Cooking the Books: Out of control (2009)

The Cooking the Books column from the November 2009 issue of the Socialist Standard

Some people are looking to China as the motor that will pull world capitalism out of its current slump. This ignores the fact that China’s double-digit rates of growth were led by exports, in large part to America and Europe. When these parts of the world entered the slump China, too, was affected. As the London Times reported last year (17 October):

“In the northern Chinese port of Quinhuandao, a dark mountain formed by nearly nine million tonnes of surplus coal soars from the dockside. By the end of the next week, the famous storage area – a dirty barometer of Chinese industrial demand – could be completely full of unwanted fossil fuel . . . [T]hose swelling piles of surplus coal, which is used for most of China’s electricity generation, indicate falls in demand for energy, a key measure of economic activity.”

In response the Chinese government decided to try to spend its way out. Some 4 trillion (a million million) yuan of stimulus money was injected into the economy, mainly in the form of lending by the State banks. But things didn’t turn out as planned. Most of the money was used to expand productive capacity without regard for the chances of selling the extra output (though some seems to have gone to fund a property and stock exchange bubble). In an article headlined “Beijing moves to halt growth juggernaut as supply starts to run away from demand” (1 October), Times Asia business correspondent, Leo Lewis, reported:

“China's State Council calculates that the impact of this year's 140 billion yuan (£13 billion) investment spree in steel mills will be to lift overall national production capacity some 40 per cent above the country's entire annual demand. The same dynamics reportedly apply to cement ( . . .) The astronomical levels of corporate investment, warn senior economists, place the booming Chinese economy at increased risk of a sudden collapse in growth.”

So, the brakes are being applied:

“The Government of China has launched an attack on overcapacity in its heavy industries with a series of stinging curbs on new factories, smelting plants and port-building projects. (…) In the absence of such controls, said the statement from the Chinese Cabinet, ‘it will be hard to prevent vicious market competition and to increase economic benefits, and this could result in facility closures, layoffs and increases in banks' bad assets.’”

It’s the same old story of headlong capitalist expansion, financed in this case by government funding, leading in the end to overcapacity and overproduction in relation to market demand. The Chinese government’s attempt to spend its way out of the slump is risking the very thing they were trying to overcome: “a sudden collapse in growth”.

Which goes to show that governments can’t control the way capitalism works and that, if they try, the chances are they’ll make things worse. Capitalism is an uncontrollable economic system that gets its way in the end, one way or the other.