[OPE] Status Update on China

You mean, with a population of 1.3 billion, all of China is entering the
market? That would be an exaggeration. 200 million Chinese don't have enough
to eat, and therefore can hardly participate in markets.

Taking a guess at the figures, the employed workforce in Chinese cities is
about 250 million and the rural workforce is about 500 million. The
disposable per capita income for rural households averages about $600 per
year, and for urban dwellers disposable income averages about $2,000 per
head, per year. You could probably bump up those figures by about 100% to
get real purchasing power, but it's still not very much at all.

The disparity helps explain why rural Chinese are eager to migrate to the
city, because they have a chance to earn much more money than they did on
the farm. http://www.youtube.com/watch?v=P0yfNOkBClI#

But by the same token, if in rural areas you effectively have only $600 or
$1200 to spend per person per year, as a broad average, there cannot be much
of a market trade there in final consumer goods and services because savings
and buying power are too just limited. The majority of the rural land is
still owned by village collectives. In addition, the savings rate of the
Chinese is extremely high, and aggregate final consumption is proportionally
low, which is good for the stock market (overall the most lucrative in the
world) and for investment, but not for the expansion of the domestic market
in consumer goods and services. That is why Morgan Stanley's Stephen Roach
generously recommends a more comprehensive social security system for China:
then the Chinese would spend more on final goods rather than save, to meet
possible future risks, thereby opening up more profitable markets.

Turning to the urban population, a bit below half of the Chinese employed
workforce are working in the state sector (state enterprises and
collectives) and slightly more than half are working in private enterprise
(as employees or self-employed). So at best the capitalist sector employs
only about one-fifth or so of the total workforce, mainly in cities and the
East coast. Still, that is about the same size as the whole workforce of the
US now, but in fact this Chinese workforce earns about 10% (or less) of what
all US workers earn together, in real terms.

The reason why the Western bourgeoisie keeps emphasizing the importance of
China, is not really because of its aggregate economic significance in the
world economy right now, but rather because of three main things:

- a rapidly expanding market, especially for investment goods and
intermediate goods;
- the extremely lucrative financial trade in China, in equities, property
and securities; and
- Chinese "sovereign wealth funds" plus other foreign placements, i.e. the
propensity of the Chinese to invest large chunks of capital abroad to
establish longterm global market position, rather than using this capital to
develop their own economy. Via Chinese subsidiaries, you can get profit
margins out of China which you can only dream of in the West right now.
http://www.youtube.com/watch?v=LE1QLKusd0o&feature=fvst

Just as the Chinese distinguish between the four modernizations
(agriculture, industry, technology, and defence), Karl Marx's theory
distinguished between the different basic modes of capital accumulation
(trading circuits):

1. M-M' (accumulation from trade in liquid or near-liquid financial assets)
2. M-C-M' or C-M-C' (accumulation from commercial trade)
3. C-C' (accumulation from countertrade deals)
4. M-C...P...C-M' (accumulation from production)

Marx did not really discuss another mode of accumulation: taxation, which
has become increasingly important.

In the West, the theorists of rentier capital now philosophize about the
real relevance of GDP (e.g.
http://www.spiegel.de/international/business/0,1518,650520,00.html ), which
refers to circuit (4) - in a situation where a third of Western gross income
is generated by making or facilitating property income transfers of one sort
or another which do not add net new value nor add to the net stock of
wealth. But in China, the huge resources and power of the state enable it to
expand the last-mentioned circuit, the real source of net new value lodged
in products. That's the difference.

Whereas the ideology attributes everything to market activity, in reality
the Chinese achievement is all about state action creating a pool of workers
looking for work in the capitalist sector.

Jurriaan

http://www.youtube.com/watch?v=FURAEvQwOK4

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Received on Sat Sep 26 06:21:27 2009