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8/18/2019 IBE GROUP1

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r (102), Abhinav Jhangra (103), Abhishek Singh Gaur (104), Ajey Singh (1

%nternati&na' usiness


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ContentsIntroduction ***********************************************************************************

China and Global Capitalism ********************************************************************

Economic and Social Contradiction ***************************************************************

Falling rate of Profit ****************************************************************************

Coming Economic Crisis? ***********************************************************************

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Introduction

China's rapid growth has been based on the intense exploitation of the working

class, ruthless environmental degradation, and exports to the global capitalist

market. However, all three conditions required for China's capital accumulation

have been undermined. The contradictions of Chinese capitalism have led to a

falling profit rate, which at current trends may soon fall towards levels historically

associated with the reat !epression. " ma#or economic crisis may seriously

undermine the political legitimacy of China's current capitalist regime.

!uring the first half of $%& Chinese economy decelerated, despite economic

slowdown the Chinese market boomed. "fter fluctuating around (%%%pts for years

the index surged and peaked to &%% on )ay. *y early +uly index fell back to ( %%

points despite several attempts by the government and state owned enterprise to

save the market which wasted several trillion yuan. ecent turmoil reflects

fundamental imbalances of Chinese economy that may lead to a prolonged period

of crisis and instability.

-e will be discussing neoliberal restructuring in next section followed by two

sections that provide a )arxist analysis of the contradictions of Chinese capitalist

economy. The last section concludes the possibility of the coming economic crisis.

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China and Global Capitalism

The current global financial industry can be traced back to the late $%th century.

esponding to the growing working class militancy in urope, /orth "merica,

0atin "merica and +apan, global Capitalist classes waged a counter offensive

which became known as neo1liberalism. To restore global capitalist order and

return the profit rate to levels sufficient to motivate capital accumulation.

Neo-liberalism in China

2n China radical )aoist leaders were arrested and purged from the communist

party this allowed the capitalist roaders within the party leadership to take over and

consolidate power.

)illions of laborers in china acted as reserve army to the capitalists, with the help

of which entire manufacturing industries relocated from -estern countries to

China.

Impact of neo-liberalism

/eo1liberalism invariably weakened the bargaining power of the -estern and

+apan working classes and contributed to the recovery of profit rate in the core.

Though /eo1liberalism succeeded in restoring the global profit rate and

reestablishing favorable conditions of the capital accumulation. *ut it was

achieved at the expense of massive declines of living standards of people in most

part of the world especially in astern urope, 3oviet union, 0atin "merica,

"frica, -est "sia and 3outheast "sia.

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"s a result of mass consumption was depressed. The expansion of the global

capitalist economy was threatened towards stagnation and financial instabilities.

China, +apan and ermany became dependent on their exports to drive economy.

To provide markets for the export led economies 43 stepped in as consumer of last

resort, led by debt financed expenditures, 43 household consumption became the

largest source of 43 economic growth and 43 acted as the main driver of global

economy until $%%5.

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Economic and Social Contradiction

3ince the conomic Crisis of $%%61%7, 43 and urope have faced economic

stagnation and persistent financial instabilities and thus the lobal Capitalist

economy has relied upon China as the leading engine of economic growth. 2n the

period $%% 1&8, China accounted for ( 9 of the global economic growth thus

becoming the centre for global capital accumulation whereas other economies like

2ndia, 43 and uropean 4nion accounted for &$9, 59 and 9 of the global

economic growth in the same period.

Comparison of Contribution to Global Economic Growth ( orld !an" #ata$

:eriod ;years< China 43 4 2ndia&77&1$%%% &69 %&' &69 59

$%% 1$%&8 )' 59 9 &$9

This visible rapid growth of Chinese conomy was due to the following factors=

• 2ntense exploitation of Chinese -orkers• nvironmental !egradation and natural resources depletion and• xports to -estern Capital )arkets

These factors were undermined since $%&% due to growing working class militancyand labour unrest.

China>s economy has been struggling due to declining e*ports to the western

economies which themselves are facing slowdown in their economies. The exports,


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which contributed to about &? th of China>s economic growth earlier ;before $%%61

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Falling rate of Profit

Chinese industrial profits have reduced to a large extent in the last four years due

to sluggish demand, devalued yuan, a tumbling stock market.

The profits declined by 6.6 percent in "ugust as compared to the last year,

accompanied by the largest decline in coal, oil and metals according to the

/ational *ureau of 3tatistics. This was the biggest decline since the government

began releasing monthly data in Actober $%&&.

3tock market plunge and currency devaluation are adding fuel to the fire in theworld>s second1largest economy as it has problems dealing with excess capacity,

sluggish investment and weaker manufacturing. The nation>s official factory gauge

slumped to a three1year low last month, while *loomberg>s monthly gross

domestic product tracker remained below the government>s 5 percent goal in

"ugust with a reading of @.@8 percent.

The profits in coal mining declined by @8.7 percent in the first eight months of this

year as compared to the same time period in the last year, while oil and gas profits

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tumbled @5.( percent, the report said. Berrous metal smelting earnings declined by

&.@ percent.

This reduction in profits is due to the falling product prices, lower investment

returns and foreign1exchange losses, He :ing, an /*3 official, said in an analysis

on the agency>s website.

)aker costs, or the cost of merchandise as they leave the industrial facility,

drooped to a six1year low in "ugust, as indicated by /*3. Costs have been

declining for over three years, the information appear.

xtreme industrial facility door emptying and high loan fees are double toxic

substance for benefits, said 4we :arpart, boss strategist at eorient 3ecurities in

Hong Dong. The message to strategy producers ought to be impeccably clear=

ease financial arrangement radically to get in accordance with whatever is left of

the Eero1loan cost world.

The 3hanghai Composite 2ndex turned around before misfortunes to close %.(

percent higher at (,&%%.5@, paring its misfortune from a +une &$ crest to 8% percent.

Commitments from venture returns fell in the midst of China's securities exchange

defeat, while conversion standard misfortunes rose perceptibly because of yuan

unpredictability, pushing the organiEations' money related expenses up by $(.7

percent a month ago from a year prior, contrasted with a ( percent drop in +uly, as

per the authority.

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Head 0i Deqiang has reacted to the slowest development in a quarter of a century

with arrangement facilitating measures including five loan fee cuts since

/ovember, decreases in the measure of stores banks must hold as stores, a shock

cash degrading a month ago and expanded monetary backing.

Ald development drivers keep on sputtering and new development drivers are still

on the list of things to get, said :auline 0oong, overseeing chief at "sia1"nalytica

esearch in Hong Dong. The Chinese national bank can drop the cost of cash all

it needs and scoop always money into the managing an account framework, yet theissues confronting the Chinese corporate world are more about the absence of

clients than the absence of credit, more about indebtedness than illiquidity.

:rofit ate is defined as=

:rofit ate F :rofit ? Capital 3tock

F :rofit?Autput G Autput?Capital 3tock

F :rofit 3hare G Autput Capital atio

:rofit 3hare reflects the outcome of the class struggle and relative balance of

power between the capitalist class and working class.

2n 3hort run, the output1capital ratio reflects the level of effective demand and

capacity utiliEation.

2n long run, it may be taken as proxy for organic composition of capital.


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Bollowing data is collected to analyEe profit rate=

:rofit 3hare is ratio of total capitalist profit to economic output; !:s as privatiEation was taking place and

labor was available at cheap price so profit were high. *ut during $%%%>s

bargaining power increase for labors and profit share came down.

10

ear Profit Share .utput Capital

ratio

Profit rate

&77% %.@%6 %.6( %.$ 5

&77 %.8$& %.58$ %.(&$

$%%% %.(67 %.@5& %.$@&

$%% %.(7& %.@55 %.$@

$%&% %.(68 %.@(% %.$8$

$%&( %.(&@ %. %.&5


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Coming Economic Crisis?

China's new year headlines are all about the economy. Afficial plans call for slower

growth in $%&@ and beyond, with the 5. percent growth target reduced to @. 9 ."run of poor results in the manufacturing sector calls even that more modest target

into question. 2t is a worrying time for the global economy. -hile the euro area is

not yet out of its crisis, and the Bed could trigger an emerging1markets crisis by its

imminent rate hike yet another crisis might happen in China. The Chinese stock

market crash in summer $%& , which sent shock waves around the world, already

provided a taste of such a scenario.

The reasons for China>s success are exploitation of workers and environment to

become the manufacturing hub of the world.

Changes that have happened over a period of time in China that indicate the

coming of economic crisis are=

• Change in social structure that affect the china>s capitalist economy=*y this we mean that 2n &77%>s due to privatisation there was a increase in

number of workers and also work force shifted from agricultural sector to

manufacturing sector, which decreased the bargaining power of labours but

with time again the bargaining power has shifted back to working class.• Autput to capital ratio has declined due to economic contradictions such as=

- The high capital intensity of heavy industries- They were not able to increase the level of exports

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2f China>s rate of profit continues to fall at the current rate then it will reach to a

profit rate associated with the 43 during the reat !epression, which eventually

will lead to economic and political instability.

h+ it will be difficult to a,oid economic crisis?

2n earlier times crisis were handled by relocating old industries to new

geographical areas but now it will be very difficult to find a different

manufacturing hub with lower labor and environment cost. Hence, it will affect the

world economy also.

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