Chinese meltdown and its fallout
A meltdown in the Shanghai stock exchange sent shivers down the spine of global markets. But all those Cassandras, especially those in the West, who expect this downturn will extend to ‘social turmoil,’ and thus a regime change, are sure to be belied. In fact, given half a <g data-gr-id="76">chancethe</g> likes of Francis Fukuyama would be ready with cordless keyboards on their laps to churn out institutionally (Right Wing) funded books declaring the ‘End of Future’.
Unfortunately for the likes of him the declaration that ‘End of History’ has shown the end of the Lehman Brothers, and socialisation of capital losses. Interestingly, when the Chinese regime intervened strongly in the market by buying up shares, stopping trades in some, they did it with the knowledge based on intelligence reports that made them ban individuals and their corporates from trading in the market.
A double whammy included steps taken to devalue the Yuan thrice. In a Chinese market of longstanding export-led growth, low wage growth was undergoing fundamental change. For the first time in China’s <g data-gr-id="78">tryst</g> with socialism (albeit of the market), the government actively encouraged public consumption to rise.
The other focus of these structural changes that are being unveiled still by the Xi Jinping government can put further pressure on the dollar as the economy transforms itself from one totally based on manufacturing for exports to a more employment generating services sector. According to Brookings Institution expert, Cheng Li, in the last two years a million jobs have been created in the economy and dented urban unemployment in some measure.
Notwithstanding those factors mentioned above, China still faces a problem of dealing with private fiefs that pervades the State-owned Enterprises (SOE) and also the ennui of the local governments at the provincial and even lower levels of governance. This inaction is also manifest in the local lords not making sufficient efforts at creating new growth drivers, outside of what is traditional status quo industries. In addition to the above malaise, corruption has become endemic in the China, similar to that exists even in advanced economies like the USA, etc.
The money that Beijing pumped into the economy in a calibrated manner this time displayed the alacrity it enjoys in steering it. Contrast this with the sense of confusion that encompassed the US government during the 2008 meltdown, and their eventual planned intervention with middle-class tax payer’s dollars to shore up the otherwise bankrupt private “too big to fail” Wall Street institutions.
China’s control over foreign direct investors that followed the normalisation of relations with the West is an object lesson for those in India. Policymakers in India see virtue in actively soliciting FDI with unheard of <g data-gr-id="77">sops</g> and privileges.
The Enron fiasco or the more recent Nestle battle shows that New Delhi’s obsequious mannerisms make these MNCs behave like old school zamindars under colonial rule. The Chinese, on the other hand, would not even allow the FD investors a squeak about how they are treated in their land.
Still, in terms of ease of business, China scored at a high level as its decisive governance raised the level of policy implementation to a far more efficient level than India.
The larger world, however, is closely watching China’s next moves. If Xi is successful in reorienting the Chinese economy, more importantly its political economy, in a way, which reduces its dependence on foreign markets, its fallout will be massive across continents.
In the US or Germany and especially Greece, general elections results could see the popular anger against accumulators of capital at the cost of the majority, translating into votes. And an Angela Merkel or a Hillary Clinton or a Donald Trump could see their posturing as being fiscal conservatives and their nepotistic relations with the private sector severely punished.
So, is the world on the cusp of a fundamental transformation? Or is it just the makings of the Middle Kingdom around which the rest of the world orbit? The last is, of course, less palatable than the first. And the first option, as it unfolds, could be a new paradigm. Karl Marx, the great interpreter of Capitalism in all its exploitative processes, will surely be happy. This will be more so because the tag of determinism that has always plagued the Marxian theory will be upended not by a Europe but by an Asian nation.
(The author is a senior journalist. The views expressed are personal)