Some are arguing that the call for a ‘harmonious society’ by the present regime is the first stage in recognising that the provision of workers’ rights such as the right to organise, to bargain collectively, will decrease strike actions. That leaders in democratic countries grant labour rights not out of altruism or a sense of fairness, but out of an acknowledgement that collective bargaining can markedly reduce the occurrence of strikes and level class conflict, is readily observable.[19]
The Chinese economy is now governed by the laws of capitalism. There has been massive investment based on the hope of an ever-growing world market. But such a scenario cannot be sustained indefinitely, and at a certain stage China will face a major economic and social crisis. It is not possible to say precisely when this will happen, or in what form, but when it comes it will be part of a world crisis of overproduction and the consequences will be an explosion of the class struggle.
This situation has been glimpsed twice already. In the period after the massive layoffs in SOEs at the end of the 1990s, Chinese capitalism experienced its first general overproduction crisis, marking a clear transition from the old bureaucratically-planned economy to the new capitalist economy of surplus production, meaning abundance for the few and cruel shortages for the many.[20]
In 2008, even before the global financial crisis had fully hit, over half of China’s toy manufacturers – more than 3,600 mainly small and mid-size light engineering companies – had to temporarily shut down or went out of business completely.[21] Indeed, by October 2008 about 8,500 enterprises in Guangdong province alone had shut their doors, leaving hundreds of thousands of workers from export-oriented manufacturing industries jobless.[22] Not only were there lay-offs but, in addition, local minimal wage increases were suspended all over China and there was a significant cut in real wages of those still employed.[23]
Yet, after an initial small hic-cup, China as a whole appeared to escape relatively unscathed, largely because the government injected the equivalent of US$586 billion into the economy. This included quantitative easing to the tune of an extraordinary US$81 billion, and large state investments in infrastructure projects. These measures did protect the economy from a sharp fall in exports and did enable continued economic expansion but there were major long-term consequences, the most important being the build-up of massive overcapacity across the economy, especially in construction and heavy industry. In China, the utilisation of productive capacity is only 70-75%, compared with 79% in the US. The stimulus package failed to increase the rate of economic expansion. True the economy did continue to expand, but at a rate which, by 2014, had fallen to the lowest for a generation. Such figures herald the beginning of the end for China’s ‘miraculous’ boom, as the reality of capitalist crisis impinges on the world’s largest exporting economy.[24]
The Chinese economy now relies more heavily than in the 1990s on the world market, but the latter “is not in good shape”, with the biggest threat, by far, coming from the Eurozone which produces almost a fifth of world output but is presently leading the planet into economic stagnation.[25] With its consumer spending stubbornly stuck at about 36-37% of GDP since 2010, possibly the lowest of the major economies, there is no way China could avoid suffering a substantial downturn were a slump to occur in its customer countries.
The attacks on corruption by state and Party officials must be also seen in this light. Indeed highly publicised corruption trials are for show, attempts to assuage the anger of ordinary Chinese, and distract attention from the ongoing corruption all around them. But can such moves neutralise the class struggle in China and the impact of a global recession? None of these measures are going to solve the main problem of overproduction on a world scale which threatens a sharp cut-back in Chinese industry.
China is facing a very special scissors crisis – either its annual growth rate will continue to be artificially enhanced by government funding in which case it will face even greater problems of overproduction than it does today because the world market is unable to consume the goods produced, or there will be a serious decline in the rate of economic growth with a level of industrial strife that makes today’s actions look like a picnic in the park. Carrying on as before and hoping for the best is the third possible option. Government stimuli can postpone a crisis, but only at the risk of deepening it further once it comes. Such moves will only defer the day of reckoning, and the longer it is postponed the harder will be the crash.
China’s annual growth rate is now in the process of inevitable and unavoidable decline. In the meantime militant actions by workers have forced wage rates up, a process not entirely unwelcome to the state because it has meant more money for consumers, boosting the internal market which they hope will make up – to an extent – for the loss in exports. The government has promised to increase pensions and minimum wage rates in an attempt to increase the home market and reduce dependence on exports, but such moves are coming late in the day. The Chinese bureaucracy is beginning to feel the constraints of the world economic crisis which is forcibly setting the agenda for its policies.
Workers in the coal-mining and steel industries, two of the sectors most affected by excess capacity, already realise the precarious nature of their employment as the government begins to rationalise what is deemed “wasteful production”. These jobs, which had little to offer save security of employment, have been sustained by cheap loans from the big four state banks. The state now wants to end that remaining benefit by a concerted programme of privatisation which has forced groups of workers to engage in strike action and take their protests onto the streets, in some cases successfully. This cannot continue and the state intends to defeat this opposition, if necessary through police action.
Any decrease in the rate of expansion of China’s economy will have a major knock-on effect on other national economies, and the world economy as a whole. Australia, South Africa, and particularly Latin America will all see their raw material exports hit by China’s lowered growth projections. For example, China currently buys 40% of Chile’s copper, and copper prices fell by 11% after the IMF published its lowered projections for China’s growth. The fall in oil prices in 2014-2015 was also closely related to the slowdown of the Chinese economy.
The New York Times of 16 December 2013, explained that China’s hunger for Latin America’s raw materials had fuelled the region’s most prosperous decade for a generation, filling government coffers and helping halve the region’s poverty rate. That era is rapidly drawing to an end. The IMF’s conference in Santiago in December 2014 saw China’s slowdown as the biggest challenge to Latin America’s ‘prosperity’. This slowdown in China’s rate of expansion will turn it into a major contributing factor to a world crisis of capitalism.
A key indicator of a capitalist system is the appearance of speculative bubbles, especially property bubbles which are a clear signal of over-capacity in industry. At the time, in 2008, when the Chinese government began its quantitative easing and other measures to boost the economy, Marxists predicted that the programme would only give temporary relief, and that at the expense of gigantic speculative and inflationary bubbles.
However, the Chinese state sustained the process, generating one of the most spectacular property bubbles ever. This began in 2008 and accelerated at such a rate that by the end of 2013 the area of land equivalent to that occupied by the imperial palace in Beijing was worth more, on paper, than the whole of California, including San Francisco and Los Angeles.[26] The result has been a building boom and massive oversupply with the amount of unsold commercial and residential property hitting an all-time record in 2014. This boom is staggering towards its end but the fear is that a downturn in property prices could dash hopes for a recovery of China’s economy.[27]
The Chinese Government in a decision reminiscent of Margaret Thatcher’s crusade for popular capitalism – to be achieved through the privatisation of the nationalised industries – decided that small investors should be allowed to borrow money from the state banks to invest in industry. Previously, government regulations had banned such activities (known as margin trading) as a form of gambling, but now the government was attempting to resuscitate the economy with the end of the housing bubble, and this was one way of injecting money into private businesses and, simultaneously, convincing millions of Chinese that they had a stake in capitalism.
After falling steadily for four years, Chinese stocks finally began to rise in the summer of 2014. Initial investors appeared to be making a handsome return with little or no effort. Soon hundreds of thousands of people were borrowing heavily in order to buy stocks and shares. As government policy fed through there was a burst of frenzied speculation and the Chinese stock market rose by 150% during 2014-2015. China’s stock market, unlike those in New York, London or Hong Kong is dominated by individual Chinese investors and not institutions. In a scenario that had strong similarities with the ‘Roaring Twenties’ and the 1929 crash, hundreds of thousands of people borrowed heavily in order to buy shares; grandparents, migrant workers and college students were all pouring money into buying stocks and shares.[28]
But soon the price of the shares bore no relation to the values of the companies which issued them or to the profitability of those companies. For a while, China’s stock market became detached from reality, the result being, despite government efforts, a collapse which left millions who had jumped on the bandwagon facing substantial personal losses. To stop the fall continuing the Chinese government effectively closed the stock market to allow the situation to cool down, to no avail. This crash undermined the authority of the Beijing government which had taken the decision to relax the rules on margin trading. It also demonstrated the dangers of capitalism and the security and relative stability of the public sector.
The simple fact is that Chinese productive capacity exceeds the limits of a capitalist world market. At the end of 2014, the official urban jobless rate was 4.6% but this figure excludes the many millions of migrant workers because when these lose their jobs they are supposed to return to their home village, and so are not included in these statistics. Unofficial estimates put the figure closer to 20%.
The problem of unemployment is not secondary, for at least twenty-five years, the bureaucracy has been determined to create sufficient jobs for a rapidly expanding workforce in an attempt to guarantee social stability and control. Should this end, the state will soon discover the consequences of depriving industrial workers of their livelihoods.
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Ngai, P., et al., The Role of the State … Global Labour Journal 1(1)132-152, 2010.
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Mingwei Liu, Union Organizing in China, Industrial and Labor Relations Review, 64(1)30-52 Oct. 2010.
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Kevin Bai, China’s Crude Steel Capacity and Utilisation Development 03 June 2015.
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BBC News 7 January 2015.
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D. Telegraph, 2 May 2014.
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Time Magazine, 15 May 2014.
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Morley, D. Chinese Stock Volatility, 10 July 2015, w.m.com.
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Trotsky, L. The Transitional Programme, w.m.org.
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CLB Report: Coal Industry in China, clb.org.hk.
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CLB 29 April 2015, clb.org.hk.