Wednesday, March 18, 2009


From India News Network (INN)

New Delhi, March 18, 2009


B. S. Rao

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*Capitalism's Bankruptcy *

The American capitalist economy, over the years, has been burdened with financing of wars on Afghanistan and Iraq, lock up of trillions of dollars in unrecoverable housing, automobile, credit card loans, and all round losses for American banks and private companies. America's free market economy has turned into free market corruption. Consequently, the national debt for the people of America has soared to more than $ 10.6 trillion (Rs. 5,30,00,000 crores). The American economy now faces the prospect of facing trillion-dollar-deficit budgets in the coming years. According to one estimate, the US taxpayers will have to bear an additional burden of at least $ 9.7 trillion (Rs. 4,85,00,000 crores) debt in the next few years, as a result of bail out packages for the loss making private companies.



The economic bankruptcy in the West has resulted in loss of export market for the Chinese companies and presented new realities. A Chinese government survey revealed that over the past few months, more than 20 million migrant workers out of a total of 130 million, have lost their jobs due to the economic slowdown in the US and consequent loss of export market. According to a report in Peoples Daily, about 670,000 businesses or factories were shut down and 6.7 million jobs "evaporated" last year because of slump in export market. Besides another 5 to 6 million new migrants from rural areas join the job market annually. Further, the number of registered jobless urbanities increased to 8.86 million. Apart from the above, some 7.1 million university graduates, too are expected to face a hard time this year as the number of openings has been shrinking largely in cities.

Another serious problem being faced by China is that at least seven major grain-producing provinces in the country are reeling under severe drought, causing water shortages for millions of people and livestock. The dry spell since November has affected at least 9.53 million hectares of farmland or 43 percent of the country's winter wheat supplies, the Ministry of Agriculture said.

However, the Chinese socialist economy enjoys a surplus foreign exchange reserve fund of about $ 1.95 trillion (Rs. 97,50,000 crores). Besides the Chinese people have saved trillions of dollars over the years with nearly 40% savings rate which is one of the highest in the world. The Chinese economy is also backed by strong public sector companies, with eight of its companies in the top twenty of the world. All these financial strengths have been able to give the Chinese government the ability to tackle the slump in the export market and restructure the economy to suit the present needs.


Unlike the US, India and the European Union, where the governments are trying to come to the rescue of loss making private banks and private companies with bail out packages worth trillions of dollars and offering interest rate cuts, to create demand for their goods and services, without addressing the main problem of unemployment and loss of jobs to millions of people; the Chinese government has adopted the policy of protecting the jobs of the people, as the first priority.

The Chinese government has, therefore, as a first step asked the large government companies, especially those in labour-intensive industries to avoid mass layoffs. It is emphasized that "state-owned enterprises (public sector companies) should shoulder more social responsibility during the global financial crisis. The problem can be solved only through development, not by cutting jobs." Accordingly, many large state-owned enterprises have chosen to grant paid leave to employees instead of laying them off after suspending operations because of the global financial crisis.

Government companies in finance, oil, power and telecommunications sectors in provinces such as Hubei, Shandong and Shanghai have been urged to cut staff salaries instead of laying them off. "Promises of large SOEs can help boost the confidence of other firms … and stabilize the market," Liu Jansheng of the labour-wage institute of the Ministry of Human Resources and Social Security, stated. Stabilizing companies and stabilizing employment is the most important task, the ministry said.

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As the next strategy, the Chinese government has decided to spend trillions of dollars towards capital expenditure to create assets; and thus sustaining the employment and creating demand. This Chinese policy is aimed at diverting the export-oriented economic segments towards development of domestic infrastructure and creating national assets. The strategy is to sustain or increase the purchasing power of the people through creating more and more employment, to keep up the demand for goods and services.

Accordingly, the Chinese government is going ahead with huge projects in order to restructure the economy to suit the present needs of the country and its people.

*$ 730 billion railway expansion project*

In November, the Chinese government has announced a $ 730 billion (Rs. 36,50,000 crores) plan to expand railways in the country. The new railway projects are expected to create 60,00,000 jobs and consume 20 millions tons of steel and 120 million tons of cement. The plan envisages utilising the services of 30,000 professionals in railway design and geological survey. The Chinese railway ministry said that the country's national network is expected to grow by 41,000 kms to stretch up to 120,000 kms by 2020 from the present 79,000 kms. The project will include construction of new rail lines, doubling existing ones, and the electrification of certain other sections. The massive plan will include the construction of routes linking China to Russia, Mongolia and other neighbouring countries and the expansion of cross-country routes. Chinese spending on the construction of inter-city rail lines, the highest priority in the stimulus plan, is to double this year to $ 88 billion. The authorities disclosed that they had deployed 110,000 workers for the construction of a high-speed rail route from Beijing to Shanghai at a cost of $ 23.5 billion (equal to the cost of Three Gorges Dam Hydroelectric Project). Implementation of such massive projects shows that not only plenty of money was available, but also that infrastructure construction in China remained a labour-intensive activity that created a lot of jobs. The length of the railways on which passenger trains can run at up to 200 kilometers per hour, would be expanded to 50,000 km.

*$ 586 billion stimulus package *

The Chinese government announced a $ 586 billion (Rs. 29,30,000 crores) economic stimulus package in November 2008, to be implemented in two years. The government is drafting a plan to bolster the development of 10 key industries including steel, cement and automobile industries. The investment plan details focussed mainly on infrastructure, social welfare, lower interest rates for individual homebuyers, and improvement of income for retirees and the poor. The authorities said that the government would take measures to boost consumption and reduce enterprises' tax burdens in order to overcome the reduction in exports to America and other western countries.

*Infrastructure projects *

Besides laying passenger, freight and high-speed rail lines across the country worth billions of dollars, the transport ministry has announced that 300,000 kilometers of rural roads would be paved, re-paved or otherwise improved this year.

Apart from transportation, most of the rest of China's national restructuring funds will be spent on airports, highways, ports, bridges, sub-ways and environmental projects, particularly water treatment plants etc. More than 6,000 reservoirs across China will be fortified. In the direction of maintaining self-sufficiency in food production, the economic restructuring plan calls for increasing the arable land as can readily be brought into cultivation. The central government is also urging the local and provincial governments to go ahead with a planned expenditure of $ 2.6 trillion (Rs. 1,30,00,000 crores) on various projects. **

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*Public Sector packages *

Unlike the capitalist countries like India, which do not have strong government companies but based their economies on manipulated (stock) markets and corrupt private enterprise, the Chinese socialist economy is backed by a strong and healthy public sector. Various restructuring packages have been announced on the strength of these the State-owned-Enterprises.

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**** Telecom package of $ 40 billion : *In January, China announced an investment of 280 billion yuan# (about $ 40 billion) in network upgradation and expansion over the next two years in telecom sector, including 3G licenses. The investments in 3G networks are expected to benefit domestic telecom equipment makers as well as foreign firms. In the meantime, the numbers of Chinese telecom subscribers have reached 61 crores in mobile sector; 31.5 crores in fixed-line sector and 6.9 crores in broadband users.

**** Petrochemical package of $ 72 billion : *China has prepared a 500 billion yuan stimulus package for the petrochemical industry to be implemented in 2009 and 2010. The package includes 100 billion yuan investment for oil products upgradation and investment of 400 billion yuan for construction of 20 new large-scale petrochemical projects. The package will focus on restructuring of oil products and improvement of technology.

**** $ 123 billion health care package : *In January 2009, the Chinese government announced a 850 billion yuan package to provide accessible and affordable healthcare to the country's 130 crore people, by 2011. The plan also aims to improve health centres in rural and remote areas as well as equalize health services between urban and rural areas. Furthermore, the government began this year to reform the operations of public hospitals.

The ongoing reform of China's medical care and education systems would increase domestic consumption, especially spending in rural areas, significantly. That would help the country's more than 700 million rural residents.**

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**** Retail trade package : *The Chinese government planned to build 510,000 "countryside" stores by 2010 to increase rural spending and add jobs. The aim is to encourage consolidation in the retail sector to increase domestic consumption. The government plans to establish 150,000 retail stores in 2009 in addition to the current 260,000 stores so that, rural residents can purchase safe, quality products. Jiang Zengwei, Vice-Minister of Commerce said, "We could create about 775,000 jobs by the establishment of these stores by 2010." He added, "The government would also support consolidation in the logistics and distribution sector and the creation of several cross-regional, large-scale circulation enterprises" (in freight, forwarding and distribution).

All the above mega projects that are now coming up for implementation in China require large numbers of experienced engineers, skilled workers and architects, as well as specialized equipment. The combined national, provincial and local spending, running into trillions of dollars, for economic restructuring promises to change the face of China, giving the country a world-class infrastructure, employment opportunities and better life style to the people. The increased expenditure on infrastructure will certainly contribute to China's productivity growth and improve its long-term competitiveness, allowing it to pull away from its Asian neighbours, who are much more constrained by higher levels of budget deficits and public debt, said Eswar Prasad, a senior fellow at the Brookings Institute.

On January 11, Chinese prime minister Wen Jiabao stated, "We have achieved initial success from the policies we adopted to counter the financial crisis." He also disclosed that the Chinese economy had performed "better than expected" in December and that the country should be confident of becoming the first to recover from the global economic meltdown.

*($ 1 billion = Rs. 5,000 crores)

# (One Chinese yuan = Rs. 7 (approx.))

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