China at a crossroads

Fight Racism! Fight Imperialism! 232 April/May 2013

In March 2013 China’s National People’s Congress, the legislature, confirmed Xi Jinping as the country’s new President and Li Keqiang as its new Premier. Both officials talked of the need to reduce the gap between the incomes of the urban and rural populations and between China’s different regions, of combating corruption and keeping the Party close to the masses. There is one central question that the new leaders face: does the Chinese Communist Party (CCP) have the will and the ability to recognise that it must return to socialism if China is not to be engulfed in the chaos that the capitalist path will bring? Wang Qishan, a senior CCP leader, has been recommending that Party members read Alexis de Tocqueville’s The Ancien Regime and the French Revolution which examines the causes of the downfall of the French monarchy. TREVOR RAYNE reports.

The CCP has 83 million members; a quarter of them women, 7% are blue collar workers, 25% farmers, and 7% are classified as professionals. Nearly 40% of Party members have university degrees. The National People’s Congress had nearly 3,000 delegates. Among them were 31 people with assets valued at over $1bn.

In the past 30 years 500 million people have moved from China’s countryside to its cities, equivalent to the combined populations of the US, Britain, France and Italy – the biggest migration in human history. Currently, rural migration to the cities is running at 115,000 people a day. This requires massive investment in housing, transport and general infrastructure. The problem is achieving this when the economy is being driven increasingly by market forces. Between 1990 and 2010 China’s annual Gross Domestic Product (GDP) growth averaged 10.5%. In 2012 growth fell to 7.8%, the slowest in 13 years. In 2011, Foreign Direct Investment (FDI) in China reached a record level of $124bn, but for the first time investments in the service sector exceeded those in manufacturing as multinational companies sought cheaper labour in India, Vietnam, Indonesia and the Philippines. In 2012 FDI in China fell to £111.7bn. China is not immune from the crisis of international capitalism and any economic deterioration will undermine the legitimacy of the CCP and the Chinese state among the people.

The threat of debt

The state’s response to the 2008 international financial crisis was to pump cheap loans into the economy to maintain demand; some $585bn was lent, $482bn of it to local governments. China’s GDP is $8.2 trillion. Total outstanding loans to local governments stood at $1.5 trillion at the end of 2012. Chinese banks ‘rolled over at least three-quarters of all loans to local governments that were due to mature at the end of 2012’ to stave off defaults (Financial Times 30 January 2013). A policy introduced in 1994 provided central government and not local governments with the bulk of tax revenues; this had a major impact on Chinese education and health care provision. Now banks all but refuse to lend to local governments, cities and provinces and so these bodies have turned to non-bank financial institutions (‘shadow banks’) for loans.

China is not immune from the speculative manoeuvres that preceded the 2008 financial collapse in the US and Europe. Almost half of all new credit is created by this shadow banking sector, up from 10% a decade ago. The shadow banks control assets of about $3.2 trillion – up four-fold since 2008. They offer higher interest rates to depositors than normal banks and the money is often lent to other banks, property companies, small and medium-sized businesses and local governments. The deposits behind these loans have a short term maturity but the projects they fund are often long term. Assets underlying the loans may not be creditworthy, and shadow banks pool assets from different schemes to pay the interest and principal on maturing schemes. ‘Banks have taken to distributing trust company loans in bite-sized packages and even to offloading non-performing loans to trusts, which package them into investment products for sale to retail investors. Does any of this sound familiar?’ (Financial Times 28 February 2013). Assets controlled by trusts grew 47% in the year to 2012, precisely when state regulators were trying to clamp down on these practices.

To meet their financial obligations local governments have seized rural lands and transferred them to developers for easy profits. Real estate profit rates are between 30% and 45%, far above the 5% returns on manufacturing. Seizures have provoked protests from the rural populations affected. Menacingly, local government debt prevents urban development.

Inequality, corruption and tensions

Under socialism China was among the most equal societies in the world. Today it ranks as the most unequal in Asia and alongside South Africa as the most unequal in the world. Rural incomes are, on average, a third of urban incomes. As long as the economy is growing sufficiently and the mass of people are pulled out of poverty, growing inequality is tolerated by many. However, if economic growth slows, the scale of the inequality and accompanying corruption will not be acceptable.

In 2011 the CCP’s Central Commission for Discipline conducted 137,859 investigations into suspected cases of corruption. China’s central bank stated that since 1990 18,000 corrupt Chinese officials have funnelled $120bn abroad. This is equivalent to all of China’s educational expenditure between 1978 and 1998. The disgraced leading Party official Bo Xilai had an official salary of $1,600 a month, but his family amassed $100m worth of assets.

The rapid growth of a new working class threatens a CCP and state embarked on the capitalist road. The CCP has a mass base, but does it represent the working class? In 2010 during a strike at a Honda plant workers jeered the trade union leaders sent in to negotiate, saying that they had never seen them before. The official All-China Federation of Trade Unions, run by the government and the CCP, controls local and company trade unions. Local governments in southern China have been pushing for genuine union elections, with limited effect. There were over 180,000 public demonstrations in 2010 compared with 40,000 in 2002. The China Labour Bulletin recorded over 70 strikes and industrial protests in January 2013. Eight administrative regions have raised the minimum wage and in some provinces factory wages have been increased by 20% in the recent period. The massive Chinese working class has the potential to force the CCP back towards socialism – or out of the way.

China and the world

Some people look to China to pull international capitalism, imperialism, out of crisis. In fact, China is intensifying the capitalist crisis. China is now a major trading partner of 78 countries that account for 55% of world output. If Chinese growth slows the rest of the world feels it. In 2012 a large number of Chinese imports including construction, mining and textile machinery fell by over 40%.

In December 2012 China overtook the US to become the world’s biggest importer of oil. China has to compete with the imperialist powers for oil supplies. This sustains high fuel prices and has major strategic consequences.

On 22 February the Bank of England said it was reaching an agreement with the People’s Bank of China to lend a limited amount of Chinese currency, the renminbi, and in return the Chinese central bank would be able to issue pounds sterling. $4 trillion a day is traded on the world’s currency markets and 37% of this is done in the City of London, compared to 18% in New York. Chinese currency accounts for just 1% of this trade. The British ruling class wants to expand this currency trade and open China up to freer capital markets. The City of London has already replaced Singapore as the second largest market for renminbi trading after Hong Kong.

President Xi Jinping said that China must have a military that is able to fight and win wars. Between 2000 and 2009 Chinese military spending grew by an average of 16.5% a year. For the three years from 2011 China plans to increase its military spending by only 11.5% a year, a declining proportion of government spending. China’s military expenditure is still only about one-tenth of that of the US. If China is not to be constrained by US imperialism and be made dependent on US and European-controlled fuel supplies, it will have to change its stance of non-intervention in other countries’ affairs or see its assets effectively stolen, as they have been in Libya.