http://socialistaction.org/chinas-decline-exposes-world-capitalist-crisis/
China’s slide exposes world capitalist crisis
Published October 8, 2015. | By Socialist Action.
Oct. 2015 China factory
By GARY BILLS and JEFF MACKLER
Federal Reserve chair Janet Yellen announced in mid-September that
interest rates charged to U.S. banks would once again remain
unchanged—close to zero. She also expressed concerns about the still
“weak U.S. recovery” since the disastrous collapse beginning in 2008
that shook financial markets and caused unprecedented harm to working
people.
China’s troubled economy also figured into Fed policymakers’
calculations. The Chinese economy is touted as the second largest in the
world in terms of Gross Domestic Product (GDP), and is heavily invested
in by many of the largest U.S. and world corporations as a chief source
of superprofits.
In late August, headlines around the world featured daily accounts of
China’s plunging stock markets, sharp drops in China’s trade balance,
multiple currency devaluations, government exaggeration or falsification
of growth rates, and a generally cooling economy—1.7 percent growth rate
in the second quarter.
To cheapen the cost of its exports against rising competition from even
lower wage Asian nations, China devalued its currency, the remninbi or
yuan, five times in a matter of weeks after pegging it to the dollar for
ten years. Bank loan interest rates were lowered five times this year
along with cash reserve (liquidity) requirements for banks.
The mis-named Chinese Communist Party, a capitalist outfit if there ever
was one, spent more than $485 billion to prop up Shanghai Stock Exchange
prices and ordered the sale of pension funds to buy $313 billion in
floundering stocks and other assets, “as soon as possible.” The panicked
top bureaucrats encouraged middle-income and higher paid workers to buy
stocks by putting up their houses as loan collateral. To stem the
cascading stock-market decline, the selling of stocks was criminalized
while some stocks were frozen in place—withdrawn from sale outright to
prevent further panic selling.
A Sept. 10 New York Times article captures the psyche of China’s elite
as they sought to stem the free fall of China’s stock markets: “Anxiety
in the industry surged last week after Li Yifei, the prominent China
chief of the world’s largest publicly traded hedge fund, disappeared and
Bloomberg News reported that she had been taken into custody to assist a
police inquiry into market volatility. Her employer, the London-based
Man Group, did little to dispel fears, declining to comment on her
whereabouts.
“Ms. Li resurfaced on Sunday and denied that she had been detained,
saying that she had been in ‘an industry meeting’ and ‘meditating’ at a
Taoist retreat.” Few believe that “meditation” was central to the
motives of a top leader of the world’s largest publicly traded hedge fund!
The Times article drives home this point by quoting another top hedge
fund speculator: “There is, generally, a very nervous atmosphere, as
people wait to see the outcome of some of these investigations and how
deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the
Hong Kong office of the Sidley Austin law firm who works with hedge
funds that invest in mainland China. “How wide a net is the government
going to cast in terms of looking at foreign firms and their
operations—not just onshore, but also offshore as well?”
Indeed, according to data presented by Australian socialist scholar Sam
King, “Foreign direct investment, foreign joint ventures, foreign
contracts and foreign technology have been the drivers of China’s
expanded commodity production” (see King’s “Lenin’s Theory of
Imperialism: a defence of its relevance in the 21st century”).
It’s not surprising that Chinese stock market prices have fallen. Prices
had skyrocketed some 250 percent in the last year, peaking in mid-June
and then declining into late August, losing about 43 percent—nearly half
of the yearly gains in a matter of weeks. At the height of China’s
August stock-market free fall, the world’s combined stock-market losses
erased nearly $3 trillion in value in three days!
Working people who followed the government’s advice to throw their
economic fate to the stock market winds have surely been hurt. Yet the
Chinese stock market’s mad gyrations, as with its U.S. counterpart, is
not the real economy, but rather a reflection of the more general crisis
of the world capitalist system. China’s GDP growth rate has been cooling
since 2010, when it was reported at 10 percent or more annually. Today
the growth rate is 7 percent or less.
The Chinese government has employed several economic stimulus programs
that parallel those in the U.S., but the economy has responded with less
vigor each time. For 30 years, China has followed a growth strategy that
emphasized exports and huge domestic infrastructure projects. This was
heavily promoted by foreign investments, pushing China ahead of Germany
and Japan, similarly focused on commodity exports but with a
qualitatively greater per capita internal market.
China’s per capita GDP ranking, 79th in the world, is not very
impressive considering its huge population. Hundreds of millions,
perhaps a billion, Chinese still live in impoverished conditions while
the governing capitalist bureaucracy systematically privatizes and
dismantles the country’s state-owned businesses and social services.
In truth, China’s “successful” export-driven economy and its GDP figures
mask a cruel reality. A huge proportion of Chinese exports are the
commodities of thousands of non-Chinese multi-national corporations
(MNCs), owned and controlled by the world’s great imperialist powers,
with U.S.-dominated transnational corporations number one on the list.
In July 2010 China’s Ministry of Commerce reported that “foreign
invested enterprises account for over half of China’s exports and
imports; they provide 30 percent of Chinese industrial output, and
generate 22 percent of industrial profits while employing only 10% of
Chinese labor” in basic industry as compared to the past. The high
productivity set in motion by the highly automated plants of
transnational corporations combined with an intensification of the labor
process to produce wonders for the foreign-owned companies (for a time)
and misery for the Chinese masses.
These are the figures from a half-decade ago. The proportion of foreign
direct investment (FDI) even increased since that time—until recently.
When China was admitted to the World Trade Organization (WTO) in
December 2001, its capitalist leaders willingly accepted the “free
market” terms that were imposed, including massive and virtually
unrestricted foreign investment, ownership, and control by the world’s
imperial powers of the corporations it established. China became the
imperialist world’s central commodity assembly and export platform, free
to employ near slave labor at will—with the usually corrupt local
capitalist “Communist Party” oligarchs siphoning off enough to produce
213 Chinese billionaires, not counting Hong Kong’s 53.
Imperialism has seen China’s 1.3 billion working people, at least until
recently, as nothing less than the world’s largest source of cheap
labor. The U.S. corporate shift of production from the formerly
highly-unionized northern U.S. states to the low-wage non-union South,
and then to Mexico’s border maquiladora super-low-wage assembly plants,
to Haiti and El Salvador, and finally to Asia, was a conscious decision
to lower production costs to remain competitive on world markets.
Without doubt, China’s emergence as the world’s greatest cheap labor
export platform comes at the expense of the displaced workers in the
rest of the world. The Chinese “miracle,” a non-Chinese MNC-driven
model, is nothing less than world imperialism’s legacy to poor people
everywhere, not to mention workers in the U.S.
The world’s competing multi-national corporations similarly had no
alternative to stay in the never-ending race to dominate world markets.
They too moved to China and other poor Asian nations. In virtually every
case, the “secret” to their “success” was to transfer industrial
production from the central capitalist nations to the periphery—to the
poor nations of the world where workers could be had for a pittance.
Further, with this growing “de-industrialization” of the U.S. and
Europe, the world’s imperialist nations build state-of-the-art
productive factories that require fewer Chinese and Asian workers to
produce ever more commodities to sell in the increasingly saturated
world market. This has had the triple effect of reducing the price of
labor in the “advanced” nations—the perpetual “race to the bottom”—while
employing less and less workers in the periphery, while temporarily
increasing profit rates for the super rich.
Without doubt, Chinese capitalists increasingly understand that
Chinese-owned factories, many operating at extremely low levels of labor
productivity, are no match for their MNC rivals. Between 2007 and 2012
labor productivity rose 11 percent annually in contrast to Thailand’s 8
percent and Indonesia’s 7 percent.
In 2013 China became the largest market for robots, buying 20% of all
those made that year, according to the International Federation of
Robotics. But it still has just 30 robots per 10,000 workers in
manufacturing, compared with 323 in Japan. Foxconn, the Taiwanese firm
that makes Apple’s iPhones and has more than a million employees in
China, says that it wants robots to complete 70% of its assembly-line
work within three years.
China’s aim at creating an internal market of middle and high-income
professional functionaries and a small layer of higher paid workers, as
is the case with all the BRICS nations (Brazil, Russia, India, China and
South Africa) is coming to an end. The last decade of 10 percent or
higher growth rates in all these nations is likewise winding down, with
Brazil’s GDP, for example, stagnant along with most of the others.
Indeed, the world’s central imperialist nations have no compunction
against moving their plants to even lower-wage Asian nations as they are
doing with Vietnam, Bangladesh, Indonesia, India, etc. And why not?
Chinese factory workers, on average, earn $27.50 per day as compared to
their counterparts in Indonesia, who earn $8.60, or the Vietnamese who
labor at $6.70 for multi-national corporations.
For the world’s transnationals, investment in China is contingent on its
continued subservience and profitability. This includes massive tax
breaks to foreign corporations and giant infrastructure improvements,
like the construction of untold miles of rail lines leading deep into
China’s even lower-wage interior. When Chinese officials decline to
intervene in labor strikes against foreign corporations, usually to
promote their less efficient Chinese-run companies, the result can only
be the eventual transfer of entire plants to even lower-wage nations, as
with Vietnam, where capitalist “Communist Party” tops are more than
eager to sell their workers for less.
A few decades ago, China’s average wage in some instances amounted to
six cents an hour; teenage women from the countryside were virtually
locked in dormitory factories and forced to work up to 80 hours per
week. Today, most factory assembly-line workers labor at $3.44 per hour,
if they are paid at all. Indeed, the great proportion of China’s
increasing number of labor strikes, an estimated 200 per month) are over
“arrear payments,” that is, the workers were not paid by Chinese
corporate owners, who sometimes disappear and/or abandon their less
competitive plants or otherwise rely on their corrupt crony superiors to
enforce labor discipline.
The case of Apple Computer, among the world’s most profitable
corporations, reveals a bitter truth about China’s development. Not long
ago, Apple’s i-Pods sold in the U.S. for $300. Of this, U.S.-based
retailers got $75. Apple’s share was $80. Another significant portion
went to a variety of transportation and distribution outfits. Chinese
workers and bosses got $2.61 between them!
Sam King, debunking the myth that China operates as one of the world’s
great economic superpowers, cites a 2013 Milberg and Winkler study that
expresses the Apple data above in a different form. He writes. “In 2010
Apple imported iPhones for $179 and sold them for $600 on the US retail
market. Such a mark-up would be impossible if Chinese capital, or even
Foxconn, Apple’s Taiwanese subcontractor, controlled the high-tech
aspects of production. iPhone exports from China to the US in 2009 were
$2 billion. The portion of that revenue going to Chinese workers,
bosses, and all other Chinese costs was only $73.3 million or 3.6
percent.” With Apple’s intention to more fully automate its Foxcomm
facilities, that percentage as well as the number of Chinese workers
employed, must continue to decline.
King presents some additional data demonstrating that high-tech
corporations operating in China, or anywhere else in the world, secure
profits far exceeding the relative low-tech Chinese corporate entities.
He writes, “A capitalist economy encompassing one sixth of the planet’s
population must possess some gigantic companies. China does. Four of the
world’s top 10 corporations by gross profits are Chinese. However, this
doesn’t really tell us much. Here is the list in order of gross profits,
with each company’s return on assets (RoA) in brackets: Exxon Mobil
(13), Apple (24), Gazprom (10), Industrial Commercial Bank of China (1),
China Construction Bank (1), Volkswagen (7), Shell (7), Chevron (11),
Agricultural Bank of China (1) and Bank of China (1). Thus, according to
Fortune, imperialist giant MNCs’ average return on assets is 12 times
higher than that of Chinese monopolies!”
Were this not the case—that is, were Chinese workers the actual
beneficiaries of rapid super-exploitive capitalist development—there
would be little or no multi-national corporations operating in China today.
Undoubtedly, there is an affluent layer of the population, including
many directly related to the ruling elite or consciously selected
talented people the elite need to run a large, sophisticated economy.
But, as with all the BRICS nations, this is a relatively thin layer,
perhaps 10-20 percent—insufficient to stimulate the larger economy over
the long term. To increase its economic weight, this layer has been
extended significant amounts of easy credit to purchase or invest in
speculative real estate ventures and the stock markets. This has
resulted in huge price bubbles, in which vulnerable groups stand to lose
everything quickly.
China’s real estate market is a case in point, with speculation in the
construction of entire new cities, and associated massive condominium
complexes aimed at accommodating millions standing empty. The expected
mass emergence of middle-class buyers failed to materialize. Those who
financed the projects—U.S. shadow banks and hedge fund speculators, as
well as China’s speculating elite, and illegal lenders—stand to lose big
time.
The rapid and extreme measures recently taken by the ruling bureaucracy
reveal that they are in a state of panic. The restoration of a
capitalist system in China under Communist Party tutelage, so the
bureaucracy pledged, would lead to a booming economy with a rising
standard of living for all, without the crushing crises that inevitably
accompany the system of private profiteering. But it is now becoming
clear that there is no “Chinese miracle” just as the rise (and
subsequent fall) of yesterday’s free market, neo-liberal export-oriented
“Asian tigers” proved to be ephemeral, at least for the vast
working-class majority.
Indeed, China’s repeated currency devaluations aimed at lowering the
cost of Chinese commodities in the U.S. and other foreign markets can be
expected to bring on similar devaluations across Asia as each nation and
its elite vie for ever shrinking markets. Such “currency wars” among and
between export oriented peripheral/poorer nations are the inevitable
result of a highly globalized world system in deep crisis. A stagnating
U.S. economy with a working class suffering from ever-deepening
austerity and real wage declines coupled with faltering European and
Japanese economies, certainly cannot count on China to “save the world.”
In a real sense, China’s current polices implemented to stabilize its
fragile economy parallel those implemented in the U.S. following the
2008 meltdown. Trillions of dollars were pumped into the coffers of
failing banks and major corporations to prevent their imminent collapse.
Virtually free money, to the tune of $89 billion monthly, was injected
into the economy, supposedly to stimulate growth and provide “trickle
down” jobs to a hammered working class.
In truth, the injection went straight to corporate America, which in
turn invested this “free money” into stock-market ventures that drove
prices to all-time highs, while employment remained at lows unseen since
the Great Depression—as measured by the government’s 65 percent labor
participation rate. (This statistic blatantly contradicts the
government’s falsified 5.1 percent unemployment rate.)
During this fake recovery and before, some million union jobs were lost
annually as manufacturing shifted to low wage nations—China in
particular and now elsewhere.
After seven years of this “pump priming” of corporate America, important
elements of the ruling rich have come to understand that the endless
printing of money to keep the capitalist system afloat has perhaps
reached a limit. With every passing month, Wall Street riveted its
attention on whether Janet Yellen’s Federal Reserve would end the free
flow of money. Wild swings of the stock market, led the speculator gang
to seek potentially more profitable outlets, including in China’s then
booming stock markets. Undoubtedly, a number were burned in the effort.
Capitalism by its nature is an unplanned, boom and bust, anarchistic
economic system, driven forward by the pursuit of private profits by
individuals and corporations come hell or high water. Capitalism’s
apologists claim, through some twist of magical thinking, that the
social good of society is automatically maximized if capitalists are
allowed to maraud freely, within and without national borders, doing
whatever they need to do regardless of the cost in human lives or to the
planet earth itself.
China’s ruling class, as with most others, hold to the belief that it
can control capitalism’s wild nature. They are not the first to engage
in such self-delusion. For more than 35 years, China’s so-called
Communist Party has transformed itself from a dictatorial, Stalinist
bureaucracy, controlling a socialized, command (undemocratic) economy
into a true capitalist ruling class overseeing a privatized economy that
remains in large part subordinate to the great imperialist powers.
The key flaw in this plan is that capitalism does not and never will
lend itself to command control of its currents.
China’s recent dramatic moves to stabilize its faltering economy
essentially exposes the myth that BRICS nations or any others can escape
the central contradictions inherent in the predatory system itself.
World capitalism’s hope that opening up China’s vast markets and people
to capitalist penetration and exploitation would, at least for a time,
save the world is coming to an ignominious end.
Today’s perpetual wars and associated headlong rush to
climate-crisis/global warming-driven oblivion are inseparable from the
uncontrolled and anti-human operations of the vicious for-profit-only
capitalist system. Its replacement at the hands of the world’s working
masses, and the establishment of a socialist world, where human needs
are given preference in all spheres, is a prerequisite to humanity’s future.
Photo: A garment factory in China. AFP/Getty Images
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Posted in China, East Asia, Economy, International. | Tagged China.
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