Cooking the Books 2
Capitalism: No Paper Tiger
‘President Xi was facing the most serious test of his approach to Chinese capitalism last night as Beijing decided whether it could allow a corporate giant burdened with hundreds of millions of debt to go bankrupt’ (Times, 21 September).
The Chinese government still occasionally calls itself socialist, though this is more common amongst its supporters abroad. Everybody can see it isn’t, even the Western media as in the news item above. Its economy is ‘state capitalist’ even in the Leninist sense of the development of private capitalism under the aegis of a supposedly ‘socialist’ state. Lenin, however, envisaged only small-scale capitalist enterprises. The Chinese government has allowed and encouraged big corporations to develop and so finds itself in the position of having to cope with problems caused by the workings of a market economy involving big capitalist corporations.
The ‘corporate giant’ that risked going bankrupt was a property company with the wonderful name of Evergrande that epitomises what every capitalist enterprise has to aim at – growing bigger and bigger through the re-investment of most of its profits as new capital. Founded in 1996, it expanded rapidly in response to a housing boom, borrowing heavily to meet the demand for new apartment blocks. Then, as always happens sooner or later, the boom turned to bust.
The anarchic expansion of the market led to an oversupply of residential property:
‘Supply of apartments exceeds demand and many new apartment blocks stand empty or unfinished’ (Times, 21 September).
‘By some estimates, China now has 90 million units of empty houses’ (Simon Nixon, Times, 23 September).
The oversupply is in relation to paying demand not need:
‘…there are the very high vacancy rates in China with high prices. In cities such as Beijing, Shanghai and Shenzhen property values are “very extreme” relative to average incomes’ (Patrick Hoskings, Times, 21 September).
Evergrande has been left with huge debts that it cannot meet. The fear amongst stock exchange speculators is that its collapse would be China’s ‘Lehman moment’, as in the US in 2007-8 that provoked the Great Recession from which the world has still not fully recovered. They are afraid that the failure of Evergrande would spread from it to its suppliers and from them to their suppliers and so on, and of the impact of the resulting generalised economic crisis in China on the rest of the world capitalist economy.
It might not come to this, but the point is that it could. This shows that the Chinese government, despite being a one-party dictatorship, is as much at the mercy of unpredictable, anarchic market forces as any elected reformist government in the West.
It also shows how much capitalism in China is part of the world capitalist system. Socialism in one country was always impossible, but events have shown that so is ‘state capitalism in one country’ (what the Stalinists and Maoists call ‘socialism’ and the Trotskyists ‘a transitional society’). No one part of the capitalist world can isolate itself from the rest of the world capitalist economy, as the rulers of the former USSR found out to their cost, a lesson Chairman Xi’s predecessors learned and decided ‘if you can’t beat ’em, join ’em’. But this involves taking the rough with the smooth, as Xi is finding out.