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Is China in danger of collapse? and Anti-economics and anti-politics
by Tomasz Konicz and Robert Kurz
Thursday Nov 4th, 2021 4:17 PM
In the process of modernization, the relationship between market and state can be boiled down to the formula of a general law: the more market, the more state... The bloated market and the bloated state can only live or die together.
Is China in danger of collapse? EXIT! Crisis and criticism of the commodity society (
Debt-financed growth of the Chinese economy is running out of steam
by Tomasz Konicz
[This article published in 5/2015 is translated from the German on the Internet,]

Around 6.6 gigatons of concrete! This would allow the whole of Hawaii to be concreted and turned into a single huge parking lot, the "Washington Post" (WP) enthused at the end of March.
According to official statistics, China consumed this dizzying amount of building material between 2011 and 2013, which means that the People's Republic, condemned to a permanent boom, produced more concrete within three years than the USA in the entire 20th century. The United States had consumed 4.5 gigatons of concrete in the past century, according to the WP, although the official figures from Beijing would also stand up to closer inspection – which is by no means self-evident. The data is "surprisingly logical", as much of China's infrastructure was only built in the 21st century and the urbanization of this most populous country in the world is progressing rapidly. In 1978, just under a fifth of all Chinese lived in cities, and by 2020 it will be 60 percent.
And yet, in the March 24 report ("How China used more cement in 3 years than the U.S. did in the entire 20th Century"), the idea appears that the causal relationships of this breakneck growth must be different, irrational.

The Chinese infrastructural and construction boom, which catapulted concrete production to astronomical heights, is driven by the escalating internal contradictions of the capital relationship, which, as is well known, consists of boundless, blind and self-dynamic self-exploitation – everything else is only a by-product. This is also illustrated by the 6.6 gigatons of concrete installed throughout China in three years.

This is reflected in the results of this boom, which did not produce an alternative urbanity, but suffocating copies of Western metropolises under smog bells. They are literally (soon) collapsing new buildings that were stomped out of the ground to replace the stuttering recycling dynamics. Around a third of the concrete installed in the People's Republic had serious quality defects, so that the affected buildings would have to be torn down again in the medium term, the WP reported. In addition, the industry, which is now responsible for half of the world's concrete production and 2.5 percent of global CO2emissions – similar to other Chinese industrial sectors – is suffering from huge overcapacities built up in a phase of "explosive growth".

This "explosive growth" of the real estate sector and infrastructure, as well as the industrial sectors producing for it, formed the most important engine of the Chinese economy – and it was increasingly realized on credit. China's upswing was debt-driven. Ultimately, excessive lending put the majority of the said 6.6 gigatons of concrete into the recycling movement. The "workshop of the world", whose rapid economic growth was fueled for decades by the export sector, formed a breakneck debt dynamic that is becoming increasingly unstable. The figures are clear: the total debt of the People's Republic (state, financial, industrial and private sectors) was 153 percent of GDP in 2008, currently it is 282 percent. Of course, the private sector is responsible for much of this mountain of debt, while the state is barely in debt. But this was also the case in Spain or Ireland before the outbreak of the crisis. Debt growth exceeded GDP growth by an average of eight percent; this is "far beyond the point that would be efficient for any economy," the Financial Times noted. For comparison, it should be noted that the debt bubble in the US collapsed at a total debt of 360 percent of GDP when the US housing bubble burst from 2007.

The beginnings of this gigantic Chinese deficit economy can be dated relatively accurately: With the outbreak of the financial and global economic crisis from 2008, which was triggered by the very bursting of the US real estate bubble, the previous Chinese economic model also fell into crisis. Up to that point, the rapid growth of the People's Republic was based on the export industry, which was supplied with an army of millions of cheap and well-trained workers. China's enormous trade and current account surpluses, which reached up to ten percent of GDP shortly before the outbreak of the crisis, thus formed by far the most important economic support and the source of China's gigantic foreign exchange reserves until the outbreak of the global economic crisis. But after the massive economic and demand slumps in the Chinese export markets in the USA and especially in Europe, Beijing had to react: From 2008, China launched the world's largest investment program in response to economic output (it comprised around 12 percent of GDP at the time!), which became the starting point of the current debt bubble.

Since 2008, the Chinese economy has no longer been driven by exports, but by credit and investment, while domestic consumption continues to play no relevant role. The country has been covered with infrastructure projects and paved with entire ghost towns, whose housing units remain vacant even years after completion – because they serve as speculative objects or simply cannot find buyers. Much of China's credit growth is also due to the shadow banking sector, where various financial actors lend to borrowers at elevated interest rates who would not receive credit in the regular banking sector in a completely unregulated way. These shadow banks hardly played a role before 2008. Nobody really knows exactly what dimensions the shadow banking sector – which is closely intertwined with the official banking sector – has already assumed. The different estimates vary between a market volume of the equivalent of 2.5 trillion euros (around 40 percent of China's GDP!) to 4.4 trillion.

The foreign exchange treasure of the People's Republic is, in a sense, only a gigantic fiscal Potemkin village. China's foreign exchange reserves (around four trillion US dollars) cannot be used on a large scale to cope with the crisis, as this would automatically lead to their devaluation. China's foreign exchange reserves accumulated through export surpluses thus only look impressive as long as they are not "touched" and sold.

The intensifying dynamics of speculation once again bring to light a central aberration of China's stormy modernization, which has actually existed since the beginning of the catching-up capitalist modernization and ultimately only brings to light the inner barrier of capital: Chinese growth is not self-sustaining. To date, the leadership in Beijing has failed to stimulate domestic demand to a sufficient extent to make domestic consumption the main vehicle for economic growth. Despite all the gradual progress in this direction – domestic trade grew by 13.1 percent in 2013 – the consequences of the export orientation have not even begun to be resolved. The share of consumption in China's GDP fell from just over 50 percent in the early 90s to just 35 percent in 2011. This ultimately means – despite the emergence of the Chinese middle class – that Chinese wage earners still cannot acquire the goods they produce themselves to a sufficient extent.

But this also makes it clear that China's growth has ultimately depended on debt processes since the beginning of capitalist modernization – only these were exported until 2008. Someone had to buy the goods that China's workforce produced without being able to consume themselves. China's export surpluses resulted in a gigantic current account surplus that exceeded the peak of 10 percent of China's GDP in 2007. The Chinese export surpluses were thus only possible because the target countries of these exports were indebted. (By the way, this is the same in the case of the export surplus world champion Germany today.) This took the form of the deficit economies in the US and Europe, which are well known to us and are accompanied by bubble formation, which enabled China to build up enormous trade surpluses and to accumulate the huge foreign exchange reserves. After the bursting of bubbles in the US and parts of Europe – and the collapse of China's trade surpluses, which are now lower than those of Germany – China shifted the debt dynamics inland in the wake of the gigantic economic stimulus programs. In response to the bursting of bubbles in the sales markets of the Chinese export industry, Beijing thus initiated its own debt dynamics, which became the growth engine.

But why does a rapid revival of domestic demand in the Middle Kingdom seem hardly feasible? Despite all the Sunday speeches of Chinese party officials, who repeatedly propagate a rapid increase in the level of consumption, the repeatedly called for rapid increase in the share of domestic consumption in GDP is not taking place. This can only be understood by taking into account the internal barrier of capital, which is erected by the constantly advancing competitive productivity increases.

To answer this question, it is worth taking a look at Southeast Asian Cambodia, where strikes and protests by textile workers were shot down by the military at the turn of the year. Many of the workers demonstrating against the country's standard starvation wages of $80 worked for Chinese textile entrepreneurs who relocated their production facilities to Cambodia, as Cambodian workers receive only about a third of the wages of their Chinese counterparts. The rising wage level in China – made possible by the globalization of production chains and the globally achieved level of productivity – tends to lead to relocation or automation. Thus, the millions of Chinese industrial workers can only continue to produce internationally competitively if they are starving or low wages.
The basic assumption of Fordism, according to which the workers would become the consumers of their own goods, has long since ceased to be obsolete in view of the level of productivity achieved globally. Many of China's export companies – such as Foxconn, a notorious IT contract manufacturer for its brutal working conditions – are already in the process of relocating their locations to China's underdeveloped eastern provinces or cheaper foreign countries due to rising wages. Foxconn CEO Terry Gou announced at the beginning of 2014 that he wanted to build a large smartphone factory in Indonesia – and mainly equip it with industrial robots. According to the CEO, this should only be a first step towards a comprehensive automation offensive. "We have a million workers," Gou sounded at an investor conference in late 2013, "in the future we will have a million robots." In the meantime, a cooperation between the Internet giant Google – which recently acquired the robot company Boston Dynamics – and Foxconn has become known, which is intended to enable the rapid implementation of this wave of automation. In January 2015, the Taiwanese company logically announced that it would make the first "cuts to the workforce," as Reuters reported.

Only with absolute starvation wages can the workers of China still "compete" against the ever better and cheaper robots. A demand-oriented orientation of the Chinese economy on the model of the Western consumer societies of the 50s or 60s – in which China's workers would earn enough to consume the self-produced goods – ultimately fails absurdly because of the high level of productivity that the globalized world economy has now reached – thus because of the said internal barrier of capital.

The credit-fueled growth in China was thus able to enable this workshop of the world to continue to achieve very high growth rates over a period of around seven years, although the importance of export surpluses continued to decline and the high global level of productivity made a massive increase in domestic demand impossible. So far, things have been going quite well for the People's Republic. But the decisive factor is not this credit-fueled ascent phase, but the inevitable fall that follows every bubble formation. The development in China is part of the global debt-fueled bubble economy in which the late capitalist system is entangled.

And China’s debt bubble is slowly running out of air as the relationship between borrowing and economic growth deteriorates. A falling purchasing managers' index, which serves as a leading economic indicator, points to a fall below the growth targets of the government in Beijing of seven percent, Chinese media reported at the end of March. The Chinese Academy of Social Sciences forecast growth of just 6.85 percent for the first quarter, according to the report published on pro-government news portals, in which Vice Premier Zhang Gaoli spoke of "increased downward pressure" on the economy.

Yet the economic growth fueled by these debt excesses and speculative bubbles is indeed vital for the survival of state-capitalist China. Only through dangerously high growth dynamics can the enormous social upheavals in China be bridged: it is about maintaining a coexistence of hundreds of millions of impregnated rural dwellers and migrant workers, a middle class concerned about their newly achieved standard of living and a ruling state oligarchy with politically well-connected billionaires. The breakneck capitalist modernization course of the Chinese leadership resembles the famous ride on the back of the tiger. If the unleashed dynamics of capitalist modernization weaken, it threatens to fail not only because of its internal systemic but also because of its social contradictions.

The slowdown in growth is accompanied by a period of falling real estate prices that could indicate an end to bubble formation in the overheated housing market characterized by the emergence of said ghost towns: In January, prices in the major cities fell by five percent compared to the same period last year, in February it was 5.7 percent. This case is particularly noteworthy because Beijing is not consciously pursuing it this time, as it has been several times in the past, but has just sought to revive the real estate market. Last September, the Wall Street Journal reported on massive easing of lending by the Chinese government to support the "suffering real estate market" and, among other things, to make it easier for buyers of "second homes" to borrow. Incidentally, a kind of bubble transfer has already set in in in the People's Republic, as the weakening housing market led to a shift in investment and speculation activity to the stock markets, which – despite the economic slowdown – are experiencing an enormous boom. For example, the Shanghai Index has risen by more than 50 percent since last November. Such bubble transfers are also known from the rise phase of the US deficit economy, when the burst dot-com bubble seamlessly transitioned into real estate speculation.

However, this does not necessarily mean that the bubble in China must burst immediately, as Beijing can intervene very quickly thanks to an (official) banking sector that is largely kept under state control and, if necessary, bridge emerging crisis phenomena with billions of infusions. When the Chinese real estate group Evergrande Real Estate Group threatened to collapse in mid-March under a mountain of debt equivalent to 20 billion US dollars, he immediately received emergency loans of 16 billion US dollars, which successfully prevented an uncontrolled collapse that could have escalated into a market panic. So far, Beijing has reacted in exactly this way in all similar cases: with cash injections for all those who can afford it – i.e. with an ever-increasing inflation of the bubble. The consequences of this coercive logic are also expressed in the rich price jumps of the shares of the companies concerned when announcing the respective bailouts. This context illustrates the hopelessness of China's economic and monetary policy, which has become a hostage to China's debt dynamics. The state can only try to delay the panic associated with the bursting of the bubble – at the price of its further inflation. China's leadership has ultimately become hostage to the deficit economy it set in motion with the 6.6 gigatons of concrete, which is becoming increasingly difficult to maintain.

Anti-economics and anti-politics
By Robert Kurz
[This article published in 2003 is translated from the German on the Internet, EXIT! Crisis and criticism of the commodity society (]
The Appetite of Leviathan
Privatization and "Lean State": an Illusion

Two souls wrestle in the chest of modern man: the soul of money and the soul of the state. The "homo oeconomicus" is always at the same time a "homo politicus". This structural division of the individual corresponds to the institutional polarity of the market and the state. In pre-modern societies, however they may be judged, this division did not exist. Rather, there was a cultural unity, a "cosmos", to which the various social activities were subordinated. The modern commodity-producing system has destroyed the "cosmos" of ancient cultures without being able to establish a new culturally based order. Instead, the relationship between economy and social order has been turned upside down: economics is no longer a function of an overarching culture, but conversely "human society has descended into an accessory of the economic system" (Karl Polanyi).

This means that people in this system have no social and cultural connection beyond economic activity. They have become "abstract individuals" or "isolated individuals" who desperately resemble the "windowless monads" of the philosopher Leibniz. Their social connection is only negatively established by economic competition. Money has taken the place of the culturally mediated "cosmos", so that the commonality of society does not appear as human, but as material. Every pack of wolves is more socially organized than the market-based people.

Already in the early days of this absurd system, the English philosopher Thomas Hobbes (1588-1679) logically presented man as a fundamentally selfish being who is inherently lonelier than an animal. Society in the "state of nature" is therefore nothing but the "war of all against all". Hobbes forgot, however, that he was by no means describing the "nature" of human society per se, but the historical result of a process in which the first spurts of the modern market economy had begun to dissolve the old communities. The new freedom of individuals chained to the market was only the freedom to submit to the coercive laws of competition. So that the individuals do not completely tear each other apart in this murderous competition, Hobbes constructed the state as a necessary coercive force that must stand above the egoistic individual and to which he gave the name of the biblical monster "Leviathan". The small monsters of market individualism are to be tamed by the great monster of the state "Leviathan". A fine kind of society that leaves nothing to be desired in terms of wickedness!

The "Leviathan", like the wild of the market, is no more an institution of cultural and social commonality. Because the state does not abolish total competition; it is only a repressive and external violence to the "windowless" individuals, an apparatus that provisionally establishes common framework conditions for the raging subjects of the market: comparable perhaps to the referee of a rugby match. That hasn't changed since Hobbes. Today, more than ever, free individuals are assumed to be beings who have been made socially incompetent by the market and must therefore be put into legal and bureaucratic straitjackets by the monsters of the state apparatuses.

In this "best of all worlds" there is unfortunately a small logical blemish. For like all monsters, Mr. "Leviathan" is quite voracious; and the question arises as to how to feed it. The incompetence of competing individuals lies precisely in the fact that they do not care about their own social and natural conditions of existence. This is the problem of state economics. Because the state is by no means an "off-economic factor", as is often assumed; namely, by having to be financed (and because money is undoubtedly a "economic factor" through and through), it is, in a sense, a secondary economy, the economy of the common conditions of existence of market-economy competing individuals. By definition, the subjects in the "natural state" of the competition do not voluntarily give a penny for this. The state monster must collect its own costs (which are nothing more than the social "business costs" of the market economy) just as violently as it must forcibly prevent free individuals from eating each other with skin and hair.

It should not be difficult for the big monster to prevail against the small monsters. But unfortunately, the "business costs" of the market economy have grown over time. The more people became individual subjects of competition, the greater the need for a legal and police regulation of their relations, and the more the apparatuses of the judiciary and administration had to be inflated. Not even the Byzantine Empire can compete with the bureaucratic juggernaut that modern Western democracies have produced. But that's not all. For the more the competition led to the scientification of production and the application of large technical aggregates, the more it concentrated large masses of people in urban agglomerations, the greater the need for social logistics and infrastructure, the more the state had to provide material, technical and organizational framework conditions for the lively market economy: from schools and universities to the construction of roads and airports to sewerage and garbage collection. And finally, the consequential costs became higher and higher: the more people were socially uprooted by the market economy, the more the social transaction costs of the state rose; and the more the natural environment was burdened and destroyed by narrow-minded business rationality, the higher the state costs for makeshift ecological repairs increased.

The ignorant economic liberalism that emerged in the late 18th century did not want to know about all these costly problems. The brilliant cynic Bernard de Mandeville (1670-1733) claimed in his "bee fable" that the sum of the ruthless private pursuit of profit would almost automatically secure the welfare of the community. To this day, this idea has remained the most important argument for justifying economic liberalism. Adam Smith (1723-1790), the classic of political economy, famously embraced this argument; According to his theory, the "invisible hand" of the market can regulate the entire reproduction of society much better than the state.
Nevertheless, this economic liberalism has not fundamentally contradicted the state philosophy of Hobbes: the "Leviathan" should abstain from any social and economic activity, but at the same time it should certainly fulfill its function as a repressive monster, i.e. in the form of justice, police and military force the victims of competition to adapt to the "laws of the market economy". Political dictatorship and economic liberalism have therefore always been able to go hand in hand, which did not have to be proven by a Pinochet.

In the first half of the 19th century, the political execution of liberal dogmas led to social catastrophes. There were more and more social uprisings, mass crime exploded and epidemics broke out in the industrial conurbations. During the great Irish famine of 1846 to 1849, the British government starved 1.5 million people to death in the name of free trade and forced 2.5 million to emigrate to America. Doctrinaire liberalism threatened to completely dissolve human society. At the same time, many entrepreneurs themselves began to call for the infrastructural state economy, because they realized that school education, roads, information networks, etc. were necessary for a further accumulation of capital.

Gradually, a major paradigm shift took place. More and more theoreticians acknowledged the need for an extensive state economy. In 1867, the German financial economist Adolph Wagner (1835-1917) established the so-called "Law of Ever-Growing State Activity". Rarely has an economic prognosis been so confirmed in historical reality as this one. This is shown by a look at the statistics in three significant Western countries:

Share of government ratio in gross domestic product (in percent)
Year1870 1960 1994
Germany 10 32 50
Sweden 6 31 69
(Source: IMF/Wirtschaftswoche)

It is therefore clear that, despite all the relative differences, the state quota has grown strongly everywhere historically. In the US, it rose by 0.3 percent even under President Reagan. For a long time, as is well known, this high state quota can only be maintained by a dangerously growing national debt. That is why economic liberalism has also experienced a new spring, although its doctrine actually failed in the 19th century. The neoliberals repeat the age-old ideas of Mandeville and Smith. They claim that Wagner's prognosis is not an economic law, but has only been verified by political arbitrariness. That is why they believe that a historical trend reversal is possible. The fat "Leviathan" is to be put on a diet and its functions are to be "privatized" for the most part. Almost 130 years after Wagner's forecast, the two IMF economists Vito Tanzi and Ludger Schuknecht recently made a counter-forecast: from now on, the state quota will fall again in an opposing historical process, to below 30 percent.

To clarify the problem, we must ask the question of the character of the economic functions of the state. Like all representatives of economic liberalism, Tanzi and Schuknecht confuse the private production of goods for the market with the overall social conditions of existence of the market itself. Liberalism imagines that most of the tasks of the state are to be performed by private, profit-oriented companies as well as the production of cars or hamburgers. First, of course, the social risks of capitalism should be "privatized", i.e. the state should withdraw from the social responsibility that has grown over the last 100 years back to its functions as a repressive monster. However, history has already proven that most people cannot bear the social risk individually due to a lack of sufficient income and are driven into hopeless situations. Liberalism is known for loving the cost of prisons and death squads more than the cost of social assistance to the poor, even if the cost of repression is greater in the long run and fattens the "Leviathan" even more. In this way, liberal doctrine proves its evil irrationalism and takes its own criteria to absurdity.

The absurdity of "privatization" becomes even clearer in other functions of the state. For example, it is impossible to organize ecological measures for the protection of the environment as a market-based transaction between private individuals, because the consumption of the improved environment cannot be isolated for a solvent demand. It is impossible to stabilize the air and climate only for the neighborhoods of the rich. The environment is either improved for the whole of society or ruined for the whole of society, regardless of the purchasing power of individuals. Therefore, the protection of the environment can only ever appear as demand and consumption of the state. It is also difficult to insulate the sewage system, garbage collection or water supply for private demand. And even the health care system and schools cannot be "privatized" without negative repercussions on society, which subsequently leads to new social costs.

Thus, even if the functions of the state are fulfilled by private companies, it is an illusion to want to dissolve these functions into the market. Because even then, these tasks appear as state costs, because they have to be demanded and consumed by the state for the most part. When, for example, in Mexico, a new "sun road" for long-distance transport was not only to be built by private investors, but also operated privately according to criteria of profit, there was a major fiasco: the large transport companies and private motorists could not pay the expensive fees, and traffic continued to roll over the hopelessly congested, but toll-free state roads. Whichever way you look at it, the prerequisites, conditions and consequences of the market economy are qualitatively different from the market economy itself. These are problems for society as a whole that cannot be solved privately. In a society of competing individuals, only the state "Leviathan" can take over these tasks. Incidentally, this also applies to state subsidies, the drastic reduction of which would exacerbate the global crisis just as drastically, because large parts of industry and agriculture in almost all countries would be ruined without these subsidies.

In the process of modernization, the relationship between market and state can be boiled down to the formula of a general law: the more market, the more state. The relationship of the blindly competing "windowless monads" and the monster "Leviathan" is that of Dr. Jekyll and Mr. Hyde. That is why the doctrine of economic liberalism is just as wrong as the forecast of IMF economists Tanzi and Schuknecht. The bloated market and the bloated state can only live or die together.
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