The crushing defeat of Nato in Afghanistan is already redrawing the geopolitical and economic balance of forces in Asia. In the South Pacific, the US is constructing a new military and nuclear alliance. The central player in the region is a resurgent, capitalist China. George Kerevan seeks to analyse the current economic dynamic in China and its political consequences.
Capitalist states (including China) reacted to the spread of the Covid virus by deliberately shutting down production and isolating their working populations. The authoritarian Chinese Communist Party (CCP) regime under General Secretary Xi Jinping was able to use more draconian methods of isolation than in the West, to stem the spread of the virus, and so put itself in a position to restart production quickly. As a result, in the first quarter of 2021, China’s economy recorded its biggest year-on-year increase in quarterly GDP growth since the early 1990s.
However, this seeming success in dealing with the pandemic hides deep structural problems in the Chinese mixed economic model – problems which are being accentuated by the virus itself. Most dramatically, while Western stock market prices are now trading at record levels, the value of Chinese high technology stocks plunged by around $1 trillion between February and July 2021. This is a staggering loss in value which suggests serious worries in the new Chinese bourgeois class regarding the future of the system.
In the summer of 2021, Chinese share prices across all business sectors were highly volatile – a turmoil not seen since 2016. Despite share prices cheapening, there has also been a significant outflow of funds from China. The ostensible reason is a fear among local investors and big Chinese companies that the regime wants to impose stricter state regulation over company activities, especially by larger corporations such as Didi and Alibaba. But share price volatility has spread across the economy to educational, property-management and even food-delivery companies. Now, the major China Evergrande Group real estate firm has entered a serious crisis, spiking fears of yet more shocks. This all suggests deeper forces are at work.
At the same time, the geopolitical situation in Asia has been transformed by the US military withdrawal from Afghanistan and the collapse of the pro-Western puppet regime in Kabul. This has left neighbouring China – which shares a short (91 kilometre) but strategic border with northwest Afghanistan – in a pivotal position to influence events in the region. Beijing has been pursuing closer contacts with the Taliban for some time. This is in marked contrast to China’s hostility to the previous Taliban regime in the late 1990s, which Beijing perceived (not without reason) as a base for spreading jihadist and separatist influence among the Muslim Uyghur population of China’s Xinjiang Province. However, Beijing is now desperate to use Afghanistan as a trade corridor linking mineral-rich Central Asia (previously part of the old Soviet Union) to Pakistan, where China has been investing heavily in modern port facilities, as part of its global Belt and Road project (B&R).
We will return below to the genesis of Xi Jinping’s Belt and Road extravaganza, on which the regime’s political prestige and economic performance is now heavily mortgaged. The initial point to grasp is that the collapse of American and Nato influence in Kabul has drawn China directly into the Afghan quagmire. If China is to overcome this summer’s structural economic difficulties, it needs to secure fresh investment and trade outlets in order to out compete US capitalism. Which makes the stakes in Afghanistan all that higher.
DISSENT AND CRACKDOWN
As if this was not enough, these developments come side-by-side with Xi’s crackdown on party and business “corruption”. For example, January saw the execution by firing squad of Lai Xiaomin (58), formerly one of the most senior bank regulators in China, and subsequently the boss of one of the country’s biggest, most aggressive asset management firms. Imagine Joe Biden executing the Chair of the US Federal Reserve and the CEO of BlackRock investments, and you’ll get the scale of the internal Chinese crisis. Lai was accused of taking bribes worth $280 million. Amazingly, in Chinese terms, that is actually small beer. Lai pocketed cash for himself, for his current (bigamous) wife and for various (some say over 100) mistresses. But this was pretty much par for the course. Few senior Chinese business executives or Party bigwigs enjoy a spartan lifestyle.
Lai got a bullet in the back of the head for political disobedience and for being too indiscrete, not for taking bribes per se. As a senior Communist Party member Lai’s real crime was to disobey Communist Party instructions. The regime is desperate to control China’s burgeoning debt crisis which threatens to explode the whole economy. That means restraining excessive bank lending and investment. But Lai’s Huarong Asset Management company had ignored orders and raised billions of dollars on the Hong Kong stock exchange. This he ploughed into new financial sectors, including brokering, insurance, leasing and property development. Naturally so as the quintessential essence of capitalist reproduction is the chain of investment, production, and valorisation. But such excess investment always threatens over-production, a commodity and property bubble, and ultimate economic collapse.
This situation has a backstory. In a bid to counter the global impact of the 2008 financial crisis in America and Europe, the Chinese regime launched a $600 billion stimulus package, which also triggered a surge in borrowing by local government and state-owned firms. The West cheered China on, believing this expansion would provide a market for US and EU produce. But since 2016, Xi has reversed course in a bid to reduce China’s debt mountain. Unfortunately, the economic downturn caused by the pandemic has forced China (and the West) into a further expansion of debt, much of it out of the direct control of the Communist Party leadership. A series of defaults late last year on bonds sold by firms linked to (wayward) local government cliques has raised fears in Beijing that a general financial crisis could engulf China’s state-dominated banking sector. Hence the CCP’s desperation to control the debt machine, to the point of shooting dissident cadres and bankers.
The problem is that this draconian method of fiscal control is not working. The root problem is not personal corruption but the fact that a capitalist economy is based on investment for profit, driven by competition. Having willed into existence a huge capitalist manufacturing and banking system inside China, the Communist Party finds itself unable to turn off the accumulation machine. The pandemic has only made things worse. China’s National Institution for Finance and Development, a think tank linked to the regime, warns that since the lockdowns, regional administrations have attempted to reboot their local economies by expanding off-budget borrowing at super high interest rates. Just how much extra hidden debt this involves is anyone’s guess, but defaults could bring down the banking system.
AN ECONOMIC MODEL IN EXISTENTIAL CRISIS
The impact of the pandemic and the crisis in Afghanistan are bringing to the surface all the deep-seated contradictions in China’s economic and political model. Modern China has long since shifted back to a society dominated by capitalism – by Marx’s ‘law of value’ – where the economy is based on commodification, profit seeking and accumulation rather than production for need. In the process, China has moved from being one of the most equal societies on the planet to being one of the most unequal.
Today, the capitalist sector of the Chinese economy has long become a dominant social force. It generates 60% of GDP and 80% of urban employment. Private wealth is also responsible for 70% of investment and 90% of exports. The number of dollar billionaires in China exceeds those within the United States itself. True, the Communist Party still dominates political life. In the process, the cadres of the CCP have enriched themselves through massive graft. This primitive accumulation process includes acquiring personal property through outright theft, bribing party and state officials to acquire contracts, and cooperating with organised crime to steal land for property speculation. As a result, the offspring of senior party cadre – the so-called Red Princes – have become a new bourgeois class.
Where does this leave the ruling CCP? The Chinese regime is essentially what Marxists define as a Bonapartist state. In other words, Xi’s one-party state attempts to maintain a political equilibrium between contending and contradictory class forces. These include a new, aggressive finance capital, represented by the likes of Lai Xiaomin, that resents the constraints imposed by the Party; a sullen, super exploited urban working class that is incensed by the rampant corruption spawned by the Communist Party; an angry peasantry that resents the fact it cannot own and trade land; a growing professional middle class (now actually bigger than the peasantry) that provides much of the base of the Party and support for the regime, but whose rising living standards Xi has to guarantee; and a bloated, nationalist military establishment that has to be placated.
THE MOUNTING CONTRADICTIONS OF CHINESE CAPITALISM
Covid-19 has suddenly exposed the fragility of this Bonapartist, capitalist regime.
First, China’s economic model is in existential crisis. Before 2008, the Chinese economy was driven by exports to the West, financed by huge investments in manufacturing capacity. In classic Marxist terms, this produced an excess of fixed capital relative to surplus value created, leading to a fall in the rate of profit (see chuangcn.org for calculations by Chinese Marxists). At the same time, the virtual elimination of the historic labour reserve has begun to push up the real wage rate. This has resulted in significant industrial restructuring in the last decade. Textile manufacturing has shrunk as has producing low-end electronic goods. The more agile parts of the new bourgeois class are attempting to shift investment into higher-end electronics which is leading to a clash with US high tech monopolies. The result is that a new era of inter-imperialist rivalry will dominate the post-Covid world economy.
Second, China’s wobbly banking system is leading the country in a dangerous direction internationally. Capitalist China lacks an outlet for the surplus profits it has generated in the past two decades. Chinese finance capital is desperately searching for alternative outlets for investment that earn an adequate rate of return. At first, this was achieved by simply buying up foreign assets, e.g. a chunk of Heathrow airport. But Western political resistance, plus the low returns achieved in a period of American and European austerity, has forced Chinese finance capital along a different direction.
This brings us to the ‘Belt and Road’ (B&R) plan promoted by President Xi – a vast investment in infrastructure and energy projects linking China by land and sea to new markets in Europe, Central Asia and Africa. The principal aim of the B&R project is not political but economic. It is a classical imperialist ploy to absorb surplus capital abroad (and, if possible, create “protected” markets). However, imperialist politics rears its ugly head in that Beijing is using its political muscle to smooth the path for this investment foray. Many of Beijing’s client states now find themselves stuck with debts owed to China that they can ill afford since the pandemic hit.
Third, the source of China’s economic miracle in the post-Mao period – exploiting lots of cheap labour – has dried up. The workforce is aging rapidly while the population is not growing fast enough to supply replacement workers. Births in 2020 totalled 12 million compared to 14.6 million in 2019. This explains the regime’s decision in June to raise the number of children allowed per urban family from two to three, though in effect this move means the end of all population limits. The usual source of fresh labour – shifting agricultural workers to the cities – is no longer an option. Over the past two decades, the peasantry has been reduced from just under 40% of the population to circa a quarter. Pushing it any lower would hit agricultural output. The option of farm mechanisation would entail privatising land. That would create a battle with the remaining peasantry that the regime is unwilling to contemplate as it would delegitimise the basis of the regime. It might also encourage the rise of a neo-Maoist opposition along the lines of the Naxalites in India.
All of these internal class conflicts impinge on Beijing’s capacity to respond to western imperial manoeuvres and provocations. The ‘Pacific Pivot’ which has grown in momentum since the Obama era, has issued the AUSUK pact, part of a new military alliance in China’s putative sphere of influence pulling together US allies including the UK, Australia and Japan.
THE REGIME RESPONDS
Where does this leave President Xi? Steely, ambitious Xi got the top job as party and state leader in 2012, having first secured himself against a challenge from the left in the shape of Bo Xilai, the flamboyant CCP chief in Chongqing. As regional boss in Chongqing, Bo had built a political base among China’s neo-Maoist critics of the country’s rehabilitation of capitalism. Bo and his wife are now serving life sentences for corruption and alleged murder of a Western business associate. Bo’s supporters retaliated by launching their own leftist movement, but this has been banned.
Next, in 2017, Xi had himself declared party and state leader for life. Under the guise of a crackdown on corruption, he launched a purge of potential rivals in the party and in the military. Xi has now accrued more personal power than any Chinese leader since Mao. Xi’s concentration of power is no mere personal quirk. It is the logic of trying to run a state capitalist system where the authority of the CCP is constantly challenged by the growth of a powerful bourgeoisie. Now that the internal economic contradictions of this model are shaking the whole edifice apart, Xi has been forced to act to reinforce his Bonapartist apparatus. That includes the suppression of autonomy in Hong Kong – also designed to get control of the local banking system – and attacks on the national rights of the Muslim Uyghurs. The return of the Taliban to power in Afghanistan opens the prospect of increased resistance to Beijing’s rule throughout the Muslim populations of Han-dominant China.
Xi has also made desperate efforts to create a new political base by co-opting the new professional middle classes as a counterweight to both the bourgeoisie and the workers and peasants. The CCP welcomed 2.3 million new members in the first six months of 2021 – roughly as many as were recruited in the whole of 2020. Total membership now stands as circa 95 million, or roughly 7% of China’s 1.4 billion population. Most of the new members are from the professional middle class. This is a gamble for Xi. The danger is that this 1) cuts the CCP off from its traditional working class and peasant supporters while 2) doing nothing to actually limit the rise of pro-bourgeois networks among the business class. The new recruits might give the CCP apparatus better intelligence regarding these networks but equally the new bourgeois elements are in a better position inside the party to destabilise Xi’s rule.
Xi has also attempted to defuse disgruntlement in the new professional classes and among unemployed graduates by stoking up nationalist sentiments against Taiwan and India. A West preoccupied with Covid has failed to notice serious border clashes with India in June last year and in July this year. After purging the Peoples’ Liberation Army high command in 2017, Xi has appointed his own proteges to run the military. They are happily flexing their muscles (and new equipment) against the Indians. This brinkmanship could go horribly wrong.
CHINA, AFGHANISTAN AND THE ASIAN THEATRE
However, Xi’s central project to divert popular and bourgeois opposition to the regime, and to stave off the crisis of lack of investment opportunities, falling profits and likely debt implosion, is the Belt and Road fantasy. Some estimates put spending on the B&R project at up to US$8 trillion. If true, that would equal one half of one’s year’s GDP, or twice Germany’s GDP. That is a colossal bet on the future. Failure could bring down the regime.
There are already signs that the B&R project is running into multiple difficulties. Recipient countries for B&R investments now face huge debts to Chinese state and client agencies, which (post covid) they can’t pay back. Plus China’s intention to use new, foreign port facilities built with B&R cash as naval bases is provoking resistance not only from the West and its allies, but from local populations. Ultimately, Chinese imperialism is proving no more acceptable than its US counterpart. These tensions are likely to be exacerbated following the crisis in Afghanistan.
The political stability of Afghanistan is key to protecting more than US$62 billion worth of B&R projects in neighbouring Pakistan. These port and road facilities provide a strategic Indian Ocean terminal linking China’s sensitive Xinjiang province and the oil-rich, former Soviet states of Central Asia, to the outside world – particularly to the Gulf, Middle East and Suez Canal. Afghanistan provides the missing piece of the transport jigsaw, linking Pakistan to China, Tajikistan, Uzbekistan, and Turkmenistan.
Even before the fall of the puppet regime of Ashraf Ghani, Beijing was building links to the Taliban to ensure the road corridor through to Pakistan remained safe. However, with the US withdrawal, Beijing believes it can fill the political vacuum, turning Afghanistan into a client state. The Chinese state media has gloated over the American withdrawal from Afghanistan. The official Xinhua News Agency declared that the Taliban victory was the “death knell for declining US hegemony” in the region. It crowed: “The sound of roaring planes and the hastily retreating crowds mirrored the last twilight of the empire.”
However, Beijing may yet discover that its own brand of Great Han imperialism is no more acceptable to the locals than the American brand. In Pakistan, Islamist and nationalist elements have already responded violently to Chinese exploitation. In the latest incident, in August 2021, a suicide bomber killed two children and injured an engineer, in an attack on Chinese nationals driving along the main expressway to the big B&R port at Gwadar. Responsibility for the attack was claimed by the Balochistan Liberation Army (BLA), which accuses China of exploiting Balochistan’s mineral resources. The BLA has carried out other attacks on Chinese nationals working on B&R construction projects, as well as against the Chinese consulate in Karachi.
The Balochi people have never accepted the forcible incorporation of their nation into Pakistan, after independence from the British in 1947. There have been repeated uprisings in Balochistan ever since. This separatist insurrection has now extended to opposing Chinese imperialism. The BLA has launched frequent attacks using suicide bombers on B&R projects, which are being built by tens of thousands of imported Chinese workers. In May 2017, the BLA killed 10 Chinese labourers in an attack on a pipeline. Last year, a BLS suicide bomber attacked a bus ferrying Chinese mining workers.
For Beijing, the nightmare scenario is for Pakistan-based, anti-Chinese Islamist movements to link up with China’s own Uyghur separatists, in wholesale sabotage of the B&R project. The key here is the co-operation of the Taliban. Even before the US withdrawal from Afghanistan, Wang Yi, the globe-hopping Chinese foreign minister, was pressing the Taliban to repudiate the separatist East Turkestan Islamic Movement (ETIM), which uses bases in Afghanistan to mount terrorist raids in Xinjiang in support of Uyghur independence. Last year, the Trump administration provocatively removed ETIM from its list of proscribed terrorist organisations, to put pressure on Beijing. The Biden administration has shown no sign of reversing this move.
Meanwhile, Chinese interference in Pakistan is having serious repercussions at a state level. For one thing, Pakistan has surrendered territorial control over the port at Gwadar to a Chinese-backed multinational corporation, which involves ceding a 40-year lease. In addition, China is providing cash to renovate Pakistan’s entire transport road and rail networks, plus energy infrastructure (mostly coal) – the so-called China–Pakistan Economic Corridor (CPEC). The money is being provided by Beijing, channelled through the Asian Infrastructure Investment Bank (AIIB) and by way of direct government-to-government soft loans.
In other words, the Pakistani government of Imran Khan (a Pashtun like the main Taliban leaders) is in hock to Beijing. But Beijing wants a return on its investment in Pakistan. For instance, China investors will receive a 91% share of any revenues from the Gwadar port plus 85% of revenues generated by the associated free trade zone. This leaves China having its economic cake and eating it, and Pakistan in deep debt. Chinese loans represent around 6% of Pakistan’s GDP.
Beijing is anxious to protect its investments in Pakistan – militarily as well as financially. Pakistan has created a Special Security Division comprising some 15,000 troops, to provide security for CPEC construction operations. However, there are rumours of Peoples’ Liberation Army officers and Chinese security officials also being involved. In addition, there are indications that the PLA Navy wants to use Gwadar as an Indian Ocean naval base – China already has a military naval facility at Djibouti. The militarisation of China’s Near East sphere of influence, in the wake of American withdrawal from Afghanistan, is now a racing certainty. But that merely draws Beijing into the Great Game in a way that Xi’s capitalist regime may live to regret – as did Moscow after it invaded Afghanistan in 1979.
A later article will discuss in more detail the class nature of contemporary China