Tuesday, July 11, 2017

Ups and Downs in China (2017)

From the July 2017 issue of the Socialist Standard

We look at the rise of China as an economic and political power

In April the first rail freight service from Britain to China left a terminal in Essex for a 7,500-mile journey to eastern China. Thirty containers with goods such as whisky, soft drinks and pharmaceuticals travelled via the Channel Tunnel and seven countries (including Russia and Kazakhstan). The train took over two weeks to reach its destination, but this route is cheaper than air transport and faster than sea. Three months before, the first freight train had travelled from China to the UK. This illustrates the fact that China is now a central part of the global trade system, as both importer and exporter.

Developments over the last forty years have resulted in China being the world’s second most economically powerful country, after the US. Over a hundred Chinese companies are now on the Fortune 500 Global List, with only the US having more. State-owned enterprises gradually became less dependent on the government, but even private companies still rely greatly on government permissions and licences. Investment from overseas companies, mainly via joint ventures, resulted in industrial expansion. Labour costs have been very low, leading to big profits, but are now increasing.

The change from state capitalism to a mixed state and private system may have been started by Deng Xiaoping in 1978, but the idea of China being part of the global economy did not originate with Deng. As Mao Zedong is reported to have told a US diplomat in 1945: ‘China needs to build up light industries to supply her own market and raise the living standards of her own people. Eventually she can supply these goods to other countries in the Far East. To help pay for this foreign trade and investment, she has raw materials and agricultural products. America is not only the most suitable country to assist this economic development of China: she is also the only country fully able to participate. ‘

GDP has grown at around seven percent a year in the last few years, and exports have been consistently larger than imports (by $380bn in 2014, for instance, and $600bn in 2015). Manufacturing has been the core of the expansion, though now the service sector outranks industry and construction. Electronics, machinery and clothing are the largest export sectors, with many global companies having their smartphones and laptops manufactured in China, often in sweatshops and factories with appalling working conditions, leading to much resistance by workers. In the first three months of this year, GDP growth continued at an annual rate of just under seven percent, but there are signs of a slowdown since then. China’s foreign exchange reserves, though still enormous, have been falling steadily. There have been claims by some economists that China is on the verge of a crash comparable to the subprime crisis in the US in 2008, but such predictions are hardly reliable. In May China’s credit rating was cut by one agency.

One result of these changes has been a massive movement of people from the countryside to cities, not as a part of government policy but as a consequence of people seeing urban life as a way to escape from rural poverty and isolation. It is claimed that over the last 35 years, 500 million people have moved from the countryside to cities, including ten million moving to Shanghai alone. This inevitably puts enormous pressure on services such as housing and education, with many children of these migrants not being able to attend school. One response of China’s rulers has been to create urban mega-regions, which cover massive areas and have populations of perhaps 100 million. One example is Jing-Jin-Ji, to include much of the cities of Beijing and Tianjin and the province of Hebei.  These mega-regions need a great deal of investment in housing, transport and other kinds of infrastructure, and there are concerns that they will lead to ‘endless cities’, as already found in countries such as Brazil and Japan.

It is generally accepted that there have been big decreases in poverty over this period. On World Bank figures, in 1990 650 million people in China were living on less than $1.90 a day, but by 2013 this figure was down to around 26 million. But it is by no means clear how reliable such figures are, and even most of those living above this poverty line are pretty badly off. Moreover, inequality is not just a matter of rural–urban contrasts, as a 2014 survey suggested that one percent of the population possessed one-third of the wealth. There are more dollar billionaires in China than in the US, though even the richest (Wang Jianlin, with $32bn) is not among the world’s twenty wealthiest people.

And there are big plans in China for further economic expansion, with claims to sovereignty over raw materials in exclusive economic zones in the South China Sea, and the proposed Belt and Road Initiative (see the Socialist Standard, June 2015). Even though the economic problems mentioned earlier cast doubt on whether Chinese banks can finance all this by themselves, a big summit was held in Beijing in May to push the proposal. British capitalists have their eyes on China for increased trade, especially post-Brexit, and Philip Hammond said in a speech there that ‘Britain, lying at the western end of the Belt and Road, is a natural partner in this endeavour’. If – a big ‘if’ – Britain signed a free-trade deal with China, it might help to mitigate any adverse effects on trade and profits of leaving the EU. Representatives of the EU have, however, been less keen on the Belt and Road, supposedly because of the lack of commitment to environmental sustainability, but perhaps more because of concern about economic competition. Vladimir Putin spoke at the same summit, referring to a Greater Eurasia and declaring that this would be ‘a truly civilisation-wide project looking toward the future’. More rhetoric than anything else, of course, but the ‘New Silk Road’ may well be viewed as a framework for a forthcoming challenge to US global hegemony, with Putin not wanting Russia to lose out to China.

China’s rise has frightened the American ruling class in various ways. Under Obama it was decided that the majority of US naval forces would be transferred to the Pacific, and there are now over four hundred military bases, stretching from Australia, the Marshall Islands and the Philippines to South Korea and Japan, stocked with missiles, warships and nuclear weapons. No doubt these have many possible uses as a way of maintaining US dominance, but one potential employment is for what John Pilger (New Internationalist, December 2016) has described as ‘the coming war on China’. While campaigning to be president, Donald Trump described China as an enemy of the US, but the language became friendlier after he took office.

In May a trade agreement was signed under which China will allow imports of US beef, while the US will allow the import of cooked poultry from China. Hardly a major change, but possibly an indication of future developments. If China overtakes the US economically in the next decade or two, as some have claimed is likely, then US hegemony will have lasted a little over a century.
Paul Bennett

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