As Chinese economic growth continues at a rapid rate, Brian O’Boyle asks will China be the worlds new superpower?
Over the last 40 years, China has been transformed from a provincial backwater into one of the world’s major economic powers. When Deng Xiaoping first championed “Socialism with Chinese Characteristics” in December 1978, China was creating little more than $200 billion worth of goods and services annually. This year, the Chinese economy is expected to create more than $14 trillion. This astonishing expansion has been underpinned by growth rates of nearly 10% every year or a cumulative increase of over 7000%. No other economy has grown so strongly over so long a period of time.
China has also become the world’s major manufacturing centre, accounting for 60% of global concrete use and around 50% of its aluminium, copper, coal and steel consumption – despite having only 15% of the world’s population. It is also by far the world’s largest exporter with $2 trillion worth of goods and services leaving its shores every year. To put this in context, China exports 40% more than the US economy despite being only 70% of its size.
Since 2008, China has also accounted for roughly 1/3 of all economic growth, helping to stabilise global capitalism in the wake of the Great Recession and alarm its imperialist rivals in equal measure. To achieve this economic transformation, the Chinese ruling class has relied on a vast supply of highly skilled wage labourers. Since 1978, half a billion workers have entered the Chinese labour force under the infamous Hukou registration system. This segregates the Chinese population into rural and urban dwellers, allowing the Chinese Communist Party (CCP) to manage the dynamics of its labour market in line with political stability and the wider requirements of capital accumulation.
Western commentators previously assumed that the liberalisation of the Chinese economy would create powerful bourgeois forces seeking liberal rights to political freedom. In reality, the CCP has remained central to the development of Chinese society from the factory floor right the way to the commanding heights of the economy.
There are now more than 9 million firms in China, but where private interests end and the state begins is often difficult to tell. Over the last 25 years, the CCP has forged countless links between the state and big business at the same time as it has co-opted strategically important entrepreneurs into the CCP. This has meant that many of the most important companies have made their money in partnership with the party, making them valuable sources of stability rather than potential rivals.
The state also organises industry based political associations that tie the party into centres of accumulation at the same time as it has fostered 102 state corporations directly under the control of the CCP bureaucracy. With assets of around €6.5 trillion, these conglomerates dominate key sectors of the Chinese economy including state oil companies, telecom operators, power generators and weapons manufactures. They are also spearheading the next phase of China’s economic development which involves ramping up foreign direct investment and forging links across the globe.
Charting the Next Phase
To date, the CCP has carefully managed China’s entry into global capitalism via the twin mechanisms of the Hukou system and special export zones in the South East of the country. Together these institutions created the vast supply of cheap labour that attracted the multinationals, but they have also kept China at the lower end of the technology spectrum and linked its success to Western consumers. China still lags US productivity by a factor of four, meaning that low wages remain essential to its accumulation model. This has made it difficult to foster the sizable middle-class needed to rebalance the economy towards domestic consumption, however.
The Chinese elites want a growing middle class as an important source of political stability that is also capable of reducing their dependency on foreign markets. But since the turmoil of the Great Recession, the CCP has increasingly relied on state investment to create the innovation and energy it requires. Growth rates have remained impressively high, but with debt levels and class struggle on the rise, there are signs that a new outward orientation is developing.
At this year’s Party Conference in March, the new President for Life Xi Jinping promised delegates that the CCP would lead the world’s second largest economy into a “new era of international power and influence”. Central to this claim is an initiative launched in 2015 under the name –‘Made in China’. Thanks to its voracious consumption of raw materials, the Chinese economy is already the central hub for many emerging economies in the Global South. But with most of its imperial rivals still struggling to throw off the shackles of the last recession, China is currently trying to move up the value chain.
Their aim is to make the country internationally competitive in 10 strategically important industries, including aircraft production, semi-conductors and biotechnology. They are investing in industries at the cutting edge of global technology, including the quantum internet, artificial intelligence and robotics. Research spending has increased 30 fold between 1995 and 2013 as the CCP sees science and technology as one of the main battlegrounds in the global economy.
A second major initiative is the trillion dollar infrastructure project known as the ‘Belt and Road Initiative (BRI)’. Often likened to a Chinese version of the Marshall Plan, the BRI aims to bring Chinese commodities to a half the world’s people in 71 countries across Asia, Africa and Europe. Xi has personally championed the success of the project in a move that can hardly be seen as anything other than a calculated challenge to US hegemony.
Meanwhile, China is also flexing its muscles in global finance. In January 2016, the CCP was the political powerhouse behind a new Asian Infrastructure Investment Bank (AIIB) headquartered in Beijing. Since World War Two the Western powers have enjoyed a virtual monopoly in lending to sovereign countries through their control of the IMF and the World Bank. The AIIB offers many of these countries an alternative source of finance, increasing the power of the Chinese state and reducing the power of their imperial rivals. The US and Japan made diplomatic efforts to stop their allies from joining the bank, but these have proven unsuccessful.
Taken together, the growth of the Chinese economy, the numbers of potential wage labourers and the country’s various initiatives to move up the value chain have convinced many commentators that the 21st century will be China’s. The IMF recently ranked China as the world’s most powerful country on the basis of purchasing power parity but as with every rising capitalist power the Chinese elites face major threats and contradictions. We outline some of the most important ones below.
Tensions and Contradictions
In 2007 former Prime Minister, Wen Jiabao, described the Chinese economy as “unstable, unbalanced, uncoordinated and unsustainable”. This signalled the need for a greater internal market for consumer goods, but the crash of 2008 forced the Communist leadership to re-adjust. Faced with a significant drop in demand for its exports, the Chinese state pumped €570 billion directly into the economy and created multiples of this through their indirect control of the Chinese banking system. This brought renewed stability by 2009, but it also created two negative side effects that continue to plague the Chinese authorities today.
The first of these is corporate debt. According to the Bank for International Settlements, Chinese non-financial sector debt has grown from $6 trillion dollars in 2007 to $30 trillion today. Corporate debt is now 160% of GDP making it the most indebted corporate sector in the world. Added to this there are growing signs that the investment based economy is running out of steam. In 2016, the IMF estimated it was taking four units of credit to increase GDP by a single unit, but ten years ago just 1.3 units were needed. This is partly because so much investment has been taking place. From 2002 to 2013 China’s annual investment growth averaged 12.2%, while growth of private consumption averaged just 7.3%. In other words, China’s low wage economy meant consumption could not grow quickly enough to absorb what was being produced.
When the crash arrived these tendencies were exacerbated, moreover, as 80% of the stimulus package went into sectors – such as concrete and steel – already suffering from over capacity. The economy’s current over-reliance on investment is clearly unsustainable, but in the absence of any major alternative, the authorities seem to be caught in a bind – turn off the credit and risk the economy slowing down or keep up the credit and risk the potential of a debt fuelled collapse later.
Beyond this, there is a tendency for profit rates to fall as the Chinese authorities pump up to 50% of GDP into fixed capital formation. This increases what Marx calls the ‘organic composition of capital’ – or the ratio between dead labour embodied in plant and machinery and value producing living labour. Chinese capital levels are still far behind their Western rivals, but profitability is beginning to slow as workers are replaced by machines and technology.
Moving into foreign markets is one way of reducing problems in the internal economy, but this simultaneously ramps up the tensions with China’s imperial competitors – particularly the United States. The US has long since considered China its major geo-political rival, as witnessed by Obama’s pivot to Asia in 2011 and Trump’s trade war initiated earlier this year. Trump likes to label China as a currency manipulator, but in reality the economic relations between the two states are symbiotic and interdependent.
Trade between the US and China amounts to nearly $600 billion annually, with the US exporting $115 billion and importing $460 billion. This results in a trade deficit of roughly $340 billion, balanced by Chinese investment in dollar denominated assets. To date, China has amassed more than a trillion dollars of US government debt, making it an important target for Trump and his protectionist supporters. In July, the US imposed a 25% tariff on $34 billion worth of Chinese imports only for China to retaliate. The US is currently threatening to impose tariffs on a further $200 billion worth of Chinese products, risking tit-for tat sanctions from the CCP. This level of economic conflict will undoubtedly damage the world’s two largest economies, but it is unlikely to rebalance trade between them any time soon.
Alongside these economic battles, the build-up of military tensions continues apace. China is still militarily weaker than its rival and is cautious about appearing to project power internationally, particularly against US interests. But its power has been increasing and, at least in the South China Sea, it has been more willing to challenge for local hegemony. This sea is one of the world’s most strategically significant waterways, carrying 1/3 of all maritime trade and containing significant oil and gas reserves. This explains why the CCP has built a whole series of artificial islands around disputed outcrops, transforming them into military bases complete with ports and missile bases. The US has insisted that China reverses this policy, but so far the CCP has held firm without significant blow-back.
The Chinese state is also engaged in a dangerous arms race – increasing in spending on military equipment by 15% year on year since 2000. US arms spending still dwarfs China’s, but the Stockholm Independent Peace Research institute estimates that in 1989 US arms spending was 30 times greater than China’s, ten times greater in 2000 but less than three times greater in 2016. As the Chinese economy expands it funnels ever greater resources into military spending, adding to the dangers underpinning the struggle for dominance in the global capitalist system.
The final challenge faced by the CCP is from its own working classes. Historically the state has managed this conflict through a mixture of highly organised repression and control. In terms of repression, the Hukou system works as an important deterrent to work place resistance as rural workers risk being sent back to the regions if they are seen to be ‘troublemakers’. The CCP also relies on state run trade unions to dampen down factory struggles and the segmentation of the Chinese workforce into migrant/indigenous, formal/informal and state/private sector workers. So far this has kept the level of class struggle from generalising into a challenge to the state, but it remains a fact that up to 20 million workers have gone on strike over the last two decades. Most of these strikes have remained localised and self-limiting (looking for wages rather than political power), but this may not remain the case as inequality increases and corruption spirals out of control. Taken together the difficulties associated with working class resistance and foreign imperialist competition create significant challenges for the CCP, particularly if the economy deviates in any way from its current levels of economic growth.
So far, the CCP has manged to control the trajectory of Chinese capitalism but whether it can continue to do this into the future remains an open, and important question. If the major challenge comes from Western Imperialism, the world could be in for yet more war, misery and destruction. If it comes from the working classes, it could rock the global capitalist system in a way that has never been seen before.