Smashing the Iron Rice Bowl

Courtesy Reuters


The Asian financial crisis has captured headlines and the attention of millions of investors. In Indonesia, Thailand, and South Korea, the crisis' source lies in the cozy relationship between government offices, banks, and private enterprises. China's financial sector blurs the same lines as its floundering neighbors, but two decades of economic reform, rapid growth, accumulating hard currency reserves, and sound macroeconomic performance have led the Chinese leadership to believe they can avoid disaster through more reform. They aim to achieve a "socialist market economy," and its success rests on the reform of state enterprises. But Beijing's half-measures and Band-Aid solutions reveal its inability to resolve the contradictions that arise when socialism is merged with capitalism.

Symbols and slogans, always important in Chinese society, continue to provide a litany of the communist party's ideological objectives and accomplishments. Rice has been China's staple food for thousands of years, and the most important symbol of the party's economic policies has been an unbreakable iron rice bowl, which stood for the cradle-to-grave security offered all citizens. When Deng Xiaoping began in 1978 to transform China from a centrally planned economy to a more free-market economy, his supporters insisted that the iron rice bowl had to be smashed if China was to modernize.

China's dilemma is that it is afraid to smash the iron rice bowl because it fears that the social stability that has sustained its reform program would shatter with it. Nevertheless, state-owned enterprises are foundering as subsidies are withdrawn. The government is desperately looking for buyers but they are hard to find. The budget subsidies that once sustained state enterprises and kept the iron rice bowl intact dried up as the capital needs of modernizing enterprises soared while their fiscal contributions plummeted. The government still offers some subsidies, but it will soon have no choice but to close down most state enterprises. As many as 15 million workers will be unemployed and many thousands are likely to take to the streets in protest.

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