Video: Summary of some of the points made in Wen Tiejun video

Video: Summary of some of the points made in Wen Tiejun video “温铁军：全球化进程中的中国危机与经验【温铁军践闻录|两小时收藏向】

1. China remained poor during the 1950s and 1960s partly because it was threatened by the US and the Soviet Union after the Soviet-China split. With the start of the Korean War, China was blockaded by the western block led by the US. To support China’s Korean war, the Soviets helped China to develop its heavy and national defense industries in the 1950s. These industries generated no or little income for China, which had to devote its scarce capital accumulated from the farming sector to maintain and modernize these industries. After the Soviet-China split China had to repay the Soviet loans extended during the Korean War and its aftermath in the 1960s with agricultural products.

Both the US and the Soviets threatened to use tactical nuclear weapons on China, a total of 5 times. China had to develop nuclear weapons on its own to thwart such threats. China had to relocate the defense industries from coastal areas to inland areas to stay further away from military threats coming from the ocean, which required another round of heavy investment. The fact that China remained poor during the 1950s and 60s is not just the result of wrong policies, but because of heavy burden of national defense required for China to remain a sovereign nation. That was the price China paid for its national sovereignty.

2. China’s money supply grew faster than the US and Japan because it needed to monetize the transition to a market economy. Housing used to be allocated by the state and not bought and sold. When it is possible to buy and sell land and housing leases (monetization), the state would need to print more money to provide the liquidity for such transactions. With the growth of the capital market (capitalization), where investments and related financial products can be bought and sold, China would need to print more money to provide the liquidity for such transactions.
3. The conflict between the US and China stems from the fact that the US wants complete systems of industries to return to the US which conflicts with the industrial production in China. In the other direction, China’s financial capital is growing and threatening to take world market share from the US. For example, China tried to form a free trade zone with Japan and Korea after the 2008 financial crisis, using the currencies of the 3 nations involved. The US sensed its threat to US dollar hegemony, announced its pivot to Asia policy, and instigated the Diaoyu Island and the Tokdo Island conflicts between Japan and China, and between Japan and Korea, to scuttle China’s effort.
4. The reason as to why China did not experience a downturn in its growth (challenging the China’s impending collapse predictions), because 70% of land in China is controlled by the state, and 70% of the economy is state owned. These are the levers China used to boost its economy during downturns and tamper it during growth that is too fast. For example, for a while, China set the GDP growth rate between 7% and 8%, because when it is below 7%, the economy would not be able to absorb the millions of young people entering the work force (causing social unrest), and when it exceeds 8%, it would cause inflation.
5. The world is now ruled by a financial capitalist system, which inevitably causes a widening gap between the rich and poor. This system has three pillars: the dollar, dollar denominated debt, and US military hegemony which is the foundation of the prior 2 pillars. This is an expanding system, with the printing of more dollars, issuance of more debt and increased military spending, causing an ever increasing budget deficit. This system needs to transfer the increasing cost of its maintenance to other countries, and caused crisis in these countries.
6. Humans are greedy by nature. That is why industrial capital will tend to turn away from manufacturing and seek a higher return in financial capital, because it is much quicker to make a profit by financial transactions than in making products. Hence there is a natural tendency for a country to transform from a mainly industrial economy into a virtual one where financial capital dominates. Financial capital will lead to fascism, because it needs only a small number of people for it to function, rendering most of the populace superfluous. China has tried to curb the excesses of financial capital by regulating the use of derivative financial products.
7. Bill Gates made it big because the US government invested billions in computers and the internet for military in competition with the Soviet Union, and this sunk cost is recaptured after the collapse of the Soviet Union when Bill used the developed technology for the commercial market.
8. The Asian financial crisis in the late 1990s was partly triggered by an outflow of international capital leaving Asia for the US to take advantage of higher returns from investing in the US booming computing and internet

9.       Wen described a very interesting cycle in financial capitalist operation.  Due to the quantitative easing (QE) by the developed countries, these excess currencies entered the capital markets which speculates on commodities such as oil and grain.  This in turn increase the prices of these commodities which reduces the demand in developed countries, and therefore the demand for goods exported by developing countries to the developed ones.  China tries to overcome this softness in its export market by issuing debt for investing in infrastructure.  But these investments require importing the price inflated commodities.  This is how the QEs by developed countries transfer costs to manufacturing countries like China.  But this will cause the prices of exports to the developed countries to increase, which will cause a rise in interest rates to compensate for the inflation.   This will make it difficult for small and medium size businesses to obtain credit, so that industrial capital will find it difficult to make a decent profit, causing it to turn to speculation in a vicious cycle.  In order to obtain capital for the speculation, speculators are willing to pay still higher interests or usury rates.  This causes capital to leave the banking system to shadow banking for usurious returns.  This means the developing country’s debt burden will increase while the state has reduced control over the banking sector, making it exceeding difficult to steer and save the economy. The sustained reduced profitability of firms in manufacturing countries causes their share prices to fall.  Then multinational corporations armed with easy and low cost money from the QEs will come in to swoop up these shares or assets stripped from these manufacturing firms.  This is how developing countries remain underdeveloped and in distress during the rule of financial capital.

10.   When the US dotcom bubble burst in year 2000, capital flowed to China to take advantage of the trillions of infrastructure investment the Chinese government made in response to the Asian financial crisis.  That is how multinational corporations made a bundle from their investments in China.  At the same time, it marked a golden 10 years for China with GDP growth of 9.6%.

11.   Industrial capital has been replaced by financial capital as the mode of production in countries such as the US.  But as we have seen, this mode of production will produce endless world crisis and is a dead end.  China is proposing an ecological civilization (i.e. green) development strategy, enabling humans to live in harmony with nature.  Humans will realize that excess greed will need to be transformed into an understanding that living in peace and as part of nature is the only possible way for the future.  China, with its heathy economic structure of the relative composition of industrial and financial capital, is well positioned to take this route.

Professor Kenneth Hammond: The export of capital through imperialist or colonialist expansion was hugely important in the 19th & 20th centuries, but it was also part of the pattern of earlier development in European capitalism as the centers of accumulation shifted from Italy to norther Europe, and then across the Atlantic to the US. These processes were not mutually exclusive. In the present conjuncture, though, as the global economy has become more highly integrated and centers of productive activity have proliferated beyond the old imperialist core economies, financialization has become the predominant mode in much of Europe and especially in the US. One of the key factors in the de-linking of the Chinese and American economies is that as China assumes a stronger role in its domestic development and in global expansion the ability of American capital to maximize it profits in China is waning, and in conjunction with the saturation of the American domestic economy and the minimal opportunities for productive investment here, the decline of the US in the global capitalist system is accelerating.