Can state-capitalist China inherit the USA as hegemon? by Tomasz Konicz, May 2023

China’s growth is also running on credit, and the People’s Republic is as highly indebted as the descending Western centers of the world system.10 The Chinese deficit economy is generating even far greater speculative excesses than was the case in the U.S. or Western Europe, as the distortions on the absurdly inflated Chinese real estate market in 2021 made evident.

New Old World Order?

Can state-capitalist China inherit the hegemony of the outdated USA?

Can state-capitalist China inherit the USA as hegemon?

by Tomasz Konicz

[This article posted in May 2023 is translated from the German on the Internet,]

If one believes the declarations of Russian-Chinese summits and Western assessments, the 21st century will be defined by an era of Chinese hegemony. At their Moscow war summit in mid-March, Putin and Xi advocated a “just multipolar world order” that would put an end to the era of U.S. hegemony.1 A British government report, on the other hand, warned of a world of “danger, disorder and division” that Beijing was creating in open, “epoch-shaping challenge” to the liberal, “rules-based world order. “2 It should be difficult for British analysts to see the crisis-ridden late capitalist world as anything other than “danger, disorder, and division. Such assessments are obviously simple projections. But this does not necessarily mean that they are completely wrong – as a cursory glance at the carnage in Ukraine and the saber-rattling over Taiwan illustrates.

The talk of a multipolar world order is thus, on the one hand, the ideology of all those authoritarian states of the semiperiphery that seek, by means of imperialist power and war policies, to inherit the eroding United States in order to achieve at the regional or global level a supremacy or dominance similar to that enjoyed by Washington in the second half of the 20th century. The rise of regional interstate conflicts is precisely an expression of this very real multipolar world disorder in a global crisis phase in which there is effectively no longer a world hegemon. Whether it is Russian imperialists, Iranian mullahs, Turkish neoottomaniacs, or German full-on Nazis and cross-frontists, it is above all envy of Washington’s disintegrating means of power that motivates this latest stage of anti-Americanism. And this is especially true of the U.S. dollar. The greenback, as the world’s reserve currency based primarily on the oil trade, gave Washington the option of borrowing in the value of all commodities to finance its military machinery, for example. If, on the other hand, Erdogan turns on the money press, inflation simply rises.

That is why the latest monetary agreements between China, Russia and a number of semiperipheral states are causing a stir. In mid-March, during a state visit to Riyadh, head of government Xi touted a switch in oil trade with Saudi Arabia to the Chinese yuan to counter the “increasing weaponization of the dollar. “3 Riyadh is said to be seriously considering the symbolic move to unwind some of its oil trade with Beijing. In warring Russia, the yuan has risen to become the most traded currency in the face of Western sanctions.4 Beijing has been able to strike similar bilateral currency deals with Brazil,5 Pakistan6 and Venezuela7 . The last BRICS meeting in February even discussed the creation of an alternative currency system for “emerging markets. “8 The Financial Times warned as early as March that Western functional elites should prepare for a “multipolar currency world order”-which would mean the loss of Washington’s “extraordinary privilege” to borrow in the world’s reserve currency.

On the one hand, these increased movements away from the dollar can be traced back to the U.S. sanctions against Russia at the start of the war of aggression against Ukraine, since this was the first time that Russian foreign assets were frozen (Lavrov spoke of “theft”), which was carefully registered by all regimes that must prospectively reckon with coming into conflict with Washington. But this tendency toward de-dollarization and de-globalization can be fully understood only against the background of the imperial decline of the United States and the historical crisis process. Only after this does it become clear why China will not be able to inherit the United States as hegemon.

Giovanni Arrighi, in his fascinating work ‘Adam Smith in Beijing’, has described the history of the world capitalist system as a succession of hegemonic cycles. A rising power gains a dominant position within the system in an ascendant phase based on commodity-producing industry; after a signal crisis, this hegemonic power enters an imperial descent in which the financial industry gains importance, to be eventually replaced by a new hegemon with greater means of power.

And this sequence can be traced empirically in the case of both Britain and the United States. The English Empire, which rose to become the ‘workshop of the world’ in the context of industrialization in the 18th century, transformed itself into the world’s financial center in the second half of the 19th century, before being replaced in the first half of the 20th century by the economically ascendant U.S., which in turn experienced its ‘signal crisis’ during the crisis phase of stagflation in the 1970s. After this, the deindustrialization and financialization of the U.S. set in, leading to the economic dominance of the U.S. financial sector. The indebtedness of the descending hegemon to the imperial ascender, which Arrighi also addressed, can be seen both in the case of Britain to the U.S. and through the deficit cycle of the United States to China.

The dollar thus gained its world position in the context of the postwar Fordist boom, when the Marshall Plan in devastated Europe also cemented the hegemony of the United States. And it was precisely this prolonged period of Fordist expansion that formed the economic foundation of U.S. hegemony. With the end of the postwar boom in the stagflation phase, financialization and the implementation of neoliberalism, the economic basis of the Western hegemonic system changed: In the systemic crisis of exploitation, the increasingly indebted United States became the “black hole” of the world system, absorbing the surplus production of export-oriented states such as China and the FRG through its trade deficits – at the price of advancing deindustrialization. Beijing and Berlin thus had every reason to tolerate U.S. hegemony and the dollar as the world’s reserve currency, since without the American sales market China’s rise to become the new “workshop of the world” would not have been possible.

Late capitalism, choking on its own productivity and increasingly running on credit, chained the “production locations” and deficit states to one another within the framework of this globalization of deficit cycles and the corresponding bubble economy, but at the same time the potential for conflict continued to increase due to socioeconomic disintegration processes. This crisis tendency was very concretely personified in Donald Trump, who was elected by an eroding white middle class and wanted to reindustrialize the U.S. by means of protectionism – and thus unintentionally accelerated the decline of the dollar, which was accepted precisely because of the deficits of the dollar area. Actually, since Trump, there is no longer any U.S. hegemony. The United States now holds its position only by means of naked dominance, primarily because of its military-industrial sector, which is the true backbone of the dollar – and it is this that makes a military confrontation between China and the United States likely. The U.S. has its back against the wall globally in much the same way that Russian imperialism did in the post-Soviet space on the eve of the Ukraine war. This was also evident in the current banking quake triggered by, of all things, U.S. government bonds.9

The crisis-induced increase in protectionism thus seems to be doing the rest to the world’s reserve currency, the dollar. And yet, because of the unfolding world socio-ecological crisis of capital, the 21st century will not be able to bring an epoch of Chinese hegemony. The yuan will not inherit the dollar. The hegemonic ascendancy of the People’s Republic, marked by the dominance of commodity production, occurred within the framework of the aforementioned global deficit cycles, in which debt dynamics in the West generated demand for Chinese exports-and it ended with the crisis surge of 2008. With the bursting of the real estate bubbles in the U.S. and Europe, the extreme Chinese export surpluses declined (with the exception of the U.S.), while the gigantic stimulus packages Beijing launched at that time to support the economy led to a transformation of China’s economic dynamics: exports lost weight, and the credit-financed construction industry, the real estate sector henceforth formed the central drivers of economic growth.

Thus, China has obviously already put its ‘signal crisis’, which marks the transition to a financial market-driven growth model, behind it in 2008. China’s growth is thus also running on credit, and the People’s Republic is similarly highly indebted as the descending Western centers of the world system.10 The Chinese deficit economy is generating even far greater speculative excesses than was the case in the U.S. or Western Europe, as the distortions on the absurdly inflated Chinese real estate market in 2021 made evident.11 Economically, the hegemonic descent of the People’s Republic due to the global systemic crisis has already begun, although it has not yet even been able to gain its hegemonic position geopolitically.

This lack of a new leading sector, of a mass wage-labor exploiting accumulation regime in commodity production, in which the inner barrier of capital manifests itself, forms the great difference between the present China and the USA at the end of World War II. This is especially evident with regard to Beijing’s foreign policy ambitions, where the “New Silk Road” initiated an ambitious global development project modeled on the Marshall Plan – and which brought the People’s Republic its first international debt crisis.12 Of the roughly $838 billion Beijing invested to build a China-centered economic and alliance system in developing and emerging countries by 2021, some $118 billion is said to have been at risk of default after the current spate of crises (pandemic and Ukraine war) erupted.13

There is no global economic spring in sight, only over-indebtedness14 and inflation.15 Thus, China’s collapsing debt towers at home and abroad make it look as if it were in decline even before it achieved hegemony. Added to this is the external, ecological barrier to capital, since the People’s Republic rose to become the largest emitter of greenhouse gases in the course of its state capitalist modernization, which makes a similar development path for other countries of the global South pure ecological insanity due to the threat of climate catastrophe (And at the same time, it would be simply perverse to preach renunciation to the global South from within the centers). The historical hegemonic cycle of the capitalist world system is thus superimposed on the socio-ecological crisis process of capital, it interacts with it and allows China’s hegemonic rise and decay to merge.

A hegemonic system, in which the position of the hegemon would be tolerated, is no longer feasible due to the increasingly manifest internal and external barriers of capital, due to the economic and ecological double crisis. Imperialism in the present crisis phase, in which the historical expansionist movement of capital has turned into a contraction leaving behind Failed States, amounts to foreclosure and pure resource extractivism. The foreclosure against the socio-economic collapse areas, which no longer play a role as sales markets, goes hand in hand with the brutal struggle of the states for the melting raw materials and energy sources, which have to be supplied to the sputtering exploitation machine.16

There is clearly a historical tendency to be noted here. The drive for direct control of colonies and protectorates in the 19th century, in the era of English hegemony, transitioned in the 20th century to informal imperialism as practiced by Washington through overthrows and the installation of dependent regimes. In the final phase of the capitalist world system, imperialist rule seems to amount to mere maintenance of infrastructural extraction routes through which resources and energy carriers are to be transported from the areas of economic and ecological collapse to the remaining centers.

What is unfolding in the current crisis imperialism17 is thus a logic of last man standing, in which the consequences of the crisis are passed on to the competition. These power struggles between state subjects, which have now reached the point of open war, execute the crisis process that is objectively advancing. It is a geopolitical power struggle on the sinking late capitalist Titanic, in which there are in fact no winners. That is why all the apparent alliances are so fragile, as was most recently evident from the EU’s moves to distance itself from the U.S. on the Taiwan issue.18

And yet, against the backdrop of the socio-ecological crisis, the struggle between Russo-Chinese Eurasia and the United States’ Oceania, in which Ukraine and Taiwan form an acute and a potential focal point, can certainly also be understood as a struggle between the future and the past. It is a struggle between the declining era of neoliberal county government and the looming age of openly authoritarian rule,19 in which authoritarian formation and social disintegration interact, as is almost paradigmatically visible in Russian state oligarchy and mafia rule.20 The crisis is literally driving the eroding late-capitalist state monsters into confrontation, so that the unloading of capital’s growing autodestructive tendencies in a full-scale war is quite possible.^


China: Multiple Crisis instead of Hegemony

Why the state capitalist People’s Republic will not be able to inherit the USA as a hegemonic power
by Tomasz Konicz
[This article posted in October 2022 is translated from the German on the Internet, EXIT! Krise und Kritik der Warengesellschaft.]

Launched in 2013, the “New Silk Road,” an ambitious investment program by Beijing in developing and emerging economies, was supposed to usher in an era of Chinese hegemony and make the 21st century a Chinese secular era – after the 20th century went down in history as the hegemonic period of the United States. Beijing budgeted more than a trillion U.S. dollars for this strategic development program, which evokes memories of the U.S. Marshall Plan in devastated postwar Europe. Just as Washington used the Marshall Plan funds after 1945 to simultaneously become the undisputed leading power of the West in the second half of the 20th century in the reconstruction of Europe, the enormous Chinese loans to many countries on the periphery were motivated by a similar strategic calculation.

According to this calculation, the infrastructural development boost that the construction of power plants, railroads or roads in the “developing countries” was supposed to trigger would be accompanied by close strategic ties between these countries and China. Beijing would thereby buy geopolitical dominance through credit-financed economic development in many regions of Asia, Africa and even Latin America. China, which long ago emerged as the leading trading power in most regions of the global South, would thus become the most important lender and strategic partner, able to build its own alliance system centered on the People’s Republic, similar to the “West” with the United States as the leading power.

A gigantic investment program and its debt spiral

By the end of 2021, the People’s Republic has invested the equivalent of $838 billion in this ambitious development program, according to the Financial Times (FT),1 making China “the world’s largest bilateral lender.” This preeminent position is especially true for the periphery of the world system, as Beijing lent more than all other “bilateral creditors combined” in the 74 countries qualified by the World Bank as low-income countries. The Belt and Road Initiative, as the “New Silk Road” investment strategy is known in English, was not only the People’s Republic’s biggest foreign policy venture since its founding in 1949, but also the “largest transnational infrastructure program” ever undertaken by a single country. Even the Marshall Plan, whose expenditure today would be equivalent to around 100 billion dollars, pales2 in comparison with the dimensions of the “New Silk Road”.

And it is precisely this gigantic investment program that has brought China its first major international debt crisis. More and more of the debtor states on the “New Silk Road” feel compelled to ask China to defer loans or renegotiate loan terms. According to calculations by U.S. think tanks, Chinese loans amounting to some $118 billion are said to be at risk of default, which is equivalent to about 16 percent of total investments in the framework of the “New Silk Road. “3 Countries in Africa, South Asia and Latin America are affected – the Financial Times (FT) went on to say – which have been set back economically by the recent crisis surge initiated by the pandemic. According to the report, Beijing had to renegotiate the terms of $52 billion worth of foreign loans in the 2020 and 2021 pandemic years, compared with only $16 billion worth of debt in 2018 and 2019 – before the outbreak of the pandemic.

Negotiations between Beijing and borrowers from the global South revolve around partial write-downs of the loan amount, payment delays or interest rate cuts. In addition, Beijing is increasingly having to make emergency loans to maintain the solvency of its borrowers on the periphery of the world system. As a result, according to the FT, China increasingly sees itself in a “role usually played by the International Monetary Fund IMF” in many large-scale credit-financed investments under the “New Silk Road.” Ironically, the IMF, whose crisis loans have been linked to draconian austerity measures for decades, called on China and other creditors in mid-July to make concessions to stumbling debtor countries as large parts of the global South threaten to collapse in the face of a dramatic debt crisis. According to the IMF, “one-third of emerging market economies and two-thirds of developing countries are in distress because of high debt. “4

Meanwhile, Beijing has emerged as a “serious competitor for the IMF” after the People’s Republic had to extend secretive “emergency loans” and bailout packages worth tens of billions of dollars to over-indebted countries to prevent defaults or debt crises, the FT said, citing studies by U.S. research institutions.5 According to the report, Beijing’s three largest debtors alone-Pakistan, Sri Lanka, and Argentina-have received bailout packages worth $32.8 billion since 2017. The list of countries that Beijing has had to stabilize through crisis loans includes Kenya, Venezuela, Angola, Nigeria, Laos, Belarus, Egypt, Turkey, and Ukraine. For the most part, these emergency loans have prevented the insolvencies of infrastructure projects financed under the New Silk Road.

Through this, Beijing has often been able to prevent failed large-scale projects from leading to payment crises or sovereign bankruptcies. And China is a more popular creditor than the IMF because, according to the FT, the People’s Republic “keeps its debtor states afloat with ever new emergency loans” without requiring debtors to “restore economic policy discipline” or carry out those infamous “restructuring processes” with which the Monetary Fund has economically devastated large parts of the periphery of the world system since the debt crises of the 1980s. There is a suspicion that countries in payment difficulties prefer Chinese loans to “avoid going to the IMF,” which demands “painful reforms,” one Western analyst told the FT. But this would only delay the inevitable “adjustment” and make it “even more painful.” Many of China’s Silk Road loans would in any case follow a geopolitical logic of building dependencies with debtor countries to curtail “the strategic options of the U.S. and the West.”

Geopolitical dimensions of investment

The geopolitical component of China’s investment strategy is most evident in its heavy lending in the post-Soviet space, where Beijing invested a good 20 percent of its funds earmarked for the “New Silk Road. “6 At $125 billion, the largest share of Chinese loans has gone to Russia, followed by Belarus with eight billion and Ukraine with seven billion. These gigantic investments by Beijing are now threatened by the war in Ukraine, which Russia currently appears to be losing – and which could well lead to a collapse of Russia’s sphere of influence. China’s investment strategy in this region literally depends on the outcome of the war. After all, even in such a case, Beijing can hope to recoup some of its loans by paying them in kind. Under loan agreements, Russia can settle outstanding payments in oil or natural gas, making total defaults on loans extended to Russia unlikely.

Another focus of Chinese investment activity is sub-Saharan Africa, where the People’s Republic has extended loans worth around $78 billion, according to Western estimates.7 Although this represents only a small share of around 12 percent of the external debt of the largely economically isolated region of the world, as Western private lenders still hold a dominant position with 35 percent of total debt, China has been able to gain ground here in recent years. Between 2007 and 2020 alone, Beijing lent $23 billion in public-private partnerships in the sub-Saharan region, while the United States, Japan, Germany, the Netherlands, and France together invested only $9.1 billion.8 China is in demand as a lender in the region because Beijing’s lending terms are far more favorable than the conditions imposed by Western institutions. Interest rates on Western loans are said to be twice as high as loans extended by the People’s Republic.

And it is not only developmentally nonsensical, corruption-ridden prestige projects, as was the case with Sri Lanka, that are being implemented in Africa. Chinese capital, for example, financed a railroad line in Ethiopia that cut travel time between the capital and neighboring Djibouti from three days to 12 hours. In Kenya, a new line was built between Mombasa and Nairobi; a new rail link between Tanzania and Zambia also dramatically reduced travel time; dams were built in Uganda; and roads and infrastructure projects for water supply and electrification were advanced in Africa or Central Asia. The Chinese strategy of accumulating geopolitical influence through economic development certainly seemed to be working in Africa until the recent spate of crises.

The illusion of catch-up development

However, even projects that make sense in terms of development policy are increasingly reaching their economic limits due to the increasing global crisis tendencies: The rail line between Nairobi and Mombasa, which was built by the state-owned Chinese Road and Bridge Corporation within four years, is said to have incurred a loss of about $200 million within three years. Meanwhile, China is said to have accumulated by far the most non-performing loans in sub-Saharan Africa. More than a hundred loan agreements had to be renegotiated in this region, compared to 21 in Asia and only 12 in Latin America.9 A prime example of the shattering of this Chinese development and hegemonic strategy in the face of late capitalist crisis realities is South African Zambia, which went broke on its $17 billion in foreign debt in the pandemic year of 2020. China had previously built a rail line to Tanzania, a hydroelectric plant, two airports, two sports stadiums, and a hospital in Zambia in six billion dollar investment projects.

Outside Africa and the post-Soviet space, it is Pakistan, not Sri Lanka, that has seen a particularly rapid influx of Chinese investment in recent years. In Sri Lanka, Chinese loans add up to just five billion dollars, representing only ten percent of the total liabilities of the economically collapsed state, where corruption and mismanagement culminated in absurd investment projects,10 which contributed to the catastrophic worsening of the current crisis episode. To Pakistan, which as a counterpart to China’s geopolitical rival India has always been of high strategic importance to Beijing, $62 billion flowed from the coffers of the Belt and Road Initiative.

Beijing’s investment activity ranged from infrastructure projects, with funds flowing into power generation and transportation, to the strategically important expansion of the port in Gwadar, to the establishment of manufacturing facilities in Pakistan to take advantage of the very low labor costs in the country.11 This development of “extended workbenches” in Pakistan, to which labor-intensive manufacturing activities were outsourced, sometimes took place not only in Pakistan’s economic centers, but precisely in the unstable periphery plagued by Islamism and “tribal struggles,” such as the province of Chaibar Pachtunchwa.

Hopes of capitalist modernization were dashed by 2020 at the latest, as some of the Chinese investment projects were put on hold after the outbreak of the pandemic and the resulting economic crisis surge, while the crisis quickly made Pakistan’s debt burden unsustainable. Work on the Gwadar port project, for example, is said to have been largely halted.12 To avoid national bankruptcy as a result of the unfolding economic downward spiral,13 in which inflation, rising borrowing costs, and collapsing government revenues rapidly eroded foreign exchange reserves, Islamabad had to resort to emergency loans from both the IMF and China-in July 2022, Pakistan’s foreign exchange was only enough to cover the cost of the country’s imports for just two months. Chinese banks had extended “a number” of loans to the FT on an ongoing basis, most recently $2.3 billion in mid-2022, to boost the country’s melting “stock of hard currency.” The IMF, meanwhile, is committed to Islamabad with crisis loans of more than seven billion.

In early August, at least, acute state bankruptcy seemed to have been averted in the impoverished country plagued by Islamism and state erosion processes, after a renewed loan agreement was reached with the IMF, accompanied by the usual harsh cuts such as subsidy cuts for energy and higher taxes.14 But then came the historically unprecedented flood, characteristic of the weather extremes that are increasing with the climate crisis.15 About one-third of Pakistan’s land area was inundated, and more than 33 million people were affected by the floods. The country now faces a hunger crisis and rising extremism,16 while its economy is on the verge of collapse.17 In initial estimates, Pakistani government ministers put flood damage at around ten billion dollars.18

The increasingly manifest interaction of debt crisis and climate crisis,19 of internal and external constraints on capitalism’s ability to develop, devastated – largely ignored by the West – whole swaths of Pakistan in August that were already suffering from a severe economic crisis. This is the global crisis environment of a late capitalist world system breaking down from its contradictions, in which China launched its great attempt to build its own alliance system by means of an ambitious investment program in order to rise as the new hegemon. Ever-higher piles of global debt and the escalating climate crisis are putting a crimp in Beijing’s imperial calculus, which actually sought to emulate the post-World War II rise of the United States.20

Washington’s hegemonic rise after the end of World War II, however, occurred against the backdrop of the long Fordist boom of the 1950s and 1960s, the “economic miracle” idealized in Germany. Mass motorization and the total penetration of all sectors of postwar societies by the logic of exploitation, which was heralded in the total mobilization of the war economies,21 was able to exploit gigantic masses of labor over nearly two decades in the labor-intensive accumulation process organized on the basis of the Taylor system. This Fordist accumulation regime, with car manufacturing as its leading sector, formed the economic basis of the hegemony of the United States until its phasing out in the 1970s22 , to be replaced under neoliberalism by the financialization of capitalism – in effect, the increasing global deficit accumulation leading to ever new financial bubbles and debt crises.

The U.S. was able to rise to become the unchallenged and accepted leading power of the “West,” the hegemon, during the “Cold War” not least because the long-lasting economic boom enabled Washington to grant its allies room for economic development – which Japan and West Germany also made ample use of in the course of the “economic miracle” to soon outstrip U.S. industry in terms of quality. The rapidly rising tide of Fordism lifted all boats. As long as capital could expand into new markets (automobiles, “white goods,” consumer electronics, etc.) that had only emerged during Fordism, competition between “economic locations” remained in the background – even in the face of “systemic conflict.”

The impossibility of a new hegemonic system in the crisis of capitalism

China, on the other hand, must operate in a crisis-ridden world system in which the enormous global productivity level of commodity-producing industry has led to a systemic crisis of overproduction, resulting not only in the ever-increasing mountains of debt, since the hyperproductive system is effectively running on credit. Moreover, the lack of a new leading sector and accumulation regime leads to the increasing export fixation of economic policy and the corresponding trade wars, in which the capitalist core countries try to prop up their economies with export surpluses – at the expense of the competition, which often reacts with protectionist measures. The pursuit of export surpluses, perfected above all by the FRG within the framework of this beggar-thy-neighbor policy, with which the systemic overproduction crisis is in fact to be “exported,” is thus the source of permanent interstate tensions among the “economic locations” threatened with decline.

And it is precisely from this that the barely surmountable hurdles that stand in the way of the construction of a hegemonic system in the current world crisis of capital also result. Hegemony, i.e. the leadership position accepted or tolerated by the subordinate powers of a power system, is now only conceivable at the price of credit financing, since there is no economic foundation for this in the form of a new accumulation regime. China’s foreign exchange reserves have already shrunk from four trillion dollars to three trillion dollars, according to the FT, partly due to the massive investments in the “New Silk Road,” and Beijing’s lending abroad is also said to have collapsed massively. While the People’s Republic extended more than 55 loans worth more than $1 billion each in 2015, by 2021 the number was less than ten. However, the drying up of Beijing’s generous financial flows, which used to stimulate economic activity in Africa and Asia, is exacerbating the current crisis surge in the periphery of the world system. China can thus lend in the short term, over quite a few years, and thus gain influence, but it cannot, because of the high level of global productivity, create a new leading sector out of the ground that would utilize masses of wage labor in commodity production.

And China is itself affected by the world crisis of capital as part of the world system. This is evident precisely from the tendencies toward beggar-thy-neighbor policies, since the state-capitalist People’s Republic is also concerned with achieving the highest possible export surpluses at the expense of its competitors, which counteracts the formation of hegemony. Due to the smoldering debt crisis23 in China’s anemic real estate sector24 and the pandemic-related economic slowdown in the domestic market, export surpluses are gaining more and more economic policy weight, also for Beijing. Last June alone, China achieved a trade surplus of $98 billion – a new record!25

Yet it is not only the United States where China’s surpluses materialize in the corresponding deficits. The group of ASEAN countries in China’s immediate Southeast Asian neighborhood recorded a deficit of $17 billion in trade with China during the period. Instead of building a hegemonic system in which China’s neighbors also benefited economically from the rise of the People’s Republic, a hard-fought battle for market share is now in the offing, as they find themselves in a world where “absolute demand” is falling and there will be “brutal price wars” for shares of the “shrinking pie,” Reuters noted.

China’s changing position in the global economy

Thus, the “workshop of the world” seems to be returning to the origins of its meteoric rise, which in its initial phase was driven precisely by an extreme export orientation, by the achievement of gigantic export surpluses. Until the world financial crisis of 2007/2008, which was triggered by the bursting of the transatlantic real estate bubble in the U.S. and the EU, the export industry functioned as China’s most important economic driver. The extreme Chinese trade surpluses compared with the “deficit economies” of the U.S. and some parts of Europe, which were running on credit, not only drove the export industrialization and modernization of the People’s Republic, but also went hand in hand with debt exports, as the FRG, as a multiple “export surplus world champion,” also did until recently.26

However, the Chinese accumulation model changed fundamentally with the crisis surge of 2008, the bursting of the real estate bubbles in the United States and Europe, which was countered globally with enormous economic stimulus measures. In fact, the massive government demand boost that Beijing unleashed through a number of stimulus packages made the Chinese economy the global economic locomotive in 2009.27 However, the gigantic support measures implemented by the Chinese government in response to the crisis surge of 2008 also provided the initial spark for a transformation of China’s economic dynamics: Exports lost weight, the credit-financed construction industry, infrastructure and the real estate sector subsequently formed the central drivers of economic growth – up to today’s absurdly high GDP share of 29 percent.28 China’s export-driven modernization with its debt export, which at times made the U.S. the People’s Republic’s largest creditor, thus turned into a state-fueled deficit economy – which has long since escaped state control.

China’s real estate bubble

The Chinese deficit economy, which fabricated a gigantic real estate bubble, experienced its first major crisis surge in the summer of 2021, when one of China’s largest real estate groups, Evergrande, was on the verge of bankruptcy. The group, which was saved from bankruptcy by the Chinese state in early 2022 through a “restructuring program, “29 has accumulated $300 billion in debt, $20 billion of which is owed to foreign investors. Domestically, more than 1.5 million homebuyers are waiting for homes planned and paid for at 500 construction sites to be completed. Meanwhile, the group’s creditors are fighting over who will have to take the inevitable losses.30

So how big is the real estate and debt bubble that Chinese state capitalism fabricated – and can it stand comparison to the 2008 real estate speculation in the United States? In a study that looked at these speculative dynamics, U.S. economist Kenneth Rogoff concluded31 that China’s construction and real estate sectors generate about 29 percent of China’s gross domestic product (GDP) through direct and indirect effects. This means that the bubble in the state-capitalist “People’s Republic” need not shy away from comparison with the West, not only in absolute terms but also in relation to its economic output. In Spain, at the height of the transatlantic real estate bubble in 2006, the real estate sector accounted for around 28 percent of GDP, while in Ireland it was around 22 percent.

The situation is even more dramatic when the price level on the most important real estate markets in the People’s Republic is put in relation to the wage level. In Beijing, Shanghai and Shenzhen, more than 40 annual average incomes are needed to buy a property, whereas in London, one of the most expensive cities in the West, the figure was 22, and in New York “only” 12. Rogoff spoke of a “breathtaking” and, for large economies, “unprecedented” dimension to which China’s financial market-driven state capitalism drove its real estate bubble. This is also evident from the ratio of living space to population, which, according to Rogoff, has long since reached the level of France and Great Britain in the People’s Republic – and even exceeds that of Spain. If the construction fever were really about providing people with living space, China’s real estate market would have been saturated long ago.

Thus, the Evergrande debacle is really just the proverbial tip of the iceberg in an authoritarian Chinese state capitalism that shares a fundamental crisis tendency with its Western competitors: it runs on credit. In 2020, all of China’s accumulated liabilities (government, private sector, financial sphere) amounted to about 317 percent of the People’s Republic’s GDP,32 just shy of the global average of 356 percent.33 Despite declarations by the leadership in Beijing and intensified efforts to curb lending, China’s debt mountains have grown faster than the gross domestic product of the “workshop of the world” since 2008-just as they have in many of China’s debtor countries.

At the same time, all of Beijing’s official figures should be taken with a grain of salt, as much is simply swept under the rug in China. A gigantic mountain of debt is also said to weigh on China’s municipalities, which according to Goldman Sachs could add up to 8.2 trillion U.S. dollars – the debt has been outsourced to “financial vehicles “34 so as not to show up in the statistics.35 That would be around 52 percent of the GDP of the People’s Republic. Incidentally, the over-indebted municipalities have tapped an important source of financing in the course of the real estate boom: they sell land to real estate corporations, which build their speculative properties on it. The officially unrecorded mountain of debt that China’s shadow banks are said to have accumulated amounts to an estimated $13 trillion.36

Multiple Crises as an Expression of the Crisis of Global Capitalism

Thus, China’s leadership must confront not only an external but also an internal debt crisis, which is not only strikingly similar to the real estate bubble that burst in the West in 2008, but also reminiscent of the distortions in many debtor states of the People’s Republic. So far, Beijing has managed to delay the bursting of this bubble through ever new interventions and financial injections, but at some point the devaluation process will inevitably have to take place – especially as the political fallout from China’s internal debt bubble increases: Most recently, for example, there were clashes between bruised bank customers and police forces in Zhengzhou, the capital of central China’s Henan Province, who demonstrated against the freezing of their accounts after the local banks became embroiled in a scandal and went into disarray.37 Moreover, the Chinese Communist Party has had to contend with a mortgage strike sparked by disgruntled property buyers who stopped making mortgage payments en masse as they still wait for their homes to be completed.38

Finally, the climate crisis does not stop at the People’s Republic, whose global investment program seeks to export its own fossil fuel modernization model, which has made China the world’s largest emitter of greenhouse gases, to the periphery and semi-periphery of the world capitalist system, as the new “regenerative” industries that were supposed to enable the ecological transformation of capitalism are too capital intensive and utilize too little labor.39 Not only Pakistan, which is in debt to China, but also the People’s Republic suffered a historically unprecedented weather extreme this summer with a combination of prolonged drought and an extreme heat wave40 that put pressure on energy supplies, economic activity, and food security.41 The unbearable heat literally led to production shortfalls that not only leave China’s growth prospects diminished, but could once again strain global supply chains.42

Thus, the struggle against climate-induced societal collapse that emerged in this year’s summer of horrors, not only in China but also in the EU and the U.S., is likely to make the very idea of global hegemony seem absurd in the years ahead. With inter-state tensions and struggles increasing due to the crisis, escalating into a neo-imperialist war in Ukraine, the rotten late-capitalist state monsters will be more concerned in the coming years with shifting the consequences of the crisis onto their competitors in order to delay their own collapse.

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