Wed May 22, 2024
May 22, 2024

Certainties and questions raised by China’s economic crisis – Part 2

 “China’s economy is going through hard times. The most important expression of it has been the recent successive drops in the country’s main stock markets (Shanghai and Shenzhen). It had previously manifested itself as a Real Estate crisis (with several unfinished projects and other finished ones that couldn’t find any buyers), and a significant growth in construction companies and local government’s credit debts non-payment”.

We reproduce here the second part of Alejandro Iturbe’s article about the current debate of Chinese economy’s role in the frame of the world financial crisis.

The Financial Autonomy Crisis

China has always used the dollar as currency in its foreign trade relations (exports and imports), instead of the Yuan, which was not traded in world financial markets. The Chinese Popular Bank sets the internal dollar-Yuan parity.

In the XXI century, for several years, the policy of the U.S. Federal Reserve was to gradually devaluate the dollar compared to other strong international currencies (like the euro and the yen), with the objective of “devaluating” the U.S. public debt, contracted through the selling of Treasury bonds. For example, when the euro was launched (January, 1999), each unit of the European currency was worth 1.16 dollars, while in December 2009 it was 1.51 (in other words, each dollar had lost 23% of its value).

During this whole period, the Yuan followed the dollar’s movements like a shadow, and devaluated with it. This monetary policy allowed China to keep their price parity for products exported to the U.S. (and to countries with currencies tied to the dollar). At the same time, it made them cheaper for Europe and Japan. It is true that this generated a certain internal inflation, but the benefits compensated this secondary cost.

Since 2010-2011, the Federal Reserve changed its policy and started to promote a gradual recovery of the dollar’s international value (which was also pushed forward by the euro and yen crisis). In August 2015, parity with the euro dropped to 1.11. During these latest years, the Chinese monetary policy of “following the dollar” has led to a devaluation of the Yuan. Although this dynamic has kept the price parity of the exports to the U.S., it has increased the price of Chinese products in the European Union and Japan. As the exports drop to these destinations we have analyzed clearly shows.

In this context, the Chinese Popular Bank was forced to unlink its currency from the dollar dynamic and devaluate the Yuan (4.4% against the dollar and over 5% against the euro). In the short term, this measure should improve the country’s foreign trade, cheapening exports and increasing import prices, which at the same time, will create higher internal inflation.

Besides this short-term goal, many analysts consider the measure is part of the “strategic objective of converting the Yuan into an international reserve currency (…) so that it is incorporated to the Special Drawing Rights (SDRs), IMF’s currency reserve assets”. A category in which only the U.S. dollar, the euro, the British pound and the yen are included. (

As part of this strategy, the Chinese government is closing a series of agreements with minor countries (who import commodities and export industrial products and infrastructure projects) that use the Yuan instead of the dollar as currency.

Ultimately, these are marginal agreements. International trade of the Yuan, and furthermore, its hypothetical incorporation to the “reserve currencies”, will only be possible and accepted by imperialism if the Chinese regime accepts to bring down its monetary-financial autonomy fortress. If it accepts to open their immense market to direct investment (no longer mediated) from international financial capitals (an old aspiration of these capitals, by the way).

If the Chinese regime goes down this road, that would be a leap in the country’s semi-colonization process, even in case the Yuan is considered a “strong currency”. It would lose the monetary-financial autonomy it currently has, and imperialism would directly control their market.

The Chinese Bourgeoisie

The accelerated development of capitalism in the country, originated the emergence of a national bourgeoisie. A research by China’s Academy of Social Sciences from 2007 estimates that there were 13 million businessmen in the country. Of course this total included owners of small agrarian, commercial, service, and industrial businesses. In a more strict sense, there are approximately 300,000 millionaires (in dollars).

This bourgeoisie had three origins. First, as we have seen, enriched peasant sectors who expanded their businesses beyond agrarian exploitation to other sectors in their regions. Second, Party and State enriched employees (or members of their families, like the case of the “sons” that in the 1980s and 1990s mediated foreign investments and then started investing themselves). Third, Chinese bourgeois individuals coming from Hong Kong, Macao and Taiwan (the two former ones are now incorporated to the unified territory with “special regimes”) who acted as foreign investment agents and carried out their own investments.

Considered in a broader sense, high level employees are part of this bourgeois class. The Chinese blogger Pan Caifu estimates there are 10,000 of them. In an even broader sense, (those who have decision and financial administration influence) are 160,000 ( We must add to this number the managers and executives of many foreign companies based in the country.

We have defined it as a dependent and subordinated to the international financial capital bourgeoisie. But because of the significant positive trade balances, they managed to accumulate an important reserve capital, which gave them greater leeway than other dependent bourgeoisies.

U.S. Treasury Bonds Purchase

The possibility of investing overseas (directly or through the State) is part of that leeway, both in imperialist countries and in semi-colonial countries that supply China with commodities.

A first destination for these investments are U.S. Treasury bonds, (China holds over one trillion dollars) which are used as the Chinese Popular Bank’s “reserve funds” and Yuan’s ultimate support.

It is necessary to develop a deeper analysis of this reality. Traditionally, foreign debt is a dependence factor of a debtor country towards the creditor, and implies the creditor’s domination and control over the debtor. However, in this case, the U.S. manages to invert this relation and switch the debt into a domination factor, because it is the main imperialist power and possesses the word currency (dollar).

Besides the direct funding the country receives from Treasury-bond sales, for several years U.S. monetary authorities have devaluated the dollar in relation to other strong currencies. Countries like China had bought these bonds as a way of having dollar reserves. They could not allow the currency to devaluate too much, because it would drop the value of their reserves. Therefore, they were forced to keep buying bonds to maintain their value.

Now that the dollar has regained its value, China was favored because its reserves also rose. But at the same time, with the Yuan devaluation, the main imperialist economy is also favored. The price of products the U.S. imports from China dropped (it is one of the factors that has promoted the recent consumption increase in the U.S.), and its capacity to buy assets and invest in China grows.

In both cases, the main imperialist power has “reversed the load” of its foreign debt. It turned it into a giant surplus value and Chinese capitals vacuum cleaner. Just as it has done with capitals from elsewhere that feed their financial and economic circuit, as we will see in the following chapter. A somewhat extravagant new twist of speculation and parasitism.

Financial Capital Export

Besides the Chinese reserves in the U.S., there is a similar amount distributed in different investment funds and direct investments in other countries. The number has been increasing this last decade. In 2013 it reached 140 billion dollars (data obtained from the article ¿De qué negocios es dueña China en el mundo?, by BBC economic analyst Richard Anderson). From this total, 24 billion went to the U.S., a similar number to the United Kingdom, France and Australia received 12 billion each.

Another important part of the Chinese investments abroad go to semi-colonial countries in Africa, Asia and Latin America, to ensure the supply of commodities (fuel and minerals) and food.

The International Business Times journal estimated that China has invested 150 billion dollars in Africa over the past five years. The amount was divided in direct investments, credit and cooperation agreements (to build infrastructure, schools and hospitals). If we consider trade with that continent reached 210 billion in 2010, China has occupied an important part of the “void” left by imperialist powers.

In Nigeria, in exchange for the preferential right in oil auctions, investments and projects go up to 21 billion, in Ethiopia and Algeria 15 billion each, and in Angola and South Africa 10 billion each. In some smaller countries like Zimbabwe, Equatorial Guinea, Mauritania and Zambia numbers are smaller (around 4 billion) but very significant, considering their GDP.

In Latin America, the goal is also to ensure the supply of commodities and food. In Venezuela, the CNPC (China National Petroleum Corporation) made a 28 billion agreement for the new Orinoco Belt project. In Brazil, they bought 40% of REPSOL in the country (7.1 billion) in 2010. In 2011, they acquired 30% of the Portuguese GALP (5 billion) and made other investments such as the installation of Chery automaker’s CKD assembly plant (all parts are imported). In Argentina, CNPC is the second oil company in the country, with the acquisition of 50% of Bridas, 60% of Pan American Energy (7 billion), 100% of EXXON Argentina (800 million) and most of Occidental Petroleum (2.45 billion). They have also carried out investments in mining (Sierra Grande), agribusiness and food industry, besides becoming the main provider of railroad material in that country. In Peru, after buying the Las Bambas cooper mine, they have accumulated 19 billion in mining investments, which allows them to control one third of this activity, the main one in the country. (

They have also invested in the transport sector, approximately 8 billion in Venezuela and 3 billion in Argentina. The largest project in this sector is the construction of a new interoceanic canal in Nicaragua by a private Chinese infrastructure company (HKND Group). Added to other linked road and railroad projects, it has an estimated cost between 40 and 50 billion.

At the same time, Boston University GEGI Program estimates that between 2005 and 2013 China lent 102 billion to Latin American countries (and the number keeps growing). Because of these increasing investments, trade and financial relations, there has been a great expansion of HSBC (bank that associates Chinese and British capitals). More recently, ICBC (Industrial and Commercial Bank of China) has been established in several countries.

Is China an Imperialist Country?

The reality we have described leads many analysts to consider China as the “emerging power of the XXI Century”. From the perspective of many Marxists it is a new imperialist or sub-imperialist country (imperialist but dependent on a stronger imperialism).

This latter characterization is based on the following reasoning: given that Lenin (on his famous book on the subject) has defined the main characteristic of imperialism as the export of financial capital, countries that have companies that do so (and therefore extract surplus value from others) acquire an imperialist character. This logic is applied not only to China, but also to other countries like Brazil.

We believe this characterization is mistaken because it focuses on only one element (the existence of capital exporting companies) to mechanically define the whole character of the country and its location in “international hierarchy”.

But if we observe it more deeply, we will find that at the current stage of capitalist development, there are companies like that in countries nobody can characterize as imperialist. In Peru, for example, the Grupo Romero has investments in over 20 countries. Chilean companies have made important investments in the Argentinean energy sector (with money collected from private retirement funds), and the aviation company LAN bought the Brazilian TAM. In Argentina, food companies (like Arcor and La Serenísima) or steel companies (Techint) have investments and factories in several Latin American countries. In Brazil (because of the country’s size and economy), the number rises and companies like Petrobras or Friboi slaughterhouse have bought production plants and businesses in imperialist countries.

These companies act as multinationals (similar to imperialist companies). They extract surplus value from their investments abroad. In many cases, they plunder natural resources and send most of their profit to their head offices. But this reality must be understood in the whole context of the country of origin. We must analyze whether this surplus value obtained abroad is the main axis of the country’s economy, or on the contrary, it only represents a contradictory (and privileged) element in a more general process. A process in which a country turns in most of the surplus value to the main countries (through imperialist companies’ profits repatriation, foreign debt payment, plundering of natural resources, etc.). For us this is clearly the situation of Peru, Chile, Argentina and also Brazil.

China’s case is more complex, because the State and bourgeoisie have a significant volume of capital and make large investments abroad, which allows them to have a relative autonomy, which we have already referred to. However, the Chinese economic model does not work around the surplus value obtained abroad. On the contrary, they turn in most of the surplus value obtained in the country to imperialist financial capital.

If we analyze Chinese investments, we will see that most of them are used to support their monetary reserves, or guarantee the supply and transportation of the commodities and food they import. Secondarily, they seek relief for the overproduction of steel, construction and mechanical products in the country. They are subsidiaries, subordinated to the accumulation model as a whole, and at its service. In other words, they ultimately ensure imperialism’s surplus value.

The Chinese Proletariat

The capitalist expansion in China has generated the greatest industrial proletariat and the most numerous working class in the world. According to Jiang Zemin’s report to the XVI CP Congress (2002), there were 160 million industry and construction workers. This number is shocking considering that OECD countries had 131 million the same year, and Brazil around 20 million according to more recent data.

We must add 100 million employees in municipal companies, 70 million in the State apparatus and State-owned companies, and several millions in commerce and private services. So, we are talking about a working class of no less than 350 million people.

In this context, both the minimum wage (earned by important sectors of private company employees) and the average wage have been raised above inflation in recent years. Inflation was 1 or 2%, with peaks of 6% in 2008 and 2011. But it was much higher in food, which represents 46% of the expenses of low-income urban families (it had peaks of 10% in 2004, 13% in 2007, 14% in 2008 and 12% in 2011).

The minimum wage has practically doubled in the past 12 or 13 years, with raises over 10% in several years. This was the result of many conflicts, in which private companies chose to negotiate and hand out concessions. Then, it became part of the State policy to try to avoid (or minimize) these conflicts: the 2011-2015 five-year plan proposed 13% annual minimum wage raises. Currently, the minimum wage is between 1100 and 1600 Yuan (depending on the region, and there are also differences within regions). That is, between 167 and 243 dollars.

It is important to understand that a significant part of the industrial working class has changed its character. It is no longer the generation that had recently come from the countryside. It is their children, raised in big cities, with higher levels of education and higher social aspirations.

Another factor that pushed wage raises was the lack of qualified personnel for higher production ranks. Therefore, the general average wage is 3500 Yuan (532 dollars) today. It is higher in State, finance and some trade and service sectors. In manufacturing, the average is 264 dollars. (

This wage increase has made China lose “competitiveness” compared to other Asian countries. Some industries (like textiles and clothing) transferred their investments to countries with lower wages. In a comparative analysis, Chinese industrial work is more expensive than in Bangladesh (38 dollars), Pakistan (98), Vietnam (112) and even Malaysia (234).

The Attacks and First Responses

This situation, combined with the beginning of the economic crisis, forces the Chinese bourgeoisie and regime to strongly attack their working class. On one hand, they resume their peasant expulsion policy, to create new reserve army of labor ranks. On the other, they attack certain remaining gains from the Worker’s State and the salary itself.

First, restoration destroyed the so-called “iron pot” (secure employment, social security and affordable rent) for private sector employees (it only remains for state employees), which eliminates a strong “buffer” against social tensions. Social security is increasingly precarious, and so is the health system. Internal immigrants who do not have the necessary passport (a significant part of industrial workers), are not eligible to receive medical attention or retire, and must pay rent according to “supply and demand” laws.

Many companies do not pay wages on time (or do not pay them at all) and high inflation erodes the real value of income, particularly for low-paid workers. There are also layoffs in private companies and in some state-owned companies that shut down or are privatized.

Workers respond. According to data from the China Labor Bulletin (based in Hong Kong), in 2014, Chinese workers engaged in 1378 labor disputes, twice the number of 2013 and 56 times more than in 2007. And the process increases: during the first five months of 2015, there were three times more strikes than the same period in 2014. These are not official data and should be taken with caution, but they do indicate a tendency.

At the same time, it is important to consider that the overwhelming majority of these disputes happen in the private sector, not in state-municipal. Public employees earn more, keep privileges and are under greater pressure and control from the party’s apparatus. The bureaucracy has been delaying or applying by “piecemeal” the promised and many times announced privatization plan, which is supposed to bring “more efficiency” to the state sector and its companies. There is a resistance from the “lower ranks” of the regime and party apparatus, who do not want to lose their privileges. But, as the economic crisis deepens, the regime and Chinese bourgeoisie will be forced to implement greater cuts in the state sector of the economy. This may open a new source of disputes.

The immense Chinese working class and its industrial proletariat are awakening and beginning to act. If this process continues, it may get to proportions never before seen in any country in the world. It may clash not only against the country’s economic model, but also the dictatorial regime controlled by the Communist Party.

We must also consider the democratic demands against a very repressive regime and without a plan to “open itself” as a matter of critical importance. In October last year, there were mass demonstrations in Hong Kong (with up to 200,000 demonstrators) claiming for free elections. They were repressed, but not as violently as in Tiananmen, in 1989.

Hong Kong is a very particular case. It was an enclave of the British imperialism (with its own very strong capitalist development) until 1997, when it was reincorporated to China. The criterion was “one country, two systems”. They also promised free elections in 2017 (which the regime does not want to allow now, or it wants to have veto power over candidates). But these demands impact China as a whole. New urban youth sectors arise, both proletarian and middle-class, with growing democratic aspirations that clash against a closed dictatorship.

The big problem for the regime and the Chinese bourgeoisie is that there are no mediation mechanisms to buffer down or divert possible confrontations, or channel these aspirations. The only political organization is the CPC and there is no democratic freedom for the masses or middle-class sectors. Official unions are actually state bodies, and their leaders are state employees. They remain in power based on fear and repression, but are hated by their rank and file. The bourgeoisie (and the new petite-bourgeoisie that supports it) are weak in size compared to the working class and poor peasants.

In other words, there could be a “tough” confrontation. The level of violence can be foreseen in some conflicts with aggression, and even murders of business managers, or high employees of the state-owned companies, on their way to privatization.

The Chinese regime and bourgeoisie have proven to be very pragmatic and could “open up”. But until now they have shown no will to do so. Later on, it may be too late (they may be defeated by the rise).

Of course, they have the alternative to attempt a crackdown, as they did with the Tiananmen movement. They have very powerful tools for that: an army with 3,500,000 troops and police forces with 1,600,000 men, armed with powerful weapons that are constantly being modernized. Besides, 80% of the troops are drafted and reservists (therefore, a rank and file with many links to the masses). The social reality of the country is very different from Tiananmen time. The state apparatus would not be facing students and middle-class sectors like in 1989, but a young working class of gigantic proportions.

Some Final Considerations

We would like to finish this piece asking some questions that only the upcoming future will be able answer. The first one is about the effect the Chinese situation might have on world economy as a whole. According to the Wall Street Journal (speaker of the North American capital), “China has stopped being a salvation and has become a threat to world economy”.

The second question is whether or not the Chinese regime and bourgeoisie will be able to directly open their financial market to imperialist capitals. In case it happens, what impact will it have in world the financial dynamic, when it opens a new and immense field for direct investments and as source of profit?

The third question (actually the main one) is on the dynamic of the country’s class struggle. We believe that capitalist restoration in China brings out the need for a new proletariat and socialist revolution, and it is necessary to prepare the program of this revolution. This process will not happen as in 1949, with a mainly peasant rank and file in a backward country. It will have the world’s largest proletariat as a protagonist. Are we living the first steps of a class struggle rise in China? Could this rise evolve to a revolutionary situation?

In any case, one thing is clear: if China “trembles”, it will shake the whole world, and an important part of the world’s future will be at stake in that country.



[1] The so called Great Proletarian Cultural Revolution took place in China between 1966 and 1976. Basically, it was a great mobilization (supported by Mao himself) of the Communist Party’s youth and bureaucracy left-wing against the old leadership and cadre of the right wing faction (such as Deng Xiao Ping), who were removed from their positions.

[2] Economic policy proposed by British economist John Maynard Keynes (1883-1946), to face and mitigate capitalist economic crisis. Basically, it consists of monetary and credit injections made by the State into ‘production’ branches of the economy, along with a boost in public employment.

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