The bill for the Chinese government’s gaudy response to the global crash of 2008 is now falling due.
Then, the government promoted the biggest surge of investment in roads, bridges, railways, and buildings ever seen in world history. China has built a high-speed rail network bigger than all the rest of the world’s high-speed rail put together in just the few years since 2007.
As with capitalist investment booms generally, the flipside was a rise of debt held in expectation of the returns from the investment once completed. Total debt in the Chinese economy has soared since 2008, and is now equivalent to 282% of annual economic output.
There are few returns now or likely soon on much of the investment. In late 2014 two Chinese government researchers published an estimate that 37% of Chinese investment since 2009, $6.8 trillion worth, was wasted on building bridges to nowhere and offices or homes with no one in them. Local government authorities, which sponsored much of the investment, are in unsustainable debt. Many of the loans came from dodgy and opaque “shadow banking” outfits.
That is the background to China’s stock market crash, which started in June and accelerated on 24 August. The government instructed students at a top university’s graduation ceremony to chant: “Revive the A-shares, benefit the people!”, but that didn’t help.
There are good reasons for doubting that August 2015 is China’s equivalent of October 1929 in the USA. China’s stock market has less weight in China’s economy than Wall St had in the USA’s in 1929.
The Economist magazine, though an evangel of free-market economics, thinks that the fact that China already has as permanent policy what the US and UK did as panic rescue measures in 2008 will limit the slump. “Thank the Chinese regime’s vice-like grip on its financial system... If it faced an economy-wide credit crunch, the government would (as it has in the past) simply order banks to lend more”.
The economist Nouriel Roubini, famous for “calling” the 2008 crash in advance, has been predicting a downturn in China ever since then. But even he expects total output growth of 6.5% in 2015 and around 5.5% in 2016. There are strong “virtuous spiral” trends in China: countryside-to-city labour migration, technological catch-up increasingly spinning off into autonomous technological advance, inflows of manufacturing investment.
Yet the managers of the USSR’s even more state-regulated economy found (as Jacques Sapir shows in his great study of economic fluctuations in the USSR) that such state control tends to produce a “business cycle” of investment splurges followed by cost overruns followed by clampdowns.
The picture for China’s “workshop of the world” manufacturing industry is gloomier for its economy as a whole, in which services are a bigger factor than manufacturing. Investment in infrastructure still showed a yearly growth rate of over 20% in 2014; but since 2012, total industrial production in China (not including construction) has been growing at only about half its rate before 2008. Foreign direct investment inflows in manufacturing have decreased since 2011.
One of the major motives for the Chinese government’s investment surge after 2008 will have been to keep social peace. Although independent trade unions and autonomous working-class political expression are illegal in China, in recent decades the country has seen more and more worker protests and strikes, often victorious.
Inequality has increased in China. Some estimates make it the most unequal major country in the world. Yet the government has been careful to keep wage rates rising, if not as fast as profits, and to limit unemployment.
Its ability to do that will decline; and in the thousands of protests and strikes, workers will have gained confidence to make further-reaching demands.
China Labour Bulletin reports: “In manufacturing industry, there has been a definite increase in the number of wage arrears cases since early 2014. The majority... are in the traditional manufacturing centres along the southeast coast, especially the Pearl River Delta, where factories are struggling to stay afloat as the economy slows, and prices and demand falls”.