[MUSIC] Another key component of China's political economy is the state sector. And as I mentioned in the introduction, the CCP, the Communist Party favors the public sector over the private sector. Nevertheless, what we do see is that beginning around 1994, similar to the time when the TVEs, the township and village enterprises, began to decline. We also see the beginning of the decline of the state sector. And this is partly because their industrial profits, as a percentage of GDP began to decline significantly. And it shrunk from 14% in 1978 to 6% in 1987, and then to less than 1% in 1996. As I mentioned, the public sector was burdened by over-employment, welfare responsibilities. For actually millions of retirees because if we think about it, many of the people were brought in to work in factories in the 50s and 60s. And so, by the 80s significant number of them were already well into their late 50s and 60s, and were coming to retire. Now, the Communist Party had tried deal with this problem, and one of the ways that did was to argue, or to call for a changed in the ownership structure. Particularly of the small and medium sized enterprises, and so what the 15th Party Congress in 1997 Jiang Zemin called for this change in ownership structure. But if you recall, as I said before when I was talking about policy implementation, sometimes the center would say something, and would have anticipated that this is the way it was going to be done. But the local people, the local leaders, would do what they wanted. And so in fact, what happened was, by the summer of 1998, China underwent a massive privatization of these small and medium sized public collective, or public owned enterprises. And the government, and the party itself had to put out a call for gradualism by the summer, but local officials just did not want to listen to that. They saw this as a great opportunity to divide up the public sector to privatize it, and to get their hands on a lot of resources. And so, what we witness is, what we call asset stripping, which basically means that mostly the managers in state-owned enterprises became new owners, or they privatized the firms. And then sold off all of the equipment, leaving millions of workers without jobs, and with no share of the enterprise's value. Now here's a figure that I borrowed from the work of Barry Naughton who plays an important part in this discussion of the state on enterprises. I borrowed some of these ideas from him, and this is his figure. And it shows a significant decline in the SOE profits from 1978, and so as I mentioned, it really starts to come down here in 1980. Well, even back here it was up 14% in 1978, then takes a big dive down to 85, which is when they try to carry out the reforms, and then it continues to decline. And so by 1996, 1997, as you can see, it's really down to 1%. And that's when the party really decides to downsize, to really cut the size, cut the number of state-owned enterprises. And this is when they start to recover, and their plan is already here, they've got by 2004, they're back up to 14%. Now, in the analysis of factories, enterprises in the post-Communist era. Looking both at Eastern Europe, and the Soviet Union, there was a big debate among the economists as to what's the best strategy to use to reform these economies. And the two views were Gradualism, and what's known as the Big Bang. And the Big Bang means just you privatized all of these firms all at once. And this is what they did in Czechoslovakia, they did this in lots of other countries. Now, most people would argue that China and never underwent to Big Bang, which is one of the reasons why it was slow, gradual, and slow. But not and would argue that in fact this discussion that the privatization it happened in 1994 through 2000, and particularly in the summer of 1998, really was China's own Big Bang. And so, what we see in terms of the employment of factory workers between 1993 and 2000, we see 30 million state-owned enterprise workers being laid off. Then collective enterprise, and state enterprise, state bureaucrats losing their jobs, so in total, urban China loses about 50 million jobs within 10 years. Let me repeat that, urban China loses 50 million jobs within 10 years. And if we include the privatization, or the closing of township and village enterprises, which laid off about 30 to 35 million rural workers, the total loss was about 80, it says here 80, but 80 to 85 million jobs. 80 to 85 million jobs, that's more than the entire population of United Germany. More than the entire population of France. And so the number of public sector workers declined significantly from 24% of the labor force in 1996 to 7% in 2003. So here we can actually see the number of newly laid off workers every year, from 1993 until 2003. And the peak years are really 1996, 1998, 1999, again here's the privatization that I talked about. But in all these years, and so the total these are just state-owned enterprise workers, so we've got the TVE workers on top of this, and then the administer people working in the bureaucracy. So, we can see that China underwent a significant layoff of workers. Now, the social and political implications of this were very important. I remember going back to China, and talking to people, and many, there was social unrested in these particular periods. Different cities, there was some unrest. The working class really faced a great insecurity in terms of finding jobs, the retirement benefits, the state didn't have the money, or wasn't willing to spend the money. Housing became somewhat of a problem. Medical costs became a problem. Actually, if you got seriously ill state-owned workers, these workers who retire would just be in a terrible situation. And because of that, the Falun Gong, which is a spiritual movement was able to mobilize many supporters among retirees. And sort of based on a Chinese traditional breathing exercise called Qigong and a spiritualism, and it was able to mobilize people. It promised them good health if they would do particular breathing exercises, and it became a very powerful movement in China. And at one point they put, in 1999 they put about 20,000 people outside of Zhongnanhai, outside of the area where the top leadership lived. And surprised, completely surprised the Communist Party, and the Public Security Bureau. And so after that the CCP cracked down very, very hard on Falun Gong, and arrested, the claims of torture, all kinds of problems for these people. But at every local level, there was a need to try in all of the districts within major cities, there was a real effort to control these people from getting organized. Second aspect was the rise of a new middle class, a new private sector within China. Because in 1999, the National People's Congress passed a new law, that changed the private sector from being a, quote, supplement to the public sector to becoming a core component of the national economy. And what this really did was, it legitimized the management buyout that had happened in 1997, 1998, and 1999. It's because people had taken over these enterprises, and privatized them, and then all of a sudden, Jiang Zemin in 2001, talks about the middle class, now is a key part, a key supporter, the base of power for the Communist Party. And shifted it from the group that had always been seen as the base of power for the Communist Party, which was the worker, the peasants, and the soldiers. And he did this through his concept of the three representatives. And that was a significant change for the working class in China. Now, despite the decline of the state-owned sector by 2003 as I showed you, the state sector re-emerges beginning around 2003. And one of the ways that it does this is that the state council establishes this new organization, called the State-owned Assets Supervision and Administrative Commission in short we call it SASAC. And by 2003, they owned, approximately a 196 enterprises, and these were very important enterprises, these were the key enterprises which remained publicly owned. So they privatized all of the small and medium size enterprises, but they still maintained public ownership over these new or these continuing enterprises. And these were large enterprises in sectors that were monopolies, some of them natural monopolies like telecommunications, some of them were oil sector, oil companies, energy companies. It was also important I think to keep these enterprises strong, and vibrant, because this did give the Communist Party a base of support, still within the working class. Even though it had laid off a significant number of workers. And SASAC, still by about 2006 owned and controlled about 33% of the total industrial assets nationwide. So again, even though we see the decline overall of the public sector, there is a kind of consolidation that occurs within the SASAC companies. And many of them spin off subsidies, smaller subsidy is more efficient, and try and make them more Westernized. And then to get capital for these enterprises, they put them out as public offerings, IPOs on stock markets in Hong Kong, and in New York. Now, here's a figure or table, again borrowed from Naughton, from about 2006, which shows that in certain oil ferrous, sort of the iron enterprises, electricity, telecommunications, military industry. Here they have the number of firms, and then you can see over here the total number of workers, 66% of the total number of state-owned workers were in these firms. And the here we have 5.69 million workers. So, these were still quiet, quiet strong and quiet powerful firms, but i said before the number continues to decrease.
