China can’t save capitalism from environmental destruction

A year ago at the World Economic Forum, China’s president, Xi Jinping, won plaudits from Davos elites for his commitment to open trade. Of course, because China’s economy is heavily dependent on exports, so-called “free trade” is in its interest, so President Xi’s stand was no surprise.

What has drawn less attention are President Xi’s statements on the environment, something the elites of capitalism find rather less convenient. This past October, at the 19th Chinese Communist Party Congress, for example, he delivered this statement: “Man and nature form a community of life; we, as human beings, must respect nature, follow its ways, and protect it. Only by observing the laws of nature can mankind avoid costly blunders in its exploitation. Any harm we inflict on nature will eventually return to haunt us. This is a reality we have to face.” He set a goal of “restor[ing] the serenity, harmony, and beauty of nature” and elevated the environmental-protection agency to the level of a ministry.

Given China’s huge contribution to global warming and the heavy pollution it suffers from, such statements are welcome. But does this truly mean that China will now become a country that puts the environment first and, perhaps, save capitalism from its excesses? That is very unlikely, given Beijing’s integration into the world capitalist system and the dynamics of capitalism, in which all incentives are for more growth — a system that requires growth.

Air Pollution in Hong Kong (photo by Yym1997)

In addition to the basic laws of capitalism, an interesting paper by Richard Smith, an economic historian who frequently writes on the impossibility of “green capitalism,” argues that the nature of China’s system is a further barrier to any turn toward environmental primacy. In his paper, “China’s drivers and planetary ecological collapse,” Dr. Smith argues that despite the power that President Xi has seemingly gathered into his hands, changing the country’s economic incentives are far beyond his capability. Dr. Smith writes:

“Xi Jinping cannot lead the fight against global warming because he runs a political-economic system characterised by systemic growth drivers — the need to maximise growth beyond any market rationality, the need to maximise employment, and the need to maximise consumerism — which are, if anything, even more powerful and even more eco-suicidal than those of ‘normal’ capitalism in the West, but which Xi is powerless to alter. These drivers are responsible for China’s irrational ‘blind growth,’ ‘blind production’ and out-of-control pollution, what Xi himself describes as ‘meaningless development at the cost of the environment.’ ” [pages 4-5]

Three factors drive Chinese growth, Dr. Smith writes: import-substitution industrialization (the need to compete successfully as a national economy against the U.S. and other leading capitalist countries); employment generation (the main reason for Chinese authorities to not allow companies to go out of business); and consumerism. In his paper, he argues that, for all the market reforms introduced in recent decades, China’s state-owned enterprises don’t operate by the rules of the market. He writes:

“For all the market reforms since 1978, the government has not allowed a single major SOE to fail and go bankrupt, no matter how inefficient, no matter how indebted, because those industries serve a different purpose. They do not exist just to make money. They exist to fulfil the wishes of China’s Communist Party rulers, especially as they contribute to import substitution and national industrialisation.” [page 6]

Tens of millions laid off from state enterprises

Ensuring social stability is unarguably a goal of Chinese leaders, but Dr. Smith appears to under-estimate the extent of ordinary capitalist behavior of Chinese state-owned enterprises (SOEs). A 2006 paper published by the China Labour Bulletin, “Swimming Against the Tide,” notes not only the continuing consolidation of SOEs, but the resulting mass loss of jobs resulting from those restructurings. The report says:

“In the late 1990s, however, the government massively intensified the restructuring of SOEs. This process disenfranchised and marginalized tens of millions of workers, while at the same time creating a new class of powerful capitalists with close and highly influential links to local government. Crucially, at this time, the central government seemed to abandon any thoughts of additional remedial measures and basically gave local government officials and SOE managers free rein to carve up the state’s assets between them.

From 1995 to 2002, SOEs cumulatively laid off as many as 30 million workers. … Meanwhile, SOE managers used their power and connections with local governments to work behind the scenes to secure enterprise assets at ridiculously low prices, elevating themselves from being mere managers to actual owners of the enterprise. According to one survey, over 20 percent of the private enterprises created in the first half of 2006 emerged from the restructuring of state-owned and collective enterprises.”

Beijing (photo by ahenobarbus)

Minqi Li, in his book, The Rise of China and the Demise of the Capitalist World Economy, in examining the development of the Chinese economy, pulled no punches in describing the lack of concern for working people:

“Throughout the 1990s, most of the state and collective-owned enterprises were privatized. Tens of millions of workers were laid off. The urban working class was deprived of their remaining socialist rights. Moreover, the dismantling of the rural collective economy and basic public services had forced hundreds of millions of peasants into the cities where they became ‘migrant workers,’ that is, an enormous, cheap labor force that would work for transnational corporations and Chinese capitalists for the lowest possible wages under the most demanding conditions. The massive influx of foreign capital contributed to a huge export boom.” [pages 64-65]

By July 2017, SOEs accounted for just 16 per cent of China’s jobs and less than a third of industrial output, according to an HSBC report.

Capitalist dynamics are firmly in place in China’s economy, a development that will only intensify, given the Communist Party leadership switching the role of the market from “basic” to “decisive” in 2013 at a key Central Committee plenum, and the continuity with this course that was laid down by the party at the October 2017 party congress, again stressing the “decisive role” of the market.

Waste, planned obsolescence add to consumerism

Nonetheless, Dr. Smith is correct is noting that there is more state guidance of the economy than in ordinary capitalist economies. China is by far the biggest consumer of industrial raw materials, a function of the country’s frenzied pace of investment. Wastefulness extends to consumer items as well, he writes. Planned obsolescence is out of control. Because of the incentives to produce beyond any rational demand, unnecessary infrastructure, to the point of “ghost cities,” is built; buildings are demolished after a couple of decades; and large appliances, such as refrigerators, are designed to break down within only a few years to spur more consumption.

He argues that the introduction of market reforms has amplified, instead of reducing, tendencies in the old bureaucratic economy toward redundant investment. Provincial and local officials seek to build their own industrial bases, which discourages cooperation and efficiency. Although the Communist Party can remove millions of people to clear the path for construction projects, it can’t enforce dictates on the environment or excess development. There are too many interests, according to Dr. Smith:

“[M]inisterial officials, provincial governors, local officials, and SOE bosses mostly need not worry. Why is that? How is it that a highly centralised neo-totalitarian police state cannot force its own subordinate officials to obey its own orders, laws, rules, and regulations? This is a most interesting question. The answer, I suggest, is to be found in the collective nature of China’s ruling class. Beijing can’t systematically enforce its writ against resistance from below because it can’t systematically fire subordinates for insubordination: they’re not just employees, as in capitalism. They’re Communist Party members, members of the same ruling class as the leaders in Beijing.

If you’re head of a ministry or an SOE, especially a big ‘national champion’ SOE that Beijing wants to forge into a world-beating industrial competitor, then Beijing is willing to overlook your pollution. … China’s coal and oil ministries and its giant SOEs are very powerful and profitable, with millions of party bureaucrats and employees. Heads of large SOEs have ministerial rank. Of the 120 SOEs directly managed by the central government, fully fifty-four heads of those firms enjoy ministerial rank. They like things the way they are and they intend to keep them that way.” [page 16]

China’s de-centralized administration leaves each province striving to achieve as high a measure of self-sufficiency as possible. This includes energy, meaning that energy is produced for local consumption, and not necessarily in an economically rational manner:

“In 2015, China spent a record $102 billion on wind, solar, geothermal, and other low- or no-carbon renewable energy. Yet in 2016 wind turbines produced just 4 percent of China’s electricity generation, and solar barely reached 1 percent. By comparison, the US invested just $44 billion in 2015 but in 2016 wind produced 6.9 percent of its electric generation — nearly double China’s production with less than half the investment. The reason China produces so little renewable energy despite all the investment is that so much of its renewable energy is ‘curtailed’ (wasted). Nationally, the government concedes that about 21 percent of wind energy is curtailed, as much as 40 percent in some provinces and even more than 60 percent in Xinjiang (ironically, the province with the most installed wind power).” [page 22]

Enough housing for half the world’s population

That investment will continue at a breakneck pace is exemplified by news that when all the plans for new housing are added up, there will be enough housing in China for 3.4 billion people by 2030, which an article reporting this in Shanghaist dryly notes “seems a tad excessive.” The source of this overdevelopment, Shanghaist reports, is “more than 3,500 county-level new urban areas planned by local governments.”

Just one project, the Xiongan New Area, will cover an area three times the size of New York City, The Guardian reports. This planned city, near Beijing, set off a real estate frenzy so intense that it was said to create gridlock on roads leading to the area, and land prices were reported to have doubled in hours after the government announced its plans. And of course Chinese investment is not limited to within its borders. People’s Daily Online estimates that as of 2016, approximately 30,000 Chinese companies had invested $1.2 trillion in China’s “One Belt, One Road” infrastructure initiative.

People’s Grand Hall in Chongqing (photo by Chen Hualin)

Private profit, and all the problems that revolve around that, has become the driving force of the Chinese economy. Timothy Kerswell and Jake Lin, in their recent Socialism and Democracy article, “Capitalism Denied with Chinese Characteristics,” noted that SOEs operate like like private firms and are controlled by “a handful of wealthy businessmen and executives, who mostly are the [party] princelings and their families.” By the early 21st century, they wrote:

“Urban China had gone from a highly protected ‘iron rice bowl’ system that guaranteed state workers’ permanent jobs, cradle-to-grave benefits — and a relatively high degree of equality — to a market-determined contract-based employment system at its core, and massive informal and unprotected sectors at its periphery.” [page 45]

Land speculation on the part of local governments is rapidly paving over farmlands, another contributor to global warming. Land sold to commercial interests can be 40 times higher than what is paid to farmers, Dr. Kerswell and Dr. Lin write:

“In many respects, urbanization in China can be understood as the process of local government driving farmers into buildings while grabbing their land. The pseudo-collective-ownership of rural land has also increasingly become a front for rural cadres’ rampant corruption and cronyism in pursuit of personal interest in the process of transferring use rights. From 2005, surveys have indicated a steady increase in the number of forced land requisitions, and about 4 million farmers were losing their land annually.” [page 39]

Incentives for more investment, more global warming

This is not a system that is going to give priority to the environment. And because so much of China’s sweatshop-based economy is built on assembling parts made elsewhere into final products — first the parts are shipped from around the world and then the final product is sent elsewhere as well — the transport inherent in these global production chains hugely contributes to pollution and global warming. So however much we might quibble with Dr. Smith’s characterization of SOEs, he is quite correct that all incentives are for China’s contribution to global warming to continue to increase and thus Beijing can not contribute to reversing global warming and future environmental collapse.

There is no substitute to consuming less. Dr. Smith concludes his paper with these lines:

“[T]he only way to effectively meet the climate emergency we face is with an emergency shutdown of useless, superfluous, unnecessary and harmful industrial production around the world, but most particularly in China and the United States, the biggest polluters. … If the Chinese don’t organise a rationally managed retrenchment and shutdown of unsustainable industries, Mother Nature is going to shut those industries down for them and in a much less pleasant manner. There’s no way around this very inconvenient truth: Making too much staff has to stop.” [page 27]

Not that Beijing should be asked to shoulder all blame. Western multi-national corporations willingly moved their production to China, greatly adding to global warming. Nor should Western capital’s role in facilitating Chinese projects be soft-pedaled. The World Bank provided loans for the Three Gorges Dam project that displaced 1.3 million people, and Canadian, French, German, Swiss, Swedish and Brazilian capital were also necessary to build the dam.

It’s hard to avoid the argument that the Western peoples were allowed to enjoy highly consumptive lifestyles, and it would be unfair to force lower living standards on those in the global East or South. That is a reasonable argument. But we only have one Earth, and humanity is consuming resources far beyond sustainability — at the rate of 1.6 Earths. If the entire world consumed at the rate that the U.S. does, we’d need four Earths. (Kuwait is tops in this category, with a ratio of 5.1 Earths, followed by Australia at 4.8.)

Such consumption is quite impossible in the long run. Those living in the advanced capitalist countries are going to have to consume much less. Yet that is impossible in a global economic system that requires growth, and will not provide jobs for those dependent on polluting industries. Industrializing the solar system, even if that proves possible, would only delay the inevitable. We can have a sustainable future with production geared toward human need, or we can continue to produce for private profit until we find out the hard way that you can’t eat money.

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China maintains its capitalist course

The Western corporate media have been fixated on Chinese President Xi Jinping’s hold on power, speculating on if he will follow the Communist Party’s tradition of leaders stepping down after two five-year terms. The larger story, however, is that there appears there will be no change in course, at least for now, for China.

Perhaps the fixation on President Xi is due to the corporate media’s tendency to focus on personalities over issues, or perhaps because it could be presumed in advance that China would not become a poster child for the International Monetary Fund or World Bank. To be fair, Chinese institutions have strongly emphasized President Xi’s leadership, continually referring to him as the “core” of the party’s central committee and celebrating that “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” has been enshrined in the party constitution.

The way in which “Xi Jinping Thought” has been enshrined, however, indicates that the party and state leader is stressing continuity with his predecessors. The resolution by the 19th Chinese Communist Party Congress adopting the report of the outgoing central committee said this in the first paragraph:

“The Congress holds high the banner of socialism with Chinese characteristics and is guided by Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, the Scientific Outlook on Development, and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.”

Forbidden City, Beijing (photo by Adamantios)

Looking past the ritualistic style, what is noteworthy about the above paragraph is that every Chinese leader is mentioned. The “Scientific Outlook on Development” is the product of President Xi’s predecessor, Hu Jintao, who declared that China must end its reliance on cheap labor and invest more in science and technology. The “Theory of Three Represents,” laid down by former President Hu’s predecessor, Jiang Jemin, declares that the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. That is an assertion that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously.

On the surface, that lineup of leaders seems unremarkable, but it represents a change from four years ago, when the party did not formally mention the “Scientific Outlook on Development” and attached the adjective “important” to the “Three Represents.” Combined with the announcement four years ago that the party declared “the role of the market” in China to be “decisive,” a switch from “basic,” this was a strong indication that China would further its integration into the world capitalist system, albeit on its own terms.

A continuing commitment to the capitalist road

The lines laid down by presidents Jiang and Hu, following the turn toward capitalism by Deng Xiaoping, would seem quite contradictory to “Mao Zedong Thought” or, for that matter, Marxism-Leninism. What can be reasonably inferred here is that the party will continue to use Mao as one source of its authority. That all post-revolutionary rulers are included in the list of enshrined theories, with none elevated above any other, indicates that the party is stressing continuity.

If there are to be any significant changes, particularly to economic policy, they are unlikely to be revealed before next autumn, when the third plenum of the new central committee will likely be held. Third plenums, generally held about a year after a congress, are often the occasions for major announcements, as was the case in 2013, when the above switch to making the market “decisive” was announced. (A plenum is a meeting of the entire central committee, generally scheduled at precise intervals.)

Also noteworthy in the congress’ resolution of October 24 was an acknowledgment that the party has to give greater priority to consumer interests and the environment:

“[T]he Congress forms the major political judgments that socialism with Chinese characteristics has entered a new era and the principal contradiction in Chinese society has evolved into one between unbalanced and inadequate development and the people’s ever-growing needs for a better life.”

The party, despite the heavy stress on “Xi Jinping Thought,” also sought to dampen hopes that the growth in living standards would be rapid:

“The Congress elaborates on the Party’s historic mission in the new era and establishes the historical position of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. It sets forth the basic policy for upholding and developing socialism with Chinese characteristics in the new era, and establishes the goal of securing a decisive victory in building a moderately prosperous society in all respects and then embarking on a journey to fully build a modern socialist China.”

The resolution, which repeatedly referred to the goal of a “moderately prosperous society,” also stressed the party will firmly hold onto its leading role, uphold the unity of China and strengthen its military. As to the direction in which the party intends to lead, the list of goals in the resolution give a strong hint. Among the listed goals are “pursue supply-side structural reform as our main task” and “endeavor to develop an economy with more effective market mechanisms.”

Although “supply-side” in this context certainly is not meant in precisely the same way that “supply-side” was meant during the Reagan administration in the United States, it is not without content, either. The Chinese business magazine Caixin, in a commentary about the congress, had this to say:

“The report said that ‘in resource allocation, the market plays the decisive role and the government plays its role better.’ This line shows unwavering determination to move toward market reform. But we should remain vigilant about how, under China’s current system, in terms of specific administration, the government plays a decisive role, while the market is in a subordinate role. Supply-side reform needs to accomplish five tasks — cutting overcapacity, lowering inventory, deleveraging, lowering costs, and improving economic weak spots. ‘Government failure’ cannot be entirely absolved in causing these problems.”

Party acknowledges “unbalanced and inadequate development”

So, again, more capitalism for the Chinese Communist Party despite its insistence that “socialism” is its guiding ideology. A commentary by the official Chinese press agency, Xinhua, offered these passages:

“The genesis of China’s development miracle is socialism, not other ‘-isms.’ The country succeeds not by rigidly copying the original ideas of scientific socialism, but by adapting it to China’s reality. Xi Jinping’s thought will be China’s signature ideology and the new communism. … China is now strong enough, willing, and able to contribute more for mankind. The new world order cannot be just dominated by capitalism and the West, and the time will come for a change.”

The reality is that China is ever more integrated into the world capitalist system, and has built its economy on being the world’s sweatshop — rendering it highly dependent on exports, particularly to the West. The party would like to follow the path of Japan, which started out making cheap consumer products before moving up the value chain to become a producer of high-end electronics and other technological products. Traveling such a path is a necessity if the party is to fulfill its goal of raising Chinese living standards and making China an undisputed global power.

Shanghai (photo by dawvon)

The reference to the “principal contradiction” of China being “between unbalanced and inadequate development and the people’s ever-growing needs for a better life” is an acknowledgment that China has made insufficient progress. A few numbers will illustrate that.

Household consumption in China remains far below the level of advanced capitalist countries. According to World Bank data, household consumption accounted for 37 percent of China’s gross domestic product in 2015, barely improved from 36 percent in 2007. (Household consumption is all the things that people buy for personal use from toothbrushes to automobiles.) To put that number in perspective, household consumption was as high as 71 percent during the Mao era and above 50 percent as recently as the early 1980s. In comparison, household consumption in advanced capitalist countries tends to be between 58 and 72 percent of GDP.

China’s rapid growth has been overly dependent on investment, and given the overcapacity of many Chinese basic industries and the rash of ghost cities constructed, the ability to continue driving growth through investment is questionable. Here again, data from 2015 is the latest available, when investment accounted for 45 percent of Chinese GDP, down only slightly from a high of 48 percent in 2011. To put that in perspective, the world average is 24 percent.

Wages rising but are still very low

Concurrent with the over-reliance on investment is an ongoing real estate bubble and increasing debt. For the period 2007 to 2014, only four countries saw their debt increase faster than China. A 2016 Financial Times report said that more than 60 percent of Chinese bank loans were directly or indirectly tied to real estate. That any downturn or stagnation remains well into the future is demonstrated in a sudden and pronounced drop in the Shanghai stock market in 2015, ending a stock bubble, not having much of a dampening effect on the economy. Nonetheless, a stock-market bubble is no panacea for low wages or a shredded social safety net.

And wages remain low in China, despite the gains of recent years. The minimum wage in Shanghai, the highest in China, more than doubled from 2010 to 2016, but was still the equivalent of US$327 per month. The minimum wage in most major cities is US$239 and in poorer provinces can be lower still. These increases, the product of labor struggle, may be coming to an end for the near future, however, reports the China Labour Bulletin:

“Current central government policy was clearly stated by Vice Minister for Human Relations and Social Security, Xin Changxing, in July 2016 when he said that because: ‘Our advantage in labour costs is no longer as clear-cut as before; we should ease the frequency and scale of wage increases so as to preserve our competitive advantage.’ ”

Garment manufacturers are relocating to Bangladesh, Cambodia and Vietnam, where wages are even lower. The Bulletin reports that Chinese minimum wages (which are set locally) should be between 40 and 60 percent of the local average wage, but in most cities it is less than 30 percent. The gap between low-paid workers and those earning the average wage has been growing, nor are overtime rules enforced.

The Bulletin concludes its report on Chinese working conditions in sobering terms:

“A superficial look at China’s major cities seems to show a reasonably affluent society: young, hard-working middle class families, determined to make a better life for themselves. Look beneath the surface however and you soon realize that the goods, services and lifestyle products that these middle class families aspire to are all produced, marketed, and delivered to their homes by an army of over-worked and under-paid working class labourers.”

Socialism or sweatshops?

If socialism is defined as a system of political and economic democracy in which industry and agriculture are brought under popular control so that production is oriented toward human, community and social need rather than private accumulation of capital, and all human beings have a say in decisions that affect their lives and communities, integration into the world capitalist system on the basis of low-paid sweatshop labor allowing massive profits for foreign multi-national corporations is not socialism, whether or not with “Chinese characteristics.”

Western corporations, led by Wal-Mart, are responsible for production being moved to China. China did not “take” anybody’s job; it became the favored destination of the transfer of production by taking advantage of capital’s relentless desire to relocate to locations with the lowest wages and most permissive regulations. Japan and South Korea were able to move up the value chain, develop industry and become new members of the Global North. China’s intention is to do this, but it is by no means certain that there is room for it to do so.

China, because of its size, is able to extract concessions from foreign capital and assert more control than other developing countries, and thus is in the unique position of entering the capitalist system on its own terms. But the market has its own “logic,” one that no country is able to escape.

There is considerable speculation that Chinese leaders are playing a long game, using the capitalist system to develop with the intention of later nationalizing and moving again to a socialist system. A healthy skepticism toward such scenarios is more than warranted. Wealth is being accumulated. The power the concentration of capital inevitably builds, and the commonality of interests of capital across borders, are not something that can removed via a decree.

However much China’s leadership might believe it can control and harness the market, there are always interests at stake. Capitalist markets are nothing more than the aggregate interests of the largest industrialists and financiers, and, in the absence of sustained, organized resistance, those interests are decisive, with all the attendant exploitation.

The rapid minting of billionaires in China, the party’s welcoming of those with wealth, and the wealth acquired by those related to party officials, means that the material interests of the Chinese Communist Party is more capitalism.

Chinese stock bubble no panacea for low wages

China increasingly finds its journey to capitalism to be difficult, all the more so since the government’s strategy of inflating a stock-market bubble has not worked better than it does elsewhere.

Although, thanks to increasing worker militancy, wages are rising in China, it does not appear that China’s leaders have made any real progress in tackling over-reliance on investment and a low level of consumption, while inequality continues to rise. Encouraging working people to throw money into Chinese stock markets — much of which was borrowed — isn’t a substitute for a strong social safety net and living wages.

The corporate media is grumbling that measures Beijing has taken to stabilize its stock markets amount to a backtracking on its commitments to capitalist markets, but China’s integration into the global economic system is hardly at risk. The ruling Communist Party made its goal of increasing integration quite clear two years ago, when it set its economic goals at the 18th Party Congress’ Third Plenum.

The recently built, empty Chinese city of Ordos, Inner Mongolia (photo by Uday Phalgun)

The recently built, empty Chinese city of Ordos, Inner Mongolia (photo by Uday Phalgun)

At the time, corporate-media writers were disappointed the party did not choose to become a pet of the International Monetary Fund, evidently unable to read beyond the self-congratulatory slogans the party issued about its leadership. The party stated firmly its continuing commitment to capitalism, but also that its ongoing adoption of markets would be gradual.

This was clear enough at the time: The party’s communiqué following the Plenum stated it “must closely revolve around the decisive function that the market has in allocating resources” and would “accelerate the construction of free trade zones.” Xinhua, the official Chinese news agency, stressed that “The role of the market in China has officially switched from ‘basic’ to ‘decisive,’ and is key to understanding the reform agenda.” Earlier this month, President Xi Jinping reiterated this commitment:

“An important goal for China’s current economic reform is to enable the market to play the decisive role in resource allocation and make the government better play its role. That means we need to make good use of both the invisible hand and the visible hand. … To develop the capital market is a key goal of China’s reform, which will not change just because of current market fluctuations.”

When real estate cools, inflate a stock bubble

A rapid increase in debt and the petering out of a long real estate boom are two reasons said to be behind the inflation of a Chinese stock-market bubble. (A reversal of the order in the U.S., where a real estate bubble was inflated to counteract the burst of the 1990s stock bubble.) A McKinsey Global Institute study found that China’s total debt (corporate and all levels of government) quadrupled in seven years, reaching $28 trillion in mid-2014, a total nearly triple the country’s gross domestic product. The study says:

“Three developments are potentially worrisome: half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable.”

Arguing that the stock-market rally was “clearly sponsored by the Chinese government,” economist Alicia García-Herrero said the bubble was inflated to provide local banks and corporations with new sources of capital. But what goes up eventually comes down, a turn compounded by the high rate of borrowing that fueled stock purchases. There were two proximate causes of the crash, Ms. García-Herrero writes:

“First, there was a wave of profit taking after the Shanghai benchmark index broke through 5,000 in early June and doubts emerged about further easing from the [Chinese central bank]. At that very same moment, China’s securities regulator announced measures to cool down the market, which amounted to banning brokerage firms from providing unregulated margin funding to investors. This was more of a shock to the system than one might imagine, as margin financing in China is much larger than in other stock markets.”

The benchmark Shanghai Composite Index reached its peak on June 12 and has fallen by more than one-third since, wiping out about US$3.3 trillion of value. Apologists argue that the Shanghai Stock Market is still well above where it was as recently as mid-2014, which is true, but the current value of Chinese stocks aren’t so impressive when looked at in a longer time frame — the Shanghai Composite Index is today where it was in November 2010.

Beijing has taken a series of steps to stabilize Chinese stock markets, including halting initial public offerings, cuts to interest rates, directing national pension funds to buy stocks, and instituting a new rule that large shareholders and managers must not reduce their holdings for six months. Alleviating the stock-market crash appears to be seen by the party leadership as a necessity to dampen potential social unrest due to the massive borrowing by mom-and-pop investors encouraged by the government. A ninefold increase in margin lending by brokerage firms over the past two years fueled the bubble, according to The New York Times.

Devaluation in response to export slowdown

The summer’s stock-market crash coincides with signs that China’s economic growth may be slowing. Chinese exports and imports were both down sharply for July and August, and in response, Beijing intervened in foreign-exchange markets to force a small decline in the value of the renminbi. But that devaluation appears to have backfired as market pressure would have forced the value of the renminbi to continue falling, below China’s target, causing Chinese financial officials to further intervene to prop up the value of their currency.

Although right-wing politicians apparently believe China’s government sets the value of its currency by decree, in fact China (as do many other countries) has to spend considerable money to maintain its value to counter the force of currency speculators. The yen, euro, U.S. dollar and Swiss franc are among the currencies whose values have been pushed down at various times due to government spending. Countries that do not possess the reserves to do this are completely at the mercy of speculators.

China does have reserves, due to its large trade surpluses, and is believed by Bloomberg Business to have spent US$315 billion in the past 12 months propping up the renminbi. In August alone, China spent $94 billion to keep its currency from falling further in value.

OK, what does all this mean? The idea that China has built a wall that keeps out the world capitalist system simply isn’t so. China, in contrast to other developing countries, is big enough to set some of its own rules and push back against U.S. domination. But its integration into world markets means it is ultimately subject to the whims of those markets. Those are very real forces: Markets are not impartial, disinterested mechanisms sitting loftily in the clouds — they represent the aggregate collective interests of the world’s most powerful industrialists and financiers.

It is those interests that are behind the massive transfer of production to China and other low-wage countries. No enterprise is more responsible for this transfer than Wal-Mart Stores Inc., which leverages its size, innovation in computerizing its inventory and tight management of its suppliers to squeeze those suppliers. If a manufacturer wants to continue to have contracts to supply Wal-Mart, then it has no choice but to ship its operations overseas because it has no other way to meet Wal-Mart’s demands for ever lower prices.

Wal-Mart, although the most ruthless, is far from alone in this business practice. Apple Inc. accrues massive profits by contracting out its manufacturing to subcontractors. A 2010 paper by Yuqing Xing and Neal Detert found that Chinese workers are paid so little that they accounted for only $6.50 of the $168 total manufacturing cost of an iPhone. Of course iPhones cost a lot more than $168 — an extraordinary profit is generated for Apple executives and shareholders on the backs of Chinese workers.

By now, those Chinese workers earn more, although they still represent a minuscule cost against a gigantic profit. Wages have been increasing in China in recent years fast enough that wages doubled from 2009 to 2015. Yet inequality is rising in China; as measured by the gini co-efficient, the standard measure of inequality, the income gap has grown more there in the past two decades than in any other Asian country.

Chinese labor share of economy remains small

Thus, when measured against the overall economy, China’s workers are not really doing better. By one measure, a study by two University of Chicago business professors, the labor share of China’s gross domestic product was a woeful 36 percent in 2010, compared to 58 to 60 percent for Japan, the United States and Germany. That share was above 50 percent in the 1980s. (The trend of those percentages in each country is down.)

Another way of analyzing this is in household consumption: The share of household consumption in China’s gross domestic product in 2013 was 36 percent (this was the latest figure available), representing a continual decline from 47 percent in 2000. Household consumption in advanced capitalist countries tends to be between 58 and 72 percent of GDP. Finally, China’s capital investment remains extraordinarily large, accounting for 48 percent of GDP, far above what other countries spend and as high as it has been in the past.

China’s growth is still overly dependent on building infrastructure and exports, and despite still low wages production is already being transferred to other countries with still lower wages. The average factory worker in China earns $27.50 per day — pitiful by Northern standards, but much higher with the $8.60 in Indonesia and $6.70 in Vietnam. But higher wages are not distributed evenly in China. The minimum wage varies considerably among provinces and in six of the most important cities, the minimum wage is less than 30 percent of the average local wage even though Chinese law prescribes it should be at least 40 percent.

Although Chinese authorities often meet worker unrest with repression, concessions are also offered, enabling the increases in wages. Such unrest is growing more widespread: China Labour Bulletin reports that 1,642 strikes have taken place in China in 2015, more than all of last year. Strike totals are as follows:

  • 1,642 strikes in 2015 (total reported as of September 22)
  • 1,379 strikes in 2014
  • 656 strikes in 2013
  • 382 strikes in 2012
  • 185 strikes in 2011

Alternative organizations are leading many of these struggles due to the lack of effective trade unions, the Bulletin reports:

“Labour rights groups, especially those in Guangdong, emerged to play the role a union should be playing, supporting workers in their struggle with management, helping them to conduct collective bargaining and maintaining unity and solidarity.”

What the future for China will largely depends on its working class’ ability to organize, a difficult task in the face of tightened repression. To what extent President Xi’s anti-corruption campaign really is an effort to root out corrupt “tigers and fleas” and to what extent it is a continuing purge — the “tigers” thus far are primarily associated with former President Hu Jintao — is difficult to know given the opacity of the party and the factions that contend within it. That the politically connected and coastal elites within China have become wealthy signals there is a powerful bloc within the party committed to the path it has taken since the Deng Xiaoping era.

Northern, and especially U.S., capitalists have profited well from China’s policies, too. Thus it behooves U.S. and Chinese working people, Northern and Southern workers, to recognize their common interests. Industrialists and financiers around the world are united in their neoliberal drive; we can only defend ourselves on an international basis.

New development banks unlikely to threaten World Bank

Forecasts that new development banks sponsored by the largest developing countries are destined to erode the economic dominance of the United States are quite premature, but it is nonetheless no contradiction that the global hegemon has vigorously sought to stop them. More than a little hypocrisy is at work here.

The newly created Chinese-led Asian Infrastructure Investment Bank has drawn much more of Washington’s ire than has the BRICS New Development Bank formed by the five “BRICS” countries of China, Russia, India, China and South Africa. The U.S. government has leaned heavily on Australia and other countries sufficiently firmly that Canberra has declined to join the Asian Infrastructure Investment Bank despite its initial interest, nor have Indonesia and South Korea.

Although the infrastructure bank is to be capitalized with US$100 billion, it would be ridiculous to say that the World Bank or International Monetary Fund will be put out of business. It will not necessarily go much beyond complementing the existing Asian Development Bank, a regional multi-lateral institution controlled by the U.S. and Japan. And even the World Bank says Asia will require trillions of dollars to build its infrastructure in coming years that it and existing institutions can’t supply.

Protest at the World Bank. (Photo by "Jenene from Chinatown," New York City)

Protest at the World Bank. (Photo by “Jenene from Chinatown,” New York City)

The politics of imperialism are at work here. The very idea that a country outside the control of the U.S. dares to set up an institution outside the control of the U.S. is an example that Washington, as the ultimate enforcer of multi-national corporations’ prerogatives, is determined to stamp out.

In a front-page article, The New York Times reported:

“American officials have lobbied against the [infrastructure] bank with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project, according to senior United States officials and representatives of other governments involved.”

And what excuse does the U.S. government give for its opposition? Officially, the Obama administration is not talking, but, quoting a “senior official” granted anonymity, the Times reports:

“A senior Obama administration official said the Treasury Department had concluded that the new bank would fail to meet environmental standards, procurement requirements and other safeguards adopted by the World Bank and the Asian Development Bank, including protections intended to prevent the forced removal of vulnerable populations from their lands. … ‘How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?’ asked the senior official.”

Has the Obama administration, or, more accurately, the government apparatus that has steered U.S. policy on behalf of corporate interests for generations, suddenly grown a conscience? Quite unlikely. The World Bank and International Monetary Fund, as well as regional banks such as the Asian Development Bank, have been under U.S. suzerainty since their founding. Does the World Bank really uphold development ideals? The record firmly says otherwise.

The World Bank’s record of destruction

The World Development Movement, a coalition of local campaign groups in Britain, reports that the World Bank has provided more than US$6.7 billion in grants to projects that are destructive to the environment and undermine human rights, a total likely conservative. To cite merely three of the many examples, the World Bank:

  • Loaned an energy company in India more than $550 million to finance the construction of two coal-fired power plants. Local people, excluded from discussions, were beaten, their homes bulldozed and complain of reduced food security and deteriorating health as a result of the power stations.
  • An Indonesian dam, made possible by the World Bank’s $156 million loan, resulted in the forcible evictions of some 24,000 villagers, who were subject to a campaign of violence and intimidation.
  • In Laos, a hydropower project made possible by World Bank guarantees displaced at least 6,000 Indigenous people and disrupted the livelihoods of around 120,000 people living downstream of the dam who can no longer depend on the rivers for fish, drinking water and agriculture.

A study of World Bank policies, Foreclosing the Future by environmental lawyer Bruce Rich, found that:

“Drawing on Bank studies, project evaluations and sectoral reviews, it is shown that the World Bank still suffers from a pervasive ‘loan approval culture’ driven by a perverse incentive system that pressures staff and managers to make large loans to governments and corporations without adequate attention to environmental, governance and social issues. In 2013, Bank Staff who highlight social risks and seek to slow down project processing still risk ‘career suicide.’ … [The bank] has continued to binge on enormous loans to oil and gas extraction, coal-fired power stations and large-scale mining generating environmental damage, forest loss and massive carbon emissions.”

A study prepared by the Institute for Policy Studies and four other organizations found that World Bank lending for coal, oil and gas was $3 billion in 2008 — a sixfold increase from 2004. In the same year, only $476 million went toward renewable energy sources.

It could be pointed out that China’s industrialization has had serious environmental consequences, and that Chinese money was critical to the building of the Three Gorges Dam, the construction of which led to the forced removal of at least 1.3 million people. True enough, but Canadian, French, German, Swiss, Swedish and Brazilian capital were also necessary to build the dam. The World Bank also provided loans associated with Three Gorges and provided experts during the project’s planning stages.

Despite the pressure from Washington, 21 countries signed up to be founding members of China’s Asian Infrastructure Investment Bank, including India, Singapore and the Philippines.

BRICS bank expected to bow to the logic of capital

China’s new bank was formed three months after the BRICS New Development Bank. The BRICS bank will be more modest, with a goal of US$100 billion capitalization, spread equally among the five countries. In a July 2014 communiqué, the five countries said their bank will have the “purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies.” They also pledged to organize a “BRICS Contingent Reserve Arrangement” to “help countries forestall short-term liquidity pressures” resulting from foreign-exchange or debt markets.

Although this bank is intended as a gesture of independence from the U.S.-dominated world financial system, and will use some combination of the BRICS currencies, detaching from the world system is not a simple matter of setting up new institutions. A New Delhi economics professor, C.P. Chandrasekhar, sees the bank being limited in what it can potentially do. Writing on Naked Capitalism, he said:

“However, the new development bank is fundamentally not detached from the global financial system. Being a bank, even if a specialised one, it must ensure its own commercial viability. And it must do so when a large part of the resources it lends would be mobilised from the market. … [W]anting to be seen as respectful of the sovereign interests of borrowing countries, the [New Development Bank] would be careful not to frame its lending rules in ways that threaten the policy sovereignty of borrowing countries. If the countries that approach the institution are pursuing neoliberal strategies, there may be clear limits in terms of what the new development bank itself can achieve.”

Professor Chandrasekhar concludes:

“The decision of the BRICS to set up mini-versions of the World Bank and the IMF seems to be more a symbolic declaration of resentment at the failure of the US and its European allies to give emerging countries a greater say in the operations of the Bretton Woods institutions. … The desire to redress the obvious inequities in the global financial system seems far less important.”

If it is a safe haven, it is not going away

That, for at least the near future, U.S. hegemony is not threatened received fresh confirmation during October’s week-long decline in the world’s stock markets — money from around the world quickly poured into U.S. treasuries as a safe haven. From a capitalist standpoint, doing so is entirely rational: If the U.S. government unravels, the entire global capitalist system disintegrates.

Although predictions of the U.S. eventually being dethroned will one day come true — every empire has an expiration date — that such a dethronement is imminent is wishful thinking. This is not to say that U.S. power is not eroding, but there is no conceivable replacement for the U.S. at the center of the world capitalist system. The U.S. spends about as much money on its military as every other country on Earth combined and the dollar remains the world’s reserve currency; that the world continues to buy U.S. debt as a safe haven enables the U.S. to continue to run up deficits and finance its military.

There is no military remotely in a position to become the global enforcer of capital, nor any currency that could replace the dollar at the present time. The euro is not a candidate because the eurozone is too fractured and unstable; the renminbi is not fully convertible. According to the Bank of International Settlements, the U.S. dollar was involved in 87 percent of the world’s foreign-exchange transactions in April 2013, while the euro was involved in 33 percent and the renminbi in 2 percent.

The U.S. needs China to buy its debt but China needs the U.S. as an export destination; Chinese growth continues to be dependent on unsustainable levels of investment rather than internal consumption, a situation difficult to adjust because production is moved to China to take advantage of its low sweatshop wages. A contradiction on the other side of the Pacific is that U.S. foreign policy treats China as a capitalist competitor that must be contained at the same time that U.S.-based multi-national corporations are instrumental in transferring production to China.

A change in the global hegemon from the U.S. to another country or bloc, leaving the capitalist system intact, provides no salvation, no more than did the early 20th century’s transfer from Britain. Another world is possible only with an entirely new economic system. Otherwise, the subaltern will remain subaltern, be they nation or people.

More capitalism for Chinese ‘Communist’ Party

A deeper integration into the world capitalist system appears to be the goal of the Chinese Communist Party, a decision obscured but not occulted by the ritual “all hail the party” slogans littering the “communiqué” the party issued following this month’s much anticipated planning meeting.

Nonetheless, the gradually mounting contradictions of China’s heavy reliance on exports and investment, and the larger implications for global living standards, remain in place. China’s role in global capitalism, despite its impressive growth figures, has been an assembly platform for foreign multi-national corporations. This system has brought wealth to a minuscule layer of Chinese capitalists while enormously profiting Western and Japanese companies, and their East Asian contractors.

Two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. In high-technology industries, the ratio is higher: Wholly owned non-Chinese corporations account for 68 percent of high-tech exports and, if firms partially owned by foreign companies are included, the total is 83 percent.

And in contrast to misleading trade statistics, most of the money captured by this Chinese production is taken by Western and East Asian multi-national corporations, not by China. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is.

Socialist rhetoric, but capitalist content

The communiqué referenced above is the official statement released by the Chinese Communist Party following the “Third Plenum” of the 18th Party Congress. The plenum, a meeting of the entire party Central Committee that concluded on November 12 in Beijing, was intended to re-orient the Chinese economy in a new direction. The corporate media predictably issued downcast reports in the wake of China not immediately adopting International Monetary Fund diktats.

Factory on Yangtze River

Factory on Yangtze River

The communiqué is full of long-winded sloganeering and short on details. Nonetheless, in between the repeated ritualistic panegyrics to the party’s guidance and the “magnificent progress” it has bequeathed China, there are clear indications that the party intends to continue down its capitalist path. That no significant backtracking is contemplated is signaled by this oxymoronic formulation:

“The Plenum stressed that to comprehensively deepen reform, we must hold high the magnificent banner of Socialism with Chinese characteristics, take Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the important ‘Three Represents’ thought and the scientific development view as guidance.”

The “Three Represents” reference is an official line announced in 2001 the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. Promulgated by former President Jiang Zemin, it is a declaration that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously. One can of course enunciate such a program if one wishes, but such a theory has nothing in common with Marxism. “Three Represents” follows naturally from the policies of President Jiang’s predecessor, Deng Xiaoping, who firmly pushed China on to its capitalist path.

Also noteworthy is the one Communist leader omitted from the list — Hu Jintao, the president between Jiang Zemin and current President Xi Jinping. President Xi is seen as a protégé of former President Jiang, who is believed to have helped pack the Politburo Standing Committee, China’s highest political body, with his followers. The references to Marxism-Leninism and Mao Zedong Thought are ritualistic references, necessary to establish the party’s right to continuity in power and thus its authority to continue to rule.

That only “Three Represents” had the adjective “important” in front of it can be interpreted as to the importance of that line. Moreover, President Jiang was elevated to power following the massacre in Tiananmen Square, which smashed dissent and enabled paramount leader Deng to dismantle social protections. During the 1990s, when President Jiang was in power, state- and collective-owned enterprises were privatized, millions were laid off, peasant rights were revoked and dislocation induced a steady stream of migrant workers into the urban sweatshops. No basic change to this pattern should be expected.

Exalting the party but the market, too

Some of the key ideas put forth by the communiqué are these:

• “The Plenum pointed out that we must closely revolve around the decisive function that the market has in allocating resources.”

• “The Plenum pointed out that to comprehensively deepen reform, we must base ourselves on the largest reality that our country will remain in the preliminary stage of Socialism for a long time, persist in this major strategic judgment that development still is crucial in resolving all of our country’s problems.”

• “We must relax investment access, accelerate the construction of free trade zones and expand inland and coastal openness.”

• “[W]e must strengthen and improve that Party’s leadership, fully give rein to the Party’s core leadership function in assuming all responsibility for the entire picture and coordinating all sides.”

The corporate media was unified in grumbling over the last of these, and although the party will certainly maintain a tight grip on political power, the direction of the party over the past three decades is what has granted Western and East Asian multi-national corporations opportunities for massive profiteering on the backs of Chinese workers. In contrast, Xinhua, the official Chinese news agency, focused on the word “decisive,” declaring the use of that word to describe the role of markets a development from the party’s previous use of “basic.” Xinhua wrote:

“The role of the market in China has officially switched from ‘basic’ to ‘decisive,’ and is key to understanding the reform agenda. [The party] communique … stressed profound economic reform, with the market to play the decisive role in allocation of resources. The previous socialist market economy — official policy since 1992 — attributed only a ‘basic’ role to the market. … [A] unified market for both urban and rural construction land and an improved financial system are definitely in the pipeline.”

More market capitalism then. But as there are no perpetual-motion machines, how long can China continue to its current path?

Export-based economy can’t be easily changed

China’s economy continues to be overly dependent on investment and unable to easily shift toward more household consumption, and thus dependent on exporting. Its ability to be the world’s workshop rests on its ultra-low wages, which are in turn based on systematic exploitation of its rural population.

Three Gorges Dam (photo by Christoph Filnkössl)

Three Gorges Dam (photo by Christoph Filnkössl)

For China to re-orient itself to producing for internal consumption would mean having to allow dramatic growth in workers’ income. But doing so would mean ending foreign capital’s reason to move production to China. China could try to switch to high-end manufacturing — to some degree, it is trying to extend its mix of production to do that — but it doesn’t have the capabilities of non-Chinese companies that are already making such products and it would have to compete by muscling out foreign competitors. (Much of China’s machinery is imported from Germany.)

As their own populations become more restless, foreign governments could find it politically difficult to continue to allow themselves to be swamped by cheap Chinese imports. Moreover, the internal demand for such high-end products is limited within China, so it would be right back to having to rely on exports. Considerable Chinese demand for high-technology products comes from government infrastructure projects and there comes a time when such a high level of investment ceases to be prudent and becomes wasteful spending, as has happened to Japan.

The Chinese Communist Party can continue to apply repression to keep wages and working conditions low, but such policies directly contradict its supposed reliance on Mao Zedong Thought, which produced the now-shredded social safety net known as the “Iron Rice Bowl” — an achievement not lost to collective memory. If the continual drip of scattered local rebellions organizes enough to force competitive wages, Western capitalists would still want to sell their products in China, but would produce at least some of them elsewhere.

Chinese industry could step in and build new capacity, or acquire the capacity that Western capitalists abandon, but the upward pressure on wages would undercut China’s ability to export cheaply, and without much increased internal demand China would have a glut of capacity that would face shuttering.

Chinese workers endure long period of low wages

Household consumption — all the things that people buy for personal use from toothbrushes to automobiles — constituted about 36 percent of China’s gross domestic product in 2012, only two percentage points above China’s bottom three years earlier and far below the 51 percent in 1985. In comparison, household consumption is 58 to 72 percent of the economy of the world’s largest advanced capitalist countries. Fixed capital investment continues to account for large and growing portions of China’s GDP — 46 percent in 2012, a figure more than double countries like Japan and the United States.

What those numbers signify is that China, despite the repeated proclamations of its leaders, has made no progress in re-orienting its economy.

The share of labor income in China’s gross domestic product shrank to 37 percent in 2005 (the latest for which I can find statistics) after having been consistently above 50 percent in the 1980s. A bigger proportion of China’s surplus is being taken by capitalists, but not necessarily Chinese capitalists.

For example, a paper written by Yuqing Xing and Neal Detert found that almost all of the value created by iPhone production in China goes to manufacturing corporations outside of China, where only the final assembly is conducted. The paper, “How the iPhone Widens the United States Trade Deficit with the People’s Republic of China,” argues that conventional trade statistics are highly misleading because the value of the entire product is assigned to the country where the final assembly is conducted, rather than allocated by the value of the various inputs. The paper reports:

“The US also has an absolute advantage in the smart phone category. … [T]heory would suggest the US should export iPhones to the [People’s Republic of China], but in fact the PRC exports iPhones to the US. All ready-to-use iPhones have been shipped to the US from the PRC. Foreign direct investment, production fragmentation, and production networks have jointly reversed the trade pattern predicted by conventional trade theories. Chinese workers simply put all these parts and components together and contribute only US$6.50 to each iPhone, about 3.6% of the total manufacturing cost.

If the PRC’s iPhone exports were calculated based on the value-added, i.e., the assembling cost, the export value as well as the trade deficit would be much lower, at only US$73 million, just 3.6% of the US$2.0 billion calculated by using the prevailing method. … Bilateral trade imbalances between a country used as a final assembler and its destination markets are greatly inflated by trade in intermediate products. … The Sino-US bilateral trade imbalance has been greatly inflated.”

The paper argues that the other $162 of the total manufacturing cost of iPhones (all of the cost other than the $6.50 contributed by underpaid Chinese labor) came from U.S., German, South Korean and Japanese manufacturers who supplied the parts and shipped them to the final assembly plant, which itself is owned by a Taiwanese corporation that is a subcontractor to Apple. The iPhone is designed and sold by Apple, which enjoys a large profit from it. Thus, the money from trade deficits fills Apple’s, and not necessarily Chinese, coffers.

Rural exploitation drives sweatshop exploitation

The dramatic increase in Chinese manufacturing is driven by multi-national corporations from the U.S., East Asia and Western Europe. State-owned enterprises account for 25 percent of China’s industrial output, down from 75 percent in the mid-1980s.

Exploitable workers are needed in those factories, and China’s supply of labor comes from rural wages being consistently 40 percent or less that of urban wages and that local and regional officials continually take and sell off farming land to developers, partly for their own enrichment but also to generate revenue to fund local government. According to a Reuters report, about four million farmers lose their land annually — and those farmers receive an average of $17,850 an acre from local governments, which resell it for an average of $740,000 an acre.

The vast disruptions, vicious exploitation and cavernous inequality of early capitalism is being repeated in China, at an accelerated pace. Earlier industrializing countries did so during a time when capitalism covered only a portion of the globe and thus had considerable room for growth. Wages could eventually rise because of the scope for expansion via exporting, capital controls and the difficulty of moving production to other countries. Mass organizing, including the creation of then-militant unions, leveraged those factors into rising living standards.

Capitalism no longer has places into which to grow, having blanketed the Earth, and the capitalist class has succeeded in eliminating barriers to their moving production at will, accelerating a race to the bottom. The rise of China, or any other country, can only come by taking market share away from somebody else, and the growing mass of low-wage workers drags down wages globally. The alliance of party-connected Chinese capitalists with Western capitalists is profitable for them, but at the expense of working people in those countries and around the world.

Could the rise of China fatally de-stabilize capitalism?

The world is not limitless, yet growth without limits is touted as a permanent economic elixir. But natural resources aren’t infinite, nor can demand be infinite. What happens when the limits of growth are reached?

We aren’t supposed to ask that question about capitalism; the assumption is that economic activity will always grow. The insertion of China into the world capitalist system has created the opportunity for more growth as a country of 1.3 billion people has been thrown open to the world’s markets.

But what if, rather than throwing capitalism a lifeline in the form of a vast pool of consumers who will drive demand, China instead will fatally destabilize an already weakened world economic system?

China will be the final straw that will bring about the downfall of the capitalist system is the provocative conclusion of an interesting book by a Chinese economist, Minqi Li, who now teaches at the University of Utah. Professor Li doesn’t pull any punches in his book; indeed his book’s title is The Rise of China and the Demise of the Capitalist World Economy.* The book’s central thesis is that the huge mass of low-wage Chinese workers will drag down wage levels globally; the increase of industrialization in developing countries will lead to exhaustion of energy sources; and that ecological limits will force a halt to growth, fatal to a system dependent on growth.

Professor Li believes that the combination of these crises will bring an end to the capitalist system by the middle of this century. The Rise of China, however, is not apocalyptic; rather it methodically builds it case piece by piece through a sober examination of economic trends, calculations of the limits to a range of natural resources, analysis of long-term environmental unsustainability, and study of historical trends going back centuries. Nor is this a bleak work; Professor Li writes in the Gramscian spirit: pessimism of the intellect, optimism of the will. What will follow the collapse of capitalism is not pre-ordained but is up to humanity to determine.

The first two of the book’s seven chapters provide an interesting discussion of Chinese history, before and after the 1949 revolution. Pro-capitalist factions within the Chinese Communist Party gained the upper hand soon after Mao Zedong’s death in 1976, with Deng Xiaoping wresting party leadership by the end of the decade. Early reforms granting concessions to workers and peasants cemented political control for the Deng faction, Professor Li writes, enabling the party to then introduce capitalism. A 1988 law granted enterprise managers full control in the workplace (including hiring and firing at will), and the development of market relations enabled privileged bureaucrats to enrich themselves.

Deng proves to be “master” of Chinese politics

Intellectuals on the one hand, and enterprise and bureaucratic elites on the other, sought the growth of market relations and a firm turn toward capitalism. The two groups, however, disagreed on how the spoils would be divided between them, and the party was split three ways on how fast and how far to move toward putting the economy on full market relations. It was Deng who proved to be “the master of Chinese politics,” Professor Li writes, as he was able to implement an intermediate strategy between the party’s poles and use the crackdown in Tianamen Square to reduce the intellectuals to the junior partners of the ruling elites and to break the resistance of urban working people. Thus the stage was set:

“Throughout the 1990s, most of the state and collective-owned enterprises were privatized. Tens of millions of workers were laid off. The urban working class was deprived of their remaining socialist rights. Moreover, the dismantling of the rural collective economy and basic public services had forced hundreds of millions of peasants into the cities where they became ‘migrant workers,’ that is, an enormous, cheap labor force that would work for transnational corporations and Chinese capitalists for the lowest possible wages under the most demanding conditions. The massive influx of foreign capital contributed to a huge export boom.” [pages 64-65]

The “socialist rights” that were revoked included job security, medical insurance, access to housing and guaranteed pensions. The creation of an exodus from the countryside provided a huge pool of surplus labor to keep wages extremely low.

“China’s economic rise has important global implications. First, China’s deeper incorporation into the capitalist world-economy has massively increased the size of the global reserve army of cheap labor. In some industries, this allows capitalists in the core states to directly lower their wages and other costs by directly relocating capital to China. But more important is the ‘threat effect.’ That is, capitalists in the core states force core-state workers to accept lower wages and worse working conditions by threatening to move their factories or offices to cheap labor areas such as China, without actual movement of physical capital. …

“Secondly, China’s low-cost manufacturing exports directly lower the prices of many industrial goods. To the extent that unequal exchange takes place between China and the core states, part of the surplus value produced by Chinese workers is transferred to the core states and helps to raise the profit rate for capitalists in the core states.” [pages 70-71]

Professor Li’s analysis rests on “world systems” theory, which divides the world’s capitalist countries into three general groupings. World systems theory emphasizes that capitalism is a global system that changes and mutates over time and therefore must be analyzed as a single unit rather than as a collection of nation-states. The global division of labor forms the basis for a division of the world’s countries into three broad categories: core, semi-periphery and periphery, with the latter two subordinate to the core countries and the periphery the most exploited.

Inequality between core and periphery is an “indispensable mechanism” of global capitalism, Professor Li writes, and the existence of a semi-periphery acts as an important buffer because it is exploited to a relatively lesser degree than the periphery and can also, to a lesser degree, exploit the periphery. The semi-periphery historically comprised a small percentage of the world’s population and thus could be “bought off” relatively easily and thus a buffer against any united resistance by the world’s non-core countries. But if the semi-periphery were to become a significant portion of the world’s population, the world system would be destabilized.

Which scenario for China?

The massive size of China is the destabilizing agent, Professor Li argues. He presents four possible scenarios that could arise from the rise of China:

“First, China may fail. China’s great drive toward ‘development’ in the end may turn out to be no more than a great bubble. [In this scenario,] as China sinks back to the status of periphery or poor semi-periphery, China’s existing regime of accumulation will collapse as it can no longer withstand the exploding social pressures the very process of accumulation has generated. This scenario, however, may be the least devastating for the capitalist world-economy.

“For the capitalist world-economy, the problem of China lies with its huge size. China has a labor force that is larger than the total labor force in all the core states, or that in the entire well-to-do semi-periphery. As China competes with the well-to-do semi-peripheral states in a wide range of global commodity chains, the competition eventually would lead to the convergence between China and well-to-do semi-peripheral states in profit rates and wage rates. This convergence may take place in an upward manner or a downward manner.

“In the downward-conversion scenario (the second scenario), China’s competition, with its enormous labor force, will completely undermine the relative monopoly of the historical well-to-do semi-peripheral states in certain commodity chains. As relative monopoly is replaced by intense competition, the value added contained in the traditional semi-peripheral commodity chains will be squeezed, forcing the historical well-to-do semi-peripheral states to accept lower wage rates that are closer to Chinese wage rates.” [pages 109-110]

Professor Li is arguing that, in this second possible scenario, wages rates in industrialized countries not among the “core” states (industrialized countries other than Western and Northern Europe, North America, Japan, arguably South Korea) would collapse under the competitive pressure of China’s low wages, which long hovered at about five percent of U.S. wage rates, and in the mid-2000s were one-quarter to one-fifth of countries such as Argentina and Hungary. A collapse in wages in semi-peripheral countries around the world such as Argentina, Hungary and Turkey would spark unrest and lead to economic depression around the world.

“There is the third scenario, that of upward convergence. China may succeed in its pursuit of ‘modernization’ and become a secured, well-to-do semi-peripheral state. In the meantime, the historical well-to-do semi-peripheral states may succeed in maintaining their relative monopoly in certain commodity chains. As a result, the Chinese wage rates converge upwards towards the semi-peripheral levels. Unfortunately, this scenario is as dangerous for the capitalist world-economy as the second scenario. The problem, again, lies with China’s huge size. Should the Chinese workers generally receive the semi-peripheral levels of wages, given the size of the Chinese population, the total surplus value distributed to the working classes in the entire well-to-do semi-periphery would have to more than double. This will greatly reduce the share of the surplus value available for the rest of the world.” [pages 110-111]

Here, Professor Li is arguing that a multi-fold increase in Chinese wages simultaneous with a maintenance of wages in countries around the world would likely be unsustainable. Multi-national companies based in core countries have moved production to China to take advantage of its low wages and lack of effective labor laws, enabling them to extract more surplus value. “Surplus value” is the sizable difference between the value of what an employee produces and what the employee is paid; some of the surplus value is used by capitalists for investment or to cover other expenses but much of it goes into stratospheric executive pay and financial-market speculation.

An upward convergence of wages around the world in present-day low-wage havens such as China would significantly reduce capitalists’ profits. In this scenario, capitalists would seek to cut wages in core countries to make up the difference, which in turn would trigger reductions in demand. Declining rates of profit, under capitalism, lead to economic downturns. Each of the world’s major economic crises, from 1873 on, have followed declines in the rate of profit.

“If the scenario of upward convergence turns out to be too expensive for the capitalist world-economy, what if China’s upward mobility takes place at the expense of the historical well-to-do semi-periphery? In other words, imagine the scenario (the fourth scenario) in which the rise of China (and India) successfully displaces the historical well-to-do semi-periphery, what are the likely implications for the existing world system? … [A]fter all of the investment is distributed, how much will be left for the other half of the globe?” [page 111]

Were the growth in energy consumption of the Chinese and Indian economies to continue at the same rates, and likewise for the United States and the eurozone, the rest of the world would be left without an energy supply in two decades, Professor Li argues. He writes:

“Given these trends, the rest of the world will have to get by with less and less energy consumption after 2017 and by 2035 there would be virtually no available energy left for the entire world outside China, India, the U.S. and the Eurozone. It is certainly impossible for such a scenario to materialize.” [pages 111-112]

Energy usage rises with development

But will there be enough energy to meet even the increasing needs of whatever countries will be in a position to dominate energy resources? Because of the intense competition imposed by the market in capitalism — individuals, businesses and states must all engage in it — a substantial amount of available surplus value must be used toward further capital accumulation to secure and expand market share. Those who do not do so are eliminated in the competition.

Investment is a necessity, and to compete successfully, what is wrung out of labor must rise. Machinery is the route toward greater efficiency. But as machinery and consumer products become more sophisticated, energy and other resources are consumed at greater rates; thus energy inputs rise faster than the population, pushing energy usage beyond sustainability and degrading the environment.

The world is already consuming resources beyond the world’s bio-capacity, Professor Li argues. Not only have the world’s “core” countries already exceeded their regional bio-capacities, but China, India, the Middle East and Central Asia have as well. Using calculations in a 2006 report by the World Wildlife Fund in the USA and Canada, the Zoological Society of London and Global Footprint Network, China and India consume resources and impose domestic environmental damage at a rate twice beyond their ability to be sustainable. Although those countries consume per capita far less than do the U.S. or the European Union, they also have much lower bio-capacities.

Such problems are compounded by an imminent peak in oil and gas, and limits to a variety of metals and other natural resources. If renewable energy sources prove unable to make up for the future shortfall in energy from oil and gas, the world will have much less energy available to it in the latter part of the 21st century than is available now. Professor Li believes that renewable energy will only be able to produce a small percentage of that of non-renewable sources. Even if his pessimism proves unfounded, the unsustainability of present energy consumption remains — as is the damage being done to the environment.

Another looming crisis for the capitalist system is the lack of a successor to the United States as the system’s center. Capitalism has had a succession of dominant centers; each successive center has been bigger to be able to cope with increasingly complex tasks. When London succeeded Amsterdam as the financial center, the financial center became located within a country with a powerful military, not only a large merchant fleet as Amsterdam’s United Provinces possessed. With New York succeeding London, the country at the center is continental in size and possesses a military that can be projected around the world.

Is a rapid decline for the U.S. coming soon?

Professor Li predicts a rapid decline for the U.S., including an imminent end to the dollar as the world’s central currency. Here I believe the professor’s forecast will prove to be considerably off; although the U.S. has entered a period of decline, its military and financial powers will remain preeminent for some time. And the dollar and U.S. debt instruments remain safe havens.

Declines from the capitalist system’s apex have tended to be gradual and not precipitous; moreover, the former financial center tends to remain powerful in financial markets for some time after the military baton has been passed. And there is no country remotely near being able to mount any challenge to U.S. military supremacy; U.S. military spending is nearly equal to military spending of all the rest of world put together and a significant portion of the Pentagon budget goes to weaponry.

It is a contradiction that the “duties” of the central power contribute to its ultimate decline. For the U.S., that is not only the enormous drain of military spending that starves the rest of its economy of investment and needed social provisions, but that it props up the world system through its deficits.

“After the systemic breakdown of the early twentieth century, the capitalist world-economy can no longer afford another similar breakdown. The hegemonic power has since then assumed the new responsibility to actively manage the global economy. Instead of allowing the system to simply collapse [during the repeated economic crises from the 1980s], the U.S. responded to growing systemic instability by running large and rising current account deficits, in effect pumping ‘liquidity’ into the global economy.” [page 123]

No other country has a big enough economy, nor a big enough military to apply the muscle that underlies the capitalist system, to replace the U.S., yet the capitalist system is unable to function without such a center. The next hegemon must be bigger than the U.S., and there is no country or bloc that fits the bill. Moreover, Professor Li argues, such a hegemon would be so large that it would stifle competition among countries, kicking out one of the crucial legs of the capitalist system.

Crises in economics, the environment, shrinking natural resources and the chaos of global warming are leading to a threat to very survival of humanity, Professor Li argues. Moreover, multiple crises are leading to a point where economic growth is no longer possible, the ultimate contradiction for the capitalist system, the very existence of which is based on endless growth and accumulation. He writes:

“Centuries of relentless capitalist accumulation have set humanity on a course of self-destruction. The very survival of humanity and civilization is at stake. The crisis can not be avoided or overcome within the historical framework of capitalism. To rebuild human society on an ecologically sustainable basis, there must be an economic system that is based on the production for use which is capable of meeting people’s basic needs, rather than one that is oriented towards the endless pursuit of profit and accumulation.” [page 173]

What comes next is up to humanity to decide. Professor Li quotes world-systems theorist Immanuel Wallerstein as predicting the world will enter a post-capitalist era in the second half of the 21st century. But what will that system or systems be? It could well be much worse — an authoritarian feudalism in which survival is a struggle in a time of scarcity is certainly foreseeable. Or it could be a democratic socialist system, in which production is for human necessity rather than an elite’s wealth accumulation and in which the consequences of a changing climate and the limitations on the world’s resources are handled in fully democratic, rational manners without elites to confiscate most of what is produced.

All social systems are historical, and capitalism is no exception, Professor Li argues. Indeed, all previous systems have reached their limits and been supplanted by newer forms. Ending on an optimistic note, he writes that “if the future socialism is able to make the best use of the human knowledge of nature that has been developed under capitalism and further expand that knowledge” and a sustainable relationship between population and resources can be established, then “humanity will be in a position to resume the great historical march to the realm of freedom.”

The Rise of China rewards the reader with a wealth of information and analysis. It is not necessary to agree with everything in the book to find it a valuable contribution toward understanding the stresses of the present economic crisis and a stimulant to discussion of the viability of continuing on the current economic path. One conclusion that shouldn’t be controversial, however, is that there will be no saviors. We’ll have to save ourselves.

* Minqi Li, The Rise of China and the Demise of the Capitalist World Economy [Monthly Review Press, New York, 2008]

Chinese exploitation and multi-national corporate profits

The extent to which multi-national corporations are profiting from super-low Chinese wages is often obscured in the rush to point nationalist fingers at China’s economic policies. In the corporate media the subject generally remains a taboo.

One way of shining some light on that profiteering is this: During the mid-2000s, Wal-Mart was China’s fifth-largest export market. In other words, there were only four countries that imported more goods than Wal-Mart, the world’s biggest retailer, did by itself.

By now, Wal-Mart has slipped a bit down the charts because the volume of Chinese exports continues to grow; but the company would remain among the top ten destinations were it a country by itself. Wal-Mart is hardly unique among multi-national corporations, but, true to its general business practices, is perhaps the most ruthless in not simply exploiting Chinese workers but in accelerating the trend of moving manufacturing to the location with the lowest wages.

Shanghai (photo by dawvon)

Other major United States retailers began procuring clothing items from Asian subcontractors before Wal-Mart, but the relentless drive to have the lowest costs forced an acceleration in the shift of production to countries with the most exploitable populations. If a manufacturer wants to continue to have contracts to supply Wal-Mart, then it has no choice but to ship its operations overseas because it has no other way to meet Wal-Mart’s demands for ever lower prices.

Eighty percent of Wal-Mart’s suppliers are located in China. And because the company is so much bigger than any other retailer, it can dictate its terms. Gary Gereffi, a professor at Duke University, said in an interview broadcast on the PBS show Frontline that “No company has had the kind of economic power that Wal-Mart does, to be able to source products from around the world. … Wal-Mart is able to transfer whole U.S. industries to overseas economies.”

Because of its size and its innovation in computerizing its inventory and tightly managing its suppliers, coupled with its willingness to squeeze its suppliers to the exclusion of all other factors, Wal-Mart holds life or death power over manufacturers, Professor Gereffi said:

“Wal-Mart is telling its American suppliers that they have to meet lower price standards that Wal-Mart wants to impose. The implication of that in many cases is if you’re going to be able to supply Wal-Mart at the prices Wal-Mart wants, you have to go to China or other offshore locations that would permit you to produce at lower cost. … Wal-Mart’s giving them the clear signal that you can’t be a Wal-Mart supplier if you can’t produce at substantially lower prices. … You can go to China, or, in many cases, many U.S. suppliers can’t make that move, and they just go out of business, because Wal-Mart is the dominant company for many U.S. suppliers. If they can’t go offshore, those suppliers end up going out of business.”

The race to the bottom

Wal-Mart leverages this power further by contracting to make products with its own name (“private-label products” in retailing lingo) and undercutting makers of traditional branded products, who can’t survive unless they, too, drive down their costs. This only accelerates the race to the bottom.

Nonetheless, let us not lay all the blame for corporate globalization at the doorstep of Wal-Mart headquarters. The internal logic of capitalist development is driving the manic drive to move production to the locations with the most exploitable labor, not any single company, industry or country. One company will inevitably become the most ruthless in implementing what companies in a variety of industries are forced to do under the rigor of capitalist competition. Wal-Mart so happens to be it.

Fully two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is.

As I noted recently in my Feb. 9 post, extraordinarily low wages and harsh working conditions endured by Chinese workers are fueled by a steady flow of peasants from the countryside (where wages are even lower) to the cities. Most of these workers, often young women, intend to return to the countryside.

Working conditions are too harsh to endure, and wages are so low that it can literally be impossible to survive on them, report John Bellamy Foster and Robert W. McChesney in an excellent article in the February 2012 edition of Monthly Review:

“The eighty hour plus work weeks, the extreme pace of production, poor food and living conditions, etc., constitute working conditions and a level of compensation that cannot keep labor alive if continued for many years—it is therefore carried out by young workers who fall back on the land where they have use rights, the most important remaining legacy of the Chinese Revolution for the majority of the population. Yet, the sharp divergences between urban and rural incomes, the inability of most families to prosper simply by working the land, and the lack of sufficient commercial employment possibilities in the countryside all contribute to the constancy of the floating population, with the continual outflow of new migrants.”

Starvation wages and inhuman working conditions

The world’s attention on those harsh conditions have lately centered on the Foxconn electronics factory, manufacturer of Apple computer and phone products, after a rash of suicides by employees who could no longer endure their prison-like conditions. Foxconn executives showed their humanity and compassion when their response was to install nets to catch future suicide attempts. But as with Wal-Mart, Apple is far from alone in exploiting low-wage workers; in fact, these companies are the norm and not the exception.

Here are but three examples, each a separate investigation conducted by the Institute for Global Labour and Human Rights:

  • Workers at the Meitai factory are prohibited from talking, raising their heads or putting their hands in their pockets. They are fined for being one minute late, for not trimming their fingernails or for stepping on the grass, and are searched on the way in and out of the factory. Workers sit on hard wooden stools twelve hours a day, seven days a week, for a base pay of 64 cents an hour. The Meitai factory produces computer equipment for companies including Dell, Microsoft, IBM and Hewlett-Packard.
  • Workers at the Jabil Circuit factory work twelve-hour shifts, seven days a week — they are at the factory 84 hours a week. They are prohibited from sitting down and are paid 93 cents an hour. Workers who make a mistake are forced to write a “letter of repentance” begging forgiveness, which they must read aloud in front of all their co-workers. This factory produces circuit boards for Whirlpool, General Electric, Hewlett-Packard and Nokia.
  • Base wages at the Yuwei Plastics and Hardware Product Company are 80 cents an hour for 14-hour shifts performed seven days a week. During the peak season, workers toil 30 days a month, often drenched in their own sweat. Safety equipment is turned off to speed up production. The punishment for missing one day of work is to be docked three days’ wages. Yuwei produces auto parts for Ford, General Motors, Chrysler, Honda and Volkswagen.

These are the prices that millions of people are forced to pay so that more money can be distributed upward. The profits from these reductions on labor costs are distributed to high-ranking corporate executives and to shareholders. It pays to be cheap: Wal-Mart reported net income of US$16.4 billion on revenue of US$419 billion for its fiscal year ending on Jan. 31, 2011. Four members of the Walton family, descendants of the company founder, are each among the 22 richest people in the world, according to Forbes magazine — they are collectively worth 73 billion dollars.

One final thought related to Apple. The New York Times columnist Paul Krugman recently wrote that, although Apple is the largest U.S. corporation by market value, it employs only 43,000 people in the U.S., but indirectly 700,000 overseas through its subcontractors. By contrast, 50 years ago, General Motors was the largest U.S. corporation but employed ten times as many U.S. workers as does Apple. Those were union jobs, not sweatshop jobs.

Chinese workers make about five percent of what workers in the United States earn. I strongly suspect that Apple products are not sold at five percent of what they would be had they been produced domestically. Good for corporate profits, but not good for working people.

As wages are driven down further, who will be able to afford the products that are made? If wages fall below a level at which employees can remain alive, what does that portend for the future? That such a question can even be asked illustrates the insanity of our economic system.