People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 3

January 25, 2009



Global Crisis: China Shows  An Alternate Way Forward

Sitaram Yechury

A JOKE that we heard during our visit to China relating to the global capitalist crisis and the Chinese response has been paraphrased by the Economist as follows: “When Deng Xiaoping set China on the road of economic reforms in 1978, western economists argued that `Only capitalism can save China’. Exactly 30 years later, some pundits are claiming that `Only China can save capitalism’.” The Chinese version contained an additional element: Between 1988 and 1998, when much of the socialist world led by the former USSR collapsed, the slogan was `Only China can save socialism’!

The People’s Republic of China had announced as early as on November 9, 2008, a month before our delegation’s visit, a massive programme of public investment that is designed to boost domestic demand. This, according to them, is required to offset the sharp decline of international demand due to severe recession in the developed countries affecting adversely the volume of China’s exports. In 2007, China’s net exports contributed nearly one-fourth of its 12 per cent GDP growth rate. Though exports have continued to grow in the third quarter of 2008 by about 13 per cent, in real terms this is expected to decline sharply as the effect of the recession was not fully set-in by then.

The understanding behind the reasoning on how to tackle the impact of the global crisis, the delegation was told, was based on the fact that unless the economic empowerment of the people is strengthened, the growth in purchasing power leading to growth in domestic demand will not set in motion the cycle of providing the stimulus for a higher growth rate. Unlike the western capitalist countries where the emphasis is on offering bailout packages and easing credit through lower interest rates, China has targeted the other end of the spectrum, i.e., the consumer rather than the producer. The logic is simple – however much capital is made cheaper and more accessible for investments, these are most unlikely to stimulate growth unless there is a consumer who has the capacity to purchase what is produced.

This, however, is precisely capitalism’s fundamental contradiction, based on the system’s existence founded on exploitation of man by man and fuelled by the system’s driving force – maximisation of profits. The contradiction between the social nature of production and individual nature of appropriation results in maximisation of profits at the expense of impoverishing people. The latter constantly lowers people’s purchasing power reinforcing the capitalist crisis. Capitalism seeks to emerge from the crisis by protecting avenues for profit generation. Socialism, on the contrary, focuses on the people’s economic empowerment and increasing their purchasing power, thus, their levels of livelihood. Ironically, this also provides sustenance for capitalism to emerge from the crisis of its own making! Therefore, the concept, in the light of the current crisis, of “capitalism can be saved only by China” gains currency.

To understand this, consider an Indian experience. Recently, massive concessions were offered to the airlines industry by sharply reducing the price of aviation fuel and other benefits. This, however, has not reversed the situation leading to the industry’s robust growth. This can only happen if there are more passengers who can afford air passage. Concessions at the top do not always stimulate growth, they only help the corporates to create better profit and loss balance sheets. The real stimulus for growth will have to come by strengthening the consumer – aam admi – through a massive programme of public spending.



It is on this basis that China had announced a 4 trillion yuan ($568 billion) programme of public investment for a period upto 2010. Of this, China’s central government would add an extra 100 billion yuan ($14.6 billion) to its spending budget in the fourth quarter this year. Over the next two years, the central government will spend a total of 1.18 trillion yuan ($172.8 billion) and obtain additional funds from local governments and other sources to boost the overall economy. The burst of public spending is expected to spark a big multiplier effect throughout a number of sectors and pump up the country’s growth, which dropped to 9 per cent in the third quarter from 10.4 per cent in the first half of this year.

Following in the footsteps of the central government, several ministries and local governments have pledged to invest aggressively to help execute the stimulus package.

Among the local governments that have made known its spending plans, Beijing will spend 240 billion yuan ($35.1 billion) on subways and other transport infrastructure projects by 2012, overshadowing the 170 billion yuan ($24.9 billion) it spent in the five-year run-up to the Olympics. Guangdong (Canton) will put in place 222 new investment projects worth a total of 2.37 trillion yuan ($347 billion) over next few years.

The immense rural and urban construction projects would create huge demand for some necessary building materials such as cement and steel. This infrastructure investment is expected to deliver a rapid turnaround to the sluggish cement market, offsetting the real estate downturns.

On the steel front, it is estimated that the stimulus package would trigger new demand for at least 100 million tonnes, around 20 per cent of last year’s total output.

During the months of November and December, the central government alone has targeted to spend a billion yuan. Of this, 340 million would be spent on rural infrastructure and livelihood improvement of farmers; 250 million would be spent on construction of railways, roads and airports; 130 million on social welfare, including medical care, education and culture; 120 million on environment improvements such as energy conservation and reduction of green house emissions; 100 million on construction of affordable low cost houses; and, 60 million would be spent on technological innovations and improvements in the industrial infrastructures.

China is today the world’s third biggest economy. Through this massive programme of public investment and the consequent economic stimulus, China hopes to maintain its unprecedented three decade run of double digit growth rates. Western skeptics, however, estimate that for 2009, as a result of this package, China would experience a GDP growth of 7.5-8 per cent. On this basis of this, the Economist says: “If so, of the world’s eight biggest economies, China will be the only one to enjoy any growth next year; most forecasters expect all the others to contract. Indeed, the IMF’s latest forecast of 8.5 per cent GDP growth implies that China will account for almost half of all the increase in world output next year”.

So much so, for the neo-liberalism pundits who forever falsify and never seem to tire parroting that there is no alternative to capitalism. It is only socialism that accords the highest priority to people’s welfare unlike capitalism whose raison d’etre is profit maximisation based on intensification of people’s exploitation. However, it is the supreme irony of the present phase of human history that in the absence of a powerful political socialist alternative at a global scale, capitalism may emerge from this crisis, thanks to socialist prescriptions.