Friday, 14 August 2020

Ratland from Peer to Poor


China’s Peer-to-Peer Lending Purge Leaves $115 Billion in Losses

Bloomberg News

China’s multi-year clampdown on its peer-to-peer lending industry has whittled the number to just 29 platforms, down from about 6,000 at its peak, according to the nation’s top banking regulator.

The crackdown, which is likely to be completed at the end of this year, has left investors with more than 800 billion yuan ($115 billion) in unpaid debt from failed platforms, Guo Shuqing, chairman of the China Banking Regulatory Commission, said on China Central Television on Friday. Regulators, together with the police, will try their best to recoup the money, he said.

China in 2018 intensified efforts to purge an industry that once had more than $150 billion of loans outstanding and upwards of 50 million investors, but was plagued by fraud and defaults. Even the biggest players such as Lufax and aren’t being spared after the sector came in for special scrutiny under President Xi Jinping’s crackdown on financial risk.

Thursday, 13 August 2020



U.S. Designates China’s Confucius Institute a ‘Foreign Mission’

Peter Martin
  • Educational program’s U.S. headquarters ordered to register
  • Move is latest U.S. action against China as tensions build

The Trump administration announced closer scrutiny of a program funded by the Chinese government that’s dedicated to teaching Chinese language and culture in the U.S., further escalating tensions with Beijing.

The Confucius Institute U.S. Center, the American headquarters of the program, will be required to register as a “foreign mission,” David Stilwell, assistant secretary of state for East Asian and Pacific Affairs, said on a conference call with reporters Thursday.

Stilwell said the designation was “long overdue” because in the area of educational exchanges “this reciprocal relationship is wildly out of balance.” He cited Chinese laws limiting the activities of non-governmental organizations and educational exchanges.

The designation amounts to a conclusion that Confucius Institutes are “substantially owned or effectively controlled” by a foreign government. It will subject them to administrative requirements similar to those for embassies and consulates, and it mirrors similar actions toward several Chinese media outlets earlier this year.

Of about 550 Confucius Institutes around the world, 80 are based at U.S. colleges, including Stanford University and Savannah State University in Georgia, according to the National Association of Scholars, a nonpartisan research group that has studied them.

Although the designation of the group’s headquarters doesn’t require action by colleges that host Confucius Institutes, Stilwell said he hopes educational institutions will take a “hard look” at their relationship.

The move is likely to worsen Washington’s already tense relationship with Beijing as the two countries clash over everything from Hong Kong to intellectual property. This week, Health and Human Services Secretary Alex Azar became the highest-ranking U.S. official to visit Taiwan in more than four decades, while Secretary of State Michael Pompeo blasted the Chinese Communist Party’s “campaigns of coercion and control.”

Stilwell said that the U.S. welcomes “positive exchanges” with other countries in the area of education, but that it was important to label the Chinese government-run institutions accurately. “We’re simply calling these things what they are. These are arms of the Chinese Communist Party,” he said.



Borrowing to Buy Stocks Pushes Up China’s Record Household Debt

Bloomberg News
  • Consumer loans flowing into stocks caught regulatory attention
  • Household debt climbs to new high while default risk surges

After receiving dozens of phone calls and text messages from banks touting cheap, unsecured and easy-to-get consumer loans, Eric Zhang visited one of China’s largest lenders in June and borrowed 400,000 yuan ($57,600) at an interest rate of 4%.

But there was a catch -- he had to sign a letter promising the money wouldn’t be invested in property or stocks. That didn’t stop Zhang. A few days later, he’d found a merchant who helped him make a fake purchase and move the cash to his brokerage account.

“I don’t think the bank can track the money and identify its real use,” said Zhang, who works at a Shanghai-based private equity firm. “It’s a great trade for me,” he said, after seeing his fresh stock investments surge 6% in one month.

Zhang’s story is playing out across China as retail investors embrace the euphoria of the biggest bull run since 2015. Banks and financing platforms are being swept along as punters look for quick cash to bet on the world’s most volatile equity market. It’s a dangerous strategy both for already overextended households as well as lenders, one that’s drawing closer scrutiny from regulators.


Authorities are also partly to blame. With the economy reeling from the pandemic, policy makers have pumped out liquidity and eased curbs on shadow banking to backstop small businesses and struggling families. The easy money has fueled arbitrage with retail investors and corporates tapping the cheaper rates to invest in everything from high-yielding structured deposits to wealth management products and stocks.

Leverage has climbed even as millions of Chinese lost their jobs during the pandemic. Household debt rose to a record 59.7% of gross domestic product in the second quarter, doubling from 2012, thanks to a housing boom and the rise of online lenders such as Ant Group, which has made it easier for consumers to borrow via its ubiquitous Alipay app.

Indebted Household

Chinese's debt is on the run thanks to property boom and online lenders

Source: National Institution for Finance & Development

The build up of risk has unnerved regulators. In a notice to banks last month, the People’s Bank of China asked lenders to report data on consumer credit extended jointly with internet platforms to give it a clearer picture of about $6.6 trillion in outstanding consumer loans. Credit extended by fintech startups, peer-to-peer lenders and many other channels remain unregulated.

“Unlike credit card debt, the use of consumer loans is harder for banks and regulators to monitor,” said Chen Hao, a Shanghai-based analyst with CIB Research. “Once money goes into the stock market, it will bring sizable risks to banks given the current volatility.”

Wild Swings

China stocks are among the most volatile in major equity markets

Source: Bloomberg

Trading has surged, with daily turnover exceeding 1 trillion yuan for 17 consecutive days. Outstanding margin debt on exchanges has risen at the fastest pace since 2015, to more than 1.4 trillion yuan. Unlike in most major markets, China’s individual investors account for the lion’s share of local stock trading and have been prone to extreme swings in sentiment that can have ripple effects on the economy.

State media fueled the bull run in a bid to show the world that China was emerging from the virus outbreak. Beijing has since tried to cool the fervor by clamping down on illicit margin lending platforms, but the fear of missing out is extreme.

Josh Xu, a property agent in Shanghai, is an active day trader using money borrowed on his credit card and from online lenders such as Ant’s Jiebei loan service. Xu, who earns less than 10,000 yuan a month, has made a few thousands on his 30,000 yuan investment, he said.

According to loan agreements, Ant prohibits users from borrowing for investments. Jiebei’s clients need to provide a purpose for the loan while applying on an app, and violators could see their cash withdrawn. The loan terms last anywhere from three months to two years.

Still, in a market where unsecured consumer lending has expanded about 20% a year since 2008 and competition is intense, borrowers like Xu are able to sidestep such checks.

Ant Group declined to comment in an email.

The China Banking Regulatory Commission last month reminded the public to exercise caution when using credit cards and not to borrow short for long-term use. Chairman Guo Shuqing cautioned this week that easy access to funding could spark a re-emergence of financial irregularities.

Still, such warnings are not enough to deter people like Xu or Zhang.

“I know once caught, I will be asked for an immediate repayment and my credit score will take a hit,” Zhang said. “But it’s worth the risk. There are many people taking advantage of the loopholes.”



U.S. Seizes Iranian Fuel Cargoes for First Time

Trump administration expects seizures will deter shipping companies from dealing with Iran and Venezuela

An oil refinery in Iran. Four vessels allegedly loaded with Iranian fuel were confiscated by the U.S. PHOTO: ESSAM AL-SUDANI/REUTERS

The Trump administration has for the first time confiscated vessels allegedly loaded with Iran fuel in violation of sanctions, U.S. officials said, as it steps up its campaign of maximum pressure against Tehran.

Last month U.S. federal prosecutors filed suit to seize the four tankers of gasoline that Iran was sending to Venezuela, the latest move in the administration’s effort to stifle flows of goods and money helping to keep two of its top foes in power.

At the time, it was unclear if U.S. authorities would successfully be able to take control of the tankers, after a similar effort to seize Iranian fuel through a U.S. forfeiture case was unsuccessful last year.

A federal judge in Washington last week gave the U.S. title to the Grace 1, saying that federal prosecutors had provided enough evidence that the tanker and its fuel were assets of a designated terrorist organization. The tanker had been released from Gibraltar in August 2019 over U.S. objections.

The administration expects the seizures will deter shipping companies from dealing with the Iranians and Venezuelans as tanker owners, brokers, insurers and other businesses see the risk as too costly, senior U.S. officials said. Iran and Venezuela must increasingly rely on the private sector—or illegal markets—to carry the oil and energy products vital to both nations’ ailing economies as Washington’s pressure campaigns have crippled the ability of state-owned fleets to ship supplies.

The four vessels—Luna, Pandi, Bering and Bella—were seized at sea in recent days and are now en route to Houston, the officials said. Senior administration officials are expected to meet the tankers in the coming days at an event scheduled to mark the docking, the officials said. A spokesman for the Justice Department declined to comment.

One official said the vessels had been taken over without the use of military force but didn’t provide any details. Last year the U.S. tried unsuccessfully to use judicial cooperation agreements to take control of an Iranian oil vessel that had been detained in the British territory of Gibraltar.

The Bering and the Bella were sailing off Cape Verde when the forfeiture complaint was filed in July, U.S. officials have previously said. The Luna and the Pandi last sent a radio signal from Omani waters a month ago, according to the shipping database FleetMon.

The four vessels were originally part of a flotilla of nine tankers, including five Iranian vessels, which were escorted by an Iranian naval intelligence ship, according to U.S. officials. The four privately owned vessels began peeling off from the flotilla after U.S. authorities contacted the owners of the ships, those officials said.

The U.S. government’s lawsuit alleges that an Iranian businessman affiliated with the Islamic Revolutionary Guard Corps, Iran’s elite military unit designated by the U.S. as a terror group, arranged the fuel deliveries through a network of shell companies to avoid detection and evade U.S. sanctions.

The action is the latest in a series of moves the U.S. has taken against Iran and its ally Venezuela as part of a broad operation to pressure the governments in Tehran and Caracas to meet U.S. demands.

The lawsuit came after diplomatic overtures and public and private warnings to companies involved in the shipping sector regarding the ramifications of dealing with Iran and Venezuela. The U.S. pressure campaign has resulted in plummeting energy exports for both countries, analysts say.

Iran’s and Venezuela’s leaders said they are planning more deliveries, with Venezuelan President Nicol├ís Maduro announcing plans to secure a deal on a planned trip to Tehran, but the Trump administration’s efforts have taken a toll. U.S. containment of Iran’s shipping industry over the past two years helped cut the country’s crude exports from around 2.5 million barrels a day to an estimated 70,000 in April.

Senior U.S. officials said that besides jetting around the world warning governments against helping Iran, they have conducted a broad outreach to the tanker industry, including insurance companies and firms that provide shipping licenses required under international maritime laws. That effort, along with official warnings published by the U.S. Treasury, sparked many companies to carry out a review of the transactions on their books, according to government and industry officials.

According to people familiar with the matter and Wall Street Journal research, the four seized vessels are tied to a network of companies owned or managed by Giorgios Gialozoglou and his son, Marios. The Bering captain, the Cape Verde justice ministry and Marios Gialozoglou didn’t respond to requests for comment. The phone numbers for the other vessels couldn’t be determined.

Giorgios and Marios Gialozoglou manage or own a network of Piraeus, Greece-based companies with more than a dozen other fuel and oil tankers, according to corporate registry data. According to ship-tracking data and industry officials, several of those vessels have recently conducted multiple ship-to-ship transfers and recorded long gaps in transponder data, activities that the U.S. Treasury said in a March sanctions advisory that the shipping industry should see as red flags for possible sanctions evasion. Another ship was held by Saudi-backed Yemen authorities concerned about a delivery of fuel to the Iran-backed Houthis.

In one of the few other such efforts that was successful, U.S. authorities seized in May 2019 a North Korean ship they allege the government in Pyongyang used to transport coal in violation of U.S. and international sanctions. It was the first such U.S. action against North Korea for sanctions violations.

...and bye bye Baidu!


Baidu revenues extend fall into second quarter

Even as the coronavirus pandemic has propelled gains for its competitors, Baidu’s share price has slid about 1.5 per cent this year © Reuters

The Chinese search giant Baidu’s sales continued to shrink in the second quarter as China’s economic recovery failed to bring back advertisers.

The Beijing-based company’s reported revenue fell 1 per cent year on year to Rmb26bn (about $3.8bn), ahead of the Rmb25.8bn forecast by analysts. Still, it marks an improvement after China’s coronavirus lockdown caused the group’s first-quarter revenues to fall by 7 per cent. Net profits grew 48 per cent to Rmb3.6bn.

“With Covid-19 becoming more manageable in China, Baidu’s business is steadily rebounding,” Robin Li, chief executive, said.

Separately, iQiyi — the online video platform owned by Baidu and representing about 28 per cent of the group’s quarterly revenue — said it was co-operating with the US Securities and Exchange Commission, which has made a request for documents after a research report in April from a short-seller backed by Muddy Waters Capital.

iQiyi said it had engaged advisers to conduct an internal review of allegations made in the report from Wolfpack Research.

US-listed shares in iQiyi fell more than 13 per cent in after-hours trading. Baidu was down more than 5 per cent.

Even as the coronavirus pandemic has propelled gains for its competitors, Baidu’s share price has slid about 1.5 per cent this year, bringing its market value to about $43bn. 

David Dai of Bernstein Research recently noted the company’s shares remained well undervalued but added it faced structural risks such as the decline of search in China and advertisers migrating away from the platform.

In mobile-dominant China, users now spend an increasing amount of time in walled-off apps built by its competitors for short video, news, messaging, shopping and other activities, each with powerful search functions of their own.

Baidu has said it was considering a secondary listing in Hong Kong or another venue, and analysts hope a listing closer to its home market could help support its share price.

Meanwhile, the Trump administration has issued recommendations to ban Chinese companies that do not comply with US accounting standards from American stock exchanges.

The proposals would force Chinese companies to delist from US stock markets unless regulators get access to their audits and could come into force at the end of 2021.



China’s Huawei, ZTE Set To Be Shut Out of India’s 5G Trials

Updated on 
  • Border clash ended chance for Chinese companies, officials say
  • Discussion on domestic 5G trials to restart as lockdown ends

China’s Huawei Technologies Co. and ZTE Corp. are set to be kept out of India’s plans to roll out its 5G networks as relations between the two countries hit a four decade low following deadly border clashes.

The South Asian nation will apply investment rules amended on July 23 that cite national security concerns to restrict bidders from nations it shares land borders with to keep out the companies, people familiar with the issue said, asking not to be identified citing rules.

The Ministry of Communications will restart pending discussions on approvals for 5G trials by private companies including Bharti Airtel Ltd.Reliance Jio Infocomm Ltd., and Vodafone Idea Ltd. that were delayed by the nationwide lockdown, they said.

India’s decision echoes actions by the U.S., U.K. and Australia, which have raised red flags about the companies’ Chinese government links. The U.S. Federal Communications Commission has officially declared both companies national security threats.

The process to auction 5G may spill into next year, according to the officials. A decision on the ban is expected to be announced in a week or two after approval from the prime minister’s office, they said.

A spokesman for the communications ministry and the prime minister’s office didn’t immediately respond to queries seeking comment.

Border Tensions

While India allowed Huawei to participate in its 5G trials earlier this year, its stance against Chinese companies hardened after China’s actions along their disputed border in early May. That military standoff, which turned deadly in June killing 20 Indian soldiers and an unknown number of Chinese troops, is now in its fourth month.

Huawei and ZTE didn’t respond to emails seeking comments.

“Telecom infrastructure has become part of national security assets and nations are looking at controlling and regulating them just like they do power and water,” said Nikhil Batra, Sydney-based analyst at International Data Corp. “But the Indian market is already battling infrastructure and regulatory problems. The network equipment market is a small one. So India’s challenges will compound from such a decision.”

Telecom companies were expected to invest $4 billion in setting up 5G infrastructure, according to IDC estimates.

That could be tough as companies including Bharti, Vodafone Group Plc and even state-run firms continue to struggle to make existing 4G networks profitable. There’s already heavy reliance on Chinese equipment in its 4G networks. And shutting doors to Huawei and ZTE could increase costs of a switch to 5G by as much as 35%, according to Rajiv Sharma, head of research at SBICAP Securities Ltd.

Reliance Challenge

Reliance could be a serious challenge to Huawei in the world’s second-biggest wireless market after Indian billionaire Mukesh Ambani on July 15 announced plans to soon roll out a 5G network for his Jio Infocomm using a technology developed in-house, without giving details.

His conglomerate has said its carrier won’t need to spend much to switch to the new system, unlike some of its rivals, leaving it immune to political disputes linked to Chinese equipment vendors that global telecommunications companies are embroiled in.

Yet, with its economy headed for a ‘deep slump’ amid a worsening Covid-19 pandemic, the government may not be in a position to push for a 5G spectrum auction in the near future.

Capitalist Crisis (Keynes and Schumpeter) - The Twin Evils of Overpopulation and Consumerism


Part One

 In the General Theory, Keynes is concerned with how and why capitalist industry leads to crises – financial and investment - that result in “involuntary unemployment”. The reason, he explains, is that once capitalist employers reach a certain level of profitability (revenue minus costs) they no longer find it profitable to re-invest the profits accumulated to that point. At that precise conjuncture, Keynes argues, the capitalists’ “propensity to consume” declines, resulting in excess savings and fall in aggregate demand, which only exacerbates the margin of profitability on fresh investment. What Keynes does not address, however, is that apart from the falling propensity to consume on the part of employers once income distribution becomes overly skewed in their favour so that all of the output cannot be cleared at profitable market prices – apart from this factor, there is also the far more important one that the rate of profit has a tendency to fall beyond a certain level of investment. Why is there such a “tendential fall of the rate of profit”? As we saw earlier with regard to the capitalist tendency to induce overpopulation, this is because at a certain level of profitable productive expansion, the reserve army of the unemployed begins to be exhausted and cannot be expanded further for reproductive (fertility) or political reasons. It is at such a juncture that capitalist investment reaches the limit of its profitability.

 Let us proceed in orderly fashion. We saw earlier how capitalist profit is nothing other than a “hypothecation” over future human living labour to be reduced to the status of a marketable commodity in the guise of “labour-power”. That means that once full employment is reached any further expansion of output will result in workers’ demands for higher money wages, and therefore real wages at current price levels. But this means that the higher consumption of real goods by workers will enhance their emancipation from wage labour, and lead inevitably to demands for either higher money wages or for more leisure time. The only way capitalists can protect themselves from this wage-push inflation is by raising prices so that the real wages of workers remain the same or else even begin to fall. And the other way is by expanding the reserve army of the unemployed so that growing money-wage competition between workers facilitates fresh profitable investment while money wages are kept stable and real wages per capita actually decline. Keynes explicitly excludes the possibility that existing employed workers will accept a reduction in money wages because (a) workers compare their money wages with those of other workers quite easily, and (b) a lowering of money wages would actually reduce aggregate demand even further than just the decline of the capitalists’ propensity to consume, with predictably devastating consequences for employment and consumption and therefore social well-being and political stability (strikes and political upheaval).

 It follows from all this that where it is not possible for capitalists to expand the reserve army of unemployed, whether within national boundaries or by investing in low-wage countries (preferably authoritarian ones), the economy will stagnate. Worse still, because capitalist investment involves the presence of credit whereby lenders lend to borrowers at a fixed interest rate in the hope that borrowers will be able to pay the interest on their loans out of fresh profits – because of this contractual “term-structure” of interest-bearing loans, once borrowers are unable to repay interest on loans, the lenders will begin to reckon with the possibility that even their principal will not be repaid by borrowers. At that point, the ensuing panic will lead to the liquidation of existing loans and the winding up of businesses – with the inevitable recession and even depression. This is the financial mechanism whereby it is in the essence of capitalist industry and finance to over-extend itself until the rate of profit falls below the rate of contracted interest on loans and the entire economy goes into recession or depression.

 We can see from the foregoing account how Keynes’s entire economic theory is based on “secular stagnation” (Harrod) or is indeed “the economics of depression” (as J. Hicks called it in “Mr. Keynes and the Classics”). It is notions like the money-wage (for workers), the propensity to consume  and “liquidity preference” (for employers and workers combined if they refrain from spending) that help account, for Keynes, for the occurrence of involuntary unemployment and economic crises. For the Bursar of King’s College, in the absence of fresh profitable investment opportunities – which for us are due to unavailability of potential workers to add to fresh consumers and in part to the extension of the reserve army -, the capitalist economy can be saved from political upheaval and even harmful falls in living standards and industrial output by the only social entity that can procure (a) fresh capital to prop up capitalist enterprises through lower interest rates and the expansion of the monetary mass in circulation (“the transmission mechanism”), (b) welfare payments to maintain workers’ consumption, and (c) fiscal measures for direct investment by the State to maintain and boost “aggregate demand” especially in areas of industrial activity with which the State is already familiar such as infrastructure, public service and the like.

 Again, we can see that Keynes’s overriding preoccupation was with maintaining social stability in times of capitalist crisis by seeking to understand the origins of crises and then suggesting appropriate remedies such as interventions in state-managed interest rates and money supply. The title of his major work clearly outlines Keynes’s rank of priorities: it is The General Theory of Employment (first), Interest and (then) Money. And we can also see, upon a proper interpretation of his analytical framework, how The General Theory centred on the tendential fall of the rate of profit upon the decline of investment opportunities due to the exhaustion of the reserve army of the unemployed (“new markets”) to absorb the “profits” (surplus value) generated by existing capitalist industry (declining “propensity to consume”) – and therefore the need for “external political intervention by the State” to provide monetary (interest-rate and money supply) remedies and, where these failed due to “the liquidity trap”, fiscal intervention to stabilize employment and social welfare and ultimately political stability.

 There is a clear, over-riding, pervasive and inescapable pessimism in “the economics of Keynes” (to be distinguished from “Keynesian economics”) about the future of capitalism – “in the long run, we are all dead”. As Schumpeter soberly reminds us, Keynes was always concerned with stagnation and depression – never with Schumpeter’s own obsession, capitalist “development” and “business cycles” – in other words, with “the capitalistic use of crises”, or as he called it, “creative destruction”. Ultimately, Keynes’s economic theory boils down to the limit of overpopulation – the expansion of both the army of the employed and the reserve army of the unemployed – to make up for the political intractability of overpopulation itself and of the growing inequality of income distribution in capitalist societies. The impossibility of capitalist industry to resolve its inherent contradictions was the reason why Keynes had to turn to “the social capitalist” par excellence, the State, to take over the reins of investment and employment so as to preserve and maintain the society of capital. (We shall deal with Schumpeter’s divergent focus on crisis as the consequence of capitalist innovation in a separate piece.)

 Part Two

 But overpopulation is only one pillar of capitalist accumulation and, therefore, of the systematic destruction of the ecosphere. As we indicated earlier, the other aspect is consumerism. The reason why we use the term “overpopulation” to indicate the first of the “twin evils” of capitalism is that capitalism pushes population increase to the limit of sustainability so far as the existing human and natural resources are concerned at any current level of technological utilization. As we have shown, capital is impelled to do so by that end-less (without quantitative limit, and without qualitative human goal or purpose) accumulation of capital that is its essential being, its raison d’etre. The intrinsic and imprescindible goal of capitalism is not the achievement of a particular level of human well-being, but rather the never-ending numerical or accounting task of maximizing the return on investment – profit. Needless to say, overpopulation has an automatic reflex therefore in “overconsumption” because, if the working population and the reserve army of the unemployed combined exceed what is sustainable, it must follow that the level of consumption is also unsustainable because it extends or exasperates the level of productive output to the limit of what is environmentally sustainable for human society.

Just on its own, the overconsumption needed to satisfy the reproductive needs of overpopulation will push humanity toward ecological catastrophe. It is an evident fact that as workers’ antagonism to the wage relation rises, capitalists need to produce more real goods for workers to consume, and at the same time they need to ensure that the reserve army grows so as to drive down workers’ demands. But this extension of the reserve army engenders, of course, greater excess consumption. It gets worse. For capitalists to ensure that workers are more dependent on the wage relation, the nature of their consumption must be distorted so that as great a part of workers’ consumption is directed toward “distorted needs” or, better named, “wants”. This has obvious implications for “overconsumption” because – as is evident – if a society consumed only those products that served its needs rather than its wants, it would not need to produce as much as with distorted needs or wants.

 It follows that when we examine consumption or “demand” in a capitalist society we must also keep in mind the horrendous distortion and waste occasioned not just by the need to keep alive entire armies of reserve workers, but also by the capitalist requirement to distort social needs into wanton wants for the sake of reducing the ability of social production to satisfy real needs and therefore to emancipate workers from wage labour! Thus, overconsumption is only one intrinsic aspect of overpopulation which, in turn, is an intrinsic aspect of capitalism. There is a separate reason why capitalism pushes us toward the destruction of our ecosphere: this aspect we can call consumerism. Consumerism is distinct from overconsumption in that the latter is tied more strictly to the process of the extraction of surplus value from workers – hence of the accumulation of capital and finally of overpopulation. Consumerism is quite distinct from overpopulation and overconsumption because whereas these are merely factual aspects of the operation of capitalism, whereas these are requisite operational aspects of capitalist industry and accumulation, consumerism is instead the very ideology of capitalism in that it serves not so much an organic purpose in capitalist production but much rather a propagandistic role in the subjugation and exploitation of workers. Indeed, many languages used the word propaganda especially after World War Two until it was replaced with the far less pejorative word “advertising”: thence, the direct political use of capitalist propaganda was turned into an innocuous “advertence to consumers” – a simple “notice” serving the useful purpose of “adverting your attention to” a given product.

Consumerism is, as it were, the sugar-coating that allows workers and the proletariat at large to swallow the bitter pill of capitalist exploitation and lack of real participatory democracy in liberal parliamentary bourgeois regimes. How so? The wage relation is one of violence in that workers would never accept to sell their living activity in exchange for the dead product of their living labour - that is surely an “exchange” that amounts to fraud (if unwitting) or violence (if workers are aware of it). Of course, the very fact that workers are willing to work for “a fair wage” means that the capitalist mode of production does have a minimum of legitimacy (Weber). Nevertheless, legitimacy does not mean absence of conflict: capitalist society is founded on social antagonism between capitalists and workers - and specifically on the antagonism of the wage relation. It is at this level that the reality of alienation (of workers and all of society) from control over production and of reification (the global extension of alienation to the commodification of all social relations) – it is at this level that Lukacs’s notions (developed in History and Class Consciousness and critically reviewed by us earlier) come into their own – that is, not at the point of production but rather in the sphere of consumption. The third aspect of consumerism is therefore the ideological component – “marketing”. Hence, the pervasive bombardment of workers through “advertising” and the relentless emphasis on “consumer choice” as a substitute for true participatory democracy is tantamount to the collective brainwashing of our “democratic” societies.

 The question then arises of why the antagonism of the wage relation has not exploded into open social conflict - into civil war in many advanced industrial capitalist societies. The answer has to do with capitalist growth and development. Let us see how this works.The “specificity” of a capitalist society consists in the ability of capitalists to dominate living labour, workers, not just through explicit coercion but rather through a complex set of institutions that force workers to exchange their living labour for the objects that they themselves have produced, with “dead labour” - again, not through direct coercion from a particular capitalist toward particular workers because the capitalist does not “own” the workers as is the case with slavery or with feudal relations where the “serfs” are tied to the land, the feud or glebe. One of the fundamental institutional pillars of capitalism – as against feudalism and slavery, for instance – is that workers are “formally legally free” in the sense that their employer (the capitalist) does not “own” them the way feudal lords and ancient masters did. Because capitalists have no ownership of workers but simply purchase their labour-power on the “free market”, it follows that capitalists compete with one another for workers’ labour-power. Part of this competition gives rise to a simple paradox to which the bourgeoisie is exposed: although each individual capitalist wants to pay his workers as little as possible, the same capitalist wants other employers to pay their workers as much as possible so that they may spend their income on the goods he produces! This is a variant (the converse, if you like) of the “paradox of thrift” first illustrated by Marx in Capital and then adopted by Keynes.

The result is that workers’ consumption is distorted in two very nefarious ways, deleterious to society and to the human environment. The first aspect is that capitalists cannot produce goods that emancipate workers from wage labor – this occurs indirectly through wage-push and demand-pull inflation. The second aspect is that capitalists must employ marketing to persuade workers to spend their wages on the repressive goods they force them to produce. This obviously results in the most horrendous irrational waste!



China’s Days as World’s Factory Are Over, IPhone Maker Says

Updated on 
  • Hon Hai planning separate supply lines for the two big markets
  • Company’s earnings outperformed expectations but warns on Q3
An employee wearing a protective mask checks the temperature of customers outside an Apple Inc. store in Shanghai.
An employee wearing a protective mask checks the temperature of customers outside an Apple Inc. store in Shanghai. Photographer: Qilai Shen/Bloomberg

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A key supplier to Apple Inc. and a dozen other tech giants plans to split its supply chain between the Chinese market and the U.S., declaring that China’s time as factory to the world is finished because of the trade war.

Hon Hai Precision Industry Co. Chairman Young Liu said it’s gradually adding more capacity outside of China, the main base of production for gadgets from iPhones to Dell desktops and Nintendo Switches. The proportion outside the country is now at 30%, up from 25% last June.

That ratio will rise as the company -- known also as Foxconn -- moves more manufacturing to Southeast Asia and other regions to avoid escalating tariffs on Chinese-made goods headed to U.S. markets, Liu told reporters after his company reported financial results.

Young Liu
Young Liu Photographer: Ashley Pon/Bloomberg

“No matter if it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each,” Liu told investors on a conference call, adding that while China will still play a key role in Foxconn’s manufacturing empire, the country’s “days as the world’s factory are done.”

Foxconn said in a statement Thursday that, contrary to “inaccurate media reports,” management’s comments during the call did not refer to any specific companies, facilities or products, and were intended to reflect macroeconomic and industry trends.

Intensifying trade tensions between Washington and Beijing have pushed device manufacturers to diversify their production bases away from China, and Liu last year said that Apple’s most prized product, the iPhone, can be made outside China if needed. The two nations remain in trade talks, but Liu’s comments affirm a growing expectation that the China-centric electronics supply chain will fragment over the longer term.

The Taiwanese company reported better-than-expected net income of NT$22.9 billion ($778 million) for the quarter ended in June, a period that saw increased demand for iPads and MacBooks. Revenue was NT$1.13 trillion, but Hon Hai warned it expects its third-quarter sales will be down by double digits relative to 2019. Apple is expected to delay its iPhone launch this year.

Hon Hai is bouncing back from a record profit slump in the first quarter as production at its factories recovered and shelter-in-place orders spurred demand for home computing equipment. The pandemic likely boosted iPad and Mac sales, even as Apple store closures weighed on iPhone sales, Apple CEO Tim Cook said on July 31 after reporting quarterly revenue that crushed estimates. Apple accounts for half of Hon Hai’s sales.

Even as Apple outperformed, Hon Hai’s other customers have fared less well. Hong Kong-listed subsidiary FIH Mobile Ltd. said in its Aug. 7 earnings release that while Huawei Technologies Co.’s new phones have been popular in China, they missed expectations elsewhere following U.S. sanctions. Another key customer Xiaomi Corp. suffered a backlash in the Indian market amid growing tensions between China and the South Asian country. FIH lost $100 million in the first half.

Foxconn has been shaking up its traditionally China-focused operations. Hon Hai is among Apple assembly partners that plan to expand operations in India, potentially helping the iPhone maker grow its presence in the country of 1.3 billion and shift some of the U.S. company’s supply chain outside of China as ties between Washington and Beijing fray.

Chinese rivals are also posing a growing challenge. Local electronics titan Luxshare Precision Industry Co. is poised to become the first Chinese homegrown iPhone assembler after sealing a deal in July to buy an Apple handset production plant from Wistron Corp. While Hon Hai will keep assembly orders for premium iPhones, Luxshare will eat into the business for mid-to-entry-level Apple handsets, Fubon Securities analyst Arthur Liao wrote in a July 23 note.

Foxconn will work on its component business to maintain tech leadership and it also benefits from its long-term relationship with Apple, Liu said in response to several analysts’ questions about Foxconn’s competitive strategy against the rising Chinese supplier.

Orders could be further affected after President Donald Trump issued an executive order barring U.S. residents from doing business with Tencent Holdings Ltd.’s WeChat. Annual iPhone shipments could plunge 25%-30% if Apple is forced to remove the app from its app stores worldwide, TF International Securities analyst Kuo Ming-chi warned in an August 9 note.


US sends stealth bombers to counter Chinese threat

One of the B-2 stealth bombers lands at Diego Garcia to watch over the region
One of the B-2 stealth bombers lands at Diego Garcia to watch over the region U.S. AIR FORCE PHOTO BY TECH. SGT. HEATHER SALAZAR
Michael Evans | Didi Tang, Beijing
The Times

Three American B-2 stealth bombers have arrived in the Indian Ocean island of Diego Garcia on the eve of Chinese live-firing naval exercises north of Taiwan.

It is the first time the nuclear-capable strategic bombers have been sent to the remote island since 2016, in an indication of the growing concern about China’s intentions towards Taiwan.

The bombers flew across the Pacific from Whiteman air force base in Missouri to land at Diego Garcia, part of the British Indian Ocean Territory. With their advanced stealth technology, the B-2s can penetrate enemy territory without alerting air-defence radars.

The US has been increasing its presence recently in the Indo-Pacific region as tension rises in Washington over China’s stance towards Taiwan and disputed islands in the South China Sea.

On August 16, China’s PLA Navy is to start two days of live-fire drills off Zhoushan Islands, an archipelago about 340 miles north of Taiwan.

The PLA recently completed a series of air force exercises near the islands. There are concerns in the West that China’s military exercises have been designed to simulate the seizing of Pratas or Dongsha Islands, three atolls administered by Taiwan at a strategic point between the South China Sea and the Pacific.

PLA Navy vessels must pass the islands to reach the Pacific. The arrival of the three bombers on Diego Garcia will remind Beijing of the US Air Force’s reach. China is yet to bring its own stealth bomber into service.

The B-2s are from the US 509th Bomb Wing, part of its Global Strike Command. When they went to Diego Garcia in 2016 it was also at a time of heightened tension with Beijing over its militarisation of the South China Sea.

The arrival of the military equipment in Diego Garcia coincided with China sending some new weapons to the Himalayas in a 15-week stand-off with Indian troops. The PLA added a wheeled howitzer and a vehicle-mounted version of the HJ-10 anti-tank missile system to drills there recently.

Twenty Indian soldiers were killed and there were undisclosed casualties on the Chinese side after fighting broke out in disputed territory on June 15.



How Far Will China’s Surveillance State Stretch?

American lawmakers are the latest to find that Beijing is increasingly aiming to clamp down on critics in the democratic world.

Always watching.
Always watching. Photographer: Greg Baker/AFP/Getty Images

It’s no secret, of course, that the People’s Republic of China has been building a high-tech surveillance state at home, in hopes of achieving unprecedented control over what its population does and says. Yet the Communist Party’s ambitions for political control do not end at its own frontiers. For years, Beijing has been waging an audacious campaign to set the limits of political speech not just in China but also in countries around the globe. That campaign, in turn, testifies to the mix of hyper-insecurity and hyper-assertiveness that drives Xi Jinping’s China, and it poses a profound strategic challenge to the democratic world.

For Chinese leaders, language is power, and the ability to shape the way the world talks about China is critical to the regime’s domestic security and international influence. For decades, the Chinese Communist Party has worried that foreign criticism of its illiberal rule and systematic human-rights violations might strengthen “subversive” elements within Chinese society. As China has become more geopolitically ambitious, its leaders have recognized that such criticism also stands in the way of Beijing gaining the global prestige and deference it desires.

The party has thus emphasized the importance of “discourse power” in international relations — the idea, as Nadege Rolland of the National Bureau of Asian Research writes, that “whoever rules the words rules the world.” And as Beijing’s coercive leverage has grown with its economic power, the CCP has increasingly used that leverage to constrain what people who live far beyond China’s borders can and cannot say about how the government runs its affairs.

In June, Zoom Video Communications Inc. censored — reportedly at the request of Chinese authorities — online discussions of the Tiananmen Square massacre of 1989. When a Marriott International Inc. employee liked a tweet about Tibet that the CCP deemed injurious in 2018, Beijing complained and the employee was fired. Around the same time, the CCP forced international airlines to begin referring to Taiwan as part of the People’s Republic of China on their websites, by threatening to constrict their access to the Chinese market unless they complied.

The list goes on and on. Chinese government agents have worked to prevent Uighurs in Europe from raising awareness of the regime’s industrial-scale repression in Xinjiang. It has used a mixture of economic largesse and diplomatic intimidation to dissuade foreign countries — including Muslim-majority countries — from denouncing its abuses of its own Muslim population. The Chinese security services have sought to mute dissidents in Australia and other democratic countries by harassing or threatening their families back in China. For years, Beijing has withheld or threatened to withhold trade, investment and other economic ties to punish countries — in Oceania, Scandinavia and beyond — that dare to critique its human-rights violations or foreign policy misconduct.

These are just the instances in which Beijing has had to resort to outright coercion to suppress or punish international speech it considers offensive. There are presumably many others in which the implicit threat of sanctions causes countries or corporations to do Beijing’s work for it. And Beijing is now exporting the same advanced surveillance technologies it uses at home, allowing illiberal regimes from Latin America to sub-Saharan Africa to better limit the speech and activism of their own citizens.

Collectively, these episodes offer a worrying reminder that a world shaped by Chinese power will be a world shaped by the CCP’s political values. They also reveal the strategic schizophrenia that motivates China’s behavior. There is no better example of the unshakable fear that Chinese leaders feel about the security of their own regime than their belief that tweets written and statements made by individuals half a world away could imperil the domestic stability and diplomatic legitimacy of the state. There is no better example of the vaulting confidence the regime currently feels than its leaders’ belief that they can and should set the contours of political discourse in democratic societies.

For all the problems that a rising China is causing, this one may be the most insidious. If citizens or leaders of the democratic world are dissuaded from speaking honestly about what the CCP is and what it does to its own people, the democratic world will have little success in addressing the larger, more comprehensive threat Beijing poses.

Steps that the U.S. and its allies have taken all point to a constructive strategy: continuing to speak out strongly against Chinese repression, making clear that it is not acceptable for Chinese diplomats to engage in intimidation of dissidents or other overseas critics of the regime, and providing greater support for the think tanks and NGOs that detail Beijing’s misbehavior. The Trump administration’s decision to begin sanctioning companies that are contributing to China’s pervasive surveillance and abuses in Xinjiang may also get some traction.  Likewise, the willingness of senators such as Josh Hawley to single out companies that toe Beijing’s line may also prove effective. Hawley, along with Senators Marco Rubio and Ted Cruz and other U.S. lawmakers, were sanctioned on Monday by China for having “behaved egregiously on Hong Kong-related issues." 

But the most critical element of any successful strategy may well be continuing to fortify the solidarity of the democratic world. The more united a front the democracies present, the less ability Beijing will have to play divide-and-conquer. Similarly, building on existing  democratic partnerships — such as the expanded G-7 proposed by Britain’s Boris Johnson — could serve as a counterbalance to China’s technological dominance. Finally, while wholesale economic decoupling is still a mistake, reducing the reliance of democratic societies and their private-sector entities on Chinese money and markets is a strategic necessity. And the only way of mitigating the costs of that approach — as the U.K. and a number of allies seem to have figured out — is to simultaneously promote greater coordination and integration among like-minded countries.

That may seem like an ambitious agenda amid fratricidal trade spats and poisonous political disputes among the world’s leading democracies. But the alternative may be watching helplessly as China spreads its illiberal norms to the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Hal Brands at



China Says Frozen Chicken Wings from Brazil Test Positive for Virus

Consumers in the Chinese city of Shenzhen have been urged to exercise caution when buying imported frozen food after a surface sample of chicken wings from Brazil tested positive for coronavirus, according to a statement from the local government.

The positive sample appears to have been taken from the surface of the meat, while previously reported positive cases from other Chinese cities have been from the surface of packaging on imported frozen seafood.

The chicken came from an Aurora Alimentos plant in the southern state of Santa Catarina, according to a registration number given in the statement.

Virus tests of people who have possibly come into contact with the product, and tests of related products, all came back negative, the statement said. Consumers should be cautious when buying imported frozen foods and aquatic products, the government added.

Three packaging samples of imported frozen seafood tested positive for Covid-19 in Yantai, a northern city of China’s Shandong province, the city government said on its official Weibo account on Tuesday. State television on Wednesday reported that the outside of an Ecuador frozen shrimp package tested positive for the virus in a restaurant in Wuhu, a city in China’s Anhui province.