RE: disappointing Petras article on Chinese economy

From "Mobo Gao" <>
Date Wed, 19 Sep 2007 08:29:22 +1000
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Organization University of Tasmania
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For what is worth I am in total agreement with Marty.


Generally speaking (with some exceptions), post-Mao China has not only made no notable advance in hi-tech but actually lost many of the gains made during the pre-reform period. It is valuable that Petras reminds us, again, how the US and Europe use liberallzation to take over the financial market in China, but whether the Chinese leadership is working to defend China’s national interest is another matter, (certainly not the interest of the working people). I would like to remain open-minded about the Hu Jintao/ Wen Jiabao leadership, for a while at least, Deng Xiaoping,/Jiang Zemin/Zhu Rongji leadership has succeeded only in making sure that a few elite get rich and China has become an assembly factory of the world. In my forthcoming book I opted to use the concept of comprador to denote this political-business-intellectual elite complex: middle men who help non-China business exploit Chinese labour and resources while get rich in the process.







From: [] On Behalf Of Martin Hart-Landsberg
Sent: Wednesday, 19 September 2007 2:04 AM
To: Yan Hairong
Subject: Re: disappointing Petras article on Chinese economy


Thanks for posting the Petras piece.  It appeared in another list I am on and what follows is the quick response I made to it on that list.  Comments/responses welcomed.
Marty Hart-Landsberg

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.


Yan Hairong wrote:

Forward from David Pugh.

---------- Forwarded message ----------
From: david pugh <>
Date: Sep 18, 2007 10:28 AM
Subject: disappointing Petras article on Chinese economy
To: David Pugh <>

Petras provides some interesting material about the increasing penetration of Western finance capital into

China's liberalizing financial sectors.  However, he buys in to the claims that China is moving into an internally-driven

high tech economy, and downplays the weaknesses of the domestic market, especially agriculture. All of this

needs much more in depth analysis. Petras also proposes a set of reforms--particularly large investments in health 

and education--that he thinks will get China back on the path of "socialism with Chinese characteristics."  


If you have any comments on Petras' analysis, I'll be glad to forward them to others who have an interest in 

Chinese political economy.