I. China’s economy – imbalanced and unsustainable
Thirty years after the Reform began, China’s economy is grossly imbalanced, making it impossible to continue along the path set forth by the reformers. China’s economy is out of balance with the rest of the world and as well as domestically.
Internationally, China in the past 15 years has maintained very large trade surpluses, especially with the United States. China’s foreign exchange reserves increased rapidly since the early 2000s, then until this summer, accelerated in the past three years – from $659 billion in March 2005 to 1,682 billion in March 2008 – a 155% increase in only three years1. By the end of the third quarter of 2005 China became a net capital exporter.
China, Japan, South Korea and other Asian countries with United States trade surpluses have in fact loaned the US money in order for the US to buy their products. Common sense tells us this practice cannot be sustained for an extended period of time. Also, it is grossly unjust for the Chinese people. China is still a poor country that needs capital for its own development and for the immediate needs of its people – such as clean water, basic health care, and basic education to export its capital, yet a great part of China’s capital has been exported most of which goes to the United States, the richest country in the world. China’s trade surplus accelerated until it reached 11% of its GDP in 2007 meaning during that year, 11% of what China produced was not consumed domestically, nor was it invested in China or spent by its government; the net export of 11% of the GDP was simply changed for additional foreign exchange, which amounts to a stack of foreign IOU’s, sitting idly in China’s Central Bank.
Obviously, the gross imbalances would have to be dealt with2. The adjustment of China’s economic imbalances with the rest of the world started this past year, when the growth of China’s exports slowed, from over 20% to 7% a year from June 2007 to June 2008 (http://business.theage.com.au/business, July 11, 2008). According to Bai Jing-fu’s report, 60% of China’s GDP growth came from the growth of its exports3. Therefore, lower growth rates of exports slowed the growth rate of China’s industrial production to the lowest point in the six years (http://bloomberg.com, September 11, 2008). China’s currency, the RMB, has been devalued by 18 percent since July 2005, thus raising the price of China’s exports (http://iht.com, July 10, 2008). The prices of energy and raw materials China needs to import for its exports have increased significantly. Also, Western nations have stepped up their efforts to restrict Chinese imports. Finally, the global crisis of capitalism has slowed down the demand for Chinese exports. The repercussions of the slowing down of China’s export growth have been serious especially in the coastal region where most export industry factories are located. Many factories, which have served as contractors for foreign multinationals to produce shoes, clothing, toys, furniture and consumer electronics, were earning very thin profit margins to begin with, and now many are losing money and have to close their doors. There were many large laid-offs in these factories.
China’s domestic economy has also been imbalanced. The high rates of GDP growth have been fueled, on the one hand, by the fast growth in the export sector and, on the other hand, they have been the result of high growth rates in investment – especially the tremendous investments in infrastructure by different levels of government. The share of GDP that goes to domestic consumption is extremely low by any standard. Bai Jing-fu estimated that the domestic consumption share of GDP for 2003 was merely 43.4%. Another more recent figure given by Xin Zhiming of the People’s Daily was even lower – a mere 37%, almost 5% lower than the 41.6% of the investment share of the GDP (http://chinadaily.cn, December 11, 2007). This distorted distribution of the GDP is another way to show the extremely unequal income distribution, and concretely it means that except for a rich minority, the majority of the working population cannot enjoy what their labor has produced due to low wages, lack of benefits, and low earnings from farming.
The imbalances of China’s economy both externally and internally mean that, as the recent development has proven, more severe adjustments are yet to come, and that it is not sustainable. There are other equally important factors for the un-sustainability of China’s capitalist Reform. One of these factors is the deterioration of China’s agricultural production (See Section III), and the other is the depleted natural resources and the devastation in China’s natural environment caused by the Reform (See Section IV).
