Sleeping giant threatens rule of China's corrupt elite

China is in the grip of a profound social, political and economic crisis. The evidence is there in corruption scandals, a fading economy and a rising tide of desperate resistance by ordinary people.

Several senior staff at GlaxoSmithKline's China operation are under arrest for bribery. They gave doctors and officials billions of yuan's worth of foreign travel, supplied prostitutes and handed over cash in return for boosting GSK products. More arrests are said to be imminent.

The trial has begun of former Communist Party (CPC) high flier Bo Xilai, accused of taking bribes, embezzling money and buying sex. He is the politician whose wife faces life imprisonment for allegedly murdering British businessman Nick Heywood. Similar charges were proved against former railways minister Liu Zhijun who was given a suspended death sentence.

The fact that it is these two officials on trial and not others, is only due to the fact that they are losers in continuous in-fighting in the CPC. The fact is that they are all at it.

Users of Weibo, the social network popular in China, are more and more taking their courage in their hands and publishing hundreds of accusations. Particularly disgusting are the stories of mass abuse of women. It seems the CPC has reintroduced the feudal crimes of concubinage and forced prostitution.

The impossibility of getting any redress through the courts or government is leading people to acts of total desperation. This month alone:

- an unemployed man set off an explosion on a bus in the south eastern city of Xiamen, killing himself and 47 others. Chen Shuizong left a suicide note expressing despair at being totally impoverished.

- in Dongxing, Guangxi, a villager stabbed to death two CPC officials trying to enforce the one child policy. Their crime is not entirely clear, but it is likely they were trying to force the man's wife to have an abortion.

- at Beijing airport, a man in a wheelchair injured himself by detonating an explosive device. It seems 34-year-old Ji Zhongxing, from the eastern province of Shandong, was protesting the authorities' refusal to investigate the beating he received from police in 2005, which left him partly paralysed

Driving this social and political upheaval is a deepening economic crisis. Growth continues to slow and exports fell 3.1% in June compared to the previous year, the highest monthly fall since the global crash. The price Chinese firms can get for their products on the global market fell for the 16th successive month.

The government is trying every way, from enforced retraction to Keynsian investment to fiscal measures, to shore up growth. Banks have been told to stop lending to businesses in sectors where there is oversupply, particularly industries making materials for construction. Local authorities have been instructed not to give land or planning permission to any new ventures in these sectors.

A collapse in tax revenue from falling consumer sales has added to the sense of crisis. The government has responded by lifting credit controls, to encourage people to borrow to buy consumer goods.

The government has pledged to keep unemployment below 5% and to improve its image. A commission is trying to convince people they are now "down-to-earth, honest and upright", and to regenerate support for nationalism and what they call, without irony, "the Chinese dream".

Hong Kong's relatively independent Oriental Daily News concludes that: "If the ruling authorities cannot reverse social injustice, narrow a rich-poor divide, eliminate bureaucratic officialdom and combat judicial malpractice to create a fair and equitable social environment where the weak have hope and where most people can live in equality and dignity, cases like the fatal stabbings on the streets of Beijing and the Xiamen bus explosion will not stop."

An increasingly confident working class is demanding and getting better wages and conditions. As a result, firms are moving out of China to even lower-wage countries. The CPC bureaucracy knows that they are facing a sleeping giant which when roused will shake the rule of the corrupt elite of oligarchs and local tyrants.

Penny Cole

Global economy can forget China 'rescue'

Once hailed as the country that would ride to the rescue of global capitalism, China is now gripped by political turmoil and, increasingly, serious economic difficulties that are already impacting on the rest of the world.

The renewed disorder on world markets is not only related to the likelihood that Spain and perhaps Italy will soon need bailing out because they are unable to finance their debt burden. Falling share markets are also a reaction to the news from China, where the world’s third largest economy has stalled amidst an unsavoury power struggle at the top of the ruling Communist Party.

In a spectacular fall from grace, Bo Xilai, son of a revolutionary hero, was yesterday suspended from the 25-member politburo and the larger central committee while his wife, Gu Kailai, was arrested on suspicion of murdering British businessman Neil Heywood. Bo had already been dismissed as party chief in Chongqing.

Heywood was found dead in a hotel room in Chongqing on November 15. A mercurial and murky figure, Heywood was a close associate of Bo’s and is also thought to have worked for British intelligence in China. At the time of Heywood’s death, police in Chongqing informed British consular officials that he had died from “excessive alcohol consumption”. His body was quickly cremated.

From his power base in Chongqing, Bo earned a reputation for ruthlessly smashing organised crime, increasing foreign investment and running Maoist-style campaigns involving singing contests and sending people out to work in the countryside. He was seen as an opponent of and a threat to the pro-free market leadership in Beijing.

Bo upset the local business elites and outgoing Chinese premier Wen Jiabao targeted him personally in his farewell briefing at the National People’s Congress, warning that the country could not tolerate another upheaval like the Cultural Revolution of 1966-76 that Mao set in train.

Behind the power struggle between elite factions/families in the party hierarchy is an economy that is unbalanced and heading towards an almighty crash. A sharp fall in imports indicates that the Chinese economy is not growing fast enough to take the strain of decline in consumer demand in other countries.

Imports in March increased at almost half the pace predicted by analysts, with the rate of growth more than seven times less than in February. The economy probably expanded 8.4% in the first quarter. That would be the slowest pace of growth since 2009. There is no way China is going to rescue world capitalism.

Michael Pettis, a professor at Peking University's Guanghua School of Management, says says the Chinese model is based on repressing consumption in favour of capital expansion. He warns:

As a consequence of this consumption-repressing growth model, Chinese growth is driven largely by the need to keep investment levels extraordinarily high. What’s more, the very high growth rate in investment, combined with significant pricing distortions, especially in the cost of capital, has resulted in massive overinvestment and an unsustainable increase in debt.

Add in concerns over “shadow banking” - underground lending and investing networks estimated to total $1.3 trillion - debt-laden regional authorities and rising inflation, and the political power struggle in China takes on a new significance.

The global crisis is now pretty much uniform in its appearance: political crisis at the top of the state, indebted economies unable to deliver much-vaunted growth to keep recession at bay and a widespread discontent amongst ordinary people. No resolution of multi-sided problems are in sight and a long period of social upheaval, assuming a revolutionary character, is definitely where we heading for.

Paul Feldman
Communications editor