Sixty years ago on October 1, 1949, Mao Zedong, head of the victorious Red Army and chairman of the Central People’s Government, stood at the entrance of the Forbidden City and solemnly declared the founding of the People’s Republic of China (PRC). Before him stood a celebratory throng of 300,000 assembled in Beijing‘s giant Tiananmen Square. Mao’s large iconic photo hangs today on the same exact high-walled entryway bearing witness to that historic day.

 

Of course, the Chinese government is planning spectacular birthday festivities for its upcoming National Day and for good reason, there is much to celebrate. In 1949, China was an underdeveloped country torn apart by a devastating 1937 Japanese invasion and by a bitter civil war induced by rival foreign colonial interests going back a century.

 

Today, China stands as the third-largest economy in the world. It has also just successfully rebounded from the global slump to post over 7% growth so far this year. This is quite impressive even though below its usual double-digit expansion of the last decade.

 

This revival is even more notable because of the dramatic 20% decline in exports, once the driving force of its economic engine.  So what is the explanation?

 

Unlike the U.S. Congressional scatter-shot bailout which squandered billions to compensate bankers and investors for their losses, China‘s non-capitalist central government allocated a record-setting $586 billion in late 2008 that concentrated laser-like on building infrastructure and on boosting consumer spending.

 

By comparison, it is the largest stimulus of any recovery program, anywhere. It already accounts for 13% of China‘s GNP and more money has been promised if needed.

 

For example, substantial new expenditures were just announced in May, 2009.  Set aside was $290 billion to subsidize purchases for a variety of modern home kitchen appliances and another $733 million for purchases of more efficient automobiles.

 

The "swapping new for old," as it is dubbed, is a more inclusive version of President Obama’s "Cash for Clunkers." Though limited to automobiles, "Cash for Clunkers" was heralded as one of the few success stories of the U.S. stimulus plan.  However, amid criticism of too much government spending, it was recently terminated whereas China is discussing extending its broader "new for old" exchange program into 2010.

 

In its September 7, 2009 issue, Business Week asks for an assessment of the U.S. stimulus plan from financial guru John Gutfreund, the same man they coronated twenty five years ago as "King of Wall St." "The U.S. has had some successes, but fundamentally," Gutfreund frankly observed, "it’s been successful in bailing out the big banks. It hasn’t been lending to the public. The biggest loan to the public is the car deal, which is ending."

 

Apparently, China is just more serious about stimulating domestic spending to get its industry moving again against the backdrop of a severely depressed world market.

 

For example, a massive rail network is under construction that will extend to virtually every city, town and county. China is far outspending U.S. rail expenditures by building this extensive, environmentally-friendly and ultra-modern national transportation system comprised of heavy rail for freight, commuter rail for urban dwellers, light rail for short-travel convenience and high-speed rail for long distance.

 

This goes hand in hand with China‘s monumental efforts to curtail greenhouse gas emissions. President Obama recently described it to Congress as "the largest effort in history to make their economy energy efficient."

 

In the United States, such massive spending programs would be ridiculed as involving too much government and incurring too much debt. But in China, it is seen as organizing critical construction projects, producing socially valuable services in education and healthcare and invigorating depressed domestic consumption.

 

Of course, all this has the additional benefit of employing millions. In this, China‘s approach is starkly different from the United States and, it appears, a lot more successful.

 

In a world plagued by low industrial production, China’s industrial output grew by 9.1% in the second quarter of 2009 from a year earlier, according to RTE Business (July 16, 2009). In June, industrial output grew by 10.7%. This illustrates bustling activity in the nation’s millions of factories and workshops.

 

Progress at a Price 

 

The country’s economic development particularly accelerated after July, 2001 when the government first learned it was hosting the 2008 Olympics. But the frantic pace of economic growth has left some huge noticeable gaps, both socially and economically.

 

Regarding the economy, there were already significant imbalances in the government’s strategy even prior to the recent world market collapse. For too long, China’s emphasis on investments in steel, heavy machinery, textiles, garments and electronics for the export market far exceeded consumer-friendly domestic production in health, education, housing, the environment and social services.

 

This lop-sided investment strategy produced two related phenomenon. The focus on an export-oriented economy accounted for the huge trade surplus that reached a milestone in 2008 of $2 trillion.  At the same time, low capital investment in commodities geared toward domestic consumption resulted in substantial savings among consumer-deprived Chinese workers.

 

China is, therefore, a country flush with unspent billions of dollars, explaining why world-class premier investors have set up shop in the country.

 

These foreign enterprises earn big profits employing an educated, low-wage workforce represented by a rather compliant state labor union (ACFTU). The 200-million member union has, up until recently, been reluctant to challenge the multi-national investor "guests" who were treated more as partners than as collective-bargaining adversaries.

 

In addition to these economic distortions, there are accompanying social inequalities derived from past concentration on export production.

 

Critics are quite justified who assert the country’s rapid modernization conceals significant underlying injustices which are especially acute in the rural areas where half the nation’s 1.3 billion reside. Despite current massive stimulus spending, the countryside is still brewing with discontent.

 

According to Ministry of Labor 2007 statistics, there are 100 million unemployed farmers with another 26 million returning migrant workers recently displaced from city jobs.

 

It is a growing concern for authorities, especially when coupled with the glaring income gap between urban and rural workers.

 

According to the Chinese Academy of Social Sciences, "the urban: rural income ratio averaged about 5 [to 1] in 2008 by contrast with the gap in 2000 when the ratio was 2.79 [to 1]."

 

Enormous domestic investments by the government are an attempt to resolve these contradictions but it may be a matter of too little too late.

 

Modernization despite Mistakes

 

Nonetheless, encompassing almost 20 percent of the world’s population, modern China records some staggering statistics that would impress the most skeptical Westerner. For example, the nation has 670 million registered cell phone users, 298 million internet users, 50 million bloggers and 184 automobile drivers. [ChinaToday.com]

 

Over the years, China‘s example has consistently demonstrated the enormous advantage of centralized government planning, even though, like its former corrupt Soviet allies, its progress is seriously hampered and grossly distorted by the ruling center’s entrenched bureaucratic composition and thoroughly undemocratic orientation.

 

Massive inefficiencies and waste result from not democratizing the bureaucratically planned economy. In addition, when the people are not consulted they are far less sympathetic to the sacrifices they are asked to make when these mistakes interfere with their lives.

 

Nonetheless, China’s historic leap from oblivion into one of the top 21st century economies and its impressive results from recent stimulus initiatives both vividly illustrate the basic superiority of a centralized rational investment plan, even one so intrinsically flawed, over one dictated exclusively by the mad, chaotic rush for individual profit.

 

This fundamental divergence explains why we in the United States still see the wealthy few experiencing more of a recovery than the rest of us.

 

Carl Finamore lives in San Francisco and can be reached at [email protected]  He has previously written on China labor and industrial policy.

 

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