Economics Archives - Friends of Socialist China

Could China’s rise be Britain’s opportunity?

We are pleased to reprint below the report by Morning Star editor Ben Chacko, carried in that newspaper, of the meeting ‘China in Springtime: Sharing Opportunities with the World’, organised by the China Media Group together with the Chinese Chamber of Commerce in the UK (CCCUK) and the China-Britain Business Council (CBBC), with the support of the Chinese Embassy, and held at the Bank of China, in the City of London, the capital’s financial district, on March 17. The key purpose of the gathering was to report on and discuss China’s recent two (parliamentary) sessions and the resulting prospects for business and economic cooperation between China and Britain from the policies rolled out there.

Reporting on the keynote speech delivered by Chinese Ambassador Zheng Zeguang, Ben notes how he, “referenced President Xi Jinping’s three signature initiatives, the Global Development Initiative (for economic co-operation in place of trade systems that benefit corporations in rich countries at the expense of the Global South), the Global Security Initiative (replacing concepts of security based on power blocs like NATO with an inclusive international security architecture) and the Global Civilisation Initiative, which promotes multipolarity and argues for a world order based on respect for different civilisations, rather than one whose institutions have all been designed in the framework of the European political tradition.”

China would meet its five per cent growth target and its role as a scientific innovator should be recognised, he argued, pointing to its leading role in the global green transition (non-fossil fuels accounting for 40 per cent of Chinese electricity generation last year and 70 per cent of all electric vehicles worldwide being sold in China) as well as its progress in quantum technology and AI, most notably with DeepSeek, the “low-cost, open source large language model [which] has stunned the world.

“On sci-tech, we were playing catch-up but have now become a frontrunner.” But unlike the US, which seeks to stymie China’s development by blocking access to chips and software, “we don’t believe in ‘small yard, high fence’ — we believe in mutual learning and sharing.”

Sir Sherard Cowper-Coles, Chairman of CBBC, contrasted China’s “serious government” to too many in the West, pointing out China has a record of achieving its economic growth targets and should be seen as a key export market for British goods and services.

Lord (Neil) Davidson, Labour Member of the House of Lords and former government minister, said London should view China’s advances as opportunities, not threats.

The City should pay close attention to the “BRICS-Pay project – another platform for trade finance as an addition to the dollar-based system… this could be characterised as a threat to dollar hegemony, but historically the City has looked to assess financial innovations for their objective effects rather than rhetoric,” he argued, hinting that Britain too could benefit from an end to US financial supremacy.

“The view that China can be pressured into policies it rejects, if ever true, is plainly bankrupt. The view that China is dependent on the West for technology is eroding speedily. The view that China is merely a low-cost provider of goods belongs in the past,” he added.

We also carry below the report on the event published on the website of the Chinese Embassy. It noted Ambassador Zheng as stating:

“China will promote the development of new quality productive forces, fostering industries such as biomanufacturing, quantum technology, embodied AI, and 6G, and continuously advancing the AI Plus initiative and AI application in different industries. China will expand higher-standard opening up, strengthening policies to stabilise foreign trade and foreign investment, and increasing the number of countries eligible for visa-free entry. China will promote green and low-carbon transition, improving incentives for green consumption, and accelerating the development of a green and low-carbon economy.”

The Ambassador also pointed out that China and the UK should seize opportunities, expand collaboration and create a new future of mutually beneficial cooperation. In the face of a turbulent and changing world, a stable and constructive China-UK relationship is even more important to both countries and the world.

“The two sides must uphold the principles of mutual respect, non-interference in each other’s internal affairs and equality, and properly handle differences and sensitive issues. We must say no to those who have been trying to talk China down. We must say no to those who have been trying to undermine normal exchanges between our two countries. We must say no to those who have been trying to disrupt China-UK collaboration.”

Following the formal proceedings and a networking reception, Creation of the Gods II: Demon Force, a 2025 historical blockbuster, was screened.

Could China’s rise be Britain’s opportunity?

Will Labour take a more rational approach to China than the Tories did? Or continue the drive to trade decoupling and war led by the United States?

Optimism was in the air at a China Media Group meeting bringing together the country’s ambassador to Britain Zheng Zeguang and business figures earlier this week. The Donald Trump government was not named, but its disruptive character was referenced — Zheng observed that “unilateralism and protectionism are on the rise and power politics runs rampant;” the chairman of the China-British Council, Sir Sherard Cowper-Coles, spoke of the “orange-coloured elephant in the room.”

China in Springtime reported back on the recent Two Sessions, as the simultaneous meetings of China’s national policy-making forums — the legislative National People’s Congress, and the advisory People’s Political Consultative Conference — are known.

Zheng countered propaganda depicting China’s rise as a threat to a “rules-based” — read US-policed — world order. “China champions an equal and orderly multipolar world and universally beneficial and inclusive economic globalisation.”

Here he referenced President Xi Jinping’s three signature initiatives, the Global Development Initiative (for economic co-operation in place of trade systems that benefit corporations in rich countries at the expense of the global South), the Global Security Initiative (replacing concepts of security based on power blocs like Nato with an inclusive international security architecture) and the Global Civilisation Initiative, which promotes multipolarity and argues for a world order based on respect for different civilisations, rather than one whose institutions have all been designed in the framework of the European political tradition.

In China, profit does not rule, social objectives do

While we don’t agree with the author’s characterisation of the Chinese People’s Political Consultative Conference and the National People’s Congress (on which issue readers may be interested in this article by Roland Boer), the article below offers very useful insights into China’s economic policy and performance.

The article notes that China’s GDP (measured in international market dollars, as opposed to purchasing power parity) remains behind that of the US, but the gap is closing fast. This is because, “although China’s annual real GDP growth is no longer in double-digits, it is still growing nearly twice as fast as the US economy.” Furthermore, the US’s relatively high GDP growth of 2.8 percent last year (which compares favourably with the other major capitalist economies) was in part down to an increased size of workforce due to immigration: “More people, more output. US real GDP growth per person was much less.”

The author further notes that “China has had the world’s largest manufacturing sector by output for 15 years running”, with manufacturing contributing 36 percent to GDP, compared with just 10 percent in the US. China’s economy remains firmly grounded in the real economy, and increasingly in new productive forces. “More electric vehicles are on the road in China than in the US, and Beijing’s roll-out of 5G telecommunications networks has been much faster. China’s home-grown airliner, the C919, is on the cusp of mass production and appears ready to enter a market currently dominated by Boeing and Airbus. The BeiDou satellite navigation system is on par with GPS in coverage and precision.”

The article asks: Why has China succeeded in avoiding slumps including the Great Recession and in the pandemic?

It’s because, although China has a large capitalist sector, mainly based in the consumer goods and services sectors, it also has the largest state sector in any major economy, covering finance and key manufacturing and industrial sectors, with a national plan guiding and directing both state enterprises and the private sector on where to invest and what to produce. Any slump in its private sector is compensated for by increased investment and production in the state sector – profit does not rule, social objectives do.

This article first appeared on Michael Roberts’ blog. Michael recently contributed to our webinar ‘DeepSeek and the challenge to US technological hegemony’.

The Chinese government is just completing its annual ‘two sessions’ or lianghui, where China’s political elite approve the economic policy agenda for the coming year. The ‘two sessions’ refers to two major political gatherings: the Chinese People’s Political Consultative Conference (CPPCC), a political advisory committee; and the National People’s Congress (NPC), China’s top legislative body.

Trump’s tariff tantrums

With the Trump administration’s increasingly aggressive tariff measures, economists are warning of the risk of an international trade war, with the US and China as its major antagonists. To provide some much-needed clarity on this issue, we are pleased to republish below two recent articles from British Marxist economist Michael Roberts.

Michael describes the core of Trump’s tariff strategy as aiming to “make America ‘great again’ by raising the cost of importing foreign goods for American companies and households and so reduce demand and the huge trade deficit that the US currently runs with the rest of the world”. According to the US government, this will boost incomes and jobs in the US. Furthermore, the extra tariff revenues will boost Treasury coffers, supporting the administration’s plan to cut income tax and corporation tax.

What will the actual effect of the tariffs be? Michael argues that the tariffs will not reduce the US trade deficit, but will instead raise prices for US consumers and reduce the competitiveness of US companies. Inflation will rise, taxes will be cut, federal spending will be gutted – meaning that the consequences for the US working class will be dire. At a global level, “increased tariffs and other protectionist measures by all sides in retaliation will weaken world trade and economic growth. World trade growth showed some recovery in 2024 after contracting in 2023. Trump’s tariffs will stop that recovery in its tracks.”

Countering those economists who argue that tariffs have always been a valuable tool for nurturing domestic industry, Michael writes: “The US in the 21st century is not an emerging industrial power that needs to protect burgeoning new industries from powerful competitors. Instead, it is a mature economy with a declining industrial sector that will not be restored in any significant way by tariffs on Chinese or European imports.”

Further:

American capital did not invest to sustain its manufacturing superiority because the profitability of that sector had fallen too mcuh. Instead, they switched to investing in financial assets and/or shifting their industrial power abroad. In the last couple of decades they hoped to sustain an advantage in hi-tech and information technology including AI. Now even that is under threat. But this is not the fault of China running an ‘unfair’ industrial trade policy that is based on suppressing the living standards of its people; on the contrary, it is the failure of US capital to sustain its hegemony, just as Britain did in the late 19th century.

The two articles were first published on The Next Recession blog.

Trump’s tariff tantrums

Feb. 4 (The Next Recession) — Over the weekend President Donald Trump announced a batch of tariff increases on US imports of goods from the closest partners of US trade, Canada and Mexico. He proposed a 25% rise in tariffs (with a lower rate for oil imports from Canada). Then he announced a 10% rise in tariffs on all Chinese imports. Thus Trump started his new trade war.

And yet as soon as he started it, he stepped back. Trump announced that he was postponing the tariff increases with Canada and Mexico for a month because their governments had agreed to do something about the smuggling of fenatyl drugs into the US, which he claimed was killing 200,000 Americans every year. This figure is nonsense, of course, because under 100,000 Americans die from drug overdoses from all chemicals each year. As it is, the smuggling of fenatyl over the US-Canadian border is miniscule – certainly compared to the drug cartel operations on the Mexican border. Moreover, as Mexican President Sheinbaum pointed out to Trump, the cartels are able to operate their violent methods because of gun running operated by Americans in the US.

The Canadian and Mexican governments rushed to do a deal with Trump, promising batches of troops on the borders to stop trafficking and more joint anti-drug forces with the US etc. This seems to be enough for Trump to postpone his tariff move, although the tariffs on China will go ahead (no drugs there?). Also small package imports that have been free of import tax up to now will be brought into the customs system – and that will hit internet online purchases made by Americans for goods from abroad.

So what are we to learn from these shenanigans? Are the threatened tariff increases merely being used to browbeat other countries into concessions to Trump? Or is there a coherent economy policy in all this?

There is method in this madness. On the external front, Trump aims to make America ‘great again’ by raising the cost of importing foreign goods for American companies and households and so reduce demand and the huge trade deficit that the US currently runs with the rest of the world. He wants to reduce that and force foreign companies to invest and operate within the US rather than export to it.

He reckons this will boost incomes and jobs for Americans. And with the extra tariff revenues, the government will have sufficient funds to cut income taxes and corporate profit taxes to the bone (indeed, Trump says he wants to abolish income tax altogether). If this is the plan, then the tariffs will eventually be applied fully, with China probably getting an even bigger increase.

Challenging the purists: the Marxist debate over China’s path

The article below was submitted by Dan Farhat, an author and researcher based in Beirut, Lebanon.

Dan responds to the critique made of China by some of the (particularly Western) left, that the introduction of market mechanisms from 1978 onwards was a betrayal of socialism and that China has become – or is on its way to becoming – a capitalist country.

Comparing China’s Reform and Opening Up with the New Economic Policy in the Soviet Union in the 1920s, and drawing inspiration from the writings of the Italian Marxist philosopher Domenico Losurdo, Dan argues that China’s reforms constituted a creative and successful response to the conditions faced by the country at the time, and indeed have been a key factor in China’s successes in eradicating extreme poverty and raising living standards beyond recognition.

The article further notes that, while the spread of market forces introduces contradictions, risks and challenges, the Chinese leadership has been able to manage these by maintaining the leading role of the CPC and the state sector, and “preventing the bourgeoisie from becoming a cohesive and politically powerful class”.

The following story was shared by the former deputy editor-in-chief of China Daily, Kang Bing:

Growing up in the 1960s and 1970s, my childhood memory is closely tied to hunger. In my home city of Xi’an, the monthly quota for one urban resident was 100 grams of cooking oil, half a kg of meat, half a dozen eggs, and 100 grams of sugar. As for milk, it was given only to families with newborns. Many families today consume the entire monthly quota of oil, meat, eggs, and sugar in one day.

Although the ration system ensured everybody had a share of the available food and prevented starvation deaths, it led to malnutrition among children, adolescents, adults, and the elderly alike. Not a single boy among my 100 male classmates who graduated from high school with me in 1977 crossed 1.8 meters in height thanks to malnutrition.

Today’s picture is very different, with the country emerging as the world’s second-largest economy. Millions of people have been lifted out of poverty, and the quality of life in China has improved significantly – indeed, at a rate never seen before in human history. This incredible transformation is in no small part testament to the profound impact of Deng Xiaoping’s economic reforms.

Deng himself famously said that “to build socialism it is necessary to develop the productive forces. Poverty is not socialism. To uphold socialism, a socialism that is to be superior to capitalism, it is imperative first and foremost to eliminate poverty.” For Deng, true socialism was not about keeping everyone equally poor; it was about lifting people out of poverty. Deng saw a socialism that, through the utilization of market mechanisms, and by focusing on development and economic growth, could transform the lives of ordinary people and elevate China’s position in the global economy.

The exceptional economy

In the following article, British Marxist economist Michael Roberts responds to the neverending predictions of China’s imminent collapse, which have been a staple of Western commentary for decades.

Comparing the two countries on a range of economic indicators, Roberts finds that China is far ahead of the US in terms of GDP growth, wage levels, controlling inflation, managing debt and building infrastructure.

The Western consensus is that China is mired in huge debt, particularly in local governments and real estate developers. This will eventually lead to bankruptcies and a debt meltdown or, at best, force the central government to squeeze the savings of Chinese households to pay for these losses and thus destroy growth. A debt meltdown seems to be forecast every year by these economists, but there has been no systemic collapse yet in banking or in the non-financial sector. Instead, the state-owned sector has increased investment and the government has expanded infrastructure to compensate for any downturn in the over-indebted property market. If anything, it is America that is more likely to burst a bubble than China.

On accusations of Chinese manufacturing overcapacity, “this is another myth broadcast by Western experts”, since China’s manufacturing growth is primarily targetted at the domestic economy.

Roberts poses the all-important question: why is China exceptional?

It is because it is an economy that is planned and led by state-owned companies, so it can ride most obstacles way better than a privately owned system of capitalist production as in the US… China’s most important industries are run by SOEs: finance, energy, infrastructure, mining, telecommunications, transportation, even some strategic manufacturing. The total capital of companies with some level of state ownership in China is 68% of total capital of all firms (40 million). The vast majority of Chinese companies in the Fortune Global 500 list are SOEs. SOEs generate at least 25% of China’s GDP in the most conservative estimates, and other studies have found them to contribute to 30-40+% of GDP.

Which is to say, the most important reason for China’s continued success is the socialist foundation of its economy.

Next week US president Joe Biden finishes his term of office, to be replaced by the Donald. Biden would have been extremely popular with the American public and probably would have run and got a second term as president, if US real GDP had increased by 4.5-5.0% in 2024, and if during the whole of his period of office since end 2020, real GDP had risen 23%; and if per American, real GDP had risen 26% over those four years. And he would have been congratulated if the Covid death rate during the 2020-21 pandemic had been one of the lowest in the world, and the economy avoided the pandemic slump in production.

Above all, he would have been feted if the inflation of prices in goods and services after he came into office was just 3.6% in total over four years. That would have meant that, with wages rising at 4-5% a year, real incomes for average American households would have risen significantly. At the same time, strong growth would have allowed the financing of important new infrastructure spending in the US that could have led to an extensive rail network across the country using super fast trains; and with bridges and roads that did not collapse or crumble along with environmental projects to protect people and homes from fires and floods, and the introduction of cheap electric vehicles and renewables. How Biden would have been popular.

And with extra revenue from strong growth, the Biden administration would have been able to balance the government budget and curb or reduce government debt. And with zero to low inflation, interest rates on borrowing would have been near historic lows, enabling households and companies to afford mortgages and finance investment in new technologies.

Ken Hammond: In China the interests of the working class are at the heart of everything

In the latest episode of The China Report, embedded below, hosts Amanda Yee and KJ Noh interview Professor Ken Hammond about his new book, China and the World. The three have a wide-ranging discussion about the trajectory of China’s foreign policy over the last half-century, as well as interrogating the dominant narratives about China in the West and exploring the nature of China’s economic development.

Ken details how the rapprochement between the US and China in the early 1970s, starting with the visits by Henry Kissinger in 1971 and Richard Nixon in 1972, opened a path for “China being able to open up to a broader range of outside engagements”, and in many ways enabled the Reform and Opening Up process that began in 1978. While improved relations with the US came at a not-insignificant cost to China’s role in promoting socialist and national liberation revolutions – contributing to some confusion in the West and elsewhere as to China’s political trajectory – “China was pursuing what could be described as a deep game, taking a long-term perspective that required making certain compromises or accommodations in the short term to achieve fundamental objectives in the long term”.

The three talk about China’s economic reforms and how, while they introduced serious contradictions and imbalances into Chinese society, they ultimately enabled China to overcome poverty and underdevelopment. Ken points out that the country achieved an average of 10 percent GDP growth for several decades and that “this growth didn’t just benefit the wealthy; it flowed directly to the people”. On this topic, KJ recounts discussions with Chinese officials in the late 1990s and early 2000s, who described market reforms as “like getting onto a wild horse – but we believe we can contain this horse”. The record shows that they have indeed been able to do so.

Talking about China’s whole-process socialist democracy and its extremely high levels of public consciousness and engagement, Ken describes China as “a state in which the interests of the working class are at the heart of everything that goes on”, and contrasts this with the money-driven politics of the US in which the interests of the capitalist class are at the heart of everything.

China and the World is available to pre-order from 1804 Books.

Goals behind Trump’s tariffs: cut taxes on rich and escalate New Cold War on China

US president-elect Donald Trump has been touting tariffs as a means to reduce both income taxes and the national debt, which currently exceeds 120 percent of GDP. In the article below, Ben Norton describes these claims as “utterly false, and mathematically absurd”.

Ben notes that, during Trump’s first term, significant tax cuts were enacted, primarily benefiting the wealthiest Americans. These cuts resulted in the richest billionaire families paying a lower effective tax rate than the bottom half of US households. Consequently, federal deficits increased from 3.4 percent of GDP in 2017 to 4.6 percent in 2019, prior to the pandemic-induced surge to 14.7 percent in 2020.

The article observes that “every advanced economy got its start through protectionism”, but that the US from the 1940s has been preaching (and sometimes violently imposing) free trade as a means of opening up markets for its exports. “However, something happened in the 21st century that changed everything: the People’s Republic of China carried out the most remarkable campaign of economic development in history.”

China’s extraordinary rise has taken place in parallel with a sharp decline in US manufacturing and an increasing financialisation of the US economy. “The US capitalist class decided it would much rather be the banker of the world rather than the factory of the world, because creating parasitic financial and tech oligopolies that use monopolistic market control and intellectual property to extract rents is much more profitable than actually making things.”

Trump’s proposed tariffs will not help the US to re-industrialise – such a project would require massive long-term investment in infrastructure, education, and research and development. In reality, tariffs will be used “to justify cutting taxes even further on the rich” and, further, “to escalate the new cold war on China, which is a bipartisan gift to the Military-Industrial Complex that will only distract from the domestic problems caused by the US ruling class and externalise the blame”.

This article originally appeared on Geopolitical Economy.

Donald Trump cited billionaire egghead venture capitalist Marc Andreessen to advocate for high tariffs. Trump argued that tariffs will magically replace the income tax and pay off US public debt (which is more than 120% of GDP). This is utterly false, and mathematically absurd.

For Trump, tariffs are just another convenient excuse to cut taxes on the rich — which will in fact increase the US deficit, and therefore public debt.

Thanks to Trump’s tax cuts during his first term, the richest billionaire families in the US paid a lower effective tax rate than the bottom half of households in the country. Meanwhile, US federal deficits increased from 3.4% of GDP in 2017 to 4.6% of GDP in 2019 (before the deficit blew out to 14.7% of GDP in 2020, due to the necessary stimulus measures during the pandemic).

As Trump continues to reduce taxes on fellow oligarchs, tariffs will decidedly not make up for the lost revenue. A study by the Wharton School, the elite business school of the University of Pennsylvania, estimated that Trump’s economic policies will increase the US deficit by $5.8 trillion over the next decade.

Nevertheless, the sudden interest in tariffs shown by US billionaires is about much more than just taxes; what it is really about is industrial hegemony and economic dominance.

Here is the actual history, which oligarchs like Trump and Andreessen don’t know:

In the 19th and early 20th centuries, the United States used tariffs as a form of infant industry protection, to build up its domestic manufacturing capabilities, following the dirigiste ideas of Alexander Hamilton.

Every advanced economy got its start through protectionism (including Great Britain, France, Japan, South Korea, etc.). The state needed to protect infant industries during the initial industrial “catch-up” period, because it is very difficult for a developing economy to compete with a dominant economic power that already has an established industrial base that benefits from economies of scale.

By the 1940s, the US became the dominant industrial power on Earth, especially after World War Two destroyed its competitors in Europe. In 1946, US net exports were 3.2% of GDP; then, in 1947, they were 4.3% of GDP. This was a peak the US would never see again. (US net exports have been negative without exception since 1976, as the US has run the largest consistent current account deficits ever seen in history, which have only been possible to balance due to the fact that the US prints the global reserve currency, and can thus sell more and more Treasury securities and other financial assets to foreign holders of dollars.)

In the 1940s, US industry no longer had significant competition, so Washington lifted tariffs and began to preach “free trade”. This benefited the US, because at that time it had a large surplus, and insufficient domestic demand, so by imposing “free trade” (often forcibly), it could open new markets for its exports.

The US wasn’t concerned about losing local market share to a foreign manufacturer, because there weren’t any left at the top of the value chain. So US companies could dominate both foreign and domestic markets.

What the United States did was not unique; the British empire did the exact same thing in the mid 19th century. After the UK established industrial dominance, it repealed the Corn Laws in 1846, moved away from strict protectionism, and began to impose “free trade” on its colonies. (This history was detailed by economist Ha-Joon Chang in his groundbreaking book Kicking Away the Ladder.)

However, something happened in the 21st century that changed everything: the People’s Republic of China carried out the most remarkable campaign of economic development in history.

By 2016, China overtook the United States as the largest economy on Earth (when GDP is measured at purchasing power parity, according to IMF data).

Even more importantly, China rapidly industrialized and established itself as
the “world’s sole manufacturing superpower”, responsible for 35% of global gross production.

Meanwhile, the US lost its industrial hegemony, due to the deindustrialization and financialization of its economy in the neoliberal era. The US capitalist class decided it would much rather be the banker of the world rather than the factory of the world, because creating parasitic financial and tech oligopolies that use monopolistic market control and intellectual property to extract rents is much more profitable than actually making things.

Just 10% of US GDP consists of manufacturing. More than double, 21%, is made up by the FIRE sector: finance, insurance, and real estate.

Today, US companies can no longer compete with Chinese firms. So what is the response of the US government, which is the representative of US monopoly capital? It has abandoned the “free trade” ideology it had spent decades imposing on the world, and has instead returned to its old strident protectionism.

During his first administration, Trump launched a trade war on China. But this is totally bipartisan (as is the case with almost all US wars). Joe Biden has continued Trump’s trade and tech war on China, imposing even more tariffs.

Demagogues such as Trump like to scapegoat China for the problems that were caused by US oligarchs like him and Andreessen, who got much, much, much richer thanks to the deindustrialization and correspondent financialization of the US economy.

Now they think tariffs are the panacea that will fix everything. But they won’t, because the US industrial base has seriously eroded, and that can’t be rebuilt quickly; it takes many years.

Even more importantly, billionaire oligarchs on Wall Street — who are close friends and allies of Trump, Andreessen, Vivek Ramaswamy, and Elon Musk — will fight tooth and nail against a significant devaluation of the dollar, which would be needed to re-industrialize, reduce production costs, and disincentive imports. Financial speculators want a strong dollar, to keep inflating the biggest bubble in the history of US capital markets.

So the logical result of this is that Trump will use tariffs not truly to re-industrialize, but rather for two main reasons: one, to justify cutting taxes even further on the rich (thereby increasing US public debt, which will be pointed to to demand neoliberal austerity and slashes to social spending); and two, to escalate the new cold war on China, which is a bipartisan gift to the Military-Industrial Complex that will only distract from the domestic problems caused by the US ruling class and externalize the blame.

While the US provokes chaos, China promotes development

Embedded below are the video and transcript of the 36th episode of Geopolitical Economy Hour, in which Radhika Desai, Michael Hudson and Mick Dunford discuss the significance of the 75th anniversary of the Chinese revolution; the reasons for China’s continued economic successes; China’s role in the construction of a multipolar system of international relations; China’s people-centred development versus the West’s capital-centred development; the structure of the Chinese economy and land ownership; the likely impact on China of a new Trump presidency; and much more.

The video and transcript were first published on Geopolitical Economy, edited by Ben Norton.

Transcript

RADHIKA DESAI: Hello and welcome to the 36th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our world. I’m your host, Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host Ben Norton, our videographer Paul Graham, and our transcriber Zach Weisser.

Thanks to many conferences I’ve been to, our usually fortnightly show has become a monthly show, that is, it’s been a month since our last show. And what a month it’s been. The historic U.S. election results came in while I was at the Valdai Discussion Club conference.

Traditionally, it ends with a speech, usually a landmark speech, by President Putin. This time was no different. Two days after the U.S. election results had been declared, Putin reviewed the fundamental principles of Moscow’s foreign policy, giving a wide berth to the U.S. election results. However, he ended with two key sentences that laid bare Moscow’s stance towards them.

Putin said, “Everyone should be clear that putting pressure on us is useless, but we are always prepared to sit down and talk based on the consideration of mutual legitimate interests in their entirety.”

“In that case, there may be little doubt that 20 years from now, in the run-up to the 100th anniversary of the United Nations, future guests of a Valdai Club meeting will be discussing much more optimistic and life-affirming topics than the one we are compelled to discuss today.”

That was what Putin said at Valdai.

The U.S. election results were followed by the almost immediate collapse of the German government. A Western discursive shift from the illusion that Ukraine could defeat Russia to talk of a negotiated end to the conflict, even with territorial concessions. Announcements of layoffs in German industry, which picked up pace at a funereal drumbeat.

Trump’s cabinet appointments, the resumption of the Syrian conflict, the apparent ceasefire between Israel and Hezbollah, which has been immediately violated, a Georgian attempted color revolution, the Baku COP meeting, the Sri Lankan elections that brought a Marxist to power; the list is very long.

Indeed, in retrospect, the liminal period between the U.S. presidential election in early November and the U.S. presidential [inauguration] in late January was bound to be rocky, and so it is proving to be. Our conversation will likely touch on many of these topics.

However, for the leitmotif of the conversation today, we’ve chosen a topic we’ll be meaning to cover this year; the 75th anniversary of the Chinese Revolution, which most of you know took place in 1949.

For if the United State’s destructive and malevolent presence can be seen in each one of the events rocking the world today, so is China’s constructive and benign [presence].

An entire army of U.S. and Western commentators are busy trying to talk down the Chinese economy, the foundation of China’s international influence.

It is allegedly suffering from the prospect of deflation, faces Japanification, has a real estate crisis and is losing domestic legitimacy. Moreover, we are told, it will not be able to stand up to U.S. sanctions.

So clearly, to understand China’s role in countering the U.S., we need to understand the secrets of the longevity of the Chinese Revolution.

To do this with us today is a familiar guest, Professor Mick Dunford of Sussex University and of the Chinese Academy of Sciences. Mick, as you know, is a geographer and a scholar of China. And as we have seen in other shows, he also keeps a keen eye on events in Russia, in Europe, and the world in general. So welcome, Mick.

MICK DUNFORD: All right. Thank you very much, Radhika. And thank you, Michael. It’s a great pleasure to join you again.

RADHIKA DESAI: Yes, we’re really pleased to have you. And I want to start, Mick, with a very important article you wrote recently, in which you provided a framework for the understanding of the history of revolutionary China’s success along two parameters.

One was about how China’s development has been determined by the interaction of internal and external constraints, and these constraints caused regular crises, but China had to operate within them.

And the other parameter was exactly how the Communist Party of China experienced these crises and these constraints and responded to them. So perhaps you can start us off by laying out briefly how you understand China’s achievements.

“Nothing like before” — China is out-competing the West on EVs

The following article, written by Paweł Wargan for Progressive International, examines the neverending accusations by Western media and politicians regarding China’s putative ‘overcapacity’ in electric vehicles (EVs). Paweł explores the reasons for these accusations, and comprehensively refutes them.

The article observes that China’s industrial utilisation rates and inventory levels are similar to those of the US, and furthermore Chinese profit margins are soaring. These factors indicate that there is no significant overcapacity in China’s EV sector.

As for the notion that China’s rise has caused the decline of Western industry, Paweł points out that the decline of Western manufacturing predates China’s rise. “In the US, the trade balance has seen a sustained deficit since the late 1970s. As the productive structure of its economy shifted, industrial capital made way for financial capital. The number of manufacturing jobs decreased from around 20 million at their peak in 1979 to under 13 million today — a period in which the US saw its population rise by 100 million.”

Describing some of the extraordinary innovations taking place in China’s EV sector – in particular a ‘road-cloud-vehicle’ integration that improves safety and reduces energy use – Paweł comments that “this degree of integration is only possible through control over the entire EV value chain”. Particularly in the light of US-led sanctions and tariffs, “China began to move quickly towards technological sovereignty in all areas, from chips and artificial intelligence to cars and batteries”. As a result, “it competes not only with the automobile industry — historically the domain of the West. It also now competes with the tech giants of Silicon Valley”. Obviously, this speaks to the superiority of a socialist economy where decision-making lies ultimately with the people, rather than a few billionaires.

Paweł writes that the accusations of overcapacity provide a convenient pretext for the West to embark upon its own program of protectionism – exactly what it accuses China of doing – as well as “allowing the Western leadership to blame China for the structural long-term decline of the global capitalist economy”. Alarmingly, the situation also shows that the West would rather sabotage China’s economy and the global green transition than cooperate sensibly with China on the basis of mutual benefit.

Paweł Wargan is an activist, researcher and organiser. He serves as Political Coordinator at the Progressive International, an international coalition of over 100 popular movements, political parties, and unions. He contributed to our conference marking the 75th anniversary of the founding of the People’s Republic of China.

The past year has seen a concerted effort by Western politicians, regime intellectuals, and media stenographers to accuse China of “overcapacity”. The coordinated narrative has accompanied a choreographed escalation in the West’s economic war on China. What is motivating these accusations?

In May 2024, the White House announced a series of new tariffs on Chinese products, including a 100% tax on imports of Chinese electric vehicles (EVs), set to take effect later this year. The European Union followed closely behind. In July, the Commission announced duties ranging from 17.4% to 37.6% on Chinese EV manufacturers. And in August, Canada announced 100% tariffs on Chinese EVs along with 25% tariffs on Chinese steel and aluminium.

The White House insisted that the measures would “protect American manufacturers from China’s unfair trade practices” and ensure that “the future of the auto industry will be made in America by American workers.” The European Commission cited China’s “unfair subsidisation” and Canada warned of the threat of China’s “intentional, state-directed policy of overcapacity”. In this narrative, now choreographed and ritualized across the West, China’s “overcapacity” is to blame for the West’s rising trade deficits and persistent inability to reindustrialize.

China has responded firmly to these accusations. In a meeting with French President Emmanuel Macron and the European Commission’s Ursula von der Leyen in May, Chinese President Xi Jinping said that there is no such thing as “China’s overcapacity problem”, and emphasised China’s contribution to the green transition. China’s Foreign Ministry said that the “overcapacity” thesis was a “pretext” to create new restrictions on China’s energy products.

China’s “overcapacity” and the West’s industrial decline

Overcapacity can be measured in three ways. First, we can look at the “capacity utilization rate”, or the degree to which available industrial capacity is being used. Second, we can look at inventory levels; a high number of unsold goods gathering dust in warehouses might suggest that production exceeds demand. Third, we can look at profit margins, which would have to fall to help empty the brimming warehouses and make way for new goods.

As French economics commentator Arnaud Bertrand found, China does not show signs of “overcapacity” across any of these measures. On the contrary, its industrial utilization rates and inventory levels are similar to those of the United States, and Chinese profit margins are soaring.

Richard Wolff: US shifts blame onto China because it cannot address capitalism’s flaws

In the following video interview with Global Times, prominent Marxist economist Richard Wolff explains the central contradiction in the US ruling class with respect to its relationship with China.

On the one hand, the US business community is eager to maintain good economic relations with China, which represents an important market, trading partner, avenue for investment, and source of investment. US companies “want to be able to produce in China, and even more, they want to sell into the Chinese market, which is one of the fastest-growing and largest markets in the world.”

On the other hand, the US political establishment is increasingly hostile to China. This hostility is driven to a significant degree by the fact that China is challenging the US’s global hegemony. “The last century has been the century of the American Empire, and it now sees its role in the world economy – financially, in export and import, and in other areas – being challenged above all by the People’s Republic of China.”

Meanwhile the US is facing a deepening crisis of capitalism, with growing inequality, economic instability, and a shrinking middle class. Politicians have identified two convenient scapegoats for these problems: 1) immigrants from Latin America; 2) China. Wolff points out: “Capitalism has always moved in this way. But because our politics are controlled by big business, politicians can never blame capitalism. They cannot blame the big businesses that fund them. So, who do they blame? China.”

Wolff conjectures that it may be possible to use this division in the US ruling class to pursue an agenda of peace and cooperation; that the peace movement may be able to work together with the business community to prevent a war with China.

Solidarity with China is necessary for the collective future of humanity

The following article by Sara Flounders, originally posted on Workers World, takes up the question of China’s social system: is it socialist, as it claims? Or is it just another capitalist-imperialist country?

Sara lists a number of ways in which China’s emergence is helping the countries of the Global South – from the Belt and Road Initiative to the provision of financial and technical assistance for infrastructure construction. “China is a lifeline for the Global South. The Africa Summit just held in Beijing confirmed this a thousand times over.”

Meanwhile, as a result of sustained efforts over decades, China has eliminated extreme poverty and “achieved the fastest growth in living standards of any country in the world”. Furthermore: “China has gone green and solar and put a half-million electric city buses on their streets. US city buses are still belching out pollution coming from fossil fuels.”

One outcome of this progress is that “US imperialist strategists see China’s gains as an ominous threat to their domination of the world, and have moved to counter China with a whole new level of aggressive militarism”.

Sara notes that mass opposition to a rising US-led New Cold War against China is essential, but that the left is sometimes reticent to defend China because of a misunderstanding of its social system. “Many in the West said that the enthusiasm engendered by Western corporations’ heavy investments in China had already succeeded in bringing China back into the capitalist orbit.”

The article points out that, while China today has vast wealth disparity, along with private capital, its market is “built on socialist pillars”, and “central planning remains decisive”.

The key economic role is assigned to the state, a state controlled by the working class. Every major industry, especially banking, remains under state control — a state controlled by a massive communist party. The central banks play a crucial role in subsidizing and developing key industries.

Meanwhile the Communist Party of China, with its close to 100 million members, exercises overall control of the country’s economic development.

Sara concludes that “stepping up the defense of China, its revolution and its accomplishments is necessary for the collective future of humanity.”

An ideological assault on China is taking place that cannot be fought piecemeal, answering each lie. Of course, it is crucial to refute the lies and propaganda, but it is not persuasive if the reason behind the U.S. ruling class’s extraordinary and pervasive hostility to China is not exposed. We must expose the class differences between People’s China and U.S. imperialism.

China’s emergence is a game-changer on a world scale today, with its Belt and Road Initiative, the Shanghai Cooperation agreement and the BRICS+ meeting this September at the United Nations. China has become a resource, an alternative to the International Monetary Fund and World Bank, with their brutal structural adjustment, deregulation and privatization programs (SAPs). China is a lifeline for the Global South. The Africa Summit just held in Beijing confirmed this a thousand times over.

China was able to end poverty for 800 million people — something neither the U.S. nor any other capitalist country has been able to do. Life expectancy is higher today in China than in the United States. China has achieved the fastest growth in living standards of any country in the world.

So U.S. imperialism is doubling down. Candidates Kamala Harris and Donald Trump agree. The Pentagon agrees. NATO agrees. New sanctions, new tariffs, new rounds of propaganda directed at China are aimed at preparing for war by 2025.

In the Pacific Ocean and South China Sea, U.S. strategists are rushing to construct a military alliance similar to NATO. It will include Japan, Australia, New Zealand, South Korea and the Philippines and is directed against China.

Every arm of the imperialist colossus is predicting and planning for this war. The vicious and relentless propaganda, the expanding military budget, the relentless war “games” and military maneuvers and the total agreement of both Democratic and Republican parties testify to the danger.

Which side are you on?

“Which side are you on?” is the oldest formulation in the class struggle.

The group Friends of Socialist China provides a valuable framework to explain the country’s most important contribution. Political movements, parties and organizations of the working class that take sides in the global class struggle are the most valuable anchor to withstand the crisis confronting the working class and all oppressed peoples. Without this anchor, this basic understanding, workers and activists are cast adrift in the onslaught of each imperialist flood.

An important part of understanding the changing world situation can be found in Workers World Party’s evaluation of China’s rapid development. U.S. imperialist strategists see China’s gains as an ominous threat to their domination of the world, and have moved to counter China with a whole new level of aggressive militarism. We say China’s gains hold a liberating potential for humanity.

If we can explain the reason for U.S. imperialism’s hostility and why Washington calls Beijing “the greatest threat,” it can strengthen popular resistance to the U.S. war drive.

Canada’s unjustifiable tariffs on EVs from China

The following opinion piece, written by International Manifesto Group convenor and Friends of Socialist China advisory group member Radhika Desai for CGTN, critiques the Canadian government’s recent decision to slap 100 percent tariffs on Chinese electric vehicles (EVs).

Radhika notes that the Trudeau government’s stated justification for the tariffs – that “China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry” – is pure misdirection. The real reason is to prove Canada’s loyalty to the US in the run-up to the renegotiation of the United States-Mexico-Canada Agreement. As for China’s “intentional state-directed policy”, “the most authoritative development economists will agree that there are no known instances of successful industrialisation where the state has not played a central role. This is as true of Japan or Germany or South Korea as it is of the US itself and even Canada.”

China’s government has intentionally concentrated resources on the EV industry for over 20 years, “particularly focusing research and development in making lithium iron phosphate batteries that were safer and cheaper than lithium nickel manganese cobalt batteries almost as energy dense as the latter.” The authorities provided further support by buying vast numbers of electric buses to provide low-emission public transport, and by building EV charging infrastructure throughout the country.

As for the oft-repeated trope about China’s “overcapacity”, Radhika writes that “if anything, the world needs more production of these things” – echoing the sentiments of former under-secretary-general of the United Nations and former executive director of the UN Environment Programme Erik Solheim.

Radhika observes: “What such complaints really mean is that there is a market for high-technology goods that is no longer being supplied by the US or the West, thus endangering their 200-year-old monopoly on such goods. Well, for all the crocodile tears Western politicians weep over the poverty and lack of the development in so much of the world, they do get mighty upset when one part of it, namely China, manages to develop and even push back the technological frontier.”

The article concludes by noting that the US and Canada, having followed the path of neoliberalism and financialisation for several decades, have precious little chance of success in competing with China on advanced manufacturing.

Three months after the U.S. announcement slapping 100 percent tariffs on Chinese electric vehicles (EV), Canada has followed suit. As local observers see it, the Trudeau government faced a choice. On the one hand, it could risk retaliatory tariffs from China on Canada’s much smaller economy: The memory of those imposed on Canadian canola, pork and soybeans worth billions in trade in 2019 in retaliation for Canada’s illegal arrest of Meng Wanzhou remains fresh. On the other hand, it could risk U.S. anger should China extend even part of its EV supply chain into Canada to get the United States-Mexico-Canada Agreement access to the U.S. market. Such anger would be bound to spill over into the renegotiation of that agreement in 2026.

Canada chose to avoid risking U.S. anger. But that was not how it justified the decision. Instead, Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland claimed that “China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry … We simply will not allow that to happen to our EV sector, which has shown such promise.” This justification is clearly cooked up.

Let’s take all the elements of that statement in turn.

The reference to “intentional state-directed policy” is a bizarre instance of trying to tar a virtue as a vice. The most authoritative development economists will agree that there are no known instances of successful industrialization where the state has not played a central role. This is as true of Japan or Germany or South Korea as it is of the U.S. itself and even Canada.

The right to pursue industrial policy was recognized by the erstwhile General Agreement on Tariffs and Trade and is recognized by its successor, the World Trade Organization. Moreover, both the U.S. and Canada are themselves talking about industrial policy and state subsidies to sectors facing competition from China.

As a study by the Massachusetts Institute of Technology pointed out, China’s success in EV development is a classic case of a successful industrial policy. It began investing in the sector as early as 2001 when it became clear that its internal combustion and hybrid car industries were too far behind major manufacturers in the U.S., Germany and Japan.

Moreover, EVs would also have beneficial effects in reducing pollution and oil imports. Chinese authorities concentrated resources on this nascent industry, particularly focusing research and development in making lithium iron phosphate batteries that were safer and cheaper than lithium nickel manganese cobalt batteries almost as energy dense as the latter. They also began providing the fledgling industry with markets by buying its vehicles for public transport.

Nor was China at all autarkic. On the contrary, it invited Tesla in, giving it the same tax and subsidy treatment as domestic producers. Tesla extended its supply chains into China while also stimulating domestic producers to compete with it.

Next, let us come to “overcapacity and oversupply.” Since when did the production of low-cost and high-quality products, particularly those that advance the world towards its critically important climate goals, become a matter of overcapacity and oversupply? If anything, the world needs more production of these things. Canada, the U.S. and the West should join in the effort to produce such goods.

What such complaints really mean is that there is a market for high-technology goods that is no longer being supplied by the U.S. or the West, thus endangering their 200-year-old monopoly on such goods. Well, for all the crocodile tears Western politicians weep over the poverty and lack of the development in so much of the world, they do get mighty upset when one part of it, namely China, manages to develop and even push back the technological frontier.

As for “crippling our (Canadian) industry,” that’s pretty ridiculous coming from countries that have been sparing no effort – sanctions, tariffs, military alliance and base building, “freedom of navigation” and other military exercises, propaganda, fear-mongering and false “development” advice – to prevent the rise of China and, one might add, that of most of the developing world.

Finally, Freeland speaks of Canada’s own EV sector “that has shown so much promise.” Undoubtedly, the thing that countries like Canada and the U.S. ought to do is find a sector or product that they have the unique strengths to develop, as China did with EVs, knowing that it could not compete internationally on conventional cars or hybrids.

However, there is a big distance between “should” and “can.” Today, notwithstanding the corporate subsidies that the U.S. and Canada are giving to their manufacturers, it is unlikely that they will be able to replicate China’s success in manufacturing, not least because, as they have gone down the road of neoliberalism and financialization, they have lost the capacity for sustained industrial policy they once had.

US economists ‘expose’ China’s economy

In the following article for Fighting Words, Chris Fry unpicks and debunks a recent Axios piece about how China’s economy is supposedly failing.

According to the Axios article, it is a serious problem that “household income growth is outpacing that of spending”, with per capita disposable income rising by 5.4 percent in the first half of 2024. Chris comments: “In the US, 60% of the workers live paycheck to paycheck, putting them and their families at risk in case of an unforeseen crisis. Yet bourgeois economists seem to believe that it is a bad thing for Chinese families to be able to sock some of their income away for emergencies.” Meanwhile, “banks in China, unlike in the US, are publicly owned, so the savings are used to fund the country’s development instead of stock buybacks and cryptocurrency manipulation.”

Another major ‘problem’ is that prices in China are barely rising. “To the well-heeled economists at Axios, it’s a bad thing that the inflation rate in China is a fraction of 1%, while in the U.S. workers now face an inflation rate of some 4%, with prices remaining sky high after previous climbs of over 9% for essential items like food and gas.”

Chris goes on to contrast China’s merciless war on poverty with the alarming rise in poverty, inequality and homelessness in the US. And yet, “whoever wins the next election, the billionaire class and their minions from both parties in Washington will no doubt blame the unfolding crisis here on the People’s Republic of China”.

The article concludes with a powerful call to take inspiration from, and show solidarity with, Chinese socialism:

The high prices that we face for food and gas, the lack of affordable housing, the sky-high prices for education, health care and childcare, the collapse of the infrastructure, the catastrophic effects of global warming, the monstrous prison system, the billions wasted on the war industry, none of these are the fault of the Chinese working class or their Communist Party. The blame lies entirely with the tiny parasitic ruling class of billionaires right here at home.

We must explain to our class here that the extraordinary development by China provides us a beacon of hope. It tells us that the struggle here to empower the workers and oppressed communities, to wrest the ownership and control of the productive apparatus from the billionaires, to use scientific planning to direct both the production and distribution of goods and services instead of Wall Street’s drive for massive profits, all this can offer real benefits for ourselves and our families and for the planet as a whole.

Bourgeois economists, ever ready to proclaim the impending demise of the socialist economic model in the People’s Republic of China (PRC), find every opportunity to throw shade on China’s economic system.

At the same time, they devote their energy to proclaim the supposed superiority of the capitalist economies in the imperialist world, in Europe and the U.S.

And sometimes they have to stretch all logic and common sense to make their billionaire masters and the workers and oppressed here believe in the eternal superiority of U.S. imperialist hegemony over the social and economic system of China, even as the Pentagon scrambles to prepare their war on the PRC.

Remy Herrera: the foundations of China’s economy clearly distinguish it from capitalism

The following text is the English translation of an interview with Rémy Herrera, a research analyst at the National Center for Scientific Research (CNRS) at the Sorbonne in Paris. The interview was carried out by Tang Xiaofu for the Observers’ Network, Beijing, and was recently posted in Workers World. While covering similar ground to the interview we published in June 2024, it contains a number of additional insights and is well worth reading in full.

In the interview, Herrera firmly rejects the characterisation of China by David Harvey and others of “a neoliberalism with Chinese characteristics”, and points to the foundations that clearly distinguish China’s system from capitalism:

1) The persistence of powerful and modernized planning; 2) a form of political democracy, obviously perfectible, but making collective choices possible; 3) extensive public services, conditioning political, social and economic citizenship; 4) ownership of land and natural resources that remains in the public domain; 5) diversified forms of ownership, adequate to the socialization of productive forces and boosting economic activity; 6) a general policy which consists of increasing labor remuneration more quickly compared to other types of income; 7) a desire for social justice displayed by public authorities in the face of rising social inequalities since 1978; 8) the priority given to the preservation of the environment, the protection of nature being now considered inseparable from social progress; 9) a conception of economic relations between States based on a win-win principle; and 10) political relations between States based on the search for peace and more balanced exchanges between peoples.

Herrera goes on to discuss the unique role of the state-owned enterprises in China’s economy, in particular that “the compass that guides them is not the enrichment of private shareholders, but the priorities given to productive investment and the service provided to their customers”.

The public sector “still represents a large part of industrial assets (in construction, steelmaking, basic materials, semi-finished products, etc.) and almost all of them in strategic areas for the country’s, like infrastructure in energy, transport, telecommunications, and of course armaments — in addition to the banking and financial sectors.” As such, public ownership sits at the heart of – and is able to guide – China’s development strategy.

The planning system “is the place where collective choices are developed and decided, as expressions of a general will. It is the authentic space where a nation chooses a common destiny and the means for a sovereign people to become its own master, in all areas of its existence: way of life, ways of consuming, housing and occupying or developing the national territory, precise definition of the relationships maintained by human beings with their environment and nature.”

Herrera also addresses the US’s trade war, launched by Trump and continued by Biden, assessing that the “problem” from the US’s point of view is that the unequal relationship between the US (an imperialist country) and China (a developing country) is becoming less unequal – “there is an erosion of the advantage of the United States in the exchange”. The trade war “was an attempt by the administration led by President Trump to curb the slow, continuous erosion of the advantage of the United States, observed for decades in trade with its emerging rival, China.”

The interview concludes with an appeal to move beyond a moribund imperialism. “We must dismantle the logic of crisis and war driven by high finance by imposing democratic control on it, and therefore think about alternatives to capitalism. The defense of peace and the reactivation of the socialist project are today’s priorities. In this context, China has a fundamental role to play in these transformations.”

I. How the West interprets China

Tang Xiaofu: 1) You have visited China multiple times, but now many scholars are trying to distort Socialism with Chinese Characteristics into State Capitalism. What’s your view towards State Capitalism? And what’s the difference between State Capitalism and Socialism with Chinese Characteristics?

Rémy Herrera: The speeches of many current leaders of the Communist Party of China (CPC) suggest that China would still be in the “first phase of socialism,” that is to say, in a stage considered essential for developing the productive forces and which would take a long time to reach its goal. According to them, the historical goal sought would indeed remain that of developed socialism — even if, it is true, the contours of the latter are far from being clearly and precisely defined. However, in Western countries, many researchers claim that these official political declarations claiming the persistence of socialism in China are only a facade, or the cover-up of a hidden form of capitalism, and that socialism is really dead and buried in China. I do not share the opinion of these Western researchers. On the contrary, I think that these statements by Chinese leaders deserve to be taken seriously.

Moreover, even within the debates among Western Marxists, a clear majority of them affirm that the Chinese economy would henceforth be purely and simply capitalist. This is the case of certain well-known Marxists, such as David Harvey, who believes he has seen, since the 1978 reforms, “a neoliberalism with Chinese characteristics” where a particular type of capitalist market economy has incorporated more and more neoliberal devices operated in the framework of very authoritarian centralized control. This is also the case of Leo Panitch, for example, who analyzes the contemporary integration of China into the circuits of the world economy as the duplication by China of the role of “capitalist complement” formerly held by Japan, as a support that China would provide to the United States through capital flows allowing the latter to maintain its global hegemony, and as the trend towards the liberalization of financial markets in China leading to the dismantling of instruments of control of capital movements and undermining at the same time the bases of the power of the CPC. I do not agree with these researchers either. I defend the idea that today, the Chinese system still contains key elements of socialism, and the interpretation I give of its nature is compatible with socialism.

Thus, I read the Chinese political-economic system as a market socialism, or socialism with a market, based on some pillars which still distinguish it quite clearly from capitalism. I will cite, among these foundations: 1) the persistence of powerful and modernized planning; 2) a form of political democracy, obviously perfectible, but making collective choices possible; 3) extensive public services, conditioning political, social and economic citizenship; 4) ownership of land and natural resources that remains in the public domain; 5) diversified forms of ownership, adequate to the socialization of productive forces and boosting economic activity; 6) a general policy which consists of increasing labor remuneration more quickly compared to other types of income; 7) a desire for social justice displayed by public authorities in the face of rising social inequalities since 1978; 8) the priority given to the preservation of the environment, the protection of nature being now considered inseparable from social progress; 9) a conception of economic relations between States based on a win-win principle; and 10) political relations between States based on the search for peace and more balanced exchanges between peoples. Socialism “with Chinese characteristics” is not very far from this reading grid.

State intervention an indispensable factor in China’s economic success

The following article by Michael Roberts reviews and summarises a new book by Brazilian Marxist economists Adalmir Antonio Marquetti, Alessandro Miebach and Henrique Morrone, entitled Unequal Development and Capitalism: Catching Up and Falling Behind in the Global Economy.

The central focus of the book is measuring the progress of Global South countries in catching up with the imperialist countries in terms of economic development. Roberts summarises the authors’ key finding as follows: “The ‘follower’ countries (the Global South) will generally have higher profit rates than the ‘leader’ countries (the imperialist Global North) because their capital-labour ratio (in Marxist terminology, the organic composition of capital) is lower.” However, “as these countries try to industrialise, the capital-labour ratio will rise and so will the productivity of labour.” As a result, “capital productivity will tend to decline and this eventually will slow the rise in labour productivity.”

Consequently, “many Global South countries will never ‘bridge the gap’ on labour productivity and thus on living standards because the profitability of capital in the Global South will quickly dissipate compared to the Global North”.

How to overcome this contradiction where increased productivity of labour leads to a falling rate of profit, thereby decelerating development? The book’s authors write: “This issue is observed in many middle-income trap countries. In these cases, state intervention becomes essential, expanding investment even as the profit rate declines, as in China.” To which Roberts comments: “Exactly. China’s success in catching up, which so frightens US imperialism now, is down to state-led investment overcoming the impact of falling profitability on capital investment.”

China has “a model of development based on dominant public ownership of finance and strategic sectors and a national plan for investment and growth”. As a result, “only China is closing the gap on per capita GDP with the imperialist bloc”. This chimes with Samir Amin’s observation that “China is the only authentically emergent country”.

Brazilian Marxist economists Adalmir Antonio Marquetti, Alessandro Miebach and Henrique Morrone have produced an important and insightful book on global capitalist development, with an innovative new way of measuring the progress for the majority of humanity in the so-called Global South in ‘catching up’ on living standards with the ‘Global North’.

In this book Marquetti et al argue that unequal development has been a defining characteristic of capitalism. “Throughout history, countries and regions have exhibited differences in labor productivity growth – a key determinant in poverty reduction and development – and although some nations may catch up with the productivity levels or well-being of developed economies at times, others fall behind.”

They propose a model of economic development based on technical change, profit rate and capital accumulation, on the one hand, and institutional change, on the other. Together these two factors should be combined to explain the dynamics of catching up or falling behind.

They base their development model on what Duncan Foley called the ‘Marx-bias’ and what Paul Krugman has called ‘capital bias’; namely that in capitalist accumulation there will be a rise in the organic composition of capital (rising mechanization compared to labour input) leading to an increase in the productivity of labour, but also a tendency for the profitability of accumulated capital to fall.

China’s Third Plenum directed towards quality growth and improved living standards

The following analysis of the Third Plenum of the CPC Central Committee, written by British Marxist economist Michael Roberts, counters the “China collapse” narrative that continues to pervade Western media coverage.

Roberts observes that “Western media and economists argue for a ‘rebalancing’, by which they mean a switch to a consumer-led, private sector-led economy from the current investment-led, export oriented, state directed one.” Essentially, they want to see an economy more akin to that of the US and Europe – deregulated, privatised, and directed towards the interests of shareholders. In contrast, the Third Plenum communique indicates that China will continue to focus on planning, regulation, improving living standards, developing new productive forces and placing ecological issues at the heart of its economic decision-making.

“China is fast developing a ‘new economy’ based on high value-added tech sectors. These sectors have significantly outpaced headline GDP growth in recent years.” Furthermore, “far from shifting towards a more Western-style economy, “the Third Plenum release reminds us that China still has planning, not the centralized one of the Soviet Union, but ‘indicative planning’ with targets set for many sectors”.

China’s economists probably don’t need to take advice from their Western counterparts, given that “China’s economy is still expanding at around 5 percent a year, more than twice as fast as the US economy, the best performing of the top seven capitalist economies.”

Roberts cites another useful recent piece in Asia Times:

Do we really want tech billionaires or do we really want tech? Value is not being destroyed; it’s accruing to consumers ins lower prices, higher quality and/or more innovative products and services… What is economic success, what is value creation? Maybe, just maybe, it’s the approach that delivers the most tangible improvements in people’s lives, instead of trillion-dollar companies and billionaire CEOs.”

NB the article refers to China as a “one-party state”. While the CPC is the leading party in the government, there are eight other political parties represented in the National People’s Congress and the Chinese People’s Political Consultative Conference.

The Third Plenum of the Communist Party of China ended last week. The Third Plenum is a meeting of China’s Communist Party Central Committee composed of 364 members which discusses China’s economic policy for the next several years. As China is a one-party state, in effect this sets out the policies of the government and, in particular, that of President Xi.

What did we learn from the Third Plenum about China’s economic policies? Not very much that we did not already know. According to the state media release, the Plenum agreed that economic policy should concentrate on achieving a new round of “scientific and technological revolution and industrial transformation,” Chinese-style. In the next decade, “education, science and technology, and talents are the basic and strategic support for China’s modernization.”

So it appears that the CPC leaders are looking to sustain economic growth and meet all their proclaimed social objectives through what they have called ‘quality growth’. The expansion of the economy mainly through using plentiful labour from the countryside coming into the cities to work in manufacturing, property development and infrastructure is over. It has been over for some time. Urbanisation is slowing.

EU tariffs on China: a script written in Washington

The following article by Carlos Martinez, first published in the Morning Star, comments on the European Union’s recent decision to impose tariffs of up to 38 percent on Chinese electric vehicles (EVs). The only enthusiastic supporter (and presumably instigator) of these tariffs is the US, which is embarked on an escalating New Cold War against China.

Carlos describes the negative reaction to the tariffs not just in China but within much of the European business community and among environmentalists. Ultimately, aside from likely inspiring reciprocal tariffs from China, the move will have the effect of “making the EU’s transition slower and more expensive” – in the words of a Chatham House article.

Carlos further notes that “imposing tariffs on the basis of Chinese public investment creates a precedent that any such central investment in sustainable development is unacceptable”, and as such, “would render any sort of green new deal out of the question”.

The article concludes: “For the sake of peace, development and the habitability of the planet, Europe must change course.”

Last week the EU notified Beijing that, following a nine-month investigation into alleged unfair state subsidies, it will impose new tariffs of up to 38 per cent on Chinese electric vehicles (EVs).

Given the existing 10 per cent tariff on car imports, this will mean Chinese EVs will be hit with tariffs of up to 48 per cent. These new tariffs are due to kick in on July 4.

Germany, Sweden and Hungary have been vocal in opposing the move, with German Chancellor Olaf Scholz stating the obvious: “Isolation and illegal customs barriers ultimately just makes everything more expensive, and everyone poorer.”

Of course, this reflects the importance of the Chinese market for German car manufacturers, who will be hoping beyond hope that the authorities in Beijing haven’t been studying the Book of Exodus and thus are not minded to apply the principle of “an eye for an eye.”

BMW CEO Oliver Zipse commented: “The decision for additional import duties is the wrong way to go. The EU Commission is thus harming European companies and European interests.”

This sentiment was echoed by a spokesperson for Volkswagen: “The negative effects of this decision outweigh any potential benefits for the European and especially the German automotive industry.”

Indeed there seems to be little enthusiasm for these tariffs anywhere outside the White House. The Bloomberg editorial board argues that “tariffs won’t bring the EU prosperity” and that the increased price of EVs will decelerate Europe’s green transition.

Similarly, an article for Chatham House — titled “Imposing tariffs on Chinese electric vehicles will make the EU’s transition slower and more expensive” — notes that the EU has a legally binding target of reaching net-zero greenhouse gas emissions by 2050.

Meanwhile “decarbonisation technologies like solar panels, wind turbines and electric vehicles share a characteristic that sets them apart from other traded goods: when swapped for fossil fuel alternatives, they reduce the quantity of planet-warming gases being pumped into the atmosphere.” Such technologies “are needed in vast quantities, and in very short order, to give any chance of avoiding the worst impacts of climate change.”

It is noteworthy — and presumably not entirely coincidental — that the EU’s announcement came just a month after the Biden administration announced tariffs on Chinese EVs of 100 per cent.

In the case of the US, the material impact of these tariffs is virtually non-existent, given that Chinese-made models constitute just 2 per cent of all EV sales; and this in a market where EVs only make up 8 per cent of all car registrations (compared with almost 50 per cent in China).

The US tariff increase is simply an attempt by Biden to appear “tough on China” in the run-up to the presidential election. Donald Trump, not to be outdone on such matters, has promised tariffs of 200 per cent. As such, what we’re talking about is yet another component in the US-led new cold war on China, for which there is bipartisan consensus.

So it would appear the EU is acting in accordance with the strong recommendations (instructions) of Washington.

This certainly wouldn’t be the first time Europe has compromised its climate commitments and economic stability in order to participate in the US’s pursuit of 21st century hegemony.

In 2022, in order to punish Russia and to generate profits for the US’s domestic fossil fuel industry, the Biden administration heavily promoted sanctions on Russian natural gas. The result has been a major increase in US exports of fracked shale gas to Europe.

To get this gas from North America to Europe, it has to be liquified, stored at minus 70°C, and transported by ship. This whole process is extremely costly in both financial and ecological terms, certainly much more so than using existing pipelines running from Russia through Europe.

The European working class and progressive movement should oppose these tariffs on Chinese EVs and should resist the ongoing attempts by sections of the bourgeoisie to align Europe with Washington’s reckless foreign policy.

As noted in these pages in August last year, “major problems facing humanity require international co-operation — and China’s leading position in green technology makes co-operation in this field essential.”

China has raced ahead in renewable energy and electric transport because it has identified those sectors as being absolutely crucial for the future of not only China but the world.

As such, it has built environmental considerations into the core of its planning system and has targeted public investment accordingly. Rather than complaining about China’s investment in new productive forces, Europe should be following its example.

Imposing tariffs on the basis of Chinese public investment creates a precedent that any such central investment in sustainable development is unacceptable. This precedent would render any sort of green new deal out of the question.

Even the Economist acknowledges that “the potential gains to the West from a ready supply of cheap, green vehicles are simply enormous.” And, momentarily overcoming its Eurocentric instincts, it admits that Chinese cars “are not only cheap; they are better-quality, particularly with respect to the smart features in EVs that are made possible by internet connectivity.”

The article concludes that “if China wants to spend taxpayers’ money subsidising global consumers and speeding up the energy transition, the best response is to welcome it.”

Inasmuch as there’s such a thing as a sane bourgeois perspective, this is what it looks like.

In the words of former undersecretary-general of the UN and former executive director of the UN Environment Programme Erik Solheim: “China is now the indispensable country for everything green … And all historical experiences show that if you create closed-down markets and separate markets from different parts of the world, we will all be poorer.”

For the sake of peace, development and the habitability of the planet, Europe must change course.

Class character of People’s China: interview with research economist

The following text is the English translation of an interview with Rémy Herrera, a research analyst at the National Center for Scientific Research (CNRS) at the Sorbonne in Paris. The interview was first published in the magazine Harici (Istanbul, Türkiye), and the newspaper Cumhuriyet (Istanbul) in May 2024. The original French has been translated by John Catalinotto for Workers World.

Herrera, who has co-authored a book by Long Zhiming called Dynamics of China’s Economy: Growth, Cycles and Crises from 1949 to the Present Day, makes several important points about the nature, history and trajectory of China’s socialist market economy. First, contrary to Western neoclassical economists who see China’s emergence as a function exclusively of its adoption of market mechanisms and its integration into the global capitalist economy, Herrera argues that “accelerated growth was made possible only by the efforts and achievements of the Maoist period.” When opening up was introduced, it was “firmly and continuously controlled by the Chinese authorities, and it is under this condition that it can be considered as having contributed to the country’s indisputable economic successes”.

China has engaged with the process of globalisation, but the crucial condition for the success of this experiment has been subjecting it “to the constraints of satisfying internal objectives and domestic needs, … fully integrated within a coherent development strategy”. Engaging with the global economy is not by itself a solution to all problems; after all, “for more than a century before the victory of the Revolution in October 1949, ‘opening up’ had meant above all submission, devastation, exploitation, humiliation, decadence and chaos for the Chinese people”.

Herrera also discusses the nature of China’s state-owned enterprises (SOEs). These “are not managed in the same way as Western transnational corporations”; their primary goal is not the pursuit of shareholder profit at all costs. Rather, they are duty bound “to stimulate the rest of the domestic economy, and go beyond a vision of immediate profitability when higher strategic, long-term or national interests so dictate”.

On the underlying socialist basis of China’s economic system, Herrera makes the fundamental point that, in China, “the state controls capitalism, not the other way around”. For example, China’s authorities have “successfully confronted the power of the financial markets”, building a “great monetary wall” to defend the national currency. “Powerful strategic planning, whose techniques have been relaxed, modernized and adapted to today’s requirements — which is what makes it so effective — is a distinctive feature of a socialist approach. State control of the currency and all the major banks is an absolute requirement, as is close monitoring of the activities of financial institutions and the behavior of foreign firms operating on national territory.”

He continues:

The coexistence of public and private activities, stimulated by each other within a mixed, hybrid system, is the means chosen to develop the country’s productive forces to the maximum − including by attracting foreign capital and importing advanced technologies − and thus raising its level of development, with the stated aim of improving the population’s living conditions, and doing this not by abandoning socialism, but by deepening the socialist transition process that began in 1949.

Herrera also addresses the ongoing crisis of neoliberalism and its manifestation in an increasingly aggressive New Cold War on China. “All the conditions are in place for the system’s contradictions to become even more pronounced, especially as few reforms have been carried out since the 2008 crisis”. All progressive and peace-loving forces must unite in opposition to the US and its allies’ escalations. “The defence of peace is the priority”.

Q: Let’s begin with your books on China. Based on your research and observations during your visits to China, how do you interpret the Chinese miracle that everyone is discussing?

RH: Many commentators on the very high rate of growth in China’s gross domestic product (GDP), which has been observed for several decades now, use the term “miracle” to describe this phenomenon. I, for one, believe that this is no miracle, but rather the result of a development strategy that has been patiently conceived and effectively implemented by the country’s leaders and senior officials in successive governments, under the authority of the Communist Party.

We read and hear everywhere, in academic circles and the mainstream media, that the “take-off” of the Chinese economy is due solely to its “openness” to globalization. In my view, it’s necessary to add that such accelerated growth was made possible only by the efforts and achievements of the Maoist period. This opening up was firmly and continuously controlled by the Chinese authorities, and it is under this condition that it can be considered as having contributed to the country’s indisputable economic successes. It is because it has been subject to the constraints of satisfying internal objectives and domestic needs, and fully integrated within a coherent development strategy, that this opening up to globalization has been able to produce such positive long-term effects for China.

Let’s be clear: without the elaboration of such a development strategy, which is clearly the work of the Chinese Communist Party — let’s not forget that — and without the energy deployed by the Chinese people to implement it during the revolutionary process, the country’s insertion into the capitalist world system would inevitably have led to the destructuring of the national economy, or even its destruction altogether, as is happening in so many other countries in the South, or in the East. One fundamental point must be borne in mind: for more than a century before the victory of the Revolution in October 1949, “opening up” had meant above all submission, devastation, exploitation, humiliation, decadence and chaos for the Chinese people.

Q: How does China’s success differ from Western development models?

RH: The success of the Chinese government’s development strategy and the many benefits it has brought to the country’s people contrast sharply with the failure of neoliberal economic policy measures applied in Western countries, which have had catastrophic consequences for workers in the North, whether in economic, social, or even moral and cultural terms.

Let me give you a specific example. One explanation for the strength of Chinese state-owned enterprises (SOEs) is that they are not managed in the same way as Western transnational corporations. The Western ones — listed on the stock exchange and oriented towards the logic of shareholder value which demands the maximization of dividends paid to their private owners, shareholder value and rapid returns on investment — operate by squeezing a chain of subcontractors, whether local or relocated abroad. Chinese state-owned groups don’t behave like this. If they were to behave in such a rapacious manner, they would be acting to the detriment of local small and medium-sized enterprises and, more broadly, of the entire national industrial fabric. But this is clearly not the case.

Most of China’s large state-owned enterprises are (or have become) profitable again because their guiding compass is not the enrichment of private shareholders, but the priority given to productive investment and customer service. In the final analysis, it doesn’t matter if their profits turn out to be lower than those of their Western competitors as long as they serve, at least in part, to stimulate the rest of the domestic economy, and go beyond a vision of immediate profitability when higher strategic, long-term or national interests so dictate.

Q: Can this model be defined in terms of the neo-classical or neo-Marxist model?

RH: First of all, I don’t think the Chinese see their development strategy as a “model.” Nor do they seek to impose or export it. They simply believe that certain lessons can be learned by the peoples of the world, but that it is up to them to define the objectives and means of their own development in their own specific historical, social and cultural conditions. This also differs markedly from the Western vision, which would like its “model” to be followed by every country in the world.

Neoclassical models have no application in China. If you’ll allow me, I’d like to add that neoclassical economics, which today constitutes the hegemonic or mainstream current in economics, basically serves no other purpose than to attempt to provide a theoretical and supposedly scientific justification for neoliberal political practices whose ideology is situated at the opposite end of the spectrum from measures for social justice and the development of public services. In reality, neoclassical economics is not a science, but science fiction or, as I put it in a recent book (“Confronting Mainstream Economics for Overcoming Capitalism,” Palgrave Macmillan), an ideology with scientific pretensions.

I am convinced, on the other hand, that Marxism has not yet been scientifically overtaken. Today, it has no serious competitor. It remains relevant, not least because we still live in a world where the capitalist system remains dominant on a global scale, even if its changes have been substantial, and need to be carefully accounted for. Despite the many attacks on Marxism since its foundation, and the repeated announcements of its death, it is enduring, resilient, “indestructible” dare I say, and the indispensable theoretical benchmark for anyone thinking about the ways and conditions of a better world.

Despite the demise of the USSR and the Soviet bloc, within which it had all too often become dogmatized and sometimes turned against itself, Marxism remains indispensable today, an irreplaceable point of reference for those fighting for socialism. So it’s hardly surprising that it is still an important theoretical reference for China.

Narrative of ‘overcapacity’ is a complete failure: former UN under-secretary-general

Interviewed by the Global Times, Erik Solheim describes the West’s accusations of Chinese “overcapacity” in relation to solar energy and electric vehicles as “a complete failure”.

From the perspective of combatting climate change, China is doing crucial work and blazing a trail that others should follow: “We have all called for many more high-quality green products from everyone, from China, from Europe, from the US, from everyone. Why start blaming China for doing what is expected from everyone?”

Solheim further notes that, from an economic perspective, accusations of overcapacity make little sense, “because what creates the foundation for trade is overcapacity… My nation, Norway, for example, is a big exporter of salmon… We raise and produce much more salmon than we can eat ourselves. Then we sell some to others. And then, for instance, we can import electric cars from China… We should not fear overcapacity, but we should turn it into a mutual benefit where everyone benefits from Chinese leadership in electric cars as they benefit from our production of salmon.”

Ultimately, tariffs will slow down the green transformation “because China is now the indispensable country for everything green”, given that “60 percent of all green technologies in the world are in China” and “when it comes to solar energy, maybe the figure is even more than 90 percent.”

Solheim also describes some of China’s contribution to sustainable development in the Global South: “I was living in Kenya for quite a number of good years. In Kenya, China has constructed the Mombasa-Nairobi railroad, which goes through some very vulnerable ecological areas. But it is the cleanest and most well-functioning transport system in Kenya. It’s an absolute, wonderful, green contribution to Africa.”

Erik Solheim is former under-secretary-general of the United Nations and former executive director of the UN Environment Programme. He spoke at our event Building a multipolar world – Ten years of the Belt and Road Initiative in November 2023.

GT: During your recent visit to China, you posed a photo of your morning run. What was it like to go for a morning run in Beijing?

Solheim: It was absolutely wonderful. The sun was bright, the sky was blue. You could breathe in the fresh air. It was a nice experience and highlighted a contrast to 10 years ago when the air pollution was thick and the sky was gray. It’s such enormous progress in such a short time. There is more to be done. But China has largely won the war against pollution.

GT: In the same tweet, you mentioned: “Why doesn’t the world start competing and stop complaining about China’s green leadership?” They are complaining about China’s “overcapacity.” Do you think China has an issue of “overcapacity”?

Solheim: I think the narrative of capacity is a complete failure for two reasons.

First, this is exactly what we all have wanted. This is even what the Joe Biden administration in the US has called for. We have all called for many more high-quality green products from everyone, from China, from Europe, from the US, from everyone. Why start blaming China for doing what is expected from everyone? A few years ago, the West was complaining that China’s production was emitting too much pollution. And now they’re complaining that China is making green products.

Second, this is complete nonsense from an economic perspective because what creates the foundation for trade is overcapacity. If the US had no overcapacity in its industries for the last 100 years, it would not have become a great nation. It became great because it had overcapacity – it could produce for global markets.

My nation, Norway, for example, is a big exporter of salmon. Why? Because we have overcapacity for salmon. We raise and produce much more salmon than we can eat ourselves. Then we sell some to others. And then, for instance, we can import electric cars from China. One of the most valuable companies in the world today is Apple, an American company. Why? Because they have an overcapacity in electric smartphones. Otherwise, they would have just been in the American market and they would have been a small company. We should not fear overcapacity, but we should turn it into a mutual benefit where everyone benefits from Chinese leadership in electric cars as they benefit from our production of salmon.

GT: Are there any green cooperation projects between China and other countries that have impressed you? What are the positive impacts of those projects?

Solheim: Absolutely. Two months ago, I was in Bangladesh, where China had constructed a bridge called the Padma Bridge. It is a wonderful rail and road bridge across the Padma River. That one bridge increased the GDP of Bangladesh by 1 percent because it connects the eastern and western parts of the land. That is a wonderful support for Bangladesh.

I was living in Kenya for quite a number of good years. In Kenya, China has constructed the Mombasa-Nairobi railroad, which goes through some very vulnerable ecological areas. But it is the cleanest and most well-functioning transport system in Kenya. It’s an absolute, wonderful, green contribution to Africa.

GT: Some observers suggest that the US doesn’t want to live in a world where the world’s foremost energy provider is China, so they’re making huge efforts to catch up and, at the same time, attempt to slow China down with initiatives like this “overcapacity” rhetoric. What’s your take on this view?

Solheim: I think there are two aspects to this view.

First, the US is deeply concerned about having a peer competitor, such as China. For the past century, the US has been the dominant global power, or the only dominant power in the world, and it’s not used to sharing that position. However, it needs to get used to the reality that China’s economy will surpass that of the US, and China will play an increasingly important role in global affairs. Additionally, the US doesn’t only need to adapt to the rise of China, but also to the rise of other powers like India, Turkey, Indonesia, and Brazil. The era of US dominance is over, and it needs to adapt to the change.

On the other hand, President Biden wants jobs for his people. It’s natural for him to be more concerned about American jobs than the jobs in Liaoning or Guangdong.

But we should also explore how the green energy boom can benefit everyone and how Chinese companies can invest in and be welcomed in Europe and North America.

For instance, Tesla was invited to come to China. China invited Tesla to a large extent to create fair competition in the electric car market in China. It helped shape BYD, Hongqi, Geely, and all the other Chinese brands. Thus, the US should invite Chinese companies to invest in America, shaping the competition in the American market. Then maybe American companies would be more cost-competitive as well.

GT: We are now seeing the US government raising tariffs on Chinese EVs, advanced batteries, solar cells, and other goods. What impact will it have on the world if the US government continues to exclude Chinese new energy products?

Solheim: It will obviously slow down the green transformation because China is now the indispensable country for everything green. 60 percent of all green technologies in the world are in China. When it comes to solar energy, maybe the figure is even more than 90 percent. If we want to go solar without China, we can do it, but it will be much more costly. When it’s more costly, it will be slower. And all historical experiences show that if you create closed-down markets and separate markets from different parts of the world, we will all be poorer, including the Americans.

GT: Do you think Europe will follow the latest policies of the US? From your understanding, how does Europe view China’s green manufacturing capacity – is it more inclined toward cooperation or vigilance?

Solheim: That’s obviously a similar discussion in Europe. I don’t think Europe will automatically follow the US, but there is a concern with jobs in Europe. China can help in that discussion in two ways.

First, making very clear that China is ready to invest in other markets where Chinese companies are, and to create jobs in Europe.

Let me give one example. Very recently, I visited Contemporary Amperex Technology Co., Limited (CATL) in Ningde, Fujian Province, the world’s largest battery maker for electric vehicles. A Tesla normally comes with a CATL battery. But the guys at CATL repeatedly told me that one of the reasons why they have grown so big was the support from BMW in the early days. BMW was a very demanding customer, it helped with technology and was a partner in the rise of CATL. That’s exactly what we want to see – companies working together across borders. And now when Chinese companies tend to have the highest quality and the best technology, they should work with companies in India, Africa, Latin America, and also Europe to share their knowledge and experience so that we can all benefit from the green transformation.

On China’s overcapacity

The article below, written for Friends of Socialist China by Shiran Illanperuma, addresses the latest ideological weapon in the Biden-Trump trade war against China: that of ‘overcapacity’. According to Western politicians and neoliberal economists, China’s industrial subsidies and production capacity are to blame for the US’s trade deficit and its apparent inability to reindustrialise its economy.

Shiran, citing fellow Marxist economist Michael Roberts, observes that the US and EU have sustained trade deficits since decades ago, before China’s emergence as an industrial superpower: “In a previous era, it was Japan and Germany that were the source of the US’s protracted trade deficits.” This rather suggests that “the main problem is the decline in the competitiveness and productive capabilities of the US itself rather than China’s (or, for that matter, anyone else’s) industrial policies.”

The article shows that China’s capacity utilisation and inventory levels almost exactly match those of the US. Hence, according to standard metrics, China is no more guilty of ‘overcapacity’ than the US itself. What is true is that China is actively working to contain excess capacity in mature industries such as coal and steel. However, in emerging technologies – particularly those required for solving the climate crisis – China is leveraging its socialist market economy to rapidly innovate and develop its productive forces. It should be noted that this strategy is responsible for a decrease in solar PV and wind energy costs of around 90 percent over the last decade. From the standpoint of maintaining a habitable Earth, the accusations of Chinese ‘overcapacity’ are beyond absurd.

Ultimately, what’s driving these accusations is that “Western imperialism is in crisis and can no longer sustain the position of its old labour aristocracy.”

The thesis of Chinese overcapacity therefore serves a dual purpose. First, it provides the Western ruling class with a means to deflect criticism of its own neoliberal policies in order to scapegoat China for the destruction of its industrial base. Second, it allows that same ruling class to resort to protectionism and subsidies on behalf of monopoly capitalists.

Shiran concludes:

For its part, China is developing technologies that are crucial for the future of mankind. It has done so while the ruling elite in the West gamble away wealth produced by workers through stock buybacks and real estate speculation. It is up to the Western Left to organise workers against imperialism and anti-China chauvinism, and to fight to liberate the productive forces necessary to address the socioeconomic and ecological challenges of this century.

Shiran Illanperuma is an independent journalist and researcher. He is currently reading for a master’s degree in economic policy at SOAS University of London.

In the last few months, there has been an intensified campaign by Western politicians, academics, and mainstream media to popularise the narrative of “Chinese overcapacity.” Like the disproven narrative of the “Chinese debt trap” before it, this appears to be a coordinated attempt by the West to scapegoat China for structural problems and imbalances in the world capitalist economy.

The thesis of China’s manufacturing overcapacity has been in circulation since at least the global financial crisis. In short, the argument goes that China’s investment-driven growth model creates both local and global imbalances. It is argued that higher investment suppresses consumption (as a share of GDP) and drives income inequality and excess production capacity within China. It is further argued that such imbalances are to blame for China’s excessive exports and massive trade surplus, which is said to be at the cost of the United States’ trade deficit.

In academia, this argument has been popularised by Keynesian economist Michael Pettis, who is a Professor of Finance at Peking University. Brad Setser, a former senior advisor to the United States Trade Representative, has also been a champion of this argument. Notably, the overcapacity thesis has also been a consistent theme of the IMF on China.

In May, the IMF Mission to China published a report stating that in order to ensure growth, China’s key priorities should include “rebalancing the economy towards consumption by strengthening the social safety net, liberalising the services sector, and scaling back distortive supply side policies that support the manufacturing sector [emphasis added].”

The IMF is, of course, a Western-dominated institution, where China controls just 6% of voting shares despite contributing to 18% of global GDP.

The overcapacity thesis has been an increasing source of diplomatic tension. US Treasury Secretary Janet Yellen has attempted to rally the G7 on the issue and coax Global South countries such as India and Mexico into the debate. Meanwhile, European Commission President Ursula von der Leyen has argued that Chinese industrial policy is distorting the EU market for electric vehicles (EVs).

The Chinese side has reacted strongly to these allegations. Chinese President Xi Jinping said that there was no such thing as a Chinese overcapacity problem. Meanwhile, Chinese Ministry of Commerce spokesperson He Yadong has said that the accusation of Chinese overcapacity was a typical Western double standard. More recently, Chinese Foreign Ministry Spokesperson Wang Wenbin said, “Overcapacity is just a pretext the US uses to try to coerce G7 members into creating fences and restrictions for Chinese new energy products.”

Following in Trump’s footsteps, the Biden administration recently threw up a slew of new tariffs against Chinese products, including 25% on steel and aluminium, 50% on semiconductors, 50% on solar panels, and a whopping 100% on electric vehicles (EVs). As the US-led trade war against China intensifies, it is worth reflecting on the facts behind the overcapacity thesis.

Measuring China’s overcapacity

French entrepreneur and analyst Arnaud Bertrand has argued that the concept of overcapacity can be measured with a few standard metrics: 1. capacity utilisation rates; and 2. inventory levels.

In economics, capacity utilisation refers to the share of production capacity that is in use at any given time. Generally speaking, a prolonged period of high capacity utilisation can indicate a need to expand productive capacity. In contrast, a prolonged period of low capacity may indicate a need to reduce productive capacity. Bertrand points out that the capacity utilisation rate in China is 76%, which is around the same as in the United States, which is 78%.

Inventory levels are generally used as a measure of how well sales are doing. A growing inventory of goods might mean a combination of sluggish demand or overproduction, while a shrinking inventory might mean growing demand and underproduction. Bertrand points out that the finished good inventory index PMI for China stood at 49, while a similar index for manufacturing inventory for the United States stood at 50.

Neither of the above numbers suggests that China has any more overcapacity than the US. On the contrary, the fact that Chinese industrial profits continue to grow suggests that there is ready demand for Chinese manufactures. Several analysts have also argued that China’s drive to increase production capacity for new energy products makes it indispensable in the global fight for ecological sustainability.