The new class struggle in China and why it threatens economic progress

PUBLISHED : Sunday, 13 March, 2011, 12:00am
UPDATED : Sunday, 13 March, 2011, 12:00am

The 'Chinese model' of capitalism is unsustainable because it gives too much power to the government and company bosses, creating dangerous imbalances in society, according to one of the country's best-known journalists.

Yang Jisheng worked for Xinhua from 1966 until 2001 and in 2008 published Tombstone, the most detailed and authoritative account of the Great Famine of 1959-61 yet. He is deputy editor of Yanhuang Chunqiu (Chronicles of History), which covers important and sensitive topics.

Cosmos Books of Hong Kong has just published a revised edition of Yang's Political Struggles in China's Reform Era, an analysis of the country's economy and social structure, with his own forecasts.

The revolutions in the Arab world have put China under the spotlight. Do conditions there exist for a similar upheaval on the mainland? Will the poor and marginalised overthrow a government that has ruled them for decades, as they have done in Tunisia and Egypt and will probably do in other countries?

The book provides some answers to these questions - but most experts believe that the nearly 10 per cent a year growth in gross domestic product since 1978 has provided wealth, opportunities and better living standards that have brought a level of popular support for the government that is lacking in Arab dictatorships.

Yang presents Chinese society as a narrow pyramid, divided into five classes. At the top sits an elite of 1.2 million people, accounting for 1.5 per cent of the working population. Below them is an upper middle class of about 25 million or 3.2 per cent, a middle class of 105 million or 13.3 per cent, a lower middle class of 540 million or 68 per cent and a low class of 110 million or 14 per cent.

'The cake has grown enormously but the division of the cake is very unreasonable,' he said. 'Between 1988 and 2007, the gap in income between the top 10 per cent and the bottom 10 per cent grew from 7.3 times to 23 times, with the difference between urban and rural incomes the highest in history.'

Last year China's Gini co-efficient reached 0.47. This is a measure of wealth distribution; a score of zero means everyone's wealth is equal, while a score of one means one person has all the wealth. China is more unequal than any developed country - egalitarian Sweden, for example, has a score of 0.23, while the United States, where the top 20 per cent owns more than 80 per cent of the nation's wealth, is 0.45.

This inequality is in part a result of the booming market economy, presenting opportunities which some have seized with both hands and others have missed; it is also a result of man-made factors, such as state monopolies or semi-monopolies in strategic sectors like railways, telecoms, power, energy, finance, insurance and petrochemicals, which deliver high incomes to those who work in them.

Yang includes four categories in the elite - senior government and Communist Party officials; those who manage government banks and other large state-owned companies; and heads of other big companies, state and private.

The upper middle class comprises six groups, including middle managers of these banks, state firms and foreign-invested companies; bosses of medium-sized private firms and the upper echelons of the intellectual and artistic classes. The middle class includes lawyers, university teachers, engineers, technicians, middle-ranking civil servants and managers, journalists and traders. The lower middle class are frontline production workers, migrant labourers and farmers, and the low class includes the unemployed and rural poor.

'The greatest beneficiaries of reform are those who hold power, their families and associates, while those who have received the least are workers and farmers,' Yang writes. 'But this latter group has paid a much greater price and faced more danger than the former. Those in power have used it to obtain resources to increase their social status and, in the name of reform, used all methods to obtain advancement. This has created the inequality in our society.'

So the political struggle is no longer only between conservatives and reformers but also between different classes fighting for their own interests, including the poor's struggle against the rich and powerful.

Yang cites the latest official figures of mass protests, more than 100,000 in 2008, compared to 8,700 in 1993 and 50,000 in 2000. More than 75 per cent involved workers and farmers fighting for their rights. Most concerned control of land and the level of wages and benefits in companies, including compensation for the millions laid off from state firms.

In one of them, in Menglian county in Yunnan province on July 19, 2008, hundreds of rubber farmers fought a pitched battle with armed police and staff of a rubber company. The clash left two villagers dead, 51 people wounded including 41 police officers, nine official vehicles destroyed and 102 police weapons lost or destroyed.

Yang said the story of the Tonghua Iron and Steel Group (TISC), in Jilin province at the opposite end of the country may represent China's future. Ten years ago, it was a typical state-run company, grossly overstaffed and with outdated equipment, big debt and dozens of subsidiary operations unrelated to steel. Something had to give.

In 2001, the provincial government laid off 1,500 workers, turned some of its debt into assets, sold them to an asset management company and separated it from some of its non-industrial units.

In March 2005, it carried out a more radical restructuring, laying off more than 15,000 workers, closing dozens of subsidiary units and setting aside 1.57 billion yuan (HK$1.86 billion) as compensation, of which 570 million yuan was supposed to be paid to laid-off workers. Directors, senior managers and party leaders received 99 million yuan in the form of shares in a newly constituted company, a stake of 2.57 per cent. But the workers complained that they did not receive all the money promised them and sent repeated petitions to the government.

The province tried to persuade domestic and foreign investors to put money into TISC, without success. Finally, at the end of 2005, it sold a stake of 36.19 per cent to Jianlong Group, a private firm, which sent Chen Guojun, a graduate of Tsinghua University, to be its general manager. But control remained in the hands of the old directors.

Over the next two years, it lost more than 1.35 billion yuan. Chen discovered that the purchasing department had been paying dozens of yuan per tonne over the market value for raw materials and the sale of scrap steel was done in collusion between factory staff and local criminals.

To remedy all this, Jianlong asked for majority control and threatened to sell its stake if it did not receive it. Management and workers were fiercely opposed and three deputy general managers resigned. When the province agreed to the plan, workers went on strike. On July 24, 2009, while at the factory to talk staff around, they beat Chen to death.

Last year, state-owned Capital Steel paid 2.5 billion yuan for a 78 per cent controlling stake in TISC and an employee was jailed for life for manslaughter. Five other suspects are being held.

Yang said: 'Many good reform projects are rejected because they affect these entrenched interests. Such rejections can rouse the anger of the workers, which is further inflamed by left-wing opinion and can cause mass protests. This ruling class has become an interest group, causing social injustice.'

It is imbalances like this that make the China model unsustainable and not worthy of export to other countries, Yang said. The most accurate critic of the capitalism being practised in China today was Karl Marx. 'Capitalism is rapacious and has no humanity,' Yang said. 'In the market economy of China since the 1990s, capital holds the dominant position and, without independent trade unions, labour cannot match it.

'In pursuit of the greatest return, capital will do anything necessary and harm the interests of those outside, polluting the air and destroying the environment.

'Capital buys public power and the media and uses its theories to take the place of political and moral principles.'

To create a sustainable model, China needs to find ways to balance the power of capital through developing gradually democratic and legal mechanisms.

'China has two possible futures. One is to let the current market economy controlled by the elite continue, which will take us down the route of Indonesia, the Philippines and South America,' Yang said.

'The other is to reform our political system and become a democratic country based on law. Which one we take will be decided by whether or not we undergo political reform.'

Growing inequality

The Gini co-efficient for the US, where the top 20 per cent of the population owns 80 per centof the nation's wealth, is 0.45. China's is: 0.47