Bulletins and News Discussion from March 4th to March 10th, 2024 - The Coalition of Losers - COTW: Pakistan

Michael Roberts' latest piece on China, where he dunks pretty hard on Western China Understanders. It is genuinely bewildering that these economists are giving economic advice to a country that is beating them in many ways, while that same advice is used in the West and is producing stagnation and recession. I get that these people don't give a shit about the actual economy and are merely focussed on funnelling more profits into the top 0.01% with all this fancy jargon as a smokescreen, but you'd think cognitive dissonance would kick in at some point.

Like, Russia is doing better than you! The same country that you predicted would experience unsalvageable economic collapses in 2022 is now doing considerably better than you in economic growth! If I was in their position and had even a shred of dignity, I'd say "Fuck. Well, my economic theory doesn't seem to be working, then. Let's see if there are any better ones, which are predicting events better than me."

Can China succeed in achieving both its growth target for this year and reach the longer-term objectives over the next ten years or so, taking nearly 1.4bn people up to living standards only enjoyed by a small group of nations in Europe, North America and East Asia?

If you were to read the Western press and their economists, you would conclude that the chances of China doing that are no better than a snowball surviving on being thrown into the sun. It is the almost unanimous cry of Western economists, particularly the ‘China experts’, that the China ‘miracle’ is over, and worse, China is heading into a debt deflation spiral that will mean growth targets will not be met at best, and more likely there will be a major slump. This is despite the fact that in 2023 China had an official growth rate of 5.2%, more than double that of the ‘booming’ US economy, and five times the rate of growth in the rest of top capitalist economies of the G7. (Don’t get me into the argument that China’s growth figure is fake and growth is much lower. Those that argue this have little supporting evidence.)

Ah, but you see, manufacturing is in recession (as measured by official surveys), consumption is weak (still below pre-pandemic levels) and foreign investment, seen as the life-blood for the Chinese economy has dried up. And even worse, prices of goods and services are falling. Readers may be surprised to hear that Western economists, who spend much of their time demanding that inflation rates in their countries be reduced to no more than 2% a year after the post-COVID inflationary spiral of the last three years, see no merit in the lack of any rising prices (and therefore rising real wages) in the Chinese economy: it’s ‘inflation bad for the US; but no inflation bad for China’.

In a recent article, John Ross has shown that to achieve China’s Plan GDP target for 2025 ie a doubling GDP from 2021, it would require an average annual growth of 4.7% a year. So far, China is ahead of this goal with annual average growth in 2020-2023 of about 5%. Indeed, since the beginning of the pandemic, China’s economy has grown by 20.1% and the U.S. by 8.1%—that is China’s total GDP growth since the beginning of the pandemic has been two and half times greater than the US.

Yes, China’s annual growth rates have slowed from the breakneck pace of the 1990s onwards and the Chinese workforce is declining. But just look the increase in GDP per person that China has achieved compared to the G7 economies since 2019, some of which have even contracted (IMF data). The rise on per capita basis is even higher against the US (nearly four times).

Yes, increasingly China cannot rely on an expansion of a cheap workforce from rural areas to achieve more output, but instead must raise the productivity of the existing labour force, especially through investment in technical innovation. And it is doing so. The Federal Reserve Bank of Dallas shows that ‘total factor productivity’ (which is a crude measure of innovation) is growing at 6% a year, while it has been falling in the US.

Despite this evidence, every year the Western ‘China’ experts (and even many in China itself) predict stagnation, given the huge debt levels in all sectors. China is going to stagnate like Japan has done in the last three decades. The only way to avoid ‘Japanification’, say these experts, is to ‘rebalance’ the economy from ‘over-investment’, ‘excessive savings’ and exports to a domestic consumer-led economy as in the West and reduce the state control of the economy so that the private sector can flourish.

This year on the occasion of the NPC, Martin Wolf, the Keynesian guru of the Financial Times, returned to this theme, echoing the arguments of other Keynesian China experts like Michael Pettis. According to Wolf, China’s growth will now slow to a trickle as in Japan because it overloaded with excessive debt and because it has not rebalanced the economy towards “the consumer”. China needs to get its consumption share up to Western levels or it will not be able to grow and so stay locked in a ‘middle income’ trap.

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But how can anybody claim that the mature ‘consumer-led’ economies of the G7 have been successful in achieving steady and fast economic growth, or that real wages and consumption growth have been stronger there? Indeed, in the G7, consumption has failed to drive economic growth and wages have stagnated in real terms over the last ten years, while real wages in China have shot up. Moreover, these consumer-led economies have been hit by regular and recurring slumps in production that have lost trillions in output and income for their populations. The irony is that China’s consumption growth rate is way higher than in the G7 economies.

China has not had a contraction in national income in any year since 1976, while the consumer-led G7 economies have had slumps in 1980-2, 1991, 2001, 2008-9 and 2020. Much has been made of China’s ‘disastrous’ zero COVID policy. But apart from saving millions of lives, China still did not enter a slump in 2020, unlike all the G7 economies in 2020.

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Moreover, the arguments of the Western experts that China is stuck in an old model of investment-led export manufacturing and needs to ‘rebalance’ towards a consumer-led domestic economy where the private sector has a free rein are just not empirically valid. Is China’s weak consumer sector forcing it to try and export manufacturing ‘over capacity’? Not according to a recent study by Richard Baldwin. He finds that the export-led model did operate up to 2006, but since then domestic sales have boomed, so that the exports to GDP ratio has actually fallen. “Chinese consumption of Chinese manufactured goods has grown faster than Chinese production for almost two decades. Far from being unable to absorb the production, Chinese domestic consumption of made-in-China goods has grown MUCH faster than the output of China’s manufacturing sector.”

There's more in the article for enjoyers of Chinese economics statistics, but to summarize the argument, I think it's really as simple as: China needs to do the exact opposite of whatever Western economists are telling them to do.

It would be wrong to say that neoliberal economics "doesn't work", because it's actually working stunningly well at its real purpose, which is accumulating profit and repressing the working class, despite failing dramatically and increasingly regularly at its stated purpose, which is some hand-wavey shit about economic growth and stability or whatever. But the contradiction between these two points can only be delayed so long as you don't have a major competitor. Once you do, you must institute a different kind of economics which actually does produce economic growth across society and has some provisions for labor, which is of course the real motive force of the entire economy, because it's now in your material interests to do so in order to maintain imperialism and monopolies.

I'm unsure what the breaking point will be, or when it will happen, but a war against China (proxy or otherwise) seems like a pretty safe bet. The only thing then is whether the current class of capitalists will resist this new state of affairs, and doom Western hegemony, or accept it, plunging us into the biggest Cool Zone of human history with a reinvigorated American working class slaving away for an American bourgeoisie fighting against a Chinese communist superpower.