The impact of China's economic boom on the world economy is well known as the rise of the Asian giant has transformed world relations. China's incredible growth is in contrast to the "developed" world whose economies have "staggered through crisis" as Business Week put it. In my recent visit to Australia, the raw materials boom has helped breath life in to that economy as China and other developing economies thirst for Australia's ore. China is also a major exporter so no matter which way the tide flows, the effect globally is significant.
The growth of China and to a lesser extent, other emerging markets like Brazil, India and Russia, referred to as the BRICS is often touted as the bright spot on a cloudy global economy but it is likely that this sunny scenario is turning in to its opposite?
China's demand for commodities has been an engine of growth for countries like Brazil that developed large trade and current account surpluses building up foreign reserves allowing it to increase social spending and the private sector. China's thirst for raw materials has breathed life in to the Australian economy with one state alone, Western Australia with a population of 2.2 million accounting for $47 billion in exports to China which is as one Australian politician pointed out, more than half those of the US with over 300 million people.
But no developing nation wants to remain simply a producer of cheap commodities for the advanced capitalist economies. China's boom has been real in terms of concrete and steel and like any nation state in a competitive world economy it wants to increase its power and global presence and has done so investing cash and building huge infrastructure projects not only at home but from Latin America to Africa.
China also has a huge and very combative Labor force. We have seen illegal strikes which have raised wages by as much as 20% as well as huge protests over land seizures, some 180,000 protests last year alone. But China faces problems that all market oriented economics face, the crisis of overproduction, or what is more often termed overcapacity-----China makes too much.
China is already the world's largest steel producer accounting for 45% of global output according to Bloomberg Businessweek. Six of the world's largest steelmakers are in China. The big problem is that the capacity of China's steel production industry outstrips demand by more than 200 million tons. This tends to depress prices but leads to much more serious repercussions when production has to be abruptly curtailed. China also has overcapacity in its auto industry, housing and elsewhere. The global repercussions of a significant slowdown in China will be severe and are already being felt in countries like Brazil and Australia. Brazil's growth has been in large part due to the high commodity prices which are on the decline. As we always point out, to offset its tendency to overproduction, the capitalist economy uses credit as a means of allowing it to go beyond its limits and continue to produce growth figures. Brazil has doubled the credit provided to its private sector, both individuals and business in the last five years in order to maintain growth. We saw the limits of this strategy when the credit bubble in the US burst in 2007.
The consequences domestically for China are no small matter either as its huge Labor force is an ever present threat and some critics believe China's steel production is driven more by a fear of unemployment and weaker GDP figures; "They are not building infrastructure now because they need it, they are building it now because they want to hit GDP targets" says Patrick Chovanec, a business professor in Beijing.
"The situation is dire." says Michael Komersaroff a commodity investor In Queensland Australia, "We have never seen overcapacity on such a scale." "How many high speed trains can you build" The demand side is probably not there" another warns. Despite these warnings and the drop in steel prices $23 billion in new steel projects have been approved by the Chinese authorities. And surely, further economic crisis in the US and the EU will certainly affect the Chinese export machine.
I am not an expert of China by any means and welcome any comments or input on the situation there by readers of this blog. I am just making some observations. But as I see it the situation in China is very volatile. Those of us that don't limit ourselves to the highly censored and "unfree" US media are aware of the restless and ongoing struggles of the Chinese workers for a better life. There are hundreds of millions of workers in China and we have seen major strikes against foreign auto plants and factories. There have also been major struggles over land and protests against environmental pollution. The other issue that I feel must come to a head is the struggle between the rising capitalist class and the Chinese Communist Party bureaucracy that still has its hands on the dominant sectors of the economy from what I can see.
There is a racist image perpetuated by western historians and academia of the "timid oriental". But we must not lose sight of the fact that the Chinese overthrew capitalism in that country driving the forces backed by the imperialist nations out of the country. In the Chinese diaspora here in the US, they built the railroad from the west meeting up with the predominantly Irish labor that came from the east in Promontory Utah completing the transcontinental railroad.
The Chinese economy has transformed world relations between the powers and is at this time the most serious threat to US capitalism on a world scale. The increased military presence and bases the US has built in Central Asia are intended to contain and if necessarily halt China's global presence and its efforts to build three new bases in Australia are aimed at protecting US corporate interests in South East Asia. China's continued growth will increase the tensions and divisions with US imperialism in particular.
Chinese growth has had a significant influence on global poltics and economics. A significant slowing of the Chinese economy as well as political events and the potential for social unrest there will be no less dramatic.
Chinese growth has changed the world.
Note: The last two issues of Foreign Affairs has some interesting pieces on Brazil and I recommend seeing the movie/documentary, The Last Train Home, to get some idea of the changes that industrialization has brought to China as well as the problems as rural parents head to the cities to work leaving the raising of their children with grandparents.
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