China: worst crisis in three decades

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Will the U.S.'s economic growth rate surpass China's in 2022?

Vincent Kolo China Labour Forum

Xi Jinping's wishful thinking of becoming China's lifelong dictator is now looming over a cloud - a series of economic and political disasters. Lockdowns under the “Zero Zero” policy have paralyzed major Chinese cities, crippled GDP growth and pushed unemployment to new highs; there are also imperialist conflicts that have intensified, such as the war in Ukraine. Chinese society was suddenly thrust into its worst crisis in three decades. Every social class is deeply pessimistic about the economy and worried about what the future might hold. The shoddy "zeroing" policy has sparked unprecedented anger against the Chinese regime.

Xi Jinping has reportedly instructed top officials to do whatever it takes to ensure higher GDP growth than the U.S. this year, though that is unlikely to happen unless the U.S. economy hits a hard landing. Bloomberg has lowered its GDP growth forecast for China to 2 percent, compared with 2.8 percent for the United States. At present, no international forecasting agency has given an estimate of 4.3% of China's GDP growth in 2022, which is far below the 5.5% target set by the Chinese government.

The party will hold its five-yearly party congress later this year, in which Mr. Xi will renew his third term as general secretary or restore the long-defunct chairmanship of the party's central committee. The function of the party congress is little more than a rubber-stamp ceremony, and the real decision has already been decided in advance in a series of black-box deals by some 40 heads of bureaucratic capitalism.

Xi Jinping's highly centralized power and the abolition of the "collective leadership" system of the past four decades (which originated in the process of capitalist restoration initiated by Deng Xiaoping) is a manifestation of the profound crisis facing the CCP regime and Chinese society. Social, political and geopolitical tensions are approaching a breaking point. These internal pressures force Chinese capitalism to seek higher international status and are one of the sources of imperialist conflict. At the same time, the new Cold War between China and the United States has exacerbated domestic conflicts.

This year, Mr. Xi sees stability as an overriding need to make his lifelong rule as smooth as possible. The word "stability" was mentioned 76 times in the government's annual work report delivered by Premier Li Keqiang at the National People's Congress in March. But now stability is nowhere to be seen.

Clearing Policy

This year, an outbreak of a highly contagious variant of the Omicron virus has sparked a dystopian crackdown under authoritarianism. The scale of the lockdown in 2022 is unprecedented in human history. More than 300 million people are directly affected, having to endure weeks of home isolation, loss of income, food shortages, untreated diseases other than Covid-19, and bureaucratic violence. Even areas far from the lockdown have been severely affected, in the form of a slump in consumption - as people fear they may also face lockdown.

The nation's online censorship has made it impossible for the public to question Xi's "zeroing" policy. Even moderate criticism from the WHO (saying that the zero policy was "unsustainable") was blocked. Global capitalism has gradually realized that the Xi Jinping regime will continue this "zero-clearing" policy at least until after the 20th National Congress of the Communist Party of China, regardless of its extremely heavy economic cost.

The economic cost is already manifested in the rapid economic downturn, of which GDP is very likely to decline in the second quarter. At the same time, the local government, which already has an excessive financial burden, now has another heavy burden: it must pay for the nucleic acid testing of citizens every 72 or 48 hours. A report released by Soochow Securities shows that routine nucleic acid testing for all first- and second-tier cities in China (covering a population of 505 million) will cost 1.7 trillion yuan per year, which accounts for 1.3% of China's total GDP, even more than China's annual 14,500 yuan. billions in military spending!

Most local governments are in deep financial crisis. This is due to a slump in land sales (caused by the bursting of the housing bubble) and lower taxes (caused by the lockdown and government tax cuts). Japanese bank Nomura Securities said the total funding gap for Chinese local governments will reach 6 trillion yuan ($895 billion) this year. Local governments across the country are taking pay cuts for civil servants and even withholding bonuses from 2021.

The size of the economy is equivalent to that of Shanghai in Argentina, which has been under lockdown since late March. Authorities nominally lifted the lockdown in early June, but officials have since reimposed the lockdown, which remains in parts of the city today. While Beijing is not nominally under lockdown, more than half of the city has been in full lockdown at various times since late April. Due to the massive public backlash (mainly from Shanghai) pouring into social media, even breaking through the full-blown censorship machines, the media are now not allowed to use the word “closed city” to describe the situation in Beijing.

For the working class, a "zero out" policy means more exploitation, less wages and more debt. In Shanghai, for example, there are almost five million migrant workers from poorer provinces. During the lockdown, these workers have no jobs and no income. In order to survive in a big city like Shanghai, most migrant workers have to share a room with several people—not an apartment, but a room, or even just a bed. In normal times, these workers simply go home while they sleep and work overtime for hours to make up for living expenses. It is even more unbearable to be in such an overcrowded environment during the lockdown.

To satisfy the interests of capitalists, especially those foreign capitalists who are increasingly withdrawing capital from China, a "closed loop" system was implemented in some factories during the lockdown. This system means that instead of working from home, workers live directly where they work. At Tesla's mega-factory in Shanghai, for example, thousands of auto workers have slept on the factory floor since the lockdown, changing shifts every twelve hours, six days a week.

The Shanghai branch of Apple's supplier Quanta Computer employs 40,000 people, mostly low-income migrant workers. About 100 workers fought with security to escape when Omicron began to spread inside the factory's high walls. Workers have accused the company of covering up the outbreak and not quarantining positive patients. This case revealed that the so-called "closed loop" is to protect the profits of capitalists at the expense of workers' health and lives.

In Shanghai, there have been at least seven outbreak-related worker protests since March. A video circulating online showed dozens of "big whites" in protective suits marching to protest unpaid wages. Another protest in May saw Dabai clash with police. The protests stemmed from the government breaking a promise to quarantine them in hotels before returning to their hometowns; instead, they were sent to quarantine in extremely poor, crowded shelter centers where they themselves worked.

tools of social control

The above incidents prove that the CCP regime's claim that its epidemic prevention policy is "people first" is a complete lie. This can also be used to respond to some international left-wing groups: they are confused by the CCP's propaganda and thus support China's epidemic prevention policy as a more progressive alternative to the disastrous Western epidemic prevention model. In fact, the political stance of the CCP is as reactionary, anti-working class, and pro-capitalist as the Western governments.

The Xi Jinping regime attaches great importance to large-scale nucleic acid testing, setting off a "gold rush" in the nucleic acid testing industry. One is that more than 400 nucleic acid testing companies have been established in the last year alone, many of which have ties to the Communist Party’s ruling elite. Caixin Media reported that nucleic acid testing companies made huge profits in the first quarter of 2022, such as Dean Diagnostics, which saw earnings rise 122%. Beijing Wantai Bio, a maker of rapid antigen tests, saw profits rise 198%. In the Covid-19 testing sector of the Shenzhen Stock Exchange, 20 companies saw their net profit double by mid-2021. More than a tenth of China's 100 richest billionaires are from the pharmaceutical and biotech industries.

The Xi Jinping regime is not only insisting on "zeroing out", but also transforming it into a normalized mechanism. The infrastructure for mass testing and isolation is rapidly expanding, with hundreds of permanent testing sites being built across the country.

In this way, using the pretext of fighting the epidemic, the Xi Jinping regime has significantly strengthened the apparatus of social control and repression. Authorities have used mandatory health codes to mark the entire population, keeping residents' movements severely restricted. People need to display the green health code on their smartphone when shopping at the supermarket or walking their dog in the park. The technology didn't exist in the early days of the Covid-19 pandemic two years ago. The lockdown of Wuhan, which shocked the world at the time, was much milder than the lockdowns in Shanghai and elsewhere this year.

In the hands of the police state, the technology will inevitably be used to repress workers and others who challenge the authorities. This is especially true in Zhengzhou, the capital of Henan province, where four regional village banks were hit by a Ponzi scheme that prevented 1 million depositors from withdrawing money from their accounts. In May, hundreds of protesters from across China came to Zhengzhou to demand money from banks. In June, when a new protest was called, savers found their health codes changed from green to red upon arrival at Zhengzhou railway station. However, Zhengzhou is a city that currently has no new crown cases. Police rounded up and quarantined the protesters before forcibly returning them to their hometown the next day.

In a rare occasion, state media slammed the incident in Zhengzhou. China Daily slammed the city government for "crossing a dangerous red line". Even the nationalist tabloid Global Times warned that such violations of health regulations would "damage the prestige of this surveillance system". This limited self-criticism reflects official knowledge of public dissatisfaction. As the economic crisis worsens and the brutal new crown epidemic prevention policy continues, popular dissatisfaction is likely to erupt.

Economy plummets

The economic crisis is not just (or even mainly) because of Xi Jinping's "zeroing" policy, which has greatly exacerbated the economic downturn. Last year, the final burst of the housing bubble was a decisive economic turning point. The real estate sector accounts for 28% of China's GDP. It was the main driver of the CCP’s debt-driven state-capitalist economic model, which has now failed. A related issue is that the current level of debt exceeds 300% of GDP, which limits China's ability to re-growth through financial stimulus. Global capitalists and their Chinese counterparts have grown increasingly pessimistic that the Chinese Communist Party does not have a “dramatic” stimulus package of the same scale as in 2008 or even 2020.

In past CWI (predecessor of ISA) debates, the former leadership of the International Secretariat argued that China's high level of state control is a legacy of its Stalinist past, giving the regime a unique ability to manage the economy well to avoid crises . They therefore believe that the CCP can do things that other governments cannot.

This is true, but only to a certain extent. Exaggerating what is special about China can lead to errors in analysis and opinion. Comrades including China, Hong Kong and Taiwan believe that it is not enough to point out the “unique” features of China’s state capitalist economy (an authoritarian capitalist economy with obvious bureaucratic and state intervention characteristics, rather than a planned economy), but also to emphasize its limitations. These differences do not give the economy invulnerability or immunity from crisis, as some bourgeois commentators imagine. At the end of the day, although the process can take place on different time scales, the laws of the capitalist economy themselves hold true.

The bursting of the real estate bubble shows the contradictory sides of "Chinese exceptionalism". The market value of Chinese real estate is US$55 trillion, twice that of the US real estate market. This is the result of an unprecedented debt-driven expansion due to the degree of control the Chinese Communist Party has over the banking system and the decisive role of city and regional authorities in driving up land prices through rapid infrastructure construction.

State policies have provided the framework for the development of a vast private real estate market, while millions of local CCP officials have amassed staggering wealth through financial speculation. But today, with the overextended real estate market (insufficient buyers, a growing population crisis, debt in every direction), the same state-owned banks are refusing to fund struggling real estate companies, and local governments themselves face a history of a drastic credit crunch.

New home sales fell for 11 straight months, falling 59% year-over-year in May to a record low. The market meltdown is accelerating despite a series of stimulus measures from Beijing and many local governments to lure buyers back into the market. Last year, the bursting of the real estate bubble first manifested itself as a liquidity crisis for large developers such as Evergrande Group. As we explained, this is just the tip of the iceberg. This has been confirmed. More than 13 million homes were sold in the previous four years, including last year, but total sales could fall by a third or more this year.

The collapse in consumer spending has the same roots as the housing crisis. The demographic crisis, falling birth rates and falling marriage rates are important factors. Compared with 2019, the situation of workers and much of the middle class has deteriorated markedly. Many have been hit by pay cuts and job losses. People are more reticent about taking on more debt. Like many companies, households are choosing to prioritize paying off existing debt over making new expenses.

The COVID-19 pandemic and lockdowns have accelerated a shift in consumer habits rooted in falling incomes and increased job insecurity. The trend of "lying flat", which is especially popular among young people, is a manifestation of this trend. They are escaping the oppressive lifestyle of consumerism, debt and Chinese capitalism.

Compared with last year, retail sales contracted by 3.5%, 11.1% and 6.7% respectively in the past three months. Mobile phone sales fell 14.1% year-on-year in the first quarter, as young people rejected the frenzy (aka "lay flat") of always needing to buy a new phone. Total new vehicle sales fell by more than 12% in the first five months of 2022.

These indicators show the Chinese regime a grim picture. For 20 years, the Chinese regime has touted domestic consumption (rather than fixed asset investment and exports) as the main engine of economic growth. However, consumption in 2021 will only account for 38.5% of GDP, which is lower than 20 years ago.

Ironically, China's strong export growth, not domestic consumption, has underpinned the economy during the pandemic. The growth is based on temporary trends, as lockdowns and working from home have created a huge market for laptops and other electronic devices made in China. This trend is waning as expected. Exports of Chinese laptops are down 16 percent so far this year.

Soaring unemployment is the most worrying indicator of China's economic problems. A June report by academics at Peking University warned that China's unemployment rate could reach levels seen in 2020, when 12% of the workforce lost their jobs.

The official unemployment figures underestimate the real situation because 290 million migrant workers are excluded. The most explosive figure, however, was the unemployment rate for 16-24 year olds, which hit a record high of 18.4% in May. This is more than double the youth unemployment rate in the US (7.9%) and higher than the same metric in the EU (13.9%). Ten million college graduates will enter the workforce in the next three months, and only 20 per cent have found jobs so far, compared with 60 per cent at the same time last year.

New levels of economic hardship and uncertainty are shaping the consciousness of young people, workers and migrant workers whose confidence in the CCP’s ability to manage economic affairs has been shaken. The radicalization of the younger generation is reflected in social media — the only channel for limited public discussion and social commentary in China.

The internet buzzword in 2020 is "involution", which means frantically competing for the second place due to lack of resources. In 2021, although it does not yet imply a clear class consciousness, the "lay flat" trend of thought more explicitly rejects the frenzied competition of Chinese capitalism. This year's buzzword is "run", even called "run school", although this is not a movement, but a strong social sentiment, but like the other examples mentioned earlier. "Run" originated from the public backlash against the atrocities of the Shanghai blockade, especially the desire to flee the country to escape repression and totalitarian rule.

These shifts in mass consciousness marked a major change in the situation: the masses increasingly disapproved of the CCP’s rule and were aware of the crisis in society as a whole. This is naturally only the first stage, not yet a coherent alternative, but a decisive break with old norms and fantasies.

The next period will be more volatile as Xi tries to consolidate his control over the next few decades. China's demographic crisis - shrinking workers and consumers - and its stagnant debt-driven economy are increasingly likely to undermine the regime's massive ambitions to surpass U.S. imperialism, which itself faces serious challenges question. For socialists, these developments have enormous implications as the two economic and military powers of world capitalism enter an unprecedented phase of crisis and political instability.