Is China headed for a crash?

Once again, Western ‘experts’ are predicting a financial crash in China.  “China is flailing”, says one commentator; another says “a debt bomb is about to explode”.  These would-be Cassandras reckon China’s demise will be driven by the bursting of the property bubble, excessive debt and the grinding down of the economy due to the government’s “terrible” ‘zero-COVID’ policy that keeps parts of the country in permanent lockdowns.  And then of course, there are the growing restrictions on China’s exports and its investments abroad, imposed by the US and supposedly backed by its allies in Asia.

How much truth is there in this latest batch of critiques on China’s economic progress?  The property crisis has reached dangerous levels.  Last year, Evergrande, China’s second-largest private property developer was close to bankruptcy.  The Evergrande property model is essentially a Ponzi scheme, where the company collects cash from the pre-sale of an ever-growing number of apartments, plus hundreds of thousands of individual investors and uses the cash to fund further sales by accelerating construction in progress and funding down-payments. Like any Ponzi, this works as long as it’s accelerating. But when the market slows, those incoming streams of cash start to fall behind the growing arc of cash demands. Evergrande now has about 800 unfinished projects and there are about 1.2 million people waiting to move in.

Now the property crisis has reached the point where millions of Chinese purchasers have stopped paying their upfront mortgage payments.  Chinese homebuyers’ rapidly escalating boycotts on mortgage payments have spread across at least 301 projects in about 91 cities, with the value of mortgages that could be affected swelling to an estimated 2 trillion yuan ($297 billion). About 70% of household wealth in China is invested in real estate.  Some Chinese banks have responded by seizing purchasers’ savings deposits, claiming they are really ‘mortgage investment products’.  This has sparked open protests outside some banks, leading to the government surrounding the banks with tanks.

At the same time, China’s usually stupendous annual growth in real GDP has been sliding, even before the COVID slump in 2020.  While recovery was strong in 2021, new bouts of COVID variants have caused new lockdowns.  The Chinese government has been hugely successful in its policy of zero COVID, keeping the death rate down to miniscule levels compared with the major capitalist economies.  But economic growth and employment have taken a hit as a result. 

The Chinese economy shrank by a seasonally adjusted 2.6% quarter on quarter in the three months to June 2022.  The nationwide urban survey-based unemployment rate eased only to 5.9% in May, with the unemployment rate for the 16-24 age group rising to an elevated 18.4%.  It is increasingly clear that the government’s target real GDP growth rate of 5%-plus is not going to be met this year.  And remember this target has been reduced over the last few years, as the double-digit annual expansion of the last decade has disappeared.

China: annual growth rate %

So, is this the moment of collapse in the Chinese model of development and the end of all that talk about ‘moving towards socialism’ etc?  Many Western experts think so.  What will cause this collapse, in their view, is the failure of the Chinese leaders to ‘liberalise’ the economy and open it up even more to capitalist companies and markets.  Time to stop ‘zero COVID’ and relax restrictions as ‘successfully done’ (sic!) in the West.  In effect, China needs more capitalism.  It needs to expand the private sector.

But wait a moment.  What are the causes of the current property crisis and the debt expansion?  It can be laid squarely at the door of China’s expanding private sector, as promoted by a sizeable section of the Chinese leadership, particularly in the finance and property sectors.

Increasingly, China’s investment expansion has been in unproductive sectors like finance and real estate.  Why in China, of all countries, was home building in the burgeoning cities left to private capital developers offering mortgages to buy?  Why were homes not built by the state sector for rent?  The result has been a classic case of a Western property market crash that the state now has to clear up.  This will have to be resolved by the state (local governments) finishing off projects and restoring the rights of mortgagees to their money. 

There is not going to be a financial crash in China.  That’s because the government controls the financial levers of power: the central bank, the big four state-owned commercial banks which are the largest banks in the world, and the so-called ‘bad banks’, which absorb bad loans, big asset managers, most of the largest companies. The government can order the big four banks to exchange defaulted loans for equity stakes and forget them. It can tell the central bank, the People’s Bank of China, to do whatever it takes. It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies. It can tell the state bad banks to buy bad debt from commercial banks.  It can get local governments to take up the property projects to completion.  So a financial crisis is ruled out because the state controls the banking system.

But the current property mess is a signal that the Chinese economy is becoming more influenced by the chaos and vagaries of the profit-based sector.  It is the private sector that has been doing badly during COVID and after.  Just one small example: COVID lockdowns in Shanghai were out-sourced to the private sector with poor results; in Beijing, local government did the job directly with much more success.

Profits in the capitalist sector have been falling.  Profits earned by China’s industrial firms increased only by 1% yoy to CNY 34.41 trillion in January-May 2022, slowing from a 3.5% rise in the prior period, as high raw material prices and supply chain disruptions due to COVID-19 curbs continued to squeeze margins and disrupted factory activity. Profits at state-owned industrial firms rose 9.8%; while those in the private sector fell 2.2%. Only the state sector is continuing to deliver.  This is what happened in the global financial crisis of 2008-9, which China avoided by expanding state investment to replace a ‘flailing’ capitalist sector.  What Xi and the Chinese leaders have called the “disorderly expansion of capital”.  

The capitalist sector has been increasing its size and influence in China, alongside the slowdown in real GDP growth, investment and employment, even under Xi.  A recent study found that China’s private sector has grown not only in absolute terms but also as a proportion of the country’s largest companies, as measured by revenue or (for listed ones) by market value, from a very low level when President Xi was confirmed as the next top leader in 2010 to a significant share today. SOEs still dominate among the largest companies by revenue, but their preeminence is eroding.  

Far from the answer to China’s mini-crisis requiring more ‘liberalising’ reforms towards capitalism, China needs to reverse the expansion of the private sector and introduce more effective plans for state investment, but this time with the democratic participation of the Chinese people in the process; not by tanks outside banks.  Otherwise, the aims of the leadership for ‘common prosperity’ will be just talk.

Having said all this, it is still the case that the public sector-dominated Chinese economy is and will do better than those in the West, the G7 economies.  Here are the latest IMF forecasts for growth in the major economies.

Even this year, if China only manages around 4% real GDP growth, that would still be faster than any growth rate in the G7 economies.  And the IMF forecasts that China will grow at 5%-plus in 2023, while G7 economies will be lucky to manage half that rate, assuming there is no new global slump. Indeed, longer term, the IMF forecasts that China will grow at a subdued rate of 5% a year, but that rate would more than twice as fast as the US, and more than four times as fast as the rest of the G7.

I have discussed at length in previous posts the claim by Western experts that China’s falling working-age population and its slowing productivity growth rate mean that it will begin to fail.  These arguments are weak and faulty.  Indeed, even on the adjusted (A) Western measures of labour productivity growth during the COVID period, China did way better than the ‘dynamic’ USA.

Indeed, the forecasts (and hopes) of the Western experts that China is about to melt down are clearly not agreed with by the strategists of capital in the US and NATO.  They do not expect internal disintegration and so continue to try and strangle China’s economy externally.

66 thoughts on “Is China headed for a crash?

  1. Excellnet post
    The liturgy of impending Chinese econmic failure is a tired comedy routine

    made more ludicrus by the claims that free markets are the obvius solution
    since as u incisively point out, the basis for the current reprisal of the liturgy is a wild west free property market

  2. Good post. It’s a shame the PBofC now seems to be ruled by Western-trained ‘debt and deficit ‘ ideologues, who can no longer offer assistance to countries joining the BRI. (ffs, if the infrastructure can be built, why care about debt – which a currency-issuing government can issue whenever it wants, provided the resource limit is not breached).

    And at home: China – with its vast productive capacity – has missed the chance to show the world how to decently house everyone, regardless of income level – as a contrast to the horrible housing conditions of the poor in Hong Kong.

    China will have to dig deep to find its own technological progress, now that the US, paranoid about losing its global hegemony, is openly determined to crush China at every turn…. stuff free trade! The next decade will reveal if the CPC really believes in “socialism”.

  3. The tanks are not in Henan and have nothing to do with the protests there. They are in Shandong in a military city simply moving around as part of their usual activity.

    1. The real story of suppression is more chilling than the mistaken tanks report.

      Beijing – Several people protesting in Zhengzhou over the freezing of deposits by some rural-based banks said they were injured when security personnel dispersed the crowd.

      The banks froze millions of dollars worth of deposits in April, telling customers they were upgrading their internal systems. The banks have not issued any communication on the matter since. The frozen deposits could be worth up to $1.5 billion.

      About 1,000 people gathered outside the Zhengzhou branch of China’s central bank on Sunday to demand action. Videos and photographs on social media showed depositors waving banners and throwing plastic bottles at approaching security guards who then roughly dragged some of the protesters away.

      Zhang, 40, told Reuters he had suffered injuries to his foot and thumb, and was taken away by four unidentified security personnel at around midday. Security personnel outnumbered protesters by around three to one, he said.

      “They did not say they would beat us if we refused to leave. They just used the loudspeaker to say that we were breaking the law by petitioning. That’s ridiculous.”

      More than 1,000 depositors from across the country had planned to gather in Zhengzhou last month to try to withdraw their money but they were unable to when their COVID-19 health codes, which determine if one can travel, switched to a “no travel” status.

      From https://www.reuters.com/world/china/chinese-protesters-demanding-bank-deposits-tussle-with-security-men-2022-07-10/

  4. I agree with almost all the contents of this post.

    Just some complementary information:

    1) this housing market “crisis” is localized on two provinces – Henan and Anhui (two neighbor provinces, near the Chinese east coast). It was ignited by local, “village” banks. Therefore, it is not systemic. The tanks on the streets my be a shocking landscape for the West, but, by now, they’re already cultural/traditional in China, and doesn’t mean a massive revolt is happening; if both provinces implode in unrest, the most it will achieve is to teach the rest of the provinces a lesson on what happens if you give too much breathing room to private capital;

    2) this crisis on these two provinces were clearly a criminal attempt to cheat the system, not a byproduct of the system itself – the banks were really the victim here. This is a completely different scenario from the USA housing market crisis of 2008-2009, which actually started to breed in 2006, and was bred with the blessing of the Federal Government itself (see Fannie Mae and Freddie Mac). See this article for a quick explanation of the scandal: https://www.globaltimes.cn/page/202207/1270759.shtml.

    3) contrary to the West, the Chinese central government really takes over the private capital it bails out. That means the owner of the business will lose his capital. That’s why Evergrande’s founder is torching his personal wealth trying to save his company. Capital really goes bankrupt and really is expropriated in China (something that is anathema in the West);

    4) the decision of the local banks from Henan and Anhui to consider those deposits as mortgages is the correct Marxist interpretation of the fact. This will teach a lesson to the liberal-minded, petty bourgeois Chinese middle class, so that they don’t try to cheat the system of think of themselves as frustrated billionaires in the future;

    5) the Chinese government can – and will – use the salvaged resources from the corpse of Evergrande et al to finish whatever of those projects it can, in order to deliver those houses to their clients. This would certainly not happen in the West, where the client usually loses all of his/her money (liquidation of debt, through a list of creditors, always comes first). Housing is considered national security and one of the original promises of the CPC to the Chinese people, since the times of the Revolution, so you can bet it will do whatever it takes to give one home to each Chinese family.

    My prediction is the CPC, having already detected the fraud, will ramp up financial regulation (real financial regulation, not those fake regulations frequently evoked in the West), crush this mini-crisis and continue with its project to achieve a “moderately prosperous society” by 2049. Let us remember: what in China passes as “reforms” and “regulations” would actually amount to revolutions in Western countries; the Chinese have a very high bar for the usage of the word “revolution”.

    The only point I disagree in this post is the statement that the Chinese working class doesn’t have any say in the decisions of the Central Government: the CPC has almost 100 million members, and its approval ratings are above 97%. It has local to central government elections, which are highly competitive. The reason there are few protests in China is very simple in my opinion: whenever there is a problem that needs to be solved – say, a pothole in my village’s main street – most likely the villager at least has a neighbor who is an active member of the CPC. That means the average Chinese citizen, even not being a member of the CPC, has direct access to the CPC – therefore all the instances of the Government. This is direct democracy, which is a higher form of democracy than representative democracy. Most likely, the Chinese don’t protest much for the simple fact they don’t need, not because they can’t. This was also true in the Soviet Union: secret protocols declassified and released after its fall shows that the CPSU took the complaints of the people extremely seriously, up to the very end of the Union; thing is the doctrine of democratic centralism resulted in an increasingly bizarre press, which always echoed the official line of the Party. Gorbachev’s Glasnost and Perestroika was a direct attempt to solve the Soviet peoples main discontent, which was the lack and low quality of light durable consumer goods (which by then had fallen drastically below in quality and quantity in relation to their capitalist counterparts).

    –//–

    From my observation, all the “China Collapse” theories in the West can be organized in two main groups:

    1) the “theories” that derive from the Middle Income Trap;

    2) the “theories” that derive from what I will call here “The Theory of the Middle Class Revolution” in the absence of a formalized term.

    The first group all agree, with different levels of sophistication and different angles of ideology, that China cannot remain an industrial superpower: either it collapses in an neoliberal-style monetary-financial crisis like any other “Emerging Economy” and goes back to being a normal Third World nation (e.g. Mexico, Brazil, Turkey, South Africa) or it becomes a deindustrialized financial/services economy, thus becoming a normal First World nation (e.g. USA, UK, France).

    The second group all agree, again with different levels of sophistication and different angles of ideology, that capitalism is the End of History, therefore all the development of the productive forces naturally and inevitably leads to a middle class society, which leads to capitalism – either violently or peacefully, or a mix of both. That’s the case because, according to them, capitalism is just the natural state of the Homo Sapiens and not a historically specific mode of production, which makes any form of non-capitalism unnatural and/or an abortion of History.

    1. Both supporters of the first and the second group, like many Marxists, forget the fact that China is already a capitalist i-liberal country: like Chile in Pinochet’s time, or South Korea or Taiwan in the 1960s-70s. And just because of the above, by the end of this decade 2030 it will have overtaken the US as No. 1. which could unleash a brutal reaction from the US and its extended NATO.

  5. I think the China Covid-19 policies should not be understood in this way.
    It is not just China but all of SE and E. Asia that has a low Covid death toll. North Korea was pretty much completely infected after March yet there is no indication that the official death toll of about 70 is false, and for a country under permanent satellite surveillance you can be sure that western powers would gleefully have reported massive or concealed deaths.
    Noteworthy in Shanghai was the 90 odd percent “asymptomatic” rate. Either the vaccines in China (inactivated virus) are relatively effective, or cross immunity explains this. In fact only 40% of Shanghai’s at risk group- the over 60s -were vaccinated. Where did you hear that Shanghai outsourced its lockdown? I find that unlikely.
    Residents committees do the lockdowns under orders from above. That inevitably means the Party. Deliveries may have been partly private but I doubt much else.

    The issue is perhaps better to consider in a wider context. Why did E Asia and S E Asia have such low rates of serious illness and death? I think the smoking gun is this paper from 2013 coauthored by China’s leading medic and the man in charge of the SARS and SARS-COV-2 campaigns Zhong Nanshan. In it he shows that SARS remained in widespread circulation after it was declared “eradicated” by the Chinese authorities, the WHO, and by the medical profession of the whole world. https://arxiv.org/abs/1305.2659
    About 20 percent of children born after SARS disappeared had SARS antibodies in 2010-2012. So either that data is wrong or SARS (and multiple mutations) has been endemic in China for 20 years. If so, it is hardly likely to have remained in China but it perhaps it was more common in SE and E. Asia.
    Of course we also know that immunity (the ability to fight off the infection) is mediated by antibodies but more importantly by T-Cells (and other lymphocytes) which were detected in the blood of 100% of past SARS patients (they lasted 17 years) And in the blood of over 80% of people with no known previous SARS or SARS-COV-2 infection.
    This was proven in this study in 2020. https://pubmed.ncbi.nlm.nih.gov/32999467/
    China’s lockdowns were political measures not medical measures. They were introduced to pre-empt the threat of “yinao” “medical unrest” which was the perhaps the main source of urban unrest over the last 20 years.
    Xi Jinping was almost certainly aware of the limited danger of Covid-19 as less than 3 weeks into the lockdown in Jan 2020 on 10 February he called for the country to go back to work. His command was blocked by local governments and towns, fearful of getting the blame for any outbreaks.
    What China did right was more on the evaluation side of the disease. They did not include asymptomatic positives as “cases” in the official count and they only count deaths where CT scans identify broken glass like opacities in the lungs as Covid-deaths.
    The rest of China’s so-called dynamic-zero is almost certainly for show rather than health but it is intertwined with the internal conflicts between state-private forces and the various levels of internal bureaucratic conflict that express this. The State provision of health care has been ramped up as the migrant workers and urbanites are demanding improved conditions. This resembles the pressures that led to an expanding welfare state in Europe after WW2 but manifest in typical zig-zag shifts in policy that characterise bureaucratic “socialist states”.

    1. How do you distinguish “typical zig-zag shifts in policy” in fake socialist countries from simple changes in policy in response to changes in conditions? By the contrast with free capitalist states where most policies continue more or less the same regardless, blithely ignoring elections and such?

      The claim that either the death toll from Covid-19 in the US etc. is faked, or that there is extensive natural immunity to it in the E. Asian populations is remarkable. For the first, the only excess mortality data reported seems to contradict that. And the second unfortunately asks the question, how did Xi know that Covid-19 would be harmless except for the economic consequences….unless of course it was bioengineered in Wuhan?

  6. something I had written 10 years ago, when the hysteria about a housing bubble in China had reached its previous peak:

    “there are a whole range of fundamentals and underlying economic factors that seem to suggest that the valuations are defensible in the context of the larger economic picture that China presents, or at least that there may be sufficient countervailing forces to cushion a decline in value:

    1) Significant and robust urban population growth together with double digit income growth in urban areas 2) Pent up demand due to backlog of housing, new financing options 3) Urban population growth exceeds building activity; over the decade from 2001 to 2011 80 million new urban households have been formed, but only 62.6 new housing units were completed and 76.5 units were sold 4) Few options for savings; socio-cultural factors and homeownership bias imply a higher price income ratio in equilibrium

    The real estate and housing sector is disproportionately large and any shock will necessarily have a correspondingly large impact on the economy. However, some other factors need to be taken into account. First, mortgage and macro-prudential policies, such as loan-to-value ratios and debt-income ratios, banking and monetary measures, such as reserve requirements and credit targets, and local government regulatory guidelines for developers have been successful in boosting or dampening the market in the past, although their effectiveness is decreasing due to the increasing weight of the shadow banking sector. The low LTV ratios, the relative immunization of the finance system from housing because of low mortgage penetration and low levels of securitization suggest a contained impact from housing. However, private investors, shadow banking structures, off-balance sheet investment vehicles are vulnerable, if not the state-owned banks per se, although the latter are also enmeshed in construction loans and other real estate activity through the local government finance channels. A serious downturn in construction will inevitably affect downstream and upstream sectors, such as cement, steel and appliances to a significant degree. Overall, there is no doubt that a housing crash, if it happens, will have major repercussions, but primarily through the real economy channels. The finance sector will also be adversely affected but the extent and severity is severely constrained, managed and contained by its “public sector” stance

  7. The tanks outside banks story is false : https://observers.france24.com/en/asia-pacific/20220721-did-the-chinese-government-really-deploy-military-tanks-to-suppress-protesters-in-hunan-province

    It is troubling to say the least that you have taken such false story as true in 2022’s China. It’s shows that you know very little about how civil, union, ecological and other types of protests occur in China. Did you really believe that the government would put tanks to defend private banks from a popular protest? Not even in Hong Kong. I hope that this facility in communing with fake news easily scattered by liberal/racist stereotypes of China as an hyper-authoritarian spooky asian state that ultimately protect capital over people comes more from your closeness to Trotskyism and ultra-leftism than to your british idiosyncrasy.

    1. ”Netizens, particularly in the Chinese-speaking world, have been sharing a video of tanks on the streets. They claim it shows the Chinese government using military force to control protests in Henan province, where ongoing banking scandals have been keeping customers’ compensation and deposits frozen since April.” Perhaps Aprendamus might appraise us of the reasons Chinese citizens were propagating such rumours. Personally, I have no sympathies with any form of Leninism, regard Michael as not sufficiently leftist, and am idiosyncratic enough to believe that the Chinese Government would use tanks to protect capital over people.

      1. Which is to say, Aristotle wrote that people on the internet never lie?

        Anti-Leninism like the anti-Communism it is modeled on, is a foundational principle of political reaction.

  8. “Why in China, of all countries, was home building in the burgeoning cities left to private capital developers offering mortgages to buy?” The attempt to mark a bold line between private and state capital is belied by the facts. Developers are typically in business with city and provincial governments. Cities have had to depend on land sales for a major chunk of their revenue, and developers need the land. They become partners.

    Incidentally, most buyers do not take out a mortgage. They round up the entire purchase price from their relatives, who of course expect to get their money back, or similar help when their young-adult children buy a home. Therefore, debt entanglement is real, not something the government can wave away.

    “There is not going to be a financial crash in China. That’s because the government controls the financial levers of power.” There is definitely a limit to how much debt can be piled up and rolled over and over. The central government knows this, not reassured by the shallow mantra that we owe it all to ourselves. But the exact tipping point is unknown. There might be a financial crash, or there might not. If not, the extended unwinding of the debt mess will make breakneck growth rates more difficult to reach.

    1. The Chinese government does not use the argument it “owes to itself” – that’s Mr. Roberts’ argument.

      If you read the Chinese official and extraofficial media, you’ll quickly verify that it does not take the problem lightly, but also not that heavily as the China Collapse theorists state. The problem is significant, but not catastrophic, and can be solved (even if only in the medium term).

      The only argument for a China collapse through a housing market crash comes from the fact that such crisis happened in the USA, therefore it must also happen in China. In my opinion, that’s a vulgar, pseudo-scientific, hypothesis and line of argumentation.

  9. I think there is a need to address the ecological implications of China’s ”success.” As Minqi Li has empahised (”Monthly Review” !/7/21) ”the unlikely scenario that China somehow “succeeds” in its national project to “catch up” with the West and joins the core of the capitalist world system. In this scenario, the combined energy demand by China and the existing core countries, as well as the enormous greenhouse gas emissions and other pollutants generated by a greatly expanded imperialist core, will completely overwhelm the global ecological system, destroying not only the environment but also any meaningful hope for a sustainable human civilization. It is therefore in the best interest of humanity as well as China that such a scenario does not materialize.” Ultra-leftism? I think rather economic sobriety!

    1. There’s a way out for Minqi Li’s dilemma: the West becomes undeveloped (which can be achieved if the Western peoples systematically elect their green parties), making China the only developed nation in the world.

      1. I suppose “becomes undeveloped” sounds nicer than “all the parasites (aka “people”) in the West die.” But I still object. The notion that green parties are going to wreck the economies also strikes me as bizarre. Relative deindustrialization is not a particularly green policy and it is bipartisan to boot. Green parties do not even stand for fair rationing of scarce resources.

    2. This kind of economic sobriety also includes population control, proactive and retroactive. Before committing to such extravagances, one needs to prove the drastic cure is a true necessity. After all, “First, do no harm.” The assumption that the levels of resource expenditure by the current system are somehow necessary and optimal stem from an unthinking acceptance on some level of the notion capitalism really is the most rational use of resources to meet needs. That strikes me as incorrect.

      Also, this strikes me as not even leftist, much less ultra-leftist.

  10. Have we become so overwhelmed by the financial crash and all the scribblings about financialisation that we have forgotten that capitalist crises are born in the cauldron of production? History is likely to record that it was 2013/4 which was significant not 2008, because 2013/4 marked the beginning of the end of the period of globalization. It was at this time that the global industrial rate of profit ,which had risen for two decades, began to fall. By 2019 that rate, by whatever measure, had fallen by up to 40%.
    This created the headwinds facing industrial investment. This was particularly dramatic in China, from annual increases of over 20% it had fallen to close to 0% by 2019. The CCP has been successful because it has always obeyed the law of value which states that an investment is only viable if the value returned exceeds the value invested and that is becoming more and more difficult to achieve in China.
    A lot has been written about the structure of Chinese Banks, namely the prevalence of state ownership. A more important point is that Chinese banks are the mightiest in the world only because Chinese industry is the mightiest in the world, just as in the 1980s when the Japanese banks were the mightiest in the world because of the might of Japanese industry personified by Toyota and Sony. Any weakening of Chinese industry will undermine their banks regardless of who owns it because in the end it is the generation of surplus value that counts.

    Today economic weakness in China is endemic. Retail sales are weak, investment is weak, property is weak, employment is weak, and exports are weakening. Does that mean it is game over? No, China is still on the path to import substitution and there is unfortunately also an arms race in progress. SMIC just announced scaled up 7nm chip production, China is in the forefront of 3D stacked chips which allows slower chips to match the performance of higher spec chips at a fraction of the cost, its Electric Vehicles will come to dominate the global market, its aviation industry will soon end the Boeing-Airbus duopoly and so on and so forth.

    But China’s growth will not add to global growth as it is likely to be at the expense of its competitors. And more importantly China does not have the capacity to lift the world out of recession as it did post-2008. Instead it is just as likely to succumb to this global recession as will its major competitors because it is suffering from the same profit malaise. The CCP may be able to lock down COVID, let us see if they are able to lock down rising class antagonisms.

    A quick point. It is not a surprise that property in China is mainly privately built. This is in line with the Chinese ‘upstream-downstream’ development model. The state undertakes the more difficult to finance upstream developments such as infrastructure, communications and power so as to fertilize the downstream activities of the private sector such as real estate, manufacturing, tertiary activities and so on. And incidentally a visit to the Census Bureau in the USA will reveal just how many homes are bought off-plan or still in the construction phase. So China is not alone in this practice.

    1. Let me know if I’m more or less correct:

      If china delinks from both Western capitalism and the capitalist mode of production as such, either because it wants to or because socio/economic conditions force it to, it will be driven by a law of value different from Marx’s (which applies only the capitalist mode of production): production of absolute, socially necessary use values–labor time would be of the utmost importance in inluencing what to produce and how, but not supreme, trumped by social need. Western capitalism’s crisis will little affect its production decisions except for defense (a big little effect!).

      China’s socialist law of value (absolute socially necessary production) would apply even to remaining, small to mid-sized private buisnesses.

      Success would require decentralization, more democratically organized decision-making, and focus on ecologically sustainable production, especially in agriculture—which, it seems to be me has been taking place for some time now, but will probably require a big shakeup in the CPC.

      1. I will only venture this. If capitalism survives the next ten years allowing for technological catch up in China, its economy will be far less state dependent and its multinationals will be indistinguishable from those of its competitors.

      2. The ritual invocation of decentralization implies that the problem is overcentralization, an assertion which is more an article of faith than reasoning (much less reasonable!) propostion. Given the illusions cultivated in “democracy,” it is also extremely likely that many people’s incoherent notions will directly conflict with the decidedly non-democratic science of ecology. Orthodox economics likes to pose as a rational science of man economizing with nature because it wants to rule out all sorts of things as natural impossibilities, not political choices. Climate denialism is a movement within a democratic society. Murmuring “democratic” means nothing.

    2. But that’s precisely the plan. Socialism is the successor – not the alternative – of capitalism. The development of capitalism to its last logical consequences tends to socialism. And that’s what China is doing right now: develop the productive forces of capitalism to its limit (i.e. until its profit rate tends to zero, through increased OCC) in order to lay the ground to socialism.

      The Bolsheviks abolished the financial system in Russia by not extinguishing, but by increasing to astronomical amounts the quantity of money printed by its Central Bank. Inflation was so high that it led to the self-destruction of the old Tsarist financial system (Preobrazhensky even made a joke about that at the time). It was astronomical money printing, not political abolition, that abolished the Russian financial system after the October Revolution.

  11. The end of China thesis has ended, but wishful thinking continues. But the clock does strike twelve every now and then.

  12. SOCIALIST ECONOMIC DEVELOPMENT IN THE 21ST CENTURY (UPDATE)
    May 24, 2022. https://geopoliticaleconomy.org/ . It would be useful to read Michael’s article above in conjunction with his and Radhika Desais’ contribution at the above webinar. My own sympathies of course lay with these two participants, though I was disappointed to understand, unless I am mistaken, that neither Michael nor Radhika seem to hold that the law of value pertains under socialism. In particular, it was not clear why Michael holds Preobrazhensky in such high regard. For a devastating critique of Preobrazhensky’s economic ideas and those of the other Leninists cf. Ch 13 of”The New Value Controversy” ( eds.Freeman, Kliman and Wells. 2004). As the author Chattopadhyay remarks, “”Preobrazhensky sees to be suffering from what Marx long ago denounced as ‘metaphysical or juridical illusion’.” Such a critique is by no means new. As long ago as 1926 Bogdanov criticised Preobrazensky’s confusion of value and exchange value, and thus his argument that the state plan leads to the atrophy of the law of value i.e to confuse a juridical measure with the transformation of real relations of production (J.D. White, Red Hamlet” 2019, Ch14). As Mao argued by analogy: the expropriation of the capitalist class is a purely juridical measure, as with the granting to Chinese women of equality in law. Nothing has really changed; everything else remains to be done to attain the emancipation of the exploited classes.

    1. Anti-capital has offered several sophisticated arguments and concluded with two quotations from Marx:”“The purpose of this labor is not the creation of value” and
      “…. law of value which only begins to develop itself freely on the basis of capitalist production,…” Capital, Vol 1 Ch 19

      I also quoted:””even after the capitalist mode of production is abolished…the determination of value still prevails in the sense that the regulation of labour-time and the distribution of social iabour among various production groups becomes MORE ESSENTIAL than EVER” ( Capital Vol 3 P991). So, has Marx fallen into theoretical confusion? I think not. What Anti-capital has to say, basing himself on Marx is perfectly correct. The purpose of the peasant family labour is the reproduction of the family unit. But though the purpose of such labour is not the creation of value that does not mean that the use-values such family labor creates for its own reproduction do not embody value. When the family takes any surplus goods to market, this is manifestly clear. No Marxist should argue that it is the act of selling such goods that bestows value on them. This is the same today. If I grow potatoes and my neighbour strawberries in our gardens, we do not exchange them in the ratio of 10 kilos of potatoes for 10 kilos of strawberries, but rather say in the ratio of 10 kilos of potatoes for 1 kilo of strawberries. What determines such a ratio but the necessary labour-time for the production of these use-values, let us say 20 hours. Now should we take such goods to the local supermarket, exchange value intervenes. The supermarket values our labour-time at only 5 hours, which is their market value and determines the price the supermarket can sell them at. But how could the value of such use-values be depreciated if they had had no value to begin with? It is not the selling of them that produces such values!

      The second quote from Marx is also correct. The increasing development of capitalism has led historically and on a world scale to the expropriation of the possessors of the land ( as currently in China) and of the instruments of production. What Marx calls the immiseration of labour, so that communities that for the most part lived outside capitalism became subject to the law of value, as only with the domination of capital does labour become denuded of any alternative but to selling its labour power This was often occasioned by state intervention e.g. in Africa the British Crown forced the Zulus to pay taxes in money. But note that Marx regularly uses value where he means exchange value, as here.So generally Marx’s outline captures the historical movement, but we need a more nuanced analysis. Ancient Italy had many large urban areas. Rome itself probably approached 1 million inhabitants, Alexandria 500,000. The inhabitants for the most part were engaged in commodity production and thus the law of value pertained. The citizens of Rome bought their bread. All this aristocratic propaganda about ‘bread and circuses’ to which even Marx fell prey is just so much nonsense of the’ living off state handouts type’. Moreover there were many day-labourers. Fernand Braudel affirms that by the end of the 16th century in Spain more than half of the rural population were landless labourers(”The Mediterranean and the Mediterranean World in the Age of Philip II” 1972). No doubt many of these were paid in kind, but we must not exaggerate the extent to which pre-capitalist societies lived in self-reproducing communities.

      1. Comrade JL writes: “The purpose of the peasant family labour is the reproduction of the family unit. But though the purpose of such labour is not the creation of value that does not mean that the use-values such family labor creates for its own reproduction do not embody value. When the family takes any surplus goods to market, this is manifestly clear. No Marxist should argue that it is the act of selling such goods that bestows value on them. This is the same today. If I grow potatoes and my neighbour strawberries in our gardens, we do not exchange them in the ratio of 10 kilos of potatoes for 10 kilos of strawberries, but rather say in the ratio of 10 kilos of potatoes for 1 kilo of strawberries. What determines such a ratio but the necessary labour-time for the production of these use-values, let us say 20 hours. Now should we take such goods to the local supermarket, exchange value intervenes. The supermarket values our labour-time at only 5 hours, which is their market value and determines the price the supermarket can sell them at. But how could the value of such use-values be depreciated if they had had no value to begin with? It is not the selling of them that produces such values!”

        So first, the question is and was: “Is the law of value a historically specific “law,” becoming a ruling principle only under certain specific class relations? Or is the law ahistorical, more or less, applying to all modes past, present or future.”

        Well lets look at JL’s peasant family. Under the first conditions, direct production for direct consumption, the peasant unit produces on the basis of need, of use. Labor time is distributed in production to satisfy the needs of the direct producers. Regardless of the labor time expended, it is expended as time NOT as value; it is expended for use and the satisfaction of needs by that use value is NOT mediated by need, rules, or laws of EXCHANGE. The labor time expended is manifest in and only in use.

        Then JL asks us to consider what happens when it takes “any surplus goods to market.” However, her JL introduces a transforming mechanism, a different MEDIATION, namely the MARKET, without any consideration of what is involved in this transformation. With a market, the product of direct producers is no longer produced for direct consumption, for the direct satisfaction of need. The product so marketed is produced specifically for the conditions, rules, and laws of exchange. VALUE, to the producers is no longer dependent on use, but to the realization of the costs, living labor and accrued, embodied in the….COMMODITY. The product is now a commodity where use-value is encapsulated by, circulated by, made accessible by and only through the VALUE in exchange. Thus we have the initial conditions for the emergence of the law of value, an emergence made manifest only through and in processes of exchange.

        The time spent in production by the peasant unit by and for direct consumption has no expression for and by REALIZATION other than, except for the reproduction of the peasant unit. The labor time spent in production by the peasant unit producing for the market is so spent specifically to be re-couped, recaptured, realized through and by the exchangeable value of the product. Without realizing that labor time in exchange, the peasant unit is doomed to loss, immiseration, etc– that is the devaluation intrinsic to production according to the law of value. This becomes evident when JL relates the role of the supermarket in the process. Value disappears without realization. The realization of value becomes its negation.

        Now the law of value cannot dominate, cannot establish itself as the governing principle for the distribution of the social labor time when and where producers are able to provide for their subsistence through the direct production of use-value. Time is expended under those direct conditions, but it is not expended for or by or according to the conditions of value creation.

        This is critical for Marx’s critique as he analyzes the conditions of “free labor”– how the “free laborer” is historically created and how labor–which Marx associates with actual product– gets transformed, extruded, shaped and replaced by and as “labor power,” time that is exchanged for values equivalent to the requirements of subsistence. And it is why the law of value withers away with the advance of revolution. Indeed Marx says that the law of value continues to rule after the overthrow of capitalism — but he says it dominates in A SENSE–the sense that value is base on labor-time, and that an accounting of labor-time will be necessary for the new ruling class to determine how to distribute ITS OWN LABOR. Value will not determine the reproduction of the producers.

      2. I shall be brief. ”JL introduces a transforming mechanism, a different MEDIATION, namely the MARKET, without any consideration of what is involved in this transformation. With a market, the product of direct producers is no longer produced for direct consumption, for the direct satisfaction of need. ” What we are talking about is that the peasants produce surplus to their need, which they sell in peasant markets. Of course such does not mean that the bulk of their production is not geared to family consumption. But note well how Anti-capital quite unconsciously I suppose introduces ‘the market’, as if ‘the market’ existed antecedent to the peasant economic exchanges that constitute this very market. This error is the very one I have asked those who can offer insight into such conceptual confusion. How can it be argued as does J K Galbraith that socialism abolishes the market, while capitalism plans to meet market demand? This is to posit the market as some metaphysical entity existing out -with human production, which in fact creates the market. When bourgeois ideologues talk of ‘the market’ doing this or signally or some other nonsense, we need clarity on what economic activities the actors are actually engaged in.

  13. I was not going to comment again but I have to correct this erroneous view about the law of value. The law of value can only exist in a society where the labour of the individual only becomes part of the labour of society indirectly, that is it has to be exchanged first, that is converted into money. After 1928 in the USSR the labour of the individual became part of the labour of society directly and immediately via the 5 year plans. If Stalin continued to believe it continued to operate it was to use the malign and invisible hand of value as an excuse to account for the failings of the plan. The law of value operates in China because it is a market economy.

    1. Not every market economy is ruled by the Law of Value. In Antiquity, for example, you could have Phoenician and, later in the Middle Ages, Jewish, societies that existed in port cities that were purely commercial (i.e. market economies) without producing any value. That’s because they were 100% commercial; they depended on other economic systems that were not ruled by the Law of Value (ancient slavery, manorialism) to obtain their merchandise in order to sell.

      Money arise from exchange of products, not from value.

    2. ”they depended on other economic systems that were not ruled by the Law of Value (ancient slavery, manorialism) to obtain their merchandise in order to sell.

      Money arise from exchange of products, not from value.”

      I think vk is mistaken in such arguments. Plutarch explains how the Elder Cato would lend money to some of his slaves ( presumably educated Greeks) to buy their own slaves, whom they would rear and sell at a profit, thus enabling them to return Cato’s loan with interest. What determined the value of such slaves? Clearly their cost of production, as with, say, buying, rearing and selling cattle, or any other commodity. If your argument is that such slaves have no value, but only a price, then you fall into the bourgeois argument that profit arises from buying cheap and selling dear. Further, take Marx’s discussion of Aristotle’s examination of value ( ”Capital” Vol 1 P 151-152): What equates 5 beds with 1 house? ”There can be no exchange without equality, and no equality without commensurability.” Aristotle has no answer, for he lacked a concept of value, that is of the equality of human labour; in this case that 1 house requires the same labour-time as 5 beds ( and not ,say, as 10 beds). What determines the identical selling prices of 1 house and 5 beds is that such commodities embody the same value of which their prices are merely the expression.

      1. We went through this argument about the applicability of the LOV to pre and post capitalist formations, with one side quoting Engels and (mis)reading Marx’s letter while the other side referring to Marx’s other writings in the Grundrisse and his ethnographic notebook.

        My view is still the same: The law of value applies where labor itself is organized as a commodity for exchange, which requires a whole set of conditions unique to capitalism to create “free labor.” Our esteemed opponents conflate labor time with value. That conflation is itself an index to the domination of capitalism. However Marx makes it clear that while value exists in other societies, production for the accumulation of values is the law of capitalism and that is not an “ahistorical” process, nor a process that can survive the producers seizing control of the means of production.

        All economy is the economy of time, as Marx wrote. No, not all economy of time is an economy of value.

      2. ”All economy is the economy of time, as Marx wrote. No, not all economy of time is an economy of value.” Since anti-capital does not support his thesis with any analysis it is difficult to grasp his meaning. I hold that the law of value applies to all social formations i.e that any such society’s organisation of the production of use values must be governed by the law of value. It even applies to Robinson on his island, who knows of no society but his own! For if Robinson does not apportion his labour time in the correct quantities and qualities e.g. if he spent too long improving his living quarters and not enough time securing his food, he might well perish; similarly, were the construction of his house not of the qualitatively appropriate labour, he might end up homeless! For what society is this not true? Thus Marx’s observations on Robison Crusoe on his island. Let us quote further Marx’s explanation of Aristotle’s failure to grasp the commensurability of commodities, namely, ”the lack of a concept of value… the value expression for the bed…human labour…that in the form of commodity-values, all ;about is expressed as equal labour and therefore as labour of equal quality, by inspection from the form of value”( Capital Vol I Pp 151-152).

        Further,”This quantitative barrier to the quotas of social labour-time devoted to the various particular spheres of social production is simply a developed expression of the law of value in general; even though necessary labour-time takes on a different meaning here” ( Capital VolI 3 P774). And Engels observes,” this determination of value by labour-time” (op. cit. P1036).It of course might be argued that the law of value applies only to commodity-producing societies. Such, however, was not Marx’s view: ”even after the capitalist mode of production is abolished…the determination of value still prevails in the sense that the regulation of labour-time and the distribution of social iabour among various production groups becomes MORE ESSENTIAL than EVER” (P991). Thus his observation that communism will require more bookkeepers than capitalism did!

      3. The LoV certainly didn’t dominate in pre-capitalist modes of production. In ancient slavery, the “return” one could get from the slave was conditioned to sheer luck and the individual qualities of the slave, not on a predetermined and abstract quantity of labor in time he/she could give you.

        In Ancient Rome, there was one exception to the rule: the mines (more specifically, the Metalla), where slaves (generally, the criminally convicted) were de facto put to death by working there until their hearts literally stopped. Historians consider this case to be capital, because their administrators had an idea about how much a slave could produce in a given time frame. Some speculate that manufacturing lines in ancient Egypt (e.g. rope production) could have been capital. Either way, we’re talking about capital but not capitalism (e.g. the system where capital is dominant).

        The same it true for Manorialism (“Feudalism”), because, since the serf was forever tied to a given piece of land, its productivity was intrinsically tied to the characteristics of the land and on the prowess of the serf. It’s important to highlight that the serf could produce anything in this land, including manufacturing (a phenomenon that was probably very strong in English feudalism, and which contributed to the birth of capitalism in England). The taxes were paid in agricultural products, that doesn’t mean only agricultural products were produced in feudal land.

        We don’t know – and never will know, because the evidence simply didn’t survive – how the precapitalist modes of production exactly worked. Marx’s Das Kapital is a unique historical document in this sense.

      4. “Since anti-capital does not support his thesis with any analysis it is difficult to grasp his meaning. I hold that the law of value applies to all social formations i.e that any such society’s organisation of the production of use values must be governed by the law of value.”

        I have no desire or intention to recapitulate the same arguments we had here years ago on this same topic with Boffy arguing arguing the “value today, value tomorrow, value forever” side. Any and everyone is free to go back in the archives and review those comments (and let me know if you can track them down).

        JL makes the fundamental mistake of confusing use value with value. Value as a social relation is produced and reproduced when labor power is expressed as a commodity, allowing for the reproduction of the laborer who EXCHANGES labor power for the value of the means of subsistence, but generates more EXCHANGEABLE value than that embodied in the means of subsistence, allowing the capitalist to appropriate the surplus value, which is made manifest through exchange with other values similarly appropriated.

        The “law of value”– which is that commodities will exchange in proportion to the socially necessary labor for their reproduction that they contain. The law exists in and is made manifest in a relation of “equality” of things that is simultaneously a relation of domination among humans organized as classes. For this law to dominate or to become a mode of production that exchange between laborers and property owners be dominant– where the laborers are detached for self-subsisting production and the means of reproduction are owned by a dominant class.

        All production requires time; all production in society makes a demand on the social production time available; but not all societies embody the conditions of exchange cited above. Marx uses the example of the Incas and other pre-capitalist formations. Marxists, including Engels, have analyzed non-capitalist formations where production occurs without without ENDOWING the product with that dominant-subordinate relation that is VALUE.

        Robinson Crusoe, anyone’s notion to the contrary notwithstanding is a) NOT a demonstration of a social mode of production, b) IS producing USEFUL articles but c) IS NOT producing them as VALUES, as an aggrandizement of other people’s labor power, as objects where EXCHANGE with other producers realizes a surplus and thus creates every capitalists dream– self-expansion, or accumulation. Certainly Crusoe has only so much time to do X things, but that time is not organized by exchange value, but by his individual needs for useful articles. And there’s a big difference.

        Comrade JL might as well be telling us that “Time Is Money.” No, it is not. Money represents certain social, historical expressions of time, but is not time. Time becomes money under historical, not natural, conditions.

      5. ”In ancient slavery, the “return” one could get from the slave was conditioned to sheer luck” Well we have accounts from the construction of the Erechtheum in Athens: free workers and slave workers were paid equal wages. However that may be, what a study of slaver allows us to appreciate Marx’s distinction between juridical and economic capitalists e.g. the head of the Roman treasury at Lyon in the 1st century was a slave. It would be absurd to equate this person’s activity with slave-labour in the stone mines. We must develop such category distinctions the better to analyse the role of the State as in some cases at the juridical capitalist. The slave Pasion eventually became one of the richest men in ancient Athens….not unlike President Xi in China

        ”JL makes the fundamental mistake of confusing use value with value. ” Rather I think Anti-capital confuses value and exchange value, and seems to perceive as value creation only that labour that produces surplus value. If I hire a worker to produce an extension to my house in my garden, such a worker does not produce surplus value, but certainly value. Were this not the case, one would have to conclude that such labour creates no additional value, a fact clearly refuted that I could sell the house at a greater price expressing its increased value. I follow Marx in holding that value expresses itself in three aspects: value, use value and exchange value:” The only thing Ricardo can be accused of …is that in elaborating the concept of value, he does not clearly distinguish between the VARIOUS aspects, between the exchange value of the commodity as it MANIFESTS itself,APPEARS (Marx’s emphasis) in the process of commodity exchange, and the existence of the commodity as VALUE as distinct from its existence…as use-value”(TSV Part 3 P125).

      6. I forgot to give the reference for the quotation below, namely J. Crump in ”Non-Market Socialism” (1987 Pp 43-44).

      7. @ jlowrie

        They were paid the same “wages” when building the Erechtheum because they were doing the same type of labor – not similar, the exact same type of labor. When two people are doing the exact same labor in the same place at the same time, it is patent they should receive the same compensation – that’s a universal law of economics, independent of the existence of money; fairness is not a capitalist invention. It was only by chance Rome used their own citizens (by definition, all of them were free) labor force and not slaves to build their public buildings, otherwise the result would be the same.

        The concept of a slave we clear-cut in Antiquity. There’s no subjectivity here. If you were a slave, you were a slave. There’s no debate to be held here, this point is settled by centuries and generations of historians. Even if you somehow gather enough evidence through archaeology (spoiler: you won’t) that allows you to develop an economic theory of Antiquity that would allow you to do a scientific subdivision of the slave class, you would quickly realize the “chattel slaves” (i.e. slave a la capitalism) were a tiny minority of the slaves of Antiquity. Most slaves did your daily, boring jobs, including many “white collar” jobs.

        Social class mobility was not that rare in Antiquity. Slaves were often freed*, or worked hard enough to buy their own freedom (slavery in Antiquity was different from slavery in capitalism: many were enslaved because of debt, not because there were born slaves). That a slave managed to climb the ladder is not extraordinary; capitalism did not invent the concept of class mobility either.

        *there were many ways a slave could be freed in Antiquity: he/she could show ability with accountancy and commercial negotiation to the point of becoming a too essential worker for the paterfamilias, earning his/her freedom by becoming his envoy. During times of crises, Rome frequently used slave armies to fight on its behalf, in exchange for their freedom (this was often used with gladiators); or he could simply become rich and buy his own freedom. The freed slaves made their own class (the freedmen).

      8. One of the prerequisites of wage labor, and one of the historic conditions for capital, is free labor and the exchange of free labor against money, in order to reproduce money and to convert it into values, in order to be consumed by money, not as use value for enjoyment, but as use value for money. Another prerequisite is the separation of free labor from the objective conditions of its realization – from the means and material of labor. This means above all that the workers must be separated from the land, which functions as his natural laboratory. This means the dissolution both of free petty landownership and of communal landed property, based on the oriental commune.

        In both these forms, the relationship of the worker to the objective conditions of his labor is one of ownership: this is the natural unity of labor with its material prerequisites. Hence, the worker has an objective existence independent of his labor. The individual is related to himself as a proprietor, as master of the conditions of his reality. The same relation holds between one individual and the rest. Where this prerequisite derives from the community, the others are his co-owners, who are so many incarnations of the common property. Where it derives from the individual families which jointly constitute the community, they are independent owners co-existing with him, independent private proprietors. The common property which formerly absorbed everything and embraced them all, then subsists as a special ager publicus [common land] separate from the numerous private owners.

        In both cases, individuals behave not as laborers but as owners – and as members of a community who also labor. The purpose of this labor is not the creation of value, although they may perform surplus labor in order to exchange it for foreign labor – i.e., for surplus products. Its purpose is the maintenance of the owner and his family as well as of the communal body as a whole. The establishment of the individual as a worker, stripped of all qualities except this one, is itself a product of history.

        –Karl Marx, Pre-Capitalist Economic Formations

        “The purpose of this labor is not the creation of value….”

    3. In many ancient cities, there was a landless class washed up into cities which looked for jobs to get money to buy food and shelter and clothing. They were hired sometimes by merchants who engaged in manufacturing their goods for trade, and who did so to make more money. Now it’s also true that many of these landless families acquired a kind of property in small craft shops and petty sales like food stalls. And it’s equally true that the rich merchants typically cashed out, so to speak, by buying land, giving up production for money. But that’s just to say, that no class is chemically pure. And that no mode of production emerges full-frown from the brow of its predecessor, either. The need for bourgeois revolution is why there was a struggle in Europe against monarchy, the sword and shield of the landed aristocracy and the church, the greatest single land owner. Becoming the dominant mode of production means reworking society by force, i.e., some kind of revolution.

      This is all pretty much orthodoxy or should be I think. But the notion that commerce cannot be deemed capitalist forgets that investment in physical capital, requiring borrowing in the primitive equivalent of a capital market, to make more money by simple trade should still be regarded as a kind of capitalist production. Sraffa called his book Production of Commodities by Means of Commodities for a reason.

      In regards to the law of value operating in socialist states, world economy is not transformed all in a day either. In terms of world trade, socialist production of commodities for export for profit transmits the influence of the law of value indirectly. And for closet anarchists, the acquisition of profits by the state counts as exploitation, even if they cannot demonstrate a relationship between those profits and any owners of property.

  14. “Increasingly, China’s investment expansion has been in unproductive sectors like finance and real estate. Why in China, of all countries, was home building in the burgeoning cities left to private capital developers offering mortgages to buy? Why were homes not built by the state sector for rent? The result has been a classic case of a Western property market crash that the state now has to clear up. This will have to be resolved by the state (local governments) finishing off projects and restoring the rights of mortgagees to their money.

    There is not going to be a financial crash in China. That’s because the government controls the financial levers of power: the central bank, the big four state-owned commercial banks which are the largest banks in the world, and the so-called ‘bad banks’, which absorb bad loans, big asset managers, most of the largest companies. The government can order the big four banks to exchange defaulted loans for equity stakes and forget them. It can tell the central bank, the People’s Bank of China, to do whatever it takes. It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies. It can tell the state bad banks to buy bad debt from commercial banks. It can get local governments to take up the property projects to completion. So a financial crisis is ruled out because the state controls the banking system.”
    ____________________________________________________________________

    So no matter how much the unproductive sectors account for, as long as the government retains the financial levers, “financial crisis is ruled out.” That’s not a question. It’s Michael’s statement of fact. So….

    1. Michael has just made the argument for MMT and MMTheorists, at least when it comes to “socialism with Chinese characteristics. Neil, come home quick. All is forgiven.

    2. Of course Michael’s solution ignores many things…like accumulating opposition trends in those very state organs; accumulating class resistance to such bail outs; increased burdens placed on Chinese workers and poor to finance this version of MMT.

    3. And of course, he doesn’t contemplate which class and which sector, or which “characteristics: will be bolstered by MMT practice? Here are the answers: nascent, emergent, and established bourgeoise; the very private sector Michael argues is the source of the distress; and the capitalist characteristics of Chinese “socialism.”

    4. Most of all, Michael ignores the domestic conditions which in conjunction with international ones dictate the massive “unproductive” investment, and that is overproduction.

    5. It’s a bit ironic, no, that the author of a blog always anticipating the next recession in capitalism, always anticipating the always approaching capitalist collapse, finds those engaged in similar expectations for Chinese capitalism, or socialism with Chinese characteristics- 5.99 of one, half dozen of the other–, so ungrounded.

    1. “increased burdens placed on Chinese workers and poor to finance this version of MMT.”

      No; good public education and R&D can result in continuous increase in productivity which can benefit the whole of society. Good planning is required, so the productivity of both the private and public sectors is directed to national development. Increased consumption per se is a dead end, better quality of life for all is the goal. Jack Ma might be able to buy a Polls Royce, but most people will be very happy with an affordable ticket on HS rail and other subsidized transport options.

  15. China heading for collapse? It is very striking that this question (question with intention, of course) from the pro-capitalist economic analysts mentioned by M. Roberts is produced just when the last and definitive recession of the capitalist mode of production has already begun. Unstoppable recession with proximate causes in the Ukraine War and unresolved Covid19 and distant cause in the regressive phase of the current revolutionary cycle. Lasting capitalist recession that is already beginning to detonate and promote Lenin’s equation of revolution equal to misery + protests + weak governments + revolutionary party.
    Ultimately, any collapse in China will come from problems on the capitalist side. Chinese capitalist area is not small and growing.

  16. What I’ve taken from almost silently watching these discussions about China here for about two years, plus watching Paul Cockshott’s channel and dabbling in Marxist commentary here and there, is that perhaps we can ground scepticism (not fatalism) about China’s path to socialism on first principles. If at all possible, that would have the advantage of avoiding distractions over the mixed economy practised in the country, and focusing on the overall trends guiding that society.

    While I agree that Marxism can probably be described as the most “scientific” of the social sciences (that is, the one most founded on systematic analysis of empirical evidence to derive workable models of broad human social interaction), it’s still not “hard” science in that models suffer much stronger interference from local factors and the trends may become obfuscated.

    Still, IF I’ve understood correctly what I’ve been reading, I’d say these can be derived “axiomatically” (as in, all historical evidence supports them with no contradiction, which is the closest we can get to an axiom in social sciences):

    i. In class society, humans associate more closely with other humans of the same class in pursuit of their class interests.

    ii. Because different classes are affected by the relations of production differently, each class’ interests don’t overlap with those of the others. More specifically, in capitalism the capital owners pursue an increase in profit by extracting ever more surplus value, the proletarians pursue prosperity and economic stability in terms of higher wages, and the professional classes side with one or the other depending on how their own economic prosperity aligns with the others’: in societies undergoing upheavals, they tend to side with the proletarians, but turn conservative as the “managers” of the proletarians on behalf of the capitalists and get to enjoy some economic privilege.

    iii. Since different interests cannot be reconciled in the long rung (TRPF, LV and other factors that accentuate the tensions as the system exhausts itself), class society means class conflict.

    What does this tell ME about China? (I may simply be wrong.)

    Well:

    a. If it’s true that inequality in China has been on the rise;

    b. If it’s true that the private sector has been gaining ground against the state sector;

    c. If it’s true that the professional classes outnumber the proletarians in the CPC.

    Why, it follows that class conflict is becoming likelier given these trends, which is the opposite I’d expect from a society “tending” towards socialism.

    Commenters here who hold a favourable view of the Chinese system often wax loquacious about how the state reins in the private sector when needed, something that would never happen in capitalism. Like how SOEs are nationalised, billionaires take losses and are arrested, upper middle class people “gaming” the system are punished by losing their money etc..

    That’s all well and good, BUT the fact remains is that the past 30 or so years have generated a prosperous upper middle class of civil servants and professionals, plus an upper class of people of great wealth.

    I say: these people will keep having children. These children will grow up and their class interests will become more acute. Their privileged access to education, their class-conscious networking and their ever fainter connection with the revolutionary past are bound to solidify their attacks on any obstacles the Chinese state poses to their increasing their own prosperity beyond levels compatible with a socialist society.

    I’m not talking about nepotism here. I know the CPC leadership isn’t chosen through family connections and there are no dynasties as the Bushes, Clintons etc. But once class boundaries become sharper, people with class connections naturally have an advantage of access to positions of power or economic privilege. This may even be disguised as “meritocracy”, and I wonder what the Chinese think of the concept.

    In other words, I’ve become convinced that vanguard parties and mixed economies give rise to an intelligentsia that over time brings the drive towards socialism to a halt and may even reverse it. This I bring from Cockshott’s videos describing how the Soviet intelligentsia was a very important, perhaps the main factor behind its demise, and how they’ve become the backbone of both the current ethnonationalist Russian state apparatus and the Russian emigré community that’s become prominent in professional circles in the West and holds nothing but contempt for the SU.

    So people can parade all the stories of economic and technical progress China has to show, but none of those negate the irresistible trend I see in that country, that is, that China will keep breeding an intelligentsia showing ever more animus towards the egalitarian tendencies of socialism, and working tirelessly to revert those in name of their own class interests. And instead of being a bulwark against it, a vanguard party becomes the main instigator of class conflict as it becomes dominated by professionals.

    Again, I agree with Cockshott that a vanguard party chosen by elections, even if it comprises 10% of the adult population as the CPC, while much better than the wealth men’s clubs that Western parties are, still represent a reactionary force as their positions of privilege become ensconced. And there’s also the problem that elections will always tilt in favour of party members – just as they did in the SU.

    I don’t know much Chinese history, but sometimes I wonder whether the Cultural Revolution wasn’t a measure of social engineering to revert the rise of an intelligentsia, by both humiliating its members and forcing its youth to work in the factories and farms. I’m all in favour of social engineering, and it’s probably for the better that Xi Jinping & Co. know what it is to live like a proletarian or farmer, but it cannot revert the trend, unless they’re planning to put their own descendants through Cultural Revolution Redux, and I see no signs of that.

    Mind you, I don’t disagree that class conflict is a hallmark of the socialist stage of transition to communism. But I’d expect class conflict in China, or the potential sources of it, to be turning weaker, not stronger over time.

    I don’t disagree either that even if it ultimately fails, having gone through a mixed-economy period will always be positive for China, which would probably be as chaotic or more than India had it not gone through it. It will be much better equipped to mitigate the climate crisis than it would had it remained a semifeudal society. So I see the CPC as a net positive even if I disagree that socialism in China is around the corner.

    Some may argue that the transition towards socialism is a bimodal curve: that it goes through a mixed-economy period where class differences may even become more acute while it breeds the productive forces needed to engender the next steps. But that’s not a forecast based on evidence, that’s a bet. And it’s a fair bet, since we’re on uncharted territory here.

    Well, MY bet is that barred the introduction of mechanisms to alleviate class bias in the access to the levers of power – like sortition and increased economic planning along lines outlined by Cockshott, Brian Green, Robin Hahnel etc – I see contradictions of capitalism setting root in China and its failure (but with a net positive for the country) to ultimately transit into socialism. You can say I sympathise with pre-Leninist Marxism, before the idea of vanguard parties was introduced. That was surely an advance over bourgeois party systems, but I think it has run its course. Sortition and cybernetic planning were beyond the available methods back then, but technical progress has enabled us to attempt better experiments at socialism now. My view is that China improved on the SU, but new ideas need a clean slate, so a better socialism (if we don’t succumb to barbarism and systemic collapse, which is currently likelier) will be born elsewhere.

    You’ll have to forgive me for the long comment, Dr Roberts, I really needed to offload this from my chest after all this time reading the China posts and the feuding in the comments. I’ll remain silent lest a heated exchange clutters the comment section in response to this, if you choose to post it.

    1. All that you clearly point out is true ….But it doesn’t take into account the fact that the capitalist system long ago reached its geographical physical and internally structural limits and increaingly depends on destructive production to continue. Also, the income of China’s intelligencia is dependent on the public sector for its superior position. According to what I’ve read, most members are govenment employees. Collapse into capitalism would be collapse into chaos for China, resulting in impoverishment for them and everyone else. Delinking is the only rational option.

      Is this the repeat of 1919 in Germany? Not exactly. The CPC is not Germany’s Social Democratic Party. The Red Army is not the Wehrmacht. The real problem is the suicidal/homocidal senility of Western Civilization, including many Western “marxists”.China is responding to real Western aggression, which we should be clear about opposing, but more than that worry about our own imbeciilic imperial leftists and capitalists.

  17. The Chinese have proven capable of managing short macroeconomic challenges, Covid not withstanding.

    I would say the only thing the Chinese have to be economically concerned about in the next five to ten years is to be denied access to Western markets. The Chinese can counter this by accelerating the internalization (a stated policy goal) of their economy.

    However, the geostrategic situation could develop to the point where their access to critical imported raw materials such as iron ore, high quality metallurgical coal and copper could be problematic.

  18. The high points of pre-Leninist vanguard party social democracy include the social democratic parties supporting “their” governments” in WWI in the name of patriotism; the social democratic parties endorsing colonialism, imperialism, restrictions on suffrage (on grounds of race, sex, foreign birth,); the violent suppression of Communists. No doubt DGE would protest that being against Leninist Vanguard Parties doesn’t mean being for the murders of Liebknect and Luxemburg, for a single example. But it’s DGE who harks back to the Golden Days before the Leninist Vanguard Parties ruined everything. Those Golden Days, weren’t.

  19. “There is not going to be a financial crash in China. That’s because the government controls the financial levers of power: the central bank, the big four state-owned commercial banks which are the largest banks in the world, and the so-called ‘bad banks’, which absorb bad loans, big asset managers, most of the largest companies. The government can order the big four banks to exchange defaulted loans for equity stakes and forget them. It can tell the central bank, the People’s Bank of China, to do whatever it takes. It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies. It can tell the state bad banks to buy bad debt from commercial banks. It can get local governments to take up the property projects to completion. So a financial crisis is ruled out because the state controls the banking system.”

    What they can do is not necessarily what they will do. What they could in principle do is something like this: The government can promise the four big banks that they can exchange defaulted loans for bonds and count them at face value as performing loans afterward. It can tell the central bank to accept commercial paper from failing smaller banks and property developers and lowering interest charges and guaranteeing unlimited liquidity to the largest firms. It can tell state-owned asset managers and pension funds to write off the debts and either remit less money to the state and pensioners or borrow private funds at a higher interest rate to keep up current expenditures. It can liquidate the state bad banks, giving their remaining assets to other financial entities. It can excuse local governments from completing the housing projects currently underway and permit a radical slowing of housing construction…or guarantee the loans, funding it by decreasing overall government expenditures (especially on social spending) or paying higher interest service on existing government debts. Perhaps it’s vain of me, but I think this is a decent summary of how such a financial crisis is handled by capitalist states.

    The thing is, while it’s not at all certain the national government will do what our host recommends, it’s also highly unlikely that the national government will carry out the capitalist scenario I sketched. Not, that is, without political upheavals. The political salami tactics where the national governments keep lowering expectations is one thing, but decisive action to make the workers pay for financial crisis is something else.

    In practice, it seems to me that there is a political “Iron Triangle” composed of a national government shrinking from planning or other fiscal responsibilities; local governments needing revenue by sort of selling land (something still to reversible for capitalists’ ease of mind); property developers using their influence (from bribes to grand promises about the magic of the market) This makes dealing with the property crisis peculiarly intractable I think. I fear the national government is losing control of the provincial governments as well as the effectively neo-colonial SEZs. The increasing centralization of personal power in the figure of Xi ironically—or dialectically?—reveals the increasing weakness of the national government after it has abandoned its responsibilities in the name of the market. The promise to increase the party membership in corporations can be a promise to increase business representation in the party as well as a threat of closer supervision. The thing there is, without planning, the supervision is pretty toothless. Or so it seems to me.

    The notion that capitalism was restored in China without a revolution has always struck me as foolish as the notion of socialism established without a revolution, so much of the commentary has stood out as basically wrong from the start. Some of the responses were startlingly off, hope it wasn’t too confrontational?

    1. The essence of the thing is this: in China, the housing market crash is not structural, while in the USA (2006-2008) it was.

      1. I thought “structural” meant something like “the arrangement of parts.” In political economy, to say structural, means therefore to reject explanations invoking human nature, either in general or as attributed to particular. Like, people have a natural propensity or rich people are bad and conspire to cheat. The psychology of groups are hard to measure if that is they even exist. Thus these are not really explanations at all. I think that the social production system, including the distribution of property as well as income, presents individuals with different short-term rational choices, excluding others, while forcing most to abide by roles not of their own design at peril of whatever position they have (good, bad or undistinguishable.)

        At a conjecture, this means, the housing market is not essential to the Chinese economy? I think the figures our host has presented suggest this is an exaggeration but that a socialist state has the power to deal with a major crisis of this type not available to a capitalist state.

        If instead it means that there are no fundamental structures engaging property on a large scale and political entities based on that property, I still think that the role of land cessions for revenue made by provincial and metro governments do count as structures.

      2. Structural is when it is inherent to the system (mode of production) and, when it happens (it will happen) it will cause permanent damage to said system. This permanent damage is called by Mr. Roberts “the Long Depression”.

        The term “structural crisis” was used by Marxian philosopher István Mészáros in 2006 (yes, he was one of the few who predicted 2008).

        A non-structural crisis is simply a cyclical crisis, not only completely reversible, but, in the case of capitalism, good for the “health” of the system.

      3. Destruction of the environment or defeat in war by this definition (inherent and causing permanent damage) count as “structural.” This seems to me to be misleadingly general, not just because it doesn’t clearly define what is unique to the capitalist mode of production. Business cycles are, but this definition purposely excludes those. But because it is not even clear what counts as permanent either.

      4. Depends on the war. There are wars that are structural and wars that are cyclical. Feudalism was a system that needed frequent wars to function because wealth was entirely on the land (the only way you can expand your fief in Feudalism is through war, abstracting from the the factor of marriage, which represents another problem for Feudalism). There are wars that are structural, e.g. WWI, which brought an end to the ascendant phase of capitalism (which, in ideological terms, represented the death of classical liberalism).

        Either way, in order for a war to happen, you always need two waging parts: the aggressor and the defender. Even if from the point of view of the defender, the war is not structural (but just a catastrophe, coming from the outside), it must represent something systemic from the point of view of the aggressor – which may or may not be structural.

        The 2008 crisis was structural because it represented a permanent, irreversible, fall of the profit rate of capitalism (i.e. the USA). The USA is pretty much the capitalist Soviet Union: whatever is good for the USA is good for capitalism and vice versa. Hence the 2008 crisis was not an American crisis, but a capitalist crisis, therefore a worldwide crisis (excluding the socialist countries).

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