China's bankruptcy law:
Workers' interests come first

By Deirdre Griswold, Workers World, 4 February 1999

A large state corporation has gone bankrupt in People's China, and some 60 foreign banks that had loaned it money are furious. The banks--which included Citigroup, Merrill Lynch, HSBC and Sumitomo Trust and Banking--had expected the Chinese government to bail out the company and put them first on the list of creditors to be paid.

But that's not what happened.

When the Guangdong International Trust and Investment Corp., known as Gitic, announced it would have to default on nearly $1.5 billion in loans and guarantees from imperialist banks, a group of pin-striped foreign bankers hopped the Jan. 10 morning train from Hong Kong to the company's headquarters city of Guangzhou in southern China.

They were in a chatty mood, reported the Jan. 22 New York Times. Few of the creditors believed they would be left in the lurch. Three hours later, they rode the train back to Hong Kong in stunned silence.

Chinese officials had told them the company would be thrown into bankruptcy.

China's decision is more than a slap in the face to the banks, said the Times. It is a frontal assault on the way business has been conducted in the world's most populous country. By refusing to bail out Gitic, China is signaling that investors will be held accountable for their lending. Gone are the days when foreign bankers could rely on political connections as a substitute for proper credit-risk analysis.

The bankers scrambled to read the details of China's bankruptcy law, which was passed in 1986 but has seldom been applied until now. What they found deepened their gloom.

The law offers little guidance about which creditors should get priority in the repayment process. It says only that employee wages, taxes, and legal costs must be paid before creditors are reimbursed.

Employee wages must be paid first. That's what they find absolutely shocking and unacceptable.

And according to Gordon C. Chang, a bankruptcy lawyer in the Shanghai office of Paul, Weiss, Rifkind, Wharton & Garrison, This bankruptcy will set the pattern for future insolvencies, and there will be hundreds of them, if not thousands.

WHAT MAKES CHINA DIFFERENT

The People's Republic of China has so far weathered the severe capitalist economic crisis that emerged in Asia in the spring of 1997 and keeps spreading around the world. What makes the Chinese economy different from Thailand, or south Korea, or Indonesia, or Japan?

Even though it opened up features of a market economy some time ago, China's infrastructure and much of its industry remain state owned. And the state is not capitalist.

The Chinese state still retains the basic class anatomy created by the prolonged revolutionary struggle of the peasants and workers in the 1930s and 1940s that liberated the country from landlords, capitalists and foreign imperialism.

Since Mao Zedong's death, however, many changes have been made in the economy that have favored small and large investors and entrepreneurs. This has brought about a big gap between the living standards of the masses and the newly rich. And in this new bourgeois class, there are many who have undoubtedly wanted to chuck overboard China's socialist system and go to outright capitalism.

However, the example of the political and economic collapse that has devastated the former Soviet Union since its leaders abandoned the socialist system mitigates against this bourgeois current. So does the capitalist depression raging elsewhere in Asia.

These developments also stimulate the left wing in China, which may not always be so visible to the West but nevertheless has a strong influence in the working class and in the Communist Party.

Nevertheless, many millions of workers are being laid off in China as older facilities are closed in the name of efficiency. And, as with Gitic, the state decides what will be done with their assets.

HOW BOSSES USE BANKRUPTCY

In the United States and other capitalist countries, the scientific-technological revolution that has been transforming the economic landscape for several decades now has been the occasion for a major assault on the rights and interests of the working class.

As older plants closed, or companies were broken up, the courts colluded with the bosses to guarantee that their interests came before those of the workers. Many workers lost not only their jobs but their pensions in this reshuffling.

At the Wheeling-Pittsburgh steel company, for example, the company in the early 1980s announced bankruptcy when it owed 10,000 retired workers over $400 million in benefits. It used the device of bankruptcy as a sword over the heads of the workers, demanding concessions from the Steelworkers union that amounted to a 60 percent cut in wages and benefits.

Wheeling-Pitt had the most modern plants in the industry. The concessions were demanded in the name of improving the company's competitive position. The struggle over the workers' pensions went on in the courts for years.

Since then, many more workers have seen their jobs and benefits go down the drain as companies have used Chapter 11 bankruptcy to break unions and restructure. It happened at Eastern and Continental airlines and cost those workers dearly.

There has been resistance by the workers and their unions to these assaults on their livelihood, but in almost every case the companies have prevailed. Their big secret weapon is the collusion of the bourgeois state in the form of the courts and, when things get rough, the cops.

When a large corporation declares bankruptcy, shouldn't its assets be used first to compensate the workers? After all, the workers are advancing their labor to the bosses every week. They don't get paid until a week or two or even more after they have labored. The bosses pay no interest for this advance of the workers' labor. And workers' pensions are nothing but more deferred wages.

Furthermore, it is the workers' labor that enriched the company in the first place. It should be only natural that their interests would come first if the company were to close.

However, what seems natural or logical has nothing to do with the matter. What comes into play here is the class character of the state.

A CAPITALIST VS. A WORKERS' STATE

In the United States, workers are up against a state based on the class rule of the bourgeoisie. It has had several hundred years to refine and embellish its state, but in every important showdown between the workers and the bosses, the bourgeois class character of the state is unmistakable.

What is the class character of the Chinese state? This is a puzzlement that has bedeviled the progressive movement around the world ever since the Chinese Revolution.

The Chinese proletariat was very small at the time of the 1949 revolution. China was overwhelmingly a peasant country, with a weak bourgeoisie linked to imperialism. The revolution of the peasants against the landlords had been propelled forward by mass resistance to Japanese imperialism's aggression and its collaborators in the Chinese ruling classes.

The struggle against the landlords, the capitalists and the warlords was led by the Chinese Communist Party. This great party was linked historically to the earlier working- class uprisings that had shaped the Marxist movement in Europe and elsewhere.

Even though capitalism had not yet sunk deep roots in China, the revolutionary ideology of communism, and particularly the teachings of Lenin on imperialism and national oppression, were invaluable in China's liberation struggle.

The Chinese Revolution did not and could not stop at carrying out simple land reform. It could not stop at ousting the Japanese occupiers. At the end of World War II, a whole new struggle opened up against the government of Chiang Kai-shek, the government of the bourgeoisie, which was in the pocket of U.S. imperialism.

The Chinese Communist Party relied on the masses of people in this struggle. They, in turn, knew what they wanted from the revolution: an end to the rule of the landlords who had starved, beaten and worked them to death.

The Chinese Communists took the revolution as far as it could go. As Chiang Kai-shek's troops were fleeing to the island of Formosa, they laid the basis for breaking the grip of the old ruling classes over China's vast resources--the land, the industries, the banks. In wave after wave, they introduced new and more collective forms of ownership that enabled the masses to rise above the miserable existence they had known for centuries.

The Chinese Revolution was part of the global struggle against imperialism and its dependent regimes that began with the Russian Revolution, deepened during the Great Depression, and continued after World War II. It produced a workers' state in China, but one that has had to struggle against the great limitations imposed on it by history and the threatening growth of world imperialism, led by the U.S.

The dangers to China's socialist achievements are great indeed, and they come from both without and within. But it would be wrong to see in a regressive process no other possible outcome than its completion. A deepening world crisis of capitalism will have a profound effect on the consciousness of humanity and will renew the progressive struggle for socialism.

For now, the wide gap between China and the capitalist world can still be clearly seen, not just in its social policies but in the more sedate arena of bankruptcy court.