Jiabao and Indian Prime Minister Manmohan Singh in New Delhi. As Singh put it, “India and China can together reshape the world order.”

Russia is another former rival China is getting closer to. In October 2004, when Russian President Vladimir Putin visited China, both countries announced that their relations had attained “unparalleled heights.” The two countries held unprecedented joint military exercises in August 2005, and China is the leading buyer of Russian military equipment with $2 billion in such purchases in 2004. In the same year, overall trade between the two countries grew by one-third to $21.3 billion, and Chinese investments in Russia increased by 82%. Especially crucial for China are oil shipments from Russia, scheduled to reach 70 million barrels in 2005, a 50% increase.

China and Russia are also in the Shanghai Cooperation Organization (SCO), along with the Central Asian countries Uzbekistan, Tajikistan, Kazakhstan, and Kyrgyzstan. The SCO was set up at Beijing’s intiative, and through it China’s hopes to defeat what it considers U.S. moves to encircle it with military bases in Tajikistan, Kyrgyzstan, and Uzbekistan. Beijing also aims to ease access to the massive oil deposits of Central Asia, which are mainly in Kazakhstan. On July 30, Uzbekistan evicted the U.S. from the Karshi-Khanabad air base (known as K2), giving it six months to move planes and personnel. K2 is an important base for supplying U.S. operations in Afghanistan. In early July, the SCO asked the U.S. and NATO to set a deadline for leaving Central Asian military bases that they have been using since Washington’s 2001 invasion of Afghanistan. In May, China signed a $600-million joint oil venture with Uzbekistan, and has offered $4.18 billion for PetroKazakhstan (a Canadian company) which produces 12% of Kazakhstan’s oil. Recently, Beijing agreed to build a $2.5-billion pipeline to transport 20 million tons of oil a year from Kazakhstan to western China.

China and Russia have also moved to draw the line against U.S. imperialism in the Middle East by forming an alliance with Iran, Washington’s likely next target after Iraq. China has become the leading market for Iranian oil exports. In October 2004, Sinopec, one of China's state-owned oil companies, signed a $100 billion deal with Iran under which Beijing can import 250 million tons of liquefied natural gas (LNG) from Iran's largest oil field, Yadavaran, over a 25-year period. The enormous deal gives Sinopec a 51% stake in Yadavaran. China will also get 150,000 barrels of crude oil a day. The Chinese plan to invest an additional $100 billion in Iran’s energy sector in exploration, production, and drilling. China has sold Iran sophisticated surface-to-surface and anti-ship missiles, and, along with Russia, helped develop Tehran’s long-range ballistic missiles. The anti-ship missiles can be used in the Strait of Hormuz through which 40% of global oil exports are carried.

While the U.S. and the European Union threaten Iran over its nuclear energy program, China and Russia support it. Both countries have made clear that they will not back United Nations resolutions or sanctions against Iran for its nuclear program. China and Russia hold veto power in the UN Security Council. As Asia Times explains: “The endorsement of Tehran's nuclear energy program by Moscow and Beijing reveals the primary impetus behind the China-Iran-Russia axis: to counter U.S. unilateralism and global hegemonic intentions. For Beijing and Moscow, this means minimizing U.S. influence in Asia, Central Asia, and the Middle East…The China-Iran-Russia alliance can be considered as Beijing's and Moscow's counterpunch to Washington's global ambitions. From this perspective, Iran is integral to thwarting the Bush administration's foreign policy goals.”

Having displaced the U.S. all over Asia, China is now doing so in Washington’s “backyard,” Latin America. China is Chile’s largest export market and Brazil’s second biggest trading partner. In November 2004, Chinese President Hu Jintao toured Latin America and signed 39 commercial deals with five countries. With Brazil, he signed more than 12 export and investment accords. Brazil’s exports to China increased 81% in 2003 to $4.23 billion, and bilateral trade is worth $10 billion a year. President Hu declared that China’s partnership with Brazil symbolized “a new international political order that favours developing countries.”

In January 2005, Chinese Vice-President Zeng Qinghong also made an investment trip to Latin America. During the two high-level visits, China offered more than $50 billion in investment and credits to Latin American countries. Most importantly, China signed an energy agreement with Venezuela under which the latter pledged to provide 100,000 barrels of oil a day to China and 3 million metric tons of fuel oil a year. China agreed to invest $430 million in 15 Venezuelan oil-fields that it will be allowed to operate.

Venezuela is the U.S.’s fourth largest oil supplier, and so the deal with China cuts into one of Washington’s “few remaining relatively stable sources of crude.” The U.S. has twice tried to overthrow Venezuela’s left-wing President Chavez, causing him to warn Washington that he could cut off its oil supplies. For Chavez, the deal with China helps diversify Venezuela’s export base and reduce dependence on a hostile U.S., which currently buys two-thirds of Venezuela’s oil production. In contrast to U.S. hostility, China has offered Chavez a $700 million credit line for low-income housing, and will contribute to his social programs by building 10,000 houses on public land in Venezuela during 2006-7.

“But Beijing's real poke in Washington's mostly blind eye [in author Saul Landau’s words] came with the announcement that it would give credits to Cuba,” the U.S.’s arch-enemy. China has pledged large investment credits for Cuban nickel, and a Chinese oil company will start exploring for oil off Cuba’s coast. This undermines the U.S. policy of economically blockading Cuba and denying it even basic necessities.

China has also been actively courting the U.S.’s biggest oil supplier, Canada. In April 2005, two Chinese oil companies reached deals on the Alberta tar-sands, which contain the biggest oil deposits in the world outside of Saudi Arabia. China National Offshore Oil bought a $150 million share in MEG Energy, a tar-sands company, and PetroChina signed a memorandum of understanding with Enbridge for half the supply of the planned $2 billion Gateway pipeline, which will transport 400,000 barrels a day from Alberta to the Prince Rupert port in British Columbia. In total, there are about six China-Canada deals under consideration, worth $2 billion initially and “potentially much more.”

As Roland George, an analyst with Purvin & Gertz in Calgary, explains: “The Chinese have come to nearly every skyscraper in Calgary, and they ask very probing, intelligent questions. They are in this for the long haul.” According to Chinese oil executive Hou Hongbin, “Canada is a key link in China's attempts to diversify its oil supplies. The more sources of import, the more safe those supplies are. We are looking for profitable projects, which could include everything from minority stakes to full ownership of oil sands companies.”

Murray Smith, Alberta’s representative in Washington, points out that “The China outlet would change our dynamic. Our main link would still be with the U.S., but this would give us multiple markets and competition for a prized resource.” Smith foresees Canada exporting a million barrels of oil a day to China eventually, from potential exports of more than three million barrels a day. In 2004, Canada exported 2.12 million barrels of oil a day to the U.S., 99% of its oil exports.

The Bush administration is worried about China's oil deals in Canada. “I've had a number of calls from U.S. officials who assumed that the next three million barrels per day will go to the United States,” says Greg Stringham, vice-president of the Canadian Association of Petroleum Producers. “They ask me, 'What's going on? Should we be concerned?' And I tell them they shouldn't worry, but their concern is understandable.” As one Canadian newspaper editorialized in December 2004 before the Chinese deals went through: “Watch the Americans have a hissy-fit if a Chinese incursion materializes. So far, the Americans have taken Canada's energy for granted.”

The Other China

China’s meteoric economic rise has given Third World countries and “middle” powers like Canada a huge alternative market to that of the U.S., as well as a source of significant investment. These assets come free of the imperialism intrinsic to the U.S., to which Chinese power is also becoming a countervailing force. Especially for developing countries, Beijing’s emphasis on multipolarity in the context of “mutual trust, mutual benefit,” is a great improvement over Washington’s endless wars directed at them and its constant intervention in their affairs.

China’s advance, however, also has a serious negative side that rules it out as a model for Third World development. Bejing’s economic reforms have indeed lifted 300 million urban residents out of poverty, but this has been done at the cost of impoverishing 900 million peasants. China’s rural population, the main force of the Communist revolution, has gained almost nothing from the pro-capitalist reforms introduced in 1979; in fact, China’s rapid growth has been based on the hyper-exploitation of its peasants and workers. China’s industrial expansion has been heavily dependent on a massive flow of foreign investment into coastal cities, which has been attracted by the cheap labour driven there from outlying villages by the abysmal social conditions enforced by the Communist Party leadership.

These conditions are detailed in The Chinese Peasant Study, a book published in January 2004 by Chen Guidi and Wu Chuntao (who are husband and wife) and banned by Beijing three months later. More than seven million illegal copies of the book have been sold in China. The study took three years to complete, with the authors visiting 50 towns in rural Anhui province and speaking to thousands of peasants and many senior officials in Beijing. The book shows millions of peasants subsisting on two yuan a day (24 cents), denied proper medical care and education, and robbed by massive official corruption. The study’s description of one village is typical: “Farmers worked all year long to earn an average annual income of 700 yuan [about $87]. Many farmers lived in mud-clay houses that were dark, damp, small and shabby. Some even had tree-bark roofs because they couldn't afford tiles. Because of poverty, once someone fell ill, he either endured it if it was a minor disease, or else just waited to die. There were 620 households in the whole village, of whom 514, or 82.9%, were below the poverty line…The villagers were burdened with exorbitant taxes.”

The average annual income in rural Anhui is 2,100 yuan, compared to14,800 yuan ($1,790) in Shanghai (seven times as high), yet the farmer pays three times as much tax as an urban professional. Inequality in China is among the worst in the world. More than 40 million peasants have also been dispossessed of their land since 1995 by rural officials, who have then sold it to developers. Under the Maoist commune system which existed before 1979, medical care and education were provided free to villagers, and taxes were limited.

Chen belongs to the state-approved Association of Chinese Writers, and both authors are “moderate reformists who believe the party is reformable.” They detail the corruption of local officials, but believe that responsibility lies with the individuals named, not with Beijing. However, this corruption was fuelled in the 1990s by decentralization, which made municipalities rather than the national government responsible for collecting taxes and providing services. This reform freed corrupt local authorities to impose more and higher taxes and fees on farmers in order to enrich themselves. One local official accused of corruption in the book is Zhang Xide, a former county Communist Party secretary, who is said to have pocketed substantial taxes collected from farmers. He ran Linquang, officially an “impoverished county,” but was able to buy a Mercedes Benz 500, a luxury car that even senior officials are not bold enough to acquire. When Zhang left his position in 1996, 3,000 angry farmers stormed his former home. Zhang was promoted, not punished, by the Party and won a libel suit against the book’s authors, who have been ordered to pay heavy fines.

Driven out of their villages by poverty, 200 million migrant peasant workers (known as “mingong”) became the main component of the labour force in the cities, fuelling China’s remarkable export and construction drives. But here, too, the peasants are denied decent wages and health care and education benefits (the last two because they do not have urban residential status). The average industrial wage is only 64 cents an hour (compared to $1.88 in Mexico), and 60% of mingong have to work more than 10 hours a day. A quarter of the mingong have not even been paid by their employers; a shocking $13 billion remains owed to them. Independent labour unions are banned in China.

Unemployment is rising in the cities with the dismantling of China’s state industrial sector (stipulated by its entry into the World Trade Organization) and the increasing domination of industry by foreign firms which do not employ as many people. The restructuring of China’s state industries has eliminated millions of jobs and closed thousands of factories. The number of industrial workers fell by 15 million between 1995 and 2002. In the same period, the state sector’s share of industrial output dropped from 64% to 30%, while the foreign companies’ share increased to 34%. The foreign corporations’ share of exports rose from 17% in 1990 to 51% in 2001. The state still owns 190,000 companies, but President Hu Jintao has declared that all but 190 of these will eventually be sold. With their own residents now being unemployed, many cities are forcing the mingong to return to their rural birthplaces.

These conditions have sparked considerable worker and peasant resistance throughout China, with strikes and demonstrations multiplying. There were 74,000 mass protests in 2004, skyrocketing from 10,000 in 1995. More than three million people demonstrated in September alone. About 7,000 workers from the state-owned Tianwang Textile Factory in Xianyang occupied the plant in that month to protest the hand-over of the company to China Resources based in Hong Kong. The company fired all the workers and wanted new employees to accept lower wages. Area residents backed the occupation, and, when 1,000 police were sent to evict the occupying workers, they were repelled by thousands of people gathered outside the factory. In November, 100,000 farmers fought police in Hanyuan County (Sichuan province) over the loss of their land to a dam project and the paltry compensation offered by Beijing. The authorities had to impose martial law.

The Chinese government is concerned about the escalating social unrest and has responded by eliminating the 8.4% basic agricultural tax (which goes to Beijing) and offering a grain-planting subsidy. But the many other taxes collected by local officials remain, and any subsidy is offset by the entry of foreign grain into Chinese markets (required by the WTO), which is lowering local prices. Beijing has also adopted a new development strategy that looks to expansion of the domestic market as the engine of future growth, rather than exports. However, it is unclear how this will be accomplished since official economic policy remains focused on attracting foreign investment with cheap labour. To increase domestic consumption, wages would have to be raised, and the state is not ready to support such a pay increase.

In essence, the problem with the Chinese economic model is its capitalist nature. Capitalism has impoverished four out of five people on the planet by putting most of its wealth in the hands of a privileged minority. The same social and economic inequality is now rampant in China, whose leaders will not be able to resolve the worsening national social crisis as long as they maintain the capitalist economic system that is fomenting it. To assume true global economic leadership and set an example for other countries to follow, the Chinese government must first build an egalitarian society for its people instead of an oppressive cheap-labour haven for corporate exploiters.

(Asad Ismi has written extensively on global economic and political issues. This is the second in a series of articles about the New Economic World Order. The first, on the U.S. economy, was in our May 2005 issue. Future articles will examine the rising economic power of the European Union and India. For more of Asad Ismi’s reports and articles, visit www.asadismi.ws)