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Rob Johnson says China needs to increase domestic demand, but the “Princelings” are getting rich in a low wage export led economy

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

No serious discussion about economics or geopolitics can take place these days without talking about China, and now joining us is someone who just got back from China couple of weeks ago, is Rob Johnson.

Thanks for joining us.


JAY: So, one more time, Rob is president of the Institute for New Economic Thinking, and he’s a senior fellow and director of the Global Finance Project for the Roosevelt Institute.

So the Chinese are renowned–at least they were–for thinking long-term and sort of having strategic plans. And I wonder if that’s still the case. They may think that way, but when you look at the extent to which the billionaires and multimillionaires in China are really influencing public policy now–. I had an interesting conversation with a Chinese economist once, who I asked, isn’t China the place where you’d think you’d see a New Deal? You’d see a rise in wages, you’d see some kind of government policy understanding that if they built domestic demand in a serious way, they would be so reliant on crisis in the United States or so worried when the American economy goes into a tailspin and such. And I thought it was a very interesting answer. It was–Minqi Li is his name. He said that a lot of people in Chinese government do understand, but they can’t discipline the Chinese monopoly capitalist class. It’s out of control there. These guys are so rich and so influential that you can’t actually have that much rational public policy anymore. I mean, what do you make of what he said? And what are your observations on what’s going on there?

JOHNSON: Well, I’ve read some of his work, and I think he’s onto something there. The concentration of power through what you might call the manipulation of governance has gone on since the time of Mao or before. And a lot of the people who are the children of the princelings were Mao’s deputies or their parents or grandparents.

The concentrations of wealth in China in recent years are enormous. To give you a ballpark estimate (I read a report in China), if you take everybody who’s undersecretary involved in the administration right up to the present, everybody who’s a member of Congress and the Supreme Court, the estimate was they were worth about $6.6 billion. If you take the people in the National People’s Congress, which–I can’t remember what it was–70 or 90 people, they’re worth $70 billion in an economy that’s half the size of the U.S. economy. So the concentration of wealth around the political apparatus and these families is an enormous force relative to the United States, where we’re talking about concentrated inequality here.

The Chinese situation is very, very ironic. Wang Hui, famous political economist, scholar, and humanist at Tsinghua University, Wang Hui has been making speeches around the world called “The Crisis of Representation”. And what he saw was that the Chinese labor force was utilized to attract technology from multinational enterprise but not allowed to organize. And they kept the exchange rate too low, which meant imported things were expensive, wages were relatively low, relative to what they would be in a balanced economy, export-led growth was the recipe, and the princeling types got very, very wealthy. What that did, ironically, was the what you might call aftermath of the Communist Party in China weakened labor all around the world. And what Wang Hui believes is that you need now a rise in the living standards and social conditions and environmental conditions of China to level the playing field and take deflationary pressure off the rest of the world. And yet these Princelings, who are real estate speculators and playing financial games and making deals as the what you might call board members or what they call the comprador bourgeoisie in the old Marxist term, they usher around the multinational corporations and they make a lot of money. That structure, that Nexus has been growing like wildfire for 30 years. How you bring that under control is very difficult.

What we’re also seeing now is tremendous fights among the elites in China. We’re seeing Xi Jinping using what’s called an anticorruption campaign to selectively weaken, imprison, basically, disenfranchise portions of that princeling group so that he can consolidate power moving ahead.

When I’m over there now, their bureaucracies and so forth are much more cautious and much more tentative than they have been in the past. These are very smart and very well-educated people. They comprehend the challenges. But politically they’re frightened. Journalists are telling me–Western journalists, like from the Financial Times and others who are posted there–people stay distant from them, they’re not talking to them as much, they’re often threatened when they write a story. You’ve seen Bloomberg, New York Times, and others expelled from the country.

What’s exciting now, meaning not good or bad but exhilarating in changing, is that the Chinese were always encouraged by Deng Xiaoping to kind of hide their nationalism, lie low. As Orville Schell’s just written in The New York Review of Books, we’re moving to a place now where China is asserting, we’re not ashamed to be different than you. We’re not playing by your rules. When you come to China, we are the Middle Kingdom.

China is different than every other developing country. Every other developing country is playing catch-up and want-to-belong. China is playing restoring themselves to preeminence. That’s a very different psychology. They believe that catching up isn’t enough. They believe being number one again is their rightful place. It motivates their nation. Lots of people–I talked about labor not having all their rights and so forth. That was always done in the context of a national effort to remove the stains of the opium war and the Japanese occupation and get back to the top.

JAY: And using this kind of nationalist kind of fervor/mentality helps suppress what are a growing strike movement, from what I understand. There are strikes breaking out all over the country, there’s village protests, and, of course, what’s going on in Hong Kong right now. What do you make of the Hong Kong situation?

JOHNSON: Well, the Hong Kong situation is, I think, a very dangerous one. In the last couple of days, some of the pressure came out of it from what I’ll call unsavory tactics. There does not appear to be a leadership of the protest movement. So the protests are genuine, heartfelt, widespread. But they can’t bargain. The Chinese have been very clear on the front of their newspapers, in government decrees, right from the top, they will not tolerate this for very long.

JAY: And it seems, from what I understand, most–not all, but most of the Hong Kong elite are with the Chinese government. They just want to leave things as they are ’cause they’re making so much money.

JOHNSON: Well, they don’t want to make less money. Whether they’re making a lot of money or not, they see the center of finance migrating to Shanghai, other business migrating to Shenzhen, and the one country, two systems approach is what you might call likely to be in decay over time. But it’s accelerating the decay to have these protests, and those people who are relatively well-off based in Hong Kong, own Hong Kong real estate, are protecting their interests.

What we’ve just seen in this void of control with potential authority is it looks as though what you might call organized crime gangs–they call them the Triads–have been deployed to go out and physically abuse the protesters in the name of restoring order. And while that’s ugly, absolutely, it seems to be an intermediate ground, where the Triads have been employed to try to extinguish the protests so that the People’s Liberation Army doesn’t have to come in and do the job with great force and great violence.

JAY: In terms of American policy towards China, it would seem in many of these situations in Eastern Europe and other places, often American policy is to kind of fuel a democracy movement to try to open the door so that American capital can come in and have a stronger position. What about in China, though? You would think there’d be very mixed feelings about causing any destabilization of China, given how dependent the American economy is on the global economy and how important China is for that. You’d think it would be pretty self-destructive for the U.S. to start fishing in troubled waters, although, on the other hand, it’s not often not stopped the American policy doing it anyway.

JOHNSON: Well, in the United States, we’re kind of caught between two things. As we’ve talked about in several of our segments, you have a plutonomy. A lot of the plutonomy is making money on their foreign direct investments in China. They don’t want to do anything to upset that applecart, and they will lobby with money for the Americans to take a relatively tepid approach to these problems.

On the other hand, America is considered the world leader and a democracy. Hong Kong was recently a British possession, and the British are our allies. Going in and tolerating the squashing of democracy and looking the other way is very hard for America to do and leaving people believing it’s still the world leader.

JAY: Yeah, but–

JOHNSON: Everybody sees this great-power tension.

JAY: –but when you can play cozy with Saudi Arabia and all the emirates in the Gulf and how many dictatorships in the history, it’s pretty selective when the Americans care about that.

JOHNSON: I agree with you that there’s what you might call moral double standards emplayed continuously. But this is a different one. This is about who’s the biggest dog. No one would ever say Saudi Arabia’s going to take over from the United States as the center of this world system.

JAY: So as part of the rivalry with China it’s important to take a position. Yeah.

JOHNSON: China is the one, since the end of the Cold War–there’s no longer a Soviet Union that’s playing in the game; it’s China and the United States. China’s four or five times the size in population. They’re growing at great guns. They’re the second-largest economy in the world. That anxiety, which is not entirely what you might call itemized calculation, but the idea is [incompr.] changing of guard at the leadership. I mean, people like Henry Kissinger and Brzezinski and stuff talk about this all the time. The question is: who do people turn to, whether it’s the central banking system of so-called swap lines and protections and who can get let out of jail in a financial crisis, or whether the People’s Bank of China is now building up what’s called the BRICS bank and they’re allocating swap lines to all of their counterparties and saying, you don’t have to take crap from the Americans?

The Ukraine sanctions are not lost on countries all over the world. They see the United States putting the squeeze on someone that they’re opposed to. The Chinese are forming what could be the other poll, the other way out of squeeze if you make friends with them. The game is on between the United States and China, and the United States, being what you might call force-fed anti-democracy in Hong Kong, is a threat to that reputation and that notion of leadership.

JAY: Okay. Thanks for joining us.

JOHNSON: My pleasure.

JAY: And thank you for joining us on The Real News Network.


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Rob Johnson is President of the Institute for New Economic Thinking. He was previously Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute's blog NewDeal 2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform.

Dr. Johnson was also a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the US Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.