Commentary on Political Economy

Thursday 30 June 2011

The China Question - A Comment on Philip Stephens FT Column

The China Question – A Comment on Philip Stephens’ FT Column today here

A fairly pedestrian effort from Stephens – the kind of thing that you jot down on your daily commute to London by train. Stephens fails to understand that when assessing “what governments want” it is far more important to know first “what they can achieve”. And this is where the limitations on the Chinese dictatorship literally leap to one’s eyes. To consider these one has to look at the “strategic” role that the Chinese economy plays in what remains the “capitalist” global market (in trade and finance) and at the internal politico-economic dynamics of the Chinese polity.

If we look first at the internal dynamics, we see that the Chinese polity is in a calamitous state – one that is a legacy of Mao’s Cultural Revolution during which many millions of Chinese were murdered by the present regime. When Machiavelli wrote “questo popolo non ha religgione” (he used two g’s in his Renaissance Italian) what he meant was not that “this people have no religion” or “are not religious”. Rather, he meant that what holds a polity together is a lot more than producing cheap goods for export! The incalculable damage that the Cultural Revolution wreaked on the Chinese population is that it virtually wiped the slate cleas – it destroyed any semblance of social and cultural cohesion that the vast Chinese country had and replaced it instead with the cult of Mao.

Since Mao’s death, his cult has been replaced with the cult (a mere and pathetic ideology) of self-advancement and economic growth. But in reality the subservient role of the Chinese economy in the global capitalist economy (it has been the linchpin of “globalisation”) has meant that hundreds of millions of Chinese workers have been exploited in unprecedented ways in order to enrich an “elite” made up of Princelings and their State-Owned Enterprises that have access to unlimited amounts of cheap capital extracted from the forced “savings” of poor Chinese workers (there is nowhere to save in China – real interest rates are negative and the Shanghai market is in free fall, and the yuan is not being revaluated even while inflation climbs parabolically).

Meanwhile, Chinese people in the countryside have been expropriated to enrich real estate developers and elite investors in infrastructure projects that normal Chinese will never be able to use because they do not earn enough money – so that these projects are bound to be the “bridges to nowhere” that we saw in Japan. The environment – social and ecological – has been utterly destroyed and laid to waste. All these developments have induced Professor Pettis (at ) to conclude that actual Chinese GDP could be as low as one quarter of what it is calculated conventionally.

But the Chinese dictatorship knows that its days are numbered. It is desperately lashing out in all directions (with Pakistan, in Sudan, but above all in the South China Sea) to protect its shrinking economic power (which it acquired on the back of cheap exports to the West, mainly the US in the Great Moderation) and turn its fast-declining economic might into a nationalist campaign for military prowess that will unite the divided, lacerated, impoverished “polity” that we mentioned above!

So this is where Machiavelli’s “religgione” comes back to the foreground – something Stephens, whose politico-economic formation is too limited to allow, fails to consider – and what is the biggest “gap” in this piece. The upshot is that the Chinese dictatorship is isolated and “encircled”: by Japan and Korea and Taiwan and Vietnam and the Philippines and Indonesia in the South China Sea; by Russia to the north; by India in the Indian Ocean – and by the ubiquitous presence of the US Navy and military – a power far too great for the virtually insignificant forces of the PLA! Small wonder the Politburo is trying to revive Mao! Pretty soon, once its economy and GDP collapse (and that time according to everyone from Pettis to Roubini – and myself - will come soon), ideology and the memory of Mao will be all that is left!

What the capitalist West has to do now is: stop talking to the dictatorship and start talking to its people! Which is the opposite of what Stephens suggests here. Cheers to all.