Many workers like me have had a hard time understanding exactly what sort of society and economy China is. Is it a capitalist economy? Is it socialist? I figure it is neither. The mass media in the imperialist countries like to refer to it as "communist" as it is useful in discrediting the country and throwing up a barrier that prevents further investigation. The US mass media in particular is extremely censored and controlled. I for one have understood China to be some form of state capitalism but not really sure. One thing I have learned in life is that it is OK not to know something or be unsure about an issue, and yes, we can change our minds if the facts on the ground demand it. The only aspect of China I've felt confident about is that it is heading along the capitalist road and cannot turn back. What the final result will be no one can say and there are already thousands of protests and strikes that have taken place in the past period. It seems inevitable to me that these conflicts will intensify, as the Stalinist bureaucracy comes in to more open conflict with the rising capitalist class and more importantly a huge Chinese working class, hundreds of millions strong.
This is a balanced, sober look at the Chinese economy and society from Marxist economist, Michael Roberts and useful information for working class people wanting to understand the nature of this rising world power. Richard Mellor Admin.
China in the post-pandemic 2020s
by Michael Roberts
China’s National Peoples Congress (NPC) opened today, having been
delayed by the coronavirus pandemic. The NPC is China’s version of a
parliament and used by the Communist party leaders to report on the
state of the economy and outline their plans for the future, both
domestically and globally.
Prime Minister Li Keqiang announced that for the first time in
decades that there would be no growth target for the year. So the
Chinese leaders have abandoned their much heralded aim to have doubled
the country’s GDP under the current plan by this year. That was bowing
to the inevitable.
The pandemic and lockdown had driven the Chinese economy into a
severe contraction for several months, from which it is only just
recovering. The economy contracted by 6.8 per cent in the first quarter
and most forecasts for the whole year are for less than half of the 6.1
per cent growth rate posted last year. But even that figure would be
way better than all the G7 economies in 2020.
Industrial production and investment is now picking up, but consumer spending remains depressed.
But Li said that main reason that there was no growth target was because of uncertainty about “the Covid-19 pandemic and the world economic and trade environment.”
In other words, even if the domestic economy is recovering, the rest of
the world is still depressed. With world trade contracting, there are
slim prospects for the exports of the manufactures that China has mainly
depended for its expansion.
China is ahead of other major economies in coming out of the
pandemic. But even Li had to admit that a lot of mistakes were made in
handling the pandemic and there was “still room for improvement in the work of government,” including delays in alerting the public allowed the virus to spread.
“Pointless formalities and bureaucratism remain an acute issue. A small
number of officials shirk their duties or are incapable of fulfilling
them. Corruption is still a common problem in some fields,” Li
admitted. Nevertheless, compared to the performance of governments in
the West, China had done much better in keeping cases and deaths down.
In the short term, Li said the government intends to give a boost to
the economy with some fiscal stimulus and monetary easing, similar to
that in the G7 economies. China is targeting a 2020 budget deficit of
at least 3.6% of GDP, above last year’s 2.8%, and increased funding for
local-government borrowing by two-thirds. And for the first time, the
central government will issue bonds to be used to help local government
spending and firms in difficulty. Unemployment is officially recorded
at 5.5% but it is probably more like 15-20%, so the government aims to
create more jobs and reduce poverty in rural areas to curb the flood of
rural migrants to the cities.
That brings us to discuss the long-term future of the Chinese economy
in the post-pandemic world and in the context of the intensifying trade
and technology war with the US and other imperialist powers.
In my view there are three ways of looking at the economic
development of China (this is something that I have written on in detail
in a recent paper for the Austrian Journal of Development Studies). The
mainstream economics view is that China should become a full ‘market’
economy like those of the G7. Relying on cheap labour to sell
manufacturing goods to the West is over. Rising labour costs show that
China’s state-driven and led economic model cannot succeed in developing
modern technology or delivering consumer goods to the people. This was
the policy advice of the World Bank and other international agencies of
global capital in the past and it gained some traction among a section
of the elite, especially those closely connected to China’s private
billionaires. But so far, this option has been rejected by the majority
in the current leadership.
The second view is what might be called Keynesian. It recognises the
success of the Chinese economy in the last 30 years in taking nearly
900m people out of the official poverty level set by the World Bank. Indeed, the World Bank has just adjusted its figures for the decline in those who are now under its poverty level.
The decline seems impressive, until you realise that 75% of those
brought out of poverty globally in the last three decades are Chinese.
This Keynesian view argues that China’s success has been based on
massive investment in industry and infrastructure which has enabled the
country to become the world’s manufacturing powerhouse. But now that
emphasis on industrial investment must be changed because household
consumption is weak and in a modern economy it is consumption that
matters. Unless there is a swing to consumption, the Chinese economy
will slow and the huge level of corporate and household debt will
increase the risk of financial crises.
Actually, personal consumption in China has been increasing much faster than fixed investment in recent years,
even if it is starting at a lower base. Consumption rose 9% last
year, much faster than GDP. And consumption growth would be even faster
if the government took steps to reduce the high level of inequality of
income.
The idea that China is heading for a crash because of under
consumption and over investment is not convincing. It’s true that
according to the Institute of International Finance (IFF), China’s total
debt hit 317 per cent of gross domestic product (GDP) in the first
quarter of 2020. But most of the domestic debt is owed by one state
entity to another; from local government to state banks, from state
banks to central government. When that is all netted off, the debt owed
by households (54% of GDP) and private corporations is not so high,
while central government debt is low by global standards. Moreover,
external dollar debt to GDP is very low (15%) and indeed the rest of the
world owes China way more, 6% of global debt. China is a huge creditor
to the world and has massive dollar and euro reserves, 50% larger than
its dollar debt.
It’s true that some of the fixed investment expansion may have been
wasted. Indeed, the Keynesian development model of China based on just
rising investment and private consumption demand is increasingly
flawed. As President Xi Jinping said, “Houses are built to be inhabited, not for speculation.”
But the government allowed capitalist speculation in property so that
15% of all apartments currently are owned as investments, often not even
connected to electricity supply. This property speculation was fuelled
by credit funded by the state banks but also by ‘shadow banking’
entities. This sort of speculation wasted resources and did not direct
investment into areas like reducing CO2 emissions to meet the
government’s declared aim to make China a ‘clean economy’. With China’s
population peaking in this decade and the working age population
falling 20% by 2050, the aim of investment must be towards job creation,
automation and productivity growth.
That brings me to the third development model, the Marxist one. The
key to prosperity is not market forces (neoclassical mainstream) or
investment and consumption demand (Keynesian) but in raising the
productivity of labour in a planned and harmonious way (Marxist).
In a capitalist economy, companies compete with each other to raise
profitability through the introduction of new technologies. But there
is an inherent contradiction under capitalist production between a
falling profitability of capital and a rising productivity of labour.
As capitalists try to raise the productivity of labour by shedding
labour with technology and so lowering labour costs and increasing
profits and market share, the overall profitability of investment and
production begins to fall. Then, in a series of crises, investment
collapses and productivity stagnates.
This is clearly an issue for China in its more mature stage of
accumulation in the 21st century – if you accept that China is just
another capitalist economy like the imperialist powers or the emerging
ones like Brazil or India. The argument goes, that China may be
different from the ‘liberal capitalism’ of the West and instead is an
autocratic ‘political capitalism’, as Branco Milanovic describes China in his book, Capitalism Alone, but it is still capitalism.
If you accept that view, then we can gauge the health and future of
China’s economy by measuring the profitability of its burgeoning
capitalist sector. In a new paper (Catching Up China India Japan (1)),
Brazilian Marxist economists, Adalmir Marquetti, Luiz Eduardo Ourique
and Henrique Morrone compared China’s development to that of India in
catching up with the G7 economies. They show that the high capital
accumulation rate in China has led to a fall in profitability even lower
than in the US, so that further expansion is at risk. In another
paper, they argue that there is now an overaccumulation crisis brewing
and further heavy investment would not work, especially given rising
greenhouse emissions it would create. 71548-211901-1-PB (1)
Like Marquetti et al, I have measured the profitability of the
capitalist sector in China (from Penn World Tables 9.1 internal rate of
return on capital series) and I find a similar fall. The huge expansion
of investment and technology, particularly once global markets were
opened up to Chinese industry after 2000 when joining the World Trade
Organisation, led to double-digit growth rates up to the Great Recession
of 2008. But the increased organic composition of capital drove
profitability down prior to global pandemic crisis, and eventually
growth slowed.
Does this mean that China is heading for major slump along classic
capitalist lines some time in this decade? Marquetti et al seem to
suggest that: “The larger profit rate explained the robust
mechanization in the early stages of the process. Fast capital
accumulation diminishes capital productivity and the profit rate. Then,
the success in catching up must hinge on raising the saving and
investment rates. It may further reduce capital productivity and the
profit rate, putting the process at risk, which seems to be the case in
China and India.” And they quote Minqi Li that ‘‘if
China were to follow essentially the same economic laws as in other
capitalist countries (such as the United States and Japan), a decline in
the profit rate would be followed by a deceleration of capital
accumulation, culminating in a major economic crisis.’’
But
the question for me is whether the capitalist sector in China’s economy
is dominant. Does China follow the same law of value as other
capitalist economies? China seems to be more than just an
autocratic, undemocratic, ‘political’ version of capitalism compared to
the ‘liberal democratic’ version of the West (as argued by Milanovic).
Its economy is not dominated by the market, by investment
decisions based on profitability; or by capitalist companies and bosses;
or by foreign investors. Its economy is still dominated by
state control, state investment, state banks and by Communist
apparatchiks who control the big companies and plan the economy (often
inefficiently as there is no accountability to China’s working people).
I remind readers of the study I made a few years ago
of the extent of state assets and investment in China compared to any
other country. It showed that China has a stock of public sector assets
worth 150% of annual GDP; only Japan has anything like that amount at
130%. Every other major capitalist economy has less than 50% of GDP in
public assets. Every year, China’s public investment to GDP is around
16% compared to 3-4% in the US and the UK. And here is the killer
figure. There are nearly three times as much stock of public productive
assets to private capitalist sector assets in China. In the US and the
UK, public assets are less than 50% of private assets. Even in ‘mixed
economy’ India or Japan, the ratio of public to private assets is no
more than 75%. This shows that in China public ownership in the means
of production is dominant – unlike any other major economy.
And now the IMF has published new data that confirm that analysis.
China has public capital stock near 160% of GDP, way more than anywhere
else. But note that this public sector stock has been falling faster
than even the neo-liberal Western economies. The capitalist mode of
production may not be dominant in China, but it is growing fast.
Which way will China go? In the post-pandemic decade will it move
towards an outright capitalist economy that is just like the rest of
world? In other words, adopting the neoliberal mainstream model. So
far, in the light of the disastrous failure of ‘liberal democratic’
market economies in handling the pandemic, with death rates 100 times
higher than in China and now deep in a slump not seen since the 1930s,
that market model does not seem attractive to the Communist dictatorship
or the Chinese people. Instead Xi and Li seem to want to continue and
expand the existing model of development: a state-directed and
controlled economy that curbs the capitalist sector and resists
imperialist intervention.
Indeed, China looks to expand its technological prowess and its
influence globally through the Belt and Road investment initiative and
its huge lending programmes to the likes of African and other states.
And it will be able to do so because its economic model does not rest on
the falling profitability of its admittedly sizeable capitalist
sector. An IIF report found that China is now the world’s largest
creditor to low income countries.
That is why the post-pandemic strategy of imperialism towards China
is taking a sharp turn. And this is the big geopolitical issue of the
next decade. The imperialist approach has changed. When Deng came to
take over the Communist leadership in 1978 and started to open up the
economy to capitalist development and foreign investment, the policy of
imperialism was one of ‘engagement’. After Nixon’s visit and Deng’s
policy change, the hope was that China could be brought into the
imperialist nexus and foreign capital would take over, as it has in
Brazil, India and other ‘emerging markets’. With ‘globalisation’ and
the entry of China to the World Trade Organisation, engagement was
intensified with the World Bank calling for privatisation of state
industry and the introduction of market prices etc.
But the global financial crash and the Great Recession changed all
that. Under its state controlled model, China survived and expanded
while Western capitalism collapsed. China was fast becoming not just a
cheap labour manufacturing and export economy, but a high technology,
urbanised society with ambitions to extend its political and economic
influence, even beyond East Asia. That was too much for the
increasingly weak imperialist economies. The
US and other G7 nations have lost ground to China in manufacturing, and
their reliance on Chinese inputs for their own manufacturing has risen,
while China’s reliance on G7 inputs has fallen.
Source: Manufacturing shares from World Development
Indicator online database. Reliance computations by authors, based on
OECD ICIO Tables (https://www.oecd.org/sti/ind/inter-country-input-output-tables.htm).
So the strategy has changed: if China was not going to play ball with
imperialism and acquiesce, then the policy would become one of
‘containment’. The sadly recently deceased Jude Woodward wrote an excellent book describing this strategy of containment
that began even before Trump launched his trade tariff war with China
on taking the US presidency in 2016. Trump’s policy, at first regarded
as reckless by other governments, is now being adopted across the board,
after the failure of the imperialist countries to protect lives during
the pandemic. The blame game for the coronavirus crisis is to be laid at
China’s door.
The aim to is weaken China’s economy and destroy its influence and
perhaps achieve ‘regime change’. Blocking trade with tariffs; blocking
technology access for China and their exports; applying sanctions on
Chinese companies; and turning debtors against China; this may all be
costly to imperialist economies. But the cost may be worth it, if China
can be broken and US hegemony secured.
China is not a socialist society. Its autocratic one-party Communist
government is often inefficient and it imposed draconian measures on
its people during the pandemic. The Maoist regime suppressed dissidents
ruthlessly and the cultural revolution was a shocking travesty. The
current government also suppresses minorities like the grotesque herding
of the muslim Uighurs in Xinjiang Province into ‘reeducation camps’.
And nobody can speak out against the regime without repercussions. And
now the leadership has announced the introduction of military rule in
Hong Kong, ending parliament and suppressing the protests there. And it
still looks to ensure that Taiwan, the home of the former warlord
nationalists who fled to Formosa and occupied it at the end of the civil
war in 1949, is eventually incorporated into the mainland.
China’s leadership is not accountable to its working people; there
are no organs of worker democracy. And China’s leaders are obsessed
with building military might – the NPC heard that the military budget
would rise by 6.6 per cent for 2020 and China now spends 2% of GDP on
arms. But that is still way less than the US. The US military budget in
2019 was $732bn, representing 38 per cent of global defence spending,
compared with China’s $261bn.
But remember, all China’s so-called ‘aggressive behaviour’ and
crimes against human rights are easily matched by the crimes of
imperialism in the last century alone: the occupation and massacre of
millions of Chinese by Japanese imperialism in 1937; the continual
gruesome wars post-1945 conducted by imperialism against the Vietnamese
people, Latin America and proxy wars in Africa and Syria, as well as the
more recent invasion of Iraq and Afghanistan and the appalling
nightmare in Yemen by the disgusting US-backed regime in Saudi Arabia
etc. And don’t forget the horrific poverty and inequality that weighs
for billions under the imperialist mode of production.
The NPC reveals that China is at a crossroads in its development. Its
capitalist sector has deepening problems with profitability and debt.
But the current leadership has pledged to continue with its
state-directed economic model and autocratic political control. And it
seems determined to resist the new policy of ‘containment’ emanating
from the ‘liberal democracies’. The trade, technology and political
‘cold war’ is set to heat up over the rest of this decade, while the
planet heats up too.
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