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China
cascade
Peter
Nolan and Jin Zhang ‘Global Competition after
the Financial Crisis’
New Left Review, 64,
July-August 2010
pp. 97-108.
This
recent article merits study and discussion. It is a corrective to the
chorus about an unstoppable Chinese national-market-state displacing the
US
or European one to become the next global imperium. The authors
distinguish between size and flows. While the Chinese capitalists are
doing well on size they are locked out of the flows.
The
article begins by noting that
China
’s exports did indeed overtake
Germany
’s in 2009 to become the world leader. The authors then explain why
‘Chinese companies face enormous competitive challenges in operating
on the international stage’. The crucial problem is that
China
’s manufacturing and banking are not integrated into the global
networks. Instead, ‘They have to compete with the powerful firms that
now dominate almost every segment of global supply chains’.
China
’s prospects are constrained because its businesses are not at the
controls of this ‘cascade’ of flows.
Freed
from the ideological blinkers of neo-Classical economic correctness, it
is easy to see why ‘free trade’ opened doors to further monopolising.
Large
companies from the advanced economies vastly expanded their
international investment, building production networks across the globe.
Although
Chinese capitals have advanced during the current crisis as their rivals
slid down the ranking of global giants, US and EU firms also
strengthened their position through further concentration, (oligopolising).
China
still has no place in nine of the ten key sectors.
China
got onto the finance list in part because of the
loss in the market capitalisation of financial houses, but mostly
because the Chinese banks dominate their own turf. They are huge but not
networked. As Nolan and Zhang put it:
It
requires a huge leap to progress from being a powerful domestic bank,
operating in a heavily protected home market, to one that is globally
competitive and able to finalise large-scale international mergers and
acquisitions.
Without
the links to carry through take-overs, can Chinese capitals buy their
way into the other nine sectors? Only construction equipment has a level
of concentration below 50% - at 44%. The next lowest is for PCs at 55%
and third is mobile handsets at 65%.
Inevitably,
these oligopolies dominate R&D, and thus have their hands on the
future drivers. They also dominate foreign direct investment (FDI). The
combined FDI by the big four newcomers -
Brazil
,
Russia
,
India
and
China
- is less than that of the
Netherlands
. Two-thirds of
China
’s FDI goes to
Hong Kong
and
Macao
; its next biggest destinations are the Cayman and
Virgin Islands
, with 17% of the PRC’s total FDI.
The
much vaunted $2.3 trillion of foreign-exchange reserves that China held
in 2009 needs to be contrasted with the $63.7 trillion available to the
top 500 asset managers in the West. Moreover, Chinese reserves amounted
to only $1800 for each Chinese but $5,600 for a South Korean and $8,400
for each Japanese.
Hence,
by every measure, Chinese firms are in the infancy of global corporate
behaviour. The challenges are qualitative more than quantitative.
Since
1980, ‘The age of globalisation witnessed the rapid consolidation of
systems-integrator firms and their supply chains’. China’s
competitors retain advantages from nearly 150 years of installing
management systems, domestically and around the planet. Since 1980, the
non-Chinese corporations have increased and upgraded those barriers and
links. Those developments were not initiated against
China
, but can now channel its growth away from over-taking the oligopolies
based in the West.
Catching
up is not just a matter of Chinese workers pushing out more and cheaper
cars or tie-pins. It also involves the ‘visible hand’ of management
beyond the factories, the integration of finance with supply, production
and distribution. Chinese workers and executives are more than capable
of performing those soft power functions. At issue is whether will they
be able to buy their way through the gate of earthly profit. Or will
they be checked by a new great wall – one that keeps the Chinese in,
not the barbarians out?
In
addition to acknowledging this obstacle, any prognosis for
China
needs to consider six more issues:
-
distortions
from the undervalued Yuan;
-
a
banking system carrying undisclosed loads of doubtful debt;
-
a
stock market corrupted by state policy (see ‘Shanghai Express’
item);
-
real
estate bubbles;
-
massaged
statistics (see ‘Chinese Crackers’ item);
-
turbulent
workers and unemployed.
On
top of these domestic matters, Chinese growth remains vulnerable to
contractions of demand for its products in the rest of the world,
whether from budget cuts in the EU or recession in the
US
.
In
pondering
China
’s future, we need to think beyond its 1.5bn people and the enormity
of their output to recognise that Chinese capitals have to meet the same
needs as capital anywhere. Its expansion requires more than the
exploiting of labour – at which the Chinese firms have been
successful. The surplus value that results has to become the profit for
the next round of investment. In Volume II of Capital,
Marx traces the cycle of Money, Production Commodities, through
Production, to Commodities for expanded Money to invest. (M-C-P-C-M+)
(See items in Capital Refined) Without mentioning Marx, Nolan and Zhang
provide evidence for how the global concentration of capital stands in
the way of Chinese firms being able to flow through these circuits.
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