08/17/2011, 00.00
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The terrible damage of the "China Model"

by Wei Jingsheng
The global economic crisis has laid bare the structural problems of the Chinese economy in the hands of the capitalists supported by the violence of the communist regime. Small and medium-sized businesses, the real engine of the economy, close while state funds are to state enterprises. Who use them to speculate even more and worsen the lives of the population. The analysis of the great dissident.
Washington (AsiaNews) - The academic research data by the Chinese Academy of Social Sciences shows 99% of China's enterprises are small and medium enterprises (SMEs). The SMEs contribute more than 60% of revenue to the GDP, more than 50% of tax income, and provide more than 75% of urban jobs. The news that 40% of SMEs in China closed down in the past year draws people to question the Chinese government's official data.

Due to over-production in the auto industry, at the end of this year there will be an excess of 10 million vehicles in China. This is more than the auto production in Japan in the year 2009. Another big problem is the surplus of real estate investment in China, which has reached a 30% bubble. There are 64.5 million vacant apartment units, enough to house 200 million people.

In China, an estimated 1,300 people control more than trillion of assets. According to a survey by Western financial institutions, 1.5 percent of Chinese own 45% of bank deposits and 67% of assets. The Gini coefficient (which measures income inequality) has reached 0.57. In the 1980s, it was only 0.25; in the 1990s, it was 0.39. Now, this coefficient is much higher than the 0.43 of the United States, and 0.37 of India. In China, the people who have average living expenses on the absolute poverty scale of less than /day have reached more than half of the entire population of more than 1.3 billion.

China's state-owned enterprises enjoy more than 75% of the investment by the country, with more than 2/3 of the country's fixed assets. During the 2008-2010 global financial and economic crisis, state-owned enterprises obtained more than 90% of the state funds to stimulate the economy. Nevertheless, 80% of China's corporate profits come from 120,000 private SMEs, and less than 12 of large state-owned enterprises. Only under the conditions of monopoly are several state-owned giants such as Sinopec able to gain huge profits.

After reading this set of data, we can imagine what went wrong to create China's social and economic ills. The "China Model" is really an economic model of the socialist "big pot" that, like a vampire, relies on sucking the blood from the private economy, and getting subsidies from the so-called export-oriented economy, a way in gain benefit from damaging others. The semi-private market economies have to use the profit they make from the international market with their low labour costs to fatten this big pot of the state-run economy and enterprises of a few bureaucratic capitalists. Will the accumulated capital be used to expand and improve the technical elements of the Chinese economy? Most likely not.

Very few of the SMEs which make excess profits from their foreign trade undergo thorough technical updates, because the advantage of a low human rights standard seem to be so profitable. Since even the products of very poor quality can be sold, why spend money to update the technology? Coupled with the exploitation from official corruption, the actual profit these SMEs make is really not as much as in theory. Many of them are actually quietly transferring part of the profits abroad in order to facilitate their families survival under the social change. Who will own these companies after a technology upgrade? So the current bosses would rather not do this upgrade for other people's benefit.

Therefore, this so-called China Model, dominated by an export-oriented economy, has not done much after it obtained excess profits by relying on dumping in the Western markets. It does not form an effective accumulation in the Chinese society; it does not produce economic modernization in China; it also barely improves the technical content of China's economic entity. The results are the strange phenomenon we all see now. As soon as there is any sign of trouble with the international market, nearly half of small and medium enterprises close down. Yet there is still the statistical calculation of the GDP of nearly double-digit growth. This growth can be said to be a result of both inflation and fraud within the statistical system. Real economic growth should have been negative already. In addition to the low-tech factor within the SMEs, the Chinese Government's financial policy is the second most important reason for the massive business close down in China. During the global economic downturn, the government has increased investment to save the economy. This itself is understandable. However, this money was not really used to save the small and medium enterprises, but mostly flowed into the state-owned and bureaucratic enterprises due to political corruption. The big business enterprises, which were not lacking of funds to begin with, injected the state investment funds into the speculative market resulting in a huge bubble in the real estate market. So on the one hand is the closing of a large number of small and medium enterprises which were creating profits, while on the other hand is the expansion of the deformed real estate market in China, devouring the funds originally meant for protecting small and medium enterprises.

The most severe problem is the more than three trillion U.S. dollars foreign exchange reserves China has. These reserves should be used in exchange for issuing additional currency during the economic overheating time. During the recession, the government should apply a policy of collecting domestic currency in an effort to restrain inflation. The specific approach is very simple: allow converting foreign currency freely on the one hand and on the other hand raise the currency exchange rate. In this way the circulation of the domestic currency on the market will be reduced, and the inflation will naturally decline. But why does the Chinese government continue its stand, and not take such a simple measure? It is due to the difference between bureaucrat-capitalism and democratic politics.

From the viewpoint of bureaucratic politics, eliminating inflation is not beneficial for them to continue to earn excess profits. To collect the domestic currency of Chinese Yuan (RMB) from the people then raise the exchange rate of the RMB and free exchange, and eventually send the double-earned capital abroad would best suit the interests of bureaucratic capitalism. In addition, an appreciation of the RMB would make the current expensive housing market in China even more unable to find buyers. The collapse of the housing market in China would be a direct harm to the interests of bureaucratic capitalism. It would be absolutely unacceptable to the bureaucratic capitalist clique in China that is controlling Chinese politics now of course, the Chinese Communist regime that is relying on the support of the capitalists would not accept it either. Politics has become the politics for the capitalists, and already very far from the interests of the average Chinese. This is the root reason that the economic and social problems in China are not solved.

The view from the national interest and the Chinese people is completely reversed. Opening the free exchange of currency, and improving the RMB exchange rate, coupled with opening of a fair import market, will control inflation within six months. Not only will Chinese people's lives be better off, the upgrading of technology in SMEs will create better conditions. Imported technology and equipment will be relatively cheap. Combined with a relative expansion of the domestic consumer market, these policies will help the survival of small and medium enterprises. This will be good for the average people without any harm.

But, this would make the businessmen with black hearts making money from high prices lose profit. More importantly, the real estate tycoons in China who made a lot of money along with the bureaucratic businessmen in China by forced demolition and relocation of the Chinese citizens, may have to go bankrupt. As a result, China will lose half of its billionaires. Meanwhile the lowered house prices from the bankruptcy auctions will reduce the number of people who are facing housing hardship to half. In this round of interests confrontation, we can clearly see which kind of government the Chinese Communist Party regime is. It is a political power of the bureaucratic capitalist standing against the people.
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