CHINA AND THE WORLD FINANCIAL CRISIS

A Limping West Sees a Confident China
Sukant Chandan*

China returned back into the Western media spotlight this
last year. While the Western press went into over-drive in
its negative reporting of China in the lead up to the
awe-inspiringly successful Beijing Olympics over the Tibet
riots, at the same time people in the West could not
completely ignore the many impressive aspects of Chinese
society and government. Few could ignore the stark contrast
between the social and political system and leadership of
Peoples Republic of China and that of the West,
particularly the USA.

The Sichuan earthquake and its tragic consequences for the
Chinese people saw the swift reaction of the Chinese
government with Premier Wen Jiabao rushing off to the
earthquake epicentre minutes after it occurred, as well as
the massive mobilisation of the Peoples Liberation Army,
Communist Party and other social organisations in the
service of those affected. Many people have contrasted this
with Bush's cowardice when he flew thousands of feet in the
air above New Orleans after the floods and government
incompetence left many residents of the city, especially
the Black and working classes sure that their President is
not working for their interests.

China's holding of the most impressive Olympics to date was
soon followed by another historic achievement in being only
the third country in the world to have sent astronauts for
a space walk. Today China is showing that while the West is
quivering on an economic and financial precipice it is
distinguishing itself as economically calm and in control,
and furthermore confidently planning additional economic
and social development for its people.

The last thirty years or so has not only seen China
accomplishing great strides for its own people and nation
in terms of economic growth, but these developments have
also impacted internationally as statistics released by the
World Bank last year showed that in the last two decades
China accounted for 67 percent of the achievements in
global poverty reduction. Today China is playing a crucial
role in the world economy with Western leaders queuing up
to request money from its massive currency reserves to bail
them out from the current financial capitalist crisis.

China has made it clear that it is committed to
contributing to a stable world economy. However this does
not mean that China will necessarily be ready and willing
to bail out the West indefinitely, China has to think of
its own economic well-being. China's position is that the
best contribution it can make to the world economy is to
maintain its own strong and relatively fast growth. Indeed,
a strong and economically successful China means the rest
of the world; especially the countries of the South have a
major world economic trading partner in China that treats
them with respect and friendship.

China has shown its economic self-confidence in the last
few weeks while Western governments are running scatter
shot by the financial crisis. The Central Committee of the
Communist Party of China announced agricultural reforms
intended to double farmers' incomes by 2020, stating
further that "the country's overall economic situation is
good. The economy is growing quickly and the financial
sector is operating steadily. The basic momentum of the
country's economy remains unchanged".

There are many reasons why China will not suffer the same
economic fate as Western nations: at a time when there is
capital flight from the West, China experiences capital
inflows. Mortgage assets and the housing market in China
shows much greater stability and strength compared to the
very shaky and risky mortgages and lending set-up in the
West epitomised by the 'sub-prime' crisis. Amongst other
problems China faces difficulties from high energy costs
and pressure from inflation, but the country still has
massive untapped potential despite global uncertainties
because of its large working population and a vast domestic
market. China of course cannot remain wholly immune from
the adverse effects of the present financial crisis, but
vitally China is not at the mercy of modern-day capitalism,
indeed capitalism in China is at the mercy of the Communist
Party and the socialist system, and this people-centred
economic planning enables China to avoid that which is
taking place in the West.

The full extent of the political fall-out for international
capitalism in this Great Crash remains to be seen. Even if
it manages to limp away from this crisis, the crash the
next time will overshadow the current one, of this no
honest commentator can deny. However, in the midst of all
this people can learn from the positive lessons that China
demonstrates and not be taken in by the duplicitous
behaviour of many Western leaders as they on the one hand
mouth-off and encourage subtle sinophobic anti-communism
and then, as in the case of Bush recently, phone Chinese
President Hu Jintao asking for hand-outs.

Peoples and nations of the world, including in the West,
are interested in building an alternative international
economic order where development is under the control and
in the interests of the masses. This is a challenge which
is being taken up by countries from Venezuela to Vietnam
who believe in a truly multi-polar world, a world that has
no place for US hegemony and aggression or economic
precariousness. Nations and peoples of the world,
particularly those of the South are developing their ties
of friendship, trade and cultural exchanges with China.
Those involved in progressive cultural and social movements
in West may also want to develop a mutually respectful
relationship with a country which is putting into practice
on an enormous scale the principles of peace and social
progress in which we believe. As Malcolm X used to say in
the early 1960s when the US vetoed China's membership of
the United Nations, no-one can ignore 800 million Chinese
people who have stood up. Since then China has made many
strides and stands as one of the biggest allies for
progressive change in the world today; something which
today cannot be ignored. This Great Crash, as well as the
failed 'War on Terror' is teaching people across the world
in the words of a recent Peoples Daily editorial in China
that the financial crisis is a manifestation of the
dead-end of liberalism and the destruction of the myth of
all-powerful American institutions.

____________________________________

*An edited version of this article appeared in the Morning
Star. Sukant Chandan is Chair of Friends of China and can
be contacted at sukant.chandan@gmail.com

PREMIER WEN ON CHINA AND MILLENIUM DEVELOPMENT GOALD

Full text of Chinese Premier Wen Jiabao's speech at U.N. High-Level Meeting on MDGs

Special Report: Premier Wen Attends UN Meetings

UNITED NATIONS, Sept. 25 (Xinhua) -- The following is the full text of the speech by Chinese Premier Wen Jiabao at the U. N. High-Level Meeting on the Millennium Development Goals (MDGs) on Sept. 25, 2008:

Mr. President,Mr. Secretary-General,Ladies and gentlemen:

Eight years ago today, the United Nations solemnly adopted the Millennium Declaration, offering new hopes to the people living in poverty around the world.

China is the most populous country in the world. Since 1978, we in China have accelerated development mainly with our own efforts and through reform and opening-up. As a result, China has brought down the number of people in absolute poverty from 250 million to 15 million in less than 30 years. China has made free nine-year compulsory education universal in the country and particularly in the rural areas. We have put in place a new type of cooperative medical care system mainly financed by the government for 800 million farmers. We have set up the system of village and community self-governance for rural and urban residents and introduced government transparency, democratic oversight and direct election at the community level.

In the final analysis, all that we do in China now serves but one purpose -- to eradicate poverty and build on this basis to achieve modernization with prosperity, democracy, advanced culture and harmony.

China is a responsible, large developing country. Though not rich, it has honored its commitments to the Millennium Declaration and done what it can to help some least developed countries. By the end of June 2008, China had cancelled a total of 24.7 billion billion yuan of debts for 49 heavily indebted poor countries and least developed countries in Asia and Africa and provided 206.5 billion yuan in various forms of assistance, of which 90.8 billion yuan is free aid. China has provided zero-tariff treatment to the goods of 42 least developed countries. The number of covered tariff items ranges from 736 to 1,115, accounting for 98 percent of the export volume of least developed countries to China. China has trained 15,000 African professionals, sent medical teams and provided free anti-malaria medicine to Africa. China will continue to do so and will dispatch up to 100 senior agricultural experts to Africa and build 30 hospitals and 100 rural schools for Africa. To enhance Africa's capacity for independent development, China decided at the end of 2007 to provide 2.377 billion yuan of free aid and 700 million yuan of interest-free loans to Africa.

Statistics released by the World Bank last year showed that over the past 25 years, China accounted for 67 percent of the achievements in global poverty reduction. The vision set out in the U.N. Millennium Declaration is being gradually turned into reality in the vast country of China. This is also the most important international responsibility that the Chinese today should fulfill.

Nonetheless, we have to recognize that about one billion people in the world still live below the poverty line and hundreds of millions suffer from hunger. China is also under pressure in terms of population, resources and the environment, and it faces such challenges as uneven development between urban and rural areas and between different regions, imbalance between economic and social development and a large low-income group.

To attain the goals of the Millennium Declaration globally remains a long and uphill journey and the difficulties cannot be underestimated.

Ladies and Gentlemen:

Counting from today, we have only seven years to go before the end of 2015 to reach the goals in the Millennium Declaration of halving the proportion of people living on less than a dollar a day and the proportion of people who suffer from hunger, and no more than 12 years before the end of 2020 to significantly improve the lives of at least 100 million slum dwellers. The task is indeed an arduous one. I hope that, we, leaders present today, will join hands to shoulder greater responsibilities as statesmen and pay closer attention to and show more compassion for the poor regions and people in the world.

To this end, I wish to suggest the following:

-- It is important for governments to give top priority to development. Underdeveloped countries should make poverty eradication through development a central task, and developed countries should provide enabling conditions for the development of underdeveloped countries. Development is, first and foremost, economic development and educational, cultural and social development should also be high on the agenda.

-- It is important to give encouragement and support to all countries in taking development paths suited to their national conditions and exploring development models conducive to their national development and poverty eradiation efforts. Respect for the right of people of all countries to independently choose development paths and models should serve as a basis and precondition for democracy.

-- It is important to resolve regional conflicts and ethnic strife through peaceful means rather than by force. We should promote democracy in international relations and encourage all countries to have consultations on an equal footing, seek common ground while reserving differences, pursue win-win outcomes and live in harmony with each other.

-- It is important to step up international assistance. Developed countries in particular should assume the responsibility of helping underdeveloped countries. Assistance should be provided selflessly, with no conditions attached. It is particularly important to increase assistance for least developed countries and regions, with the focus on addressing hunger, medical care and schooling for children. I wish to propose that donor countries double their donations to the World Food Program in the next five years and that the international community do more to cancel or reduce debts owed by least developed countries and give zero-tariff treatment to their exports.

-- It is important to improve the working mechanisms for the development goals in the Millennium Declaration. It is necessary to coordinate the efforts of international organizations to jointly overcome the difficulties facing developing countries, including the immediate challenges of soaring oil and food prices, make plans, raise finance for assistance and implement the plans in real earnest.

To facilitate the attainment of the MDGs, China stands ready to take the following actions:

1. In the coming five years, China will double the number of agricultural technology demonstration centers we build for developing countries to 30, increase the number of agricultural experts and technicians we send overseas by 1,000 to double the original figure, and provide agricultural training opportunities in China for 3,000 people from developing countries.

2. China will contribute 30 million U.S. dollars to the U.N. Food and Agriculture Organization to establish a trust fund for projects and activities designed to help developing countries enhance agricultural productivity.

3. China will increase exports and aid to countries facing food shortages.

4. In the coming five years, China will give 10,000 more scholarships to developing countries and offer training programs exclusively for 1,500 principals and teachers from African countries. China will ensure that the 30 hospitals it builds for African countries are properly staffed and equipped and train 1,000 doctors, nurses and managers for the recipient countries.

5. China will cancel the outstanding interest-free loans extended to least developed countries that mature before the end of 2008 and give zero-tariff treatment to 95 percent of products from the relevant least developed countries.

6. In the coming five years, China will develop 100 small-scale clean energy projects for developing countries, including small hydropower, solar power and bio-gas projects.

Ladies and Gentlemen:

Four fifths of the world's population live in developing countries while only one fifth in developed countries. Everyone has the equal right to survival. But if developing countries remain in poverty, this will show that today's world is neither fair nor harmonious. Such a world will inevitably be an unstable one.

If we have those poor mothers and their hungry babies crying for food on our mind, then there is no difference that we cannot put aside and no obstacle that we cannot surmount. As long as governments have a strong sense of responsibility and mission, as long as people of all countries bring out the best of human sympathy and compassion, and as long as we unite to overcome difficulties, no matter where we come from and who we are, we will attain the MDGs.

I look forward to the day when the poor people no longer suffer from hunger and are all able to lead a frugal but comfortable life through their own hard work. I look forward to the day when all children can go to school and everyone enjoys proper medical care. I look forward to the day when we all live in a democratic and free society in which everyone has the opportunity and right to pursue happiness. I look forward to the day when on one is discriminated against for his or her skin color, race or belief and the family of mankind lives in greater harmony.

I believe that this is not just a day that I look forward to, but a day that everyone present here today looks forward to. Let us work towards the goals of the Millennium Declaration, so that the day will come, and will come early.

WEST IN FINANCIAL TURMOIL, CHINA CONFIDENT OF ECONOMIC GROWTH

Communist Party confident of economic growth

The Associated Press

Sunday, October 12, 2008

BEIJING: China's ruling Communist Party expressed confidence Sunday in the country's economy and said it would strengthen efforts to expand domestic demand to counter the effects of the global financial turmoil.

The party, led by President Hu Jintao, released a statement at the end of a four-day meeting of its Central Committee at which it also approved an agricultural reform and development plan aimed at doubling rural incomes by 2020.

"The country's overall economic situation is good. The economy is growing quickly and the financial sector is operating steadily. The basic momentum of the country's economy remains unchanged," said the statement, released through the official Xinhua News Agency.

It said China should adopt flexible and prudent economic policies and ramp up domestic demand, while maintaining the stability of the economy, the financial sector and capital markets.

"We should continue keeping social stability and pushing the country's economy toward sound and fast development," the statement said.

But it also acknowledged there were inherent "contradictions and problems" with China's economy and that all party members should prepare to face greater challenges as more instability emerges in the international economy.

Economists have cut growth forecasts for China this year to as low as 9 percent, down from last year's 11.9 percent. That would still be the highest rate for any major country, but Communist leaders want to keep growth robust to reduce poverty and avoid job losses, which could fuel political tensions.

China lowered interest rates on Wednesday in the latest official effort to revive slowing economic growth and help struggling exporters.

China faces difficulties from high energy costs and inflation pressures, but officials say the country has growth potential despite global uncertainties because of its large labor pool, vast domestic market and the improved competitiveness of its companies.

The party's statement said it aims to double the income of the country's farmers in 12 years in a move aimed at easing the growing and politically explosive gulf between the urban elite who have benefited most from China's two-decade-old economic boom and its vast poor majority.

The meeting also set goals of boosting rural consumption levels by a "big margin" and eliminating poverty in rural areas by 2020, Xinhua said.

In 2007, the average income of rural residents was 4,140 yuan (US$590) and there were 15 million people living in absolute poverty in the countryside, the report said.

The party also pledged to develop and modernize the country's agricultural system for better efficiency and increased productivity through innovation.

State media reports ahead of the meeting said the committee would review an amendment to the land management law to give its 750 million rural dwellers more freedom to lease or transfer their land, but the statement did not mention it. Such practices are increasingly common as rural workers move to the city.

Chinese economists hope the agricultural reforms will lead to larger, more efficient farms that are better able to meet the demands of the evolving economy while maintaining the country's self-sufficiency.

WEN JIABAO INTERVIEWED BY NEWSWEEK

‘We Should Join Hands’

China's prime minister speaks out in his first interview with a Western publication in years.

Fareed Zakaria

NEWSWEEK

From the magazine issue dated Oct 6, 2008

In New York last week for the opening of the United Nations General Assembly, Chinese Prime Minister Wen Jiabao gave a rare exclusive interview to NEWSWEEK's Fareed Zakaria. Wen, 66, is known for his openness and economic mastery, and has presided over some of the fastest growth in China's history. He began the conversation by pledging to "tell the truth" and invited Zakaria to interrupt him, since Wen "prefers dialogue to long-winded speeches." The two covered topics ranging from Tibet and Tiananmen Square to Darfur and human rights, from political philosophy to the U.S. elections, from the current financial crisis to the future of Chinese democracy. Excerpts:

ZAKARIA: What do you think of the financial crisis affecting the United States?

WEN: We should join hands and meet the crisis together. If the financial and economic system[s] in the United States go wrong, then the impact will be felt not only in this country, but also in China, in Asia and the world at large.

Regarding your own economy, many people now say there will be a significant slowdown. Do you think that will happen? And if it does, what do you think will be the consequences?

China's economy has been growing at an annual average rate of 9.6 percent for 30 years running. This is a miracle. And between 2003 and 2007, China enjoyed double-digit growth—yet the consumer price index grew less than 2 percent a year.

China has been proactive in adopting regulatory measures. Our previous concerns were to prevent a fast-growing economy from overheating and to prevent soaring prices from becoming inflation.

But things have changed very fast [because of] the subprime crisis in the United States and the serious turbulence that followed. We have seen a decline in external demand, and China's domestic demand cannot be significantly increased in a short period of time. [So] we do risk a slowdown. We must re-adjust macroeconomic policy.

Do you think you can continue to grow if the United States goes into a major recession?

Given the statistics for the first eight months of this year, we have managed to do that. [But] a U.S. recession would certainly have an impact on China's economy. Ten years ago, China–U.S. trade stood at only $102.6 billion. Today the figure has soared to $302 billion—a 1.5-fold increase. A shrinking of U.S. demand would certainly have an impact on China's exports. And U.S. finance is closely connected with Chinese finance. If anything goes wrong in the U.S. financial sector, we would be anxious about the security of Chinese capital.

China is the largest holder of U.S. Treasury bills — by some accounts, they ' re worth almost $1 trillion. Can you reassure [Americans] that China would never use this status as a weapon in some way?

We believe that the U.S. real economy is still solidly based, particularly the high-tech and basic industries. Something has gone wrong in the virtual economy, but if this problem is properly addressed, it is still possible to stabilize the economy. The Chinese government hopes to see sustained development in the United States, as that will benefit China. Of course, we are concerned about the safety and security of Chinese money here. But we believe that the United States is a credible country. And particularly at such difficult times, China has reached out to the United States. And actually we believe such a helping hand will help stabilize the entire global economy and finance and prevent major chaos from occurring ... I believe now that cooperation is everything.

Many people see China as a superpower already, and they wonder: why is it not being more active in political resolution of issues such as Darfur or Iran?

I need to correct some elements of your question. China is not a superpower. Although China has a population of 1.3 billion and although in recent years it has registered fairly fast economic and social development, China still has … 800 million farmers in rural areas and we still have dozens of millions of people living in poverty. We need to make committed and very earnest efforts to address these problems. That's why we need to focus on our own development and on our efforts to improve people's lives.

But surely the Chinese government could pressure the Sudanese government or the Iranian government or the government in Burma to be less repressive. You have relations with all three of them.

That brings me to your second question. China is a justice-upholding country. We never trade our principles. Take the Darfur issue that you raised just now, for example. China has always advocated a dual-track approach: China was among the first countries sending peacekeepers to Darfur. China was also the first country that gave assistance to Sudan, and we also keep [up] our efforts to engage the leaders in Sudan to try to seek a peaceful solution.

Do you think it would be dangerous for the world if Iran got nuclear weapons? And what do you think the world should do to try to prevent it?

We are not supportive of a nuclear rise for Iran. We believe that Iran has the right to develop a utilization of nuclear energy in a peaceful way. But such efforts should be subject to the safeguards of the IAEA, and Iran should not develop nuclear weapons … We hope that we can use peaceful talks to achieve the purpose, rather than resort to the willful use of force, or the intimidation of force. It's like a relationship between two individuals. If one individual tries to corner the other, the effect will be counterproductive. Our purpose is to resolve the problem, not to escalate tensions.

I have a question for you: don ' t you think that the efforts made by China in resolving the Korean nuclear issue have actually helped that situation? I know it will take time to [achieve] a complete solution to the Korean nuclear issue. But the model we have adopted has proved to be r ight in this direction.

China's efforts have been appreciated in the United States and around the world. And it makes people wish that China would be active in other areas in the same way.

We have gained a lot of experience and learned lessons from the years of negotiations. The progress made also had a lot to do with the close cooperation among the six parties in the talks.

The Dalai Lama says now he would accept China ' s rule in Tibet. Why don ' t you negotiate directly with him and solve this issue once and for all?

The Dalai Lama is a religious leader and enjoys certain influence in the Tibetan region. He is not an ordinary religious figure. The so-called government in exile founded by the Dalai Lama practices theocratic rule. And the purpose of this so-called government in exile is to separate Tibet from China. All over the world, the Dalai Lama keeps preaching about autonomy for the greater Tibetan region. He wants to separate the so-called greater Tibetan region from the motherland. Many people in the United States have no idea how big this region is; it covers Tibet, Sichuan, Yunnan, Qinghai and Gansu: a quarter of China's territory.

For decades, our policy [has been that] as long as the Dalai Lama is willing to recognize that Tibet is an inalienable part of China's territory, and as long as the Dalai Lama gives up his separatist activities, we're willing to have contact and talks with him or his representatives. Now, sincerity holds the key to producing results out of the talks.

What action would you like to see from the Dalai Lama that would show sincerity?

His sincerity can be demonstrated in giving up separatist activities. … Of course, talks may continue, and in light of the progress in the talks, we may also consider raising the level of the talks.

Premier Wen, your country has grown, as you pointed out, 9.5 percent for 30 years — the fastest growth rate of any country in history. What is the key to your success? What is the model?

[The answer is] the reforms and opening-up policy we introduced in 1978. We emancipated productivity in China. We had one important thought: that socialism can practice market economy.

People think that ' s a contradiction. How do you make both work?

Give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government. Ensure that both the visible hand and the invisible hand are given full play. If you are familiar with Adam Smith, you will know that there are two famous works of his. "The Wealth of Nations" deals with the invisible hand: market forces. The other book deals with social equity and justice. In the other book, he stressed the importance of the regulatory role of the government to distribute wealth among the people. If most of the wealth in a country is concentrated in the hands of the few, this country can hardly [have] harmony and stability.

Some Americans and Europeans, particularly human-rights observers, say that China has cracked down on human rights over the last few years. They say they had hoped that the Olympics would lead to an opening, but there has been more repression. How would you respond?

By hosting the Olympics, China has become more open. Anyone without biases will see that. Freedom of speech and of media coverage are guaranteed in China. The Chinese government attaches importance to, and protects, human rights. We have incorporated these into the Chinese Constitution, and we also implement [them] in earnest. We don't think that we are impeccable in terms of human rights—it is true that in some places and in some areas, we have problems. Nonetheless, we are continuing to make improvements.

When I go to China and I ' m in a hotel and I type the words " Tiananmen Square " into my computer, I get a firewall, what some people call the Great Firewall of China. Can you be an advanced society if you don ' t have freedom of information?

China now has over 200 million Internet users and the freedom of the Internet in China is recognized by many, even in the West. To uphold state security, China, like many countries in the world, has also imposed some proper restrictions. On the Internet in China, you can have access to a lot of postings that are quite critical about the government. It is exactly through reading these critical opinions on the Internet that we try to locate problems and further improve our work. I don't think a system or a government should fear critical opinions or views.

What are your favorite sites?

I've browsed a lot of Web sites.

There is a photograph of you at Tiananmen Square in 1989. What lesson did you take from your experiences in dealing with that problem? Did you feel it was necessary to stop political reform? Do you think in 25 years there will be national elections in w hich there will be competition?

I believe that while moving ahead with economic reforms, we also need to advance political reforms, as our development is comprehensive in nature, our reform should also be comprehensive. I think the core of your question is about the development of democracy in China. When it comes to the development of democracy in China, we can talk about progress in three areas. No. 1: we need to gradually improve the democratic election system so that state power will truly belong to the people and state power will be used to serve the people. No. 2: we need to improve the legal system, run the country according to law, and [have] an independent and just judicial system. No. 3: government should be subject to oversight by the people. That will [require] us to increase transparency in government affairs. It is also necessary for government to accept oversight by the news media and other parties.

We need to take into account China's national conditions and we need to introduce a system that suits China's special features and we need to introduce a gradual approach.

It's hard for me to predict what will happen in 25 years. This being said, I have this conviction: that China's democracy will continue to grow. In 20 to 30 years, Chinese society will be more democratic and fairer and the legal system will be improved. Socialism as we see it will further mature and improve.

People say you ' re studying the Japanese system because there ' s democracy, but only one party seems to win elections. Is that the model you see for China?

There are multiple forms of democracy in the world. What is important is whether it really represents the interests of the people. Socialism as I understand it is a system of democracy. And such a democracy first and foremost should serve to ensure the people's right to democratic elections, oversight and decision making. Such a democracy should also help people to develop themselves in an all-around way in an environment featuring freedom and equality. And such a democracy should be based on a full-fledged legal system.

You ' ve said that you ' ve read the works of Marcus Aurelius a hundred times. He is a famous Stoic philosopher. My reading of him says that one should not be involved in the self, and in any kind of pursuits that are self-interested, but should be more for the community as a w hole. When I go to China these days, I am struck by how much individualism there is, how much consumerism there is. Are you trying to send a signal to the Chinese people to think less about themselves and more about the community?

It is true I read the meditations of Marcus Aurelius on many occasions, and I was very deeply impressed by the words that he wrote. I very much value morality and do believe that entrepreneurs, economists and statesmen alike should pay much more attention to morality and ethics. In my mind, the highest standard to measure ethics and morality is justice. When we think about the economy, we think more about companies, capital, markets, technology, and so on. We might forget about elements like conviction and morality. Only when we combine these two kinds of factors can we [have] a full picture of the DNA of the economy. It is true that in the course of China's economic development, some companies have pursued profits at the expense of morality. We will never allow such things to happen, because such an approach simply cannot be sustained. That's why we advocate corporate, occupational and social ethics.

Let me ask you a final question. You must have been watching the American election. What is your reaction to this strange race?

The presidential election of the United States should be decided by the American people. What I follow very closely is [what] the relationship between China and the United States [will be like] after the election. In recent years, there has been sound growth in China-U.S. relations. We hope that whoever is elected president, he will continue to grow the relationship with China. And China hopes to continue to improve its relationship with the United States no matter who takes office.

STRUGGLE OVER PRIVATISATION OF STATE COMPANIES

Private Equity Executives Walk Away Empty Handed
Greedy Privatisation Bid Smashed in China

August 7 - Zero. Absolute zilch. That’s what big time private equity group Carlyle ended up getting when they attempted to take over a state-owned Chinese manufacturer. The final defeat for the U.S.-based Carlyle Group was announced on July 23. Carlyle and Chinese state-owned Xugong Construction Machinery announced that the original takeover deal signed in October 2005 had now expired. China’s Communist Party regulators had rejected the sell-off.

The three-year Carlyle-Xugong saga was a hot issue in the Peoples Republic of China (PRC.) Xugong is China’s biggest manufacturer of construction machinery although by the standards of the PRC’s state-owned enterprises it is not big: it is not one of the 160 or so giants controlled directly by the Beijing national government but is owned by the local government of Xuzhou city in Jiangsu province. But had Carlyle succeeded in its grab for Xugong it would have been the biggest foreign takeover of an existing Chinese state-owned enterprise (most of the foreign investment into China has gone into new factories or into joint ventures with state firms.) So when it was announced that Carlyle were to takeover 85% of Xugong it unleashed a storm of opposition. The opposition to the sell-off was led by left-wing academics, staunch elements within the Communist Party of China (CPC) and Chinese state media. They protested that too many state-owned firms were being sold off.

Before long what had seemed like a formality became tied up with regulatory authorities. The fate of Xugong became an issue far, far larger than the enterprise itself. Opposition to its sell-off became a symbol of resistance to erosion of the socialistic state-owned core of the PRC’s economy. But the capitalist side mobilized too. The finance pages of Western mainstream media sneered at the delay in approving Carlyle’s bid. The U.S. government blatantly interfered and demanded that the privatization go ahead. Then in July 2006, Carlyle, working with the American Chamber of Commerce in Shanghai (which later became notorious for trying to scuttle China’s new pro-worker Labour Law), hosted a visit and advocacy speech by Colin Powell. However, as we noted last year in Trotskyist Platform Issue #8, “Powell would ultimately find that getting PRC authorities to approve the imperialist takeover of state-owned Xugong was not as easy as getting the United Nations to endorse the ‘weapons of mass destruction’ pretext for the imperialist takeover of Iraq!”

There was animated debate within the PRC authorities themselves over Xugong. Reports circulated of deadlock within the Ministry of Commerce over what to do about the issue. In 2006, senior PRC officials held an unprecedented meeting just to deal with the question. The Xugong dispute reflected a broader political struggle occurring within the PRC. On the one side stand those who want to strengthen the PRC’s foundations of socialist-type state ownership of key economic sectors. On the opposite side are rightist elements who want to facilitate greater - and some secretly even wanting total – capitalist economic penetration. In the middle of these opposites are various political shadings that represent the stance of the current PRC leadership. This official path has as its final declared destination socialism and seeks to maintain state control of key economic sectors but at the same time continues with the post-1978 “reform and opening up” policies that have led to a degree of capitalist encroachment and inequality. The problem with this current course is that in the long term it is not sustainable. To be realistic there are in the end only two ways that China can go. In one variant, the still tenuously riding layer of capitalists spawned by post-1978 reforms will, with the backing of Western and Taiwanese capitalists and in alliance with right-wing sections of the officialdom, manipulate mass grievances to smash pro-communist rule and grab political power for themselves. In the other variant, the Chinese toilers, emboldened by the successes of their socialistic development but enraged by the inequalities caused by pro-market reforms, move to complete their class struggle victory gained in the 1949 Revolution. They defeat capitalist restorationist forces within China and proudly advocate socialist triumphs internationally. The workers of the world need this second variant to emerge. But if this is to occur then it will require the international working classes to do all in their power to stop the Western and other capitalists from fomenting capitalist counterrevolution in China.

On 13 November 2006 there was an act of solidarity in Sydney with the pro-communist opposition to the Xugong privatization. A small group of protesters rallied outside Carlyle’s Australian headquarters under the slogans “Stop the Carlyle Group Profiteers from Grabbing Control of Chinese State-Owned Firm Xugong Machinery! Defend State Ownership of Major Industry and Banks in Red China.” The call for the demonstration which was distributed by Trotskyist Platform supporters insisted that: “It took the Heroic 1949 Revolution to Achieve Nationalisation of Chinese Industry – Let’s Protect this Anti-Capitalist Triumph! Keep Carlyle and Other Capitalist Exploiters Out! …. The capitalist parasites should get nothing.”

One Country in The World Where The Carlyle Group Can’t Run Roughshod

In October 2006 it became public that Chinese regulators had quashed Carlyle’s full-scale takeover bid. A new scheme had emerged for 50-50 ownership. On the eve of a trip to China by U.S. Commerce Secretary Carlos Gutierrez in November 2006 Chinese media announced that the new arrangement had been approved by China’s state assets watchdog. But two days later the same media reported that the state assets body was still scrutinizing even the revised Carlyle 50% bid. Then in January 2007, with the Carlyle-Xugong issue in mind, the Chinese government released a circular prescribing that the state should maintain its absolute control over enterprises in key industries. A couple of months later PRC authorities knocked back Carlyle’s revised bid and the private equity capitalists settled for a minority 45% stake. The U.S. capitalist rulers were furious that the full-scale privatisation had failed. In a March 29 speech in Beijing U.S. Commerce Undersecretary Frank Lavin arrogantly ranted that “China needs a hundred Carlyles to come in and buy a hundred Xugongs.” His heavy-handed behaviour was to no avail. By July of this year Carlyle went from losing on points to being totally knocked out. The 85% that had turned to 50% and then 45% went to … a big fat 0 %.

It turns out that Xugong was not the only Chinese state company that Carlyle could not get its hands on. The PRC’s Communist Party authorities have knocked back Carlyle from claiming even minority holdings in other state firms. In early July Carlyle failed to grab a stake in state-owned chemical producer Shandong Haihua. The private equity high-riders have also been locked out of investments in two state-owned banks, Guangdong Development Bank and Chonqing City Commercial Bank. By contrast, Carlyle and other similar companies have been allowed to grab many stakes in Chinese privately owned firms. That is not so bad. If an enterprise is to be run by capitalists it is a secondary consideration which lot of profiteers run them; and in any case foreign-owned ones like Carlyle may be easier to squeeze out in the future than domestic Chinese ones.

Xugong Victory: A Good Step Forward But A Long March Ahead

The defeat of the Xugong privatization attempt was certainly a victory for China’s masses. It is the continued public ownership of key economic sectors in China (including major banks, all agricultural land, communications, steel, oil, aluminium, automotive, aircraft manufacturing, shipbuilding and transportation) that has enabled the PRC to pull hundreds of millions of its people out of poverty in the last 59 years. In the PRC the socialistic state-owned industries not only grant their employees higher wages and better conditions than do China’s privately-owned firms but they are able to be steered to meet broader social goals - goals that in a private company would clash with the capitalist imperative of higher profit at all cost. So PRC public firms are often directed towards meeting targets in hiring of disabled people, development of poorer regions, relieving of unemployment and opening up of opportunities for women to reach high positions. In response to the devastating May 12 earthquake in Sichuan, PRC state-owned enterprises were at the forefront of relief and reconstruction efforts. Major state-owned steelmakers like Boasteel and Angang Steel stepped up production to ensure that there would be adequate steel supply to build 1 million movable houses for those left homeless by the quake. Of course, to constrain PRC public firms to act as truly socialistic enterprises is a political struggle in itself. Chinese state enterprise managers are often tempted to want to act like their counterparts in capitalist firms. Mass participation by elected worker representatives both from within and from outside a particular enterprise must be asserted to ensure the success of anti-corruption drives, to increase equality within the firm and to ensure that employees genuinely understand that the workers state’s enterprise really does belong to them.

Beijing to Tianjin Intercity service. This, the world’s fastest passenger service, uses trains built by a Chinese state-owned enterprise, CNR Tangshan Railway Vehicle Co.

Despite the Xugong victory, the danger of erosion of state ownership over the Chinese economy has not been averted. It is unclear whether the relative weight of the public ownership in the Chinese economy has increased or decreased in the last few years. Certainly, the speed of privatization that was cranked up in the late 1990s has slowed down. Furthermore, in the last three or four years the biggest state-owned enterprises have grown rapidly. Indeed, in some sectors there has even been a defacto partial renationalization. For example, in the last three years many, terribly unsafe, privately-owned coal mines have been closed while government funding for the safer, big state-owned mines has increased. But at the same there has been some whittling away of state ownership in a range of big state-owned enterprises through sell-offs of minority stakes to private holders. And it is planned that a minority (some 20%) of the Agricultural Bank of China – one of China’s “Big Four” state banks – will be privatized. The presence of private part-owners, motivated as they are by personal profit, are a pressure on state companies to veer away from their social goals. For example, could you imagine what the minority capitalist stakeholders (which include some big foreign banks) in Chinese state banks were saying when they heard that the banks would be cancelling the requirement to repay loans of those affected by the Sichuan earthquake: they would have been screaming!

The mooted partial sell-off of the Agricultural Bank of China and other part-privatisations must be stopped. The defeat of Carlyle’s takeover of state-owned Xugong should be used to embolden the fight to extend the PRC public sector. One factor influencing this struggle will be the fact that while Red China’s economy continues to boom, similarly populous countries that are capitalist like Indonesia and India are having their masses hit with unbearable rice and grain price increases and the U.S. is verging on recession. That makes it even less palatable when U.S. capitalist officials lecture that “China needs a hundred Carlyles to come in and buy a hundred Xugongs.” Another factor is that owners of private companies in China (which are concentrated in the light manufacturing export sector) are being squeezed by the PRC’s new pro-worker, Labour Law. With the help of this law and more aggressive state support for trade unions, workers in the private sector have recently been able to achieve rapid wage rises. Many sweatshop private firms are as a result closing down. It has been estimated that by the end of this year, up to 7,000 factories owned by Hong Kong capitalists in mainland China will have been closed. The state should take over these closing plants, retool them and consolidate them into larger more efficient operations. Existing public firms should in the meantime increase hiring to make up for lost jobs.

We should never forget that the struggle over ownership systems of the economy cannot be separated from the question of power: from the question of which class rules. To maintain the pre-eminence of collectivised ownership of key sectors requires maintaining the PRC workers state. On the other hand those who want to bring back capitalism to all of China will have to smash the existing political regime along the way. Capitalist forces in China certainly understand this. They are preparing their future open bid for power by pushing now for greater representation for capitalists in political bodies. They do this by playing victim and having a big sob about how private bosses are “unfairly” despised in PRC society. These capitalist restorationists, some of whom are in right-wing factions of the CPC and some outside the party, often promote their goals with calls for greater political “pluralism” in China. They advocate more influence for the All China Federation of Industry and Commerce (an officially welcomed body of private bosses.) They also “advise” that there should be more leading posts granted to the smaller non-communist parties that are part of the CPC-led governing coalition in China. Within some of these non-communist parties, capitalist elements have a proportionately much greater representation than they do in the CPC.

All these counterrevolutionary methods are of a piece with the Western imperialists’ demands for “human rights” in China. These demands have reached a crescendo in the lead up to the Beijing Olympics. But the imperialist concerns for the “human rights” of anti-communist forces in China can be compared to a capitalist boss’s concern for the “rights” of scabs that are firmly stopped by striking workers. Workers in the West should reply with a concern for the PRC that is equivalent to the solidarity that proud unionists show for a strike by their fellow workers. The 1949 creation of a state in China that is based on a public economy is a great strike for all the workers of the world. State ownership of an enterprise in a workers state means the collective ownership of that enterprise by all the people in that country. It is the basis on which a more humane, egalitarian future can be won. It is a future worth fighting for. Let us be inspired by the political defeat of the private equity bid for state-owned Xugong.

WESTERN REPORT ANNOYED THAT CHINA DOESNT SELL-OUT TO ROBBER CAPITALISM

The long march backwards

Oct 2nd 2008
The Economist

A surprising new book argues that China is becoming less,
not more, of a capitalist economy

MOST people, particularly those living outside China,
assume that the country’s phenomenal growth and increasing
global heft are based on a steady, if not always smooth,
transition to capitalism. Thirty years of reforms have
freed the economy and it can be only a matter of time until
the politics follows.

This gradualist view is wrong, according to an important
new book by Yasheng Huang, a professor at Massachusetts
Institute of Technology. Original research on China is
rare, largely because statistics, though plentiful, are
notoriously unreliable. Mr Huang has gone far beyond the
superficial data on gross domestic product (GDP) and
foreign direct investment that satisfy most researchers.
Instead, he has unearthed thousands of long-forgotten pages
of memoranda and policy documents issued by bank chairmen,
businessmen and state officials. In the process he has
discovered two Chinas: one, from not so long ago, vibrant,
entrepreneurial and rural; the other, today’s China, urban
and controlled by the state.

In the 1980s rural China was in the ascendancy. Peasants,
far from being tied to the land, as has been assumed, were
free to set up manufacturing, distribution and service
businesses and these were allowed to retain profits, pay
dividends, issue share capital and even a form of stock
option. State banks rushed to provide the finance. Nian
Guangjiu, a farmer from impoverished Anhui province, built
up a business selling sunflower seeds (a popular snack),
employed over 100 people and made a million yuan (nearly
$300,000) in profit in 1986—just a decade after Mao’s
death. Because most of this activity was set up under the
misleading label of “Township and Village Enterprises”,
Western academics largely failed to spot that these
ostensibly collective businesses were, in fact, private.

But then, in 1989, came the Tiananmen Square protests. A
generation of policymakers who had grown up in the
countryside, led by Zhao Ziyang, were swept away by city
boys, notably the president, Jiang Zemin, and Zhu Rongji,
his premier. Both men hailed from Shanghai and it was the
“Shanghai model” that dominated the 1990s: rapid urban
development that favoured massive state-owned enterprises
and big foreign multinational companies. The countryside
suffered. Indigenous entrepreneurs were starved of funds
and strangled with red tape. Like many small, private
businessmen, Mr Nian was arrested and his firm shut down.

True, China’s cities sprouted gleaming skyscrapers, foreign
investment exploded and GDP continued to grow. But it was
at a huge cost. As the state reversed course, taxing the
countryside to finance urban development, growth in average
household income and poverty eradication slowed while
income differences and social tensions widened. Rural
schools and hospitals were closed, with the result that
between 2000 and 2005 the number of illiterate adults
increased by 30m. According to Mr Huang, the worst
weaknesses of China’s state-led capitalism—a reliance on
creaking state companies rather than more efficient private
ones, a weak financial sector, pollution and rampant
corruption—are increasingly distorting the economy.

But what about the growing cohort of Chinese companies
starting to strut the world stage? Surely that is evidence
of a healthy and expanding private economy. Mr Huang’s
evidence shows that, on closer inspection, these firms are
either not really Chinese or not really private. Lenovo, a
computer group, has succeeded because it was controlled,
financed and run not from mainland China but from Hong Kong
(a happy legacy of the founder’s family connections
there—not something enjoyed by most Chinese businessmen).
The subsidiaries of Haier, a white-goods maker, were also
put out of reach of mainland bureaucrats early on. Wahaha,
a food producer, Galanz, a maker of microwave ovens, and
many others all depended on foreign protection and capital
to grow and escape state strictures.

Indeed one of the main, and underappreciated, functions of
foreign investment in China has been to play venture
capitalist to domestic entrepreneurs. As for Huawei, a
telecoms group and one of China’s much vaunted “global”
companies, its structure and links to the state are so
convoluted that the most diligent China-watchers have
little idea if it is a private or state firm. They do,
however, agree that Huawei’s opacity is a microcosm of
China’s distorted economy. Could China genuinely embrace
entrepreneurial capitalism again, as it did in the 1980s?
Its current leaders under President Hu Jintao, who cut his
teeth in Guizhou and Tibet, two of the poorest and most
rural provinces, talk about supporting the countryside and
reducing social inequality. But nothing much has been done.
China’s deep problems demand institutional and political
reform. Sadly, as Beijing’s heavy-handed control of the
Olympics suggests, there is scant hope of that.

59 YEARS OF INDEPENDENCE, UNITY AND SOCIAL PROGRESS

Click here for A SONG FOR CHINA

CHINA'S FIRST SPACEWALK A SUCCESS

China's first spacewalk team returns to Earth

By GILLIAN WONG

BEIJING (AP) — Three Chinese astronauts emerged from their
capsule Sunday after a milestone mission to carry out the
country's first spacewalk, showing off China's
technological know-how and cementing its status as a space
power and future competitor to the United States.

A senior space official said the mission — China's most
ambitious yet — took the country one step closer in its
plan to build a space station and then to land a man on the
moon.

Wang Zhaoyao, deputy director of manned space flight, said
the program is looking to launch a new orbiting vehicle and
set up a simple space lab by 2011. There are also hopes of
sending unmanned and manned space vehicles to perform
docking activities with the target vehicle.

By 2020, China wants to launch a manned mission to
experiment with technologies that will enable astronauts to
take care of spacecraft for longer periods of time, Wang
told reporters at a briefing in Beijing after a parachute
brought the astronauts' capsule back to ground.

"After we have successfully completed these three steps, we
will go to even more remote areas," Wang said. "We believe
that as long as we can make further progress on the road of
science and technology, China will achieve the target of
putting a manned spacecraft on the moon in the near
future."

The United States is the only country to have accomplished
that feat, putting its first astronaut team on the moon in
1969. But its last human landing was in 1972, and it has
since concentrated on unmanned probes.

China's communist leaders, riding a wave of pride and
patriotism after hosting the Olympics, face few of the
public doubts or budgetary pressures that have constrained
space programs elsewhere. Saturday's spacewalk was watched
by cheering crowds on huge outdoor TV screens.

State broadcaster CCTV showed the astronauts' return Sunday
after their Shenzhou 7 ship's re-entry vehicle burst
through the Earth's atmosphere to make a landing under
clear skies in the grasslands of China's northern Inner
Mongolia region.

The vessel touched ground at 5:37 p.m. after floating down
gently while attached to a giant red-and-white striped
parachute, marking the end of the 68-hour endeavor.

"It was a glorious mission, full of challenges with a
successful end," said mission commander Zhai Zhigang, a
41-year-old fighter pilot. "We feel proud of the
motherland."

Zhai, Liu Boming and Jing Haipeng stayed inside the capsule
after landing for about 46 minutes to adapt to Earth's
gravity before slowly crawling out the narrow entrance.

Outside, the trio cheerily waved to cameras and reporters
from Chinese state media before sitting down in blue
fold-out chairs. They saluted as they were presented with
bouquets of flowers.

Premier Wen Jiabao applauded at mission control in Beijing
and shook hands with staff.

"This mission's success is a milestone; a stride forward,"
Wen said. "I would like to extend my congratulations to the
heroic astronauts who successfully completed this mission."

The premier also reiterated Beijing's longtime stance that
it is the Chinese people's "persistent aspiration" to
develop space technologies for peaceful exploration.

The spacewalk was a key step in mastering techniques for
docking two orbiters to create China's first orbiting space
station. Tethered to handles attached to the Shenzhou 7
ship's orbital module, Zhai remained outside for about 13
minutes before climbing back inside.

China has relied heavily on homegrown technology, partly
out of necessity. It has trouble obtaining such technology
abroad due to U.S. and European bans and is not a
participant in the International Space Station.

The Chinese program is backed by the secretive military.
While Beijing insists it is committed to a peaceful
program, analysts point to numerous potential applications
for its technology, such as when it used a land-based
missile to blast apart an old satellite last January.

China conducted its first manned space mission, Shenzhou 5,
in 2003, becoming only the third country after Russia and
the United States to launch a man into space. That was
followed by a two-man mission in 2005.