China’s Covid-19 Recovery Is Intensifying Class Exploitation

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Yves here. The Covid-19 pressure cooker is reinforcing authoritarianism and widening economic divisions in nations with strong tendencies in that direction. While the US has been a particularly prominent example, China’s conduct is also getting critical reviews.

By Promise Li, a member of Lausan 流傘 Collective and and a former tenant organizer in Los Angeles Chinatown. He is also active in socialist organizations from the Democratic Socialists of America to Solidarity (U.S.). Originally published at openDemocracy

China’s GDP shrank by 6.8% in the first quarter, which was its largest contraction since 1992. As one of the first countries to relax lockdown restrictions, China is now seeking to boost domestic and international demand.

Despite over 80% of manufacturing returning to its former level by late February, consumers are hesitant to spend amidst increased job insecurity and rampant unemployment.

Many experts argue that domestic consumption will continue to suffer as workers face a dearth of social protections. Yet with a mounting debt problem that raised alarms even before the pandemic hit, and the growing prevalence of employer-based social security and insurance systems – safeguarding workers’ protection will likely not be at the forefront of China’s response.

In fact, China’s recent actions towards countries struggling with debt under the Belt and Road Initiative (BRI) and reforms to its domestic industrial workforce, foreshadow how the country will react to this crisis: increasing marketisation and semi-colonial measures to enforce capital gains from workers and countries on its periphery.

Last week, Chinese Premier Li Keqiang announced that China would be committed to adding 9 million urban jobs to support workers. Looking at recent trends, this may be more of an opportunity to expand low-cost, precarious labor than to empower workers’ livelihoods and power.

For example, a recent report by Australian Strategic Policy Institute details how the Chinese government has been systematically relocating Uyghur minorities to work in low wage factory jobs for global corporations such as Nike, Adidas, and Uniqlo. An extension of the regime’s surveillance and ethnic cleansing campaign in “re-education centers”, this initiative forced over 80,000 Uyghurs to relocate from Xinjiang to other industrial clusters in south China and accept low wage work under constant surveillance.

Since the 1990s, Uyghur laborers and farmers have been dispossessed and exploited by imposed quotas to sell agricultural and other natural resources to Han state-owned enterprises centered around the coastal regions. Despite international pressure, China has shown no signs of ending its systematic abuse of the Uyghurs. On the contrary, the continued expansion of Uyghurs from “re-education” programs into the industrial supply chain workforce suggests that China will further harness racial divisions and draconian exploitation as a remedy for its economic woes.

As the countries linked to the BRI are increasingly likely to default on their infrastructure loans, China’s exploitation of its periphery economies is also likely to continue during the post-pandemic period.

“The BRI loans are not foreign aid. We need to at least recoup principal and a moderate interest”, an unnamed researcher at China Development Bank, which centrally facilitates loans for BRI projects, explained in April to the Financial Times. “In general, our loans are issued according to market principles.” This admission from the center of the BRI’s lending engine offers a glimpse into a more insidious reality than the one posed by researchers like Johns Hopkins’ Deborah Brautigam, who suggests that China’s loans may offer more progressive alternatives to global south economies than its Western predecessors. While the BRI may offer some flexible terms, the economic dependence enforced by debt will remain.

China is expected to fail to meet its pre-Covid goals of boosting annual GDP by 6% and doubling 2010’s GDP and per capita income levels by next year. Regardless of whether its export market returns or a domestic stimulus package is introduced, China will likely continue its perpetuation of class exploitation under the guise of progressive commitments to social justice – as the coronavirus era will further legitimize the demand for sophisticated digital technology and surveillance infrastructure. The workers making this hardware from Sri Lanka to Xinxiang will likely continue to suffer.

Whilst China outwardly boasts its public image through delivering needed personal protective equipment, the phenomenon describedin Foreign Policy for Xinjiang’s workers is pertinent to Chinese state-owned firms across the board: “forced labor is concealed behind the euphemistic facade of poverty alleviation.” It remains to be seen how China’s economy will recover following the pandemic, but one thing remains all but certain: radical structural changes to empower the democratic capacities and social welfare of ordinary citizens will not be on the agenda.

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  1. Massinissa

    Wait… You mean China is both State Capitalist and Neoliberal at the same time? I didn’t realize that was possible. Neoliberalism sure is a powerful drug if it has even spread to the Chinese. So much for them being ‘communist’.

    1. Michael

      While I have an opinion on this, I’m curious to hear others’ thoughts: is neoliberalism really incompatible with state-capitalism?

      1. PlutoniumKun

        There are lots of stresses in all the state led economic systems in Asia between ‘directed’ capitalism and neoliberalism, the process can be seen in South Korea and Japan (Abe would undoubtedly turn Japan fully neoliberal if he could get away with it). Only the poorer countries that essentially do what the west tells them have gone full on neoliberal. There will always be a tension between the two.

    2. Acacia

      Yes. See David Harvey’s A Brief History of Neoliberalism, especially the chapter entitled “Neoliberalism with Chinese Characteristics”.

    3. The Historian

      They might have been incompatible if China had actually been a communist country as Marx and Engel envisioned, but it never was. Communism was just a label to disguise an authoritarian government, just as it was in the Soviet Union. It is not surprising that neoliberalism is growing in China, and for that matter, Russia, because neoliberalism works very well with authoritarian governments. It’s that old “power in the hands of the few” that makes neoliberalism so dangerous.

      1. PlutoniumKun

        I’d quibble with the term ‘neoliberalism’ with regards to China (as always, it depends on your definition). China is much more a state capitalist society. In reality, there is very little genuine free market activity above a certain scale, and its very difficult often to see with larger concerns where the ‘private’ company stops and the State starts.

        And there are still an enormous number of local government owned concerns, with little pressure to privatise them, as private operators have other means of squeezing cash out of public services. In reality, while in the US the oligarchs essentially own and run the government, in China its the government (or to be precise, the Party) that owns and runs the economy. The Chinese versions of Bezos and Zuckerberg have been absorbed into the system, rather than vice versa. Unlike in the former Soviet Union, the Chinese have so far been smart enough not to allow a domestic oligarch class to emerge.

    4. tegnost

      Maybe they’re just selling us the rope we’ll hang ourselves with after we’ve drowned our productive capacity in a gold plated bath tub?

  2. PlutoniumKun

    The Coronavirus seems to have been the catalyst for rapid change in China, but I think it will be years until we know the full extent. The abandonment of the GDP target system is good news – this is an indicator that they realise that rapid moves to a more balanced development model is needed. They’ve also made faltering steps towards boosting incomes and consumption – but so far they’ve been a drop in the ocean compared to the monstrous heaps of cash pushed to the construction industry. There is also evidence of massive additional support for exporters. Both indicate that internal oligarchs are intent on following old playbooks to enrich themselves at the expense of regular Chinese people.

    Minxin Pei has an excellent essay on the political implications within China – he is about as good a source as any (its very hard to find English language independent experts who don’t have an axe to grind). He concludes that Xi was weakened by his initial response to the virus, but has used to opportunity to centralise power. There is no question but that an ongoing process of increasing internal repression has been intensified – but this isn’t new, for several years now there has been a slow throttling of independent voices from China, with dissenting non-Chinese voices forced out of the country. China is now a very different country than even 10 years ago – its simply not possible now for Chinese people to say openly (or on social media) things that were happily argued about in public back then. This process seems to be intensifying, along with an increasing focus on internal matters.

    1. Ignacio

      Thank you for the link. An excellent read that shows the vulnerabilities of Xi’s regime, that given the response to the epidemic will worsen with time. Poor judgement is repeated several times but it is much more than that. Xi prevailing after Covid means that China will, sooner rather than later, become a sick man under the rule of such dictator.

      1. PlutoniumKun

        I replied to your comment a few hours ago, but it seems to have vanished.

        In short, my understanding as an outside observer is that most Chinese people were fascinated by Xi when he came to power. Unlike most Party stalwarts, he is handsome, charismatic, and has a genuine popular touch. In other words, he would be a successful politician in any country. When he visited Ireland before his final ascent to power he made a big impact on everyone he met.

        But once he got the big job, he has undoubtedly only been focused on one end – his own power and centralising that power in Beijing and among his supporters. There has been a rapid and comprehensive shut down on free speech in China (online China was surprisingly open and vibrant up to a few years ago). But he still has strong popular support due to his perceived competence and strength – that matters a lot to ordinary Chinese.

        But my perception is that while he has retained a strong grip of power, its now pretty much an ‘iron’ grip, his popularity and the goodwill he generated initially are mostly gone. There has been relentless propagandising over the past few months about China’s ‘triumph’ against Covid, but people still remember the arrogance of the initial response. The respect Xi has now is grudging. He has also seemingly made a lot of enemies within the Party as plenty are still old enough to remember the last time China was ruled by one very powerful man without restraint, and they don’t want that repeated. This is clearly Xi’s aim, but there must be many within the Party and the country in general who will fight that. The reality is that the Party system put in place since the 80’s has proven reasonably competent and strong – he is seeking to break this up for his own ends.

        The huge problem now for China is that as the country turns in on itself, there are fewer dissenting voices and its becoming increasingly clear that there is a huge danger of groupthink and simply a lack of intellectual curiosity. The response to Covid is an obvious example – it is pretty obvious that plenty of people in power in Beijing are fully aware of what needs to be done – but the system is reflexively falling back on an old playbook – essentially, power up the economy with yet more infrastructural investment. Michael Pettis has written about how there is an awareness that most debt needs to be written down or absorbed within the system, but its one thing knowing this needs to be done, its another thing to agree on how to do it (and who eventually takes responsibility for the debt, even if its just notional, paper accounting debt).

        Its a dangerous game to ever underestimate the ability of the CCP to rescue itself from whatever hole its dug itself, but it does seem to me that China is increasingly sclerotic in its responses and is showing signs of hubris and arrogance. When you take the big historical picture of China, its has gone through long historical periods of high growth and expansion, interspersed with rapid retrenchments. Its entirely possible I think that we could be on the verge of another of those periods of retrenchment and introspection by China, which could have huge implications for the rest of the world.

        1. JBird4049

          Replace China’s ruling strongman with a ruling oligarchy and have made a fair description of the United States. There are large differences, but an increasingly power hungry, centralized, groupthinking, maybe incompetent, authority is what the United States governments all are from the local municipalities of towns, cities and counties to the states all the way to the federal government appears to be similar.

  3. Jeremy Grimm

    This post suggests China will handle its Belt and Road Initiative loans very differently than the way I believe Michael Hudson envisions in his post from a few days ago.

    Speaking about debts in general: “The government will simply say,“ We’re going to write down the debt that we’ve given you so that we want to keep you in business. And we want to keep your employees in business so others not see the debt problem in China because the debts are forgiven when they can’t pay. That’s normally what socialist governments do.” [Why wouldn’t similar national interests modify the handling of the Belt and Road Initiative loans?]

    “Why don’t we [China] act as a workshop to the Chinese people? We don’t need export income anymore. We’ve got the Belt Road Initiative. We’re developing markets throughout the Near East, Russia, Europe and China.”

    Contrast those statements by Michael Hudson with Promise Li’s:
    “The BRI loans are not foreign aid. We need to at least recoup principal and a moderate interest”, an unnamed researcher at China Development Bank, which centrally facilitates loans for BRI projects, explained in April to the Financial Times. “In general, our loans are issued according to market principles.”

    I believe Michael Hudson’s view represents China’s best interests as a nation. I know nations and National bankers often aim shotguns at their feet but somehow I doubt China would pull that trigger. A little Henry F. Potter banking practice applied to Belt and Road Initiative loans would put a spear in the heart of that initiative.

    1. Michael Hudson

      I can assure you that Chinese officials and academics are well aware of how U.S. self-interest ended up breaking up its position of dominance. My Super-Imperialism has been a best seller in China, and I’ve often discussed its strategy with Chinese officials, CASS and PKU. They want to gain support with economic honey, not at gunpoint.

  4. worldblee

    This article seems to have a definite slant, as bringing more Uyghurs into the economy has long been a goal in China to limit the ability of terrorist groups to attract them as cannon fodder. But the author says it’s purely to exploit them without acknowledging the efforts to decrease poverty and increase education in the area.

    1. Yves Smith Post author

      The Uighurs are being put in prison camps on a large scale basis and even subject to human experiments. There is no defending this.

      1. Noel Nospamington

        Agreed, and the rest of the world, especially us in the west, really needs to boycott companies who have products made by forced Uighur labour, since this is effectively slave labour.

  5. J.k

    For those whom this article seems to be be a bit one sided , I suggest looking in who funds as well as the Australian Strategic Policy Institute cited in this article. Hardly neutral actors when being funded by the likes of NED.

    Also check out a youtube video from Yanis Varoufakis, labelled “Don’t worry so much about China”. Its a video of a Q n A after a talk. He discusses his experience with Chinas “semi-colonial” aspirations when he was Minister of Finance. I believe it is worth the 8 minutes of your time.

    I do not think China is neither outright capitalist or communist or even state capitalist. The Chinese experiment is still very much a mixed economy.
    If you recall communism was expected to take hold in the advanced industrial societies, not in an incredibly poor country like China in 1949 or a ruined Russia in 1917, which was so poor even its agricultural techniques were a 100 years behind rest of Europe at the time. Both countries socialist aspirations very quickly became warped under such pressures in different ways. And ofcourse thats not to even mention the political response from the rest of the world.

  6. k teh

    The only difference between Chinese and American feudalism is age.

    The corporate families print their revenue, assign cost to others, and produce disposable crap – over and over and over again. Then you are expected to work to make up the difference, make bricks without straw, with an education system built for the purpose. Then the 10% laments the conditions of “working people,” like that makes everything all right.

    Small business is not a competition. That’s the nonsense they teach in school, which ensures that wealth is transferred from the plebes to the corporation, which seeks efficiency and scale to ensure the outcome is repeated. A ten year plan is not about benchmarks and deliverables. You are looking for your place in time, not in your place as a cog in the machine.

    It takes 10 years to get really good at something, to which you are willing to dedicate yourself and for which there are customers worth the effort. And the longer the time horizon, the less relevant the skills to begin. Over time, those who build the best habits, or routine, are the most successful.

    Work, savings, investment. If you get a loan from the bank – debt as investment – the bank owns you, unless bankruptcy is your operative agenda. Trump is no idiot; he already has the Fed at 0%, bankruptcy write-off territory.

    The sun day is a random result, and there are many such periodic systems. Choose one that works for you and your customers. Doing business by appointment filters out most of the wasted time. Standard of living and money are derivatives. Timeliness is the critical path, and what every fascist system is trying to disrupt.

    Unless you are in the 10%, your standard of living is going to fall when you buy corporate crap, as costs are shifted by governments built for the purpose. In our case, you are not The People that the US Constitution serves, because 5 corporate experts are the constitution. Try to get an appointment an appointment with SCOTUS sometime.

    China is being used as the tech prototype to be rolled out here, but it can only be successful if you think and then act like Oz is all powerful.

  7. Sound of the Suburbs

    China does use neoclassical economics, so it makes all the same mistakes everyone else makes.

    The economics of globalisation has always had an Achilles’ heel.
    In the US, the 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at debt, neoclassical economics.
    Not considering debt is the Achilles’ heel of neoclassical economics.

    When you use this economics, policymakers run the economy on debt until they get a financial crisis.
    Policymakers don’t realise it’s the money creation of bank loans that is making the economy boom as they head towards a financial crisis.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    Policymakers run the economy on debt until they get a financial crisis.
    1929 – US
    1991 – Japan
    2008 – US, UK and Euro-zone
    The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart above.

    China was the last real engine of growth after 2008.
    Chinese policymakers ran the economy on debt until they got a financial crisis.
    Chinese policymakers didn’t realise it was the money creation bank loans that was making the economy boom as they headed towards a financial crisis.

    China was all set for the usual financial crisis, but they saw it coming because they had worked out what was going wrong.
    Davos 2018 – The Chinese know financial crises come from the private debt-to-GDP ratio and inflated asset prices
    The PBoC know how to spot a Minsky Moment coming, unlike the FED, BoE, ECB and BoJ.
    The black swan flies in under our policymakers’ radar.
    They are looking at public debt and consumer price inflation, while the problems are developing in private debt and asset price inflation.

    The West has never actually worked out what was going wrong.
    Western central bankers have been trying to solve a private debt problem with more private debt since 2008.
    They have eased monetary policy to encourage more borrowing and dropped interest rates to the floor so nations can cope with the debt load.
    The central bankers have painted us into a corner where negative rates seems like the only option when trying to cure a debt problem with more debt.

    Then the coronavirus hit with the global economy fully loaded up with private debt.

    1. Sound of the Suburbs

      The bankers did do rather well during globalisation, didn’t they?
      Bankers like neoclassical economics.
      Not considering private debt is the Achilles’ heel of neoclassical economics.

      That’s handy Harry!

      I am a banker and my only real product is debt.
      Who can I load up with my debt products?
      With everyone using neoclassical economics the world is my oyster.
      I can load their economies up with my debt products until they get financial crises.
      As that one goes down, I can just move onto the next.

      At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
      Bankers loaded economies up with their debt products until they got financial crises.
      1929 – US
      1991 – Japan
      2008 – US, UK and Euro-zone
      The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart above.

      The benefits of financial liberalisation.
      Bankers can load economies up with their debt products until they get a financial crisis.

      1. Sound of the Suburbs

        Does anyone know how you can use bank credit constructively and not just load economies up with debt until they get financial crises?

        Well, the idea is that you lend it into business and industry to grow the productive capacity of the economy, so debt grows with GDP, like the UK before 1980.
        This is perfectly sustainable and debt won’t overwhelm the underlying economy.
        Businesses can expand today, and then pay the money back in the future. They don’t have to wait until they’ve got the money to expand.
        Businesses who use bank credit for share buybacks are not expanding the productive capacity of the economy, so GDP won’t rise with the debt.

        What happened in 1979?

        The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage market and this is where the problem starts.
        The transfer of existing assets, like real estate, doesn’t add to GDP so debt rises faster than GDP until you get a financial crisis.

        Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
        Debt grows with GDP

        After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
        Debt rises faster than GDP

        2008 – Minsky Moment, the financial crisis where debt has over whelmed the economy

        After 2008 – Balance sheet recession and the economy struggles as debt repayments to banks destroy money. We are making the repayments on the debt we built up from 1980 – 2008.
        Japan has been like this since 1991.

        Financially stable countries all do something similar.
        Well they did in the past, like the UK.

        The BoJ used to use window/credit guidance to steer bank credit away from financial speculation and towards expanding the productive capacity of the economy.
        This model was tremendously successful and was the basis for all the Asian Tiger economies.
        Then they discovered financial liberalisation and financial crises soon followed.

        Germany uses small non-profit banks that are very local to communities and businesses.
        There is no gain from financial speculation and they are closely tied to the people they serve.
        These banks are the backbone of the Mittelstand and provide just the sort of financing they need.
        German policymakers have forgotten the secret of their success, and are oblivious as the old successful financing model starts to disappear.

  8. Sound of the Suburbs

    Maggie brought the neoliberal ideology and neoclassical economics to the West in 1979.
    When you use this economics, policymakers run the economy on debt until they get a financial crisis.
    Policymakers don’t realise it’s the money creation of bank loans that is making the economy boom as they head towards a financial crisis.

    The trouble is that everything appeared to working well for nearly thirty years, 1980 – 2008.
    When things were going well everyone else jumped on board.

    Japan did this first and they avoided a Great Depression by saving the banks.
    They left the debt in place which caused a balance sheet recession and this is what the UK has been struggling with since 2008.

    Richard Koo had studied what had happened in Japan and knew the same would happen in the West after 2008. He explains the processes at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy.
    Debt repayments to banks destroy money, this is the problem.

    Austerity is the worst thing you can do in a balance sheet recession.
    QE can’t get into the real economy due to a lack of borrowers.
    We fixed the banks, but left the debt in place (just like Japan).
    The banks are ready to lend, but there aren’t enough borrowers.
    QE has to be borrowed to get into the real economy, but it can’t get there.

    We are not going to get anywhere with dodgy, old neoclassical economics.
    Policymakers have no idea what they are doing.

  9. Martin Davis

    Oh dear. You have been discovered by SotS. Nice for those who really love repetition…at length.

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