China Sucked Deeper Into World Financial Vortex, as BRICS Sink Fast
On Monday November 30, the Chinese
currency – the yuan – will join the dollar, euro, pound and yen as the
world’s official reserve currencies, as recommended
by the International Monetary Fund (IMF). Are we reaching the fabled
new era of multipolarity, and will it bring stability to a chaotic world
economy – “a win-win result for China and the world,” as the People’s
Bank of China claims? Or instead, will this heraldthe
amplification of extreme uneven development, worsening financial
crises, and the abuse of Chinese economic surpluses, yet again, for the
purpose of bailing out the corrupt, fragile world financial institutions
and their elites?
In that optimistic People’s Bank
statement, I take the name “China” to mean the neoliberal clique at the
helm of Beijing’s economic management and Shanghai’s financial
institutions, and the “world” to mean a very shaky capitalist system
suffering periodic spasms in its hyper-speculative financial centers.
Since Wall Street’s crash of 1987, these
centres have enjoyed Washington backstops (the Federal Reserve Board
and Treasury) that have themselves been the lucky beneficiary of Chinese
purchases of U.S. Treasury Bills. Reaching the sum of $1.3-trillion in
late 2013, that process has finally reversed, with about $100-billion in net T-Bill sales
by China since then. But Beijing still holds about a third of its total
foreign reserves in these investments, representing more than a fifth
of all foreign U.S. T-Bill holdings. In turn, the $6-trillion in U.S.
T-Bills is about a third of total U.S. foreign indebtedness.
China is joined at the hip with
Washington’s maniacal, money-printing Fed and Treasury. Its elites need
U.S. borrowing power to translate to U.S. consuming power to translate
to Chinese exports; that relationship appears too important to jettison.
China’s Homegrown Economic Problems
Moreover, Beijing is mindful of
homegrown economic problems, including its own vast overindebtedness,
the secondary cities’ real estate meltdown and the $3.5-trillion
collapse of the main stock markets mid-year. If London bankers are correct,
then as the IMF welcomes the yuan to world-bourgeois respectability, an
additional $1-trillion of global reserves could move into Chinese
financial assets. That inflow would negate Beijing’s August 2015 two per
cent currency devaluation and make the whole system more balanced at
surface level (since there is currently so little yuan trade outside
Hong Kong), yet far more chaotic underneath as a result of international
contagion from a future Chinese debt crisis or from world finance
meltdowns finally affecting China. Meantime, China will probably bolster
the IMF’s own loan-pushing in its new self-interested currency
partnership.
Is there an alternative strategy: an opting-out of the financial death grip between China and the West? And for the other BRICS
(Brazil, Russia, India, China, South Africa), is there a way to support
the Bank of the South founded by Hugo Chavez (which without Brazil’s
support appears stillborn), or to default on ‘Odious Debt’ (as did
Ecuador in 2009), or to impose tough exchange controls (as did Malaysia
to halt capital flight in 1998), or to insist that state regulators get
control of local financiers rather than the other way around?
Aside from Russia (facing partial
Western financial sanctions), the answer is no, thanks to the BRICS’
neoliberal decision-making officials now in power. To illustrate, at its
founding, the BRICS Contingent Reserve Arrangement (CRA) was designed
so the IMF gets ever stronger, the more quickly and desperately BRICS
borrowers need a bail-out loan. The CRA articles of agreement compel the
borrower to visit Washington for an IMF structural adjustment loan
after drawing down just 30 per cent of their quota in the supposedly
‘alternative’ institutions.
China, USA and Global Financial Institutions
Just after the BRICS CRA became operational in late September, Barack Obama’s statement
during Chinese leader Xi Jinping’s visit confirmed the game in play:
“China has a strong stake in the maintenance and further strengthening
and modernization of global financial institutions, and the United
States welcomes China’s growing contributions to financing development
and infrastructure in Asia and beyond.”
To be sure, Obama was outmanoeuvred on
this front earlier in the year – when Beijing’s Asian Infrastructure
Investment Bank received European and Bretton Woods Institutions’
support against his wishes – and so in appeasement mode, he told his
guest, “The United States commits to implement the 2010 IMF quota and
governance reforms as soon as possible and reaffirms that the
distribution of quotas should continue to shift toward dynamic emerging
markets and developing countries.”
He may break that promise, because
Republican members of the U.S. Congress have for five years blocked the
quota voting reform, due to their worry about declining power at the
IMF, even with minimal shrinkage (from 17% to 16.5% of voting shares).
It’s a typical silly rightwing-populist ruse, for Obama has protected
the U.S. veto by not letting his delegate’s voting quota fall below 15
per cent.
The argument for IMF vote rejigging comes mainly from the countries that gain
votes once the 2010 deal is implemented: China +37%, Brazil +23%, India
+11%, and Russia +8%. (South Africa loses out, as Pretoria’s share
would fall 21% under the 2010 terms.)
Which countries, then, lose
the most IMF voting power if the 2010 deal is implemented? Amongst them
are these Southern countries: Nigeria -41%, Venezuela -41%, Sri Lanka
-34%, Uruguay -32%, Argentina -31%, Jamaica -31%, Morocco -27%, Gabon
-26%, Algeria -26%, Bolivia -26% and Namibia -26%. So much for the
BRICS’ South-South solidarity.
In return, said Obama, “The United
States supports China’s presidency of the G-20 in 2016.” After all,
Beijing will also “promote international trade and investment as engines
of global growth,” even if left out of Obama’s trade deals.
Engine of Global Crisis
In reality, China stands poised to be the engine of global crisis. Though he is not always trustworthy, the Ronald Reagan regime’s former Budget Director and subsequent Wall Street financier, David Stockman, is scathing
about China’s governing elites: “In the process of taking its debt from
$2-trillion in the year 2000 to $28-trillion at present, in fact, China
has erected an endless string of uneconomic public facilities and
industrial white elephants that boggle the mind. For instance, it has
1.1 billion tons of steel capacity: 400-500 million tons more than its
domestic economy will ever be able to use on a sustained, sell-through
basis.”
Here in South Africa, the steel industry
is an obvious victim of Chinese overcapacity, with the recent closure
of the second biggest firm, Evraz Highveld (owned by a Russian tycoon)
and the shuttering of many foundries belong to the world’s largest,
Arcelor Mittal (owned by an Indian tycoon). The 10 per cent tariff
protection offered the two by the Trade and Industry Minister (a
Communist Party member, Rob Davies) is simply a flimsy bandage: much needed for flesh-wounds but not much use against China’s fatal overproduction malady.
For this reason, the world’s most
frivolous investors, notorious for fad acronyms and investor-churning,
have just abandoned the BRICS: Goldman Sachs. On November 8, the bank
that brought the world to the edge of the financial cliff after gaming U.S. home mortgages and other ‘toxics’, closed
its main BRIC (i.e. minus South Africa) investment fund. That fund’s
peak valuation of $842-million in 2010 was reduced by 88% in value to
$98-million this month. Over the same period, $15-billion was withdrawn from the four economies by Goldman Sachs and other frightened investors.
In this chaotic context, the IMF’s
assimilation of the yuan helps prepare world financial markets for the
next version of bailouts, perhaps similar to the 2008-13 Federal Reserve
‘Quantitative Easing’ and 2009-style IMF Special Drawing Rights
pump-priming. If in coming months recessionary winds howl, as expected,
it appears the BRICS and especially China will blow even harder to keep
the West’s financial house of cards standing.
They shouldn’t, but the power balance
within the BRICS today seems to dictate a sub-imperialist stance in
relation to global finance, instead of an anti-imperialist one. To
illustrate, the two men the Pretoria regime just deployed
to co-direct the BRICS New Development Bank go to Shanghai from
high-paid jobs at, you guessed it, Goldman Sachs-Johannesburg: Leslie
Maasdorp and Tito Mboweni.
To change that power balance here in South Africa, much more pressure is needed from below:
- more student victories so as to redistribute the fiscus to where it is needed, probably at next February’s Budget Speech;
- more demonstrations at SA Reserve Bank branches to lower interest rates (as implied by the leftist students’ anti-debt protest in Pretoria and the Economic Freedom Fighters’ 50,000-strong march in Johannesburg, both on October 27);
- renewed metalworker trade union demands for exchange controls (since the limit on annual expatriation was loosened from $275,000 to nearly $700,000 this year to the applause of rich whites); and
- an intensification of society’s critique of bankers’ exploitation (coming from ordinary citizens who are filing successful lawsuits against salary-garnishee and debit order abuses).
Those, at least, are hopeful signs that
while China shifts the deck-chairs on the world financial Titanic and
while the BRICS sink fastest into the whirlpool, a few life-preservers
are being readied for the rest of us on the lower decks here in South
Africa.
Internationally, other life-rafts are
being pumped up or hopefully can be quickly reinflated: European
struggles against austerity, the Occupy movement and its various
residues, debt cancellation advocacy and the Third World’s thousands of
‘IMF Riots’ over the last third of a century. Sure, that kind of
counter-power has repeatedly risen and then rapidly shrivelled during
the neoliberal era’s contestations against corporate and banking elites.
So in your neck of the woods? What
preparations are activists and progressive strategists making for the
next 2008-type financial melt? •
Patrick Bond teaches political economy at the Wits University School of Governance in Johannesburg. He also directs the UKZN Centre for Civil Society. His book BRICS: An Anti-Capitalist Critique
(co-edited with Ana Garcia) will be published in July by Pluto
(London), Haymarket (Chicago), Jacana (Joburg) and Aakar (Delhi). This
article appeared originally at CounterPunch.org.
The original source of this article is Socialist Project
Copyright © Prof. Patrick Bond, Socialist Project, 2015
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