Of China and Capitalism-III

B Sivaraman

Same leftists used to identify any export of capital from any source as a form of imperialist exploitation. But then the question is why the developing countries including India/Modi are clamouring for Chinese capital/investment. Whether the capital invested is of domestic or foreign origin can make a political difference but once if a country has comfortable foreign exchange reserves and if approached from the point of view of cost of capital that would hardly make a difference. The domestic bourgeoisie in former colonies and semi-colonies were initially in favour of curbing the role of foreign capital and even now individual capitalists resort to "nationalistic" opposition to individual foreign firms in their line of operation but the domestic bourgeoisie as a whole class has realised that foreign investment increases the overall investment in the economy and thus expands investment opportunities for them also, and moreover, it brings in much-needed technology, and hence have started supporting liberalisation of foreign investment/FDI. The overall gain is much more than the loss possibly incurred in specific individual cases. Thus, while the bourgeoisie has turned in favour of globalisation, for sections of the left, any foreign investment remained anathema as "imperialistic" even if they bring in technology and create jobs. They won't make any distinction between Enron and a Swiss pharmaceutical firm investing in the production of life-saving drugs. If you look at it from the point of view of capitalist development in the developing world, will it be sufficient if you look at it only in terms of the 1980s Left discourse on neo-colonialism? Or, on the terrain of theoretical interpretation, do we need some more modifications to the old essentials?

At the time of Marx, it was envisaged that the victorious proletariat in advanced capitalist countries of Europe, after successful revolution, would transfer capital and technology to victorious revolutionary regimes in colonies and semi-colonies and bring about industrialization there. But history has taken a different turn and in the absence of revolutionary people in liberated colonies taking "capital" from the victorious proletariat in Europe, the bourgeoisie is taking capital and technology from the imperialist bourgeoisie and bring about industrialisation and capitalist development in a painfully protracted manner. They might be paying a heavy price in the form of super profits for imperialism. Still, some of them are able to industrialise even within the framework of dependent capitalism depending on imperialism. From the point of view of imperialist countries also, promoting some form of dependent capitalism in developing countries is to their advantage as it can provide fertile grounds for more intensified imperialist exploitation. Earlier, in the Left tradition it was thought that there cannot be any broad-based capitalist development in former colonies as long as imperialism was not overthrown along with feudal remnants through a democratic revolution but the emergence of BRICS shows that this idea was not entirely correct. Despite being distorted dependent capitalism, capitalism did develop there.

But the case of China was different. Having successfully concluded a New Democratic Revolution led by Mao Zedong, who also laid the foundation for industrialisation allowing significant role for a sizable component of private capital, and with Deng further building upon that for a strategic course of state-capitalist development by opening up to the world capitalism and giving greater play to the capitalist market forces at home, the global emergence of Chinese capitalism was quite dramatic and revolutionary. And it was not a case of dependent development—neither on the foreign capital nor on overseas markets. This is bound to have its differential impact on the global economic expansion of, say, India and China. In other words, from the point of view of economic foundations, BRICS is not a monolithic entity.

Imperialism is only an extension of aggressive ultra-nationalism. Likewise, even in the case of other globalising powers, stronger the globalism, stronger the nationalism too. It is true of the bigger imperialist powers as well as in the case of China too. Trump's trade war is also based on nationalist rhetoric. The very fact that Trump is ready to risk the adverse effects of a trade war shows very strong assertion on the part of China is not succumbing to US pressure and not bringing down the tariff levels or not indiscriminately increasing imports from the USA. For all its opening up, liberalisation, reforms and integration with the world economy, China has not abandoned its core national interests.

Not many know that unlike in the case of India, where there are automatic routes for foreign investment in many areas, every proposal for foreign investment in China must undergo scrutiny and receive approval from Beijing authorities. While inward investments fase lots of controls, outbound investments are also regulated to curb reckless flight of capital, especially conversion from renminbi to dollars. Despite record foreign exchange reserves, capital controls were tightened in 2017, after signs of slowdown in the Chinese economy and were further firmed up after Trump launched his trade offensive in anticipation of volatility in capital flows.

Even after decades of liberalisation and despite sustained pressure from Western governments and agencies, there is no full capital account convertibility in China. One has to take prior permission for moving money in and out of the country.

Foreign companies have been prevented from investing in core industries like telecom, transportation, energy and national defence.

Unlike in India, 100% FDI is not allowed in many industries, and foreign investors are allowed only minority shareholdings. When India imposed capital gains taxes on foreign companies and investors, there was a big hue and cry from imperialist quarters but capital gains taxes and taxes on cross-border financial flows have been quite severe all along in the case of China.

China imposes restrictions on current account transactions too. A Chinese citizen can buy foreign currency upto a maximum of $50,000 per year, and on capital account, beside the need to obtain prior permission there are transaction taxes and even quantitative restrictions.

Of course, thanks to the emergence of a sizable private sector and a huge affluent middle class, money laundering is a real problem in China. But many entrepreneurs wanting to set up start-ups abroad or engage in venture capital investing in other countries with more advantageous investment opportunities also face lots of restrictions. The more liberal Chinese authorities are in credit expansion, more rigid they become in capital controls. Shadow banking companies are mushrooming in China, and they were worth 87% of China's GDP in 2016 but thanks to fresh controls their value has now fallen to 70% of the GDP.

China is also imposing curbs in investment flows in real estate, entertainment and sports events to restrict shell companies and prevent money-laundering, especially now when macro-economic imperatives call for credit squeeze.

"Get rich soon..." Deng urged the Chinese people. He however didn't add, "...and get out!" But the nouveau riche Chinese middle class is doing precisely that. Not comfortable with the authoritarian order, they are buying property abroad to move out and settle there and take out the money and keep it safe in foreign banks. Not finding comfort in $3 trillion dollars official foreign exchange reserves and reportedly as much or more of unofficial investments in US securities and banks, Chinese authorities seem to fear that any sign of economic or political instability would trigger capital flight. Their nervousness in this regard shows that they have taken Trump's offensive quite seriously and are gearing up for even a major showdown.

China's capital's global expansion is not primarily dependent on export markets at this stage. Exports as a percentage of GDP in the case of China are around 20% in recent years. It was 70% in the case of Taiwan. For some other major countries the corresponding figures according to the World Bank data are: Australia 22%, Austria 54.5%, Belgium 87.9%, Brazil 14.8%, Canada 31.9%, Denmark 54.7%, Finland 39%, France 31.3%, Germany 47%, Hong Kong 188%, India 19.7%, Italy 31.8%, Japan 17.8%, South Korea 44%, Mexico 39.2%, New Zealand 27.6%, Norway 38.1%, Russia 30.7%, South Africa 30.1%, Sri Lanka 22.8%, Sweden 47%, Switzerland 65.5%, UK 29.9% and USA 12.1% based on the figures of either 2018 or 2017. The world average is 29.4%. For Euro area as a whole, it was 45.8%.

Unlike in the case of Europe or even South Korea or South Africa, for China domestic consumption is the main engine of growth and not overseas markets. But then it doesn't make Chinese capital any less "expansionist" as domestic market is still primary for many imperialistic countries of Europe and it was all the more true for the US. Greater size of the domestic market itself cannot make an imperialist power less imperialistic. In the case of US, for instance, exports account for only 12.1%. In many cases, high exports are also accompanied by high imports and thus the countries are only processing nations. The point here however is to underline the massive outward expansion potential of both USA and China.

US can be a big market, but ninety-five percent of the world's consumers live outside the United States in terms of numbers, though the figure would be somewhat less in terms of aggregate value of consumption. The figure would be only slightly less for China. Firms which are national monopolies might not be global monopolies and globalisation in the world market is still an ongoing process. So, for China and the US both, massive expansion as well as bitter contention is ahead. They are bound to face many new contenders as well. This also refutes the theories of mega-imperialism where one or two imperialist powers would be gobbling up the entire world market, the idea of Karl Kautsky ridiculed by Lenin. Whether this economic contention would also turn into political and military rivalry and if so to what intensity is something that remains to be seen.

According to the latest Global Economic Prospects report of the World Bank, global trade in goods and services is projected to triple by 2030, i.e., in just a decade. Trump's trade war drama, the current impasse in WTO, and 'end of globalisation' rhetoric of the academic leftwing dandies notwithstanding. Global economy as a whole is projected to double from $35 trillion in 2005 to $72 trillion-perhaps the fastest-ever expansion of capital ever seen in a decade even compared to the immediate post-war phase. In other words, global expansion of capital—whether "imperialistic" and "neo-colonialistic" expansion and contention or otherwise—has immense scope. China, USA and India would be the top contenders followed at some distance by EU and Russia. Other BRICS nations would also be in the race, of course.

China's statistical agency estimates the size of the Chinese middle class at 400 million defined as those whose annual household income is between $3640 and $36,400 and as with the US and EU this middle class market offers the main base for Chinese capitalist expansion now. This size offers a favourable scale factor for Chinese capital to target the global middle classes as well. The world has seen 'extractive imperialism', including 'oil imperialism' for raw materials', 'product market-expansion imperialism", "militarization imperialism', 'technology/high-tech imperialism', 'debt imperialism' or 'high-finance imperialism' of the US and European banks and FIs leading to sovereign debt default of several Latin American countries and their surrender to IMF's structural adjustment for further opening up and so on. While all these features of imperialism would continue to have their relative validity, it is quite possible that "middle class-targeting imperialism" would be the main engine of capital's/imperialistic expansion, in the form of 'digital imperialism', so to say. How far this expansion of digital imperialism is premised on the kind of early 20th century militarism and war is an open question.

We already see some early indications. The Yellow Peril phobia 2.0 is already in the air. Earlier, the war cry was "The Japanese are coming" and now it is "The Chinese are coming". The only difference is that the Chinese are coming without a Pearl Harbour 2.0 or even a Boston Tea Party 2.0!

The Belt and Road initiative (BRI) of China would be a game-changer both in terms of China's economic expansion as well as the political backlash to it.

Some estimates put it that the total BRI investments by China by 2027 would be $1.2-1.3 trillion. Such a massive investment plan in a concerted single initiave is almost unknown even in the history of Western imperialism.

What exactly is BRI? The BRI includes at least a dozen economic corridors. These are to be connected by at least a dozen transport corridors which include highways, rail links, sea links, ports network, optic fibre connectivity, and tunnels, passways and bridges spread across, Asia, Africa and extending even upto Europe. Chinese investment would flow into developing these manufacturing, trading and transport infrastructures. Mindboggling amount of money is involved. Nations are queuing up. Japan, Singapore and South Korea have also joined the BRI. Only notable non-participants are the USA and India. As the BRI covers East Asia, South East Asia, South Asia, West Asia, Central Asia, and Africa and even extends upto European landmass, the European countries are also game for this. If China promises, $10-15 billion investment in a couple of industrial corridors in India, Modi would also fall for it.

The Belt and Road aims at connectivity between the production centres in Asian hinterlands and Europe, the world's largest market. More importantly, China is also building a Belt and Road Information Corridor paving way for digital transformation of these economies.

In fact, China had started work on this New Silk Road from 2013 onwards. By the end of 2018, trade in goods between China and countries along the Belt and Road had exceeded US$6 trillion. The outward direct investment from China in these countries had amounted to over US$70 billion. From 2013 to 2018, 82 economic and trade cooperation zones and industrial parks were established in 24 countries, with the total investment exceeding US$28 billion, hosting nearly 4,000 enterprises from all over the world and creating 244,000 local jobs.

By the end of March 2019, the Chinese government had signed 173 cooperation agreements with 125 countries and 29 international organisations. Thus, though started as a China initiative, BRI has now become a mega multilateral initiative led primarily by China.

Chinese capitalism is not only aiming at capitalist expansion at home but is aiming at capitalist expansion in the whole of the Indo-Pacific. Will BRI be China's own Marshal Plan 2.0 for the 21st century? If Marshal Plan ushered in the American century, will BRI usher in the Chinese century?

China might have emerged as the 2nd largest economy in the world. But it ranks at 60th place in terms of per capita income among countries. China's per capita GNP in international dollars (dollars in purchasing power parity in terms with US dollars) in 2018 was $18,140. The figures for other countries are : USA $63,390, Germany $55,800, Japan $45,000, UK $45,660, France $46,900, Sweden $53,990, Hong Kong $67,700, Singapore $94,500, South Korea $40,450, Russia $26,470 and India $7680.

This makes China still a developing country. Based on certain other features of China's external economic relations anyone is entitled to call China an "imperialist country" but he/she must be reconciled to calling China "developing country imperialism" at the risk of sounding absurd! Such conflicting realities are part of the real world and it is always possible for someone to do some nitpicking pitting one facet against the other. Our thrust here is not on the most appropriate labelling but on grasping the contradictory sides of China.

China might have emerged as the world's largest trading nation but it is the largest export destination for 33 countries; still it is the largest source of imports for 65 countries only. Out of 67 largest trading partners of China, it has trade surplus with 30. With this kind of imbalance, it is doubtful whether China's high rate of export growth can also be sustained and whether China's market would remain as lucrative for other countries as it is now.

China might have been the world's largest trader with a share of 12.4% of global trade in 2017 but its share is just 6% in global trade in services. Liberalisation of services was the least in China. Though China became the fifth largest exporter of services with $227 billion of services exports in 2017, its services imports was $468 billion in 2017, and it was the second largest importer of services in the world. And that is not a sign of strength. It is true that if Amazon and Walmart are both scared of one firm that is Alibaba, but Chinese capitalism has a long way to go in areas of services other than e-commerce!

China's cheap wage cost advantage is diminishing. Manufacturing wages in China overtook India's in 2000 and, after the 2008 global financial crisis, lower-end manufacturing industries in China are moving to Vietnam, Cambodia, Myanmar, Thailand and Bangladesh. The rapid expansion Chinese of capitalism could have been easier under low-wage conditions. Despite very low inflation in China, wages are increasing and wage costs are going up and competitiveness of Chinese products is nor as high as it used to be a decade back. Average hourly wages in China in manufacturing in 2019 is $3.90 while it is $14 in the US and $0.92 in India. Though it might take decades for China to reach German or American wage levels, the higher tariff by Trump and his restrictions on relocating production to China by American firms might gradually erode the advantage of China.

China's growth miracle has another seamy side. Credit expansion has become the main engine of growth in capitalism of all shades in this age and China is no exception. China is sitting on a total domestic debt of $40 trillion, around 15% of overall global debt and nearly 300% of China's own GDP. The corporate debt out this accounts for $18.3 trillion. Borrowings by government are at different levels and the household debt account for the rest. Chinese banks are struggling with debt restructuring and even debt waivers of defaulting companies. Last year, there were 5665 bankruptcies and 1041 cases of 'hair-cut' where banks agreed to take reduced recovery. There are shades of India's NPAs crisis in China too. Building up a bubble economy with borrowed investments finds its limits in China too. How this debt bomb would explode and .what would be its impact on China's growth miracle and external policies remain to be seen.

Before the 2009 US financial meltdown, Chinese GDP was growing at 8-10% per year for about a decade. But this high growth was not without its problems. It was mainly driven by investment, made with borrowed funds, and secondarily to some extent by net exports and not primarily by consumer spending. Such high growth through pump-priming the economy cannot obviously be sustainable for long.

The high growth saga is coming to an end. From above 8% growth, China has slowed down to around 6% in the last four years, recording 6.6% last year and further went down to 6.2% in second quarter in 2019, lowest in 27 years. Who knows? 'Keynesianism with Chinese characteristics' might be in order. In financial year 2019, the US is expected to spend $650 billion for Medicaid and China's health spending is estimated to be $685 billion. But in per capita terms, the Chinese figures look pathetic. In 2017, per capital health expenditure in China was $494.8 and in USA it was $10,209. The per capita expenditure on other welfare spending in China compares equally poorly with the US or European countries. At this rate, it might take decades for China to reach the level of Sweden. ooo

[To be continued]

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Frontier
Vol. 52, No. 32, Feb 9 - 15, 2020