China on Verge of Crisis of Capitalism


How sturdy is that rock of Australian earnings growth-Chinese demand? “The rampant Chinese economy that Kevin Rudd and Wayne Swan are confident will help insulate Australia from the worst of the global financial meltdown is starting to falter, with Chinese leaders warning of a ‘most difficult’ year ahead,” report Rowan Callick and Sid Marris in yesterday’s Australian.

“There are uncertainties in international circumstances and the economic environment, and there are new difficulties and contradictions in the domestic economy,” Chinese Premier Wen Jiabao said at a meeting of the State Council last week.

“All the advice that I am receiving is that we are well placed to withstand international turbulence although we are not immune from it,” said Federal Treasurer Wayne Swan.

What an interesting contrast in bureaucratic speak. The use of the word “contradictions” goes all the way back to Marx and his critique of capitalism, that it was rife with “internal contradictions.” These contradictions are resolved through the dialectic, the synthesis of two previously contradictory ideas (the thesis and anti-thesis).

China is probably on the verge of its first crisis of capitalism. So far, it’s produced great wealth, which naturally leads to a skewed distribution of income between those who are newly wealthy (day traders, factory owners, urban dwellers) and those who are not (500 million subsistence farmers uprooted by the transition to an industrial economy).

According to all the advice Wayne Swan is receiving, none of this is a problem, nor does it pose any risk to China’s long-term appetite for Australian resources. Phew. Good thing we don’t have anything to worry about or plan for.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.


  1. Mind you, if he’s so reliant on advisors all the time what are we paying him for? Maybe they’re the same advisors who got the last mob to sell off over half the countries gold, you remember….. back when was under 300……all those years ago…..

  2. Good article and some interesting points. But I’m not sure if this is China’s first crisis in its economy, since, if we look at the economic and historic facts, we see it’s always been -at least predominantly capitalistic in its economy (the failure of Mao’s “Great Leap” program in the late 1950s could be viewed a sort of its first modern-era capitalist crisis).

    The truth is you only need look at Chinese “communist” Party documents, including Mao going back to the post-1949 Revolution period to see that in fact that state capitalism is what it’s always been:

    Mao: State capitalism on Building the Economy- Conference on Financial and Economic Framework 1953

    It seems the only major difference now is that it has been made more liberalized and dynamic than the closed economic nationalism of the Maoist era.

    China: state capitalism to private capitalism 2003

    In Europe, state capitalism became more significant, as with state-owned services and businesses, in the late 1800s in Europe, denounced by Marx and Engels in Socialism: Utopian and Scientific as at best a compromise in the public interest; at worst totalitarianism and fraud.

    But it really took off with the consolidation of state bureaucratic cliques in Russia after the 1917 Revolution in accordance with the supposedly transitional state capitalist policies of the first Bolshevik government:

    Lenin: Industrial Management under a State Capitalist Monopoly Framework

    Progress Publishers, Moscow; Lenin: State Capitalism During the Transition to Socialism (Index)

    Lenin and Bukharin on the Transition from Capitalism to Socialism

    The rise of Stalinism, of course, made that “transitional” policy more of less permanent (by mostly brute force and oppression).

    As for China, the only part of its economy that can really be described even remotely accurately as communist or even socialist is its huge cooperative/commune movement.

    Perhaps this is what China needs more of. We see that in Scandinavia and other European countries, where there is a greater degree of practical socialism (as in cooperatives, labour-sponsored ventures, community-based business and similar democratic economic development), there is a higher standards of living, greater personal and social freedom and greater opportunity and stability.

    February 1, 2008

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