Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page: https://www.socialistparty.org.uk/issue/868/21333

From The Socialist newspaper, 2 September 2015

China crisis: What will this mean for the world economy?

The contraction of the Chinese stock exchange has sparked justified fears that the world economy could be in for a repetition at a certain stage of a crisis with similar effects to the 2007/2008 catastrophe. The Chinese government spent $200 billion trying to prop up the market after the worst fall since 2007. The Shanghai Composite Index dropped 8.5% in one day.

The repercussions of China's "black Monday" reverberated around the world with huge swings in the world's stock exchanges. 74 billion was wiped off the stock market in Britain. Lawrence Summers, former US Treasury secretary, tweeted "we could be in early stage of a very serious situation."

The devaluation of the yuan, while not by a huge amount, raised fears of the possibility at some stage of currency wars with China's competitors.

The Chinese economy is 15% of world production, but has contributed up to half of the world's economic growth in the last few years. Even before this latest crisis, the slowdown in Chinese growth rates compared to recent years has had a severe impact - especially on the world's 'emerging markets'.

They have seen their commodity export markets savagely cut and face protracted crises, with big political repercussions shaking governments in Africa, Asia and in particular Latin America.

Repercussions

For example Dilma Rousseff, re-elected president of Brazil less than a year ago, now has only 8% support in the polls and faces mass protests as a result of the economic crisis there. There are calls for her impeachment, especially from the right.

The Chinese stock exchange is unlike any other in the world. It is an attempt by the state to tap into the savings of the Chinese people, mostly the 'middle class', to try to continue financing growth in order to stave off political upheaval, even revolution. This has now blown up in its face.

The effort to bolster the stock market with huge government buyouts has failed and the worry now is, as the Guardian said, "China sneezes and the West faces up to an empty medicine cabinet".

In other words the weapons that world governments had to ameliorate the crisis of 2007 have now been mostly used up.

For example, vast amounts of money - quantitative easing - were pumped into the world's economy by governments following the 2008 crisis. But while this led to booming stock exchanges it did not lead to a strong recovery in the real economy.

Interest rates have flatlined and there is generally little scope for cutting them around the world to boost investment. They are scratching their heads to work out what to do if the bottom falls out of the world economy again.

Repeat crisis?

China partially overcame the crisis of 2007/2008 by building up debt. This more than quadrupled over the last seven years. There were 28 million unemployed in China in 2007. If this had continued to rise it would have had revolutionary implications.

Action by the state meant that huge investment was ploughed into the economy. Investment reached 44% of the national income in 2014, resulting in massive overcapacity. World demand levels were too low to absorb China's capacity. So its latest strategy has been to stimulate domestic consumption.

Will the latest developments result in a new 2007/2008? Probably not in the short term. Capitalism is a blind system, and elements of a new crisis are already there - debt is still being piled up. We are already in a "psychological downturn" according to one analyst, with a real fear for the future among the world's capitalists.

But the Chinese regime will not want to allow the bottom to fall out of the economy. It will probably again resort to the piling up of debt, kicking the can further down the road. Therefore there is unlikely to be an immediate crisis like 2007.

Although the real Chinese growth rate (still officially 7%) is likely to be currently below 5% or even lower. This is well below the huge growth rates of the past.

These economic developments are not taking place in a vacuum. There is a background of protests, and more willingness by Chinese people to openly criticise the regime.

In an expression of that, the head of a Shanghai exchange that trades in metals was captured by protesters and handed over to the police!

The Tianjin explosion which killed 114 people because of the unsafe storage of dangerous chemicals near residential areas provoked massive public anger. Any incident could trigger mass protests.

What can be done to tackle the problems? In China the government can cut interest rates further. This is not an option elsewhere in the world as they are effectively zero.

The US Treasury has in fact talked about raising interest rates. Larry Summers has argued against this. It could be a mistake along the lines of 1937, when recovery from the great depression was choked off, threatening a new downturn.

This was avoided by the turn to military production with World War Two looming.

The world economy is now like the Titanic without lifeboats. We are in a period of economic instability and low growth, which can for example throw Osborne's spending plans awry.

Contagion

The Chinese regime has been able to survive the crises so far because of its peculiar character, with huge state involvement in the economy. However the slowdown in China has already produced a collapse in the emerging markets.

It is only a matter of time before this is repeated in the advanced economies.

Symptomatic of the crisis are the huge cash piles sitting in the bank accounts of big companies. In the US between $1 trillion and $2 trillion of corporate profit is unused. Profits have not been invested in 'growing' the world's economy.

This alone shows the need for an alternative to capitalism. A democratic socialist planned economy can eliminate the chaos of capitalism with its ruinous cycle of boom and bust.

Turmoil in the world's economy will mean political upheavals and a questioning of capitalism even before the next major economic crisis.

Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.


In The Socialist 2 September 2015:


Socialist Party news and analysis

Killed by benefit cuts

Made-up benefit sanction quotes: Tory lies no surprise to us

Two million bailiff calls as councils brutalise poor

Bin crash tragedy shows pressure on sick to work

Greed: bosses hike rail fares three times faster than wages

Them & Us

"Unapologetic attack on austerity" at Southampton Corbyn rally


Socialist Party reports & campaigns

Nottinghamshire: don't close our mental health unit

Lincolnshire: save our schools!

Anger as promised women's museum becomes Ripper museum


International socialist news and analysis

Thailand plagued by military junta and downturn

International news in brief


Socialist Party features

Corbyn campaign: surges, purges and preparation

Youth Fight Austerity

Students attacked from all sides


Socialist history

Zimmerwald Conference 1915: lessons for the socialist movement


Workplace news and analysis

Join the NSSN lobby of TUC Congress

Rail and PCS strikers rally together

London tube workers force bosses to move

Royal Mail union rep sacked - reinstate John now!

'Pay the rate' construction protests continue on Teesside

Bioscientists' strike forces management's climbdown

Indesit strikers determined to press on for acceptable deal

Workplace news in brief


Socialist Party comments and reviews

Rejected by Labour bureaucrats

Nuclear Secrets: a dangerous dead end

Obituary: Anne Ullah Khan


 

Home   |   The Socialist 2 September 2015   |   Join the Socialist Party

Subscribe   |   Donate   |   Audio  |   PDF  |   ebook






Related links:

World economy:

triangleBuilding workers' struggle and the forces of international socialism

triangleBuild 100 days of resistance to Trump's agenda!

triangleSocialist Party national congress 2016

Economy:

triangleTory infighting escalates - workers' action can oust them

triangleAmber warning lights flash on British economy

trianglePowerful picture of the Port Talbot steel workers' struggle

triangleYoung people being strangled by debts

China:

triangleMay's silence is a green light for Chinese repression

triangleStop repression in Hong Kong and China

triangleA world in crisis, ripe for revolution

Capitalism:

triangleCapitalism v cricket

triangleCapitalists fear for their system at Davos

Market:

triangleClosure of Nottingham unit shows dismantling of NHS

Interest rates:

triangleHousing crisis: Corbyn's positive measures blanked by Labour's right

State:

triangleSudan: Mohamed Satti released - global solidarity campaign gets results!

Government:

triangleLeeds Socialist Party: How long can May cling on for?

Debt:

trianglePrivate profit out of our NHS

Stock market:

triangleThem & Us

Economic crisis:

triangleWelsh NHS crisis - we cannot go on like this

Profit:

triangleMerseyrail protest

Unemployed:

triangleBig political strike against Finnish government's attack on unemployed

Socialist:

triangleLeeds Socialist Party: 100 years since women won the right to vote

Depression:

triangleKids wait 18 months for mental healthcare

Planned economy:

triangleChe Guevara 50 years on - revolutionary socialist and fighter

Revolution:

triangleCzechoslovakia 1968: 'Prague Spring' challenges Stalinism

International

International

14/2/18

France

France: rallies in support of oppressed Kurdish people

14/2/18

Unemployed

Big political strike against Finnish government's attack on unemployed

14/2/18

Brazil

Brazil: Lula conviction confirmed

14/2/18

South Africa

Cape Town drought

7/2/18

China

May's silence is a green light for Chinese repression

7/2/18

Tamil Solidarity

Protesters denounce oppressive Sri Lankan regime

7/2/18

Sudan

Sudan: Mohamed Satti released - global solidarity campaign gets results!

31/1/18

Kurds

Stop the war on the Kurds

31/1/18

Austria

Vienna: 50,000 march against racism and austerity

31/1/18

Kurds

Stop the war on the Kurds

24/1/18

Palestine

Punishment of Tamimi family awakens wave of international solidarity

17/1/18

Hong Kong

Stop repression in Hong Kong and China

17/1/18

Tunisia

Tunisia: explosion of protests against government austerity

10/1/18

Iran

Movement challenges Iranian regime

10/1/18

Appeal

Appeal from Iranian independent unions

triangleMore International articles...


Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party
Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube

LATEST POSTS

CONTACT US

Phone our national office on 020 8988 8777

Email: info@socialistparty.org.uk

Locate your nearest Socialist Party branch Text your name and postcode to 07761 818 206

Regional Socialist Party organisers:

Eastern: 0798 202 1969

East Mids: 0773 797 8057

London: 020 8988 8786

North East: 0191 421 6230

North West 07769 611 320

South East: 020 8988 8777

South West: 07759 796 478

Southern: 07833 681910

Wales: 07935 391 947

West Mids: 02476 555 620

Yorkshire: 0114 264 6551

ABOUT US

ARCHIVE

Alphabetical listing


February 2018

January 2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999