A boom financed by taxes on the poor

2005: China - Inequalities are not based only on wages. Peasants have to pay more than 100 levies to

China's economic miracle has become a cliche. The figures bear out the country's amazing economic development. China has maintained 9 per cent annual growth for almost three decades. It has overtaken the United States as the world's largest recipient of foreign direct investment, with an inflow of $54bn in the first ten months of 2004. It has pulled more than 300 million people out of absolute poverty in a period of less than two decades, an achievement unprecedented in human history.

There are now more than 100 million middle-class Chinese and that number is growing, says the Los Angeles Times. The total number of internet users is already the second-highest in the world, nearing 100 million. According to one estimate, during the early 1990s, three-quarters of the world's construction cranes were in China, a quarter of them in Shanghai alone. China produces 50 per cent of the world's cameras, 30 per cent of its air conditioners, and 25 per cent of its washing machines.

Or if you want yet more figures: in 2002, 15 per cent of the world's economic growth and nearly 60 per cent of its export growth came from China. Measured in purchasing-power parity, the country's gross domestic product already ranks second in the world. Within the next four to five years, China will become as big a force as the 25 economies of the European Union put together. And so on.

Beneath these hyperboles lies a grimy reality that often escapes media attention. China is a country in which 70 per cent of the population are still rural and, by western standards, live in poverty. Over the past two decades, between 100 million and 150 million migrants have moved from the rural to the urban areas either to look for work or to work in sweatshops. The average wages of these migrant workers have remained the same since the 1990s: between $50 and $70 a month. That is China at its worst.

Healthcare has fallen shockingly behind what it was in pre-development years. Even official spokesmen now admit that more than 50 per cent of the rural population have not got the money to see a doctor, even where there happens to be a doctor around. Increasingly, urban residents have begun to fall into this category, too, as more workers lose their jobs: there may be as many as 15 million unemployed people in the towns, and at least ten times that number in the countryside.

The polarisation of China is so sharp that Chinese leaders themselves repeatedly give warning of the kind of social unrest that could put the regime in danger. This danger can be measured by the Gini coefficient, which is used widely by economists to gauge whether wealth is distributed fairly within a country. According to official Gini figures, the disparity in wealth is growing steadily, and has been greatly underestimated.

In the post-Mao era, and since Deng Xiaoping took over in the late 1970s, the central government has invested enormous amounts in such coastal cities as Shanghai and Shenzhen, and has created favourable conditions for foreign companies to operate, building new infrastructure and introducing tax concessions. As part of creating this investment, rural China has been taxed. In return, the central government has spent little on rural education or healthcare. Local governments at county, township and village levels owe huge debts. The whole rural bureaucracy is bankrupt.

According to Li Changping - a former Communist Party cadre in Hubei who in 2000 wrote a celebrated open letter to the then premier, Zhu Rongji, and subsequently published a book on the plight of people in the countryside - the debt in the township where he worked amounted to 1,000 Chinese yuan ($85) per head in 1999. A recent official estimate is that the total rural debt amounts to about 800 yuan for every rural resident.

How do local governments find the money to pay their teachers as well as paying the interest on these debts (interest that is sometimes as high as 30 per cent, and is very often gathered by debt collectors who are the party and government officials themselves)? Moreover, money has to be found for local bureaucratic extravaganzas, such as banquets and cars for fancy projects that advertise the country's economic advance. The answer is levies and taxes on the peasants, which in some places amount to more than 100 different kinds of tax. Not only is there a tax on slaughtering, even when you do not have a pig to kill, but there is also a tax on family planning. Families may be fined by local officials if they produce more pregnancies than allowed, and rural women are brutally forced to pay to have an abortion - sometimes kidnapped. Many families manage to pay the various taxes only because their teenage children, slaving away in the coastal cities, somehow save money to send home.

Have we in the west not noticed that the prices of consumer goods in the shops, such as shoes and electrical appliances, are getting ever cheaper, while the prices of industrial goods, ranging from iron ore, copper and zinc to timber and cement, have skyrocketed in recent years? This non sequitur springs from three factors: cheap Chinese labour, tax concessions granted by China's government, and labour/environmental conditions that are virtually unregulated. Expensive raw commodities are shipped to China for foreign firms to produce cheap products.

The coolie labour comes from rural Chinese migrants. City-born Chinese, even the unemployed, would not want to work in these sweatshops. And migrant workers are not allowed jobs that urban residents are willing to do. An average migrant works between 14 and 16 hours a day, seven days a week, to earn about $70 a month, from which he has to pay for his lodging and food.

On top of that, migrants have to pay for temporary residence permits, identity cards (which they must carry with them at all times), registration, or whatever else a city government fancies. They are also charged higher rates for basic public services: in some cities, a migrant worker has to pay more than a city resident for a monthly bus pass. Even postal delivery can be more expensive for migrants.

How can it be that a country run by a Communist Party whose raison d'etre is to bring about equality in human society, and whose stated manifesto is to bring privileges to the working class, has become one of the most exploitative and unequal nations on earth? The question can be answered by looking briefly at three salient features of today's China.

The first is the ideology of development, development, development. Deng Xiaoping's dictum of "development as the core value" (fa zhan shi ying dao li) has become the guiding principle for policy-makers. The goal is to catch up with the developed west, no matter what. No matter, for instance, the environmental degradation. Ten of the world's most polluted cities are in China. There is deforestation, desertification, undrinkable water, you name it.

The development push has political advantages. It satisfies Chinese nationalists, who believe that a backward China needs to catch up fast. It also keeps orthodox Chinese communists quiet, because it is Marxist doctrine that the advancement of production is the ultimate basis and force for human progress. Finally, the belief that development requires the rule of the market economy has become an article of faith for Chinese economic liberals.

That is the second salient feature of today's China: the increasing influence of neoliberalism in policy-making. This doctrine dictates that to catch up, China has to go through a primitive process of capital accumulation similar to the process of British industrialisation. Profits have to be made at somebody's cost. And the somebodies, in this case, are the rural poor, shedding sweat to develop modern China. A Chinese commentator calls this economic policy the Europeanisation of coastal, urban China and the Africanisation of the rural heartland.

The third feature is the expansion of what I call the comprador class (a 19th-century term that referred to the Chinese chief agent of a foreign business house). The people now in charge of the country - whether they are the friends and relations of Deng Xiaoping, Zhu Rongji or Jiang Zemin (general secretary of the Communist Party until 2002) or party and government officials at every level - are the direct beneficiaries of China's no-holds-barred development policy. When foreigners do business with or in China, such people are either their partners or their intermediaries. When dispossession takes place, such as land enclosure, or when state assets are sold, they are the beneficiaries. When huge infrastructure projects, such as the Three Gorges Dams, are planned, they have first (and sometimes sole) access to contracts.

Many in the comprador class have studied in the west, and more are being sent there (Britain is one of the countries to benefit). They have bank accounts and own properties in the west; their lifestyle depends on "compradoring". China is the workshop of the world, owned by foreigners, but managed by Chinese.

These three features of life in China may help to explain why the disparity between urban and rural areas, between rich and poor, has become part of the rationale of the country's development.

The author teaches Chinese studies at the University of Tasmania. His Gao Village: rural life in modern China was published by C Hurst in 1999