China myths and realities / FRFI 193 Oct / Nov 2006

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FRFI 193 October / November 2006

The impressions are awesome: 70% of the world’s construction cranes will be operating in China over the next five years; in 2005 China consumed half the world’s cement and built as much as the whole of Europe will in three years. Investment bank Goldman Sachs announced that China’s economy will exceed that of the US by as early as 2041. China’s surging growth and emergence as a significant player in the world economy are undeniable but what this means for the global balance of forces and future of imperialism has still to be demonstrated. For some on the left the image of a rising China coming into conflict with the US eclipses the necessity of analysing inter-imperialist rivalries and the substance of China’s rise. TREVOR RAYNE reports.

TV poseur Niall Ferguson gives a dramatic depiction of the ‘triumph of the east’, wherein ‘a hundred years ago... the west could justly claim to rule the world. After a century in which one western empire after another has fallen, that can no longer be claimed.’ Now it is Asia, led by China, which is in the ascendant. (New Statesman, 26 June 2006)

Martin Jacques imagines the coming unravelling of the projected ‘American Century’: ‘China is a different matter altogether. Bin Laden was never going to pose even the most miniscule threat to the position of the US as the sole superpower. China clearly could, and in the long run certainly will. Its growing economic power will, in time, underpin wider political and military ambitions.’ (The Guardian, 18 June 2005)

Boarding the bandwagon, the SWP’s Alex Callinicos also describes the division between the US and China as the determining fault line in the future balance of global forces. ‘China and the other East Asian states now closely bound up with it have become the underwriters of the continued expansion of American capitalism. Simultaneously China has also become the lightning-rod for geo-political tensions, has supplanted Japan as the main object of protectionist agitation in the US, and has been identified by the Pentagon and the CIA as the Great Power with which America is most likely to go to war.’ (International Socialism, 108). ‘Even Panitch and Gindin [of Socialist Register: TR] can’t deny China’s potential as a challenger to US domination in Asia’. (International Socialism, 110).

It is not that Ferguson, Jacques and Callinicos are entirely wrong but the emphasis that they give to the projected US-China confrontation deliberately denies the reality of inter-imperialist rivalries and most specifically the relations between the US and Europe. It also denies the significance of the struggle of the oppressed nations against imperialism. Lenin and the Bolsheviks analysed how monopoly capitalism divides the world up between oppressor and oppressed nations and between rival imperialist powers. The laws of capitalist accumulation drive the capitalists into contentions that result in wars to re-divide the world. This re-division is accomplished on the ultimate basis of the relative economic power of the competing powers. European capital and the European ruling classes cannot accept a role subordinate to the US ruling class; they must confront US monopoly capital’s attempts to establish a century of global hegemony. The oppressed nations must fight their oppressors, locally and internationally, to survive. These are the defining fault lines of the imperialist era.

US and European power
There is nothing in Marxism that denies the possibility of a new imperialist power emerging and China may become that power. However, China could only become such a power after the destruction of the dominant US, European and Japanese imperialism. If that destruction is not achieved by socialist revolution, which would prevent China’s rise turning into imperialism, the prospects of humanity and the species are dim. It is really an indication of the fragility of the international capitalist system that China’s emergence has created such a stir and encouraged the spectre drawn for us by Ferguson, Jacques and Callinicos.

In 2005 China’s gross domestic product (GDP) was $2.3 trillion. That of the US was $12.5 trillion or a quarter of the world’s annual output. The EU’s total GDP was $13.4 trillion. Annual average foreign direct investment overseas for the years 1999 to 2004 by the US was $192 billion, by the EU was $457 billion and for China the amount was $2.6 billion. Annual average foreign direct investment received for 1999 to 2004 was $196 billion in the US, $409 billion in the EU and $51 billion in China. The point is that China’s investment overseas and receipt of investment is growing but it still does not compare with that of the US or the EU. China’s exports amount to 7.7% of the world’s total, below those of Germany and the US. Foreign multinationals account for 60% of China’s imports and exports. Trade exceeds 60% of China’s GDP. In this context China’s economic growth has become dependent on international capitalism and the issue for the prospects of China emerging as a real contender to the imperialist powers is control: control of China’s capital and state power. In 2004 Chinese companies accounted for only $490 million investment in the US out of a total foreign investment in the US of $1.5 trillion. In 2005 US companies had accumulated investment in China of $350 billion.

A figure often cited as evidence of China’s extraordinary performance is the average yearly growth of the economy by 9.5% since 1991. This compares with Britain’s annual growth rate of about 2.75% over the same period. When examining economic data it is worthwhile asking what interests the compiler has. The boom figures certainly encourage capitalists to invest in China, conforming to Chinese government policy. Academic studies of Chinese data reveal that local and provincial figures for GDP growth do not tally with the national figure, the discrepancy being almost 4% of the total. A study of China’s economy between 1996-99 gave an accumulated growth rate of 25.6% but energy consumption was reported down by 12%. China’s Bureau of Statistics recorded 62,000 false reports for May to October 2001. These reports no doubt reflected the ambitions of local and national officials.

Early in 2006, the Pentagon’s Quadrennial Defence Review concluded that China had the ‘greatest potential to compete militarily’ with the US. That potential is still a way off being realised. China responded angrily to the Review saying China’s intentions were peaceful. The US ruling class uses its military superiority to compensate for its relative economic decline since World War Two when it accounted for around half the world’s economy. The US spends more on the military than the rest of the world together does. China’s military budget was increased by 15% in 2006 and described as ‘the fastest growing peacetime budget in the world’. (Financial Times, 17 May 2006). China’s military expenditure is less than 3% of its GDP. Since 2000 the US has increased its military spending from 3% of GDP to 5%. France and Britain spend around 3% of their GDP on the military. A 2% US increase as a part of the US economy dwarfs China’s increased military budget. US military expenditure exceeds 18 times that of China. During the Vietnam War the US spent 10% of its GDP on the military; in the Korean War it was 15% and in World War Two 35%. The imperialist ruling classes have considerable capacity when it comes to warfare and the European ruling classes have still to open up their arms race, most of them spending less that 2% of GDP on defence – for now.

The power of trade
It is in trade and its impact on commodity prices, that China’s global influence is revealed. China-Africa trade reached almost $40 billion in 2005, quadruple the 2001 figure. In the first four months of 2006 China’s imports from Africa rose 50% on the previous year’s volume; much of this increase was in oil. The International Energy Agency reports that between 2002-2005 43% of the additional global demand for oil came from Asia with 28% from China. China, self-sufficient in oil until 1993, is now the world’s third biggest oil importer. Angola is second to Saudi Arabia as an oil exporter to China. This April Nigeria gave preferential drilling rights for oil to China in exchange for $4 billion infrastructure investment. The Gulf of Guinea supplies 15% of US oil imports and the US hopes to raise this to 25% in a decade. In the context of the imperialists’ scramble for Africa China offers an alternative to national governments.

By mid-2005 the value of China’s overseas acquisitions was five times the previous year’s deals: the most reported of such purchases being MG Rover and IBM’s personal computer division. However, almost half of China’s foreign direct investment has gone into Latin America and China intends it to reach $100 billion in the next five years! Joint ventures are agreed in steel, transport, energy and military exchanges. In 2005 China’s stock of overseas investment was $50 billion, less than one sixth that of Spain’s.

It is China’s demand, helping to boost commodity prices and incomes for under-developed country producers, that offers an alternative to US economic and political hegemony. This has been particularly helpful to the Latin American countries, led by Cuba and Venezuela, seeking to break from US dominance. They are also using the mire the US military machine is sinking into in Iraq and Afghanistan to press home their opportunities.

The issue is control

Before recently being appointed US Treasury Secretary, Hank Paulson is estimated to have visited China as chief executive of Goldman Sachs 70 times over 15 years. His efforts produced results: Goldman Sachs gained effective control of Hainan Securities, a stockbroking firm, and a $2.6 billion 7% stake in the Industrial and Commercial Bank of China, the country’s biggest lender. As Treasury Secretary, Paulson says he wants pressure on China to open up its financial sector to foreign firms. In December 2005 the European Commission warned China to open up its markets or face a legal challenge at the World Trade Organisation (WTO). A condition of China joining the WTO in 2001 was to open its financial system to foreign banks, insurance companies and other agencies by the end of 2006. Standard and Poor’s rating agency calculates that 45% of China’s bank loans are non-performing, many of them to state-owned enterprises. The big four imperialist accountancy firms (PwC, Deloitte, KPMG and Ernst and Young) are getting ready for the pickings and plan to increase their staff in China by 20% this year.

The Chinese government operates legal restrictions on the forms and amounts of foreign investments in its financial system and proposed major investments are scrutinised by the state. With growing inequality and primitive capitalist accumulation dispossessing the peasantry and working class, tensions in Chinese society have resulted in outbreaks of revolt. The Chinese Communist Party (CCP) has recently discussed reform of distribution to raise the incomes of the poorest and create a middle class for the sake of social stability. China’s government says it will prioritise raising rural incomes.

The political legitimacy of the CCP and the state itself are declining as state power is seen by many as a means to personal enrichment. In July the CCP said that 85% of private companies eligible to have a party committee had established them. These committees are not representative bodies of workers; they are composed of owners and managers. The Financial Times commented, ‘The move underlies the growing convergence of interests between China’s dynamic private sector and its communist rulers, who began to allow entrepreneurs to join the party officially only in 2002.’ (14 July 2006)

Given this growing alliance and that the CCP has 71 million members it is not surprising that debate has surfaced in the ranks of the Party. There has been growing criticism of the government’s policies on foreign takeovers and management buy-outs of state-owned enterprises. A proposed key property law was postponed after a debate over whether it would undermine the foundations of China’s ‘socialist market economy’. Hank Paulson and the appetites of those he represents will ensure that the debate continues. China’s workers are discussing and organising and have a heritage of socialism to call on. They will no doubt have the last word on the matter of their fates. They and the masses of oppressed humanity will dictate where the fault lines with imperialism fall and where the lava-roar of revolution erupts.