Rise of China and the global overaccumulation crisis

ABSTRACT ABSTRACT This paper assesses the sources of potential instability of China's political economy by expositing the limits of the post-Mao regime of capital accumulation in historical and comparative perspectives. It argues that the new spatial and socio-political orders under this regime, while propelling China's economic miracle, also contribute to the internalization of the global overaccumulation crisis, which has been haunting the world capitalist system since the late 1960s, into China's national economy. Whereas decentralization of regulatory authority of the state accelerates overinvestment among local economic agents, breakdown of the Maoist social compact and the subsequent class polarization foster underconsumption. The resulting structural imbalance of the economy leads to the risk of falling profit across key sectors and China's over-reliance on the export market, the expansion of which has hinged much on the debt-financed and unsustainable consumption spree in the US. A full-fledged overaccumulation crisis within China in the form of extensive bankruptcy of enterprise, surging unemployment and financial turmoil will certainly trigger extensive global repercussions, given China's weight in the global economy. This crisis, nonetheless, is not inevitable, and can plausibly be averted through a recentralization of the state's economic regulatory functions and income redistribution. No matter whether and how such a crisis unfolds, nonetheless, it is not likely to stop the shift of the center of gravity of global capitalism to Asia in the long run. KEYWORDS: Chinamarket transitionglobal capitalismoveraccumulation crisisunderconsumptionoverinvestment ACKNOWLEDGEMENT The author is grateful to Art Alderson, Xiangming Chen, Peter Evans, Tim Hallet, Lisa Keister, Scott Kennedy, and the anonymous reviewers of RIPE for their comments and help on earlier drafts of this article. Notes 1 As of 2004, 60% of all China's exports and almost 90% of all high-tech exports were manufactured in foreign investment firms. It is a startlingly high figure in comparison with the figures for other Asian tigers in similar stage of takeoff − 20% for Taiwan in the mid-1970s and 25% for South Korea in the mid-1970s. In terms of FDI to gross capital formation ratio, China's FDI dependence has been among the highest in East and Southeast Asia since the 1990s (Gilboy, 2004 Gilboy, G. J. 2004. 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Ernst & Young, allegedly under the pressure of the Chinese government, soon retracted the report. 4 For an empirical analysis of the negative correlation between income inequality and domestic demand in China, see Quan (2004) Quan, H. 2004. Shouru fenpei-jingji zengzhang xiandai fenxi: zhuanxing qi zhongguo jingyan yu lilun (A Modern Analysis of Income Distribution-Economic Growth: Theory and Practice in China under Transition), Shanghai: Shanghai shehui kexue chubanshe. [Google Scholar] and Li (2003: 419–21). For an analysis of the negative impact of income and employment insecurity on consumption of urban residents during China's market transition, see Luo (2004) Luo, C. 2004. 'Jingji zhuangui, buqueding xing yu chengzhen jumin xiaofei xingwei' (Economic Transition, Uncertainties, and Consumption Behavior of Urban Residents). Jingji yanjiu, 4: 100–6. [Google Scholar]. 5 The estimation about falling profit rate is far from undisputed. 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