China: between a rock and a hard place

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Bourgeois and left-wing analysts alike view China as either a potential saviour of the capitalist system or rival to US hegemony of the world or maybe both. Currently it will play neither of these roles. Despite China’s economic growth and increased military spending it cannot challenge the domin­ance of US and EU imperialism, except within its regional sphere of influence, and that may be intolerable to imperialism. TREVOR RAYNE reports.

The SWP’s Alex Callinicos and Socialist Register’s Panitch and Gindin have described China as a potential challenger to the US (see FRFI 193). That challenge may be for the future, but it is not imminent. The influential US academic Marxist Robert Brenner describes the underlying cause of the economic crisis as being an over-production of goods exacerbated by ‘the emergence of the Chinese leviathan’. (Interview 22 January 2009, Links: international journal for socialist renewal). Brenner says that China prefers US hegemony as a means of allowing its economy to expand and he denies the existence of inter-imperialist rivalry, saying that Europe also approves of US hegemony. He foresees China ‘still pouring as much money as it can into the US to try to keep the US economy going, so that China can keep developing the way it did’. This is wrong! The Chinese ruling class will assert its own interests in conflict with the US when it needs to and ‘the way it did’ can be no more.

Brenner’s conception of the crisis as a consequence of the over-production of goods that can be resolved by a reduction in supply and adjustment in demand is false. Another influential US academic Marxist, David Harvey, describes the crisis as ‘a capitalist surplus absorption problem’, meaning a surplus that has to find new places to invest in, for example, in urban expansion and construction. Harvey depicts the crisis as one of geographical limitation. What Brenner and Harvey share is a view of the resolution of the crisis by managing global demand. A crisis of the production system for commodities under capitalism, the system of exploitation, they view as being resolved by changes in the system of circulation of commodities. Variations on this perspective surfaced and gained influence with the onset of the crisis of accumulation in the early 1970s (see Revolutionary Communist 3/4). From this viewpoint, an accommodating China, with 1.3 billion people, and India with 1.2 billion people, are integral to the imperialists’ solutions: great untapped markets and geographical expanses to be exploited.

Nowhere in Brenner or Harvey will you find Lenin’s concept of imperialism: the domination of monopoly capital, the fight for spheres of global influence between rival imperialist powers, the division of the world between oppressor and oppressed nations, the inevitable militarism and the tendency to war as methods of resolving crises. Rather you will find illusions that capitalism and imperialism can re-emerge reformed, extricated from the crisis without wars and destitution; illusions that immobilise the oppressed.

Foreign invested companies account for 60% of China’s imports and exports. Trade exceeds 60% of China’s GDP. Its economic miracle has been achieved by selling low cost manufactured goods to the world, especially to the European Union, the US and Japan. The problems of international capitalism are refracted upon and magnified within China. 

Awkward manoeuvres
During her February 2009 visit to Beijing, US Secretary of State Hillary Clinton said: ‘The global community is counting on China and the US to collaborate to pursue security, peace and prosperity for all.’ She added: ‘By continuing to support American Treasury instruments, the Chinese are recognising our interconnectedness. We are truly going to rise or fall together.’

In recent years the US has taken up to 70% of the world’s surplus savings. These have sustained US consumption and contributed to the costs of its wars. China’s trade surpluses have allowed it to amass $2 trillion in foreign currency reserves. Surplus earnings have been recycled to the US as purchases of US Treasury bills (US government borrowing) and other dollar assets by China’s central bank. This has enabled the US to continue buying China’s exports. China’s dollar asset investments amount to $1.7 trillion, some 72% of China’s foreign assets. In 2008 China lent the US over $400 billion, equivalent to 10% of China’s GDP. If the dollar falls against other currencies then China’s investment depreciates. If China sells US assets then those that it retains will fall in value. When the dollar has fallen, criticisms of the government’s purchase of US assets have grown within China. Luo Ping, director general of the China Banking Regulation Commission, recently said in New York, ‘Once you start issuing $1-$2 trillion...we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.’

On 13 March Chinese Premier Wen Jiabao expressed his worries about US government policies: ‘President Obama and his government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures. We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.’ He called on the US to ‘maintain its good credit, to honour its promise and to guarantee the safety of China’s assets’. US government budget deficits are forecast to amount to $5 trillion over the next four years. Regardless, and defying evidence that US debt is already unsustainable, Obama said on 14 March, with Brazil’s President Lula at his side, ‘Not just the Chinese government, but every investor can have absolute confidence in the soundness of investment in the United States.’ Fine words indeed, but the US government is offering $1.75 trillion of Treasury bills to the world in 2009. As Paul Kennedy, author of The Rise and Fall of Great Powers, asks who will buy this Treasury paper, and if they do who will buy 2010’s and then 2011’s offer, ‘as the US plunges into levels of indebtedness that could make Philip II of Spain’s record seem austere by comparison?’ (Financial Times, 13 March 2009).

After Wen Jiabao’s remark the US Federal Reserve announced it would buy $1.15 trillion of securities to prop up the financial system. China’s central bank governor responded on 23 March calling for the creation of an alternative to the dollar as the global reserve currency. Perpetually expanding US government debt signals a forthcoming fall in the dollar and China is seeking to protect its assets, now at the expense of the US.

Between 1998 and 2008 exports rose from 20% to 40% of China’s economy. China’s exports to the EU fell by 9.8% and to the US by 17.4%, at an annualised rate to January 2009. Exports were down 25.7% over the year to February 2009. The monthly trade surplus fell from highs of around $40 billion to $4.8 billion in February. The embrace between China and the US will be broken because China will not earn sufficient revenue to buy the expanding volume of US debt.

In January 2009, before he became head of the US Treasury, Timothy Geithner accused China of manipulating its currency to keep it down and thereby maintain its trade surpluses with the US. The Financial Times said Geithner ‘was playing with fire’. However, the paper argues that China should expand its internal market and commentators argue that China should revalue its currency to reduce the trade imbalance. If China allows its currency to revalue upwards it will lose export revenue with which it buys US debt. If China keeps its currency down it faces protectionist measures from the US and others. It is caught between a rock and hard place.
Class struggles
Premier Wen Jiabao promised 8% economic growth for China for 2009, down from nearly 12% in 2008. It is believed that China’s economy must grow by 8% a year to absorb peasants migrating from the countryside to the cities and new graduates into employment. 130 million people have migrated to urban areas in China in the last ten years. China now has 600 million urban people. Rural areas are dependent on remittances from migrant workers.

In the recent period 26 million migrant workers have been made unemployed; 60,000 factories have closed over the past year and 670,000 businesses have shut down. China’s construction has dropped by 20-30%. Wen Jiabao said that ‘factors that harm social stability will increase’. Strikes and protests are rarely reported by journalists in China; there is evidence of persecution of those that try to report such events. However, there are reports of violence with protestors and state forces using clubs and guns. On 2 December 2008 hundreds of traffic police in Leuyong smashed the Communist Party, local government premises protesting over low pay.

In February 2009 China’s President Hu Jintao called on the army and police to remain loyal in the face of growing discontent and protests. Speaking at the headquarters of the People’s Armed Police he called on police to ‘engage in comprehensive military training, step up patrols, and boost their capability in handling emergency situations’. China has a large new working class that is not integrated into political networks that support the state. Many come from families that were driven from the land by Communist Party (CCP) administrators pursuing the capitalist road. China’s government recognises that this working class is unpredictable and volatile, but repressive measures alone will not subdue the working class.

The government has launched a $585 billion spending programme, a larger package compared to the size of economy than either the British or the US governments’ stimulus packages. This spending is directed at education, health, housing and pensions and should benefit the urban and rural working classes. China’s budget deficit for 2009 is anticipated to be $139 billion or 3% of GDP, five times the 2008 deficit. The government hopes to substitute public spending for exports, generating an internal market to maintain growth, but it is unlikely to be sufficient given the scale of dependence on international markets for employment and revenue. The CCP has over 70 million members and a revolutionary socialist history. The coming class struggles in China will emerge within the Communist Party and are likely to revive a socialist element standing against the capitalist road and corruption.

Military tensions
China’s military budget will grow by 14.9% in 2009 to $70.2 billion. Since 1995 China has added 37 submarines to its navy and intends to build three more each year. US military strategy seeks to control the flow of oil and other resources to China from the Middle East and Africa across the Indian Ocean and through the Straits of Malacca to the South China Sea. On 9 March the US accused China of using coastguard vessels, fishing trawlers and naval vessels to harass the USNS Impeccable. China then accused the US of an ‘illegal’ intrusion into its exclusive economic zone. The Impeccable was monitoring China’s biggest submarine base. US President Obama sent a destroyer armed with missiles and torpedoes to escort the Impeccable as it continued its surveillance operation. This is one of a number of recent incidents in the South China Sea. Chinese aircraft have also buzzed US vessels.

On 14 March, the day after Premier Wen Jiabao expressed his ‘worries’ about Chinese investments in the US, China signed a $3.2 billion gas deal with Iran, in defiance of US attempts to impose sanctions on Iran. In February, Russia and China agreed a deal in which China lends Russia $25 billion in exchange for oil supplies from Siberia for 20 years. In March Russian President Medvedev announced that Russia’s military spending would be increased by 13.4% in 2009 and a further 14.7% in 2010 and that the Russian forces would be updated. Medvedev observed that NATO ‘has not curbed its efforts to station some of its military infrastructure close to our borders’. Russia, China and Iran see benefits from manoeuvring together against US and other imperialists’ plans for the Middle East, Eastern Europe and Asia. They intend to defend their interests in what they regard as their spheres of influence and to confront US imperialism’s bid for global hegemony. We are moving into a context of rising tensions wherein events can swiftly follow each other and a destructive trajectory unfold, if imperialism is not confronted and defeated by the forces for socialism and humanity.
FRFI 208 April / May 2009