I am not sure what to make of Petras’s piece on China. He seems to be claiming that China
is moving
quickly and successfully up the value chain and that its leaders, who
remain
committed to a non-capitalist alternative, face a real choice about the
future.
If I am interpreting him correctly I
would disagree. First, I would say that China
has had
only limited success in moving up the value chain. The
pre-reform period was more successful
then commonly acknowledged in generating a national technological base. The market reforms promoted encouraged non-military
production and application but because the state opened the economy so
quickly to
foreign capital the potential to move ahead was largely lost. Second, the state has promoted a capitalist
development
process that has strengthened the economic position of foreign capital
and a
few large state-private conglomerates. There
is no apparent interest within the leadership in exploring much less
defending
a non-capitalist orientation. What state
leaders are worried about are (1) growing working class and farmer
resistance
to the capitalist accumulation process and (2) growing foreign
domination over the
remaining important state-private enterprises that hold the key to
wealth and
power for Chinese elites.
Let me highlight this by just focusing on the
technological
issue. Willy Lam (“China’s elite
economic double standard,” Asia Times Online, August 17, 2007) notes
that: “According
to World Trade Organization provisions, the Chinese Communist Party
(CCP) has
opened up an unprecedented number of sectors for foreign-equity
participation.
Yet the authorities have at the same time tightened control over other
aspects
of the economy. This has resulted in the truncation, if not atrophy, of
thousands of private firms. These are in danger of being edged out by
powerful
monopolies and oligopolies that are controlled either by the
party-and-state
apparatus or by senior cadres and their offspring.”
These dominant domestic firms, what Lam calls the
"aircraft-carrier-type"
enterprise groupings under the CCP and government apparatus, include
“the three
oil-and-gas monopolies, the energy and electricity groups, airlines and
telecoms, and most of the major banks.”
While these “are now publicly listed companies, government
ministries or
State Council entities control up to 50% of their shares.”
What is critical to notice is that the parts of
the economy highlighted
here are largely in the resource areas.
That is because those are the main areas where Chinese state
profitability is assured. As Lam points
out: “Last year, total assets of these 160 or so state monopolies and
oligopolies amounted to a stunning 12.20 trillion yuan ($1.6 trillion),
or
about 57% of the country's gross domestic product. In addition, they
generated
720 billion yuan in earnings, half of which were made by the three oil
giants
alone. Up to 80% of the year-on-year increase in profits realized in
2006 by
all Chinese enterprises were attributable to longduan (monopoly
financial groups) or monopoly firms in the areas of oil and
petrochemicals,
electricity, coal and metals.”
China has
had relatively little success in the non-resource area, including the
electronics sector, which is the sector that is widely seen as driving China’s
export
growth. The Chinese state has tried to
create champions in this area but has largely failed. As
reported by the Xinhua
Information Center, “Commerce
Minister Bo Xilai said the country is at the very early stage of brand
development.
China
is the top producer of more than 170 products, but has very few
internationally
known brands. Fewer than 20% of
exporters have their own brands, and self-owned brands account for no
more than
10% of total exports. The result is that
Chinese enterprises make only humble profits by manufacturing for
foreign
brands. A much-talked-about story in China
is that to buy a single Airbus A380, China had to export 800
million
shirts.”
Reinforcing this point, Bruce
Einhorn (“China,
The Tech Dragon Stumbles,”
Business Week, May 14, 2007, p. 44) writes”
“For
a host of Chinese tech companies trying to adjust to life in the major
leagues,
these are difficult days. Cell-phone makers TCL and Ningbo Bird have
seen their
share of the mainland market whittled down by global giants Nokia and
Motorola.
Profit margins at telecom equipment makers Huawei Technologies and ZTE
have
shriveled. BOE Technology Group, the country's biggest maker of
liquid-crystal
displays used as screens for PCs and TVs, has dumped noncore assets to
prop up
earnings and is lobbying for a government bailout. Chipmakers
Semiconductor
Manufacturing International Corp. and Grace Semiconductor Manufacturing
Corp.,
which once hoped to challenge the Taiwanese as world leaders, are
limping.
"Our greatest challenge is how to turn the company profitable," says
Anne Chen, SMIC's Hong Kong
representative.”
“Even computer maker Lenovo Group, the highest-profile of China's
up-and-comers, is struggling overseas. Lenovo's acquisition of IBM's PC
division in 2005 led to predictions that it would morph into a
powerhouse
capable of challenging Dell Inc. and Hewlett-Packard Co.
Instead, even as Lenovo remains the leader in
China,
it is falling behind big competitors abroad. It gained share in the
first
quarter, but not enough to keep Taiwanese rival Acer Inc. from jumping
ahead of
it into the No. 3 position worldwide, industry watcher Gartner says. On
Apr.
19, Lenovo said it was firing 1,400 people, or about 5% of its global
workforce, with most of the cuts coming out of Europe and the U.S.
It plans
to fill some of those jobs with lower-cost employees in China.
"We
have more work to do," said Rory Read, president of Lenovo's Americas
group.
"We have strong competitors out there."
The problem for China
is that foreign capital dominates the technology process in China. Branstetter and Lardy, two well known
mainstream economists, have argued that in the electronics sector, China
specializes only in the lower end, producing largely notebook
computers, DVD
players, and mobile telephones. These
products not only are highly dependent
on imported parts and components, they are largely produced by foreign
companies. As they note: “China
is able
to export huge quantities of electronic and information technology
products
only because it imports most of the high value-added parts and
components that
go into these goods. China,
in short, does not in any real sense manufacture these goods. Rather it
assembles them from imported parts and components. For example,
domestic
value-added accounts for only 15 percent of the value of exported
electronic
and information technology products. All the rest is import content. In
short,
for many of these products it is doubtful that China is supplying anything
but the
labor required to produce these goods.”
(Branstetter, Lee and Nicholas Lardy, “China’s Embrace of
Globalization,” NBER Working Paper Series, Working Paper 12373, July
2006, p.
38).
Foreign
domination of the computer industry is well illustrated by Tom
Miller (“Manufacturing
That Doesn’t Compute,” Asia Times Online, November 22, 2006) who
writes:
“Who has the biggest shopping bags in China? Wal-Mart, America's
largest chain retailer, is well known for its voracity, sourcing US$18
billion
of merchandise from the country in 2004. Less well known and more
telling is
that Dell, the world's biggest personal-computer (PC) maker by sales,
bought
nearly $16 billion worth of computer components from China in 2005, and
this
year expects to spend $18 billion.”
“Dell's numbers are revealing because they point to the real story of
the
growth of China's export economy in the past five years: it has been
driven by
the global PC industry. Eight of the country's top 10 exporters today
are
Taiwanese electronics companies supplying branded PC sellers such as
Dell with
unbranded computers and components.”
“Taiwanese original design manufacturers (ODMs) - which, in contrast to
original equipment manufacturers (OEMs), contribute a significant part
of a
product's design - dominate worldwide computer manufacturing and have
shifted
virtually all production to the mainland in the past five years.
Taiwanese
notebook (laptop) computer makers now manufacture almost 100% in
mainland China,
according to Tony Tseng, an analyst with
Merrill Lynch in Taipei.
In 2001, this figure was just 4%. Today China
assembles about 80% of the world's notebook and desktop computers.”
“This sounds like a significant move up the value chain for China.
Technology exports helped push China
to become No 3 in the world export rankings last year, with
telecommunications
equipment, electronic products and computers accounting for 43% of
total
shipments by value ($328 billion).”
“Yet there is, from the perspective of China's development objectives,
a
problem: it is foreign companies, not Chinese manufacturers, that
dominate
almost all aspects of the computer industry and capture its earnings.
In 2005,
not only did foreign-invested companies account for 58% of total
exports by
value from China,
they controlled a remarkable 88% of exports in high-tech categories.”
“The worldwide computer industry is configured as a pyramid. Microsoft
and
Intel sit at the top, rich in intellectual capital and flush with
profits.
Below them are the global PC brands - Dell, Apple, Hewlett-Packard
(HP), Sony -
which turn a profit through ruthlessly efficient product sourcing and
massive
investment in marketing. They are supplied with near-finished goods by
Taiwanese ODMs with factories on the mainland that receive components,
in turn,
from thousands of smaller manufacturers, many of them also
Taiwanese-owned.”
“Almost all mainland China brings to the industry is cheap land and
even
cheaper labor. China
is the manufacturing center of the global computer industry, yet it
adds little
value and therefore makes little profit. . . . .”
“The computer industry is a perfect example of where different
countries sit in
the value chain: the US
at
the top, Taiwan in
the
middle, mainland China
at the bottom. Can the Chinese computer industry move up the value
chain? The
CAPS study is blunt about China's
limitations: "There are no Chinese ODMs and there are no significant
Chinese suppliers to the Taiwanese ODMs, or to their suppliers."
So the point here is not that the Chinese state
has not been
active. Rather, it has been active in
trying to promote the interests of its core elite, and in transforming
its political
power into profitable economic opportunities.
It is just that it is not so easy to succeed. Thus,
while some are indeed getting rich, the
process has not been that successful from a national development
perspective. And here I am not even dealing
with the
dismal labor situation, growing poverty, inequality, lack of formal
sector
employment, etc.
As for growing liberalization, things have moved
far, the
Chinese communist party is now a party of entrepreneurs whose main
interest is
profit making. Whether this elite can
defend its interests against foreign capital is an open question. But that is a limited question. The
more important point is that the Chinese
line is one of capitalist development, a development that has come at
very high
expense for working people in China. And
while the Chinese elite will battle with
all its considerable might to manage the liberalization process in a
way that
will benefit itself, it has shown little interest in actually
rethinking its
orientation.
Marty