Chinese capitalism provokes worker backlash

The drive to consolidate capitalism in China has provoked deep industrial unrest amongst the country’s working class. In the last few weeks we have witnessed violent workers’ struggles against the privatisation of two steel mills.

At the end of July, rioting broke out at the Tonghua Iron & Steel corporation, in Jilin province, where some 30,000 workers and their relatives reacted angrily to the threat of privatisation. They were told that 25,000 workers would be sacked. A spontaneous demonstration brought production at the site to a halt, got support from local residents and workers in other plants, and quickly cascaded into violence when the authorities sent thousands of police and riot police to break up the protest.

The so-called “Communist” government, which has betrayed the revolution, already laid off some 50 million workers in state enterprises in the 1990s, but many companies remain ear-marked for privatisation. In January an estimated 20 million of the country’s 130 million migrant workers had lost their jobs.

Chen Guojun, the interim general manager was sent by Jianlong, one of the country’s largest private business groups, to run Tonghua Steel. The workers were infuriated by his high-handed attitude. "With Tonghua Steel's retired workers each receiving only Rmb200 ($29) a month for living expenses, Chen Guojun was paid an annual salary of Rmb3m," stated a Hong Kong rights group. The management had also turned off heating in the factory and dormitories during the winter.

The owner of Jianlong, Zhang Zhixiang, was China's tenth wealthiest man in 2008, according to Hurun Report, with a fortune estimated at $2.9bn. Like so many of the new breed of Chinese capitalists Zhang is well connected to the state, and has been a delegate to the National People’s Congress.

When Chen Guojun returned to the plant, a large crowd of workers surrounded his office. He maintained a provocative attitude and ordered the workers back to work, threatening to have them all sacked. The workers proceeded to beat him up, but he managed to escape. When the workers finally found him again he repeated the threats: “If I so much as have one breath left in me, I will make sure that all of you are fired tomorrow!” He was beaten unconscious. Outside the factory, pickets of workers stopped an ambulance and police from entering the compound to rescue him. The thousands of riot police then mobilised by the authorities took several hours to bring the situation under control. In the end, Chen died.

Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province.Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province. The anger of Tonghua workers was the result of the way they had been treated by managers from the Jianlong group in the period 2005-09, when the company had a minority stake. As part of the privatisation process, the company had been stripped of anything that was not directly related to steel production (i.e. schools, hospitals and other services which used to be provided by the state-owned companies). While there had been an improvement of wages in 2005, when Jianlong first invested in the company, conditions then worsened. "They promised lots of new equipment, but it never arrived," said an employee of the company's coking plant. "They didn't invest in production. They didn't even maintain the equipment that was here before." It was a clear case of a private company squeezing maximum profits from a plant that had been built by the state. At the beginning of 2009, faced with the world economic crisis and its impact on steel consumption, Jianlong decided to get rid of its share of the company.

But then, as the Chinese economy started to take off as a result of the government’s stimulus package and Tonghua started to report profits again, Jianlong decided to reverse its decision and instead took a majority stake in the company. "It's like someone comes to your home to get something, and when they're about to leave, they find out that you're really rich, and then they try to stay," said the same worker quoted above.

After the worker uprising at Tonghua, the regional government decided to cancel the privatisation of the company and brought it back under state ownership. A number of regional officials of the party and the state were removed, as scapegoats for what had happened.

Steel workers at Henan also stop privatisation using militant tactics

In the second week of August, the state was forced to halt the privatisation of another steel plant after thousands of angry workers kidnapped the state official sent to oversee the takeover. The state-owned Linzhou Steel Corporation, in Anyang City, Henan province, was due to be privatised to Fengbao Iron & Steel Co. Ltd, but thousands of workers organised a protest, demanding the payment of unpaid back wages, higher redundancy compensation and generally opposing privatisation. “Restructuring” of the plant, which has more than 5,000 workers and pensioners on its payroll, had already started in 2008, in order to make it “commercially viable”, and in March 2009, the company had stopped operations and sent all the workers home. Workers then started protesting, twice blocking the highway.

Riot police tries to break up the Tonghua Steel workers' protest.Riot police tries to break up the Tonghua Steel workers' protest. On July 24, the same day the protests erupted at Tonghua, the sale of Linzhou Steel Co. was carried out, enraging the workers, who complained the price was below the real value of the assets of the company. When an official of the local body administering state-owned companies came to enforce the takeover, he was surrounded by angry workers (at first hundreds, but then as many as 3,000), who did not release him until four days later, on August 15, when the government issued an official statement cancelling the sale of the company. The statement by the regional government was only issued after its armed police had failed to break the workers’ resistance. The Linzhou steel workers in Henan were clearly inspired by the action of the Tonghua steel workers in Jilin, as shown by one of the banners they raised during the occupation which read: “Learn from the Tonghua Steel workers! Defend collective wealth!”

According to China Daily: “Most of the workers see the privatisation as a move to marginalise and ‘sell them out’ and to fill the pockets of the rich and the powerful.” And they are quite right. The privatisation of Linzhou Steel is a classic example of the way capitalism has been re-established in China. The Puyang State-owned Assets Supervision and Administration Commission, in charge of State-owned companies, evaluated Linzhou Steel's assets at about 320 million yuan. The workers insist that the enterprise is worth "at least 800 million yuan". To add insult to injury, the SASAC report, valued a Linzhou Steel-affiliated cement factory with an annual production capacity of 100,000 tons at no more than 17 yuan, which they workers rightly regard “as a joke”. However, when it came to the auction, the company was sold for 258.9 million yuan, or about 64 million yuan less than the initial bid at auction!

The workers also contest the argument that the Linzhou Steel is facing bankruptcy, which is the excuse being used to justify privatisation. But a senior employee, who has worked at the factory for 39 years, was quoted by China Daily saying that its management had "deliberately screwed up" to legitimize Linzhou Steel's privatisation. According to the workers, Liu Junsheng, Linzhou Steel's board chairman and general manager, told an earlier internal meeting that "the more we're in the red, the more it benefits Linzhou Steel's restructuring, and the more it benefits our purchase."

So what about the private group that Linzhou Steel was going to be privatised to? Fengbao Steel is owned by a well-known Henan billionaire, Li Guangyuan. A typical example of the new breed of Chinese capitalists, Li is a village Communist Party secretary, delegate to the Provincial People’s Congress in Henan and he is also the brother of a top general in the People’s Liberation Army. He started his business empire in the 1990s by taking over a former collective enterprise, using his position as a village party secretary to get a good deal.

One of the workers quoted by China Daily summarised the process in this way: “It's a classic model of how State-owned assets are lost in corporate restructuring efforts in China. All 40 years of Linzhou Steel's assets are now in the hands of a single person.” The history of the creation of Chinese capitalism is plagued by stories like this, showing the collusion between state officials and private investors (often former state officials or relatives of state officials themselves) to asset-strip state-owned companies and privatise them at bargain prices. A few well-connected individuals have enriched themselves massively by looting state property, at the expense of thousands of lay offs and the destruction of the social safety network that existed in the old state-owned companies.

Regardless of the legality of the process (and the legal system in China has still not fully been brought into line with capitalism), the workers consider privatisation as the theft of public property which they consider as theirs. This consciousness has not yet been fully erased from the minds of workers in state-owned companies and makes their resistance even stronger. Already in 2003, commenting on this, Hong Kong Chinese University professor Wang Shaoguang made the following observation: “In order to create a market economy, the moral economy [of the state socialist system] has to be destroyed and a new ethic has to be nurtured or imposed, something which will provoke protests against the logic of the market. Therefore, the development of the market requires a prolonged process of ‘legitimisation’ backed by the shield of coertion.”

The Chinese state at different levels, has not stopped these two privatisations because they think that they should remain in the state sector as part of a state-owned planned economy. On the contrary, it is only because they were faced with the rage of the workers and a mass movement involving tens of thousands which escalated into violence that they could not put down by force, that privatisation has been temporarily halted.

The role of the “unions” and “worker’s representatives”

The killing of the Jianlong manager in Jilin has opened a debate in China. The authorities are now saying that any process of privatisation must be conducted in such a way that the workers are fully consulted. The problem is that the official trade unions in China are just bureaucratic bodies aimed at mediating rather than defending workers’ interests, and as such have no internal life. A 34 year old Tonghua employee quoted by China Daily said that even though he and most the workers were union members; “I can’t remember the last time we had a conference with our union representative. The union certainly didn’t do any good the day Chen was killed.”

Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province.Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province. The position at Linzhou was similar. After the authorities had officially announced that there would be no privatisation (under the pressure of thousands of workers kidnapping the official in charge), a commission headed by the Party’s deputy leader in the city attempted to meet a group of middle managers at the plant to discuss “at a discrete location yesterday at which they asked mill management to gauge workers' attitudes toward a possible takeover”.

This has led the workers at Linzhou to demand that elected workers' representatives should participate in any talks regarding any restructuring of the company. According to a report in the China Daily, the workers said that their attitude had always been clear: against privatisation. “It was we, the working people, who stood up and fought for Linzhou Steel and got it back. We should be there at the meetings," said one of them. "How are these cadres, who tried to sell the company, capable of representing us in meetings with the government?" she asked. "Not one of them stood up when we were out there fighting for Linzhou Steel. Now that the fruits are ripe, here they are, trying to represent us" she added.

The union chairman at Linzhou Steel, Guo Jianjun, however, did not accept any of this talk of elected workers' representatives. He argued that official “workers' representatives” had already been chosen and that many of them were in fact … managers! "We've managed to keep the proportion of grass roots workers among these representatives in line with State regulations. But some retired in recent years; others left. So now, we may be having a few more managers as representatives than in the past," he said. "The workers' attitude now may be somewhat inappropriate. After all, it was they who recommended these people be their representatives." But according to the China Daily, the workers protested “that they never had any say in the election of the workers' delegates who will be involved in any talks.”

This shows how unions and other structures allegedly representing workers’ interests in China are just an empty shell, in most cases are controlled by the managers and actually block the representation of workers’ grievances and complaints. As a matter of fact, even the pro-business paper Caijing, is arguing for unions to be independent from the state and from management: “Checks and balances are needed to help unions that represent workers communicate with management and function independently, on the basis of rule of law.” Their reasoning is that if you do not give conflicts between workers and bosses a controlled channel through which to express, then they will escalate into rioting.

Media censorship

Another aspect of both conflicts has been how they have been reported in the official media. The Chinese state, faced with a situation in which between 200 and 300 million Chinese have access to the internet, has tried to adopt a more open policy regarding reporting. An article in Xinhua on July 24 recommended local governments release information about crisis situations by following a policy of "reporting facts fast, reporting causes with caution." That is, faced with a situation where the control of the flow of information becomes much more difficult, instead of suppressing it, it is considered best to report in order to be able to give the information a certain bias.

Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province.Massive workers' protest against the privatisation of Tonghua Steel Company in Tonghua City of Jilin Province. In the case of the struggle in Jilin, the official media nevertheless was silent for three whole days. On discussion sites and other web forums, references to the workers’ protests at Tonghua Steel were quickly deleted. The official media finally reported on what had happened only after bloggers had already published eyewitness reports in Chinese and English and the story had leaked to the world’s media. It is noteworthy that the first reports in the Chinese official media were in English and they insisted on the themes of downplaying the size of the protests, suggesting the role of obscure interests and outside agitators, and emphasising the legality of the privatisation auction. As if to make up for the embarrassment, the reporting of the struggle at Linzhou Steel was much quicker and it included many quotes from the worker’s opinions.

Steel overproduction and “restructuring”

The privatisation of Tonghua Iron and Steel Co. in Jilin and that of Linzhou Steel in Henan, are part of a general restructuring of the industry planned by the Chinese government. According to Luo Bingsheng, secretary general of the China Iron and Steel Association, China's crude steel-production capacity of 500 million tons capacity already far exceeds demand by 160 million tons, and yet, if current expansion projects are completed, annual capacity will be boosted by another 58 million tonnes. The authorities want to “consolidate” the industry so that there are just 10 or fewer steel-makers, controlling more than half of the country’s production, which can be competitive in the world market. Similar plans are being drafted for other industries, from car making and cement (where only 66% of capacity is being used) to coal mining, sectors which are also plagued with overcapacity. Faced with this situation, China's Cabinet now says it will try to cut overcapacity and excessive investment in industries including steel and cement.

What happened at Tonghua and Linzhou is an indication of what can happen if these “restructuring” plans are fully implemented.

The number of “mass incidents” has increased massively in the last few years in China. If workers get the idea that militant tactics can achieve victory in the struggle against privatisation and to defend jobs, then struggles like these will spread to other industries and other regions. The restoration of capitalism in China has created enormous social polarisation and intensified the class struggle. The authorities are clearly afraid that this accumulated anger can coalesce into a mighty explosion and are taking measure to try to prevent it. For example, they have prepared legislation to strengthen the 660,000-strong People's Armed Police, the country's main internal security force, which is responsible for putting down riots such as those in Tibet and Xinjiang in recent years. However, any concessions (like the cancellation of these two privatisations) can actually have the opposite effect of encouraging the movement by serving as an example to other groups of workers facing similar conditions.