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ORIGINAL FRENCH ARTICLE: Chine "Maintenant, il faut ouvrir le ventre du chat"

by Dominique Bari

Delaunay on China : « Now Is the Time to Rip Open the Cat’s Belly »

Translated Sunday 15 June 2008, by Isabelle Métral

Confronted as it is with the challenge of the second globalization, with US pressure to boost its medium-term or long-term geopolitical strategy in Asia, with inflation and the conflict over Tibet, what options are open to China? Economy professor Jean-Claude Delaunay answers Dominique Bari’s questions.

Jean-Claude Delaunay holds a chair in economics at the university of Marne-la-Vallée. He is back from a three-month visit to China where he was invited by the University of Guizhou for a seminar on China and financial globalization.

HUMA: What was the line you developed in your seminar?

DELAUNAY: The aim of this seminar was not to call into question, with the levity characteristic of the capitalist’s approach, the strategic choice in favour of the insertion of the Chinese economy into the world market, but to assess as accurately as possible its contradictory trends, its successes and failures — its limits as well as its present achievements — in early 2008, in a context that has been largely renewed. China is about to celebrate the thirtieth anniversary of its policy of openness, even though this policy did not really take shape until after 1992.

I believe tribute is due to Deng Xiaoping’s intelligence and daring for understanding: first that the main problem for his country was the problem of economic development, not the internal conflict between capital and labour, which was the line taken up by Hua Guofeng after Mao’s death; and second, that the insertion of the Chinese economy into the gigantic tidal power-house of capitalism was the most efficient means to bring China into modernity.

HUMA: This efficiency has been achieved by the intensive exploitation of Chinese workers. Doesn’t the social cost show up the limits of this modernity?

DELAUNAY: The exploitation designates the way the added value is produced, shared and re-used. As long as producers, whether salaried or independent, do not completely control those three phases and their chain, the notion of exploitation applies. So I do not think (no more than did Pierre Naville in his time, whose views I support) that a socialist society is a priori free from exploitation. As to the extent of the exploitation that characterizes it, that will depend on the extent of its economic, political, and cultural development. As concerns China, a country whose agricultural and industrial economy is under-developed, exploitation is an obvious and multi-faceted phenomenon. In so far as Chinese exporters work for hyper-competitive markets, they can show margins by making their salaried workers work as many hours as possible (within the limits of the law) but in a very flexible way, and for direct and indirect wages we would not even call modest by our standards.

To this internal, home-brewed exploitation (to which should be added the exploitation of peasants and street workers: porters, snack-vendors, and all kinds of trades) must be added the external exploitation resulting from the dollar’s fall in value. When the US currency loses 30% of its value during the course of one year, it means that the reserves built up by China’s central bank decrease by 30%, which means the Chinese government’s purchasing power also falls by the same rate. That, too, is a way of exploiting Chinese labour.

But the people of this country are strongly determined to toil their way out of under-development and destitution, even at the cost of the direst exploitation. Nevertheless this situation implies that globalization is also to bring benefits to all and that the profits accumulated at the central level must be spent also on the destitute. For instance, the Chinese government’s current aim is to set up a general social security system.

HUMA: The year 2008 can be considered as a suitable time for drawing up a balance sheet, and consequently as a decisive year for the next phase of the country’s development…

DELAUNAY: Indeed, the time has come to draw balance sheets in a new context. Today globalization is no longer predominantly productive (it no longer predominantly consists in making technical capital pay by moving it to new markets while feeding it with cheap labour). Globalization is also, and maybe mostly, of a financial as well as capitalist nature. What that means is that the volume of money necessary to production and exchanges, the mass of public debt to be financed, and the risks inherent in globalization to be covered (like the wild variations in interest rates and exchange rates, the rise in the prices of raw materials etc.), the flexibility demanded of capital (“flight to quality”) have become such complex issues spatially and temporally, and they loom so large now, that a trading and capitalist system to collect savings, increase the value of assets, and anticipate their value (in short financial markets operating like gigantic Big Brothers) are indispensable to the current functioning of global capitalism.

HUMA: What problems is China facing in such a context?

DELAUNAY: China has reaped macro-social benefits and benefited from a strong economic stimulation to its development. But because its reform was exposed empirically to the external constraint of global capitalism, “downturns”, as they are called, were bound to appear: wider income gaps between some classes of individuals, between territories, and the bulk of US-dollar reserves built up in China’s central bank even while the value of those reserves keeps falling; or the question of what China’s place and action could be in international monetary institutions, or questions about the increasingly high rate of inflation in this country (around and probably over 5%), or the high degree of pollution and environmental damage. Are China and the other Asian countries responsible for the imbalances that the second globalization , unlike the first, seems to carry (cf Aglietta and Le Cacheux, CEPIL, 2007)? Such is the opinion of those who, according to Brender and Pisani-Ferri’s study (Repères, 2007) blame Asian countries (owing to their high savings rates) for the current world imbalances.

HUMA: In view of all those points, should China distance itself from financial globalization or should it further integrate into it so as to be able to inflect its course?

DELAUNAY: When Deng Xiaoping wondered about capitalism’s capacity to solve China’s problems, he argued that what mattered most was not the cat’s colour but to whether it caught mice. His reflections took place at a time when the globalization process was still mainly a productive process. Today we must take its predominantly financial dimension into consideration. In this context, the empirical proverbial cat approach does not seem to be sufficient any longer. What matters is to know what’s in the cat’s belly. It must be ripped open and probed.

HUMA: What important conclusions should China draw from this theoretical approach?

DELAUNAY: Theory dictates no specific policies. I do not think that China and Asian countries in general can plan their evolutions without devising the indispensable transitions. That said — and with all the prudence required, for the question requires further analysis and debate — theory should point towards increasing the distance from capitalist financial globalization. It seems to me that two paths are open to China in the face of globalization.

The first solution is to commit itself to the new process of globalization while bracing and improving the state’s intervention both at the top and locally, in the provinces. This solution would simply replicate the solution that was resorted to during the previous phase, only on a more extensive scale. China can be considered as having successfully inserted itself into globalization because it has simultaneously implemented a strong intervention of the state. That is Stiglitz’s thesis in Un autre monde (2006). It would suffice to take up this orientation, or simply adapt it.

A second solution would consist, whether for China or other Asian countries, in implementing another model of development than the one imposed by financial globalization. This new model would consist in basing economic development more substantially on the home market rather than exports.

That other model is necessary. The current globalization depends on the overexploitation of labour in one part of the globe. It is hyperinflationary and carries serious financial crises. In the context of the lasting over-accumulation of capital that characterizes the world economy (which shows up in very strong deflationary tendencies), the US financial system issues enormous and renewed quantities of currency. Interest rates are low. The financial bankruptcies of great establishments are avoided in the name of the “too big to fail” principle. In that context, the conditions for permanent and rising inflation are all met. Let it be clear that these tactics are not meant to sustain state or public demand, but to sustain private supply, capitalists.

Why do we have this inflation? For the current global system to operate, the Asian central banks must buy from exporters the US currency they want to get rid of. In short, the central banks shoulder the exchange risks. They buy dollars in exchange for the home currency. When dollars are bought from Chinese exporters, they are paid back in yuan. This potentially generates inflationary tensions if it is not accompanied by an economic policy of currency sterilization, since the distributing of US currency is automatically duplicated in each exporting country and across the world, as exporters also make purchases in their turn.

Of course, Chinese inflation has something to do with the prices of raw materials and the partial agricultural crisis across the country. But it is first and foremost the structural consequence of the present global system and of its monetary operating mode. In order to bring that kind of inflation to an end and to recover full control over their development (and so over their currency), while at the same time taking greater care of the home market than was the case in the previous phase, China must increasingly distance itself from the present system of financial globalization.

HUMA: Could that gradual distancing have political consequences?

DELAUNAY: I think so. American conservatives are becoming aware of the potential challenge that China represents to their bellicose power. But that is true politically as it is true economically. I have been led to believe that China will have increasingly to distance itself from the global monetary and financial system. And so, implicitly, it will have to call into question the present US imperialist development into question. That’s the conclusion I came to in the short study I published in 2006 on the dollar as world currency.

The American source of the unrest that took place in Tibet is no mystery to me, even if the economic developments are only one dimension of the analysis. In their attempts to destabilize China and get a foothold in the country, the US reactionaries are also aiming at maintaining their economic supremacy. After encircling Russia, they are now trying to surround China and to make inroads into the territory. They are implementing a medium-term and long-term geopolitical strategy aimed at neutralizing tomorrow’s enemy as well as its potential allies. Simultaneously, they are developing the idea that China’s integration into the global financial capitalism (in effect, its submission to capitalism) is indispensable.

HUMA: Has China enough freedom to maneuver?

DELAUNAY: What should be China’s objective, namely to distance itself increasingly from the global financial system, cannot be done by China on its own. The rate and amplitude of globalization have increased. China’s relation to globalization cannot be China’s quest, for China’s benefit and for China alone, of the “harmonious society”. That theme, together with all its further indispensable expansions, must now be carried on the global scale, by taking up the spirit of the Shanghai Cooperation Organization that was set up in 2001 following the 1996 Shanghai Forum. Economic globalization is now bringing forth political globalization. But as is always the case in mankind’s history, the paths to be followed have not yet been broken. Struggles are going on right now over those new paths. China and the Chinese are not the only people to be concerned. Let us try to take part in the process, sensibly, not on the spur of foolish inspiration.

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