China: a new order?

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China: a new order?

If the global financial crisis is a sign of the decline of the West, it is also a sign that the future belongs to China. China is a superpower that ‘understands’ the developing world better than the US, IMF, or World Bank, says Martin Jacques.


Workers on a bridge across the Yangtze River in May 2018. Photo: AFP/Getty Images

Yohann Koshy: What was China’s answer to the global financial crisis?

Martin Jacques: It was a Western crisis but China had to take action. This was because the American and European markets went down very badly and they were very important for China. It put lots of money into the economy and Chinese growth went down a little but stayed very high. It was near 9 and 10 per cent at this time and, it went up to 12 and 13 per cent.

In the longer period, China tried to change the Chinese economy. In 1978, China’s economy was a 20th of the size of the US economy. The changes over the following years were about making China an export economy. And this was with cheap labour that came from migration of workers from the countryside to the big cities, with, of course, a lot of help from the state.

But after the financial crisis the change has been to an economy that depends more and more on domestic and not foreign sales and on research and development, and with a lower growth rate. The new growth rate is between 6.5 and 7 per cent, and China has maintained this. But when the economy is growing at that rate in such a big country, the global impact is still very big. Since the Western financial crisis, China has created between 40 and 50 per cent of global growth. Without the Chinese economy, the global economy would be in a bad situation.

Is it possible that China will follow the route of financialization like the Western economies? For example, China gave Blackrock, the big hedge fund, a licence to start working there.

Well, I don’t think Blackrock is anything like that. I think the Chinese will resist following that route. Of course, they need a strong financial sector. They will need to develop capital markets. But the Chinese economy is very different from the US economy. It’s still got a lot of manufacturing, and scientific and technical labour is important. The state is very important to the way the Chinese economy works. The banking sector became strong in the West in the neoliberal period from the late 1970s to the financial crash. It seems to me there is no sign of this in China.

And when Mark Carney, the Governor of the Bank of England, says he’s worried about shadow banking in China...

The main debt problem in China is corporate debt. The state-banking system and also the shadow banking system, has more debt because it’s sometimes lent too much to plans and investments which weren’t very strong. But it is not, like the US or Britain, the state which is in debt… So it’s a problem but it’s an internal, not an external problem. The real problem for Asian economies during the Asian financial crisis in the 1990s was that they had big assets in foreign currencies and suddenly, as their currencies fell, their debts increased quickly.

Also, the Chinese people are not in debt. They usually have very big savings. This is one of the reasons why the country is financially strong. The economic management of the Chinese economy has been very good! They’ve gone for 35 years without a serious crisis. Very different from the West!

An important development since the crash is China creating the New Development Bank and Asian Infrastructure Development Bank. Even Britain and Germany signed up to them and the US was not very happy about that. Why are they creating these alternatives to the World Bank and the IMF?

After 2007-08, the Chinese knew they couldn’t depend on the US economy and the global economy sharing the same interests. They had to develop their own institutions. The Americans were also very slow to change the IMF because they wanted to keep control of it.

In this situation you don’t want institutions like the IMF and World Bank. They are Western institutions for Western economies. You need something with a more inclusive view of the world. This is why we’ve seen the Asian Infrastructure Development Bank, the New Development Bank (the BRICS bank). And we’re going to see a much bigger development of this with the Belts & Road plan to improve connectivity between Europe, the Middle East, Asia, and Australasia.

I understand why governments welcome Chinese investment. But in Ecuador there are indigenous communities protesting against Chinese mining companies. In Gambia, Chinese firms are taking over from local fishers. How should China deal with these problems? Because there is no development without conflict.

You’re right. There is always conflict in development. China is now in many different developing countries. The result is more demand for commodity producers in poorer countries – from oil to metals like iron ore. That’s had a powerful effect on their economies. But China is also very competitive in lots of industries and this can have negative effects. There are many examples where China has done better in manufacturing than companies in the developing world.

In places like Africa and southeast Asia, Chinese companies have helped to start serious manufacturing in places like Ethiopia, which never had any before. I think that China’s relationship with Africa is very positive. Of course, there are problems. For example, there are problems with Chinese companies bringing Chinese labour into some of the developments. But the reason I think it is positive is that China was a new demand for commodity producers in Africa. That means they were no longer just dependent on Western demand. It was a competitive market and it increased the price of commodities in that period and meant that they were in a better economic situation.

I do not think that China is the new colonial power in Africa, China understands the problem of developing countries. One of the big problems is developing transport, energy, and a more developed economy. In Africa, China has brought road systems, railways, and so on. For the Chinese it’s all about development.

China did not always do the right thing. In Myanmar, it got far too close to the military regime that is persecuting the Rohingya. And a weakness of the Chinese is that they often arrive in new countries and do not understand local opinion. That happened in Myanmar and Sri Lanka. So those problems are real and important. And the Chinese will make many more mistakes. The question is will they learn from them? So now they’re learning how to deal with civil society in other countries because they don’t have a civil society in the same way as most countries.

Let’s end with the US. There are growing problems between the two superpowers. But their economies also depend on each other. China owns more US debt, in the form of Treasury bonds, than any other country. This allows the US to spend more than it has and to buy China’s products. Is this sustainable?

The problem in the West is not understanding China. Listen to the BBC’s Today Programme, read The Guardian newspaper. There is very little about this change in the world. How many articles are there on the Belt & Road plan, the most important global project of this time?

Surprisingly, Trump was the first leading US politician to recognize US decline. This is what ‘Make America Great Again’ is about. But he thinks he can change it and this is not possible. I think there is going to be a trade war, but nothing will stop China’s rise. So America has to understand the rise of China and renegotiate its relationship with China. And what is the West going to do about its own decline?

Martin Jacques, was the editor of Marxism Today, and is the author of When China Rules the World (Penguin).


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