China : A new economic conjuncture

By Philip Stott and Lence Law

The multiple problems facing China’s state capitalist economy have grown significantly during 2023. The western capitalist press is full of often self-serving analysis predicting the end of the ‘Chinese miracle’.

In addition, ratcheting tensions between China and the US have led to severe trade embargoes –  first under Donald Trump presidency and more recently Biden’s so-called ‘Chip Wars’.

US imperialism is determined to stop their primary world rival from acquiring the advanced technologies in semiconductors to enable moves to an advanced economy. The CCP, in contrast, are trying to transition China from an ‘assembly plant’ into a higher value-added manufacturing economy. Especially in green energy, healthcare, artificial intelligence, supercomputing, life sciences and military technology.

In this accelerating economic war with the US, strenuous efforts are being made by the CCP to transform the ‘people’s currency’ – the Chinese renminbi – into a rival to the US dollar internationally. The recent expansion of the Chinese influenced BRICS economic bloc to include Saudi Arabia, the UAE, Argentina and Iran, among others, is another escalation of the conflict. With the tenth anniversary of China’s ‘one belt, one road’ initiative now taking place, it’s clear that, as the Committee for a Workers’ International has anticipated, we are in an era of world disorder and growing conflict between rival economic blocs.

Amidst a global capitalist economic slowdown, the US/China confrontation is adding another destabilising element into the world economy itself. China has retaliated against US export bans by refusing to sell essential minerals and metals needed for advanced semiconductors.

The Chinese car industry is now the largest in the world, overtaking Japan this year. They also lead on electric vehicles and battery technology. With petrol and diesel vehicles due to be phased out in Europe by 2035, Chinese car companies see an opportunity to take a large share of the market.

When faced with US tariffs on Chinese vehicles the regime responded by flooding large parts of the international market outside the US with cars. This year alone, up to July 2023, Chinese car exports rose 86%. In the last three years sales are up 400%. Chinese ownership of the Volvo and MG brands are also allowing sales to rise in Europe as well as in Asia, Australia, and parts of Latin America.

The scale of car production in China is vast. To aid car exports, reported the New York Times recently. “Shipyards along the Yangtze River are building a fleet of car-carrying ships that act as giant floating parking lots, capable of carrying 5,000 or more cars at a time.” They went on: “Chinese automakers like BYD and Chery, and the European and Singaporean shipping lines that transport cars for them, have placed almost all of the orders now pending worldwide for 170 car-carrying vessels. Before China’s auto export boom, only four a year were being built.”

In part, these export-oriented measures are a response to the slowing internal market inside China which has resulted in an over-capacity of vehicles. The economic slowdown, not least severe problems for the construction and property sector – construction accounts for almost 30% of China’s economic output – has battered economic growth recently.

economic slowdown

Between 1978 and 2019 average annual growth rates in China were 9.45%. During that period there was also a 60-fold increase in GDP per head of the population. The Chinese government makes much of the claim that no one lives in poverty anymore in China.

Without doubt this turbo-charged growth and the mass urbanisation of society has allowed for significant wage increases compared to the past. As well as the emergence of a large middle class and a bourgeoisie.

The prospects for the economy today are entirely different. A slowdown in the economy has been evident over the last number of years. GDP growth for 2023 is expected to be between 3% and 5%. The anaemic economic recovery after Covid has taken most China watchers by surprise.

The CCP leadership were forced to abandon strict lockdown measures and their zero-Covid policy in 2022. The lockdown policy, which involved quarantining of whole areas where Covid was detected, led to residents bring unable to work and consume normally. This led to a decline in a large number of service and manufacturing industries.

In the large export-oriented manufacturing industries, workers were even confined to dormitories, canteens, and factories. There were a number of cases, in 2022, of residents collectively breaking through community lockdown and workers collectively escaping from factories. After many protest marches happened across the country at the end of 2022, local governments finally decided to abandon the strict quarantine policies.

When the financial crisis hit China in 2008, the Chinese government invested approximately four trillion RMB ($550 billion) in society. Most of these investments went to the real estate industry and infrastructure projects that stimulated China’s construction industry and drove urbanisation.

After 2016 in particular house prices became more and more unaffordable. The collapse of property giants like Evergrande in 2021, and with today Country Garden teetering on the brink saddled with huge debts, the economic chickens are coming home to roost.

Mass urbanisation over the previous couple of decades allowed for fortunes to be made in property and construction. Vast building projects not just of housing, but entire cities, road, rail and transport infrastructure took place.

Emptying six wallets

Housing has now become unaffordable for many Chinese.  In 2019, it was still considered natural for young families to independently bear housing loans, but now, the majority of young people refuse to buy a house. For those that do, the vast majority of families need to “empty out six wallets”, meaning that their parents, and two grandparents of both spouses in the family will put out all their money in order to gather the down payment for the house. In the next twenty to thirty years, a considerable portion of the income will still need to be used to repay the mortgage.

The feeling of living in a society that offered sustained growth in the previous thirty years has also been broken, with a large number of young people choosing to leave developed cities and return to rural areas with lower consumption levels and slower pace of life.

Most young couples no longer choose to have offspring, which led to negative population growth for the first time in China in 2022, with industries such as kindergartens and children’s hospitals impacted.

In the last statistics in 2023, the unemployment rate of young people in China has reached over 20% and since July the Chinese government has no longer released statistics on the unemployment rate of young people.

Overall, salary levels have started to decrease in various regions of China, but the phenomenon of forced overtime has not changed. Chinese workers, both blue collar and now white collar workers, are the 996 generation – working from 9 in the morning to 9 at night, six days a week, such are the low wages in offer.

This leaves little or no time for consumption of goods or services which, combined with low wages, also impacts economic growth. Turbo-charged economic development in China is reliant on turbo-charged exploitation of the working class.

Alongside colossal levels of wealth inequality, this is preparing the conditions for class conflict to erupt ferociously at a certain stage. Just 0.03% of the richest people in society own an incredible 67.4% of the national private wealth. For the working class and the poorest 94% of the population, they own only 7% of the wealth.

CCP zig zags

90% of the 25 million companies in China are privately owned. Xi said the private sector in 2018 delivered more than “50 percent of the country’s tax revenues, 60 percent of economic output and 80 percent of urban employment.”

Yet its clear that the state sector – and the CCP dominated state itself – plays a major role in directing the economy in a way that is unique globally. Strategic state influence over some banks and construction – and strong control over foreign trade and investment – allows the CCP leadership to – within the limits of the anarchic nature of the capitalist market and a slowing world economy – to act as a guiding influence.

This has included the Xi leadership acting to curtail, to a degree, the growing influence of the capitalist class in China. For example, since 2018 there has been the nationalisation of hundreds of companies. As well as an insistence that some profits be surrendered as part of a campaign for ‘common prosperity’ in the form of a “return from capital groups to the masses”. This ‘comprehensive poverty alleviation’ plan, has been a powerful tool of propaganda by the Chinese government.

In no sense is this a serious effort by the CCP leadership to move in the direction of socialism. In the context of economic slowdown and growing class antagonisms, it is trying to shore up its social base by making some concessions to the working class while at the same time trying to find a road to economic recovery. As well as fearing an uprising of the working class and youth, the Xi regime has also to look over its other shoulder to sections of the Chinese capitalist elite who would wish more independence and even, in the future, state power itself.

It will be the entry of the enormous and youthful Chinese working class into the arena of struggle against the capitalists and the CCP leadership itself that offers the way forward. The building of independent trade unions and a mass revolutionary party that fights for genuine socialism based on the nationalisation of the economy under workers’ control and management will be crucial.