Eva Cheng
Hoping that China's enormous population of about 1.2 billion people could be turned into mass consumers for the products of Western companies, Western leaders hailed China's initiatives in the early 1990s to reintegrate into the world capitalist market.
But in the last few years the US establishment has begun to promote a new line — depicting China's allegedly rising manufacturing prowess as threatening other economies and as undermining US manufacturing jobs.
Is the dream of China becoming a mass capitalist market coming true? Has China's productive capability really become a threat to the world's most powerful capitalist economy?
US economic problems
Washington first tested this new propaganda line in 2001 as the popularity of George Bush's presidency declined under the impact of mounting job losses due to the 2001 US recession.
Massive war spending and huge tax handouts for the rich have since reversed the substantial budget surplus that Bush inherited from Bill Clinton. The Congressional Budget Office predicts that the US federal budget deficit will be US$477 billion this year — on top of an accumulated debt of $4 trillion owed at the end of 2003 to "the public" (mainly private banks and foreign governments) and $3 billion owed to government trust funds.
Meanwhile, annual US external current account deficits have continued to rise, with economists expecting last year's current account deficit to be a record $550 billion (in the first three quarters of 2003 the CA deficit was $413 billion).
These "twin deficits" mean that the United States is having to borrow more and more from the rest of the world. As the deficits grow, Washington will come under increased pressure from lenders to raise US interest rates — to make further loans more attractive to the lenders.
To stimulate domestic economic activity, however, the US monetary authorities have been slashing US interest rates since 2001, pushing them to the lowest in decades. But this squeezes the return on new lending to the US and, therefore, contributes to a weakening the US dollar.
A weak greenback increases the risks of holding US dollar assets and makes it more difficult for Washington to raise new borrowing.
But for now, the central banks of countries running trade surpluses with the US — Japan, China and a few export-oriented underdeveloped Asian countries — have helped prop up the dollar.
These countries use their foreign exchange reserves to acquire US dollar-denominated assets (mainly US treasury debt) so as to minimise their own currencies being pushed up by a sagging dollar. Most of them rely significantly on the US market, such that if there is any strengthening of their currencies against the greenback, their exports to the US will suffer.
Bush's recent attempts to ask the US Congress for new war funding have not been well received. Further similar requests wouldn't go unchallenged. Moreover, the shallowness of the current US recovery, with its inability to create new jobs — there has been a net loss of 2.7 million jobs under Bush's presidency — and the likelihood of the US relapsing into another recession have put new strains on Bush's economic credibility.
None of these problems, many of them structural in nature, have easy solutions. None help Bush's prospect of being elected later this year.
The Bush administration needs a bogeyman to take the blame and China makes a handy target — its economic performance has superficially surpassed most other countries, especially the developed capitalist economies, throughout the last two decades. Its GDP has been growing at an average 8% since the late 1980s. Its exports are booming and it seems to have a fast growing share in the manufacturing of a wide range of products.
China also has the world's second largest foreign currency reserves, and its trade surplus with the US has been rising fast, to a new record of $103 billion in 2002.
Even so, China wouldn't necessarily be singled out for criticism by Washington if it were anywhere near meeting world capitalism's expectation of being its "saviour" mass market.
Huge market?
Only a thin layer of new rich under Beijing's pro-capitalist reforms — comprised of corrupt officials and the "strategically placed" Communist Party cadre-turned-capitalists and their hangers-on — have any significant purchasing power.
The bulk of the Chinese population have swapped the material scarcity in the first four decades since the 1949 revolution for the austerity of a "new" (capitalist) type of scarcity, dictated by insufficient income, job insecurity and dwindling social protection.
According to a September 2003 study by Canada's Centre for the Study of Living Standards, even though China's average annual rural net income leapt in nominal terms from 134 yuan in 1978 to 2366 yuan in 2001, the 2001 income was reduced to 673 yuan when measured in terms of 1978 prices.
Similarly, the average annual urban disposable income rose nominally during the same period from 343 yuan to 6860 yuan, but the rise was only to 1430 yuan in real terms.
Moreover, the extensive "social wage" in the form of cheap housing, free medical and other entitlements that were previously granted to urban employees have been progressively withdrawn. All these needs now have to be paid for out of workers' direct wages.
Workers' real purchasing power has been further undermined by the escalating privatisation of state-owned enterprises, which means the threat of more mass layoffs.
The 75% jump in car sales last year in China has no relation to the spending power of an ordinary Chinese. Even a mid-market Honda Accord costs 250,000 yuan, or more than 27 times the average Chinese person's annual income.
Private consumer spending in China has in fact been so depressed that Beijing since 1998 has resorted to deficit spending to boost consumer demand. Yet it still fails to dispel the threat of deflation completely.
Threatening US manufacturing?
The increasing involvement of Third World countries in manufacturing is not new. It started in the 1960s, first with the so-called newly industrialising economies in Asia, then China and Vietnam, as the earlier participants have upgraded to higher value-added procedures in the same production networks.
The industries involved were initially clothing, then electronics, computers, telecommunications products and automobiles.
In most cases, these countries' involvement is confined to the labour-intensive and low-value added processes such as assembly and production of the less sophisticated parts.
Transnational corporations (TNCs) based in the imperialist countries of Western Europe, North America and Japan still control the overall production and marketing of the goods. Transfer of advanced technology to the Third World countries is vigorously prevented.
By no means applicable to all industries, the production of such selected industries has been restructured into relatively independent and standardised segments — "modules" — which could be swapped at relative ease between the TNCs' affiliates in the low-wage countries or outsourced to contractors which offer the lowest bid.
The relative ease with which a TNC can choose between the contractors of particular modules in different countries is portrayed as "evidence" that capital in general has become "footloose". Such flexibility also helped the Third World contractors justify further cutting the wages they paid to local workers in a bid to protect their own profits while seeking to outbid rivals.
In this process, the manufacturing volume of a particular country can increase, but this is often not matched by a comparable growth in national income.
Such international production networks create considerable cross-country trade (a substantial part of which is merely intra-firm supplies movements). Sales of the final products are made from the countries where the final assembly takes place and are nominally considered as that country's exports.
Being the sweatshop darling of the day for global capitalism, China has become one of the most "popular" assembly sites (where only limited value creation actually takes place) of many high-tech products. Such involvement in TNC-controlled manufacturing is then presented as "evidence" of China's new "industrial prowess".
A substantial part of China's exports are produced by such networks and controlled by imperialist corporations. They significantly inflate China's total exports, especially to the US, creating an artificial "trade surplus".
Commenting on such cross-border production arrangements, the United Nations Conference on Trade and Development's Trade and Development Report 2002 says, "the evidence surveyed... shows many of the developing [underdeveloped] countries involved in labour-intensive segments of international production networks have not been able to make much progress in graduating to more sophisticated manufactures". The report includes China in this category.
The report further points out that between 1981 and 1996, not only have the general terms of trade (export prices against import prices) of underdeveloped countries vis-a-vis the advanced capitalist countries "significantly worsened since the 1980s", similar deterioration has also occurred in manufacturing trade. It adds that the decline in Third World manufacturing export prices (against their import prices) has been disguised only partially by their rapid growing volume.
The report also notes that China's "net barter terms of trade" in manufactures deteriorated by more than 10% between 1993 and 2000, adding: "The decline in [China's] terms of trade for labour-intensive and resource-based manufacturers was greatest with the United States and Japan, the world's most technologically advanced countries."
To seize on China's massive growth in low value-added manufacturing and hold it up as a threat to the US, the home of most of the world's critical technologies, is far-fetched. As an expression of this enormous technological gap, China's average labour productivity is only 2.7% that of the US, according to the report.
From Green Left Weekly, February 4, 2004.
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