The Wenzhou pilot program

After Bo’s ouster, capital takes another step forward

Struggle in China, Part 5

By Fred Goldstein

• Part 1: A critical moment in China
• Part 2: Capitalist crisis versus planning
• Part 3: The Chongqing vs. Guangdong models
• Part 4: Right-wing goes on the offensive
• Part 5: After Bo’s ouster, capital takes another step forward
• Part 6: Imperialism hails Chen, attacks Bo as Wall Street gains in China-U.S. talks
• Part 7: Global economic slowdown & leadership struggle in China
• Part 8: U.S. remains hostile to China

The campaign in China to discredit Bo Xilai has reached a new crescendo. Every newspaper, television and radio station in the country has carried official statements and editorials attacking Bo and repeating the charge that he is under investigation for unspecified “serious disciplinary violations.”

The factions in the Chinese Communist Party leadership that are in charge of this campaign are afraid to attack Bo for his progressive policies when, as party secretary for the megacity of Chongqing, he tried to reduce inequality, built low-cost housing for workers, allowed peasants to move to the cities, and promoted “socialist values” and the singing of “red songs” of the Cultural Revolution era.

Ironically, Bo’s case has become the occasion for a national campaign against corruption, implying that corruption and Bo are somehow linked.

In fact, Bo initiated a powerful campaign in Chongqing against corrupt government officials and business people as well as party officials and the criminal underworld. Prior to Bo’s ouster, his campaign drew much support throughout China, which is rife with corrupt officials.

Numerous officials close to Bo are also under investigation as the campaign of vilification and intimidation reaches greater and greater heights. This can only signify fear of support for Bo and a determination to stamp it out.

Wen: Break the ‘monopoly’ of state banks

Meanwhile, another sequence of events has unfolded, culminating in the approval of the so-called “Wenzhou pilot program.” This sheds light on the underlying political issues in the factional struggle.

On March 15, Premier Wen Jiabao made a public attack directed at Bo: “Reforms have reached a critical stage. Without the success of political reforms, economic reforms cannot be carried out. The results of what we have achieved may be lost. A historical tragedy like the Cultural Revolution may occur again. Each party member and cadre should feel a sense of urgency.” The following day it was announced that Bo had been removed from all his posts.

Wen has been a leader of the right wing in the Chinese Communist Party leadership. He has pushed for bourgeois-style political reform and for deepening and widening the role of the capitalist market in China.

On March 28, Wen presided over a State Council executive meeting that approved moving forward with the legalization of private capital lending to businesses in the city of Wenzhou, a practice that had been illegal. (xinhuanet.com, April 5) Up to that point, the right to extend commercial loans in Wenzhou had been restricted to state-owned banks.

Wenzhou is a manufacturing and commercial coastal city of 3 million, with a metropolitan area of 9 million. It has been a key center of the development of capitalism in China since the beginning of the introduction of so-called “market socialism” in the late 1970s under Deng Xiaoping.

According to the Jakarta Globe (online) of April 4, Wen declared over China National Radio that the country needed to break the “monopoly” of the state-owned banks.

“In regards to financing costs, let me honestly say that our banks are making a profit too easily. Why is this so? It’s because a few big banks are in a monopoly position. Only when we approach these banks can we successfully get loans, if we go to other places it is very difficult.

“What we can now do to ease private capital flow into the financial system, fundamentally speaking, is to break this monopoly.”

The Indonesian newspaper commented that “China has seen an explosion in underground lending fueled by credit restrictions, raising concerns among top leaders about a surge in bad debts and defaults in the private sector.

“Independent business owners have had to borrow money at high interest rates from informal lenders after being rejected by major banks, who favor other state-controlled enterprises.”

Chinese private finance capital
gets a major boost

The Wenzhou pilot program is a further breakthrough for private capitalists. It allows private capital to flow into the city. This private finance capital can be concentrated and grow. It will significantly enhance the accumulation of capital by the bourgeoisie.

Private financing also weakens the control of the state banks over investment decisions and the allocation of national resources. The state banks operate on a commercial basis but are ultimately under the supervision and direction of the Communist Party, the government and the state planning apparatus. In this capacity they are able to lend according to national development policies and priorities, even when this lending conflicts with profit margins and the capitalist market.

Plans for the Wenzhou pilot program have languished in the State Council for a long time. The capitalists of Wenzhou were damaged by the world capitalist crisis of 2007-2008 and have been pushing for financing to recover and grow. According to the Beijing Review, “The idea of changing Wenzhou’s financial environment first emerged in late 2011, and the long-awaited decision came as underground private financing activities in Wenzhou have stirred up financial disputes and crime while threatening Wenzhou’s financial and economic stability.” (bjreview.com, April 16)

The discussion of the Wenzhou experiment actually goes back further than late 2011. It has obviously been the subject of internal struggle. In fact, at one point permission was granted for expanding foreign investment quotas for Wenzhou, but then was cancelled. But the important point is that it was only after Bo was pushed out and Wen and his faction had seized the initiative that this unleashing of private finance capital in Wenzhou was finally approved.

The Beijing Review continued: “According to the program, informal moneylenders will be encouraged to register as private lending institutions free to operate with the blessing of the state.

“The participation of private capital — in the form of setting up or taking shares of rural banks and credit companies — is encouraged and supported in the reform process. Eligible micro-finance companies could be transformed into rural banks. Private funds will also be guided toward the establishment of venture capital and private equity activities as well as other types of investment bodies. [Our emphasis — FG]

“‘The program points out the direction in which the private capital should be channeled. The registration requirement for private capital will turn underground private lending into formal lending above it,’ said Zhang Yili, Vice Dean of the School of Business with Wenzhou University.

“The private lending industry in China was estimated to have grown to 4 trillion yuan ($634 billion) last year, according to a research report issued by CITIC Securities based in Beijing.

“In Wenzhou the size of this industry was about 180 billion yuan ($28.57 billion), with nearly 90 percent of the city’s residents involved in the loan-shark business, according to the Bank of Wenzhou, the biggest local commercial bank.”

In essence, this means that loan-sharking is being legalized, giving free rein to almost $30 billion in finance capital to operate on its own in Wenzhou.

World Bank and Wenzhou

The passage in the Beijing Review article referring to the establishment of venture capital and private equity firms is important to note. In the 450-page World Bank document entitled, “China 2030,” co-sponsored by the Development Research Center, an organ of the State Council, there is a strong recommendation to transform the state banks, and part of that recommendation includes setting up exactly the same model of private finance capital as recommended in the Wenzhou program.

The document said: “A key advantage of capital markets relative to banks stems from the fact that multiple potential investors valuate business opportunities, which can help assess the viability of new technologies. Venture capital and private equity industries will have to play a bigger role in financing technologically advanced industries. [Our emphasis — FG]

Institutional investors will also play an increasingly important role in the development of China’s capital market.” (“China 2030” by the World Bank and the Development Research Center of the State Council, People’s Republic of China, p. 128)

Since the ouster of Bo, Wen and the State Council have been rushing to set up the very institutions recommended by the World Bank, which speaks for world finance capital.

In addition to setting up private financing to rival state banks, the “experiment” is going to raise the limit on foreign investment from $50 million to $200 million and expand the scope beyond state control. “The new policy stipulates that the maximum direct investment per year should not exceed 200 million USD for individual, and 1,000 million USD for multiple individuals in the same project. Investors can set up non-financial enterprise overseas through establishing, merging, or shareholding; they can also gain the ownership and management of the pre-existed non-financial enterprise overseas through the ways aforementioned.” (U.S.-China Policy Foundation, April 6, uscpf.org)

The Beijing Review quoted authorities who approved of the changes: “‘The reform will pull Wenzhou’s real economy out of the predicament it now finds itself in and regain the reputation of Wenzhou’s private enterprises,’ said Zheng Chen’ai, Director of Wenzhou Fashion Association.

“‘The government aims to test the waters through Wenzhou and then accumulate experience for the nationwide reform,’ said Guo Tianyong, Director of the Research Center of China Banking Industry at the Central University of Finance and Economics.”

So Wenzhou was suffering from a capitalist crisis. There are close to 400,000 businesses there. Perhaps one-third of them are in crisis.

This crisis in the birthplace of Chinese capitalism under the post-Mao regime of “market socialism” is also a crisis for the working class of Wenzhou. Not a word about their crisis has been issued by the State Council. It is all about the flow of capital.

It is in this perspective that the struggle against Bo should be seen. He raised the slogan of “Red GDP,” meaning that development has to be achieved with concern for the workers and peasants. This slogan is a far cry from a demand for a full return to socialism. But from a class point of view, given the struggle in China, Bo’s orientation is a reflection of the needs of the masses as opposed to Wen, whose outlook is a carbon copy of the program advanced by the World Bank and world capital.

Fred Goldstein is the author of “Low-Wage Capitalism” and “Capitalism at a Dead End.” More information is available at www.lowwagecapitalism.com and the author can be reached at [email protected]

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