PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. We’re joined again by Minqi Li. He teaches at the University of Utah. And he was once a political prisoner for a couple of years in China. His recent book is The Rise of China and the Demise of the Capitalist World-Economy. It was published in 2009. Thanks for joining us again, Minqi.
PROF. MINQI LI, UNIVERSITY OF UTAH: Yeah, thank you, Paul.
JAY: So in one of our earlier interviews, we talked about whether or not China was really pulling out of the global recession and how much it had been affected. At the time, you’d suggested that a lot of this was really just state stimulus spending and circulating of more money. To what extent do you think that was a correct call? And is China really out of the woods? Or, as we’re seeing in the West, this recovery, they’re calling it, they’re using the word "fragile". I think it’s really questionable whether there really is a recovery. But what’s happening in China?
LI: Well, I guess it all depends on your definition of a recovery. But to be fair, we should recognize that the Chinese economy certainly is moving ahead at a much more rapid pace compared to the Western economies. So the United States, for example, is growing right now at about 2 or 3 percent a year, and the recovery is very slow, and we know that unemployment stays very high. By contrast, in the first half of this year, the Chinese economy grows at a rate of about 11 percent. But on the other hand, the fundamental problem is that the Chinese economy continues to rely heavily upon investment, which accounts for about 50 percent of the GDP. In the first half of this year, it continued to grow more rapidly, the investment continued to grow more rapidly than the overall economy.
JAY: So by that you mean state investment.
LI: No, actually. State investment is only about 40 percent of that. And so the rest, 60 percent, would be private investment, including both domestic and foreign.
JAY: So what’s wrong with that? I mean, why is that a problem?
LI: Well, the one problem is that when you have too much investment and you build extra capacity but you don’t find the customers to buy the actual product—China [was] able to export a lot, but now the Western markets are stagnating, so you don’t have customers there. And then, in recent months, more and more of an investment is concentrated in the property sector. So the worry is that you could generate a housing bubble, which potentially could lead to a later economic collapse.
JAY: So if United States and Europe and Canada and much of the rest of the world sinks back into deep recession, to what extent will China be [inaudible] or does it really throw China into a tailspin as well?
LI: Well, if the Western countries do return to recession, that will have serious impact on the Chinese economy, although I don’t think that to be a very likely scenario in the next two or three years. But in for or five years the risk is very high.
LI: Right now the US and other countries have relied upon a high fiscal deficit to sustain the economy. That cannot be relied upon forever. And, moreover, in a few years, I would expect that because of the oil demand in Asia and other parts of the world continue to rise, and, on the other hand, it will be more and more difficult for the world to increase oil production, so we arrive at this peak oil moment, and that’s going to cause global energy crisis. That will kill the global economy.
JAY: Because oil prices will go through the roof.
LI: Yes, similar to 2008.
JAY: So China can see this coming. Is there any measures that they can take? I guess what I’m asking is: is the Chinese economy any more of a planned economy? I know they use the words, they talk about a planned economy, but they’ve kind of unleashed a lot of spontaneous capitalist forces in every direction. But is China more planned than some of the Western countries and thus more capable of dealing with some of this?
LI: Well, in fact, China now calls itself a socialist market economy. If you think about China, it’s somewhat in contradiction. So it calls itself a socialist market economy. To a large extent it’s not very different from a standard capitalist economy. On the other hand, your impression is true that China does tend to have somewhat more state influence with respect to the economy compared to Western countries, especially compared to today’s Western capitalist countries. On the other hand, because China has got a higher level of corruption, and so the overall effectiveness of the state policies and laws are not as effective as in Western countries. So you have to balance against the overall stronger state influence against this background of corruption and lower effectiveness of central government intervention.
JAY: The other big question that keeps being asked is to what extent will China continue to believe in the US dollar. It owns trillions of US dollars. But there’s been a lot of talk about whether there’s going to be some attempt to float another international reserve currency. Where are things at now in terms of Chinese thinking?
LI: Well, I think the Chinese government is to some extent aware of this potential danger about holding $2 trillion of foreign exchange reserves in the form of US dollars. But on the other hand, I don’t think they will actually do anything, for example, to sell the US dollar on the massive scale, because that’s going to hurt not only the US economy; that’s going to trigger the collapse of the global economy, including the Chinese economy. And so the potential question is that in the future, as the global economy moves into [inaudible] stage of crisis, and that’s going to cost Chinese economy as well.
JAY: And you’re talking about that within two to three years. You think around 2015 or so is when this is—.
LI: Four or five years, I would say.
JAY: Four or five years, around 2015.
JAY: Hmm. Okay. Well, I’m sure we’ll be interviewing you again before then, but certainly we’ll talk again in 2015, and hopefully we’ll all be in positions to be doing all of this.
LI: That I will expect.
JAY: Thanks very much for joining us, Minqi.
LI: Thank you very much.
JAY: And thank you for joining us on The Real News Network.
End of Transcript
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