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