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On a small hill beside a lake in central China, an illegal firecrackers factory has just been set up. Village women work in small rooms assembling fuses and filling coils by hand: they are paid two yuan (26 cents) an hour. Most of their husbands are migrant workers far away: farming does not earn enough to pay the heavy taxes imposed by corrupt officials.

A month later, news comes from the village of an explosion. ‘It was only a small one – just three or four women seriously injured,’ says the message. The factory has been closed down (the officials could no longer turn a blind eye to it); the local capitalist has lost his quarter of a million yuan ($32,500) investment – and the village women have lost their small earnings.

In Shanghai, where some of the luckier migrants are working (here the hourly wage is four yuan an hour) a new nightclub has opened down the road. It occupies a building in the Jingan Park, formerly a foreign cemetery. The nightclub is called Il Duomo – Italian for ‘cathedral’. There are stained-glass windows and the receptionist is dressed as a nun with a crucifix hanging from her neck. Young professionals spend 40-70 yuan a time on drinks (it is one of the cheaper nightclubs) and say it is ‘good fun’. None of them have ever visited a real village in the countryside, though quite a few have been to rural theme parks and famous beauty spots like the Three Gorges.

China’s economic reforms in the post-Mao era started in the countryside where the peasants were allowed to farm their own strips of land, then spread to the towns where private enterprise was – cautiously at first – encouraged. In November 2002 the 16th Communist Party Congress endorsed a new policy which will bring capitalism even nearer. Private entrepreneurs can now join the Party; state and private businesses will compete on equal terms. Though there are urban poor as well (especially among laid-off workers in the state sector) the towns are booming. A new urban middle class is emerging which buys its own housing, changes jobs more readily, and often goes on holiday – sometimes even abroad.

Rural China has lagged far behind except in the rich coastal provinces. Health and education, virtually free in the Maoist age, have to be funded locally. Beijing is becoming more aware of the problem: the poorest areas are subsidized and efforts are made to cut local taxes. There are new schemes to clamp down on polluting industries and replant denuded land. Yet critics say there will be no real improvement till there is political as well as economic reform. Local government is often dominated by Party cliques, sometimes in league with criminal gangs, who may manipulate the results of village elections (the only free voting allowed in China). Financial institutions bankroll failing enterprises which have been asset-stripped while ordinary peasants cannot obtain loans. Official corruption has been targeted since the early 1980s but seems ineradicable.

The ideology proclaimed by Jiang Zemin – Communist Party boss till last year and still influential – is that the Party is entitled to rule but should do more to represent the entire nation and bring material rewards to the vast majority. It hopes to achieve this by maintaining an annual GDP growth rate which exceeds seven per cent, thanks to massive investment from abroad, large markets for Chinese goods overseas, and huge infrastructural investments in the backward western provinces. Enterprise and innovation will be encouraged, whether public or private. Serious political dissent is punished severely but there is limited space now for non-government pressure groups.

The formula has worked so far, at the price of widening inequalities, but can it be maintained indefinitely?

John Gittings

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