Good morning, everybody!
Today I will explain the sixth crisis in China
That was in the 1980s
and we are trying to give a more detailed explanation
about the economic system reform
Most people from China and abroad
know that China started the economic reform
since the late 1970s and early 1980s
Last time
we gave a background analysis to tell people
that the economic system reform was caused by the fifth crisis happening
in the late 1970s and the early 1980s
It was because a large amount of foreign capital flew into China in the 1970s
because at that time
China re-established diplomatic relations with Western countries
This time we are trying to give a more detailed explanation
about the background
Why since the 1980s
China could accelerate the economic reform
and also have so-called high growth since the 1980s
First, we must notice that
the 1980s was a new historic era in the name of neoliberalism
We have a picture to show that
since the 1960s industrial capital expanded
but most of these countries that gained independence
after the Second World War were still very poor
Western countries reindustrialized after the Second World War
could produce a large number of industrial goods
but there was no [big enough] market
From the 1960s
most of these industrialized countries fell into social chaos
And a lot of left-wing movements encouraged by Maoism in Western society
became very serious
and thousands of people joined these social movements until the 1980s
You can see that the historical difference is very clear
In the 1960s
every decade, every year
Fordist and Keynesian?model declined
Mass production is kind of typical of Fordism for the industrialization
for the expansion of industrial capital
But from the 1960s to the 1970s
they could not generate enough capital accumulation
so it decreased every year
until the 1980s
The 1980s are very important
because in the late1970s and early 1980s
when China as the country with the largest population
and the biggest market size
started to absorb Western countries’ surplus industrial capital
it immediately gave rise to a new phenomenon
Here you can see that
the real production in the West decreased every year
but overseas capital returns increased
since the late 1970s and early 1980s
And before the 1980s
most of these Western countries transferred out their manufacturing industries
to so-called Asian Four Little Dragons and Little Tigers
But these countries in the region are mainly located in peninsulas or islands
So they were geographically small and the populations were also small
Therefore they could not absorb too much surplus industrial capital
The process started from the small economies
But then China opened to the West
China re-established diplomatic relations with Western countries
It's very important because China is a big mainland country
So that is why from the 1970s to the 1980s
especially from the 1980s
these American industrial capital could have more gains from overseas investment
So let’s go back to this one
That also shows the accumulation rate since the 1980s increased very fast
And then most of the overseas investment created a large number of overseas returns
which flew back to Western countries
especially to the United States
mainly into the stock markets to take part in speculation
From the 1980s onwards
neo-liberalism was adopted to facilitate financial capital growth
So industrial capital declined and financial capital rose up
This decline and rise induced a big change in the Western capitalist system
The new era, as we said, is the global financialization, starting in the 1980s
combined with the neo-liberalism
That is a very important background
to understand [why] the developing countries “developed”
It is because previously industrial capital played a very important role
Since the 1980s, financial capital has played a leading role
We need to talk about the background
First, we must know that it’s a new era
Financial capital kept Western society growing
because they transferred out their industrial capital
to developing countries and thereby
had a large amount of overseas returns
which became a very strong force in the stock market
the financial markets
So the West financialized their economy
and transferred out their physical production bringing
about the financial capital era
That is a very critical background
And at that time there was a big change in Western countries
So most of these Western countries mainly took revenues the profits
from financial capital growth
As China reestablished diplomatic relations with Western countries
these industrialized advanced countries
joined the competition in Chinese industrial market
mainly for transferring facilities and machines to China
China got a chance to adjust its industrial structure
But the restructuring of heavy industry，machinery industry, military industry
still needed intensive capital investment
That means the institutional costs would be high
And also, there was a very important event
In the 1970s when China established diplomatic relation with Japan
China forgave Japan’s Second World War compensation
Japan in return gave official aid loan and also technological facilities
to help China’s industrial development
The general loan interest rate in the 1970s and 1980s in China
was more than 10%
But the loan that Japan gave to China was of less than 3% interest rate
And also, the repayment period could be thirty years
So they were long-term loan with very low interest rate
It benefited China a lot
because at that time China was in a huge shortage of capital investment
So Japan provided China with a large amount of official investment
and that was a very positive
event for the restructuring of China’s national economy
and industrial structure in the 1980s
At the first three years
the first period when Japan aided China with a large amount of loan
50% of which was used to buy Japanese facilities
That means Japanese government gave the loan to China
and Japan sold a lot of facilities and machines to China
to occupy Chinese machinery market
There was another very important event in the 1980s
Because of the so-called second land reform at the beginning of the 1980s
most of these peasant
households in rural regions took back their plots of arable land
A large number of surplus labor force were being released
from the collective system
Previously Chinese rural labor was organized by the collective system
and mainly worked on the construction of reservoirs, irrigation systems
and state infrastructure
But since the 1980s
the government could hardly organize
the labor force to work on the national construction
So the labor force was dispersed in almost every household
Immediately there was a big surplus labor force
If you calculate the total arable land
China only needs one hundred million rural labor
It is enough
But since the 1980s when rural reform was completed
you'd find that there were almost 200 to 300 million surplus laborers
in the countryside
So this was a big surplus
Because there was a big surplus, the labor price was very cheap
The peasants started to run their own workshops and factories in the countryside
So in townships and villages the number of rural enterprises grew quickly
Rural industrialization was started mainly by surplus labors
who invested their own labor force into the rural industries
That was very important
Because local industrialization mainly relied on the rural industrialization
at the beginning of the 1980s
rural industrialization was indeed local industrialization
Take these events into consideration
we may understand why China could gain high growth
It’s because a large number of surplus rural laborers worked on local industrialization
They got very little income
A large amount of the profits were taken by the local industries
and then became accumulation of capital
Just several years later
the rural industrialization became more and more important and grew faster
We should know that
because of the rural labor
labor-intensive manufacturing with overseas demand grew up in coastal China
But another side is also very critical
Almost all of the old rural collective system were dismissed
people's communes were dismissed, production brigades were dismissed
Agricultural production became the responsibility of small peasant households
and small households didn't need agriculture machine
Before the 1980s
China had set up almost 3000 agricultural machinery factories at the county level
China set up five small factories in every people’s commune
There were two levels
people's communes were changed to townships
and the county stayed as the county
The agricultural machinery manufacturing system at these two levels
almost all went bankrupt
Since the 1950s
China invested in local industries mainly to facilitate agricultural production
After rural reform when peasant households regained the land
they didn't need machines in farming
So machinery factories at county level and township level
almost all went bankrupt
because there was no market
And think about the industrial chain as a whole
When machinery factories at county level went bankrupt
certainly industries at
the upper stream like heavy industries, mining and so on
all suffered very bad impact
This was a kind of negative chain reaction
When local factories went bankrupt
even big factories in cities also had to face a very adverse situation
So these were the events of the 1980s’ reform
And we have given an explanation about these
This one indicates that Japan aided China
From 1979 to 2012
the official development aid (ODA) from Japan to China
accounted for almost 60% of its total sum of overseas aid loan
Most of the Japanese loan was invested in infrastructure construction
In the first three years
most of it was used to buy Japanese machines and facilities
Later most of it was invested in infrastructure construction
And infrastructure construction could not generate returns in a short term
So Japanese development aid loan became very important
because it was mainly invested in infrastructure construction
which means Chinese government needed
such kind of aid loan every year
and had to pay the interests and repay the loans
After buying facilities from Western countries
China had to wait a long period to have returns
not a short term investment
This means Chinese government accumulated a large number of foreign debts
The ratio of foreign debts to GDP
especially short-term foreign debts to GDP was very high
If China did not have sustainable sources of foreign aid
immediately Chinese government would face the challenge of a budget deficit
Japanese official development aid loan did play a very important role in the 1980s
But it somehow became a risk
because Official Development Aid was lent to China
and denominated by foreign currency
China started to receive ODA in the 1970s
and started to repay the loan in the new century
And the repayment must be in Japanese yen
Somehow Japanese yen’s exchange rate rose up in these years
It means China needed to pay more when repaying the loan
So that was a risk
Most of these Japanese official aid loans
benefited Chinese infrastructure construction in the 1980s
Because of the foreign aid and foreign investment
a large amount of foreign capital flew into China
mainly taken by the central government
The central government still maintained the traditional policy
to use foreign capital in the form of loans
to restructure China’s industries
During the 1950s when the Soviet Union provided industrial facilities to China
they were mainly for military and heavy industries
And heavy and military industries
as I have explained needed double cost to maintain
Now China wanted to restructure the industrial system
and develop light industries such as textile and chemical industry
But until the 1970s
this plan had never been carried out
because of the geopolitical situation