Chinese Reforms Make Rich Even Richer

Minqi Li: Chinese Communist ‘Plenum’ meeting resulted in a promise for market reforms, including privatization and deregulation of public utility, energy and other state-owned companies.

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Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

In China, the Third Plenum of the 18th Central Committee of the Communist Party of China ended its meetings last week with some important decisions. Some of these decisions drove stock market prices around the world up. The investment community obviously was rather pleased with what was decided and announced.

Now joining us to talk about what took place is Minqi Li. Minqi is an associate professor of economics at the University of Utah. He’s the author of The Rise of China and the Demise of the Capitalist World Economy.

Thanks for joining us, Minqi.

MINQI LI, ASSOC. PROF. ECONOMICS, UNIVERSITY OF UTAH: Thank you, Paul.

JAY: So there was quite a few decisions made. I think it was something in the range of 60 decisions that were announced. But a few were rather big and important. So let’s start with what you think is the most important.

LI: Well, it appears that the overall message is that the Chinese Communist Party has decided the Chinese economy is going to move further in the direction of privatization, legalization, and deregulation. Maybe that’s what make the capitalist investors in the the world very happy.

And then one key sentence in the decision is that the Party is committed to have the market to play a decisive role in the resources allocation by 2020. So that suggests the Chinese government probably would move the economy further in the neoliberal direction.

JAY: So what are examples of this? I know one of the things that they talked about was they’re going to change the way interest rates are set, the way banks play a role. I mean, what is it now, and how’s it going to change?

LI: Well, it appears that the most important part of the transformation would have to do with the further privatization of the remaining state-owned enterprises. So the decision, part of decision has to do with the deregulation or liberalization of the public utility sector and the energy sector.

The Party has also decided that the private capital would be welcomed in the partial privatization of state-owned enterprises by making investment in sectors where the state has made investment.

And then there’s also the decision that the private capital is now allowed to set up small- or medium-sized banks.

And in the banking sector, actually, there has been lots of discussion about possible further liberalization of the interest rate in the future. But no detail is provided in the decision itself.

JAY: Now, the decisions that got a lot of publicity were the one child per family policy is going to be liberalized, if I understand it correctly. If you have two parents and they both came from one-child families, they’re now going to be able to have two. And this is a move in a direction of liberalizing this.

The other thing that made a lot of noise in the press was the issue of the closing down or restricting the use of labor camps for reeducation. I guess this is something that came out of the Cultural Revolution.

The–other sorts of things. They’re going to let farmers own their land and sell and trade it. Up until now, land has been owned by the state.

But in previous interviews, we’ve discussed something, and I want to get kind of at a kind of more underlying issue here, the issue of developing a stronger domestic market in China, being less reliant on being a cheap labor export economy. This all has to do with raising wages in China. If you reduce the role of the state and you have more and more free market, how is that going to lead to higher wages? Or is that not an objective here?

LI: That’s something I’m wondering now. And there is nothing in the decision that would suggest the Party cares very much about a possible income redistribution that is in the favor of labor. Instead, it appears most of the decisions are targeted towards raising the income for the capitalist. And so that would be against the possible macroeconomic and the social rebalancing of the Chinese economy.

JAY: By reducing the role of the state, and particularly in the banking sector, they seem to be going more and more to essentially and actually an American model of capitalism, which is not some great success here.

LI: Yes. And one of the surprising thing is that there’s no reflection of the failure of global neoliberalism in this Party decision at all.

And, of course, in one of the decision, it does say it’s going to raise the dividend payment by the state-owned enterprise to the government, which is supposed to be used for social welfare. But that is actually going to be quite insignificant. The overall Chinese economy right now is between 50 trillion to 60 trillion yuan. And then the total before-tax profits from the state-owned sector right now is only about 1 trillion yuan. So it’s only about 2 percent of China’s GDP. And then the state-owned enterprises already pay about one-third income tax on their profits. So if you just take about 30 percent from the after-tax profits, that may be just 0.5 percent of China’s overall GDP. So that’s not going to really increase the social welfare a lot.

JAY: Now, what are the implications of this on the global economy? I know the stock markets all went up because they all love the idea of, you know, liberalization and capital can go wherever it wants and more rights for private investors in China. But when you look at the Toronto G20 that took place a few years ago–and we’ve heard this in other places, but one of the things in the statement that came out of the Toronto G20 was urging China to raise demand. And they specifically talk about wages needing to go up in China, because if the world’s too dependent on America and Western Europe to be the main sources of consumer demand, when you get tailspins in these countries, then China suffers, but so do these countries suffer. And they–everybody wants the Chinese market to expand. And, of course, the Western guys love it if Chinese wages go up. They never talk about their own wages going up. But if this doesn’t get addressed and clearly they’re going in the opposite direction here, well, then what’s that mean in terms of the global economic crisis?

LI: Well, I’m worried that given China’s current economic structure, the mass consumption will continue to lag behind, especially if the waves do not catch up quickly. And so mass consumption will continue to lag behind. So that would mean the Chinese economy will continue to be excessively dependent on investment. So at a certain point in the future, then this kind of overinvestment model would be unsustainable. Of course, the environmental conditions will continue to deteriorate.

So if these trends continue, we could have a combination of economic, social, and environmental crises, say, ten years down the road.

JAY: Now, the Chinese recently announced that they think they’re going to actually surpass the United States in gross consumption in terms of the amount of dollars spent on consumer goods. What do you make of that? Have you heard that? And what do you make of that?

LI: Well, it depends on what kind of measure you use. If you use the purchasing power parity, then the overall size of the Chinese economy is going to exceed the U.S. in a few years. And if you take the measure of market exchange rate, it’s going to take a few more years.

But in any case, within the macroeconomic structure of the Chinese economy itself, it continue to depend on investment for about 50 percent of its overall growth.

JAY: Yeah. I mean, if the economy is growing and surpasses the United States. But if it’s still based on cheap labor, export of goods, it doesn’t change the fundamental problem.

LI: It will be unsustainable.

JAY: Alright. Thanks very much, Minqi.

LI: Thank you.

JAY: And thank you for joining us on The Real News Network.

End

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