The instability of China’s major stock exchanges (Shanghai and Shenzhen) seems to have no end. After the fall of 32% in just 17 days in June and July, August 24 was marked as the biggest drop of the Shanghai Stock Exchange (8.5%) in one day since 2007, when the economic world crisis that extends to the present day has started. The result was a general decline in markets around the world (see figure below).
The People’s Daily, the Communist Party of China’s (CPC) newspaper, called this day “Black Monday”, an unacceptable racist denomination in a country where 100% of the country’s bourgeoisie and government officials – the cause of the fall of the stocks – is white.
Contrary to what the world press tries to show – a bad day for the stocks exchanges – the Chinese dictatorship has been making efforts to save the stock market for at least two months. The government managed to reduce the bleeding on July 9, after the intervention of brokers financed by state banks and the massive purchase by state owned companies of their own shares (see article on this site: the Chinese stock markets fall deepens the country’s economic contradictions), but could not prevent the poor performance of the Chinese economy to continually influence the value of shares traded. In total, it is estimated that the government injected US$ 300 billion to try to stabilize the stock markets, just to see them falling even more violently.
The so-called emerging countries are much affected
If in July, erroneously, the press stated that the problem was localized and that would not affect the world market, this time there is no way to sugar-coat things. The value of commodities purchased by China (with the exception of food) fell sharply. It was the biggest drop in prices since 1999, the prelude to another economic crisis, which began in 2001.
As a result, exporter countries of these goods see one of their main income sources decrease and deepen the economic crisis that already hits hard in countries such as Brazil, Russia and South Africa, and can kick off it in others, such as Indonesia, Colombia and Australia. In Indonesia, coal accumulate in ports and even products as palm oil are reached by the decline in imports by China. In South Africa, gold, platinum and iron mining companies are laying off. Lonmin Mining, for example, announced the dismissal of 6000 workers by 2017, 20% of its workforce. Vale, the largest producer of iron ore in the world, saw its revenue fell 29.7% in the second quarter of 2015 due to reduced demand, and it should now fall further due to falling prices. Russia, which is experiencing a severe crisis caused by the fall in oil prices – its main source of foreign exchange – and had turned its economy into China’s supplier, due to the European and the US economic embargo, sees its situation worsen. In Thailand, the export of rubber to Chinese tire plants fell 20% compared to 2014.
Dependent countries are poorer
As a result of the fall of trade, the currencies of semicolonial countries suffered a tremendous devaluation against the dollar. In other words, the nations economically dependent of imperialism – particularly the US – are poorer compared to the rich nations.
Only the devaluation of the Chinese currency, the yuan, has caused a loss estimated at US$ 5 trillion (Eonomist, The Fall of China, 29/08) in the stock markets. In Russia, the ruble depreciated by almost 100% compared to a year ago, while in Brazil the real fell almost 36%. The Thailand currency, Thai baht, fell 12.5% and the Mexican peso, 23%. Even countries considered stable, such as Colombia, has seen its currency – the Colombian peso – plummet 60% (all falls against the US dollar).
This means that the products of these countries become cheaper against the dollar, making them easier to export. But not only the products; also the factories that produce them, real estate, natural resources, banks, land etc. The devaluation of currencies also leads to an increase in inflation and, therefore, the reduction of the wage purchasing power.
The result is that the dependent nations are even more vulnerable to imperialism because their multinationals can take advantage of the opportunity to do “good businesses” by purchasing national assets at a much lower dollar prices, leading to further denationalization of the economies of these countries and to the increase of concentration and centralization of capital, one of the forms of capitalism to solve its economic crisis.
The other side of the coin is the increased exploitation of workers; the theft committed with rising inflation due to devaluation of currencies. This is another form found by capitalism to solve its economic crisis. What we see, then, is the increasing dependence of the colonial and semicolonial countries to imperialism and greater exploitation of workers.
End of illusion in China
The Wall Street Journal, mouthpiece of the US financial capital, expressed in this way the turmoil caused by the fall in Chinese stock markets: “Beijing’s struggles this summer have spooked many investors into viewing China as a threat to, rather than a rescuer of, global growth. During the financial crisis of 2008 and early 2009, China, with a colossal stimulus plan, acted as a shock absorber. Lately, it is China that is providing the shocks.”
In other words, the goose of golden eggs is quitting laying them. But the lack of logical reasoning of imperialism mentors is impressive. Because it was precisely the “colossal stimulus plan” of 2008/2009 that caused the current decline of the Chinese economy and its possible entry to the club of countries in crisis (some estimate a reduction in GDP growth from 7% to 5% in 2015 and even a real growth of 2-3%, says the Economist).
The injection of billions of dollars made by the Chinese government in 2008 prevented the global economic crisis, which was taking its first steps, from reaching the country that year but only to postpone the problems rather than to solve them. This was because investments were made in the country’s infrastructure – unproductive capital – by the state while the struggles of the workers forced the government to ensure minimum wage increases (received by most workers in private companies) above inflation since then.
Despite the increase in production, wage increases have prevented the Chinese bourgeoisie from hardening the rate of exploitation on their workers (or the rate of surplus value). The result was the overproduction of various commodities, but especially those necessary for the civil construction sector, which is now showing signs of exhaustion. Not only the rate of profit stopped increasing, but also the profit begins to fall. The Wall Street Journal says that “the old recipe, relying on state investment and exports, is losing effectiveness faster than expected. Exports fell 8.3% year-over-year in July, factory orders are down, and construction starts fell 16.8% over the first seven months of 2015 from a year earlier. Even China’s car factories are feeling the squeeze, with General Motors Co. and Volkswagen AG now running their plants in China below full capacity for the first time.”
The new recipe heralded by imperialism is just one: “structural reforms” to open the country (even more) to foreign capital, that is, the sell off of state owned companies, opening the state banks to private financial capital, to equal “competitiveness” between state and private enterprises, privatization of land, etc. That means, the delivery of what remains of properly national to the imperialist domination. The devaluation of the yuan fits like a glove to achieve this.
This shows how fragile is one of the arguments of left sectors on the expansion of the Chinese economy: That country has been transformed into imperialism in search of new markets (Africa, Latin America) and a victorious war against the United States could make it the most powerful imperialist country in the planet. In fact, the behavior of CPC is typical of leaders in any country economically dominated by imperialism in the rest of the world. And, it seems, the relative political independence of the Xi Jimping government is slowly vanishing.
What crisis is it?
The main newspapers of the imperialist countries say that the problems of the Chinese economy are due to “lack of governance” and that “the world is beginning to conclude that China is not as competent as it looked, especially in the economic sphere.” In fact, the Chinese leaders followed to the letter the IMF determinations to turn their country into a “full market economy” and what stopped them so far is the continuing world economic crisis and the struggle of the Chinese working class, which proved to be much more tougher than the CPC dictatorship imagined and that does not let itself to be exploited easily.
What the bourgeois economists insist on not seeing is that the “global financial crisis of 2008 and 2009” remains to this day, it did not finish in 2009, and that the 2013/2014 relief felt by the major imperialist countries (growth in the US, England, Germany, France) is just that: a relief or a brief economic boom in some imperialist countries accompanied by the beginning of crisis of semicolonial countries, especially some sub-metropolis of imperialism (Brazil, South Africa, Russia).
So the stock exchanges crisis that affects China today is not a Chinese particularity nor will be restricted to that country and its exporting countries. It means, firstly, the entry of the most important sub-metropolis of imperialism, China, into the ebb tide of economy. And it may mean – although it is early for an affirmative position – the end of the brief expansion wave in the imperialist countries. Some signs are already been given of this possibility, such as the growth of Germany and Britain in 2014, which was equal to 2013 (1.6% in Germany, 2.6-2.7% in England). Also, the United States grew 3.1% in 2014, compared to 2.4% in 2013 (all data are from the IMF), but the forecast for 2015 is stagnation.
What we are witnessing, then, is the maintenance of a long downward wave of economic contraction, with its ups and downs: short and localized periods of expansion followed by longer and deeper periods of contraction, in general. As always happens in these historical periods, the last word will be given by the class struggle and not by finance ministers.