Archive for October 2009
In a previous post written in July 2008 (Is China the new US?) I explained the restoration of capitalism in China and its move towards imperialism. It was however, not yet an imperialist power. I concluded with this statement:
Is China Imperialist?
Today by the measure of the LOV China is capitalist. In that sense a rapidly growing powerful capitalist China could be considered imperialist. But what do we mean by imperialist? According to Lenin and imperialist country has a surplus of finance capital which must be exported to counter falling profits at home. That is, the possibilities of growth at home can only be sustained by the export of capital to earn super-profits in other countries, and be imported to the home country to maintain the rate of profit. Less important was the need to find new markets in which to sell the commodities produced in the home market. Historically, the powers that clearly meet this definition are the USA, Japan and the main European powers like Britain, France, Germany, Spain and Italy. Others are not imperialist, or may be former imperialist, and are more like semi-colonies, such as Portugal, Greece, Poland, etc. Others may be small imperialist powers such as Sweden, Austria etc.
Does China today meet these criteria? As yet it doesn’t appear so. China has a big trading surplus from its commodity exports but this is mainly invested in US bonds. It is a peculiar sort of finance capital that must accept US petrodollars to fund the massive US external deficit. Most of China’s growth is driven by its internal market which is huge and expanding rapidly. In that sense China’s internal market is sufficient to maintain its profitability, while its exports are more re-exports of foreign mainly overseas Chinese companies (mainly Hong Kong and Taiwan) that have invested in China. So far from being evidence of the export of China’s surplus finance capital, China is the source of imperialist (Japanese, overseas Chinese, EU, US etc) FDI which reaps massive super-profits from China’s cheap resources and labor power.
While the organic composition of capital in China is growing it doesn’t seem yet to have reached the point of an overproduction of capital necessitating an export of productive capital. China today, then, is still developing its internal market, making huge infrastructural investment and is only beginning to establish FDI overseas in Africa, Latin America, and the rest of Asia to create its own so-called ‘empire’. Nevertheless, China is being driven by the rapid growth in demand for cheap raw materials and markets to become a major competitor to the existing imperialist powers, a fact that is clearly behind the growing alarm with which the EU and US views its aggressive role in Africa.
For some China’s capitalist growth has many of the features of industrialization in Europe in the 19th century. However, the form of combined and uneven development that Trotsky and Lenin spoke of in the case of the Soviet Union, and which Marx foreshadowed in China, is today manifest in a pace and scale that would have been beyond even their imaginations. Not only has China become the key driver of the world economy at a time of US dominance and relative decline, it is now at the center of the world historic contradiction between labor and capital. Emerging out of a bourgeois national revolution and the aborted socialist revolution China has within the space of two decades created a powerful capitalist economy. Whether it is contained as a semi-colony exploited by the other capitalists, or succeeds in re-dividing the world economy at the expense of the other capitalist powers, remains to be seen. China may be on the road to displacing the US but will it be as an imperialist China or a socialist China?
This was written over a year ago. At that time China’s capitalist dynamic was clear, but evidence that it had emerged as a new imperialist power was as yet unclear to me. In the time since then there has been a continued rapid development of Chinese economic expansion. Moreover this expansion has been at a time when most of the rest of the world was in recession. FDI into China has fallen significantly due to the financial crisis in the US, Japan and EU. So inward FDI cannot account for China’s growing share of global capital accumulation.
Moreover ‘decoupling’ shows that China is not dependent on trade with the US.
Questions then arise as to the reasons for this dynamic capitalist growth facing what is systemic stagnation in the forces of production globally. Is there something specific to capitalist development in China that allows it to become the main driver of capitalist boom while the rest of the world is in a slump? The question of China as emergent imperialism needs to be re-examined.
Why does China boom amidst global slump?
The continued growth of China (probably around 10%) while the rest of the world, apart from India is either stagnant or in recession, has not gone unnoticed. Those who think that China is state socialist, or mixed capitalist/socialist, put it down to it ability to avoid the worst excesses of capitalist crisis. Others who don’t think China is socialist agree that its powerful central state ownership of the banks has been able to compensate for falling exports by pumping up the domestic economy. Ironically, China is able to implement a fully blown Keynesian counter-cyclical policy to protect itself from the global cycle.
What these positions all point to is the vast accumulated reserves of China. Clearly they are not the result of socialist planning which led to stagnation, but rapid capitalist growth. So China’s phenomenal capitalist accumulation over the last 20 years is the key to explaining its continued rapid growth in the crisis.
But China is not only boosting its growth by domestic spending. In the middle of the world recession it has made a “great leap forward” in foreign investment; i.e capital export, the critical characteristic of imperialism. What this means is that China has not only sufficient accumulated surpluses to spend on domestic infrastructure, social spending on the unemployed etc it has accumulated surpluses in the profits of the massive SOEs that enable it to rapidly expand its foreign investment, either as outward FDI in foreign companies, as Joint Ventures like that with Venezuela for oil production, and loans for oil in a number of countries. As we shall see below this is Chinese finance capital, not the FDI of other imperialist countries using China as a proxy in capital re-export.
In other words China has turned the crisis of US and EU finance capital which is in crisis and suffering massive devaluation, into an opportunity to export its own finance capital. As a result, China is now entering directly into competition with the existing imperialist powers as an emerging imperialist in particular posing a major challenge to the US, the EU and Japan. What accounts for this amazing performance when the rest of the imperialist states are in recession or stagnating?
The answer this is to answer the question: Why is China Imperialist?” The answer can be found by going back to the salient point that the secret of China’s “success” rests in its highly centralized state banks and SOEs which can act to take advantage of the global recession. An while this is no longer a feature of a so-called ‘socialist’ society, it is the legacy of China’s history as a degenerated workers state (DWS). In other words if China had not been a DWS it could never have become a dynamic capitalist country. It would have been fated to be divided and ruled by imperialism from the the early 20th century to the early 21st century. Like all other semi-colonies, China would never have been in the position to accumulate sufficient capital to force its ruling class to export surplus finance capital and emerge as a new imperialist power.
This would be what Trotskyists would expect on the basis of Lenin’s theory of imperialism which in the epoch of imperialism – capitalism’s highest stage – spoke of imperialist powers competing to re-divide the world. New imperialist powers could only arise on the basis of expanding into parts of the world as yet not dominated by other imperialist powers. Once the world was divided, imperialists could only advance by redividing it at the expense of other imperialist powers. There was no possibility of colonies and semi-colonies oppressed by one or other imperialist power to transform themselves by means of national revolutions into imperialist powers. Therefore, no new imperialist powers can emerge in the epoch of imperialism. Two World Wars were proof of the correctness of this theory.
To characterize China today as imperialist then, appears to contradict the logic of Lenin’s theory of imperialism which states that no colony or semi-colony can make a national democratic revolution and emerge as a new imperialist power. However, if it can be proved that China did make its national revolution and win independence as a DWS, and that the restoration of capitalism did not cause it to lose that independence then there is no contradiction with Lenin’s theory. We would find that the essence of his theory explains the anomaly that a former workers state can do what is apparently impossible – become a new imperialist power.
The Law of Value
What distinguishes the DWS from capitalist colonies or semi-colonies is its relative isolation and independence of the from the global capitalist market. Thus the DWSs have been “partitioned” by revolutions that overthrow capitalist social relations putting them outside the spheres of imperialism. Of course their isolation means they don’t escape capitalist imperialism entirely. It oppresses them indirectly by stopping them developing the forces of production by means of new technology. By definition (as explained in the post on “Is China the New US”) DWSs are isolated from the direct effects of the law of value. The prices of production of state produced goods and services are not determined by the value of labor power as is the case in the capitalist market. Prices are determined by a plan.
Whether or not that plan is under the control of the people or a bureaucratic caste makes big difference. In the former case prices are used to signal the amount of necessary labor that workers democratically decide should to used to produce goods and services to meet their needs. In the latter case labor is allocated to produce goods and services that favor the luxury consumption of the bureaucracy and not that of the workers. But in both cases the planned economy develops the forces of production to a greater degree than is possible in a semi-colony where production is controlled by a division of labor imposed by imperialism. Such a planned economy requires a centralized production process and a centralized state. Hence the origins of the strong central state and state owned enterprises (SEOs) in the DWSs.
As I argued in the earlier post, China’s revolution in 1949 was a national revolution that was led by Stalinist army of peasants in isolation of the working class that was forced to go on to become a socialist revolution because the weak national bourgeoisie was aligned with imperialism and incapable of completing this task. But from the outset the ordinary peasants and workers never had control of the revolution so that the form of workers state that emerged was ‘degenerated’ or bureaucratized from its birth. The planned economy under the control of the party elite developed the forces of production beyond that of any semi-colony but never to the point that they could match that of the most advanced capitalism. The isolation of the economy from the world market prevented it from acquiring new technology to increase the productivity of labor other than by increasing its intensity.
The resulting stagnation meant that the privileges of the bureaucracy who lived a parasitic existence on the labor of the workers were threatened. This led the Communist Party to reintroduce private property rights (a sort of NEP) in agriculture to stimulate production and hence its share of the surplus product. Thus the LOV was planted in the countryside. The LOV spread to industry and commerce and caused a full blown restoration of capitalism around 1992. As Trotsky had already predicted, the form of capitalism that is restored in a DWS is state capitalism that uses the existing state machinery and SOEs to reproduce the production of surplus value and profit. It does this by allowing the law of value (the market) to determine prices as opposed to the planning process. China’s accession to the WTO in 2001 marked its full entry into the world capitalist economy.
To recap: China as a DWS ‘partitioned’ itself from the capitalist economy and developed the forces of production internally beyond that possible in a semi-colony oppressed by imperialism. Yet its isolation led to economic stagnation and the Communist Party planned the restoration of capitalism to stimulate growth and the transformation of the bureaucracy parasitic on the plan into a new national bourgeiosie in a restored capitalist economy. Thus, as I am arguing, capitalism that is restored in a former workers state has special characteristics which are critical in allowing it to escape the fate of a capitalist semi-colony and to emerge as a new imperialist power.
China’s legacy was therefore a strong centralized state and massive SOEs under the control of a strong and united new national bourgeoisie. China’s re-entry into the capitalist world economy was managed in stages so that the new bourgeoise remained independent of all imperialist powers. As the imperialists sought to use China as a semi-colony to re-locate their maquiladoras using cheap Chinese labor, the Chinese ruling class retained control of the key state sectors of the economy and restricted the freedom of entry of FDI and in particular the big imperialist banks.
In other words, US and other imperialist powers could not fully ‘re-partition’ a restored capitalist China as their own spheres of interest. The new Chinese bourgeoisie retained control of the national economy and could use the centralized state to monopolize the process of capital accumulation on the same basis as the existing imperialist powers. That is, it operated on the basis of the law of value which sets prices in terms of labor power, but in reality it extracting super-profits and monopoly rent on its own account – the defining feature of imperialism. Let us expand on this point.
Super profits and monopoly rent
In a previous post (“Is Russia Imperialist”) I argued in support of Lenin that imperialism is characterized by monopoly which in the last analysis extracts super-profits in the form of monopoly rent. Marx defined monopoly rent as the difference between the price of production and market price where the latter is determined by a few firms that act as a cartel, or trust i.e. a monopoly. This concept simplifies our understanding of super-profits arising from so-called cheap labor as well as the plundering of raw materials and energy sources. The price of production consists of labor costs, raw materials etc., plus average profits where competition allows a redistribution of surplus-value. That is, in the epoch of competitive capitalism, the price of production reflects competition where average profits result from a process of the equalization of profits from the least efficient producers to the more efficient, given that there is sufficient demand.
Imperialist monopoly ends competition at the level of the market as a few firms control the prices by preventing the ability of more efficient firms to undercut their price. Prices of production now include not the average profit resulting from equalization but a set monopoly price. Thus ‘equalizing’ of profits is done by “fixing” the price in advance of production and not by the market after production. This is why Lenin observed that the imperialist epoch is dominated by monopolies as a few major firms – cartels, trusts, monopolies – set the world prices in various sectors of production such as oil, steel, railways etc.
A short sidetracking is necessary here to distinguish between imperialist monopoly and the so-called monopoly of state planning in the DWSs. While the central state apparatus may in fact by formally the same, as the Communist Party is like a giant monopoly firm planning, or fixing, prices, the law of value separates out these two forms in their essence.
Ideally socialist monopoly (ie in a democratically determined plan) sets prices without any reference to the law of value. Prices are just a means of allocating labor to different branches of production to meet collectively determined needs. Capitalist monopoly however, determines super-profits by calculating monopoly rent as value in excess of the ‘real’ market price of production set by the law of value. By ‘real’ I mean that monopoly looks for the lowest labor and raw material costs (this is the point of investing FDI in colonies and semi-colonies) so that the excess of monopoly price of production over the real price of production i.e. monopoly rent, is a great as possible. Nevertheless, when it comes to the role of the central state, it is a relatively simple matter to switch the state monopoly over the allocation of workers labor in a Degenerated Workers State like China to the monopoly of value produced in a capitalist economy.
China as state monopoly imperialism
If the above argument is correct, China has been able to use its legacy as a DWS to convert its centralized state apparatus into a monopoly capitalist state to escape the trap of semi-colonial partition, oppression and super-exploitation by the existing imperialist powers. It has done this by monopolising land which remains nationalised, and by heavily regulating FDI in terms of both relative and absolute share of value produced in China. Thus the Joint Equity Ventures law of 2001 (No. 48) states the basic criteria on which FDI enters China. FDI operates under ‘business licences’ under Chinese law, pays taxes, and if the national interest requires can be “nationalised with payment of compensation”. Generally, FDI shares in JVs is limited to less than 25%. The Foreign Investors law of 2000 allows 100% FDI in companies that meet the criteria of “economic cooperation” and “technological exchange” and are “export oriented”. If these firms do not fulfill these criteria their licenses can be canceled.
The state retains a monopoly control over the key sectors of industry, energy, and banking via its State Owned Enterprises and State Banks. Typically the SEOs do not pass on their profits to the state but accumulate them for further reinvestment. Does FDI share in this bounty? The share of FDI in SOEs is limited to around 10%. The fact that FDI does not control the SOEs is confirmed by attempts to block them taking over established US and other monopoly firms. For example, the third ranking oil and gas SOE and biggest offshore operator, CNOOC Ltd had its bid to buy the US oil major Unocal in 2005 rejected as it was 70% owned by and getting a cheap loan from its 100% state owned parent SEO. Interestingly one commentator pointed to the hypocrisy of this rejections. Any state monopoly support gained by CNOOC in the process of this acquisition would be matched by big US oil corporations, including Chevron which was the preferred buyer of Unocal at a lower price. It seems that the Chinese SOEs do not “play by different rules” but the rules of state monopoly imperialism!
The big international banks do not own China. For example the BOA has a 10% shareholding in the China Construction Bank . China accumulates its capital on its own account and has a massive sovereign wealth fund that has no need for large borrowings from international banks. Also China is a large US creditor with around US$800 billion in US Treasury bonds. This results from China’s trade surplus in supplying cheap wage goods to US workers and keeping down their real wages. That relationship is not a imperialist parasitic relation as it reflects China’s low domestic wage costs and so does not result from the export of finance capital.
However, while US domestic capitalism benefits from cheap Chinese imports, the FDI in the manufacturing export sector that buys inputs sourced from Chinese SOEs does not get them cheaply because of the SOEs monopoly pricing. A recent analysis showed that China’s return from FDI in copper mining in the Democratic Republic of Congo was higher than that of the giant US mining firm Freeport. The profits of the FDI manufacturing export sector in China are therefore dependent on cheap labor not a share of the superprofits of Chinese state monopoly capitalism. This is true of FDI in JVs that produce for the China market like GM which has as 50/50 partnership with the the SOE Shanghai Automotive Industry Corporation. Of course the GM parent company is currently 61% owned by the US Treasury, 17% by the UAW union, and 11% by the Canadian state following a Chapter 11 bankruptcy!
As China rises, other imperialists fall
If China can monopolise capital accumulation at home and is now embarking on a rapid expansion offshore, is this a classic case of the export of finance capital of an emergent imperialist power? For China to emerge as a new imperialist power it must do so by redividing the sphere’s of influence of existing imperialist powers. That means a growing rivalry with these powers as competition for scarce resources such as oil, gas and minerals intensifies. As we have seen China as a DWS asserted its historic control over Greater China and the autonomous territories etc. It has not had to contest control over these territories with existing imperialist powers. Everywhere else China has to fight for control of these resources.
On what terms? Is this OFDI done on behalf of other imperialist powers? To do so the SOEs would have to pass on cheap inputs to its rivals. We have seen that this is not the case in China. This means that China is a rival not a patsy. Why else were the Unoco and Riotinto deals stopped? This would have seen China gain more control over the energy sector internationally. Is this not protectionism?
Why is China accused of exploiting the Congo? Why is the US beefing up its military presence in Africa in the form of AFRICOM which is training African troops in several countries where China has significant investments as well as journalists in Kinshasa? Why is the SCO and military agreement led by China/Russia being projected as the main threat to US hegemony in Central Asia by the US itself?
But China is not the new US. It is an emerging imperialist power that can only expand at the expense of other imperialist powers by “re-partitioning” their spheres of interest. Which will these be? In East Asia, Japan is the main competitor. Is China developing at the expense of Japan for hegemony in East Asia and the Eastern Pacific? South East Asia? Australia? These are questions for ongoing research.
In Central Asia China is part of a bloc with Germany, Russia, India and Iran that are all experiencing growth at the expense of of the US/Japan/UK/France bloc. Germany is an established imperialist country, while Russia is also a newly emerging imperialist power. India and Iran are relatively independent semi-colonies that have never been able to complete the national revolution to emerge as a form of workers state.
In Latin America China is doing deals under the nose of the US, France and Britain. Venezuela, Brazil, Argentina.
In Africa the China is rapidly becoming the major rival to the US led bloc. Ghana, Nigeria, Lesotho, Congo (Katanga), Sudan, Zimbabwe etc.
These and other questions of the expansionary role of China can only be explained by recourse to Lenin’s theory of imperialism. In a global capitalist economy growth is only possible by means of capital accumulation. Expansion overseas into the existing markets or spheres of interest of imperialist powers, can only occur at the expense of the existing imperialist powers. This has direct effects of the workers and peasants over whose surplus value these powers are fighting. If we cannot explain what is driving China in its expansion we are theoretically and programatically disarmed in our struggle against the super-exploitation and oppression of all imperialist powers.