China’s decline exposes world capitalist crisis

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F mid-September that interest rates charged to U.S. ederal Reserve chair Janet Yellen announced in banks would once again remain unchanged—close to zero. She also expressed concerns about the still “weak U.S. recovery” since the disastrous collapse beginning in 2008 that shook financial markets and caused unprecedented harm to working people.

China’s troubled economy also figured into Fed poli­ cymakers’ calculations. The Chinese economy is tout­ ed as the second largest in the world in terms of Gross Domestic Product (GDP), and is heavily invested in by many of the largest U.S. and world corporations as a chief source of superprofits.

In late August, headlines around the world featured daily accounts of China’s plunging stock markets, sharp drops in China’s trade balance, multiple cur­ rency devaluations, government exaggeration or falsi­ fication of growth rates, and a generally cooling econ­ omy—1.7 percent growth rate in the second quarter.

To cheapen the cost of its exports against rising com­ petition from even lower wage Asian nations, China devalued its currency, the remninbi or yuan, five times in a matter of weeks after pegging it to the dollar for ten years. Bank loan interest rates were lowered five times this year along with cash reserve (liquidity) re­ quirements for banks.

The mis-named Chinese Communist Party, a capital­ ist outfit if there ever was one, spent more than $485 billion to prop up Shanghai Stock Exchange prices and ordered the sale of pension funds to buy $313 bil­ lion in floundering stocks and other assets, “as soon as possible.” The panicked top bureaucrats encour­ aged middle-income and higher paid workers to buy stocks by putting up their houses as loan collateral. To stem the cascading stock-market decline, the selling of stocks was criminalized while some stocks were frozen in place—withdrawn from sale outright to pre­ vent further panic selling.

A Sept. 10 New York Times article captures the psyche of China’s elite as they sought to stem the free fall of China’s stock markets: “Anxiety in the industry surged last week after Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disap­ peared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to com­ ment on her whereabouts.

“Ms. Li resurfaced on Sunday and denied that she had been detained, saying that she had been in ‘an in­ dustry meeting’ and ‘meditating’ at a Taoist retreat.” Few believe that “meditation” was central to the mo­ tives of a top leader of the world’s largest publicly traded hedge fund!

The Times article drives home this point by quoting another top hedge fund speculator: “There is, gener­ ally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations—not just onshore, but also offshore as well?”

Indeed, according to data presented by Australian socialist scholar Sam King, “Foreign direct investment, foreign joint ventures, foreign contracts and foreign technology have been the drivers of China’s expanded commodity production” (see King’s “Lenin’s Theory of Imperialism: a defence of its relevance in the 21st century”).

It’s not surprising that Chinese stock market prices have fallen. Prices had skyrocketed some 250 percent in the last year, peaking in mid-June and then declin­ ing into late August, losing about 43 percent—nearly half of the yearly gains in a matter of weeks. At the height of China’s August stock-market free fall, the world’s combined stock-market losses erased nearly $3 trillion in value in three days!

Working people who followed the government’s ad­ vice to throw their economic fate to the stock market winds have surely been hurt. Yet the Chinese stock market’s mad gyrations, as with its U.S. counterpart, is not the real economy, but rather a reflection of the more general crisis of the world capitalist system. China’s GDP growth rate has been cooling since 2010, when it was reported at 10 percent or more annually. Today the growth rate is 7 percent or less.

The Chinese government has employed several eco­ nomic stimulus programs that parallel those in the U.S., but the economy has responded with less vigor Claudio Muñoz / The Economist each time. For 30 years, China has fol­ lowed a growth strategy that emphasized exports and huge domestic infrastructure projects. This was heavily promoted by foreign investments, pushing China ahead of Germany and Japan, similarly focused on commodity exports but with a qualita­ tively greater per capita internal market. China’s per capita GDP ranking, 79th in the world, is not very impressive consid­ ering its huge population. Hundreds of millions, perhaps a billion, Chinese still live in impoverished conditions while the governing capitalist bureaucracy sys­ tematically privatizes and dismantles the country’s state-owned businesses and so­ cial services.

In truth, China’s “successful” exportdriven economy and its GDP figures mask a cruel reality. A huge proportion of Chi­ nese exports are the commodities of thou­ sands of non-Chinese multi-national cor­ porations (MNCs), owned and controlled by the world’s great imperialist powers, with U.S.-dominated transnational corpo­ rations number one on the list.

In July 2010 China’s Ministry of Com­ merce reported that “foreign invested en­ terprises account for over half of China’s exports and imports; they provide 30 percent of Chinese industrial output, and generate 22 percent of industrial profits while employing only 10% of Chinese labor” in basic industry as compared to the past. The high produc­ tivity set in motion by the highly automated plants of transnational corporations combined with an intensi­ fication of the labor process to produce wonders for the foreign-owned companies (for a time) and misery for the Chinese masses.

These are the figures from a half-decade ago. The proportion of foreign direct investment (FDI) even in­ creased since that time—until recently.

When China was admitted to the World Trade Orga­ nization (WTO) in December 2001, its capitalist lead­ ers willingly accepted the “free market” terms that were imposed, including massive and virtually unre­ stricted foreign investment, ownership, and control by the world’s imperial powers of the corporations it established. China became the imperialist world’s central commodity assembly and export platform, free to employ near slave labor at will—with the usu­ ally corrupt local capitalist “Communist Party” oli­ garchs siphoning off enough to produce 213 Chinese billionaires, not counting Hong Kong’s 53.

Imperialism has seen China’s 1.3 billion working people, at least until recently, as nothing less than the world’s largest source of cheap labor. The U.S. cor­ porate shift of production from the formerly highlyunionized northern U.S. states to the low-wage non-union South, and then to Mexico’s border maquila­ dora super-low-wage assembly plants, to Haiti and El Salvador, and finally to Asia, was a conscious decision to lower production costs to remain competitive on world markets. Without doubt, China’s emergence as the world’s greatest cheap labor export platform comes at the expense of the displaced workers in the rest of the world. The Chinese “miracle,” a non-Chi­ nese MNC-driven model, is nothing less than world imperialism’s legacy to poor people everywhere, not to mention workers in the U.S.

The world’s competing multi-national corporations similarly had no alternative to stay in the never-end­ ing race to dominate world markets. They too moved to China and other poor Asian nations. In virtually ev­ ery case, the “secret” to their “success” was to trans­ fer industrial production from the central capitalist nations to the periphery—to the poor nations of the world where workers could be had for a pittance.

Further, with this growing “de-industrialization” of the U.S. and Europe, the world’s imperialist nations build state-of-the-art productive factories that re­ quire fewer Chinese and Asian workers to produce ever more commodities to sell in the increasingly sat­ urated world market. This has had the triple effect of (continued on page 7)

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(continued from page 6) reducing the price of labor in the “advanced” na­ tions—the perpetual “race to the bottom”—while employing less and less workers in the periphery, while temporarily increasing profit rates for the super rich.

Without doubt, Chinese capitalists increasingly understand that Chinese-owned factories, many operating at extremely low levels of labor produc­ tivity, are no match for their MNC rivals. Between 2007 and 2012 labor productivity rose 11 per­ cent annually in contrast to Thailand’s 8 percent and Indonesia’s 7 percent.

In 2013 China became the largest market for robots, buying 20% of all those made that year, according to the International Federation of Ro­ botics. But it still has just 30 robots per 10,000 workers in manufacturing, compared with 323 in Japan. Foxconn, the Taiwanese firm that makes Apple’s iPhones and has more than a million em­ ployees in China, says that it wants robots to com­ plete 70% of its assembly-line work within three years.

China’s aim at creating an internal market of middle and high-income professional functionar­ ies and a small layer of higher paid workers, as is the case with all the BRICS nations (Brazil, Rus­ sia, India, China and South Africa) is coming to an end. The last decade of 10 percent or higher growth rates in all these nations is likewise winding down, with Brazil’s GDP, for example, stagnant along with most of the others.

Indeed, the world’s central imperialist nations have no compunction against moving their plants to even lower-wage Asian nations as they are doing with Viet­ nam, Bangladesh, Indonesia, India, etc. And why not? Chinese factory workers, on average, earn $27.50 per day as compared to their counterparts in Indonesia, who earn $8.60, or the Vietnamese who labor at $6.70 for multi-national corporations.

For the world’s transnationals, investment in China is contingent on its continued subservience and prof­ itability. This includes massive tax breaks to foreign corporations and giant infrastructure improvements, like the construction of untold miles of rail lines lead­ ing deep into China’s even lower-wage interior. When Chinese officials decline to intervene in labor strikes against foreign corporations, usually to promote their less efficient Chinese-run companies, the result can only be the eventual transfer of entire plants to even lower-wage nations, as with Vietnam, where capitalist “Communist Party” tops are more than eager to sell their workers for less.

A few decades ago, China’s average wage in some instances amounted to six cents an hour; teenage women from the countryside were virtually locked in dormitory factories and forced to work up to 80 hours per week. Today, most factory assembly-line workers labor at $3.44 per hour, if they are paid at all. Indeed, the great proportion of China’s increasing number of labor strikes, an estimated 200 per month) are over “arrear payments,” that is, the workers were not paid by Chinese corporate owners, who sometimes disap­ pear and/or abandon their less competitive plants or otherwise rely on their corrupt crony superiors to en­ force labor discipline.

The case of Apple Computer, among the world’s most profitable corporations, reveals a bitter truth about China’s development. Not long ago, Apple’s i-Pods sold in the U.S. for $300. Of this, U.S.-based retailers got $75. Apple’s share was $80. Another significant portion went to a variety of transportation and distri­ bution outfits. Chinese workers and bosses got $2.61 between them!

Sam King, debunking the myth that China operates as one of the world’s great economic superpowers, cites a 2013 Milberg and Winkler study that expresses the Apple data above in a different form. He writes. “In 2010 Apple imported iPhones for $179 and sold them for $600 on the US retail market. Such a mark-up would be impossible if Chinese capital, or even Fox­ conn, Apple’s Taiwanese subcontractor, controlled the high-tech aspects of production. iPhone exports from China to the US in 2009 were $2 billion. The portion of that revenue going to Chinese workers, bosses, and all other Chinese costs was only $73.3 million or 3.6 per­ cent.” With Apple’s intention to more fully automate its Foxcomm facilities, that percentage as well as the number of Chinese workers employed, must continue to decline.

King presents some additional data demonstrating that high-tech corporations operating in China, or anywhere else in the world, secure profits far exceed­ ing the relative low-tech Chinese corporate entities.

He writes, “A capitalist economy encompassing one sixth of the planet’s population must possess some gi­ gantic companies. China does. Four of the world’s top 10 corporations by gross profits are Chinese. How­ ever, this doesn’t really tell us much. Here is the list in order of gross profits, with each company’s return on assets (RoA) in brackets: Exxon Mobil (13), Apple (24), Gazprom (10), Industrial Commercial Bank of China (1), China Construction Bank (1), Volkswagen (7), Shell (7), Chevron (11), Agricultural Bank of China (1) and Bank of China (1). Thus, according to Fortune, imperialist giant MNCs’ average return on assets is 12 times higher than that of Chinese monopolies!”

Were this not the case—that is, were Chinese work­ ers the actual beneficiaries of rapid super-exploitive capitalist development—there would be little or no multi-national corporations operating in China today.

Undoubtedly, there is an affluent layer of the popula­ tion, including many directly related to the ruling elite or consciously selected talented people the elite need to run a large, sophisticated economy. But, as with all the BRICS nations, this is a relatively thin layer, per­ haps 10-20 percent—insufficient to stimulate the larger economy over the long term. To increase its economic weight, this layer has been extended sig­ nificant amounts of easy credit to purchase or invest in speculative real estate ventures and the stock mar­ kets. This has resulted in huge price bubbles, in which vulnerable groups stand to lose everything quickly.

China’s real estate market is a case in point, with speculation in the construction of entire new cities, and associated massive condominium complexes aimed at accommodating millions standing empty. The expected mass emergence of middle-class buyers failed to materialize. Those who financed the proj­ ects—U.S. shadow banks and hedge fund speculators, as well as China’s speculating elite, and illegal lend­ ers—stand to lose big time.

The rapid and extreme measures recently taken by the ruling bureaucracy reveal that they are in a state of panic. The restoration of a capitalist system in Chi­ na under Communist Party tutelage, so the bureaucra­ cy pledged, would lead to a booming economy with a rising standard of living for all, without the crushing crises that inevitably accompany the system of private profiteering. But it is now becoming clear that there is no “Chinese miracle” just as the rise (and subsequent fall) of yesterday’s free market, neo-liberal export-ori­ ented “Asian tigers” proved to be ephemeral, at least for the vast working-class majority.

Indeed, China’s repeated currency devaluations aimed at lowering the cost of Chinese commodities in the U.S. and other foreign markets can be expected to bring on similar devaluations across Asia as each na­ tion and its elite vie for ever shrinking markets. Such “currency wars” among and between export oriented peripheral/poorer nations are the inevitable result of a highly globalized world system in deep crisis. A stagnating U.S. economy with a working class suffer­ ing from ever-deepening austerity and real wage de­ clines coupled with faltering European and Japanese economies, certainly cannot count on China to “save the world.”

In a real sense, China’s current polices implemented to stabilize its fragile economy parallel those imple­ mented in the U.S. following the 2008 meltdown. Tril­ AFP / Getty Images (Above) A garment factory in China.

lions of dollars were pumped into the coffers of fail­ ing banks and major corporations to prevent their imminent collapse. Virtually free money, to the tune of $89 billion monthly, was injected into the economy, supposedly to stimulate growth and provide “trickle down” jobs to a hammered working class.

In truth, the injection went straight to corporate America, which in turn invested this “free money” into stock-market ventures that drove prices to all-time highs, while employment remained at lows unseen since the Great Depression—as measured by the gov­ ernment’s 65 percent labor participation rate. (This statistic blatantly contradicts the government’s falsi­ fied 5.1 percent unemployment rate.)

During this fake recovery and before, some million union jobs were lost annually as manufacturing shift­ ed to low wage nations—China in particular and now elsewhere.

After seven years of this “pump priming” of corpo­ rate America, important elements of the ruling rich have come to understand that the endless printing of money to keep the capitalist system afloat has perhaps reached a limit. With every passing month, Wall Street riveted its attention on whether Janet Yellen’s Fed­ eral Reserve would end the free flow of money. Wild swings of the stock market, led the speculator gang to seek potentially more profitable outlets, including in China’s then booming stock markets. Undoubtedly, a number were burned in the effort.

Capitalism by its nature is an unplanned, boom and bust, anarchistic economic system, driven forward by the pursuit of private profits by individuals and cor­ porations come hell or high water. Capitalism’s apolo­ gists claim, through some twist of magical thinking, that the social good of society is automatically maxi­ mized if capitalists are allowed to maraud freely, with­ in and without national borders, doing whatever they need to do regardless of the cost in human lives or to the planet earth itself.

China’s ruling class, as with most others, hold to the belief that it can control capitalism’s wild nature. They are not the first to engage in such self-delusion. For more than 35 years, China’s so-called Communist Party has transformed itself from a dictatorial, Stalin­ ist bureaucracy, controlling a socialized, command (undemocratic) economy into a true capitalist ruling class overseeing a privatized economy that remains in large part subordinate to the great imperialist pow­ ers.

The key flaw in this plan is that capitalism does not and never will lend itself to command control of its currents.

China’s recent dramatic moves to stabilize its falter­ ing economy essentially exposes the myth that BRICS nations or any others can escape the central contra­ dictions inherent in the predatory system itself. World capitalism’s hope that opening up China’s vast mar­ kets and people to capitalist penetration and exploita­ tion would, at least for a time, save the world is com­ ing to an ignominious end.

Today’s perpetual wars and associated headlong rush to climate-crisis/global warming-driven oblivion are inseparable from the uncontrolled and anti-hu­ man operations of the vicious for-profit-only capital­ ist system. Its replacement at the hands of the world’s working masses, and the establishment of a socialist world, where human needs are given preference in all spheres, is a prerequisite to humanity’s future. n SOCIALIST ACTION OCTOBER 2015 7

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6 SOCIALIST ACTION OCTOBER 2015 Perhaps a billion Chinese still live in poverty while the ruling bureaucracy privatizes and dismantles state-owned businesses and social services.

Imperialism has seen China’s working people as the world’s largest source of cheap labor.