The Chinese Are Coming

Of China and Capitalism-II

B Sivaraman

China is the world's largest trading nation today according to Mckinsey's July 2019 report China and the World. Trade was considered a means of imperialism, theoretically substantiated with proof of unequal exchange. But then, trade could never be entirely equal even among, say, USA and EU, or USA and Japan for that matter, as productivity differentials are bound to bring about cross-border shift of surplus/surplus-value even in a supposedly free exchange, if one goes by Marx's theory. But the principle of comparative advantages would also be at work. And in Marxist tradition, not all overseas trade by all capitalist countries was considered imperialistic either. Specific nature of the trading activity as well as the character of the trading powers could make all the difference. Seeking overseas export markets by monopoly capital after reaching saturation in the domestic market, and politically forced unequal trade need not be the case in all instances. If the volume of cheaper exports were to be considered synonymous with imperialism, South Korea and little Taiwan would be considered bigger "imperialistic powers than many traditionally known imperialist powers of Europe like Spain, Portugal, Holland, Sweden and even Belgium.

The reality today regarding China as a trading power is that despite opposition from domestic industry in many countries, local trading capital in those countries prevails, in the developing world and in EU-US alike, and imports from China keep booming, causing huge trade deficits in most of its trading partners? This, despite the fact that more the imports from China, lesser the domestic employment generation. The jobs "move" to China. Should radicals in the West take the side of free trade lobby or trading nationalists or strike a third way in discourse?

Let us now turn to globalisation of China's financial markets and the finance capital facet of China. China now figures among the top three in global finance. China's banking system is the largest in the world and China stands second and third in bond and stock markets in the world. China's financial assets- including equities, bonds and loans- had reached $17.4 trillion by 2013, trailing behind only the US and Japan. But foreign lending and investment still account for only 6% of its financial assets. The sweep of the Chinese finance is being demonstrated in a breath-taking manner by the recent Belt and Road Initiative (BRI). However, Chinese finance capital's reach extends far beyond the BRI, but massive amounts of Chinese money are being pumped into BRI, and BRI is poised to drastically alter this ratio.

But surprisingly, contrary to its image of being an increasingly open economy, foreign investment is just 2% in Chinese banking, 2% in bond market and 6% in stock markets of China. This shows that China is very selective in permitting foreign investment in its financial markets.

Secondly, China is the second largest source of outbound FDI in the world between 2015 and 2017 (McKinsey 2019). In other words, it is the second biggest exporter of capital next only to the USA, and as quoted earlier as per the conventional discourse on imperialism started by Lenin export of capital was one of the five fundamental features of irnperialism and even the main one at that. But then China is also the second largest source of inbound FDI. If the whole concept of imperialism is to be reduced to FDI, this can give rise to an oversimplistic question as to whether China is the second biggest imperialist power as well as the second biggest victim of imperialism simultaneously. More meaningful question that needs to be posed is that whether all export of capital is "imperialistic" or "neo-colonial". Ironically, Bangladesh's overseas investment in 2018 was $460 million and Vietnam's was $432 million! If you include illegal capital flight from Bangladesh- which is also a form of "export of capital"- the capital outflow from Bangladesh in 2015 was $5.9 billion! But then nobody in his/her right senses would call them mini imperialist powers.

China might have emerged as the second largest-Source of FDI of late. But if its position is evaluated in terms of total stock of FDI abroad based on the Wikipedia data cited above, China occupies 11th place in the world at $1.342 trillion in 2017 after EU as a whole ($16.666 trillion, Netherlands at $5.809 trillion, USA $5.644 trillion, Germany $2.074 trillion, Hong Kong $1.806 trillion, UK $1.634 trillion, Switzerland $1.566 trillion, Japan $l.548 trillion, Ireland $1.490 trillion, France $1.452 trillion, and Canada $1.366 trillion. Not only Netherlands but Ireland and Canada are also ahead of China. But if one adds the total FDI stock abroad of China and Hong Kong, then that comes third after EU and USA ahead of Germany, UK and Japan individually. Even if, one excludes Hong Kong, China in 2017 was ahead of European imperials powers like Belgium, Spain, Italy, Sweden, Austria, Denmark, Norway and Finland. Hence, ranking imperialism along these quantitative lines would make no sense.
According to a working paper by the German think tank Kiel Institute for the World Economy, China's direct loans and trade credits to developing countries have climbed from almost zero in 1998 to more than 1.6 trillion USD or close to 2% of world GDP in 2018.

These estimates suggest that the Chinese state now accounts for a quarter of total bank lending to emerging markets. This has transformed China into the largest official creditor to the developing world, easily surpassing the IMF or the World Bank.

For 50 main recipients of Chinese direct lending, the average stock of debt owed to China stood at 15% of the GDP in 2017 and for them debt to China now accounts for more than 40% their total external debt.

The official lending agencies of Western governments charge concessional rates for lending for developmental projects in developing countries. For instance, Japanese International Cooperation Agency (J1CA) charges 0.01% interest per annum to LDCs and between 0.70-1.20% for other developing countries with a repayment period of 30 years; German aid agency GIZ charges interest rate starting from 1.26% and it has variable interest rate which goes upto 9.04% for a term loan for 20 years; DFID of UK charges 2% for lending to affordable housing projects in India: French Developmental Agency AFD charges 1.5% per annum with a repayment period of 20 years; and USAID charges anywhere between 6.5% to 9.5% to microfinance institutions in World Bank's developmental assistance through International Developmental Assistance (IDA) carries an interest rate of 2% for its loans in Bangladesh. China however lends at commercial rates plus some risk premium. It makes no distinction between developmental assistance and commercial loans to developing countries. Chinese loans carry shorter maturity periods. Often, these loans involve repayment through commodity supply, especially oil, at fixed prices. These loans have some parallels to colonial era loans from British, French and German imperialisms to colonies which were aligned to political interests and carried political conditionalities.

The European and American banks and other financial institutions were lending heavily to 'Latin American countries in the 1980s and by 1990s at least a dozen faced sovereign debt default and debt restructuring involved massive neoliberal concessions and economic reforms. Now it is  the turn of China to face similar defaults and engage in debt restructuring. The latest is the case of default by Congo and China agreed to a debt restructuring which was a precondition by IMF to extend further loan to the oil exporting country, which was facing $9 billion loan default due to collapse in oil prices. Chinese entities account for 34% of Congo's external debt.

China is the largest single creditor nation to African countries, accounting for about 20%of the continent's external debt. So far, more than South East Asia, Africa remains the main theatre of Chinese capitalism's expansion. China is financing more than 3000 infrastructure projects through which China has extended in excess of $86 billion in commercial loans to African governments and state-owned entities between 2000 and 2014, an average of about $6 billion a year. In 2015, at the sixth meet of the Forum of China-Africa Cooperation, Xi Jinping pledged another $60 billion. China has become Africa's largest creditor. In 2012, China also became Africa's top trading partner.

But between 2000 and 2008. China has also written off debt worth $9.8 billion in countries along the Belt and Road initiative. In total, 96 debt cancellations or restructurings by China were recorded, including a $6 billion worth restructuring for Cuba in 2011. After US and Germany, China stands third in offering debt relief. These cancellations appear to be politically guided as the cancellations are concentrated mostly in Africa and elsewhere debt cancellations or restructuring was there only in Cambodia, Pakistan, Sri Lanka and Cuba. By the end of 2014, 50% of China Development Bank's overseas lending was to projects in the energy (oil) and mineral resources sector. Logistics sector also accounts for a major share among the rest. Naturally, many would see shades of natural resources grabbing of the colonial times.

Western media is accusing China of 'debt-trap' lending and cite the Hambantota Port case in Sri Lanka. When the Sri Lankan government was unable to repay the $8 billion loan, Sri Lanka was forced to agree to a debt-equity swap and ceded control over Hambantota Port to China on a long-term lease of 99 years, surrendering 70% of the equity in the port company to China. Hambantota story might well be repeating in Kenya, as China is lending $3.2 billion, taking Kenya's Mombasa Port as collateral for building a rail link between Mombasa and capital Nairobi.

But overseas lending is a double-edged sword. China might try to trap developing countries with its unsustainable lending but in the process it might also get trapped into loan defaults. Similar to debt restructuring deal with Congo in April 2019, debt restructuring talks are currently on with Zambia also. China's loan to Coca Coda Sinclair dam in Ecuador or $60 billion to Venezuela's Fondo de Desarrollo Nacional carried collateral condition of repayment through oil.

Unfortunately, neither the Chinese government has come up with aggregate figures of losses incurred in lending to African countries, in cases of loan defaults and restructuring, nor the Western media has come up with the figures for net gain for China through its lending in Africa and whether this gain is sufficient enough to call it Chinese neo-colonialism in Africa. Especially, there is no summary of collateral gains to China in Africa similar to Hambantota in Sri Lanka. The only choice available to the observer is to take sides in this blame-game.
Since the Chinese Communist Party claims that they are only building a market economy in China albeit with a socialist tag, it is quite natural if the economic relations with developing countries are also guided by market forces/market considerations only. But this is also an age where neo-colonial and new imperialist exploitation can be carried on perfectly within the market framework itself. After all revenue from overseas economic activities (FDI, MNCs revenues, exports, credit and so on) accounted for 34% of Denmark's GDP in 2014 and there is nothing extra-economic or non-market coercive extraction about them. Where capitalism is legitimate and perfectly legal so too imperialism can be!

Lots of materials are available on the web on China's leading role in digital dominance in the global arena, especially on Chinese forays into 5G, AI and IoT, biotech and so on and it is clear that Chinese companies like Huawei would give Western tech majors the run for their money. It might not have sunk into global perception that China is not only a mere economic giant but also a technological giant. A McKinsey study shows that 90% of the technologies used in China match global standards. America is getting paranoid about China grabbing high-tech from the US. China has tremendous capital resources and when they start investing in American tech firms "American technology" is automatically China's! In November 2018, Trump Administration identified 14 high-tech areas including biotech, AI and machine learning, data analytics and robotics and has decided to curb Chinese investments in them. But then American companies investing in China carry the "American high-tech" along and China is quite selective in allowing investments from such American and German tech firms. Trump's new IPR crusade against China accusing it of "technology theft" is aimed at curbing transfer of technology but he is unlikely to succeed, thanks to the very market dynamics.

American R&D subsidy to corporates was $100 billion in 2018. The Chinese government's total R&D spending in 2018 was $293 billion. Though China stands second next to the US in overall R&D spending, will China soon have an upper hand in "tech imperialism"? Though China's intellectual property imports are six times their IP exports, they are ready to offer 5G technology to any country at far cheaper rates compared to US firms. But China lags far beyond the US in frontier tech  areas like synthetic biology, regenerative medicine, 3D printing, nanotech and robotics.

Today, among the Global Fortune 500-i.e., the biggest global monopolies as being computed by Forbes every year—China accounts for 110 MNCs compared to 126 hailing from the USA. The number of Chinese firms operating outside China and around the world has grown at an estimated rate of 16% a year since 2010, from 10,167 to 37,167 (McKinsey 2019). Of course, this figure includes the firms from Hong Kong also but still they together probably number more compared to the US firms operating on an international scale and closer to all the global firms from all countries of EU put together. There is of course a conceptual complication involved that a purely "domestic" firm can also operate on an international stage in this global e-commerce era.

Between 2014 and 2016, among global firms figuring among the top 1% of profits bracket, Chinese firms accounted for only 10% (McKinsey 2019). And, although the revenues of the Chinese firms earned abroad has been on the increase, less than 20% of the revenue of the Chinese firms comes from overseas, including these global firms. This is just to get an idea of the proportionate importance of domestic market of Chinese capitalism. In comparison, if you take the S&P 500 as a whole—including the Chinese firms—this figure of earnings abroad comes to 44% on an average. Only one Chinese company; viz., Alibaba, figures among the top 100 global firms ranked in term of revenue/profits.

In the US too, according to the 2015 Annual Survey of US Direct Investment Abroad published by the Bureau of Economic Analysis, while the value added by all the US multinational companies (including parent enterprises and their majority-controlled foreign affiliates put together) was $5319 billion in 2015 and out of this the parent companies operating within US alone accounted for $3961 billion, i.e., close to 75%. While all the US MNCs employed 4.49 million workers the parent companies alone employed 2.83 million workers or 63% of their total workforce. In other words, the share of foreign workers contributing to the generation of surplus-value by the American MNCs was approximately more than one-third in 2015.

An earlier 2010 report by McKinsey on US multinationals shows that 2270 US multinationals, accounting for less than 1% of the total US primarily in the US domestic market. In 2007, they generated 60% of their collective sales, employed two-thirds of their workforce, paid three-quarters of their total wages, and held 60% of their assets in the United States. Yet, they contributed to 23% of the total value added by all companies, and accounted for 19% of the total US employment, 48% of the exports and 37% of imports and 74% of the private sector R&D spending. This shows the disproportionately greater relative weightage of the US MNCs in the US economy itself.

This not only shows that some kind of globalised capitalism independent of its national moorings is a myth; it also underlines the importance of rootedness in huge domestic economies for outward expansion too. Chinese capitalism's expanding global role as well as limits to such expansion can be better perceived from such a point of view. ooo

[To be continued]

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Vol. 52, No. 31, Feb 2 - 8, 2020