The global significance of China’s economic slowdown


By Nick Beams
23 October 2015

The significance of China’s latest gross domestic product figures, which saw the country’s economy expand at the slowest pace since the global financial crisis of 2008–2009, lies not so much in the numbers themselves but in what they indicate for the global economy as a whole. They mark the end of a period when debt-fuelled Chinese growth provided growing markets for so-called emerging economies and commodity-exporting countries, helping to maintain growth in the world economy as a whole.

Already this sea change has brought about a deepening recession in Brazil, contraction in Canada—a significant factor in the loss of power by the Harper government—the end of the mining boom in Australia and a growing crisis for emerging markets dependent on China’s growth. But these are only the first indications of what is to come.

The notion that China could provide a permanent new platform for global expansion was always a fiction. But it was sustained for a period by the credit-based stimulus, which developed as the response of the Chinese regime to the financial crisis. Even more significant than the $500 billion stimulus package, was the decision to open the financial spigots. It is estimated that Chinese credit expanded by an amount equivalent to the entire US financial system.

In one sense the Chinese government followed the path taken by other governments and financial authorities with their policies of near-zero interest rates and quantitative easing, which saw trillions of dollars pumped into the financial system. But the Chinese version differed in one significant respect from that of the major capitalist centres.

Rather than fuel speculation in the financial sector, credit was used for speculation of another sort—the construction of whole new cities and infrastructure and the consequent expansion of the major industries that supplied them. The scale of that expansion is summed up in one staggering statistic.

It has been estimated that in the three years between 2011 and 2013—the height of the credit-based boom—the Chinese economy used more cement than the US did in the entire 20th century. According to an article in theWashington Post, America’s cement consumption in that period was 4.4 gigatons while for the three years in question China’s was 6.4 gigatons.

That period of credit-fuelled growth has now come to an end. The implications, both for the global economy and the Chinese and international working class, can only be grasped by placing Chinese economic developments within their global and historical context.

The restoration of capitalism in China began in 1978 with the ever-more open adoption of market mechanisms. But within the space of just a decade this had given rise to acute social tensions, which exploded in the Tiananmen protest movement in May-June 1989.

For the regime the movement of the students was not the primary concern. What it feared above all else was the growing upsurge of the working class, with its own independent demands, which was emerging behind it and which could rapidly come into the open were it not crushed. This was the origin of the bloody crackdown, which extended far beyond the centre of Beijing and was aimed at suppressing all independent working class organisations. But the suppression of the Tiananmen movement did not mean that the contradictions which produced it had gone away, and for three years following the crackdown an internal conflict took place in the upper echelons of the regime over what economic and political course should be pursued to retain power.

The dissolution of the Soviet Union at the end of 1991 sealed the issue, with the so-called “paramount leader” Deng Xiaoping insisting that unless a turn were made toward ever closer integration with global capitalism, the Beijing regime would go the same way as that of Moscow.

Deng’s new orientation, spelled out in his so-called “southern tour” in early 1992, was based on the conception that rather that confining foreign investment to special zones the whole country should increasingly be open to investment by global corporations.

Coinciding with the drive by major corporations in the West to outsource production to cheap-labour regions in order to overcome downward pressure on profit rates, the Chinese economy experienced an export-led expansion. It was accelerated by the Asian financial crisis of 1997–98, after which China increasingly became the manufacturing hub for Asia.

The economies of South-East Asia turned to the production of component parts for final manufacture in China, while Taiwan and Japan provided important investment capital. The export expansion went ahead further following China’s accession to the World Trade Organisation in 2001.

It was not only economic considerations, however, which determined the actions of the Beijing regime. Politics played a no less significant role. Having long ago lost its previous claims to legitimacy, derived from the assertion that it was leading the country to socialism, and abandoning the promotion of social equality, the CCP regime maintained that its rule was providing economic expansion. It sought to maintain power with an ever-more explicit appeal to nationalism—that it was presiding over China’s rise and restoring it to its rightful place in the global order.

As the illusions of the Beijing regime flowered, so did those of its international counterparts. By the middle of the first decade of the 21st century, a new economic paradigm seemed to have taken hold. The policies of cheap money in the US helped fuel a consumption boom in the US as well as Europe, which became the chief markets for goods produced in China by major global transnational corporations. The export surpluses generated by this process were invested by the Chinese government in US Treasurys, thereby helping to keep down interest rates.

A virtuous circle had seemingly been set in place. The US ran large trade deficits as a result of its imports from China while those deficits were financed out of China’s trade surpluses.

For all the short-sighted bourgeois economists, who never see anything beyond their noses, much less cognise the contradictions of the capitalist profit system, this signified the dawn of a new era of capitalist expansion. There was even talk of a new Bretton Woods—a reference to the international monetary arrangements established in 1944, which formed a crucial foundation of the post-war capitalist boom. In 2006, the International Monetary Fund joyfully reported that world economic growth for that year was the highest it had been since the last years of the post-war boom in the early 1970s.

The joy was short-lived. By 2007, the internal rot at the heart of the cheap money policies in the major capitalist countries was becoming increasingly apparent. It exploded to the surface in September 2008 with the collapse of the investment bank Lehman Brothers and the near meltdown of the entire global financial system.

The financial crisis brought export-led growth in China to a shuddering halt as 23 million workers lost their jobs in the final months of 2008 and early 2009.

Fearful of what this portended for political stability, the regime launched its stimulus program and credit expansion. However, this essentially national-based program proved to be no way out. It was predicated on the assumption that, after a downturn in the major capitalist economies, a recovery would take place and again fuel Chinese expansion. This has not taken place. Rather, the global economy became ever-more deeply mired in recessionary tendencies. This led to mounting problems in China which made it clear that continuation of the stimulus regime would create a financial crisis.

A new orientation was initiated by the incoming president Xi Jinping at the end of 2013. It was aimed at shifting the economy away from its previous reliance on investment and construction through the expansion of domestic consumption and the rise of service industries, especially those based on finance. Once again, political considerations played a role. The regime hoped that by these means it would be able to create a social and political base for itself among sections of the better-off middle classes. However, the stock market crisis of July and August dealt a major blow to this perspective.

The new economic orientation will no more provide a way forward for the Chinese economy, much less avoid the contradictions of the global capitalist system, than have previous policies. In fact, far from stimulating the world economy, China itself faces the prospect of being dragged down with it.

As Xi acknowledged in a written interview with Reuters on the eve of his state visit to Britain: “As an economy closely linked to international markets, China cannot stay immune to the lacklustre performance of the global economy. We do have concerns about the Chinese economy and we are working hard to address them. We also worry about the sluggish world economy, which affects all countries, especially developing ones.”

Far from experiencing any upturn, the global economy is confronted with what has been called a “third wave” of the global financial crisis. This crisis is taking the form of mounting recessionary and deflationary pressures emerging from China and its impact on emerging markets following the first two “waves”—the crisis in the US financial system and the recession and financial crisis which hit the eurozone in 2012.

This means that the working class in the advanced capitalist economies, as well as in China and so-called emerging economies will be thrust into major class and social conflicts, which can only be carried forward on the basis of an international socialist program.


America is becoming more like the illiberal pseudo-democracies and kleptocracies.

Can American Democracy Survive Against Rising Political Corruption and Privatization?


In 1932, on the eve of FDR’s presidency, Benito Mussolini proclaimed, “The liberal state is destined to perish.” He added, all too accurately, “All the political experiments of our day are anti-liberal.”

The democracies were doomed, Il Duce declared, because they could not solve crucial problems. Unlike the dictatorships, which were willing to forcefully use a strong state, the democracies could not fix their broken economies. Parliamentary systems were hamstrung politically. The democracies were also war-weary, conflict-averse, and ill-prepared to fight. The fascists, unlike the democracies, had solved the problem of who was part of the community.

Mussolini’s ally, Adolf Hitler, was further contemptuous of “mongrelization” in American democracy. Who was an American? How did immigrants fit in? What about Negroes? The fascist states, by contrast, rallied their citizens to a common vision and a common purpose. Hitler was quite confident that he knew who was a German and who was not. To prove it, he fashioned the Nuremberg laws; he annexed German-speaking regions of his neighbors. As Hitler infamously put it, Ein Volk, ein Reich, ein Fuehrer.

Though he was a buffoonish dictator, Il Duce was not such a bad political scientist. In the 1930s, a lot of liberal democrats wondered the same thing, and for the same reasons. As Ira Katznelson wrote in Fear Itself: “Such beliefs and opinions were not limited to dictators and dictatorships. As Roosevelt prepared to speak [in his first inaugural], skepticism was prevalent about whether representative parliamentary democracies could cope within their liberal constitutional bounds with capitalism’s utter collapse, the manifest military ambitions by the dictatorships, or international politics characterized by ultranationalist territorial demands. Hesitation, alarm, and democratic exhaustion were widespread.”

The democracies did survive, of course, and they flourished. The New Deal got us halfway out of the Great Depression, and the war buildup did the rest. Fascism was defeated, militarily and ideologically. The collapse of Soviet communism took another half-century. Thanks to the wisdom of containment, Stalinism fell of its own weight, as both an economic and political failure.

Not only did the democracies endure—by the 1980s, America had broadened the inclusiveness of its polity. Europe had embarked on a bold experiment toward continental democracy. In the final days of communism, there was triumphalism in the West. Francis Fukuyama even proclaimed, incautiously, in his 1989 essay, “The End of History?” that all societies were necessarily gravitating toward capitalism and democracy, two ideals that were supposedly linked.


Today, it is Mussolini’s words that resonate. Once again, the democracies are having grave difficulty pulling their economies out of a prolonged economic slump. Once again, they are suffering from parliamentary deadlock and loss of faith in democratic institutions. The American version reflects a radically obstructionist Republican Party taking advantage of constitutional provisions that Madison (and Obama) imagined as promoting compromise; instead, the result is deadlock. The European variant is enfeebled by the multiple veto points of a flawed European Union unable to pursue anything but crippling austerity. Once again, several anti-liberal alternatives are on the march. “All the political experiments of our day are anti-liberal.”

Take a tour of the horizon. Mussolini would not be surprised. The fastest-growing economy, China’s, is nothing if not anti-liberal, and getting steadily more adroit at suppressing liberal aspirations. The Beijing regime, which has learned the virtues of patience since Tiananmen, waited out the Hong Kong protests and efficiently shut them down. The Hong Kong elections of 2017 will be limited to candidates approved by the communist regime on the mainland. Capitalism was supposed to bring with it democracy and rule of law. But the Chinese have been superbly effective at combining dynamic state-led capitalism with one-party rule.

What unites regimes as dissimilar as Iran, Turkey, Hungary, Egypt, Venezuela, and Russia is that they combine some of the outward forms of democracy with illiberal rule. The press is not truly free, but is mostly a tool of the government. Editors and journalists are in personal danger of disappearing. There are elections, but  the opposition somehow doesn’t get to come to power. Minority religion and ethnic groups are repressed, sometimes subtly, sometimes brutally. Dissidents, even if they break no laws, risk life and limb. The regimes in these nations have varying degrees of corruption between the state and economic oligarchs, which helps keep both in power. In Hungary, a member of the E.U., which is a union of liberal democracies, Prime Minister Viktor Orbán has expressly invoked the ideal of an illiberal state. In Turkey, Recep Tayyip Erdogan has dramatically increased enrollments in state-supported religious schools and automatically assigned some children to them, against the wishes of their secular parents.

Turkey is a stalwart member of NATO. Elsewhere in the Middle East, our closest allies don’t even go through the motions of democracy; they are proud monarchies. Israel, our most intimate friend in the region, is becoming less of a democracy almost daily. Israelis are seriously debating whether to formally sacrifice elements of democracy for Jewish identity. And this tally doesn’t even include the flagrant tyrannies such as the insurgency that calls itself the Islamic State, or ISIL. All the political experiments of our day are anti-liberal.

Ironically, some liberals are pinning great hopes on recent stirrings in a venerable institution of hierarchy, autocracy, secrecy, and privilege that has been the antithesis of liberal for nearly two millennia—the Catholic Church, now under a reformist pope. One has to wish Francis well and hope that his new openness extends to the entire institution, but these reforms are fragile. It has been a few centuries since the Church murdered its rivals, but in my lifetime the Church was very cozy with fascists.

One of the great inventions of liberal democracy was the concept of a loyal opposition. You could oppose the government without being considered treasonous. A leader, conversely, could be tossed out of office by the electorate without fearing imprisonment or execution by successors. In much of the world, this ideal now seems almost quaint, and certainly imprudent. A corrupt or dictatorial regime has much to fear from displacement, including jail and even death at the hands of an opposition in power.

There are a few bright spots. Some of Africa has managed to have roughly free and fair elections. South Africa’s young democracy is fragile, but seems to be holding. Some of the Pacific Rim is moving in the direction of genuine democracy. Many former Soviet satellites in Eastern Europe are functioning democracies, even liberal ones. And democratic aspiration is far from dead, as events in Ukraine show. Latin America has more democratically elected governments than it has had in a generation, but it also has several nominal democracies that are illiberal, or prone to coups, or simply corrupt. Mexico, our close NAFTA partner, epitomizes illiberal democracy.


But it is the democratic heartland, Europe and North America, that presents the most cause for dismay. Rather than the United States serving as a beacon to inspire repressed peoples seeking true liberal democracy, America is becoming more like the illiberal pseudo-democracies and kleptocracies. A dispassionate review of what is occurring in our own country has to include deliberate suppression of the right to vote; ever more cynical manipulation of voting districts in the nation that invented gerrymandering; the deepening displacement of citizenship with money and rise of plutocracy; the corruption of the regulatory process; a steep decline in public confidence in government and in democracy itself; and a concomitant doubt that democratic participation is worth the trouble. In my piece in this issue’s special report, I address some of these questions in the context of markets versus government, but the challenge goes much deeper.

Obstruction feeds public cynicism about government. Though the mischief and refusal to compromise are mostly one-sided—it is hard to recall a Democratic president more genuinely eager to accommodate the opposition than Barack Obama—the resulting deadlock erodes confidence in democracy and government in general. Why can’t these people just get along and work for the common good? Democrats, as the party that believes in government, take the blame more than Republicans. Government’s failure to address festering, complex problems feeds the dynamic.

This is all the more alarming because the challenges ahead will require strong government and above all legitimate government. At best, global climate change and sea level rise will require public coordination and some personal dislocation. Transition to a sustainable economy demands far more intensive public measures, as well as public trust in the hope that changes in old habits of carbon energy use need not result in reduced living standards. The risk of epidemics such as Ebola will require more effective government to coordinate responses that the private sector can’t manage. The popular frustration with flat or declining earnings for all but the top demands more government intervention. Weak government can’t accomplish any of this. Mussolini’s taunt burns: The liberal democracies are incapable of solving national problems.

A generation ago, political scientists coined a useful phrase—strong democracy. The Prospect published some pieces making this case, by authors like Benjamin Barber. Others, such as Jane Mansbridge and James Fishkin, writing in the same spirit, called for more participatory democracy. The common theme was that democracy needed to be re-energized, with more citizen involvement, more direct deliberation. What has happened is the reverse. The combination of economic stresses, the allure of other entertainments, the rise of the Internet as a venue for more social interchange but less civic renewal, has left democracy weaker when it needs to be stronger.

The other contention of the fascists—that the democracies had trouble with the vexing questions of community and membership—was never more of a challenge. In Europe, the poisonous mix of high unemployment, anxiety about terrorism, and influx of refugees and immigrants is feeding a vicious nationalist backlash and nurturing the far right. At home, the failure to normalize the status of an estimated 12 million immigrants lacking proper documents deprives large numbers of residents of normal rights and stokes nativism. Assaults on voting rights even for citizens, coupled with physical assaults by police, make African Americans less than full members of the democracy, despite the civil rights revolution of half a century ago.

Mussolini’s other taunt was that the liberal democracies were too divided and war-weary to fight. When Hitler remilitarized the Rhineland in March 1936, in defiance of the Treaty of Versailles, the democracies did nothing. They dithered right up until Germany’s invasion of Poland in September 1939. As late as 1940, Roosevelt was more eager to keep America out of another European war than to help the British make a stand against the Nazis.

The military challenge today is more complex. America in this century has vacillated between grandiosity and timidity. It fought the wrong war in Iraq, and then may have pulled out prematurely. The administration has been weak and divided in its policies toward Syria and ISIL. To some extent this is understandable; these are hydra-headed threats, with no easy solutions. If President Obama is ambivalent, the public is even more so. Yet the greatest military threats to American democracy are not the risks of invasion or terrorist assault, but what we are doing to ourselves. The Obama administration, like that of George W. Bush, has been all too willing to subordinate liberty to security, secrecy, and autocracy, even in cases where these objectives are not in direct contention.

The risk is not that American democracy will abruptly “perish,” but that it will be slowly denuded of its vital content. If we are to reverse the appeal of anti-liberal society globally, we have to repair our democracy at home. The challenge is multifaceted, and will take time. It should be the great project of the next president and the ongoing work of the citizenry.

Robert Kuttner is the former co-editor of the American Prospect and a senior fellow at Demos. His latest book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”