Australia, China and global economic stagnation

The standard of living of most Australians is shaped significantly by the economic relationship with China. That’s mainly because of Chinese demand for Australian raw materials and other products. Also, both economies are shaped by what is happening in the global economy, truer these days than it has ever been.

We know that the health of every economy ebbs and flows, although stagnation is the dominant medium-term trend, past and future. Australia is a part of that.

China defines itself as a socialist society and its government seeks to manage its economy on socialist principles, although importing significant capitalist ownership and processes over the past 30 years. On the other hand, Australia is a capitalist society, and its governments are fully committed to keeping it that way.

Economic stagnation and mainstream commentary

The prospects for shielding more Australians from more stagnation, and maybe recession, are shaped partly by how China is managing their situation. It can make a difference to be well-informed about that. Thus, it’s worth keeping an eye on what mainstream commentators are saying about China. Regrettably, the mainstream can’t or deliberately won’t get it right.

For example, here is a senior and experienced mainstream economist at the ABC, Ian Verrender,  commenting on what is unfolding in the Chinese economy, headlining it as “deteriorating rapidly” and “unravelling”:

“Its property market rout has turned into an implosion, its stock markets are at their lowest levels in five years and international investors are abandoning the country.

While the rest of the developed world has been fighting off the worst bout of inflation in almost half a century, China's economy has turned deflationary. Consumer prices are falling, a problem that, if not arrested, can turn into an ugly, negative feedback loop.”

To be fair, Verrender does suggest his “economic danger” is relevant to “the impact on our export industries, particularly iron ore, should China's economy continue to deteriorate.”

Mainstream myth-making

So, what does make his article so inadequate?

To start, note what is missing. Gross domestic product and GDP per person don’t get a mention.

Yet, these are normal mainstream indicators. They are used to assess Australia’s economic performance and will be in the next day or so, and of course the state of the economy across the world. (For now, we leave aside why they are not perfect, and why what’s happening with profits can tell us a lot more.)

Instead, says Verrender, China’s falling property prices, falling stock markets and lower inflation are the indicators of Chinese failure! Many here in Oz, thinking about that, will be wondering “Oh, for such failure!” as they deal with their insecurity with escalating property prices, strong stock markets and profit-taking, and persistent inflation with higher costs of living on the things that matter.

Here in Australia, our part of the western capitalist world, are strong stock markets (for now) a good indicator of how long stagnation will continue as we sit on the cusp of worse?

Are stock markets (growing or falling) reversing lower living standards, the cost of living, the trend to inequality and more environmental degradation? Making house purchases more affordable? Reducing rents?

Are they leading to the productive investment needed to reverse climate change and heal the natural environment on which all of humanity depends?

To what extent do Verrender’s Chinese problems reduce its need for coal, iron ore, new critical minerals for green transition, and other products from Australia?

Capitalist “unravelling” requires more capitalism. Sure.

 And, given his 3 chosen indicators all show problems from the capitalist sector that the Chinese government has imported into their socialist system, why would more capitalism get rid of the problems? Our own experience tells the Chinese they will get worse.

Verrender makes a final serious claim: “…it has been the inability or unwillingness of authorities to counter the problems and take remedial action to soften the economic blow that has stunned observers and investors.”

Really?

Some facts about China’s economy

 So, what can we learn about the Chinese economy and what does that mean for its Australian relationship? Here are some key points in a comprehensive check from a socialist commentator, John Ross, who is close to and studies the action.

Ross uses data from the World Bank, the OECD, the USA’s Bureau of Economic Analysis, and China’s Bureau of Statistics to tell the story.

Unlike Verrender, he takes normal, western-established indicators of economic performance like Gross Domestic Product and GDP per person, and applies them to the Chinese government’s present and future intentions.

·      China’s economy, as it heads into 2024, has far outgrown all other major comparable economies.

·      China’s total GDP growth since the beginning of the pandemic was two and half times greater than the U.S. China’s annual average growth rate was 4.7% compared to the US’s 2.0%.

·      …  since the beginning of the pandemic, China’s economy has grown by 20.1%, the U.S. by 8.2%, and the Eurozone by 3.0%.

·      In the same period China’s economy therefore grew … almost four times as fast as Canada, almost versus Italy, 11 times versus the UK, 12 times versus France, 18 times versus Japan and almost 29 times versus Germany.

·      In terms of annual average GDP growth during this period China’s was 4.7%, the U.S. 2.0%, Canada 1.3%, Italy 0.8%, the UK 0.4%, France 0.4%, Japan 0.3% and Germany 0.2%.

China’s objectives

Ross also assesses China’s performance against its own objectives. Again, some key points:

· China intends to “transition from a “developing” to a “high-income” economy by World Bank international standards. … “It is entirely possible to double the total or per capita income” by 2035.

· If China hits its growth target for 2035, and the U.S. continues to grow at 2.3%, then between 2020 and 2035 China’s economy will grow by 100% and the U.S. by 41%—see Figure 1. 

·      Since 2020 there is no sign “that China will fail to meet its target of doubling GDP between 2020 and 2035—China is ahead of this target. … the present criteria for this is a per capita income of $13,846.

·      If China were to slow down to the growth rate of a Western economy, then it will fail to achieve its strategic goals by 2035 and, may not succeed in becoming a high-income economy.

·      However, all the data from publicly available western sources – not secret and easy to get - shows that it is slightly ahead of schedule.

There may be good reasons to be critical of the Chinese system, including how socialist it is, but its record of achievement in raising the standard of living of most of its people shows it is sincere and serious in wanting to take that further.

Misinformation: incompetence? laziness? deliberate?

Ross also wonders about and comments on the western mainstream misreporting:

“But the U.S. media and journalists report information that is systematically misleading and in many cases simply untrue. While it lagged China in creating economic growth the U.S. was certainly the world leader in creating “fake economic news”! What was the reason, what attitude should be taken to it?”

Implications for Australians and their government.

 Spreading distorted, inadequate or inaccurate information to the public is misleading. That’s what the Verrender article does.

It can lead the public to approve its government making serious “errors” of policy and action ... not just in economics but also in foreign relations and military intention. Such misleading can enable the difference between peace and war.

Knowing how the Australia-China dynamic is working is important for working class activists to work out what should be our wage demands through enterprise bargaining and the Fair Work Commission, what we demand and struggle for on the social wage: tax policy and public spending on health and education etc. It also invites a focus on the role of public ownership in a healthy economy that requires a rapid transition to a carbon-free system.

Real Problems for the Peoples of China and Australia

Of course, we should be alert to real problems in the Chinese economy and how it is being managed.

What’s happening with the carbon reduction targets and the associated actions? Is the standard of living falling? Is new public infrastructure development a mess? Are wages being pushed downwards? Are publicly owned and cooperatively run firms a disaster? What’s happening to the social wage: that is, the mix of wages, job security, taxation and spending on climate change reversal, public transport, health, communication, education, childcare and aged care? What damage is the stock market doing in China? What’s really happening with military spending? How many new Chinese bases are there relative to the USA and other countries in alliance with it?

Australia’s government must tackle these issues in the context of stagnation and still threatening global recession. As must China. Maybe we can learn something about how China does it that will be good for the majority in Australia. And vice versa.

Journalism that discusses these questions is far more helpful than the ABC’s Verrender pap.