A China Tale

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I’ve just been interviewed for an SBS News piece on China (for non-Australian readers, SBS is Australia’s multicultural television station, and its news has a strong international focus).

Ordinarily I don’t comment on China, because I don’t know enough about their economy right now–except to deride the belief that was popular in Australia last year that our exports to China would insulate us from the global downturn. “Decoupling” they called it–China was supposed to have its own internal growth dynamic that would mean it would continue growing and buying our raw materials even as the OECD tanked. This theory–ironically spouted by the same people who once touted that the world is now globalised and everything affects (and benefits) everything else–is now rather less popular as China’s growth has slowed.

I expect the spruikers of that argument will query why I’m talking about China, when I normally disavow detailed knowledge of the country. So this post is to explain why I did the interview.

This SBS story isn’t about decoupling or China’s economic prospects, but about the possible political ramifications within China of the return to the countryside of all those workers who have recently lost their jobs. I have a perspective on that gained on a trip to China almost 30 years ago, when I organised the first ever conference between Chinese journalists and those of any other nation. Co-organised by the Australia-China Council and the All China Journalists Association, the conference spent four days reviewing the coverage of each country in the other’s press before we embarked on a 3 week tour of China.

This was after the fall of the “Gang of Four”, and while their trial was preceding in Beijing. It was also just after Democracy Wall had been converted into an advertising billboard–Deng’s capitalist transformation of China had begun. But there was no doubt that the Communist Party was still firmly in control–just the dominant faction at the top had changed.

Just before we departed for China, its statistical office released some very curious data: in the previous year, Chinese light industry output had risen by 17 percent, but heavy industry output had fallen by 7 percent.

This combination just didn’t make sense to the several economic journalists on the Australian delegation: how could heavy industry fall when light industry rose? Doesn’t one depend upon the other?

Our attempts to get to the bottom of this conundrum received the same answer everywhere we went–as indeed did every other question we asked. Without fail, the first answer to every question was:

“We followed the directives of the Central Committee of the Communist Party of China.”

We became adept at asking “Yes, but what did you actually do?”, which would then somtimes elucidate what lay behind whatever fabulous success of China’s economic reformation we were then witnessing.

In the case of this curious pair of numbers, the answer came when we met with the Mayor of Shanghai, and an offsider who was position was quite literally translated to us as “the Economic Boss of Shanghai”. After the obligatory above answer to our question, and our request for elaboration, he answered:

“Well, the Central Committee sent a directive to promote light industry”

One more “Yes, so what did you do?” evoked the answer:

“We stripped heavy industry factories and turned them into light industry.”

At last we could make sense of the data.

The answer threw into high relief some other mysteries we’d seen on the trip–such as a model village in Sichuan province where, nonetheless, almost all children below a certain age (about five) had what appeared to us to be signs of Kwashiorkor–protein deficiency. Yet the place was being shown to us as a model commune that was successfully making the transition to commercial agriculture.

I ultimately came to believe that China’s immense size, combined with its fearfully centralised political system, was a major factor in its internal politics.

The Communist Party itself had at that time about 35 million members–roughly one in thirty of the Chinese population. It was as if the entire country was being run by the Boy Scouts. Policies would originate in possibly detailed and nuanced debate at the Central Committee level (leavened with lots of purges, banishments to the countryside, and other fun activities). The winning faction’s position would then be channelled down the funnel of the Party’s enormous membership, until it hit the local level where it would be implemented.

Local officials might well be able to foresee what might come of any given policy, but the only defence against criticism for any problems that might later arise was your unswerving implementation of it:

“I followed the directives of the Central Committee of the Communist Party of China.”

All nuances were thus stripped from the policy itself to leave a bald slogan–like “Promote Grain!” or “Promote Legumes!”–which was carried out to the letter and beyond by local party officials. When the slogan was “Promote Grain!”, legume crops would be pulled out, and grain planted in their place.

Some time later, there would be a protein shortage, and peasants who had been quiescent under the Party’s iron rule (which itself was little different to the iron rule of the preceding Emperors) would rise in revolt as they looked on the faces of their deformed children.

Local Communist Party officials might well find themselves lynched–they would certainly feel like endangered species for a while–and the bad news about the policy’s unexpected side-effects would travel back up the Boy Scout line to the Central Committee. Political power would shift in favour of the legumes faction, which after a few selective banishments to the provinces and the like, would see the slogan go out “Promote Legumes!”.

Some time later, there would be a famine, and…

You get the picture. The flip-flops in policy for which China was then famous made some sense.

The last two decades of stupendous growth have given China a degree of political stability that make the Tiananmen Square protests of 1989 a distant memory. But in some ways, the same dynamic is still there; it’s just that the new slogan to which unswerving fealty has been given is that of growth and globalisation.

That was, and possibly will still be, a successful policy in the long run. But its current serious decline is sending probably millions of once-were-peasants back from their coastal manufacturing jobs to the countryside, where they are likely to be unemployed and seriously disaffected.

If they emulate their parents, they may well rise up against the local Party officials; the demure acquiescence to Party authority will go out the window when the Party’s policy fails them.

When it does, there will be a political shift in China at the top as well–not necessarily an overthrow of the Western, development orientation, but certainly a strengthening of those who believe, for example, that the provinces should be developed rather than throwing all the resources at the coastal manufacturing cities.

This potential for political turmoil in the provinces, and ultimately at the Central Committee level, was the topic for SBS’s story. It should air tonight on SBS News (Wednesday January 28th at 6.30pm Sydney time).

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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76 Responses to A China Tale

  1. Frank says:

    http://news.bbc.co.uk/2/hi/business/7885111.stm

    Oh look – China to plunder Oz mineral wealth. Suprise surprise.

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