China in an Economic Trap

Right now the Chinese economy has become even more unstable than it had during the 2008 global economic crisis of capitalism. During that period the way out for China was to push through a stimulus package similar to what the United States had. The Chinese spent four trillion yuan ($US 590 billion).

Unfortunately for Chinese capitalism it was not enough. As things began to get worse, the closure of exporting businesses, dramatic rise in unemployment and social unrest; they responded by increasing the stimulus by another $2.7 trillion in the next two years.

The byproduct of this continued stimulus has been a $2 trillion in debt for local governments and a dangerously large real estate speculation bubble that had to be taken care of immediately by raising interest rates in order to slow the economy. This has caused China’s public liabilities to be 70-80% of their GDP.

There are two great problems facing China right now. One, the cost of basic necessities and raw materialism is quite high now due to the “quantitative easing” by the US Federal Reserve. China out of necessity responded to this measure hurting them by keeping the value of their currency low. The US responded by calling them currency manipulators.

Two, as the living standards of the people in the US and Europe are destroyed by austerity measures, these people are unable to purchase the cheap commodities of China. This drags the Chinese economy down even more. China needs to stay a production of cheap commodities. This “cheapness’ must always be held lower than the Europe and the US. Meaning the Chinese working class always has to stay below the 1st World working class, in a permanent lower class.

This drive for cheap exports while facing inflation (that would crash the economy), is all because of an inability of the Chinese people to purchase enough domestically. The domestic market is weak due to overwhelming poverty perpetuated by the capitalist system.

Let us face what the Chinese government is today: the ideal capitalist mechanism.

The economic engine of the Chinese economy is cheap labour that produces cheap goods to the entire First World. As a result its currency must always be adjusted according to the US dollar in order to remain cheap enough (to compete). There is extremely limited social services available to the people. The government also provides a totalitarian regime protection for the wealthy class by beating the population into production, and to force them to shut up in case they ever want to challenge this power.

Unfortunately for China other economies have appeared to challenge their position as cheapest labour: Vietnam, Bangladesh, and India.