As markets continue tumbling to record lows on an almost daily basis, most world leaders are being forced to concede that a sharp protracted global recession is unavoidable. IMF chief Dominique Strauss-Khan admitted that the world is “on the cusp of recession.”
In such times it would seem absurd for Australian economists to assert that we have already “survived what was almost certainly the worst economic and financial crisis of our lifetime.” However, the driving forces behind Australian economic growth in recent years have led many to the false conclusion that our national economy is immune to the threat of global crisis.
This belief is sustained by the fact that for the last five years, Australian growth, especially in Western Australia and Queensland, has been heavily reliant upon an export market bolstered by Chinese development. For example, China’s unprecedented demand for primary resources over this period has seen the value of iron ore exports rise from $7.1 billion to $53.3 billion. Such exports have lead to a 19% rise in GDP.
Optimistic analysts have hoped that in the event of a global downturn, the Chinese economy would merely slow from “incredibly high growth rates to something that’s still high.” Others have suggested that China’s strengthening domestic economy would enable it to ‘decouple’ in the event of global financial woes, and that Australia would ride out upon the coat-tails of China’s unstoppable modernisation.
Recent developments in China demonstrate that these predictions have grossly underestimated China’s reliance upon global stability. The Federation of Hong Kong Industries warns of 2.5 million job losses in China in the coming three months, along with the closure of 20,000 small to medium-sized enterprises by 2009.
However this should come as no surprise. The power-house of China’s economy is founded upon global capital. Export driven growth has been fueled by the US consumer market, which accounts for 70 per cent of US economic activity and 30 per cent of world private consumption.
Credit, and mushrooming debt, has sustained the market for the goods that have poured out of China. This market has centered in the US, where US workers have acted as the world’s consumers of last resort, borrowing the money that has allowed them to keep on buying. They have been able to do so on the strength of successive bubbles, firstly the dramatic rise in share prices – the dot.com boom – and, more recently, the bubble in house prices. The credit crunch and the collapse in world share markets has placed the breaks on this spending spree. As a result, China’s export volume growth has been diminished significantly.
Furthermore, much of the Chinese surplus has been recycled back to the US, some of it into the now troubled US financial companies. A quarter of the Chinese reserves have been invested in US government liked institutions, including Fannie Mae and Freddie Mac.
As was recently proclaimed in the Wall Street Journal “Among the many economic theories now in tatters is one that said that the US was no longer the indispensable powerhouse on which global growth depended. It turns out that US consumer spending remains a big driver of world economic growth because of heavy trade between countries. Banking woes in the US and Europe are making credit harder to come by around the world and the downturn more difficult to escape.”
The possibility that an expanding Chinese middle class could fill the vacuum in demand left by debt-ridden US consumers fails to account for the uneven nature of the Chinese boom. Whilst urbanisation has reached staggering proportions in recent years, these leaps have been mostly limited to the exporting regions, such as the Pearl River Delta. In these coastal provinces, per capita GDP has been as much as six times higher than in the West. As the global crisis worsens, it is precisely these areas of new wealth that are being hit the hardest. In Shenzhen, property prices have plummeted by up to 40 per cent.
The Beijing regime continues to assure the world that its economy is watertight. However, such statements are clearly tailored to avert the flight of speculative capital out of the country.
Australians must not be misled by the advocates of capitalism within our country. The cracks appearing throughout the Chinese economy are evidence of the fact that there is no regional solution to the global financial crisis. If workers swallow the lie that the ‘lucky country’ will scrape through, they will suffer the worst effects of this crisis, bailing out the bosses while waiting for better times to return.
The worker’s movement must offer a fighting socialist alternative. Economic isolationism will only provide fertile ground for the right wing, who could exploit the anger created by economic hardship and divert people from drawing conclusions that challenge the system that created this crisis. A global crisis demands a global solution, and the only solution that can hope to avoid a repeat of the current crisis is one that places the controlling heights of the world economy within the hands of the workers.
By Matt Wilson