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International Socialism, Winter 2012

Jane Hardy & Adrian Budd

China’s capitalism and the crisis

From International Socialism 2 : 133, Winter 2012.
Copyright © International Socialism.
Copied with thanks from the International Socialism Website.
Marked up by Einde O’Callaghan for ETOL.

Major wars and economic crises force the pace of change within and between capitalist states, giving rise to new alignments and shifts in the geopolitics of world capitalism. [1] At the time of writing this article, turmoil in financial markets triggered by faltering growth in significant parts of the globe was provoking fears that the world economy was plunging into another recession. In the US the recovery has stalled and in the eurozone round two of the sovereign debt crisis is playing out. The exception to this dismal and fragile picture is China, which after a brief dip in 2008–9, has returned to double-digit growth rates. Other countries, such as Brazil and Australia, as well as South East Asia more generally, are being pulled along in its wake by feeding its insatiable demand for raw materials. Coupled with spectacular growth rates since the late 1970s, China’s “soft landing” and apparent rapid recovery from the crisis appear to support claims made by some on the right and the left that the 2008 recession has been a catalyst for the core of capitalism shifting to the East and setting in motion a change in global geopolitics.

Before the crisis Giovanni Arrighi argued in Adam Smith in Beijing that the dominance of the US is unravelling and that China has begun to replace it as the driving force of commercial and economic expansion in Asia and beyond. [2] That China will overtake the US to become the world’s largest economy is a foregone conclusion in some quarters and speculating about the date has become the favourite pastime of some economists. [3] A report from the International Monetary Fund (IMF) in April 2011 has brought that timetable forwards predicting that China’s economy will take the number one position in 2016. This has led some to suggest that the “Age of America” is ending in just five years. [4] Some commentators from the US establishment have suggested that the crisis was a significant geopolitical setback for the US and Europe which has opened up a new space in which China can increase its economic and political influence. [5] This reveals a triad of interrelated concerns for the ruling classes of the core capitalist economies in the US and Europe. The idea of China as an economic threat is well established, but there are increasing worries about its political influence in parts of the globe such as Latin America, long considered to be the US’s backyard, and its growing military capability.

China’s increased integration with global capitalism, particularly from the early 1990s onwards, has been a major source of its meteoric growth. At the same time, however, its exposure to the world system in general and its symbiotic relationship with the US in underwriting its debt in particular mean that China is increasingly dependent on and vulnerable to the vagaries of the world economy. Despite its success in rebooting double-digit growth, China was not immune to the 2008 crisis and was heavily exposed when exports to key markets in the US and Europe plummeted, which prompted the largest economic stimulus package in history, equivalent to 14 percent of gross domestic product (GDP). [6] Therefore China now has an even greater stake in preserving the growth and stability of the global economy. Yet the Chinese economy itself is facing huge problems as a result of unprecedented accumulation and increasing challenges from its own working class. [7] This article looks at the reality behind the hype of China’s economic rise, the deepening contradictions that it faces and its impact on interstate economic and geopolitical rivalry.
 

China’s stellar rise

In 1960 France’s president, Charles de Gaulle, dismissed the Japanese prime minister, Hayato Ikeda, as a mere “transistor salesman”. De Gaulle was soon to be proved wrong. The Chinese economy was treated in an equally dismissive way until relatively recently, but its impact on the global economy today is considerably greater than Japan’s four decades ago. The economic advance of China has been astounding and a cursory glance at the headline figures reveals its emergence as an economic superpower. By 2005 it had already become the workshop of the world and was the “leading producer in terms of output of more than 100 kinds of manufactured goods, including 50 percent of cameras, 30 percent of air conditioners and televisions, 25 percent of washing machines and 20 percent of fridges”. [8]

In 2009 China overtook Germany as the world’s biggest exporter and surpassed the US to become the world’s largest consumer of energy. [9] The following year it leapfrogged Japan to become the world’s second largest economy. This has been reflected in rising consumption and according to the Financial Times, “No country on earth has ever bought so many cars in so little time as China”. [10] The modernisation of China’s cities such as Beijing, Guangzhou and Shanghai, in less than two decades, with their huge skyscrapers, futuristic skylines and luxurious buildings, has been breathtaking.

Claims that these stellar rates of growth cannot continue indefinitely have come from disparate quarters. Chris Harman and prominent neoliberal commentator Martin Wolf have questioned the sustainability of the Chinese model. [11] Significantly, China’s rulers are also concerned about their ability to control the tempo of competitive accumulation and the over-dependence of China’s growth on exports to the world’s major markets: in 2007 premier Wen Jiabao told the People’s Congress that the economy was “unstable, unbalanced, uncoordinated and ultimately unsustainable”. [12] We also question the view of China as an unstoppable juggernaut that will power to first place in the global economy by pointing to contradictions in the model of accumulation that it has pursued over the last two decades and the class relations which underpin it.
 

China’s model of accumulation

After 1949 the foundation of modern industry was built under Mao Zedong by 25 years of state capitalist primitive accumulation, whereby millions of peasants were transformed into urban wage workers. [13] This mode of accumulation was grounded in the centralised coordination of economic resources, repression of consumption, draconian restrictions on rural-urban migration and the intense extraction of agrarian surplus through rural collectivisation. In return, as partial compensation for the low level of wages, workers received an “iron rice bowl” of lifelong employment and basic health and social welfare through their employment in rural communes or state-owned enterprises. However, this way of organising industry and agriculture was highly inefficient, and led to economic stagnation and pressures from below for economic reform. After Deng Xiaoping had emerged victorious from the intense power struggle at the top of the Chinese Communist Party (CCP) following Mao’s death in 1976, a series of reforms were pushed through. These reforms – consistent with Deng’s claim that to “get rich is glorious” – paved the way for the emergence of China as an economic power-house.

The post-Mao period saw moves towards market-based reforms, including the dismantling of rural collectives, price liberalisation and opening up to foreign capital in designated Special Economic Zones on the southeastern seaboard. A loosening of state controls and prices led to a huge increase in agricultural output and the creation of surpluses that were then invested in town and village enterprises. This enabled the enrichment of people connected to the local party apparatus, and the development of a new market capitalism in the south east of the country opposite Hong Kong in Guangdong province, alongside the old state capitalism based in the north. [14] Three groups of overlapping capitalists emerged: those from the central state; those from the “village” or regions; and the overseas Chinese – from across Asia, particularly Hong Kong and Taiwan – who fuelled a large proportion of the investment in mainland China. [15] China’s labour-intensive take-off coincided with the onset of global neoliberalism, and trade liberalisation in particular, promoted by the US in the 1980s, which intensified competition in the market for many goods and services.

This gave rise to a new model of capitalist accumulation, which combined the high level of exploitation and repression of the old state capitalist model with growth predicated on exporting to global markets. Competitiveness in the export market was also underpinned by devaluation of the renminbi against the dollar. In the short term, rising incomes from new market opportunities in the countryside and the beginnings of a consumer society in urban areas meant that most segments of society benefited from the reforms, albeit very unevenly. Yet by the late 1980s the initial economic impetus that the reforms produced was faltering and rampant inflation and corruption threatened the real income gains that millions had made. The resulting social and political tensions erupted in the Tiananmen Square protests of 1989, which were brutally crushed and followed by two years of repression and ruling class consolidation.

From the early 1990s, however, the emphasis on private sector development – initially of the town and village enterprises and later of foreign enterprises (mainly Hong Kong owned) in the lightly regulated coastal zones – was intensified and extended geographically. This unleashed a new round of accumulation based on uncontrolled competition and provided even greater opportunities to turn the new enterprises into private property and forge links with foreign capital. Again the consequences have been hugely uneven. Up to 30 million workers lost their jobs (and enterprise-based welfare entitlements) in the heavily rationalised state industries in the second half of the 1990s. [16] At the same time the stagnation of the town and village enterprises, hitherto a motor of growth, precipitated the migration of hundreds of thousands of young labourers to the coastal regions and with it a rural social crisis. This was exacerbated by the stagnation of peasant incomes after 1997.

As accumulation took off, regions such as Shanghai and the Yangtze Delta emerged as new economic powerhouses in addition to the Pearl River Delta which had been the focus of the first phase of rapid industrialisation. The gathering momentum of foreign investment intensified the rapid development of these externally-oriented coastal regions. Elsewhere local officials used their power to grab money (in the form of local taxes) and land from peasants and managed to enrich themselves as “petty agrarian capitalists”, while the “insider privatisation” of state-owned enterprises increasingly enabled the old state capitalist ruling class to reinvent itself as a private capitalist class. [17] Clearly, the polarisation and class differentiation that had led to the Tiananmen Square movement had not disappeared.
 

Towards a crisis of overaccumulation

A key factor in China’s rapid growth has been unparalleled capital accumulation. The proportion of national output going into investment is significantly higher than in other developing economies and over twice the average for the rich G7 countries (see Table 1). This colossal rate of investment was enabled by the exploitation of low-paid workers and by the high levels of savings by workers and peasants characteristic of all the rapidly industrialising Asian economies after 1945. These savings are recycled by state-run banks to provide loans to industry. [18]

From 2000 to 2010 the annual growth of investment averaged 13.3 percent, while the growth of private consumption averaged only 7.8 percent. As a consequence over the same period the share of private consumption in GDP collapsed from 46 percent to 34 percent, while the share of fixed investment rose from 34 to 46 percent. [19] Indeed, the usually quiescent state-run All China Federation of Trade Unions was forced to register workers’ concerns. In 2010 it complained that wages as a proportion of national income fell for 22 consecutive years, from 56.5 percent in 1983 to 36.7 percent in 2005. [20]

Externally this accumulation has been fuelled by foreign capital – both from overseas Chinese and the core capitalist economies – attracted by the low wages of Chinese workers and with longer-term expectations of the growth of the potentially gargantuan Chinese market. Internally accumulation has been driven by central government and exacerbated by competition between local governments – what Huang Yasheng describes as “one country, 32 economies”. [21] In Japan, South Korea and Taiwan central governments coordinated the mobilisation of resources and support for strategic industries. In China the state has also played this role, but competition between local governments has accentuated what Marx identified as the anarchic nature of accumulation. The result has been the uncoordinated construction of redundant production capacity.

There are other problems of overaccumulation. From the early 1990s the uneven and break-neck speed of development had created shortages and inflationary pressures, which were then intensified by the fiscal injections during the crisis. The 2008 mega-stimulus package’s headline figure of $570 billion substantially understated the real stimulus as in addition the state directed banks to vastly increase their loans to firms and local government. [22] This in turn reinforced the tendency towards overaccumulation: as Ho-fung Hung points out, only 20 percent of the rescue package was directed towards social spending, the bulk of it going to fixed asset investment in sectors already plagued by overcapacity – such as steel and concrete – and the construction of the world’s fastest high speed rail system. [23]
 

China’s subprime crisis?

The infrastructure boom and massive expansion of credit insulated the Chinese economy from the collapse of exports in the wake of the crisis, but laid the basis for China’s version of the subprime crisis. Prices of new apartments in Beijing and Shanghai increased by between 50 and 60 percent during 2009 and by 2011 a huge property bubble had developed. [24] Average house prices are now ten times average household income (three times average annual incomes is normal, rising to five to seven times in other Asian countries). [25] Evidence that this bubble of speculative frenzy is bursting lies in the forests of empty, half-built complexes that litter the country. By autumn 2011 two other sources of systemic risk were unravelling. The huge debts amassed by local governments and the rapid expansion of informal markets to supply credit threatened to boomerang back on the real economy.

In response to government exhortations to borrow and stimulate regional economies after the 2008 crisis, local governments accumulated unprecedented debts which by 2011 were estimated to amount to 27 percent of China’s economy, a sizeable share of the overall public sector debt which stands at 70 to 80 percent of GDP. [26] Chengdu province, for example, borrowed 3 billion renminbi ($473 million) to more than double the size of its planned transport hub in two years. [27] Similarly easy credit has been extended to state-owned enterprises, up to 40 percent of which remain loss-making. Cheap loans to firms and local government have amplified overinvestment into a generalised risk to the economy and produced clear parallels with the subprime crisis that engulfed the Atlantic economy from 2007. According to the head of Beijing’s International Financial Forum, defaults by local government are a real possibility in the face of increases in interest rates and curbs on credit. [28] He said, “Our [Chinese] version of subprime in the US is lending to local authorities ... Everybody assumes that they will be bailed out by central government if they default, but I disagree with this. It means that people will ultimately pay the bill for it all, at a cost to broader welfare”. [29]  

According to some sources defaults have already begun with the north east province of Liaoning missing debt repayments in 2010. [30] Even before this China’s problems had begun to concern the international financial institutions that oversee global capitalism. Hung quotes the Bank for International Settlements:

In China, the principal concern must be that misallocated capital will eventually manifest itself in falling profits, and that will rebound back on the bank system, fiscal authorities and the prospects for growth more generally. After a long period of credit fuelled expansion, this would be classic denouement. Indeed this was very much the path followed by Japan [before the prolonged crisis in the 1990s]. [31]

By 2011 the government was trying to dampen the overheating property market and halt the speculative boom by instructing banks to cut back on credit. This has led to the growth of an informal finance sector or “shadow banking”, as underground lenders and trust companies extend credit to people and companies who may not otherwise qualify. [32] These loans are then “sliced and diced” into investment packages that resemble the “toxic” collateralised debt that triggered the first phase of the current global crisis:

Credit Suisse estimated the size of China’s informal lending at up to 4 trillion, equivalent to 8 percent of above board bank lending. They described the burgeoning of informal lending as a “time bomb” that posed a bigger risk to the Chinese economy than even the amassing of debts by local government. [33]

Wenzhou, dubbed “one of the globe’s most dynamic cities” and a showcase for entrepreneurship, is a microcosm of these problems. [34] When bank credit was restricted firms turned towards informal credit providers, notorious for the high interest rates they charge. When interest rates were increased repayment problems rapidly followed. In just one month in this single city, September 2011, approximately 90 factory owners absconded after defaulting on debts of millions of renminbi borrowed from banks and private creditors. [35] This is a manifestation of an economy facing very severe instability.
 

The problems of balancing and rebalancing

Reflecting the fears of China’s ruling class that the scale of accumulation is not sustainable, the 12th Five Year Plan (2011–15) called for a sharp change in the pace and structure of economic growth, which included slower growth and a rebalancing from investment to consumption. [36] But while recent years have seen some increase in wages, partly as a result of workers’ struggles, a more substantial increase in domestic consumption presents immense difficulties for the ruling class.

In the first place, although the share of exports in GDP has fallen from a high of 39.1 percent in 2006 to 29.4 percent in 2010, China’s growth model remains highly dependent on exports to the US and Europe. [37] Because productivity in China is so much lower than in the advanced capitalist countries, and other East Asian economies, low wages are needed to maintain its international competitiveness, so much so that some regions of China, such as Guangdong in the south east, are now viewed as uncompetitive – in 2007, 1,000 shoe factories (one sixth of the total in Guangdong) closed down and relocated inland. [38] Secondly, China’s high personal savings are difficult to translate into consumption since for most workers they are needed to compensate for the lack of welfare and pay for medical expenses, children’s education and retirement. [39] Additionally, it is estimated that more than 80 percent of total housing saving deposits are commanded by less than 20 percent of the population. [40] Therefore, the level of wage increases and/or redirection of savings towards consumption necessary to rebalance China’s economy seems unlikely in the near future.

A third possibility, to raise the productivity of capital, is also problematic. According to an IMF report the increase in investment between the mid-1990s and mid-2000s has led to a rise in the capital-output ratio and a fall in the marginal productivity of capital. [41] Dwight Perkins of Harvard argues that the amount of capital needed to produce an extra unit of GDP rose from a ratio of 3.7 in the 1990s to 4.25 in the 2000s. [42] Since then the problem has not disappeared and according to Huang Yiping of Barclays Capital, “when reforms began 30 years ago, the investment rate was around 25 percent of GDP and the economy grew at around 10 percent a year, but now we are investing half of GDP for the same rate of growth; that tells you something about capital efficiency”. [43]

As Chinese capital has become ever more integrated in the global circuits of capital accumulation the question of competitiveness looms increasingly large for China’s rulers. It is to the international dimensions of China’s rise that we now turn.
 

China’s capital in the global division of labour

Facing what Robert Brenner has called capitalism’s “long downturn” since the late 1960s, capital has become more internationalised as it seeks new markets or lower costs to ward off falling profits. [44] By 2010 the amount of foreign direct investment (FDI) in China was double the average of the 1995 to 2004 period. Table 2 shows that China has captured an increasing share of global capital and simultaneously increased its share of outward investment in the global economy. The second part of Table 2 shows the (relatively modest) cumulative share of FDI (that is, stocks).

The expansion of Chinese capital across national boundaries has been at the instigation of the state through its sovereign wealth fund – the China Investment Corporation. [46] Private enterprises only accounted for 0.6 percent of total outward FDI. [47] Beyond putting in place the economic and political conditions to ensure the flow of natural resources to feed its growth machine, the ruling class is trying to increase the competitiveness of Chinese state-owned firms and gain entry to markets in advanced capitalist economies where they currently have little penetration.

A variety of tactics has been deployed to penetrate the core markets of the US and Europe. One way of gaining a foothold in markets has been to look for brand names going cheap by buying the “lame ducks” and uncompetitive capitals of advanced capitalist economies. This foray into buying brand names includes the acquisition of British car manufacturer MG Rover by Nanjing Automotive in 2005; the purchase of the Ford Motors Volvo unit in 2010 by Geely Automotive (one of China’s largest car producers) [48]; and a 24 percent stake in Spyker – the luxury carmaker that bought Saab in 2010 – bought by the Pang Da Chinese Group in 2011. [49] One consultant commented, “China is moving beyond its role as the factory of the world to become banker and investor of the world, at least in the auto industry”. [50]

Another tactic has been to try to leapfrog stages of development and acquire state of the art technology through joint ventures. This was reflected in the “shopping trip” to Europe by Wen Jiabao, Chinese premier, in the summer of 2011. [51] However, the advance, penetration and competitiveness of Chinese capital need to be put into perspective.

First, outward flows of FDI are a fraction of inward flows. Although China has risen to the position of fifth largest originator of outward flows, its FDI accounted for only between 4 and 9 percent of the global total (depending on whether Hong Kong is included). [52] In 2009 this was significantly less than the US (22 percent) and European Union (35 percent), which continue to account for the overwhelming majority of FDI. [53]

Second, outward investment is geographically widely dispersed across 177 countries or territories – many of these investments are of less than $10 million. Chinese FDI is further subdivided among different sectors with each receiving a small amount (often less than $1 million). [54] Investments in the core capitalist economies have been far from profitable. Beyond the obvious problem of investing in uncompetitive capitals, in Germany, one of the European countries most successful at wooing Chinese investors, almost half of China’s investments folded within their first year or moved production to China. Those that remained tended to be small businesses with only a few local employees. [55]

Third, there are debates about whether China is moving up the value chain to pose a serious challenge to the advanced capitalist economies. Information and communications technology (ICT) industries illustrate the problem China faces. China is a major exporter of ICT products, such as PCs and laptops, and consumer electronics more generally. But these sectors are dominated by foreign-owned companies employing Chinese workers to assemble high value-added goods, such as microprocessors and memory chips, produced elsewhere. In 2005, 70 percent of ICT firms in China were foreign, particularly Taiwanese, over half of total Chinese exports were processed in China and approximately 60 percent came from companies which were either entirely or substantially foreign-owned. [56] China has subsequently made little advance in raising the local value-added content of processed exports: according to the World Bank this rose marginally from 40 percent in 2007 to 43 percent in 2010. [57]

Nevertheless, to suggest that in the global division of labour China is either trapped in low-skilled production or at the other end of the spectrum moving towards advanced manufacturing is to misunderstand the unevenness of China’s capital and technological capacity in the context of dynamic changes and shifts in the global economy. The technological capacity of China combines primitive and low-tech production with medium technology and pockets of advanced, and even very advanced, technology. [58] Giant companies have developed in areas that play to their domestic comparative advantage (white and electrical goods, trucks and cars, for example). Furthermore, China’s banks, construction and oil firms have emerged as global giants with eight firms now in the Financial Times top 100 firms in 2011. [59] A number of other firms have the potential to develop into major competitors in sectors such as Aerospace (AVIC1), telecommunications (China Mobile and Huawei) and computers (Lenovo).

However, there is still a huge technological gap between China and the advanced capitalist countries and it is heavily dependent on imported technologies. Foreign companies control virtually all intellectual property in China and accounted for 85 percent of exports in 2010. [60] Sustained efforts are being made to “move up the value chain”. In aerospace, for example, huge investment is planned to challenge the global giants Airbus and Boeing. In 2010 this was identified as one of seven industries in the category of “high end equipment manufacturing” whose share of the economy the ruling class wants to increase from 2 percent in 2011 to 20 percent by 2020. [61] To have any chance of meeting this sort of goal China’s rulers are compelled to intensify their role in what the Communist Manifesto called the “chase across the globe” for new markets, technology and raw materials.
 

Changing South-South relations

Much has been made of China’s increasing economic and political influence in the global economy. China’s own resource base is limited and since it launched its “Go Global” (literally “Go Out”) strategy in 1999 it has scoured the world for new suppliers of raw materials and has built political links with states and their ruling classes in developing countries to smooth the process.

In 2000 China signed the China-Africa Cooperation Forum with 44 African countries, and has subsequently developed stronger economic ties with a number of mineral producers on the continent, including the key oil states of Sudan and Angola. Aid to Africa has doubled and China has overtaken the UK to become Africa’s most important trading partner after the US and France. [62] A sign of China’s expanding interests in Africa is the rapid increase in the African operations of Chinese firms.

In Latin America, China has forged strong relations with virtually all the region’s states, whose exports to China increased six fold between 2002 and 2007. [63] Driven by commodities such as iron ore and soya beans, exports from Brazil to China rose 18-fold between 2000 and 2009 [64] and in 2009 China surpassed the US as Brazil’s biggest trading partner, accounting for 12.5 percent of exports. China is able to wield increasing power with the so-called BRICs – including South Africa, which has recently been brought into the fold. [65] Trade between India and China has grown dramatically – from $3 billion in 2000 to $61.7 billion in 2010, making China India’s largest trade partner. [66]

As strategic relationships have been built between China and other states in the developing world, some developing countries have become less dependent on the West. One dramatic illustration of this was that Angola was able to break off negotiations with the IMF in 2007 when China offered a loan at a more favourable rate. The prospect of deepening South-South cooperation has been seen by some as an embryonic alternative to the Washington Consensus, and China’s state-led growth model an alternative to neoliberalism. Indeed, there has been talk of a new Beijing Consensus, a model for development that prioritises trade, state investment in infrastructure and the development of social institutions rather than the political and economic liberalisation imposed under the Washington Consensus. Referring to Latin America, but with a wider significance, according to some commentators we may be

facing a transition period from alliances of private energy companies and governments which are sympathetic to the United States to alliances of Chinese NOCs [national oil companies] and governments that criticise the United States. In this regard, the political evolution of the diverse Latin American states will be a key factor: as long as governments critical towards the United States remain in office, their links with China are likely to be strengthened at all levels – including the energy link. [67]

Beyond the hype, the economic and political influence of China’s outward expansion needs much more careful examination. First, if we take FDI as a proxy for economic influence it is heavily concentrated in East Asia with a relatively small proportion going to Latin America and Africa as Table 4 shows.

China’s goal is to establish itself as a regional economic hub for corporations from Asia’s stronger economies. Investment by Japanese firms in China increased by 314 percent between 1999 and 2003, while that in the US dropped by 52 percent. [68] Meanwhile, over the last two decades China’s regional neighbours have redirected their exports from the US to China where they form intermediate goods and components for subsequent re-export as parts of finished goods. [69] This process has intensified since 2008 as the on-going crisis increases the cost pressures on Asian (and other) firms.

Second, economic relationships with China have sharpened the contradictions in some economies. According to Perry Anderson it is in Brazil where it has made the biggest difference. [70] Brazil is regarded as something of a one-stop shop as the world’s largest exporter of iron ore as well as a range of agricultural goods such as coffee and in particular the “soya complex” of beans, oil and meal. Brazil’s discovery of offshore oilfields is also of increasing interest to China. With billions of dollars from the export of commodities, Brazil’s President Lula presided over a credit-fuelled boom in 2009 and 2010. The financial press tells this as a great success story, but with cheap credit and inflated property prices, Brazil has the hallmarks of a “bubble” economy which will burst sooner or later. [71]

Third, when China and Brazil orchestrated an apparent challenge to neoliberalism by the more powerful developing countries – the G20+ – at the WTO Cancun summit in 2003, it did so not in defence of alternative global power relations. Rather this cooperation between China and the other BRICs is to form another band of “warring brothers” to provide a counterweight to the core capitalist economies, which have shaped the rules and structures of global neoliberalism in their own interests.

The picture of a benign South-South alliance that challenges the neoliberal global North fails to understand the way in which all economies have an impetus to accumulate and are linked by and locked into a process of competitive accumulation. When competition is placed at the centre of analysis a more complex picture of South-South relations emerges. Thus, while firms in the energy and raw materials sectors may have increased their exports to China, China’s low production costs in many sectors of industry, such as textiles, harm other firms in both their domestic and overseas markets. In Brazil, for example, while exports to China have helped its economy to negotiate the economic crisis relatively unscathed so far, the 40 percent appreciation of the Brazilian real against the dollar in the last two years has made domestically produced goods uncompetitive. A further problem for the Global South is that foreign investment has been diverted from other industrialising economies to China. Mexico illustrates the negative impact that China’s rise can have on other developing economies. Between 2000 and 2003 Mexico’s maquiladora (export manufacturing sector) lost almost 230,000 jobs as one third of the production that left Mexico moved to China. [72]

China is locked into relationships of cooperation and competition with the countries of the Global South. This is summed up by Marx’s analogy of “warring brothers”. It is locked into similar competitive interdependencies with other major capitalist economies and their ruling classes, and with the US in particular.
 

China-US: major faultline in the global economy

China’s major export markets are the US and the EU, accounting respectively for 18.4 percent and 19.7 percent of its exports in 2011. [73] The expansion of the US market, highly dependent on both private and public borrowing, has sucked in colossal volumes of imports from China and produced a huge Chinese trade surplus. [74] In this way China has become the world’s largest holder of foreign exchange reserves. In 2010 these were estimated to be $2.4 trillion (compared with Japan’s $1 trillion), accounting for 30.7 percent of the world total and 26.5 percent of US government borrowing. By October 2011 foreign reserves had risen by 33 percent to $3.2 trillion. [75]

At first glance these figures may suggest a simple rebalancing of global economic power in China’s favour. However, more importantly, they are part of a set of deepening interdependencies between China and the core capitalist economies. This was vividly illustrated at the end of October 2011 when China exhorted the EU to solve its debt crisis and when the EU in turn went running to China to ask for a contribution towards its bail-out fund for the eurozone. According to Li Daokui, member of China’s central bank monetary policy committee, “It is in China’s long-term and intrinsic interest to help Europe because they are our biggest trading partner ... [but] the last thing China wants is to throw away the country’s wealth and be seen as just a source of dumb money”. [76]

A similar relationship of interdependence, but one that is much more politically charged, exists between China and the US. China’s trade surplus finds its way back to the US, chiefly via the purchase of government debt, in order to perpetuate the purchase of Chinese exports and maintain the value of the dollar and therefore Chinese competitiveness. Such are the dependencies involved that, despite China’s rulers’ desire to reorient the economy, when they faced a one-fifth fall in exports between late 2008 and early 2009 they intensified export promotion by, for example, granting VAT rebates on exports, rather than rebalancing towards domestic consumption.

The dollar-renminbi exchange rate has produced significant skirmishes between the ruling classes of the US and China as they strive for competitive advantage. A key feature of the Chinese economic model has been the policy of pegging the renminbi against the dollar at a level that keeps China’s exports relatively cheap. Washington has complained that this gives Chinese firms an unfair advantage and demanded that the renminbi is allowed to float freely on the exchange markets, which would lead to a substantial revaluation of the Chinese currency. In July 2005 the Chinese government announced that the renminbi would be allowed to appreciate somewhat against the dollar. In the wake of the crisis the exchange rate was frozen between 2008 and 2010, but appreciation has again been allowed since early 2010. [77]

Since 2005 the renminbi has appreciated by 28 percent (and by 40 percent when China’s higher inflation is taken into account), seriously eroding Chinese competitiveness. [78] Yet by 2011 there were ferocious demands from some sections of the US ruling class for further revaluation and for China to be designated a “currency manipulator”. This spilled over into heightened tensions in October 2011 when the US Senate passed a bill that would impose tariffs on imports from countries that undervalued their currencies. Beijing retaliated by condemning the bill as a violation of WTO rules and a “ticking time bomb” that could ignite a trade war, and by arguing that the US uses the dollar as a means to “plunder” the world economy. [79]

Despite talk of China’s capacity to destroy the dollar’s reserve status and construct a new financial order China has little choice in the short term other than to continue the US’s dominance by extending more credit and perpetuating their interdependence. A collapse in the dollar would deal a severe blow to China’s export machine and its financial power through the drastic devaluation of its dollar investments. But the American deficit cannot expand indefinitely. July 2011 saw a poisonous stand-off between two sections of the US ruling class over its ballooning debt. As the global economy continues to falter, tensions between the US and China have intensified. These are likely to deepen and multiply as the two powers grapple with the contradictions of their strategies of accumulation. And, as history shows, economic competition dovetails with political and military rivalry.

The geopolitics of China’s rise

Capitalist firms are primarily concerned with their own immediate interests, while states attempt to secure the longer-term conditions for systemic reproduction and accumulation by the capitals that operate within their territories. But the geographical and social space within which states can claim legitimate decision-making force is limited for, as this journal has long highlighted, states operate within a system of many states. States do not, however, meekly accept the national limits of their power but seek to shape the external environment, within the limits of their own resources, by influencing international processes and the domestic politics of other states. Politics and geopolitical rivalry play a central role in economic change, and just as the growth of Japan and the “Asian Tigers” (South Korea, Taiwan, Singapore and Hong Kong) was dependent on Cold War geopolitics – including the construction of a US-led Asian security zone and the opening of US markets to Asian exports – so, as we have argued, China’s growth has to be understood in the context of the global capitalist system. [80] In this section we briefly discuss the key geopolitical aspects of China’s rise, which have grown in significance with China’s increasing dependence on the global system.

China’s overriding long-term goal is to increase its economic might, military clout and diplomatic influence – what defence minister Liang Guanglie has called “comprehensive national power”. [81] Nevertheless, the Pentagon’s latest annual assessment of China’s military power, published in August 2011, recognises that in the short term “China has adopted a pragmatic approach to international relations ... [that] reflects Beijing’s assumption that great power status over the long term is best achieved by avoiding confrontation in the near term”. [82] This has resulted in a welter of negotiations and agreements with potential adversaries.

In its immediate Asian environment China has pursued what it calls its “good neighbour” policy. It has settled a dozen border disputes with its neighbours over the last decade, and has improved relations with Taiwan since the victory of Ma Ying-jeou from its traditional enemy the Kuomintang in the March 2008 presidential election. Thus, for instance, Beijing and Taipei signed the Economic Cooperation Framework Agreement (ECFA) in 2010. China has forged deeper relations with the Association of Southeast Asian Nations (ASEAN) via, for example, the establishment from January 2010 of the ASEAN-China free trade area and membership of the ASEAN Regional Forum – which focuses on political and security issues. Similar “good neighbourliness” has been shown to South Korea and Japan in the six-nation talks on North Korea’s nuclear programme. On its northern and western borders China was a co-founder of the Shanghai Cooperation Organisation, which also includes Russia and the Central Asian republics – Tajikistan, Kazakhstan, Kyrgyzstan and Uzbekistan. Further afield China has assumed a growing role in UN peacekeeping and humanitarian missions and now makes the largest peacekeeping contribution of the five permanent members of the UN Security Council. However, for all its careful pragmatism and apparent “good neighbourliness”, China’s economic rise both enables and compels it to play a greater global role and therefore produces anxieties among, and counter-moves by, its neighbours and the world’s major power, the US.

Reflecting the increased economic linkages mentioned above, China and India have signed a series of agreements, including a “strategic and cooperative partnership for peace and prosperity” in 2005. In 2010 they agreed to greater defence cooperation, to tackle India’s trade deficit with China and to work towards resolving outstanding border disputes. But these agreements are only one side of their relations and China and India increasingly appear to be locked into a dynamic of rival alliance construction.

China is closely allied with India’s fiercest rival, Pakistan, and supplies it with fighter aircraft, warships, helicopters, tanks, early warning systems and various types of missile. For India’s ruling class, China’s commitment to Pakistan is part of a wider encroachment of Chinese power that threatens its own aspiration to assert itself as a regional maritime power, particularly in the Indian Ocean. India is especially concerned about China’s construction of its so-called “string of pearls”, a series of huge deep-sea ports from the South China Sea to the African coast via the Indian Ocean that includes ports in Sri Lanka, the Maldives, Burma, Chittagong in Bangladesh and Gwadar in Pakistan. India’s rulers doubt China’s claim that the pearls are for purely commercial purposes and are alarmed at potential naval encirclement. As a result, India has undertaken a major revision of its foreign and strategic policy.

The half century or so after Indian independence in 1947 was characterised by mistrust between India and the US. This was expressed by US Defence Secretary Donald Rumsfeld who before 9/11 called India, albeit with some exaggeration, “a menace to other peoples, including the US, Western Europe and the countries of Western Asia”. [83] In this context, the developing rapprochement between India and the US over the last decade, and in particular their announcement of civil nuclear cooperation in 2006, is of enormous regional and global geopolitical significance and a signal of India and the US’s common commitment to construct a counterweight to China’s power. [84]

Expenditure on the “string of pearls” is part of a wider military modernisation under which China has increased military spending by about 15 percent a year over the last decade. [85] Its shift into high-tech weaponry and military technology is reflected in the development of advanced satellite communications and maritime surveillance systems, cyber-warfare capabilities and advanced missiles. China’s 15 space launches in 2010 demonstrate its preparations for what recent Chinese Defence White Papers refer to as warfare under “conditions of informatisation”. [86]

In line with the 2004 proclamation by President Hu Jintao of “New Historic Missions”, China has focused particularly on developing a “blue water” maritime capability that allows it to project its naval power beyond territorial waters in pursuit of what it calls “distant/far sea defence”. The commitment of Chinese warships to the Gulf of Aden since 2009, on an ostensibly anti-piracy mission, should be seen as an opportunity to test the navy’s ability to maintain missions far from home supply lines (and close to a vital trade route – the Red Sea/Suez Canal). China’s blue water capability is likely to be enhanced in the near future as its aircraft-carrier construction programme bears fruit in what the US anticipates will be multiple launches from 2015. Given that the US currently owns 12 of the 15 aircraft carriers afloat, and puts them to regular use in its imperialist wars and global power projection, this latter development poses a potentially serious long-term challenge to US global supremacy. That this is the trajectory of China’s maritime strategy seems clear from a recent report by China’s State Oceanic Administration: “Building maritime power is China’s historic task for the 21st century, and the decade from 2010-2020 is the key historic stage for realising this task”. [87]

Military, especially naval, power projection dovetails with China’s growing global commercial interests and the dependence of 90 percent of its foreign trade on sea routes. Energy imports are particularly vulnerable: China currently imports over half the oil it consumes and is likely to increase this, according to US estimates, to nearly three quarters by 2030. The bulk of these imports arrive via tanker from the Middle East and Africa. While China is seeking to diversify energy supplies and supply routes (for instance via the construction of a gas pipeline from Burma and recently opened oil pipelines from Russia and Kazakhstan) its rulers recognise the vulnerability of extended supply routes to hostile naval actions. [88] Nevertheless, the scale of China’s energy demands means that new pipelines will not fundamentally change the dependency on maritime trade and therefore the commitment of China’s rulers to further develop their maritime power.

The East China Sea is the site of a series of rivalries that illustrate the high stakes of China’s military expansion. Despite China’s global perspective Taiwan remains the major strategic focus of the Chinese military, which concentrates its land-based missiles and 400,000 of its 1.25 million troops on the mainland opposite Taiwan. This has been sufficient to prevent Taiwan from declaring independence, and there is a relatively stable stand-off around the Chinese position of “no independence, no war”. This is reinforced by US strategy, which uses Taiwan as a forward position in its containment of China and so provides huge military support to the island, including the Obama administration’s promise of $6.4 billion of advanced weaponry in January 2010. Taiwan forms part of what strategists call the first island chain to the east of China (from southern Japan, through Taiwan to the Philippines and the Malaysian islands) beyond which lies a second chain (central-eastern Japan, via Guam to Indonesia) at the edge of the “blue water line”.

The US is determined to contain China’s naval power within these limits and thereby minimise the challenge to its own global naval supremacy. Beyond Taiwan, the US uses Guam as its key air and naval base in the Western Pacific, while Japan provides a base (albeit not without provoking nationalist indignation) for US troops, nuclear submarines and long-range bombers, and has been working with the US for over a decade on the development of a high-tech theatre missile defence (TMD) system. Although the US and Japan claim that TMD is aimed at North Korea, China’s rulers are right to see its chief objective as reinforcing the containment of their own power. This is also true in the wider south east Asian region, where secretary of state Hillary Clinton has been indefatigable in shoring up America’s military alliances. As one commentator has noted, “You do not need to be a paranoid conspiracy theorist to think that the US is trying to bandwagon Asia against China”. [89]

In exploring the geopolitics of China’s rise we are not suggesting that war is imminent and that arms races necessarily lead to military conflict. We are, however, arguing that rivalries between national ruling classes produce an inescapable logic of competitive war preparation and geopolitical tension that both diminishes the resources available to satisfy pressing human needs and contains an ever-present danger of armed conflict. Thus China’s efforts to break free of encirclement by the US and its allies provoke fears of China’s rise and new attempts to contain China, which inevitably responds by renewed efforts to strengthen its geopolitical position. The relations between the states come to resemble the double helix of the DNA structure.

In China’s case there is an additional danger of the escalation of conflict. That is, the ruling class, no longer able to peddle a “communist” ideology as a legitimating device, has in recent years intensified nationalist rhetoric as it attempts to control the simmering tensions that have been produced by its rapid transformation. [90]
 

Polarisation, corruption and seething discontent

In tandem with increased military spending in defence of China’s global geopolitical interests, more resources have been devoted to internal security and quelling the growing number and increasing violence of protests. Although China’s rapid growth has brought millions of people out of poverty, rampant corruption and increasing polarisation of wealth and conspicuous consumption by those that have enriched themselves have led to huge resentment and explosions of anger. The Chinese model has intensified inequalities of wealth with 1 percent of top income households owning 40 percent of the total wealth (in the US 5 percent of people own 60 percent of wealth). [91] There is a massive divide between people who live in urban and rural areas, and between the coastal regions and the hinterland. Some 50 percent of China’s population continue to live in rural areas with an average disposable income of only $898 compared with $2,900 for those in urban areas. [92]

There has been a burgeoning of speculation as enterprises and rich individuals try to make fast and effortless profits. This has been reflected in badly built schools that collapsed during the earthquake of 2008 and scandals about adulterated food. [93] In July 2011 a crash on China’s much vaunted high-speed railway left 39 dead and 200 injured. The high-speed rail network, which seemed to underline China’s unstoppable rise, has come to symbolise cut-throat competition, cost cutting and endemic corruption. [94]

The pool of mainland Chinese millionaires has been growing at a dramatic rate with the number of individuals with more than 1,000 million renminbi (equivalent to £100 million or $154 million) increasing at an annual rate of 50 percent from 24 in 2000 to 1,363 in 2010. [95] This increase in wealth for a few is evident in the endless building and rebuilding of luxury apartments, high-class hotels and shopping malls selling designer goods, and the rapid expansion of luxury goods companies in China. One forecast predicts that the demand for luxury goods and travel from China will account for 44 percent of global sales by 2020, up from 15 percent today, as China becomes the world’s largest domestic market for luxury goods. [96] In the fourth quarter of 2010 China accounted for 39 percent of the total operating profits ($1.7 million) generated by the luxury car producer BMW. [97]

Against many still seduced by China’s “communist” claims, we argue that the Chinese model is based on a set of class relations – these are being increasingly challenged. The gunpowder of inflation and rising food prices, along with rampant corruption, the repression of workers’ rights and huge polarisation, is an explosive recipe. Chinese workers have proved to be far from docile or acquiescent. A Beijing academic’s estimate of the number of “incidents”, an official euphemism for strikes, protests and riots, was 180,000 in 2010 (double the number five years ago) working out at 483 a day. [98]

In 2010 there was a strike wave in transnational corporations in southern China where workers managed to win large wage increases. In 2011 social unrest had a different complexion. Rather than involving the relatively well educated, higher-paid migrant workers of Japanese subsidiaries, the common thread linking these incidents was the wider social status and vulnerable position of migrant workers. These protests were not based in the workplace, but expressed the cumulative anger of this group of super-exploited workers, which exploded in huge riots. In June 2011 Guangdong, the southern heartland of China which accounts for roughly one third of exports, was rocked by a large and violent protest. In Zengcheng three days of riots and running street battles erupted after a 20 year old pregnant street vendor was manhandled by government security guards to stop her selling her goods outside a supermarket. Some 10,000 people attacked police property and burned and overturned armoured vehicles – 6,000 police were deployed to get the protest under control. [99] In the same month dozens of armoured troop carriers poured into a town in central Hubei province after the death of a popular anti-corruption official in police custody prompted violent demonstrations and the pelting of police with eggs and bottles. [100] Migrant workers, whose labour was crucial to economic growth, have become a major source of instability for the government.

The huge growth of the economy over the last 30 years has been driven by rapid urbanisation and a seemingly endless supply of cheap migrant workers from the countryside to the cities. The OECD reports that, by 2011, 200 million people had been drawn into urban areas through official and unofficial migration to work in the factories, construction sites and restaurants. [101] One side-effect has been the creation of a very large group of people who lack access to basic social services and have few rights in the cities they helped to build. The pernicious hukou residency scheme segregates urban and rural workers, not just geographically, but in terms of their access to political rights and their entitlement to health, education, housing and social security. It means that migrant workers in the big cities without residency rights have the same status as illegal immigrants and are subject to the same abuses and exploitation.

As we shall see, there are tensions within the Chinese ruling class, with some sections calling for political reform as a way of staving off potential unrest and addressing disparities in wealth. A government think tank recognises this as a source of instability. The report by the State Council Development Research Centre said that “rural migrant workers are marginalised in cities, treated as mere cheap labour, not absorbed by cities, and face neglect and discrimination”. [102] The government has reacted to this discontent with a combination of reform, repression and bribery: it has tried to encourage wage increases and talked about more rights for migrant workers while simultaneously expanding the internal security budget in anticipation of further unrest. [103] In one instance the government resorted to bribery with $1,545 in cash and local household registration being offered in return for information on ringleaders. [104]
 

The response of the ruling class

Between 1992 and 2002 the leadership under Jiang Zemin “opened up” China to the global economy and presided over explosive growth. However, by 2002 the next generation of leaders – Wen Jiabao (premier) and Hu Jintao (CCP general secretary) – was faced with having to deal with the contradictions of China’s spectacular accumulation and mollify an increasingly restive and belligerent working class and peasantry. [105] According to official Chinese government figures mass protests increased from 10,000 incidents involving 730,000 protesters in 1993 to 60,000 incidents involving more than three million protesters in 2003. [106] The large number of unrecorded protests makes the unofficial figure much higher. The response of the leadership was to adopt the rhetoric of a “harmonious” society along with conceding some limited rights to workers. [107] The most important concrete manifestation of this was a new Labour Contract Law in January 2008. This gave workers increased rights and security at work and sought to control the spontaneous bottom-up riots and disputes that had characterised protests by channelling discontent into formal mechanisms. [108]

More generally, from 2005 Hu Jintao and his allies had tried to fuel domestic consumption to rebalance the economy by boosting the disposable income of peasants and urban workers. Measures included the abolition of agricultural taxes and a rise in government procurement prices for agricultural products. Although these measures to raise rural living standards were a small step their effect was instantaneous. Slightly improved conditions in the rural-agricultural sector slowed the flow of migration to the cities and produced a sudden shortage of labour and hikes in wages in the coastal export-processing zones. [109] According to Hung no sooner had the government taken its first step towards domestic consumption-driven growth than some sections of the ruling class in the coastal export sector complained about the impact on their profitability. They demanded compensating policies to safeguard their competitiveness, and attempted to sabotage further initiatives to raise workers’ living standards. [110] Nevertheless, such is the pressure on China’s rulers that more recently measures to stave off social unrest have included the raising of the minimum wage and threshold for tax along with plans to build 36 million units of low-cost housing. [111]

The lead-up to the once in a decade transition to the “fifth generation of leaders” due to take place at the CCP’s 18th National Congress has exposed the divisions in the ruling class. [112] They include arguments about how far to rein in the tempo of accumulation and about the political reforms and degree of redistribution necessary to placate the working class. The appointments to the two most senior posts are settled: Li Keqiang (currently vice-premier) is marked for the premiership and Xi Jinping for leader of the CCP and president. Filling the seven remaining posts on the nine-member politburo standing committee – the apex of political power – has produced furious jockeying for position among the contenders.

Divisions in the CCP leadership are not straightforward. There are distinctions that reflect the economic and geographical bases of some members of the ruling class. Associated with the previous leader, Jiang Zemin, the Shanghai “faction” is identified with pro-market policies, has emphasised “economic efficiency” and wants to see the continuing growth of the coastal regions without the impediment of concerns for negative environmental consequences or redistribution. Wang Yang, Guangdong party secretary, has lined up with those pushing for growth to boost the regional economy which was hard hit by the 2008 crisis as a number of factories owned by investors from Hong Kong, Taiwan and South Korea went bankrupt. [113]

Another division is on the basis of the political origins of the individual members of the ruling class – between the populists and the “princelings”. The populists have dominated the ruling class over the past ten years under the wing of Hu Jintao and Wen Jiabao whose origins lie in the Chinese Communist Youth League (tuanppai). The elitist coalition or “princelings” are not a monolithic organisation or formal network, but a much looser group with ties to Shanghai or the offspring of high-ranking officials. The “princelings” have been one of the groups to benefit hugely from China’s move to the market, as they have inherited a combination of power and wealth through family ties.

The relationship between the geographical and political origins of the ruling class is complex. There is not a tidy coincidence between the “princelings” and the richer coastal regions. Bo Xilai, party secretary of Chongqing and one of the contenders for a seat on the politburo, is both a “princeling” and more populist in advocating a retreat from market-driven policies and integration with the global economy. [114] Under his leadership resources have been put into education, medical care and housing in rural areas and a party committee was set up to look at policies to narrow the gap in wealth. [115] He is most noted for taking a hard line on corruption with the imprisonment of underground gangs and the officials who had collaborated with them, which has made him popular with ordinary people, but much less so with some sections of the ruling class. [116]

These tensions have contributed to bitter public feuds at the very top of the party with factions promoting or repudiating Mao to advance their own agendas. Bo Xilai was the first to revive Mao’s ghost. [117]

Mr Bo rules with an arsenal of Maoist slogans and propaganda techniques. On special occasions residents receive “red texts” – Mao quotations sent to mobile phones. The local state television station has replaced all commercials with “red programmes” – soap operas narrating revolutionary history. Civil servants, state company staff and students are called in for organised singing of “red songs” – hymns glorifying the country’s founding father and the party. [118]

Beyond the ruling class this Mao revival has triggered debates that have resonated with conservatives who have been critical of market-based reforms. In other quarters there has been a revival in the Mao cult with an increase in tourists and visits by young people to Mao’s ancestral home – Shaoshan – which in turn has provoked criticisms by advocates of market reform. A professor who blogs under the name of Diedie Bu Xiu has advocated a “Zheijiang model” – based on the province with the most developed private enterprise sector – as an alternative to Bo Xilai’s “welfarist” “Chongqing model”. [119] Another academic demanded in an essay in July 2011 the end of the cult of Mao and his return to “human form”, which brought forth insults of “capitalist running dog” from conservative forums. [120] Further, persistent rumours have circulated that references to Mao would be dropped in future official documents.

The ghost of Mao is being invoked by a ruling class lacking in self-confidence about how to resolve deep contradictions in the economy. As far as those jockeying for power are concerned it does not represent a retreat from market polices, but rather a falling back on the powerful symbol of the party to gain and maintain control.
 

Conclusion

The argument that the future of capitalism lies in Asia is not a new one. In the 1960s the rapid development of Japan, soon to be joined by the “Asian Tigers”, highlighted the increasing importance of Asia as a new growth centre in the global economy. In the 1990s the “Tiger Cubs” (Malaysia, Indonesia and Thailand) were lauded as exemplary models of capitalism. One by one these centres of capital accumulation ran into trouble – Japan has been virtually stagnant since 1990 while the 1997 Asian crisis severely dented the aspirations of the later developers to challenge the economic power of global capitalism’s advanced core.

The scale of China’s meteoric rise is different. Since 1970 its GDP has doubled roughly every eight years and it is now 30 times larger than it was then. In that time it has become the new workshop of the world, the second largest economy on earth, the world’s largest exporter, and provider to the US (and now the EU) of massive transfusions of life-sustaining financial resources. This astonishing transformation has, additionally, provided China with the means to begin to challenge the US’s politico-military hegemony. However, the gap between the two countries remains huge. In 2010 (even after the aftermath of the crisis and recession) China’s GDP was $5.9 trillion – only 40 percent of the US’s $14.6 trillion. [121] Translated into GDP per head this gap is even starker: China’s $4,260 was only 9 percent of the US’s $47,240. [122] Catching up and overtaking the US would mean that China would have to continue to grow at this break-neck speed. Along with others we have argued that the deep contradictions in the Chinese model make it unsustainable.

Far from saving the world economy with its never ending growth miracle, China is inextricably linked to the fate of the US and dominant economies of Europe. Its vulnerability was exposed by the 2008 crisis when the biggest stimulus in history was undertaken to ease the blow to the dwindling demand for its exports. At first glance these measures to reboot the economy appeared to be an unqualified success, but its reliance on debt and overinvestment exacerbated distortions in the economy. China’s version of the subprime crisis is beginning to emerge, although it is unclear how severe this will be. Property prices are set to fall, there is widespread defaulting on debts and businesses are going bankrupt. Of course, it is within the power of the Chinese ruling class to undertake another huge stimulus to bail itself out, but this would only further deepen the contradictions. A slowing down of the Chinese economy is the source of wider instability as exporters from developed and emerging markets, whose orders from China have hitherto protected them from the worst of the crisis, would be hit hard.

China’s rise offers further evidence of the abiding significance of Trotsky’s concept of uneven and combined development. By its very nature, competitive accumulation is anarchic and does not proceed on a smooth upward path. Unevenness is reinforced, as we are now witnessing, by the differentiated impact of economic crisis. If China is subject to the dynamic of uneven development between and within states, it is also locked into the pattern of booms and slumps of mature capitalism. Certainly, in the early years of its transformation it was able to draw on its vast labour surplus to generate spectacular growth and accumulation. But as it did so, it was remorselessly incorporated into the global system and so subject to the same crisis tendencies as the rest of the world.

Its rulers will face these difficulties fully aware of the widespread explosion of anger among workers railing against low wages, poor working conditions and the corruption practised by the new rich in and around the CCP. The power to change all this, and to ensure a better future for all of us, lies with the millions of Chinese workers whose labour has fuelled China’s spectacular growth. As yet the massive anger of those at the bottom has not been coordinated to pose a real threat to the state. Yet the Chinese ruling class fully understands that this potential exists and fears the possibility of an “Arab Spring” on its own doorstep.

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Notes

1. Wade, 2009.

2. Arrighi, 2008, p. 14. Historical Materialism volume 18, issue 1 includes contributions from a symposium on Adam Smith in Beijing.

3. Ross, 2011.

4. Arends, 2011.

5. Altman, 2009.

6. Keidel, 2008.

7. China Labour Bulletin, 2011.

8. Harman, 2009, p. 243.

9. In 2009 China accounted for 20.3 percent of consumption compared to the US’s 19 percent – Pfeifer, 2011.

10. Waldmeir and Reed, 2011.

11. Harman, 2009; Wolf, 2011; also Hung, 2009.

12. Wolf, 2011.

13. Harman, 2009, p. 243.

14. Harman, 2009, p. 244.

15. Harman, 2009, p. 244.

16. Harman, 2009, p. 244.

17. Hung, 2008, p. 157.

18. More recently corporate savings have formed a greater share of total savings. According to Ma and Yi, 2010, in 2008 savings amounted to 53 percent of GDP. This broke down as follows: savings by firms (18.8 percent), government (11 percent) and households (23.4 percent).

19. Wolf, 2011.

20. Hou, 2010.

21. Huang, 2003, quoted in Hung, 2008, p. 159. It should be noted that it is not only provincial governments that are economic actors. “Local” refers to multiple levels of government including cities, counties, townships and villages.

22. Hung, 2009, p. 22.

23. Hung, 2009, p. 22.

24. Anderlini, 2011a.

25. Anderlini, 2011a.

26. Rabinovitch and Anderlini, 2011. When other debts are added to the official debt, such as bad bank debts and those of state industry, it is estimated that China’s debt may be as high as 150 percent of GDP.

27. Soh and Wang, 2011.

28. Evans-Pritchard, 2011.

29. Evans-Pritchard, 2011.

30. Soh and Wang, 2011.

31. Bank for International Settlements, 2006, p. 144, quoted in Hung, 2008, p. 160.

32. Jacob and Rabinovitch, 2011.

33. Soh and Wang, 2011.

34. Zhao, 2010.

35. Anderlini, 2011b.

36. Announced at the Development Forum 2011 in Beijing. See Jiabao, 2011.

37. Davis, 2011.

38. Jacques, 2009, p. 159.

39. Ma and Yi, 2010.

40. Hung, 2009.

41. Wolf, 2011.

42. Wolf, 2011.

43. Quoted in Anderlini, 2011b.

44. Brenner, 2006.

45. Adapted by the authors from UNCTAD, 2011. Flows measure the amount of foreign direct investment year by year while stocks represent the cumulative total.

46. Clark and Monk, 2011.

47. Salidjanova, 2011, p. 6.

48. Salidjanova, 2011, p. 9.

49. MacCarthy and Waldemeir, 2011.

50. Rabinovitch, 2011.

51. This included discussions on a joint venture between the Medical Research Council in the UK and the Chinese government to form a drug development company to give Chinese capital expertise on clinical drug development. In Germany deals worth $15 billion were signed including expanding joint research in green technology, including the development of electronic cars in China. See Jack, 2011.

52. UNCTAD, 2011.

53. UNCTAD, 2011.

54. Salidjanova, 2011, p. 3.

55. Salidjanova, 2011, p. 25.

56. Nanto and Chanlett-Avery, 2006, p. 9.

57. World Bank, 2011, p7.

58. Jacques, 2009, p. 177.

59. Dullforce, 2011.

60. Salidjanova, 2011, p. 9.

61. MacCarthy and Waldmeir, 2011; Rabinovitch, 2011

62. Aid to Africa includes training professionals, sending agricultural experts, and building hospitals and schools and other infrastructural projects such as roads, railways and public buildings.

63. See Fernandez Jilberto and Hogenboom, 2010, p. 7.

64. Leahy, 2011.

65. An acronym for Brazil, Russia, India and China, and more recently extended to include South Africa.  

66. Jaffrelot, 2011.

67. Iturre and Amado Mendes, 2010, p. 139.

68. Nanto and Chanlett-Avery, 2006.  

69. See Nanto and Chanlett-Avery, 2006; Koopman, Wang and Wei, 2008; Ma, van Assche and Hong, 2009. Calculations vary, but most estimates put the value share of imported components in processed exports at between 65 and 80 percent. The overwhelming majority of these imports are from the Asian region. The Apple iPod provides a stark example of China’s role as a manufacturing hub for foreign companies: according to Koopman, Wang and Wei (p. 7), in 2006 the export value of a standard iPod from China was $150 but only $4 represented value added in China.

70. Anderson, 2011.

71. Leahy and Pearson, 2011; Pearson and Leahy, 2011.

72. Fernandez Jilberto and Hogenboom, 2010, p. 21.

73. World Trade Organisation Country Database, 2011.

74. The current account surplus represented 10 percent of GDP in 2007, although it then fell to 5 percent in 2010 as the Chinese economy continued to grow faster than the rest of the world during the crisis. The World Bank predicts a further fall, to less than 3 percent, in the near future.

75. Authors’ calculation from US Treasury, 2011, and China Daily, 12 July 2011.

76. Anderlini and Milne, 2011.

77. See Morrison and Labonte, 2011.

78. Kritzer, 2011.

79. Anderlini, 2011g; Zhang, 2011. Monan Zhang is a researcher at the Chinese State Information Centre and can be assumed to express the views of at least some state officials.

80. See Davis, 1987, p8. Anderson, 1998, strongly asserts the centrality of Cold War geopolitics to South East Asian development. More generally, the economic consequence of Cold War military spending was the long post-war boom which radically transformed the world system.

81. Office of the Secretary of Defense, 2011, p. 1.

82. Office of the Secretary of Defense, 2011, p. 13.

83. Varadarajan, 2001, quoted in Zajec, 2009.

84. Vietnam is potentially part of that counterweight. India and the US have provided military supplies to Vietnam and may conclude nuclear technology transfers in the near future, in return for the use of Cam Ranh Bay naval base in the South China Sea. See Monthéard, 2011, and Jha, 2011.

85. Chinese military spending is difficult to measure accurately. The Pentagon’s 2011 report estimates the 2010 figure at $160 billion, but omits to tell us that “the USA has increased its military spending by 81 percent since 2001, and now accounts for 43 percent of the global total, six times its nearest rival China” 11 April 2011: World military spending reached $1.6 trillion in 2010 ..., SIPRI Website. According to SIPRI figures, the US spent $687 billion in 2010 and China $114 billion, both in constant 2009 dollars The SIPRI Military Expenditure Database, SIPRI website.

86. Office of the Secretary of Defense, 2011, chapter 2.

87. China State Oceanic Administration, China Ocean’s Development Report, 2010, quoted in Office of the Secretary of Defense, 2011, p. 57.

88. The SCO serves important geopolitical purposes for China. Russia provides China with advanced weapons while its energy supplies, along with those from the Central Asian members, reduce China’s dependence on the Middle East and therefore susceptibility to US geopolitical leverage. But there is an additional important concern for China, whose own defence industry is in any case rapidly developing and whose primary energy supplier is likely to remain the Middle East for many years to come. The SCO ruling classes share a common interest in combating domestic Islamic opposition movements. China’s Islamic opposition is concentrated in the far-west province of Xinjiang, next to the borders with a number of other SCO members. The fact that seven of the eight joint SCO military exercises between 2005 and 2010 focused on counter-terrorism is striking. For a useful assessment of China and Russia’s mutual strategic interests see Gulick, 2009.

89. Dyer, 2010.This is consistent with the perception of important US strategists. Condoleezza Rice (2000) saw China as a “strategic competitor” against which the US must strengthen relations with Japan, South Korea and India; Robert Kaplan (2005) (national security specialist and adviser to the US defence department), has written about “how we would fight China”, arguing that “the American military contest with China in the Pacific will define the 21st century”; for John Mearsheimer (2005), a key proponent of US hegemony, China’s peaceful development is an impossibility and its continued growth will lead to major security competition, and potentially war, with the US.

90. An article in Global Times (owned by the People’s Daily) in October 2011 called for war against Vietnam and the Philippines in order to demonstrate China’s regional dominance. See Hille, 2011.

91. Liu, 2010.

92. Tobin, 2011.

93. La Freniere, 2011.

94. Hilton, 2011.

95. CLSA, 2011.

96. CLSA, 2011.

97. Bryant, 2011.

98. Jacob, 2011.

99. Anderlini, 2011c.

100. Anderlini, 2011d.

101. OECD, 2011.

102. Anderlini, 2011e.

103. Anderlini and Hille, 2011.

104. Tsui, 2011.

105. Generations of leaders: first (1949–76) Mao Zedong; second (1976–92) Deng Xiaoping; third (1992–2003) Jiang Zemin; fourth (2003–12) Wen Jiabao; the fifth generation will come to power at the 18th Party Congress in 2012.

106. Silver and Zhang, 2009, p. 175.

107. Hu Jintao made speeches about safeguarding “the legitimate rights and interests of workers”. Quoted in Silver and Zhang, 2009, p. 176.

108. Silver and Zhang, 2009, p. 176.

109. Hung, 2009, p. 20.

110. Hung, 2009, p. 21.

111. Anderlini, 2011e.

112. See footnote 108.

113. Guangdong’s economic growth has been slower. In 2009 and 2010 Guangdong’s GDP grew by 9.5 percent and 12.2 percent, dwarfed by 14.9 percent and 17.1 percent respectively in Chongqing. See China Elections and Governance, 2011.

114. Bo Xilai is the son of the late Bo Yibo, one of the country’s most senior revolutionary veterans.

115. China Elections and Governance, 2011.

116. In particular it did not reflect well on Wang Yang, his predecessor in Chongqing and currently party secretary of Guangdong. China Elections and Governance, 2011.

117. Anderlini, 2011f.

118. Anderlini, 2011f, p. 11.

119. Anderlini, 2011f.

120. Anderlini, 2011f.

121. World Bank Database, 2011b.

122. GDP per head is often given in Purchasing Power Parity (PPP) which would be higher for China as this reflects purchasing power by taking into account the cost of living measured by a “basket of goods” – although it is notoriously difficult to measure. Chinese GDP-PPP is $7,545 per head in this period, which would make it 16 percent of the US’s.

* * *

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