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Upheavals in China by Peter Taaffe

China as a world power?

China has been championed as a possible lifeline for world capitalism, particularly in the event of a serious economic recession or slump.

It accounts even now for a significant part of world manufacturing. However, it is still only responsible for 7 per cent of world factory output, although this could, according to some capitalist ‘think tanks’, escalate to 25 per cent of the world total within two decades. Significantly, unlike most growth China has experienced up to now, from capital and consumer exports, it is expected that in future this will increasingly come from soaring domestic demand for consumer and industrialised products among its 1.3 billion population.

All of this assumes, of course, a smooth increase of China’s economic prowess and a benign acceptance of this by other capitalist and imperialist powers who are its rivals. Because of this, some commentators discount the economic prospects of China in the future as a dominating power on the grounds of its present limited economic weight. Yet, only a few years after its entry into the World Trade Organisation (WTO), China’s influence on global commerce is, according to the Financial Times, "no longer merely significant. It is crucial." In markets such as base metals, shipping, coking coal, soya beans and other agricultural commodities, China has become either the dominant price setter or big swing factor in these sectors.

Its colossal growth rate – 9.5% in 2004 – is a magnet for worldwide capitalist investment and crucial, for instance, as the main engine of growth for Asia. China may have a huge trade surplus with the US but it has a deficit with the rest of Asia. For Japan, China could jeopardise political and economic stability in Asia and above all, threatens Tokyo’s claims for dominance in the region. An indication of this threat posed to both the US and Japan is underlined by the fact that now, "China is the single largest contributor of export recovery in the Asian region." [Asia Times]. See footnote below.

China is an assembly base of relatively low technology goods imported from the rest of Asia and their re-export to the American and other markets of the world as higher-level technology goods. It has overtaken Japan as the third most important trading nation in terms of trade volume after the US and Germany. It has, moreover, overtaken the US to become Japan’s biggest trading partner. At the same time, the Chinese central banks, together with the Japanese, effectively underwrite the US dollar – despite the huge deficits that have accumulated in the US. This is an unofficial quid pro quo – the price that Asian capitalists are forced to pay in order to maintain the buoyancy of the US market, a source of growth for Asian exports. Larry Summers, the ex-US Financial Secretary, has aptly characterised this as an unstable "balance of financial terror".

Some commentators have tried to discount the long-term threat to other rival powers from China, economically at least, on the basis that the bulk of China’s technology exports are actually low-margin commodity products such as personal computers, DVD players, etc. That is undoubtedly the case at the moment, with a lot of research, development and innovation being the product of either China-based foreign companies or companies part-owned by the state in collaboration with international capitalism. But the long involvement of China in this process has, in turn, meant a drive to assimilate, as with other "newly-industrialised countries" in the past, the technology of more advanced economies. The consequences are that China is advancing hugely in technical and scientific innovation, stem-cell research, the number of students involved in top-grade PhDs, etc.

In the modern world, as in the past, it is impossible to maintain a ‘monopoly’ of technological innovation. Those left behind by the more ‘advanced’ inevitably borrow or steal the technology of their competitors. The same is true of China. Its new capitalist leaders have absorbed very well the idea that all means are necessary in order to enhance the position of the capitalists and the state which increasingly represents them: "The one and only social responsibility of business is to make profits," says Milton Friedman, in the film ‘Made in China’. This economic guru of Thatcher was justifying the brutish conditions of the Chinese masses under the whip of international capital but it applies with equal force to the relations between individual capitalists and between the states that represent them.

Another argument is that US imperialism will never allow the rise of China as a challenger for its economic and military supremacy.

US weakened

However, US imperialism, in the aftermath of the Iraq War, does not hold a similar dominant sway as appeared to be the case beforehand and particularly in the wake of September 11, 2001. The perception of a ‘unipolar’ world, the domination, militarily in particular but also economically, by one superpower, the US, has been severely undermined. The US is a military colossus but the same is not true economically. Its economic situation is so parlous, underwritten for the time being by Asian capitalism, that faced with this in any other country IMF inspectors would be descending with an austerity programme in their back pocket. This is a direct reversal of the past when the overwhelming economic might of US imperialism underwrote its military prowess. In 1945, for instance, it was responsible for 50 per cent of world production with three quarters of the world’s gold reserves concentrated at Fort Knox. That position has gone like the snows of yesteryear as the US, along with many other ‘industrialised’ countries, has been hollowed out with the decline of their manufacturing industries and their outsourcing to the low-wage areas of the world such as China.

US supremacy was, to some extent, tolerated prior to the Iraq War. But the hostility of most of the European bourgeois to the neo-conservative gang of Bush and Co occupying the White House, partly reflecting the antiwar mood of their populations and their separate interests, has enormously deepened. The Atlantic has got wider and deeper as the outlines of an intensified inter-imperialist rivalry has broken out between the US and European capitalism – excluding, of course the lapdogs of the US such as Blair in Britain or Berlusconi in Italy, and some capitalist minnows in Eastern Europe. Following his re-election, Bush, through Condoleezza Rice, engaged in a hasty job of ‘bridge building’. But the genie is out of the bottle. Relations between the capitalist powers have been fractured and, in a sense, have become even more aggravated through the continuation of the Iraq War.

Indeed, this inter-imperialist rivalry is more akin to the clashes between the rival gangs of imperialist capitalists prior to the First World War than the jostling which took place, for instance, in most of the post-1945 period. Then, the existence of an antagonistic social system to capitalism – the planned economy but with totalitarian rule by the bureaucracy in Stalinist Russia – acted as the glue to maintain these rivalries in check. Other capitalist rivals to US imperialism were prepared to tolerate its dominance and shield themselves under its military umbrella. The fall of the Berlin Wall put paid to this. The glue had come unstuck. However, throughout the 1990s the US, because of its overweening military power, ruled a ‘unipolar’ world and an increasingly US ‘unilateralist’ world as well. The war in Iraq, however, has, in effect, ended this. All the latent tensions burst to the surface as the populations of Europe and the world demonstrated en masse their opposition to the Iraq War. The European bourgeois openly expressed its opposition to US imperialism. They were scathingly dismissed as "old Europe" by US Defense Secretary Rumsfeld who, following Bush’s re-election, has tried to ‘humorously’ distance himself from his previous harsh statements.

The same determination to face down the US was displayed by Europe’s initial decision to lift its arms embargo against China. However, the threat to do so was first met with furious denunciations from Washington. When the hapless Jack Straw stepped in and said that this was a "misunderstanding" on the part of the US, he was savagely attacked by US government representatives. This hostility is motivated by the US, and by its Asian allies such as Japan, partly because of the fear of a rearmed China upsetting the geo-political order that presently reigns in Asia. This is, of course, an ‘order’ presently dominated by the US and Japan, which is rearming in order to supplant Australia as the US’s ‘Deputy Sheriff’ in the Asian region. They see the growth of China’s military power and the modernisation of its armed forces as a future threat to them.

They are therefore doing everything to prevent this, as has been seen in the success, for the time being, in ‘persuading’ (read blackmail of) Europe into backing away from lifting the arms embargo of China. The US in particular has pressurised European capitalism into taking this decision by invoking the spectre of future Chinese "aggression". Countering this, Wen Jiabao, the Chinese Prime Minister, said at the close of the annual session of the National People’s Congress in April: "China’s national defence policy is one of self-protection." The US, in turn, answered this by declaring to a recent meeting of the US Pacific Command that Chinese strengthening of its navy is "Disconcerting… it is more than might be required for their defence." Ditto the US which, despite its claims, is not defending its borders when it invades other countries like Iraq. Moreover, the official Chinese defence budget of $30 billion is dwarfed by the expenditure of the US Pentagon of over $400 billion.

Clash over arms

China’s update of its arms technology would undoubtedly enhance its position in relation to the ongoing clash between China on the one side and Taiwan and the US on the other over Taiwan. At the same time, the colossal US arms industry wishes to exert a virtual monopoly of arms sales worldwide. Part of the reason for its bellicose stance towards China and in support of Taiwan recently is precisely to ratchet up the arms expenditure of Taiwan, which has "seen a steady decline in Taiwanese defence spending as a proportion of Gross Domestic Product over the past decade". [Financial Times.] The Taiwanese parliament, from the capital Taipei, has been stalling over a proposed US arms procurement package. The US is the main beneficiary of this increase in arms expenditure. Pressurising the Taiwanese, they have drawn a parallel between the threat to Taiwan from China and Saddam Hussein’s attack on Kuwait in 1990.

Backed by Japan, they have vehemently criticised the European Union’s plans to lift its arms embargo. This is despite the fact that China currently buys military hardware from Russia, Israel and Eastern Europe. Israel has been forced to back away from arms sales to China as the US has threatened to hold back some military assistance from Israel itself. All of this is because "the US fears western European components, subsystems and technology could ultimately help Beijing bring its command and control systems and military information technology dangerously close to US levels." [Financial Times.] Like British imperialism in its heyday, the US wishes to keep all rivals or potential rivals as weak as possible militarily; Lilliputians compared to Gulliver.

On the other hand, the claim of the Chinese elite, that its military modernisation is merely for "self-protection", does not hold water. They have undoubtedly tapped into the deep-seated resentment at the imperialist plunder of China in the past. The Chinese Prime Minister has declared: "Over the past 100 years, China has always been bullied by others. China has never sent a single soldier to occupy even an inch of another country’s land." The first part of this statement is correct, the last part is not. What were the Chinese invasions of India and Vietnam if no incursions into "another country’s land"? Moreover, Tibetans would argue that they have been under military occupation by the centralised Chinese state since 1950. In reality, the military build-up of China is linked to its emergence, not just as a capitalist but also an increasingly imperialist power, and one of importance and clout. In the past, in the period of Maoist austerity, China was largely self-reliant although poor. Now, the growth of the Chinese economy has resulted in a greater and greater dependence on the massive import of oil and raw materials. This is why the experts at the Central School for "Communist Party Cadres" noted recently: "China’s ‘lifeline’ ran through the Taiwan Straits, South China Sea, Malacca Straits and the Indian Ocean all the way to the Arabian Sea. China has to strengthen its naval forces to guarantee the security of its access to ship resources and should actively develop a large shipping fleet capable of operating in distant oceans."

The building up of a powerful ‘blue-water’ navy is not for the purposes of strengthening the struggles of the working class or the poor worldwide, but of enhancing the power of the Chinese state in defence of the imperialist appetites of the emerging capitalist elite of China. China has acquired from Russia powerful destroyers equipped with supersonic anti-ship missiles and quiet Kilo Class diesel submarines. Experts say that this could challenge even the mighty US forces.

This process is transforming previous perceptions of China on the part of the US. The Bush administration, when it first came to power in 2000, classified China as a "strategic competitor" to the US. This attitude was partly softened when China did not oppose the US’s ‘war on terror’ against al-Qa’ida. In Central Asia, the two powers even cooperated to support dictatorial regimes.Now, however, in reality if not in words, the original Bush doctrine towards China is increasingly the guiding philosophy of the US administration. This is manifested by the opposition to the lifting of the European arms embargo and, critically, in the conflict over Taiwan. US government spokespersons have warned about the military build up of China: "If this trend continues some day opinion in the US towards China might change." [Financial Times]

This is spoken in the future tense but the reality is that on all fronts – military, diplomatic and economic – the situation has either changed quite dramatically or, in the case of the economy, there are tendencies at work – threats of protectionism – which indicate a breach in the future. However, the EU, for its part, particularly key countries like Germany and France, look greedily to the future potential market of China. Already the EU rivals the US as China’s biggest trading partner, with two-way trade of €135 billion (£93 billion) in 2003. In the words of the Financial Times: "European companies are keen to do more business in what is set to become the biggest economy in the world." Naturally, European arms manufacturers have been the biggest backers of the lifting of the embargo.

Geo-political effects

These developments have both geo-political and economic effects. The potential of China is an undoubted fact but its realisation is much more problematical. On the one side, China is displaying the same imperialist appetites as its rivals as it buys up, for instance, the US computer giant IBM’s personal computer business – which sent shockwaves through the US – and has moved to take over Unocal, the massive US energy giant. At the same time, it is pushing to extend its influence in all areas of the world but particularly in those countries and regions rich in sources of energy and raw materials for China’s burgeoning industries. From 2000 to 2003, China accounted for nearly 40 per cent of the growth in world output.

Latin America, for instance, is a potential beneficiary of the boom of raw material imports into China. On the one side, its textile industries and low value-added manufacturing have been affected by China’s massive industrial upsurge like other areas of the world. At the same time, Brazil, Venezuela, Chile and many other countries have benefited from increased trade with China. Venezuela in particular – at odds with both the US and its proxies in Latin America, such as Colombia, who wish to overthrow the Chavez regime – is eager to exploit China’s search for oil. Chavez has suggested that trade with China, involving heavy investment by the latter in Venezuela’s oil industry and exports of oil to China, would hit $3 billion by 2005, more than double the figure of 2004. China, faced with food shortages because of the dilapidated state of its farming industry, is eager for the soya beans and wheat of Brazil to feed its hungry population. This could not serve as a permanent lifeline for Latin America, for the ‘underdeveloped world’, let alone the world economy as a whole. Nevertheless, China is seeking to assert itself as both an emerging superpower and a champion of the downtrodden African, Asian and, to some extent, Latin-American world.

The Stalinist elite, in the past, adopted this mantle with their participation in the Bandung Conference of 1955, comprising 29 "non-aligned" countries from Asia and Africa meeting without the participation of the industrial West. Seeking a counterweight to the influence of the US and Russian Stalinism, Chinese Prime Minister Zhou Enlai then intervened in this conference as a champion of the neo-colonial world. The regime of Mao then did not have the economic clout or the class basis for a decisive intervention in the neo-colonial world. There are differences between now and then. As the Asia Times comments: "While Beijing continues to stress the need for developing nations to band together as a counterweight to the industrialised West, these days China’s initiatives are propelled not by ideology but by efforts to secure natural resources and political influence." This involves a drive to extend markets, sources of raw materials and to use as an inducement, like other imperialist powers, aid and loans. It recently offered Angola a $2 billion "soft loan", for instance, in order to win a contract to develop an offshore oil field for which India was bidding.

Courting allies

China is by far the largest donor to Pakistan, providing up to $9 billion in various forms of aid over the past two years. It courts the Musharraf regime in Pakistan for a number of reasons: "For China, [Musharraf’s] continuance and success are essential for political stability in the Muslim-majority region of Xinjiang, for giving the Chinese navy a strategic presence on the Mekran coast in Baluchistan overlooking the supply routes for oil needed to keep the Chinese economy growing and for checking what they have always looked on - but which they no longer openly say - as India’s hegemonistic ambitions." [Asia Times, 13 April 2005.] At the same time it is courting India, fearing that the US is building it up as a regional counterweight to China. In addition to bilateral grants, Beijing has pledged $100 million to the Asian Development Fund and the African Development Fund. It has deployed "peacekeepers" (troops) to war torn Liberia, and pledged to cancel the debts of $1.3 billion owed by 31 African countries. One third of China’s trade is conducted with Asia and Africa. A recent visit of the Nigerian President Obasanjo is just one manifestation of China’s interest in procuring the resources of Africa and the neo-colonial world for its burgeoning economy.

In percentage terms, China’s exports are still small and its GDP is less than a quarter of Japan’s at the present time. Moreover, while China is crucial as the base for massive manufacturing growth, largely produced in foreign-owned or partly foreign-owned companies, the internal market in China is not crucial, either for the US or the world economy. In 2003, for instance, US companies made almost the same profits in the Australian market of only 19 million people, and more in Taiwan and South Korea combined, with a total market of only 70 million, as they did in the potential 1.3 billion market of China. All of this leaves aside the possibility of a financial implosion in China. Therefore, China is not poised to immediately supplant the US as the new ‘superpower’ but, nevertheless, is a source of increased rivalry and potential danger on a capitalist basis to the US ruling class and its ally, Japan.

Since the 1870s, when Japan began to catch up with the west, it began to establish a dominant role in Asia, the ‘model’ for realising the pan-Asian dream of freeing the region from the control of the ‘foreign outside colonial powers’. The Japanese ruling class perceived their Chinese counterparts as a weak, broken power which was a fiefdom of different, rival imperialist powers, which dismembered it and devoured its wealth and resources. Japan’s ‘mission’ was to rescue China via its technology in the baggage train of conquering armies. This dream was shattered in the 1930s and by the Second World War, which saw China, particularly the Stalinist forces of Mao Zedong and his army of peasant guerrillas, defeat Japan, who also suffered an annihilating defeat at the hands of US and British imperialism.

Resurrected out of the ashes of this defeat by US imperialism as a counterweight to the emergence of Stalinist China, Japan was allowed to undergo an astonishing economic resurgence but was effectively debarred from reassembling an army and a war machine in consonance with its economic power. Now, however, these constraints have been loosened as the perceived threat from China to Japan and also the US as the dominant power in the Asia-Pacific region emerges. Faced with China’s strengthening economic and military power, the United States and Japan are reinforcing "bilateral security" by changing Tokyo’s ‘pacifistic’ military posture for their common interests – to prevent an ever-stronger China from emerging. The Asia Times makes the point: "For the US, China is the only country that has high potential to threaten US global dominance in the 21st century. For Japan, China could jeopardise political and economic stability in Asia, threatening Tokyo’s credibility as the leading economic power in the region."

The Bush administration’s preoccupation with Iraq has undermined US imperialism’s influence in East Asia. This is exemplified by the stalemate over North Korea, a crisis that could provide several regional powers (Japan and South Korea for example) with the pretext to build their own nuclear ‘deterrent’. China, which not least wants to avoid a nuclear-armed Japan, has used the Korean crisis to demonstrate its enhanced diplomatic weight in the region. Similarly, China has launched a major diplomatic offensive for new trade agreements in the East Asia region, upstaging Japan, which alongside US imperialism has been the region’s traditional economic leader.

Economic crisis looms

China is buying so much from Asia because of the growth of its economy. 38 per cent of its imports are resource goods, which include agricultural products, chemicals, minerals, metals and textiles. The other 62 per cent of China’s imports are manufactured goods – intensive products such as electronics, machinery, equipment and instruments. Mainland customs data show that nearly 50 per cent of goods imported into China are used for labour-intensive packaging or reprocessing and then re-exporting. However, the key question is, given the level of China’s growth, can it be sustained? This is highly problematical; China will "likely replace the US as the major market for Asian exports and will eventually become a significant investor in the region". [Chi Lo.]

Indeed, China has already invested significantly in Asia; 510 outward-bound FDI projects in 2003 totalled just over $2 billion, an increase of 112.3 per cent over 2002. But it is about to run into the economic buffers. Some estimates predict that growth in the economy is likely to fall in the next period to 3 or 4 per cent per annum. It could exceed this figure but even if it reaches this kind of drop, it would be sufficient to significantly burn the capitalists of Asia and the rest of the world given their overdependence upon China at the present time. The Asia Times states: "According to Chinese scholars, over 50 per cent of America’s daily consumer goods come from China." At the same time, if the Chinese economy was to contract, it would have a devastating effect: "The difference between China expanding at 9 per cent and a China growing at 4 per cent is an astounding $65 billion in annual output." [Asia Times.]

Nevertheless, US capitalism, through the mouth of US Treasury Secretary John Snow and the White House, is threatening China with retaliation unless it comes to heel and accepts "currency flexibility", in other words revaluation of the Chinese currency the renminbi. It is currently pegged to the dollar but the US wishes to undercut the colossal export machine of China through an appreciation of its currency. This would make Chinese goods more expensive and therefore, in theory, less attractive to potential buyers worldwide including in the US. This would open up a breathing space for the US, amongst others, to recapture lost markets.

This, however, is very much an illusion. The recent G7 summit urged China to adopt such measures, even though China as the second biggest economy now in Asia, was not present at the G7 table. China, for its part, remains "unconvinced" and even the Asian editor of the Italian daily La Stampa argues: "An appreciation of the Yuan by 5 to 10 per cent [would mean that] the dollar would go further down and the euro further up. One isn’t sure that would save any jobs in the US , but hot money rushing in and out of China could well disrupt the Chinese economy and , by extension, global finances. China is not sure if it – or anybody else for that matter – would gain anything apart from some currency punters."

In order to mollify the clamour for China to rein in its industrial powerhouse, the Chinese regime imposed "quotas" on textile exports, for instance. This is unlikely to satisfy the growing protectionist lobby in the US and elsewhere. These trends, together with the instability of the "financial balance of terror", could lead to a repetition of the 1997 Asian economic crisis, only this time with China at its hub and with massive repercussions for the region and the world.

Several capitalist economists even argue that the renminbi might not be overvalued. China is one of the principal credits of the US deficits. Martin Wolf, in the Financial Times of 20 April, warns the US: "Biting the hand that feeds one is folly." Economic disruption could result if "the flow of official international credit [was] cut off. The consequences would almost certainly include a dollar collapse, higher domestic prices, a jump in interest rates, a fall in prices of housing, a steep rise in household bankruptcies and, not least, a sharp US recession." (His source is Professor Nouriel Roubini of New York University).

Footnote

But while Japan ten years ago consumed 20 per cent of the region's exports (it is down to 10 per cent today), in 2004 China took 40 to 50 per cent of Asia's exports, accounting for all of Taiwan's and the Philippines' export growth that year, and over 50 per cent of Japan's. China's import growth is responsible for more than 7 per cent of gross domestic product growth in Taiwan, Malaysia and Singapore. In the first 11 months of 2004, China clocked up $70 billion in two-way trade with ASEAN countries; of this, China bought $42 billion worth of exports from these three countries. China's trade deficit with Taiwan, South Korea and Japan grew by 58 per cent to $70.78 billion in the first 11 months of 2004. Compare this to 1990 when China only imported 6.8 per cent of the region's exports and even in 1999 only accounted for 11 per cent of total Asian trade (it is about 50 per cent today) and consumed only about 11 per cent of Singapore's exports (17 per cent today), 10.8 per cent of Japan's (18.4 per cent today) and 15.8 of South Korea's (26 per cent today). Overall, "In 2001, China's trade deficit with Asia amounted to a monthly average of $10 billion, a dramatic reversal from the huge monthly surplus of $21 billion in 1998." [Chi Lo, author, 'When Asia Meets China in the New Millennium'.]