By GARY BILLS and JEFF MACKLER
Federal Reserve chair Janet Yellen announced in mid-September that interest rates charged to U.S. banks would once again remain unchanged—close to zero. She also expressed concerns about the still “weak U.S. recovery” since the disastrous collapse beginning in 2008 that shook financial markets and caused unprecedented harm to working people.
China’s troubled economy also figured into Fed policymakers’ calculations. The Chinese economy is touted as the second largest in the world in terms of Gross Domestic Product (GDP), and is heavily invested in by many of the largest U.S. and world corporations as a chief source of superprofits.
In late August, headlines around the world featured daily accounts of China’s plunging stock markets, sharp drops in China’s trade balance, multiple currency devaluations, government exaggeration or falsification of growth rates, and a generally cooling economy—1.7 percent growth rate in the second quarter.
To cheapen the cost of its exports against rising competition from even lower wage Asian nations, China devalued its currency, the remninbi or yuan, five times in a matter of weeks after pegging it to the dollar for ten years. Bank loan interest rates were lowered five times this year along with cash reserve (liquidity) requirements for banks.
The mis-named Chinese Communist Party, a capitalist outfit if there ever was one, spent more than $485 billion to prop up Shanghai Stock Exchange prices and ordered the sale of pension funds to buy $313 billion in floundering stocks and other assets, “as soon as possible.” The panicked top bureaucrats encouraged middle-income and higher paid workers to buy stocks by putting up their houses as loan collateral. To stem the cascading stock-market decline, the selling of stocks was criminalized while some stocks were frozen in place—withdrawn from sale outright to prevent further panic selling.
A Sept. 10 New York Times article captures the psyche of China’s elite as they sought to stem the free fall of China’s stock markets: “Anxiety in the industry surged last week after Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disappeared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to comment on her whereabouts.
“Ms. Li resurfaced on Sunday and denied that she had been detained, saying that she had been in ‘an industry meeting’ and ‘meditating’ at a Taoist retreat.” Few believe that “meditation” was central to the motives of a top leader of the world’s largest publicly traded hedge fund!
The Times article drives home this point by quoting another top hedge fund speculator: “There is, generally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations—not just onshore, but also offshore as well?”
Indeed, according to data presented by Australian socialist scholar Sam King, “Foreign direct investment, foreign joint ventures, foreign contracts and foreign technology have been the drivers of China’s expanded commodity production” (see King’s “Lenin’s Theory of Imperialism: a defence of its relevance in the 21st century”).
It’s not surprising that Chinese stock market prices have fallen. Prices had skyrocketed some 250 percent in the last year, peaking in mid-June and then declining into late August, losing about 43 percent—nearly half of the yearly gains in a matter of weeks. At the height of China’s August stock-market free fall, the world’s combined stock-market losses erased nearly $3 trillion in value in three days!
Working people who followed the government’s advice to throw their economic fate to the stock market winds have surely been hurt. Yet the Chinese stock market’s mad gyrations, as with its U.S. counterpart, is not the real economy, but rather a reflection of the more general crisis of the world capitalist system. China’s GDP growth rate has been cooling since 2010, when it was reported at 10 percent or more annually. Today the growth rate is 7 percent or less.
The Chinese government has employed several economic stimulus programs that parallel those in the U.S., but the economy has responded with less vigor each time. For 30 years, China has followed a growth strategy that emphasized exports and huge domestic infrastructure projects. This was heavily promoted by foreign investments, pushing China ahead of Germany and Japan, similarly focused on commodity exports but with a qualitatively greater per capita internal market.
China’s per capita GDP ranking, 79th in the world, is not very impressive considering its huge population. Hundreds of millions, perhaps a billion, Chinese still live in impoverished conditions while the governing capitalist bureaucracy systematically privatizes and dismantles the country’s state-owned businesses and social services.
In truth, China’s “successful” export-driven economy and its GDP figures mask a cruel reality. A huge proportion of Chinese exports are the commodities of thousands of non-Chinese multi-national corporations (MNCs), owned and controlled by the world’s great imperialist powers, with U.S.-dominated transnational corporations number one on the list.
In July 2010 China’s Ministry of Commerce reported that “foreign invested enterprises account for over half of China’s exports and imports; they provide 30 percent of Chinese industrial output, and generate 22 percent of industrial profits while employing only 10% of Chinese labor” in basic industry as compared to the past. The high productivity set in motion by the highly automated plants of transnational corporations combined with an intensification of the labor process to produce wonders for the foreign-owned companies (for a time) and misery for the Chinese masses.
These are the figures from a half-decade ago. The proportion of foreign direct investment (FDI) even increased since that time—until recently.
When China was admitted to the World Trade Organization (WTO) in December 2001, its capitalist leaders willingly accepted the “free market” terms that were imposed, including massive and virtually unrestricted foreign investment, ownership, and control by the world’s imperial powers of the corporations it established. China became the imperialist world’s central commodity assembly and export platform, free to employ near slave labor at will—with the usually corrupt local capitalist “Communist Party” oligarchs siphoning off enough to produce 213 Chinese billionaires, not counting Hong Kong’s 53.
Imperialism has seen China’s 1.3 billion working people, at least until recently, as nothing less than the world’s largest source of cheap labor. The U.S. corporate shift of production from the formerly highly-unionized northern U.S. states to the low-wage non-union South, and then to Mexico’s border maquiladora super-low-wage assembly plants, to Haiti and El Salvador, and finally to Asia, was a conscious decision to lower production costs to remain competitive on world markets. Without doubt, China’s emergence as the world’s greatest cheap labor export platform comes at the expense of the displaced workers in the rest of the world. The Chinese “miracle,” a non-Chinese MNC-driven model, is nothing less than world imperialism’s legacy to poor people everywhere, not to mention workers in the U.S.
The world’s competing multi-national corporations similarly had no alternative to stay in the never-ending race to dominate world markets. They too moved to China and other poor Asian nations. In virtually every case, the “secret” to their “success” was to transfer industrial production from the central capitalist nations to the periphery—to the poor nations of the world where workers could be had for a pittance.
Further, with this growing “de-industrialization” of the U.S. and Europe, the world’s imperialist nations build state-of-the-art productive factories that require fewer Chinese and Asian workers to produce ever more commodities to sell in the increasingly saturated world market. This has had the triple effect of reducing the price of labor in the “advanced” nations—the perpetual “race to the bottom”—while employing less and less workers in the periphery, while temporarily increasing profit rates for the super rich.
Without doubt, Chinese capitalists increasingly understand that Chinese-owned factories, many operating at extremely low levels of labor productivity, are no match for their MNC rivals. Between 2007 and 2012 labor productivity rose 11 percent annually in contrast to Thailand’s 8 percent and Indonesia’s 7 percent.
In 2013 China became the largest market for robots, buying 20% of all those made that year, according to the International Federation of Robotics. But it still has just 30 robots per 10,000 workers in manufacturing, compared with 323 in Japan. Foxconn, the Taiwanese firm that makes Apple’s iPhones and has more than a million employees in China, says that it wants robots to complete 70% of its assembly-line work within three years.
China’s aim at creating an internal market of middle and high-income professional functionaries and a small layer of higher paid workers, as is the case with all the BRICS nations (Brazil, Russia, India, China and South Africa) is coming to an end. The last decade of 10 percent or higher growth rates in all these nations is likewise winding down, with Brazil’s GDP, for example, stagnant along with most of the others.
Indeed, the world’s central imperialist nations have no compunction against moving their plants to even lower-wage Asian nations as they are doing with Vietnam, Bangladesh, Indonesia, India, etc. And why not? Chinese factory workers, on average, earn $27.50 per day as compared to their counterparts in Indonesia, who earn $8.60, or the Vietnamese who labor at $6.70 for multi-national corporations.
For the world’s transnationals, investment in China is contingent on its continued subservience and profitability. This includes massive tax breaks to foreign corporations and giant infrastructure improvements, like the construction of untold miles of rail lines leading deep into China’s even lower-wage interior. When Chinese officials decline to intervene in labor strikes against foreign corporations, usually to promote their less efficient Chinese-run companies, the result can only be the eventual transfer of entire plants to even lower-wage nations, as with Vietnam, where capitalist “Communist Party” tops are more than eager to sell their workers for less.
A few decades ago, China’s average wage in some instances amounted to six cents an hour; teenage women from the countryside were virtually locked in dormitory factories and forced to work up to 80 hours per week. Today, most factory assembly-line workers labor at $3.44 per hour, if they are paid at all. Indeed, the great proportion of China’s increasing number of labor strikes, an estimated 200 per month) are over “arrear payments,” that is, the workers were not paid by Chinese corporate owners, who sometimes disappear and/or abandon their less competitive plants or otherwise rely on their corrupt crony superiors to enforce labor discipline.
The case of Apple Computer, among the world’s most profitable corporations, reveals a bitter truth about China’s development. Not long ago, Apple’s i-Pods sold in the U.S. for $300. Of this, U.S.-based retailers got $75. Apple’s share was $80. Another significant portion went to a variety of transportation and distribution outfits. Chinese workers and bosses got $2.61 between them!
Sam King, debunking the myth that China operates as one of the world’s great economic superpowers, cites a 2013 Milberg and Winkler study that expresses the Apple data above in a different form. He writes. “In 2010 Apple imported iPhones for $179 and sold them for $600 on the US retail market. Such a mark-up would be impossible if Chinese capital, or even Foxconn, Apple’s Taiwanese subcontractor, controlled the high-tech aspects of production. iPhone exports from China to the US in 2009 were $2 billion. The portion of that revenue going to Chinese workers, bosses, and all other Chinese costs was only $73.3 million or 3.6 percent.” With Apple’s intention to more fully automate its Foxcomm facilities, that percentage as well as the number of Chinese workers employed, must continue to decline.
King presents some additional data demonstrating that high-tech corporations operating in China, or anywhere else in the world, secure profits far exceeding the relative low-tech Chinese corporate entities.
He writes, “A capitalist economy encompassing one sixth of the planet’s population must possess some gigantic companies. China does. Four of the world’s top 10 corporations by gross profits are Chinese. However, this doesn’t really tell us much. Here is the list in order of gross profits, with each company’s return on assets (RoA) in brackets: Exxon Mobil (13), Apple (24), Gazprom (10), Industrial Commercial Bank of China (1), China Construction Bank (1), Volkswagen (7), Shell (7), Chevron (11), Agricultural Bank of China (1) and Bank of China (1). Thus, according to Fortune, imperialist giant MNCs’ average return on assets is 12 times higher than that of Chinese monopolies!”
Were this not the case—that is, were Chinese workers the actual beneficiaries of rapid super-exploitive capitalist development—there would be little or no multi-national corporations operating in China today.
Undoubtedly, there is an affluent layer of the population, including many directly related to the ruling elite or consciously selected talented people the elite need to run a large, sophisticated economy. But, as with all the BRICS nations, this is a relatively thin layer, perhaps 10-20 percent—insufficient to stimulate the larger economy over the long term. To increase its economic weight, this layer has been extended significant amounts of easy credit to purchase or invest in speculative real estate ventures and the stock markets. This has resulted in huge price bubbles, in which vulnerable groups stand to lose everything quickly.
China’s real estate market is a case in point, with speculation in the construction of entire new cities, and associated massive condominium complexes aimed at accommodating millions standing empty. The expected mass emergence of middle-class buyers failed to materialize. Those who financed the projects—U.S. shadow banks and hedge fund speculators, as well as China’s speculating elite, and illegal lenders—stand to lose big time.
The rapid and extreme measures recently taken by the ruling bureaucracy reveal that they are in a state of panic. The restoration of a capitalist system in China under Communist Party tutelage, so the bureaucracy pledged, would lead to a booming economy with a rising standard of living for all, without the crushing crises that inevitably accompany the system of private profiteering. But it is now becoming clear that there is no “Chinese miracle” just as the rise (and subsequent fall) of yesterday’s free market, neo-liberal export-oriented “Asian tigers” proved to be ephemeral, at least for the vast working-class majority.
Indeed, China’s repeated currency devaluations aimed at lowering the cost of Chinese commodities in the U.S. and other foreign markets can be expected to bring on similar devaluations across Asia as each nation and its elite vie for ever shrinking markets. Such “currency wars” among and between export oriented peripheral/poorer nations are the inevitable result of a highly globalized world system in deep crisis. A stagnating U.S. economy with a working class suffering from ever-deepening austerity and real wage declines coupled with faltering European and Japanese economies, certainly cannot count on China to “save the world.”
In a real sense, China’s current polices implemented to stabilize its fragile economy parallel those implemented in the U.S. following the 2008 meltdown. Trillions of dollars were pumped into the coffers of failing banks and major corporations to prevent their imminent collapse. Virtually free money, to the tune of $89 billion monthly, was injected into the economy, supposedly to stimulate growth and provide “trickle down” jobs to a hammered working class.
In truth, the injection went straight to corporate America, which in turn invested this “free money” into stock-market ventures that drove prices to all-time highs, while employment remained at lows unseen since the Great Depression—as measured by the government’s 65 percent labor participation rate. (This statistic blatantly contradicts the government’s falsified 5.1 percent unemployment rate.)
During this fake recovery and before, some million union jobs were lost annually as manufacturing shifted to low wage nations—China in particular and now elsewhere.
After seven years of this “pump priming” of corporate America, important elements of the ruling rich have come to understand that the endless printing of money to keep the capitalist system afloat has perhaps reached a limit. With every passing month, Wall Street riveted its attention on whether Janet Yellen’s Federal Reserve would end the free flow of money. Wild swings of the stock market, led the speculator gang to seek potentially more profitable outlets, including in China’s then booming stock markets. Undoubtedly, a number were burned in the effort.
Capitalism by its nature is an unplanned, boom and bust, anarchistic economic system, driven forward by the pursuit of private profits by individuals and corporations come hell or high water. Capitalism’s apologists claim, through some twist of magical thinking, that the social good of society is automatically maximized if capitalists are allowed to maraud freely, within and without national borders, doing whatever they need to do regardless of the cost in human lives or to the planet earth itself.
China’s ruling class, as with most others, holds to the belief that it can control capitalism’s wild nature. They are not the first to engage in such self-delusion. For more than 35 years, China’s so-called Communist Party has transformed itself from a dictatorial, Stalinist bureaucracy, controlling a socialized, command (undemocratic) economy into a true capitalist ruling class overseeing a privatized economy that remains in large part subordinate to the great imperialist powers.
The key flaw in this plan is that capitalism does not and never will lend itself to command control of its currents.
China’s recent dramatic moves to stabilize its faltering economy essentially exposes the myth that BRICS nations or any others can escape the central contradictions inherent in the predatory system itself. World capitalism’s hope that opening up China’s vast markets and people to capitalist penetration and exploitation would, at least for a time, save the world is coming to an ignominious end.
Today’s perpetual wars and associated headlong rush to climate-crisis/global warming-driven oblivion are inseparable from the uncontrolled and anti-human operations of the vicious for-profit-only capitalist system. Its replacement at the hands of the world’s working masses, and the establishment of a socialist world, where human needs are given preference in all spheres, is a prerequisite to humanity’s future.
Photo: A garment factory in China. AFP/Getty Images