china debt crisis

The Chinese Slowdown and the World Economy

Newly released figures show that in 2014, the Chinese economy experienced its lowest economic growth since 1990. Furthermore, the IMF downgraded its 2015 growth projection for China from 7.1% to 6.8%. According to the Financial Times, 30 out of China’s 31 provinces missed their growth targets for 2014. The only one that didn’t was Tibet, by far the country’s smallest regional economy.

These figures illustrate the beginning of the end for China’s “miraculous” boom, as the reality of capitalist crisis is seeping through to the world’s largest exporting economy.

china debt crisisIn 2008, the world economy entered into an unprecedented crisis, yet the economy of the world’s biggest producer for overseas markets, China, seemed to escape relatively unscathed. After an immediate drop in the rate of GDP increase to 9.6% in 2008 from the previous year’s 14.2%, the Chinese government embarked on a gigantic “economic stimulus package” equivalent to US$586 billion. The injection of large quantities of funding by the state, especially credit, served to artificially cushion the economy.

The Chinese economy was not, however, immune from the global crisis, which resulted in a sharp fall in exports. The state again stepped in with massive investments in infrastructure, which kept the economy going, although at a slower rate than before. The most important was the buildup of massive overcapacity across the economy, and especially in construction and heavy industry.

The bourgeoisie internationally were mesmerized by the Chinese economy and claimed that it would drag the world economy out of the slump. However, as the Marxists said at the time, this program only gave temporary relief at the cost of inflating gigantic bubbles in the economy. The property market soared and, at its peak in 2010, the average house cost almost twelve times the average household income! This program sustained the economy above 9% annual growth until 2012, by which point the property bubble was being deflated amid fears of it expanding to even more dangerous levels. Since then, China’s annual growth rate has begun to decline more rapidly.

All this simply means that the crisis has been put off, but cannot be avoided altogether. No market economy can avoid the laws of capitalism. As the growth in the US remains low and Europe is heading towards a slump, Chinese industry will lack markets for its goods. Productive capacity utilization in China is down to 70 percent overall compared with the also low level of 80 percent in the US. Combined with the immense mountain of debt which has been created by the government programs, the basis is set for destabilization of the economy.

For a whole period, like a cartoon figure that walks off a cliff but doesn’t immediately realize it, the “Chinese experience” seemed to defy the laws of gravity. But no matter how hard the government has tried to whitewash the central problem, with even bigger Keynesian experiments and stimulus packages, the brutal contradictions of the capitalist system will inexorably come to the surface.

angry chinese workersThe simple fact is that Chinese production has gone beyond the limits of the world market, and by attempting to expand their own internal market for greater investment and consumption, the Chinese state has rendered even more acute the contradiction between wage labor and capital. Yes, wages in real terms may be increasing, but the reality for many is that relative wages are now falling.

The majority have hardly benefited at all from the speculative investments encouraged by the government, apart from slightly better conditions of slave-labor. Workers in the coal mining and steel industries, two of the sectors most affected by excess capacity, are already realizing the precarious nature of their employment as the government begins an assault on what is deemed as wasteful production. Up until now, the state could at least offer these laborers subsisting in terrible living and working conditions reliable employment based on cheap credit. Even that is now over.

The official jobless rate remains at 4.1 percent, but this figure lacks any credibility. Unofficial estimates put the figure closer to 20 percent. Some 274 million rural migrant workers are almost entirely ignored by the job statistics. Since 1989, the bureaucracy has been determined to create sufficient jobs for the millions entering the cities every year in an attempt to guarantee social stability and avoid popular uprisings. But if this process begins to reverse, the bosses and the state will soon discover the real consequences of their colossal experiment in exploitation.

Countries such as Australia, New Zealand, and South Africa will all see their raw material exports hit by China’s lowered growth projections, and South America will be hit even worse. The New York Times explains: “China’s voracious hunger for Latin America’s raw materials fueled the region’s most prosperous decade since the 1970s. It filled government coffers and helped halve the region’s poverty rate. That era is over. For policy makers gathered here last week for the International Monetary Fund’s conference on challenges to Latin America’s prosperity, there seemed to be no more clear and present danger than China’s slowdown.”

In the past, China’s growth was a key factor in avoiding a worldwide slump. Now this is turning into its opposite, becoming a major contributing factor in the world crisis of capitalism and the world revolution.

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