China’s Capitalist Crisis Threatens World Economy
By JOHN RAINFORD
In 1978, Deng Xiaoping, who Mao Tse Tung called a “capitalist roader”, initiated an economic reform program labelled “market socialism.”
Within two decades, China had managed to transition from a closed communist state to an open centre of dynamic capitalism with the greatest economic growth rates in human history.
After the onset of the Global Financial Crisis (GFC) in 2008, China immediately injected $US586 billion into its economy in classical Keynesian counter-cyclical stimulus spending. The next year, it began the largest fixed investment stimulus program the world has ever seen.
Globally, fixed investment (physical assets) contributed no more than 25% of GDP growth in the 1990s. By 2009, fixed investment was responsible for 90% of GDP growth.
If there is a single statistic that conveys the enormity of this infrastructure program, it is cement production. Between 2011 and 2014, China used more cement than the US did in the entire 20th century — 6.6 billion tonnes in four years compared with 4.5 billion tonnes in 100 years.
One result of this huge program of state-sponsored growth has been a property bubble that predictably burst, leaving roads to nowhere and ghost cities in its wake.
Another result is huge overcapacity in industrial production in the aluminium, cement, glass and steel industries. China produces more than 800 million tonnes of