Cheapskate Consumers in China

The Mall of America, suburban Minneapolis, sells a lot of stuff from China (source)

Roy Landersen, writing for The Militant (published by the Socialist Workers Party--SWP), contributes an article entitled China’s capitalist rulers’ deepening crises visit disaster on working people. Even though he gets China mostly right, he still misunderstands some basic economics. His lede paragraph is here (emphasis mine).

For decades China’s rulers have relied on expanding capitalist methods to grow their economy, and repression to keep working people in check. But their course today is producing falling exports, rising local government debt and a property market meltdown, exemplified by the collapse of Evergrande, once the world’s most profitable property developer.

What he describes here isn't really capitalism, but rather fascism. While under socialism all economic activity is run directly by the state, in fascism, it is run only indirectly by the state. The government allows private enterprise, but forcibly subordinates it to the political needs of the state. Mr. Landersen denotes this by the euphemism "capitalist methods," which is distinct from capitalism because economic profitability is not the primary concern. Instead enterprises must serve the state first and foremost.

Another name for this might be mercantilism. Either way, it is unfair to blame China's problems on capitalism. Instead, it's the fascist-like CCP that poisons the mix.

The last clause of the quoted paragraph is wrong. It seems that Evergrande was never profitable--the company has been accused of systematically inflating revenue. Apparently they've been running a big Ponzi scheme--with CCP connivance, of course. There were never any profits--only fraud.

In a transparent effort to blame mythical, foreign imperialists, Mr. Landersen writes,

A Hong Kong court ruled Jan. 29 that Evergrande, with its gigantic $300 billion debt, be liquidated, setting up a tug-of-war over its assets between Beijing and imperialist lenders who are owed billions. Bosses at the company stopped paying creditors two years ago.

Google AI (now called Gemini) reports that 

While Evergrande's total debt was massive at $340 billion, its reliance on foreign loans was relatively small. Here's a breakdown:

• Total debt: $340 billion
• Foreign debt: $25.4 billion
• Percentage of foreign debt: ~7.5%

The so-called "imperialist" lenders are only out $25 billion, which is small change. I don't know what an "imperialist" lender is--foreign lender is a better description. I'll suggest almost all of them are from Hong Kong. Is Hong Kong "imperialist"? The epithet is completely meaningless.

Mr. Landersen recites a litany of problems Chinese "workers" face, which I'll summarize in bullet points.

• Evergrande "took billions in down payments for houses that were never built, and its collapse left countless numbers of construction workers with unpaid wages." As said, it was all a big Ponzi scheme.
• "In industry, bosses’ profits fell 2.3% last year, after a 4% fall the year before." So it's not just workers who suffered.
• "High unemployment among Chinese university graduates — one in five without a job..."
• "Despite government inducements to have children, including tax breaks, cheap housing and cash payments, the birth rate fell in 2023 for the seventh straight year." China looks to be in an irrecoverable demographic downward spiral. There's probably no way of undoing that now.
• "Foreign capitalists are shifting manufacturing from China to countries like Vietnam where bosses pay workers less."
• "Chinese President Xi Jingping’s signature project, the Belt and Road Initiative, is losing steam. ... [G]overnments that have borrowed from Beijing are defaulting on loans."
• "For years, Beijing has detained millions of Uighurs, a Turkic-speaking Muslim minority, in 'reeducation camps' across Xinjiang province."
• "Demonstrations by workers have grown recently in China’s export-oriented manufacturing industries where demand has fallen. More than 1,700 strikes took place last year, double the number in 2022. They are protesting unpaid wages and benefits, as well as mass layoffs or forced relocations."

Mr. Landersen tells the truth--every statement in these bullet points is true. Intentionally or otherwise, he puts paid to the notion that China is some rising power about to displace the United States. There is no way that is gonna happen. Quite the contrary, China will increasingly have difficulty importing enough food and fuel to meet its needs.

It is, in the end, all a question of supply and demand. 

Marxists only talk about the supply--e.g., the governments in Cuba (sugar), North Korea (food) and the former Soviet Union (steel) all bragged about their levels of production. After all, in their view, the key to economic progress is to increase production because that's the only thing that adds value to an economy.

But it's not true. The real measure of economic progress is the rate of consumption, typically measured as sales volume. Because if consumers can't afford or find use for your product, its manufacture is a waste of resources. It's increased consumption that actually raises a country's standard of living.

This is why the plight of workers--how they're oppressed, deprived, etc.--is mostly irrelevant (as long as they're free and paid market rate wages). The real test of well-being is what those workers--acting as consumers--can buy. In Cuba they can't buy tiddlywinks. In China--even after all the progress of recent decades--most consumers are too poor to buy very much.

Americans, by contrast, are excellent consumers! Indeed, we're the best consumers on the planet. Almost every country on earth tries hard to sell into the American market--because that's where the consumers are. American consumers are the people who have made the world's economy go round.

In particular, modern China has never been able to consume its own production. It has always had to find consumers abroad--mostly by exporting to America.

Unfortunately, America is now tapped out. We're too far in debt to keep accepting new exports from other countries. Our ability to consume everything the world produces is no longer feasible. Other countries are going to have to develop their own consumer markets.

China has not done that. Not even close. A housing Ponzi scheme destroys consumption. A lack of babies results in a lack of consumers--the best consumers are families with children. Not having a good old-age pension system, or something like Medicare for old people, forces people to save more than they likely need for old age. And reduces consumption. China's "iron rice bowl" has rusted out.

So I think China is screwed. Mr. Landersen wants to blame capitalism, but he really should blame the Chinese Communist Party. The CCP, like most Marxists, has always emphasized production over consumption--and now they're in a pickle of their own making.

Mr. Landersen will, of course, champion the Cuban consumer, who earns something like $50/month. How much can you consume on that income? It's pathetic, and that's why Cuba is so poor.

Further Reading:

• Workers' Voice Doesn't Understand Deficits or Taxes
• Brian Williams, Inflation and China
• The Eurodollar