The Impact of China on Global Capitalism The emergence of China as a major economic power poses a number of questions for Marxists. What will the effect be on the imperialist countries and developing economies? Will Chinese growth stabilise or disrupt international capitalism? How will links between China and the global economy affect China itself? Andy Kilmister looks at the debates.
Introduction This article attempts to open up a debate on these issues.' For reasons of space it will concentrate on relations between China and the major industrialised countries. In a more detailed analysis it would be important also to examine issues such as China's role as a competitor to developing countries in third markets and the global ecological consequences of Chinese growth. There are two current views of China's economic impact. The first emphasises China's role as a competitor, especially in manufacturing; and examines relations between Western economies, especially the USA, and China as though it were competition between firms. The conclusions drawn depend on whether the competition is regarded as 'fair' or 'unfair'. In the former case the conclusion is that workers in the West should accept lower incomes and worse conditions to meet the competitive challenges that have arisen. In the latter case politicians and some trade union leaders have supported either tariffs or exchange rate changes to raise the cost of Chinese exports. Or they have argued for trade restrictions as a response to 'unacceptable' working practices, leading to price undercutting in China. This approach runs into a number of problems even within the context of orthodox economics. Most fundamentally, economic relations between nation states are not the same as competition between companies. For example, China is currently lending the USA a large proportion of the funds needed to sustain its trade deficit, while US and European companies have invested heavily in China over the last two decades. These kinds of relationships do not exist between firms. Consequently, the dominant viewpoint within academic economics is very sceptical of the concept of 'competitiveness' and instead emphasises the benefits that the emergence of low-cost production overseas has for the major industrialised countries, through cheaper imports and the opening of new markets.? The difficulty here is that this approach neglects the potentially disruptive effect of such shifts in production between countries and assumesthatthe various economies involved will smoothly adjust to a new equilibrium. As a result academic trade theorists can only see the political conflicts which have arisen over China's development as an example of irrationality and so are unable to examine the deeper issues involved. 3 Both the main schools of thought within mainstream economics are inadequate in analysing the effect of China's growth. Marxist ideas allow us to go beyond simply seeing China as a competitor or as an unproblematic element in a global production network and make a more complex analysis possible. Marxism and the Rise of Economic Powers There have been two previous periods where Marxists have had to confront the rise of new economic powers and their impact on the international system. The first was the late nineteenth and early twentieth centuries, when Germany, the USA, Japan and others challenged the established dominance of Britain and France. analysis of these challenges gave rise to the classical Marxist theory of imperialism in the works of Hilferding, Bukharin and Lenin.4 For Lenin and Bukharin the rise of new capitalist powers necessarily led to inter-imperialist conflict as different countries attempted to maintain territorial control over as wide a region as possible, in order to export capital to that region. This account provided a basis for understanding the First World War. However the rise of Stalinism in the 1920s closed off further analysis of these questions, and of the extent to which established theories of inter-imperialist conflict adequately grasped post-war realities, in particular the dramatic economic rise of the USA. The next period in which Marxists discussed the rise of new locations of production was during the 1960s and 1970s resulting from the challenge posed to the USA by 21
economic growth in Western Europe (especially Germany) and Japan. In this debate there was considerably less unanimity than in the theories of classical Marxism, with quite divergent views about the likely impact of European and Japanese development. The contributions made at this time by Ernest Mandel and Bob Rowthorn were particularly important for two reasons.6 Firstly, they set out three possible scenarios, which remain useful for understanding contemporary changes. These were 'super-imperialism' in which one imperialist power 'ultra-imperialism' (following achieves global dominance, Kautsky) in which the various imperialist powers manage to ally together to divide the economic spoils between themselves and 'inter-imperialist' conflict. Secondly, they emphasised that economic relations between states need to be analysed both in terms of trade relations and in terms of investment flows. Both Mandel and Rowthorn argued (against American Marxists like Paul Sweezy) that the growth of Europe and Japan was likely to lead to increased conflict between the imperialist powers, but Mandel emphasised trade as the main arena of such conflict while Rowthorn stressed the role of investment. China cannot be seen as an imperialist country in the way that Germany and Japan are. However, the general framework developed by Mandel and Rowthorn can still be adapted to assess the possible impact of China on imperialism. A problem here though is that this framework was not really developed beyond the original work done in the 1970s, as issues of inter-imperialist rivalry became eclipsed from 1973 onwards by the generalised crisis that gripped the capitalist world and the prolonged recession that resulted. One particular Marxist analysis of that recession which does stress economic competition between that of Robert Brenner.? In Brenner's account the global slowdown from the early 1970s onwards resulted from a crisis of over-production caused by the rise in output in Europe and Japan along with the unwillingness of the USA to cede market share to these competitors, as evidenced by the use of dollar devaluation as a competitive weapon. This raises the question of whether a similar process may be operating today with regard to China. China and Global Trade Trade relationships have emerged as one of the major issues arising from China's recent growth. In 2004 the US trade deficit with China was $160 billion, the highest bilateral trade deficit the US has ever run with any country. However, the overall Chinese surplus on the current account of the balance of payments (mainly determined by trade but also including some other factors such as net investment income from abroad) was considerably smaller at $70 billion. The reason for this is that while China has run a large trade surplus with the USA in recent years, and is also in surplus with the EU (interestingly China's main trading partner), it runs a sizeable deficit with its Asian trading partners, importing raw materials, components and semi-manufactures to fuel its industrialisation drive. The first six months of 2005 did however see a sharp upturn in China's overall trade performance with exports rising by 33 percent on a year-by-year basis, while imports rose just 14 percent. The trade surplus for these six months was $40 billion, considerably more than in the same period in 2004. 22
These overall figures hide very significant levels both of imperialist agreement of the kind hypothesised by production and export growth in particular sectors. For example, Peter Nolan points out that, 'by 2001, China had climbed to first place in the world in the production of a wide array of products, including cereals, meat, cotton lint, fruit, crude steel, coal, cement, chemical fertilizer and TV sets'!® In the first half of 2005 Chinese exports of machinery and equipment grew by 33 percent (on a year- by-year basis), and exports of steel rose by 80 percent. Chinese trade success appears at first sight to provide the basis for increased conflict with the imperialist countries. This is borne out to some extent by two key areas of contention that have arisen in the last year. Firstly, there has been sustained US pressure on China to revalue its exchange rate. Up until July 2005 the Chinese currency, the yuan, was fixed at 8.28 yuan to the dollar. With the US Congress threatening trade sanctions unless it was revalued China raised its value by 2.1 percent and signalled that further revaluations were likely. A second important argument has been over textile exports. At the beginning of 2005 textile quotas in the industrialised countries were abandoned as a result of World Trade Organisation (WTO) rules. Chinese exports in this sector soared, particularly to the EU (with men's trousers rising by over 400 percent in the first quarter of this year, knitted sweaters by 500 percent and T-shirts by 160 percent). The EU threatened to re-impose tariffs and in June 2005 China agreed to limit the growth of textile exports to the EU to between 8 and 12.5 percent annually for ten key products until 2007. In May 2005 the USA re- imposed quotas on Chinese textile exports. Such arguments are reminiscent of the conflicts over trade policy between the US and Japan in the 1970s and 1980s discussed by Brenner. Yet this is only one side of the picture. While the US trade deficit with China is large, it represents only about one-quarter of the total American deficit. The main cause of this deficit is not trade with Asia, but high levels of domestic spending, both debt-fuelled consumption and rising government borrowing. This requires borrowing from abroad and China represents one of the main sources of funds. At the end of June 2005 China's foreign currency reserves stood at $711 billion. These are the second largest in the world after Japan and have risen about $240 billion over the last year. It is estimated that 70-80 percent of them are held in dollars, mainly treasury bills. Not only has China been crucial in funding the US deficit, but Chinese imports have also played a key role in encouraging renewed growth in Japan, after more than a decade of stagnation and in sustaining Asian growth more generally. These contradictory elements in the economic relations between China and the main imperialist countries have been mirrored in divergent political standpoints. On the one hand neo-conservative members both of Congress and the US Administration have pushed for an aggressive stance over issues like exchange rate policy, encouraging Japanese premier Koizumi to reassert Japanese power as a counter-balance to China.° On the other hand, mindful of the interdependencies which exist, when it comes to concrete negotiations a much more cautious approach has been followed. 1° It seems then that elements of all three of the scenarios outlined by Mandel and Rowthorn exist in the current situation. While there is no consciously planned ultra- Kautsky, there is a more informal arrangement whereby Chinese funding of American spending coexists with export success." The key question is how stable such an arrangement is. In the medium run stability appears unlikely for three reasons. Firstly, China is currently building up very large holdings of dollars that earn a low return and make no contribution to productive activity. It seems unlikely it will be willing to do this indeninitely. Secondly, the greater the risk or a dollar devaluation resulting from the persisting US trade deficit the less attractive such holdings become. Thirdly, both the American government and American consumers will eventually reach a point at which further borrowing appears unattractive or impossible given their existing interest repayments. If the current fragile equilibrium breaks down, then either super-imperialism or increased conflict will emerge as alternatives. The neo-con wing of the US administration is attempting to create the basis for the former by limiting Chinese power as much as possible. The Chinese government in contrast is hoping to build up sufficient economic strength to frustrate such an objective and to emerge as a real challenger to the USA. In order to analyse which of the two strategies is most likely to succeed, however, it is necessary not just to examine trade relations but also to look at investment. China and Investment Flows Over the last two decades China has become the second largest recipient of foreign direct investment (FDI) in the world after the USA. Inflows totalled $60 billion in 2004 alone. During the 1990s China accounted for around 10- 12 percent of global FDI. However, while such investment has significantly contributed to economic growth it also raises the question of the extent to which China is actually developing an autonomous productive capacity - or whether it is being integrated in a dependent way into the strategies of foreign capital. It is notable here that Chinese openness to foreign capital is in stark contrast to the approaches followed by Japan and South Korea during their rapid industrialisation from the 1950s to the 1980s. In this context it is crucial to look in detail not just at Chinese export figures but at the kinds of companies which are emerging in China and at their ability to compete in world markets. There is much work in this area by writers outside a Marxist tradition, nonetheless they highlight a wealth of useful information that Marxists can interpret. Important examples are Peter Nolan and Edward Steinfeld. 12 Nolan and Steinfeld reach strikingly similar conclusions. Most importantly that Chinese companies are still a long way away from being able to compete effectively with firms from the main imperialist countries. In fact Nolan claims that, 'if the leading firms in each sector are compared with the global leaders, then it must be acknowledged that, despite significant progress, China's leading firms were further behind the global leaders than they were when the industrial policies began almost two decades ago'. '3 To examine the reasons for this in detail would require a further article in itself. However, Steinfeld and Nolan put forward two main kinds of explanation. Firstly the internal contradictions within China, notably factors leading to fragmentation of companies (such as emphasis on local autonomy, weaknesses in the financial system, encouragement of high levels of competition) that militate against the growth of stable 'national champions' 23
who can compete internationally. Secondly, and more fundamentally, they pinpoint the international context, arguing that technological change and globally integrated production systems have simply made it impossible to develop nationally based industries of the kind created in Japan and Korea. This has been reinforced by the conditions required of China in order to be allowed to join the WTO. The WTO agreement between China and the US was 250 pages long involving a host of very specific requirements, for example the ceasing of any special support for large scale state enterprises. If writers like Nolan and Steinfeld are correct then the prospects for China mounting a credible challenge to US imperialism in the near future appear quite weak. Nolan appears to endorse this perspective at one point, arguing that, 'the central position of large US-based firms in the global big business revolution will enable its firms to take the lead in the defeat of China's large corporations'.14 However, elsewhere in his analysis he is less deterministic, arguing that China is now at a crossroads, where WTO membership requires a dramatic change in economic policy if external dependency is to be avoided. The most obvious strategy being used by Chinese companies to escape the trap described above is that of merger and acquisition. The last two years have seen a dramatic rise in Chinese purchases of foreign firms. The largest deals in 2004 were the takeover of the television business of the French electronics company Thomson SA by the Chinese manufacturer TCL and the purchase of IBM's personal computer business by Lenovo. This year has seen by far the largest Chinese overseas takeover bid - the $18.5 billion offer by CNOOC for the American oil and gas company Unocal. Such merger activity represents a possible way for China to overcome the problems faced by its companies in competing internationally, and given the size of China's currency reserves it appears an attractive option; apparently CNOOC is receiving some $7 billion worth of state aid to help with its bid. Just as with its trade strategy, Chinas new investment plans have led to divergent political responses within the US. Hardliners in Congress have attempted to delay the bid for Unocal on grounds of energy security and to link approval for the bid to reciprocity in US-China trade relations. Conversely, important sections of US business are worried that restrictions on Chinese purchases abroad will lead to a less favourable climate for US investment within China. The Financial Times reported that, Lee Raymond, chief executive of Exxon, spoke for many of America's larger businesses on Tuesday when he said it would be a mistake" for Congress to interfere in a bid by CNOOC:: What is less clear is how likely the Chinese strategy is to succeed in its objectives. In an analysis of the TCL- Thomson and Lenovo-IBM deals, Arthur Kroeber of the China Economic Quarterly concluded that in both cases the advantages lay with the foreign companies rather than with the Chinese and that this situation arose from 'in both deals, the fundamental weakness of the latter; the western companies got out of unprofitable business lines at no cost and gained a low-cost option enabling them to profit if the Chinese companies managed to turn the businesses round'. 16 24 Conclusion China's relationship with the international economy cannot be grasped through the one-dimensional formulae used by many business commentators or by the neo- A Marxist conservative ideologues in Washington. approach, however, can provide the basis for analysing the contradictory nature of the links between China and imperialism. On the one hand Chinese funds are currently crucial for maintaining growth in the US, while Chinese development is fuelling production in Asia and providing a key location for investment flows from the West. On the other hand this situation is unlikely to persist indefinitely and when it breaks down the potential for conflict in the arenas of both trade and investment appears significant. Both China and the US are preparing for such conflict, but their preparations are constrained by the mutual dependency of their current relationship and cannot be allowed at present to disrupt that relationship. The extent to which China will develop as a credible challenger to the US in the medium run is still very uncertain. Analysing the development of relations between China and the world economy is a crucial priority for socialists though Only through careful analysis of such relations can the common interests of workers in both China and the West be made clear, laying the basis for unity in confronting the global system that ties them together. 1. A number of the issues discússed here are also relevant to other countries currently having a significant impact on the world market, However, there are important differences arising from notably India. the unambiguously capitalist internal social relationships in such con- tries. 2. See P Krugman (1996) Pop Internationalism, chapter 1, MIT Press 3. The writings of Krugman, cited in the previous footnote, are a good example of this. 4. N Bukharin (1972) Imperialism and World Economy, Merlin Press; V I Lenin (1975) Imperialism: The Highest Stage of Capitalism, Peking, Foreign Languages Press 5. Notably Trotsky's writings on Britain in the 1920s did attempt to as- sess this issue. At that time he saw the conflict between the USA and Britain as the most important conflict between the imperialist coun- tries. 6. E Mandel 'Where is America going?' (New Left Review 54 March- April 1969); E Mandel (1970) Europe versus America? New Left Books; *Imperialism in the Seventies - Unity or Rivalry' (New Left B Rowthorn Review 69 September-October 1971) 7. R Brenner Uneven Development and the Long Downturn: The Ad- vanced Capitalist Economies from Boom to Stagnation 1950-1998' (New Left Review 229 May-June 1998) 8. P Nolan (2004) Transforming China: Globalization, Transition and Development, Anthem Press, p.3 9 See A Lieven 'The Push for War' (London Review of Books 3 October 2002) for a general account. Martin Walker also emphasises the way in which the Bush administration is building a strategic relationship with India partly as a means of 'containing' China. See M Walker " Britney and Bill' (Times Literary Supplement July 29 2005) 10. See the detailed analysis of the background to the revaluation of 'Foreign exchanges: the the yuan in A Balls, M Dickie and E Alden American diplomacy behind China's revaluation (Financial Times July 25 2005) 11. The Economist issue of July 30 2005 analyses this situation under the misleading headline of "How China runs the world economy'. In fact, as their detailed discussion makes clear, developments in the world economy arise largely from interdependent decision-making by states with China playing a significant but not a determining role. 12. Nolan op cit chapter 6; E Steinfeld Chinese Enterprise Development and the Challenge of Global Integration' in S Yusuf et al (2004) Glo- bal Production Networking and Technological Change in East Asia, OUP/ World Bank 13. Nolan op cit p.205; emphasis in original 14. Nolan op cit p.229 15. D Roberts, R McGregor and S Kirchgaessner 'A new Asian inva- sion: China's champions bid high for American brands and resources (Financial Times June 24 2005) 16. A Kroeber * China's century' is still a long march away' (Financia! Times June 23 2005)
trade unions, the LiaoYang case was spectacular for its effort While SOEs workers were sacked in huge numbers and their A