The growing crisis in China’s economy could have serious consequences for global capitalism. For the last decade and a half China has accounted for almost a third of world economic growth.
Between 1979 and 2014 the wealth created each year in China, its GDP, rose on average by 10 percent a year. Its economy doubled in size every eight years.
Sections of the global ruling class hoped China could get the world economy out of the crisis that has plagued it since 2008. But the nature of China’s growth has led to its current crisis.
The growth is largely built on construction and manufacturing. China imports complex parts from other countries to produce goods for export.
By 2005 China produced 50 percent of the world’s cameras, 30 percent of air conditioners and televisions, and 25 percent of washing machines.
By 2010 it became the world’s largest manufacturer.
But there are only so many cameras, televisions and washing machines that people can buy. And crisis elsewhere can cut workers’ spending power and push demand for goods down.
For instance, the impact of the 2008 crisis saw China’s imports and exports decline and up to 30 million workers lose their jobs.
Like many others, China’s government threw money at the problem. It announced a stimulus programme and relaxed laws to encourage banks to lend money.
But by 2011, 20 percent of the loans were written off.
A construction boom helped shield China from the worst of the crisis—for a time. But this was built on credit.
The central government instructed local governments to boost spending by borrowing.
Cities, towns and villages exploited a loophole in the law that forbids local government to get into debt by creating arms-length companies to borrow cash. These are controlled by local governments.
While official figures cannot be wholly relied on they show that local government debt rose by 80 percent in the two years up to mid-2013.
Local governments increasingly bought their own land in an attempt to stop prices sliding—getting into even more debt as a result. Some have defaulted on debt repayments.
Cities in China have been left covered in half-built or half-empty offices and housing blocks.
The BBC once gushed that south eastern city Wenzhou was “helping to transform the national and world economies”.
In September 2011 around 90 factory owners fled Wenzhou after defaulting on debts worth millions.
The Financial Times newspaper highlighted “financial vulnerabilities” in local governments across China in January this year.
It worried whether China’s government could prop up growth enough to “stave off social unrest”.
‘Workers’ unrest will continue into the future’
There has been a record number of strikes and worker protests this year, according to the China Labour Bulletin (CLB).
The Chinese government refers to strikes, protests and riots as “incidents”.
The CLB recorded 650 incidents in the first quarter of this year—over three times more than the first quarter of 2014.
Many took place in the run-up to the Chinese New Year on 19 February. Over half involved workers in the construction industry.
Workers protested at government buildings, staged
sit-ins in their workplaces and blocked roads.
The action was driven “overwhelmingly” by the non-payment of wages.
Protests have also taken place in smaller places and areas less known for their militancy.
The CLB said the city of Xiangyang in Hubei saw seven construction-related incidents over a five-day period. One witness said the number of migrant workers blocking roads demanding their wages was “in the thousands”.
One reason for higher figures is more workers are able to post news of their struggles online.
Geoffrey Crothall from CLB said this could also encourage other workers to take action too.
It’s important not to exaggerate the scale of resistance in China, but it is there. Fury at growing inequality and corruption, along with rapid changes in the way people live, has created a volatile situation.
The CLB recorded 67 strikes and worker protests in the first 12 days of July. It said, “Worker unrest will continue to be the norm for the near future at least.”
All part of bigger problems
China’s integration into the world economy helped its growth. It also made China vulnerable to crises outside its borders—and vice versa.
So the fall in demand for raw materials in China has hit the countries that supply it.
The World Bank warned in January that “slowdown in China could turn into a disorderly unwinding of financial vulnerabilities with considerable implications for the global economy”.
Supporters of neoliberalism say China faces crisis because it hasn’t made enough “reforms”.
As one paper for the US Congressional Research Service put it in June, “Many of China’s economic problems stem from its incomplete transition to a free market economy.”
In reality the problems in China are part of a bigger crisis in global capitalism.
World trade saw its biggest contraction since 2009 in the first half of this year, according to economists at the World Trade Monitor.
The World Trade Organisation blamed the economic slowdown on problems in Europe as well as China.
It said an “adjustment” in the global economy meant a slowdown could be likely to go on for some time.