Covid-19 crisis: opportunity or obstacle for China's rise?

China's overwhelming responsibility for the outbreak of Covid-19, and especially its rapid spread, which has led to the current global pandemic, has been widely publicised in the media. However, the limited number of deaths and the absence of large waves of contagion in the country - at least according to official data - as well as the fact that China is the only major power not to have announced an economic recession in 2020 (+2% of GDP) have led many observers to present China as the big winner of the Covid-19 crisis on the chessboard of the balance of power between the major imperialist powers.

It is true that since the beginning of the 1980s, by opening its economy to the US bloc, China has largely benefited from the globalisation of the economy and the implosion of the Soviet bloc. It has had a meteoric rise in economic and imperialist terms over the past thirty years, and this has made it the most important challenger to the United States. Today, however, dealing with the pandemic, managing the economy and expanding its zone of influence are creating major difficulties for the Chinese bourgeoisie. The Covid-19 crisis is sharply accentuating factional confrontations within its political apparatus and exacerbating tensions between imperialist sharks in the Far East.

Slow response to the Covid crisis

While banking from the start on an eventual herd immunity before opening the country, China is in the meantime applying a policy of drastic lock-downs in entire cities and regions whenever infections are identified, which severely hampers economic and commercial activities: for example, the closure of the port of Yantian, the third largest container port in the world in May 2021, led to the blocking of hundreds of thousands of containers and hundreds of ships for months, totally disrupting world maritime traffic. In fact, the slightest outbreak of infection, even a few cases, is seen as a major danger: recently, drastic lockdowns were ordered in 27 cities and 18 provinces (August ’21), in Xiamen, a city of 5 million (September ’21), and since September, infections have been reported in half the provinces and in the city of Shanghai.

In addition, the mass vaccination campaign to achieve herd immunity has prompted some Chinese provinces and cities to impose financial penalties on those who are wary and avoid vaccination. However, in the face of numerous protests on Chinese social networks, the central government blocked such measures, which tended to “jeopardise national cohesion”. But the most serious setback is undoubtedly the converging data on the limited effectiveness of Chinese vaccines, observed in various countries that use them, such as Chile: “All in all, the Chilean vaccination campaign – quite effective with 62% of the population currently vaccinated - does not seem to have any noticeable impact on the proportion of deaths” (H. Testard, "Covid-19: la vaccination décolle en Asie mais les doutes augmentent sur les vaccins chinois", Asialyst, 21.07.21). The Chinese health authorities even recommended importing doses from Pfizer or Moderna to compensate for the ineffectiveness of their own vaccines.

The extremely heavy-handed and inefficient management of the pandemic by Chinese state capitalism was illustrated last November by the Ministry of Commerce's call for the Chinese population to stockpile emergency rations at home. And the situation is likely to deteriorate further as the omicron variant spreads.

Dark clouds gathering on the Chinese economy

The strong growth that China has experienced for the past four decades - even though it was already slowing down in the last decade - seems to be coming to an end. Experts expect China's GDP to grow by less than 5% in 2021, compared with an average of 7% over the last decade and more than 10% in the previous decade. Various factors highlight the current difficulties of the Chinese economy.

First, there is the danger of the Chinese real estate bubble bursting: Evergrande, China's number two real estate company, is now crushed by some 300 billion euros of debt, which represents 2% of the country's GDP. Other developers, such as Fantasia Holdings and Sinic Holdings, have almost defaulted on their payments, and the property sector, which accounts for 25% of the Chinese economy, has generated a colossal public and private debt of trillions of dollars. The Evergrande crash is only the first sequence in a global collapse of this sector. Today there are so many empty homes that 90 million people could be housed. Of course, the immediate collapse of the sector will be avoided insofar as the Chinese authorities have no choice but to limit the damage at the risk of a very severe impact on the financial sector:

“(...) ‘there will not be a snowball effect like in 2008 [in the US], because the Chinese government can stop the machine’, says Andy Xie, an independent economist and former Morgan Stanley employee in China, quoted by Le Monde. ‘I think that with Anbang [insurance group, editor's note] and HNA [Hainan Airlines], we have good examples of what can happen: there will be a committee bringing together around a table the company, the creditors and the authorities, which will decide which assets to sell, which to restructure and, in the end, how much money is left and who can lose funds’.” (P.-A. Donnet, “Chute d’Evergrande en Chine: la fin de l’argent facile”, Asialyst, 25.09.21).

Many other sectors are also in the red: at the end of 2020, the overall debt of Chinese companies represented 160% of the country's GDP, compared with around 80% for American companies, and "toxic" investments by local governments alone now represents, according to analysts at Goldman Sachs, 53,000 billion yuan, a sum that represents 52% of Chinese GDP. The bursting of the real estate bubble risks not only contaminating other sectors of the economy but also generating social instability (nearly 3 million direct and indirect jobs linked to Evergrande), the great fear of the Chinese Communist Party (CCP).

Secondly, energy cuts have multiplied since the summer of 2021: they are the consequence of a lack of coal supply, caused among other things by the record floods in Shaanxi province (which alone produces 30% of the country's fuel), and also by the tightening of anti-pollution regulations decided by Xi. The steel, aluminium and cement sectors are already suffering in several regions from the limited supply of electricity. The shortage has reduced aluminium production capacity by around 7% and cement by 29% (Morgan Stanley figures) and paper and glass could be the next sectors to be affected. These cuts are now holding back economic growth across the country. But the situation is even more serious than it first appears. “The power shortage is now spilling over into the residential market in parts of the Northeast. Liaoning province has extended power cuts from the industrial sector to residential networks.” (P.-A. Donnet, «Chine: comment la grave pénurie d’électricité menace l’économie», Asialyst, 30.09.21).

Finally, energy shortages but also lock-downs resulting from Covid infections are affecting production in industries in various parts of China, which in turn is increasing the extent of disruptions in already stretched supply chains at national and global level, especially as manufacturing chains in many sectors are facing acute shortages of semiconductors.

Recent data confirm that economic growth is slowing, with domestic consumption falling, household incomes and wages falling.

The “New Silk Road" project is running out of steam

The development of the “New Silk Road” project is encountering increasing difficulties because of the financial weight of the Covid crisis in China, but also because of the economic difficulties of the “partners”, who are being asphyxiated by the pressure of debt, or because of their increasingly obvious reluctance to accept Chinese “interference”.

Due in particular to the Covid crisis, the indebtedness of various "partner" countries has reached staggering levels and they find themselves unable to pay the interest on Chinese loans. Countries such as Sri Lanka, Bangladesh (external debt growth of +125% over the last decade), Kyrgyzstan, Pakistan ($20 billion in bilateral loans from China), Montenegro, and various African countries have asked China to restructure, delay or simply cancel repayments due this year.

At the same time, there is growing distrust in various countries towards China's actions (non-ratification of the China-EU trade treaty, distancing from Cambodia, the Philippines or Indonesia), to which must be added anti-Chinese pressure exerted by the United States (in Latin America towards countries like Panama, Ecuador and Chile). Finally, the chaos produced by decomposition has the consequence of destabilising certain key countries of the “New Silk Road”; this is the case, for example, with Ethiopia, which is sinking into a terrible civil war between the Ethiopian central government and the Tigray region. This was a country, presented as a pole of stability and the “new workshop of the world”, that constituted an important point of support for the “Belt and Road Project” in North-East Africa, with a Chinese military base in Djibouti.

In short, it is not surprising that in 2020 there was a collapse in the financial value of the investments injected into the “New Silk Road” project (-64%), while China has lent more than 461 billion dollars since 2013.

Accentuation of antagonisms within the Chinese bourgeoisie.

All of these difficulties are fuelling tensions within the Chinese bourgeoisie, even if, because of the Stalinist state capitalist political structure, they do not manifest themselves in the same way as in the USA or France for example.

Under Deng Xiao Ping Chinese Stalinist-style state capitalism, under the guise of a policy of “creating wealth to share the wealth”, established “free” zones (around Hong Kong, Macao, etc.) to develop a “free market” type of capitalism, allowing the entry of international capital and also favouring a private capitalist sector. With the collapse of the Eastern bloc and the “globalisation” of the economy in the 1990s, the latter developed exponentially, even though the public sector under direct state control still represents 30% of the economy. How did the rigid and repressive structure of the Stalinist state and the single party handle this “opening” to private capitalism?

As early as the 1990s, the party massively integrated entrepreneurs and private business leaders. “In the early 2000s, the then president Jiang Zemin lifted the ban on recruiting private sector entrepreneurs, who had previously been seen as class enemies (...). The businessmen and women thus selected become members of the political elite, which ensures that their companies are, at least partially, protected from predatory managers” (“Que reste-t-il du communisme en Chine?”, Le Monde Diplomatique 68, July, 2021). Today, professionals and managers with higher education constitute 50% of the CCP's membership.

The oppositions between the different fractions will therefore be expressed not only within the state structures but within the CCP itself. For several years (see already the Report on imperialist tensions to the 20th Congress, International Review 152, 2013), tensions have been growing between different factions within the Chinese bourgeoisie (1), in particular between those more linked to the private capitalist sectors, dependent on international trade and investment, and those linked to state structures and financial control at the regional or national level; those advocating an opening to world trade and those advancing a more dogmatic or nationalist policy. President Xi's “anti-corruption campaign” involved spectacular seizures of huge fortunes amassed by members of various cliques, while the “left turn” involved less economic pragmatism and more dogmatism and nationalism. The result has been to intensify political tensions and instability in recent years: witness “the continuing tensions between Premier Li Keqiang and President Xi Jinping over economic recovery, as well as China's 'new position' on the international stage” (A. Payette, "Chine : à Beidaihe, ‘l'université d'été’ du Parti, les tensions internes à fleur de peau", Asialyst, 06.09.20).

Other examples of these tensions: the explicit criticism of Xi that appears regularly (most recently the “viral alert” essay published by a renowned professor of constitutional law at Qinghua University in Beijing, predicting Xi's demise), the tensions between Xi and the generals leading the People's Army, who are targeted in particular by the anti-corruption campaign, and the interventions of the state apparatus against entrepreneurs who are too “flamboyant” and critical of state control (Jack Ma and Ant Financial, Alibaba). Some bankruptcies (HNA, Evergrande) could also be linked to the struggles between cliques within the party, for example in the framework of the cynical campaign to "protect citizens from the excesses of the “capitalist class” (sic).

In short, the Chinese bourgeoisie, like other bourgeoisies, is facing increasing economic difficulties linked to the historical crisis of the capitalist mode of production, the chaos resulting from the decomposition of the system. This is leading to the exacerbation of factional tensions within the CCP, which it is trying, by all the means available to it, to contain within its outdated state capitalist structures.

Increased tensions with other imperialisms in the Far East

Meanwhile, the situation is just as delicate for the Chinese bourgeoisie on the international level, firstly because of the aggressive policy of the USA, but also because of the growing tensions with other major Asian powers, such as India and Japan, intensified by the chaos and the “every man for himself” of this period of decomposition.

The “America First” policy, implemented by Trump from 2017 onwards, has essentially led on the imperialist level to a growing polarisation and aggressiveness towards China, increasingly identified by the US bourgeoisie as the main danger. The US has made the strategic choice to concentrate its forces on the military and technological confrontation with China, in order to maintain and even accentuate its supremacy, to defend its position as the dominant gang against the rivals (China and also Russia) that most directly threaten its hegemony. The Biden administration's policy is fully in line with this orientation; it has not only maintained the aggressive economic measures against China implemented by Trump, but has further increased the pressure through an aggressive policy:

- at the political level: defence of “human rights” in relation to the repression of Uighurs or “pro-democracy” demonstrations in Hong Kong; exclusion of China from the Democracy Conference organised by Biden in favour of Taiwan, which the USA is clearly moving closer to on the diplomatic and commercial level;

- at the military level, in the China Sea, through explicit and spectacular demonstrations of force in recent months: increased military exercises involving the US fleet and those of allies in the South China Sea; alarmist reports of imminent threats of Chinese intervention in Taiwan; the presence in Taiwan of US special forces to mentor Taiwanese elite units; the conclusion of a new defence agreement, the AUKUS, between the US, Australia and Britain, which establishes military coordination explicitly directed against China; Biden’s pledge of support for Taiwan in the event of Chinese aggression.

China has reacted furiously to these political and military pressures, particularly those in the China Sea around Taiwan: organising massive and threatening naval and air manoeuvres around the island; publishing alarmist studies, which report an “all-time high” risk of war with Taiwan, or plans for a surprise attack on Taiwan, which would lead to a total defeat of the island's armed forces.

Tensions are equally high with other Asian powers: they are at their height with India, its great rival in Asia – there were serious military incidents in Ladakh in the summer of 2020; sharpening tensions with Japan, whose new Prime Minister Fumio Kishida, for the first time since 1945, wants to “consider all options, including the option [for Japan] to possess capabilities to attack enemy bases, to continue the strengthening of Japanese military power as much as it will be necessary” (P.-A. Donnet, “Les relations entre la Chine et le Japon se détériorent à grande vitesse”, Asialyst, 01.12.21).

However, these countries keep a certain distance from the US (and have not joined the AUKUS military pact). India's reluctance can be explained by its own imperialist ambitions; Japan’s, by the fact of being torn between on the one hand the fear of China's military reinforcement and on the other hand their considerable industrial and commercial links with this country (China is Japan's biggest commercial partner:Japan exported more than 141 billion dollars to China in 2020, compared to 118 billion dollars exported to the United States).

The chaos and the every man for himself mentality of decomposition also accentuate the unpredictability of the situation for China, as the example of Afghanistan illustrates. The lack of centralisation of the Talibans’ power, the myriad of currents and groups with the most diverse aspirations that make up the movement, and the agreements made with local warlords to quickly take over the whole country mean that chaos and instability characterise the situation, as the recent attacks on the Hazara minority demonstrate. This can only intensify the intervention of the various imperialisms (Russia, India, Iran, etc.) but also the unpredictability of the situation, and therefore also the ambient chaos. For China, this chaos makes any coherent and long-term policy in the country uncertain.

Moreover, the presence of the Taliban on China's borders constitutes a serious potential danger for Islamist infiltration into China (in particular given the situation in Xinjiang), especially since the Pakistani “brothers” of the Taliban (the TTP, cousins of the ISK) are engaged in a campaign of attacks against the “New Silk Road” construction sites, which has already led to the death of a dozen Chinese “co-operators”. To counter the danger in Afghanistan, China is tending to establish itself in the former Soviet republics of Central Asia (Turkmenistan, Tajikistan and Uzbekistan). But these republics are traditionally part of the Russian sphere of influence, which increases the danger of confrontation with this "strategic ally", to which its long-term interests (the “New Silk Road”) fundamentally oppose it anyway.

The prospect of intensifying chaos, loss of control and military confrontations

China is not only directly affected by the deepening decay of capitalism, it is also a powerful active factor in it, as its involvement in the Covid crisis, the collapse of its economy and the internal confrontations within its bourgeoisie amply demonstrate.

Its spectacular effort to try to compensate for its military backwardness compared to the United States is in particular an important factor in the acceleration of the arms race, especially on the Asian continent which is experiencing a significant increase in military expenditure: the inversion of the respective weight of Asia and Europe between 2000 and 2018 in this respect is spectacular: in 2000, Europe and Asia represented 27% and 18% respectively of world defence expenditure.

By 2018, these ratios had been reversed, with Asia accounting for 28% and Europe 20% (Sipri data). For example, the Japanese military budget will reach a level not seen since 1945 with more than 53.2 billion dollars for 2021, an increase of 15% compared to the same period in 2020 (see P.-A. Donnet, “Les relations entre la Chine et le Japon se détériorent à grande vitesse”, Asialyst 01.12.21) The massive arming of states significantly increases the danger of confrontation between major Asian powers or tensions with the USA, which are preeminent, even if they do not induce a tendency towards the formation of imperialist blocs, since neither the USA today nor China have managed to mobilise other powers behind its imperialist ambitions and to impose its leadership on other countries in a sustainable manner. But this is not reassuring: “At the same time, ‘massacres from innumerable small wars’ are also proliferating as capitalism in its final phase plunges into an increasingly irrational imperialist free for all” (Resolution on the international situation adopted by the 24th ICC Congress ; point 11, International Review 167).

China is therefore in no way imposing itself through the Covid-19 crisis as the “bulwark of global stability” nor as the beacon that would show global capitalism the way out of the crisis. “China's extraordinary growth is itself a product of decomposition. The economic opening up during the Deng period in the 1980s mobilised huge investments, especially from the US, Europe and Japan.  The Tiananmen Massacre in 1989 made it clear that this economic opening was being implemented by an inflexible political apparatus which has only been able to avoid the fate of Stalinism in the Russian bloc through a combination of state terror, a ruthless exploitation of labour power which subjugates hundreds of millions of workers to a permanent migrant worker status, and a frenzied economic growth whose foundations are now looking increasingly shaky. The totalitarian control over the whole social body, the repressive hardening of the Stalinist faction of Xi Jinping, is not an expression of strength but a manifestation of the weakness of the state, whose cohesion is endangered by the existence of centrifugal forces within society and important struggles between cliques within the ruling class” (Resolution on the international situation adopted by the 24th ICC Congress; point 9, International Review 167). China looks more and more like a gigantic "time bomb" announcing a frightening spiral of barbarism for the planet if the working class does not put an end to this putrefying system (2).

R. Havannais, 20.12.21

(1)The literature on the CCP enumerates for example the Qinghua faction (former students from the Qinghua polytechnic university in Beijing, such as the ex-president Hu Jintao and the prime minister Li Keqiang), with their more modest background and with a somewhat reformist orientation; the “Red Princes” faction who have come from the families of the CCP nomenklatura (Xi Jinping) and leading the main big public and semi-public groups; or again the Shanghai clique around Jian Zemin, oriented towards opening up and economic reforms.

(2) A recent and added factor in this threat has been shown up by the risk of the propagation of the Omicron variant in China. Much more transmissible than previous variants, it is liable to undermine the Chinese strategy of “Zero Covid-19” based on drastic lockdown measures. And this on top of the fact that recent studies agree on the mediocre effectiveness of the main vaccines being used in China. Given the scale of the lockdowns in China (local, regional, or other) and the resulting halt in economic activity, it’s easy to foresee the possible consequences of all this in China and worldwide (added on 31.12.21)