China's tryst with globalisation - I

By Muchkund Dubey

CHINA IS actively and systematically preparing for becoming a dominant player in the globalisation process. For this, it has embarked upon far-reaching economic reforms and restructuring even at the cost of instability in the short and medium run. Some of the policy measures adopted or contemplated by China would result in the disappearance of incompetitive and outmoded economic structures. Among these measures is the unprecedented opening up of the economy to foreign investors and suppliers of goods and services. China's resolve to face globalisation headlong derives from its confidence in the strength of its economy.

The first and the second generations of reform starting in 1978 and 1993 respectively relied essentially upon decentralisation of decision- making, a greater role market forces and export-led growth. In agriculture, the collective farms were virtually dismantled by leasing out land for private cultivation. The introduction of dual exchange rates and dual pricing systems helped in restoring the role of market forces. An attempt was made to make the banking system, rather than the Government budget, the main source of funds for economic activities.

These policies resulted in a dramatic improvement in China's economic performance. The two decades after the reforms saw a quadrupling of China's GDP and a three-fold increase in per capita income. Production of foodgrains increased from 304 million tonnes in 1978 to 495 million tonnes in 1998. The number of people living below the poverty line declined from 300 million to 30 million; in percentage terms the decline was from 31 per cent to 7 per cent.

The really poor are now confined to the rural areas in the north and the west. Foreign trade increased from $20 billion in 1980 to $400 billion in 1999. It was as high as 36 per cent of the GDP in 1994. The trade surplus was $43.4 billion in 1998 and foreign exchange reserves were $154.7 billion in 1999. There has been a massive build-up of infrastructure, mainly in the South and the East. By 1993, investment in infrastructure went up to 6.5 per cent of the GDP. The actual investment in the 8th Plan was $170 billion and a sum of $303 billion was earmarked in the 9th Plan. The Government financed most of the expenditure on infrastructure. Foreign aid, loans and investment for infrastructure building in China was only 7.3 per cent in 1994.

Notwithstanding these achievements, the possibilities of the first two generations of reforms seem to have been exhausted. This is reflected in the slowdown in the rate of growth of exports and the relative sluggishness of the economy during the last two years. There has been an accentuation of both regional and per capita income disparities. While the southern and the Eastern regions have progressed by leaps and bound, the northern and the western regions remain undeveloped. Individual income gaps in the urban areas have sharply increased mainly because of the inevitable social cost of transition to the market system. The reform has produced a group of newly-rich who have become affluent by illegal means. Abject urban poverty was almost non- existent in China before 1978, thanks to the social security ``irons'' of the socialist system. Today, the poor stratum in the urban areas is really marginalised.

While on the one hand reform have created millions of jobs in the sunrise industries, on the other hand it has aggravated the problem of unemployment in the traditional sectors. The official unemployment figure for China was only 3.1 per cent in 1997. However, urban unemployment has shot up recently as workers laid off from the state-owned enterprises are increasingly unable to find alternative jobs. Disguised unemployment in these enterprises is said to be 30 million or 25 per cent of the workforce. It is one-third of the total workforce or 300 million in the rural sector. If these figures are added up, the unemployment rate in China could be as high as 27 per cent.

Among other problems are the slow progress of reforms in the financial sector, the resistance of the state-owned enterprises to reform measures and structural problems in the agricultural sector. China's answer to these problems is more and deeper reform and greater opening up of the economy. The new generation of reforms emphasises strategic restructuring of the economy, an enhanced role for the market, all-round improvement in quality, standards and competitiveness, modern management, building up of the legal system and firmer control by the Central Government over macro- economic policy-making.

In agriculture, there is already a trend of withdrawal of land from foodgrains production for producing higher value-added items or returning it to forests and pastures. There is now a greater emphasis on livestock, acquaculture, processing of foodgrains and forestry. China has already started importing foodgrains on a regular basis and is reconciled to importing 10 million to 20 million tonnes every year. High priority is attached to the application of science and technology, particularly bio- technology, to revolutionalise agriculture productivity. A distinguished Chinese economist told this writer that China needed a third agricultural revolution in which the peasants who had moved away from agriculture to Township and Village Enterprises but were still retaining their rights on land, must vacate their rights, and land-holdings should be corporatised. Peasants should form companies to manage the land on a scientific commercial basis. They should convert their land holdings into equities in the company and themselves into workers. It is difficult to say if China would go as far as this. But one cannot but be impressed by the audacity of such thinking.

In the reform of state-owned enterprises some of the measures already under implementation will be pursued more vigorously. These include permitting enterprises to go bankrupt, merging them or converting them into joint stock companies. Additional resources will be infused in some of these enterprises and concerted effort will be made for their technological upgradation. There is a great deal of emphasis on their management reform, particularly on reducing their social burdens and restructuring their assets and debts in order to make them financially viable. However, in spite of all the problems associated with them, the state-owned enterprises will remain the ``pillar'' of China's socialist market economy in the foreseeable future.

For redressing regional imbalances, China has embarked upon a very ambitious Look West Policy, which covers ten provinces from the West and the North. This policy is regarded as essential for maintaining national unity, safeguarding social stability and consolidating border security. A complete blue-print of this policy is not yet available. But indications are that several hundred billion Yuans will be invested. The central and provincial Governments will provide most of the resources, mainly through the banking channel. Funds will also come from the Chinese private sector either as direct investment or through the stock market.

Though some projects will be open for participation by foreign entities, the foreign contribution is not expected to be very significant. Most of the projects already announced are in the field of infrastructure. A campaign has been launched to change the attitude of the people in the region, in particular to inculcate the market ethos among them. A major objective announced is to achieve sustainable development and protect the environment. China has shown prompt awareness of the political ramifications of the widening individual income disparity and the emergence of urban destitution. It has, therefore, tried to build over the last 10 years an urban social security and social aid system. The government, workers and companies - all three - contribute to this system. An important component is the payment of unemployment benefit to laid-off workers. However, the rural population is not covered by any elaborate social security system except the rural social pension which provides security to the elderly.

Send this article to Friends by E-Mail

Section  : Opinion
Previous : Long road after ceasefire
Next     : Hopes belied