Minqi Li: Chinese stimulus money fueling China’s growth, but how long can it last?
Story Transcript
PAUL JAY: On Thursday, many leaders of the world—that is, 20 of them—gathered in Pittsburgh for the meetings of the G-20 to discuss the global economic meltdown and what they might be able to do about it. Of course, protesters were in the streets demanding a more democratic global economy. Now joining me to unravel the G-20 and some of the mysteries of the global economy is Minqi Li. He’s an assistant professor at the University of Utah in Salt Lake City with a specific expertise in China and the Chinese economy. Thanks for joining us, Minqi.
MINQI LI: Thank you.
JAY: So, first of all, what’s your take on what the G-20 set out to do, which was to create some kind of new global regulatory environment that is supposed to put off or stop another meltdown as we have just experienced? Do you think they’re going to succeed in any way? And is that actually really the problem anyway?
LI: Well, my understanding is that they have got a very busy agenda at this point. They are going to talk about the regulation, new financial regulations, the correction of global imbalances, what’s going to happen to the global economy in the future, climate change. But it’s not clear at this point if they are going to achieve anything that’s particularly meaningful.
JAY: What would be meaningful? If you could say, “This is what they should come out of the meeting with,” what would you have liked to have seen?
LI: Well, the basic problem is that we know that right now the global economy is still experiencing the deepest economic crisis that we have had since the end of World War II. And although right now supposedly the global economy is on the path of recovery, but none of the structural issues have been resolved. And I’m not sure the leaders of the world’s leading governments can really achieve a new structural change that can address these structural problems.
JAY: Well, when we talked about a year ago, we talked about the potential of this great global meltdown. This was really before the meltdown melted. And we talked about the fact that China was going to be kind of stuck holding billions of US dollars at a time when the US economy would be tanking. So now we’ve experienced this. China is holding billions of US dollars. And so what is the expectation, your expectation, in terms of where the recession goes? Are we really bottomed out and are we on the way out? Or are we, as some people say, sort of a bump before another crash? And what does all this mean for China?
LI: Well, technically, right now the recovery has started, but none of the structural problems has been resolved. First of all, before the crisis, a major problem had to do with the global imbalances, which you just talk about and which had to do with China’s trade surpluses, the US trade deficits. But now, although technically recovery has started, but because of the collapse of the US financial structure and because of the debt that has been accumulated before the crisis, and I expect that the US private consumption will remain depressed in the coming years. And since the US private consumption accounts for about 70 percent of US GDP, so that is going to drag on the US economy. And so, for the moment, this is to some extent compensated by the massive increase of US government deficit, which now stands at about 13 percent of GDP. But this cannot continue forever. So that’s one structural problem. And on the Chinese part, before the crisis, China has relied upon export and investment to lead China’s economic growth. Now China could no longer rely upon exports. Instead, China has attempted to buy time with massive investment in infrastructure. But that may not be sustained, because in the future this may leave China with massive excess production capacity. So overall the world is still struggling with these basic imbalances.
JAY: Now, at the United Nations, Barack Obama said that the way out of the economic crisis is to create long-term sustainable demand. But then he didn’t talk at all about how that’s going to be achieved, other than regulating the finance sector. But wages remain depressed in the United States. Unemployment continues to go up. Real demand in the US, far from going up, continues to go down. So in terms of what the G-20 is grappling with, again, we hear very little conversation there about wages and real purchasing power. And, again, what does this mean for China? If the American consumer can’t buy, then who is China going to sell to? And what is happening in China? Because we hear China’s economy is still growing. If it’s just based on government stimulus, if that’s all the growth really is, then, as you said, that can’t last for very long. So where is all this headed?
LI: Well, I think you have put it very well. The last time I checked, China’s household consumption as a share of GDP is as low as 35 percent, compared with 70 percent in the US. And China’s household consumption is so low relative to GDP exactly because that income distribution in China is very unequal and because China’s model of growth is based on exportation of cheap labor. And so if this problem is not corrected, it’s difficult to say how we can build onto a sustainable path of growth. And, on the other hand, at the moment it’s not clear what political force exists in China that will leave China in the direction towards more equal distribution.
JAY: The G-20 talks a lot about regulating the finance sector. I think most people have agreed they’re not going to come out with any serious agreements. There’s a big debate about bankers compensation, which, again, they probably won’t reach many conclusions. But this may be my own naivete. I don’t understand how there’s any way out of the global crisis unless the conversation begins on how to raise global wages. As long as—we’ve been covering a strike in Sudbury for example, Sudbury, Ontario, with nickel miners that are in competition with nickel miners in Brazil, nickel miners in Indonesia, all owned by the same global, major firm, Vale Inco. And the same thing when you talk to Detroit: auto workers are competing now with auto workers in Brazil and other countries with much lower wages. So this ability to play workers off, country against country, and keep wages low, if something isn’t done about that, there’s never really going to be a return to serious—what Obama called sustainable demand. Am I missing something here?
LI: I think what you said is very correct. The problem is that under a capitalist system what is good for the workers is not what’s good for the capitalists. If workers get higher wage, capitalists will have lower profits. And for that reason, the capitalists in different countries will resist any pressure to increase the wages. And on top of that, I want to add, in addition to the structural imbalances, on top of that, in response to the credit crisis, all the major governments have responded with massive increase in government deficits, and so that, according to IMF, government debt has increased from about 80 percent of GDP before the crisis to now about 110 percent of GDP. That’s for the advanced capitalist countries. So that may lead to a structural fiscal crisis in the future. And in addition there’s also the question about the depletion of natural resources, especially oil. I think it’s likely that the world oil production has already reached a peak in 2008. And if that indeed is the case, in the future we will have to deal with the potential decline of world oil production. And if China’s and India’s demand for oil continue to grow, we might again see this surge of global oil price a few years. So I would not be surprised if sometime in the next five years we will again see a major world economic crisis.
JAY: And just finally, how worried is China about all these billions of US dollars that it holds? There’s a lot—you know, some people are speculating that the US dollar is going to eventually hit an inflation wall and be debased. Other people are saying deflation is so serious right now, inflation’s not really an issue. Where do you stand on this? And how worried is China about all this?
LI: It’s hard to say. You know, for the moment, so long as the global demand remain depressed, it’s true that deflation is the immediate concern. But after a few years, if we have got this declining global oil production, and then oil prices may again surge, and on top of that you have the fiscal crisis in the advanced capitalist countries, I would not rule out it would develop into a runaway inflation. It’s possible.
JAY: Thanks very much for joining us, Minqi.
LI: Thank you, Paul.
JAY: And thank you for joining us on The Real News Network. And don’t forget the donate button, because we can’t keep doing this unless you click on the “donate”. Thanks again.