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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