Welcome to the club!

 

In the wake of other industrial nations the growth of China’s productive capacity has been so fast and on such a gigantic scale that it can be seen as a perfect example of capitalist accumulation. A process pioneered by England at the dawn of mechanised mass production. A path followed by all of today’s richest nations. In 1949, after a century of colonial plundering (1^st Opium War 1840-1842), a Japanese invasion and a protracted civil war, China was in a wretched state. Sixty-six years later it has become the world’s second largest economy, and is probably the first for manufactured goods. How has so much wealth been produced and accumulated in a lifetime?

Industrialisation begins with coal and steel, and needs protection from foreign competition. Most nations have managed this with prohibitive tariff barriers. China was a communist pariah behind a “bamboo curtain” and, before the split in 1960, the USSR was providing technical assistance, but it was using all its own coal and steel for reconstruction at home. This first stage consists in building steel works to build more steel works and the transport infrastructure between them and their sources of coal and ore. Meanwhile, consumption is either at a standstill or in regression, as its production is neglected and its labour force is diverted to mining, to building canals, railroads, etc. However, productive capacity, energy supplies and transport do not increase indefinitely without ultimate consumption. This will be military consumption and, in the case of war, the early frugality will get worse. In peace or cold war, civilian consumption of coal and steel will relay the military.

The first stage of industrial development can occur behind closed borders because coal and iron are found just about everywhere. But subsequent expansion needs raw materials and technology that must be traded for. But, after the ideological break with Moscow, China’s only remaining allies were Albania and North Korea. The 1960s were a time of political turmoil, but then Nixon decided to get out of Vietnam and visited Peking. 1972 was the turning point when Mao handed over to Zhou – who would bring back Deng, who in turn would facilitate Jiang, Hu and Xi – and when foreign trade became possible. A ruling class intent on the accumulation of capital needs to import investments not consumption, and to balance its trade it needs to export consumption not investments. The ideal case is the importation of raw materials, their transformation and their exportation. (This is what the English did with cotton in the early 19^th century, and tariff barriers on cheap imported cereals were only lifted in 1846. Cheap bred that may have helped to prevent the upheavals that spread across Europe in 1848 from crossing the Channel.) China did not have much consumption to offer, and the little they did produce was of inferior quality, though it was very inexpensive. Price was the deciding factor, and shoddy clothes and tools were soon to be found everywhere. Made in China was a pejorative term, just as Made in Japan had been twenty years earlier. Since the 1960s, Japan had managed to develop its own domains of excellence, with motorcars and bikes, cameras and electronics. In the 1980s China faced a far more competitive situation, with three industrial poles, North America, Western Europe, Japan and the Asian Tigers, dominating the world. It was also the time when large corporations were going global and were beginning to make things outside their national base. Instead of exporting finished products, they built factories abroad for a final assemblage to supply the local demand. An early example was a VW factory in Brazil in 1957. This use of cheap labour abroad brought down costs and made their products more affordable. Inevitably, some companies soon realised that these cost reductions would be even more profitable on their home market. It was the beginning of outsourced production and the multiplication of maritime and air freight. When China opened up to foreign investments in joint-ventures, some businesses were attracted by the idea of a vast number of potential new customers, while others were more interested by the huge potential of a disciplined capable work force for next to nothing. Predictably, the Chinese did not have the means to increase their consumption – that would come later – so practically all the new production was shipped out to the world, along with large quantities of counterfeit goods.

Importing investments and exporting consumption is the perfect mechanism for accumulating capital. However, it produces such a strain, nationally and internationally, that it is always short-lived. Global capitalism expands and rakes in profits, but nations suffer. At home production is increasing, but the labour force is not any better off, and sometimes the move from agriculture to industry has worsened their living conditions. Abroad the trade advantage becomes a disadvantage, as other nations are necessarily importing consumption and exporting investments. They are not increasing their investments, and may even be reducing them in some sectors. In these nations the supply of consumption increases but labour’s incomes are stagnant or in regression as “services” replace industrial jobs. This is resolved by easy credit and the accumulation of debts. There is also a rising trade deficit because their exported investments come back with added value.

The first nations to transform consumption into investments in foreign countries did it by colonial conquest and exploitation, guns and ammunition to take gold, slaves and land. The exception was Germany. Founded in 1870 the German nation had missed out on the world’s division during the previous three centuries, and was just in time to participate in the final carving up of Africa in the 1890s. Deprived of colonial bounty, Germans privileged technology and became leaders in industrial chemistry and mechanics. They also export consumption, but more importantly they export intermediary goods such as dyes and machines. These products are sold to industrial nations and the proceeds pay for Germany’s raw materials. This exchanges investments for investments, but the outgoing trade contains far more added value than the incoming one and allows the accumulation of capital. Japan was also a latecomer to colonial plunder, Korea 1910, Manchuria 1931, China 1937, and briefly down as far as the Philippines. In the 1950s the Japanese started exporting consumer goods and, having specialized, they took market shares in the other industrial nations, while protecting themselves from consumer imports (notably food) with tariff barriers.

China’s path to industrial development had similarities with the Japanese way and considerable differences. The main difference was that Chinese industry was state owned and, due to China’s isolation, was decades behind the times. There were no Chinese equivalents of Mitsubishi, Honda, Canon, Sony, etc. who could research and develop themselves to world stature and impose their brand. Another difference was that the Chinese market did not need much protection as there was no affluent middle class with the means to buy imported consumption. Anyway the state had total control. The resemblance with Japan was to trade consumption for investments with industrial nations. The first problem was resolved when joint-ventures had top brands from everywhere flocking to China’s shores. The second difference lasted for a while and the outflow of consumption grew as fast as the inflow of investments. The accumulation of capital was as effective as ever, and its speed and dimensions were those of the age. Hence, in a record time, the usual stresses cause by this gigantic pump of investments started to provoke reactions. At home, a blooming middle class of small entrepreneurs, retailers, restaurateurs, and members of the medical, legal and teaching professions were increasing their incomes and encouraging the working class from whence they came to do the same. Abroad, the outflow of investments and the inflow of consumption were destroying jobs and creating debts. This was when some began to say that Chinese goods should be consumed in China instead of being exported, and that factories would come back to their nations of origin. So the Chinese middle class took on debts like their counterparts elsewhere, which gave capital another lease of growth, but there was little or no return of manufacturing to America, Japan and Western Europe, as pay and working hours, not to mention environmental and security regulations, are incomparable.

Just like its predecessors, China has accumulated capital by trading its consumption for the world’s investments. When that process slowed down, China turned to creating demand at home by granting credit. Capital has always had recourse to consumer credit to monetize its surplus value and turn consumption into investments. But in the past it was only granted to governments and to the wealthier members of society, other people visited the pawnbroker. Then, at the beginning of the last century, businessmen like Henry Ford realised that the working class did not need collateral to be credit worthy. Since then credit has spread to all consumption, public and private. And it is now apparent that industrial nations have spent several years of their future incomes, and that the interest on this combined debt is greater than the growth rate of incomes. As for paying it back, that would dry up consumption completely, as well as profits and all the rest.

China’s accumulation of capital was fuelled by foreign trade, and the nations they were trading with were having to borrow to pay for added value they had not produced (those few cents on a smart phone). This came on top of labour’s borrowing to cover its own unpaid added value. Together they formed a debt balloon that deflated in 2007 and brought China’s trade growth to a halt. However, its production was growing at such a rate that it could not be suddenly curbed, so Chinese consumers both big and small were given a wide access to credit. It would seem that spending one’s future incomes is an acquired habit, and many unhabituated Chinese have used this easy money to invest on the stock market instead of buying cars and washing machines. They even thought for a while that their investments would be profitable, but market speculation is about as subprime as a debt can get, so that China is in turn on the verge of a debt default crisis. It is showing the world that it is a fully-fledged member of the capitalist club, all of them up to their necks in paper promises.