naked capitalism

Maju says:

“It actually has been moving to a LOWER consumption share of GDP post crisis, the reverse of what you’d see if it were trying to rebalance the economy”.

Can you document this? If this were true, that would mean that their export share is still growing, because their GDP is also growing and still very fast. I doubt their exports are still growing in the context of the great crisis, simply because people everywhere is buying less and less in general, as their (our) purchasing power goes down with all these attempts to put the burden of the crisis on the shoulders of the working and middle classes.

I find difficult to understand this but I have not explored the data in any depth.

Also I do not wholly understand why China artificially supported trade surplus is untenable. More exactly: I understand the macroeconomic concepts but, unless the rest expels them from WTO and establish a boycott on Chinese products, they can get away with it until the former First World completely collapses. Then they would proceed with whatever restructuring is needed but by then they will have already won the trade wars.

The only problematic scenario would be that boycott, which possibly the US and its allies can get together to enforce, but the Chinese do not feel truly threatened at this stage for two reasons:

1. They hold such a huge share of US and other developed countries’ debt that they could throw it as an economic bomb. And they consciously use this as leverage by purchasing “toxic” debt from these countries, not just the USA.

2. The capitalist oligarchs who effectively rule NATOplus, from Seoul to Athens, have already invested heavily in China and like it the way it is. The “Chinese” enemy of the West is westerner and rules the West. That’s why some of what we see politicians and central banks doing looks so inconsistent: it’s what a drug addict does, regardless it is the path of doom.

Instead, it seems to me that the Chinese (who after all invented “virtual” paper money and have a long history of resisting becoming the market for the West’s products, since very early in Modern history) know rather well what they are doing: they are ‘sucking the blood’ of the Western alliance, exploiting carefully the design errors of globalized Capitalism in their benefit.

Their goal is not so much to have a healthy market economy, that is a Western prejudice. Their goal, logically, is to become the first global superpower, replacing the USA, by careful controlled and slow, and profitable, demolition of their rivals and by co-opting their elites to some extent.

This is, I understand, a “legitimate” goal from the viewpoint of China, which would like to recover its past glory. The main risk they have its possibly to be drawn to a Cold War style military confrontation, where they cannot win (not yet at least) but that is why, partly, they emphasize “soft power” by trickling rather than openly confronting their rivals.

On the other side, we can already see how much of a failure is the militarist policy of the USA. The US invaded Iraq, spending huge amounts of money and credibility, China has largely reaped the benefits without raising a single gun. Similarly the intervention in Afghanistan and Central Asia is not really producing the results the USA would like from it (to be able to blackmail China and Russia from their weak spot). Instead they softly organize their pipelines and make trade agreements with whatever “US puppet” there is around. The USA reacts investing in a government change and China bribes them to their side.

And so on.

While I agree that the Chinese regime is not mid-term stable because the growing bourgeois class will eventually want to reform the system, they have so far managed to satisfied most of their demands and even co-opt them into the ex-Communist Party. For the Chinese bourgeoisie anyhow allowing the USA to set the rules is not desirable in any case, so they are so far happy with the deal, more or less. But unless the USA and allies are willing to assume the huge costs of “besieging” China (costs in economic readjustment, in greater military expenditure and costs in dissatisfaction from their ruling elite of global capitalists, who would lose much of their own profits as they’d get excluded from China too) this is not going to happen.

We can see the tension between these Western internal contradictions: the “nationalist” and the “globalist” poles but these tensions precisely cause only half-hearted reactions from the West, as it drifts without a clear plan in relation to China and its own future.

The West, specially the USA, is caught in its own globalist/imperialist trap, in its own capitalist system trap and China, whose leaders probably have read Marxist economists (often more realist than Liberal ones), know that and toy with it, like a cat with the mouse they have just captures.

I do not blame China, sincerely. I blame the Western ruling elite and I think that the only option in the mid-term is Socialism, including a good deal of Chinese-style protectionism (but also other things done much better too). However this will not happen yet, so the West is trapped in its own imperialist project that someone finally has managed to manipulate in their own favor.

colin says:

Yves, I an a long time reader and enjoyer of your blog, but I feel you come into any discussion of china already prejudiced and myopic.

1) You label china mercantilist. But so is Japan. So is Korea. So is Germany. So is the US – except that the multinationals find it in their own interest to curb the US politicians on any action. Generally, every sane nation wants to be able to produce things at home, sell them for a profit, and not be dependent on imports. Want to correct the trade balance? Sell them what they want. But then congress says china can’t have our oil or missiles. You wrongly single out china as the one and only merchantilist devil.

2) You label china as a currency manipulator. Yet every country manipulates their currency to their own advantage. Again, why single out china when Japan, Korea, etc., has been doing this for the last several decades. And the US doesn’t manipulate the USD?Besides, to paraphrase, it’s their currency and our problem.

3) You talk about all kinds of imbalances that will turn china into a flaming hell, yet don’t mention the massive structural problems in the US. Like how there is so much debt out there that it’s impossible for americans to pay off with actual goods and services. How does the US pay off the trillions held by other nations, in addition to all the debt and obligations in the US itself? Economists really seem to live in another universe. Any rebalancing of China’s problems necessarily involves rebalances of other nations and the world. And I don’t see any such talk about seriously fixing imbalances in the US, other than it’s all china’s fault and they should be made to pay. It’s a joke.

4) You link in rare earths as a massive mistake by the chinese in the recent spate of incidents and china blindly flexing its brawn, yet the issue of rare earths started appearing in Sept 2009, before the island spat. And with the chinese themselves publicizing it. I think the chinese have some other agenda for rare earths, and is not foolishly throwing in its monopolistic cards in a fit of muscle flexing. Seems more likely some other thought out strategy is at play. Perhaps they realize it’s not in their interest to be producing so much RE so cheaply and dirty, and if they can use the issue to extract some international political value now while prodding others to start producing their own, all the better. Just my speculation, and probably not what they are really up to, but to think they are showing their hand so obviously and mistakingly in a blind fit of national rage seems even sillier to me.

And to the china bashers, no, I’m not a member of the CCP nor do I have any serious stake in china.