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Wolff: China’s growth is either a miracle or something frightening – numbers disconnected from reality

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. And joining us again from New York is Richard Wolff. He teaches political economy at the New School. Thanks for joining us again, Richard.


JAY: So China says its economy has already bottomed out, and it’s somewhat echoing American messaging that the recovery has begun, except China’s making bigger claims. They say their stock market’s roaring back, the economy and growth is picking up, and they’ve more or less avoided the worst of the crisis. What do you make of this? Is China going to pull the world out of recession?

WOLFF: Well, one of two things is going on. Either the Chinese economy genuinely is entitled to be called a miracle, or something is happening in China that is frightening, which is a disconnection from reality, an explosion of mythology, of numbers that are deeply, one would have to say, dubious. Let me explain. Everywhere in the world, everyone has been saying for 25 years that the genius of the Chinese economy was based on exports, that China could and did produce better quality or lower price or both, and flood the world with the exports that their economy made possible. That was what everybody said, including the Chinese. We now have a situation in the world where we have a global capitalist crisis. Everywhere, consumption is down. Everywhere, people are buying fewer goods, including goods from China. How is it possible that in that society, so dependent on the world economy, they could now have an explosive growth? Their stock market is now 100 percent higher than at its low—nothing remotely like that hardly anywhere in the world, certainly not in the United States or Europe. How is that possible? In order to believe what the Chinese are saying, you would have to agree that in a matter of months, mostly a year, no more, they have been able to transform their economy from an export-based powerhouse to a domestically focused industrial engine. Nowhere in the world has that ever taken less than decades.

JAY: And they would have had to have accomplished that at a time of growing unemployment, because losses in the American and European markets.

WOLFF: Absolutely. And growing unemployment, because a factory that’s geared to making cheap toys for the United States cannot quickly turn around and find something else profitable to do. For example, there are not enough Chinese people with the money to buy those toys. What are you going to do? The Chinese economy has to be re-geared from export to domestic. In order to believe what the Chinese are saying, you would have to believe that they have, in unbelievable short amount of time, reorganized and reoriented their economy in a time of global capitalist crisis to stop being export-dependent, as they have for the last nearly half century, and to become instead an integrated economy that produces for its own consumption. Frankly, I think the chances of that are very, very small.

JAY: Now, China did spend a lot of stimulus money. Do you know? I don’t know if you know what the numbers are, but they did commit to a stimulus. Is it possible it’s having this kind of an effect?

WOLFF: Again, I find it not credible. They have a very large stimulus—by the way, not as large as the United States’, but for them a very large stimulus. No doubt it is helping. Even more impressive, ’cause you can get some numbers, they are flooding their economy with unbelievable quantities of money, cheap loans, to everybody to do everything. These are the conditions—hothouse development like this, loads of money floating around, lots of corruption. I want to remind you there are periodic stories out of China that ought to give anyone pause, for example a story in which a company announces to its workers a restructuring plan because it’s in such trouble. The workers get all upset about the fear of losing their job and kill the owner-manager of the company. A record number of upheavals and riots. This is a country in enormous turmoil at a time when their markets have disappeared on them. The chances of them having the kind of growth that could support this current stock market boom in China is really not credible. And here’s my worst fear, because of its implications not only for the Chinese but for the whole world, that you are seeing here a debt-driven government stimulus bubble of the classic sort, a kind of wild euphoria in which the Chinese and investors in China believe that somehow it’s dodged the bullet, the bullet that has laid waste to every other economy, that is making people from Iceland to Ireland to Spain to the United States rethink all their basic strategies as businesses, as unions, as consumers, that this has all bypassed China. This is not believable.

JAY: So if this is a stock market bubble—and perhaps one can call it a propaganda-driven stock market bubble—then what happens when the bubble bursts?

WOLFF: The same thing that happens when bubbles burst everywhere else: lots of people lose an awful lot of money very, very quickly. Money that flows into China can flow out. The level of unemployment they’ve had in recent years, which because they’re a large company has been sizable—tens of millions of people have lost their job—that would be considered good times if we have a burst bubble, because there’s nothing else that’s going to support the Chinese economy if this last-ditch effort to evade the global breakdown turns out to be, as more and more of us believe, a mirage, a bubble that cannot be sustained. For example, if you believe the Chinese, that they are producing the kinds of outputs they are, and you also believe them when they admit that their exports are shrinking, where is the stuff going? They can’t sell it to their own people—they don’t have the money. They can’t export it. They keep producing it. That suggests they’re storing it someplace, maybe hoping against hope that even though they can’t sell the output now, they can pay their workers, prevent the unemployment from getting worse, and hope that they can sell it in the future. But if the recession, in terms of purchasing power, lasts for the next few years, which most of us in the West believe, left, right, and center, then they’re gambling on something that will not pay off.

JAY: Well, then the issue of global [inaudible] never seen the global deflation that would hit if these stored up products hit the market at ridiculously low prices.

WOLFF: Right, which they’ll have no choice but to do. They will have no choice but to do it. And they would dump these goods. And more than that, if they dump these goods because they cannot sustain their levels of production, then they’re no longer going to do what they now admit they’re doing, which is stockpiling raw materials, basic minerals and metals and so on, in the hope that they can keep up production. They’ll stop all of that. And then the economies, like Australia, the United States, and Latin America, which ship iron ore and aluminum and all these oil to China, they’re not going to have market anymore, and that’s the only thing that sustained them in many cases, ’cause of the ties between the booming Chinese production and the producers of raw materials and inputs. So the world is all tied together. If we have a Chinese bubble as the third and final step—. We had a stock market bubble in the West, in the United States, that blew up 2000. We had a real estate bubble in the West and the United States that blew up in 2007 and ’08. My fear: we’re going to see in 2009 or ’10 the final blown bubble, and it’ll be called the Chinese bubble, and it will come at the end of the other two. And the cumulative effect is terrifying.

JAY: Well, on that note, I was going to say please donate to The Real News. I think I’ll probably say run for the hills. Thanks for joining us.

WOLFF: Thank you for the opportunity.

JAY: And thank you for joining us on The Real News Network. And I wasn’t serious about not donating. Donate, and then run for the hills. Thanks for joining us. Bye-bye.


Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

Richard D. Wolff

Richard D. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, and currently a Visiting Professor of the Graduate Program in International Affairs at the New School University in New York. He is the author of many books, including Democracy at Work: A Cure or Capitalism, and Imagine: Living in a Socialist USA.