China: The Deepest Crisis for 30 Years

Shanghai was on lockdown for months in early 2022 as the CCP pursued it’s paralyzing “Zero COVID” policy.

Vincent Kolo, chinaworker.info

Asuccession of economic and political disasters is casting a dark cloud over Xi Jinping’s impending coronation as China’s dictator-for-life. Paralyzing “Zero COVID” lockdowns of major cities, collapsing GDP growth, record unemployment levels, and accelerating imperialist conflict in the shadow of the Ukraine war have plunged Chinese society into its deepest crisis for thirty years. All social classes have a sense of deep economic pessimism and fear of what the future holds. The brutality of the “Zero COVID” policy has stoked anger on an unprecedented scale against the regime.

Xi has reportedly instructed senior officials that this year’s GDP must at all costs come in above the U.S. figure, an improbable outcome unless the U.S. economy has a hard landing. Bloomberg has downgraded its China GDP forecast to 2% while forecasting 2.8% for the U.S. No international forecasting agency now predicts growth above 4.3% for China in 2022, far short of the government’s 5.5% target.

At the five-yearly congress of the so-called Communist Party (CCP) to be held later this year, Xi will extend his rule with a third term as general secretary or possibly by reviving the long dormant post of CCP chairman. The congress is no more than a rubber-stamping ritual, with its main business decided in advance through a process of trade-offs among the 40 or so main leaders of bureaucratic capitalist clans and factions. Xi’s concentration of personal power and abandonment of the “collective dictatorship” model of the past four decades, since the CCP under Deng Xiaoping initiated the process of capitalist restoration, is an expression of deep crisis within the regime and Chinese society. Social, political, and regional tensions are reaching a bursting point. These internal pressures are one of the drivers of imperialist conflict, as Chinese capitalism is forced to seek a bigger global role. At the same time, the imperialist U.S.-China Cold War exacerbates internal contradictions. Xi wanted stability more than anything else this year, to realize his lifetime-rule project as smoothly as possible. The word “stability” was mentioned 76 times in the government’s annual work report, delivered by Premier Li Keqiang to this year’s National People’s Congress (pseudo-parliament) in March. But stability is nowhere to be seen.

“Zero COVID”. Who Pays?

This year’s outbreaks of the highly transmissible Omicron variant have brought forth a policy of dystopian shock and awe from the dictatorship. The mass lockdowns of 2022 have no parallel in human history. Over 300 million people have been directly affected, enduring weeks of house arrest, loss of

income, food shortages, denial of non-COVID medical treatment and bureaucratic bullying. But even far away from the lockdowns the impact is big – as shown by the collapse in consumer spending – because people fear they may be next.

State censorship means it’s not possible to question Xi’s “Zero COVID” policy. Even the WHO’s mild criticism of the policy as “unsustainable” has been expunged from public view. Global capitalism has gradually come to the realization that Xi’s regime will persist with “Zero COVID” at least until after the CCP Congress, despite its staggering economic costs.

These are reflected in the sharp economic downturn with second quarter GDP likely to show a contraction, but also in the additional burden on overstretched local governments, which have to fund mass nucleic acid testing of citizens every 72, or even every 48, hours. A report from Soochow Securities puts the cost of regular COVID testing for all of China’s first and second-tier cities (combined population 505 million people) at 1.7 trillion yuan a year, or 1.3% of GDP. That’s more than China’s defense budget of 1.45 trillion yuan. This does not, of course, include the much bigger cost to the economy as a whole from lost output, lost consumer spending, and severed supply chains.

Most local governments are in a state of serious financial distress as a result of the drastic reduction in land sales (due to the real estate meltdown) and tax revenue (due to lockdowns and government tax relief). Japanese bank Nomura says the total local government funding gap will reach six trillion yuan (US$895 billion) this year. Local governments across the country are imposing wage cuts on their staff and even demanding repayment of bonuses from 2021.

Shanghai, with an economy the size of Argentina’s, has been locked down since late March. The lockdown was officially lifted at the start of June but then reimposed, and is still in force in many areas of the city. In Beijing, which is officially not in lockdown, over half the city’s districts have been in full lockdown at different times since the end of April. Due to a massive public backlash especially in Shanghai, which flooded onto social media despite the best efforts of the censors, the media are not allowed to use the term “lockdown” in relation to Beijing.

For the working class, the “Zero COVID” policy means increased exploitation, loss of wages, and increased indebtedness. Shanghai, for example, has almost five million migrant workers from poorer provinces. During lockdown, most of these workers have had no work and no income. To afford to live in major cities like Shanghai, most migrants will share a room – not an apartment, but a room, or even a bed – with several others. In normal times, these workers only come

home to sleep, working long hours of overtime to eke out a living wage. But, in lockdown, such overcrowded conditions become unbearable. To meet the demands of the capitalists, especially foreign capitalists who are increasingly shifting production out of China, a “closed loop” system has been introduced at designated factories during lockdown under which workers maintain some level of production in a sealed environment. Instead of working from home, the “closed loop” system means living at work. At Tesla’s Gigafactory in Shanghai, for example, thousands of auto workers The mass lockdowns of 2022 have no parallel have been sleeping on the factory floor during lockdown to put in 12-hour shifts, six days a week. At Apple supplier Quanin human history. Over 300 million people have ta, which employs 40,000 mostly low-paid migrant workers at its Shanghai plant, around 100 workers fought with security been directly affected, enduring weeks of guards to stage a breakout in early May after Omicron infections began spreading inside the compound. Workers accused house arrest, loss of income, food shortages, the company of hiding the outbreak and not isolating positive cases. This example laid bare how the “closed loop” system denial of non-COVID medical treatment and protects profits for billionaires like Tesla’s Elon Musk at the expense of workers’ health and livelihoods. bureaucratic bullying. There have been at least seven other pandemic-related protests by workers in Shanghai since March. One online video shows a protest in June by dozens of hazmat-suited dabai enforcers (“Big Whites”) marching to demand unpaid wages. Another protest in May saw clashes between dabai and police, after a promise that these workers would be allowed to quarantine in hotels before returning to their hometowns was broken, sending them instead to the spartan, overcrowded quarantine centers they themselves had worked in. These incidents disprove the regime’s claim that its pandemic policy puts “people first”. This also answers misguided groups on the left internationally who uphold China’s COVID policy as a progressive alternative to the disastrous pandemic mismanagement of Western governments. The CCP’s stance is equally reactionary, anti-working class, and pro-capitalist. The Xi regime’s emphasis on mass nucleic acid testing has triggered a gold rush for businesses in this field. That includes over 400 new companies launched last year alone, many of which are naturally linked to the CCP elite. Caixin Global reported huge profits for testing companies in the first quarter of 2022. Dian Diagnostics Group saw its profits rise 122%. Beijing Wantai Biological, a producer of rapid antigen tests, saw its profits increase 198%. The net profits of 20 companies listed on the Shenzhen Stock Exchange’s COVID-19 Detection Index doubled in 2021. Among China’s top 50 billionaires, ten are from the pharmaceutical or biotech industries.

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Socialist World Issue 7, 2022 A Tool of Social Control

Xi’s regime is not only persisting with “Zero COVID” but entrenching it into a system for the longer term. The infrastructure of mass testing and quarantine is being massively expanded, with hundreds of thousands of permanent testing centers being built across the country.

In so doing, Xi’s regime is significantly upgrading its apparatus of social control and repression under the pretext of fighting the virus. Restrictions on citizens’ movements are reinforced by the electronic tagging of the whole population through the obligatory COVID health code app. A green health code in your smartphone is needed to go shopping in a supermarket or to walk your dog in the park. This technology did not exist during the first phase of the pandemic two years ago. The Wuhan lockdown, which shocked the world at the time, was much softer than this year’s iterations in Shanghai and elsewhere.

Economy in Freefall

The economic crisis is not solely or even mainly due to Xi’s “Zero COVID” policy, even if this has greatly aggravated the situation. The decisive economic turning point came last year when the housing bubble finally burst. This sector accounted for 28% of China’s GDP. It was the main motor of the CCP’s debt-driven state capitalist economic model and that motor is now broken. A related problem is that current debt levels, at more than 300% of GDP, are constricting the regime’s ability to reflate the economy with financial stimulus. Global capitalists and their Chinese counterparts are increasingly frustrated by the lack of a “big bazooka” stimulus package on the scale of 2008 or even 2020.

In past debates in the Committee for a Workers International (CWI, the forerunner of International Socialist Alternative) the previous leadership of the International Secretariat believed the high degree of state control in China, a legacy of its Stalinist past, afforded the regime a unique ability to manage the economy to avoid crises. The CCP could do things no other government could do, they reasoned.

This was true, but only up to a point. Overstating the case could lead to missteps in analysis and perspectives. Comrades including those from China, Hong Kong, and Taiwan argued it was not enough to point to the “unique” characteristics of China’s state capitalist economy (not a planned economy, but a capitalist economy ruled by a dictatorship with significant bureaucratic and state interventionist features), but also to stress their limitations. These differences do not bestow economic invincibility or immunity from crises as even some capitalist commentators imagine. Ultimately, although processes can play out on a different timescale, the laws of capitalist economics assert themselves.

Xi Jinping and other CCP leaders.

In the hands of a police state, this technology will inevitably be used to suppress workers and others who challenge the authorities. This was highlighted in Zhengzhou, the capital of Henan province, where the collapse of a Ponzi-type scam at four regional banks has left a million customers without access to their accounts. In May, hundreds of protesters arrived in the city from across China to demand their money back. When a new protest was called in June, depositors found their health codes turned from green to red upon arrival at Zhengzhou’s railway station. This is a city with no current COVID cases. Police rounded up and quarantined the protesters before sending them back to their hometowns the following day.

The Zhengzhou incident provoked a rare backlash in state-controlled media, with China Daily slamming the city authorities for “crossing a dangerous red line.” Even the nationalist CCP tabloid Global Times warned that such abuses of the health code will “damage the government’s credibility.” That such limited self-criticism is taking place is a recognition of the depth of mass discontent. This threatens to explode as the economic crisis worsens and brutal COVID policies continue.

The bursting of the property bubble shows the up and down sides of Chinese exceptionalism. Valued at US$55 trillion, China’s housing market is now twice the size of its U.S. equivalent. This is the result of an unprecedented debt-fueled expansion that was only possible because of the degree of CCP control over the banking system in conjunction with the decisive role of city and regional CCP administrations in driving up land prices through rapid infrastructure construction.

State policies provided the framework for a vast privately-owned property market to grow while simultaneously amassing jaw-dropping wealth for millions of local CCP bureaucrats through financial speculation. But today, with the property market dangerously overextended (few buyers, an unfolding population crisis, and debts in every direction), the same state-owned banks refuse to fund the struggling property companies, while local governments are themselves facing a historic debt crunch.

Sales of new homes have fallen for eleven months in a row and by a record 59% in May, year-on-year. The market collapse is accelerating despite a number of stimulus measures from Beijing and many local governments to tempt buyers back into the market. Last year, the property bubble’s exhaustion first revealed itself as a liquidity crisis at big developers like Evergrande Group. That this was just the tip of the iceberg – as we explained – has been confirmed. Over 13 million housing units were sold last year and in the four preceding years, but this year’s total could fall by a third or more.

The collapse in consumer spending has the same roots as the housing crisis. The demographic crisis, falling birth rate, and falling marriage rate are important factors. Workers and much of the middle class are significantly worse off than in 2019. Many have been hit by wage cuts and job losses. There is much greater reticence to take on more debt. Households like many companies are prioritizing paying down existing debts over new spending. The pandemic and lockdowns are reinforcing a paradigm shift in consumer habits, rooted in lower incomes and increased job insecurity. The popular buzzword tangping (“lying flat”) is one expression of this trend, especially among the young, who are turning away from consumerism, debt, and Chinese capitalism’s high-pressure lifestyle in general.

Retail sales have shrunk in the past three months, by 3.5, 11.1, and 6.7% respectively, compared to last year’s figures. Mobile phone sales fell 14.1% year-on-year in the first quarter as young people reject the hysteria of always buying a new model (“lying flat”). Total sales of new vehicles are down by over 12% in the first five months of 2022. These figures make grim reading for the CCP regime, which for two decades has boasted of making domestic consumption the main engine of economic growth as opposed to fixed asset investment and exports. Yet private consumption only accounted for 38.5% of GDP in 2021, a lower ratio than twenty years ago.

Xi Jinping repackaged this idea when he launched his “dual circulation” economic strategy at the start of the U.S.-China trade war in 2018. The irony is that during the pandemic it is China’s strong export growth rather than domestic consumption that has carried the economy. This growth was based on a temporary trend as lockdowns and working from home created a huge market for Chinese made laptops and other electronic equipment. This trend is now fading as expected. China’s exports of laptops are down 16% so far this year.

Whole-of-Society Crisis

Soaring unemployment is the most alarming gauge of China’s economic problems. A June report by academics at Peking University warned China’s unemployment rate could reach similar levels to 2020, when 12% of the labor force were out of work. The official unemployment data undercounts the real situation by excluding 290 million migrant workers. The most explosive ingredient is unemployment for 16–24-year-olds, which in May hit a historically high 18.4%. This is more than double the rate of youth unemployment in the U.S. (7.9%) and higher than in the EU (13.9%).

Ten million university graduates will enter the labor market in the next three months and to date only 20% have secured a job, compared to 60% at the same point last year. A new level of economic hardship and uncertainty is molding the consciousness of young people, workers, and migrants, whose faith in the ability of the CCP to manage economic affairs is being shaken to the core. The radicalization of the younger generation is reflected on social media – the only channel for limited public discussion and social commentary in China.

The online buzzword of 2020 was neijuan (“involution”), meaning race to the bottom due to lack of resources. In 2021, it was “lying flat” which even more starkly rejects China’s capitalist rat race, although in itself this does not amount to a clearly class-conscious understanding. This year’s buzzword is “run,” even called “the run movement,” although it’s not a movement but rather a powerful social mood, as are the other examples mentioned. To “run” originated in the public backlash to the brutality of the Shanghai lockdown in particular, a yearning to escape repression and totalitarian rule by fleeing the country.

These shifts in mass consciousness mark a critical change in the situation: mass alienation from CCP rule and awareness of a whole-of-society crisis. This is naturally only the first phase, not yet a coherent alternative, but nevertheless a decisive break with old norms and illusions.

The next period of Xi’s rule, as he attempts to cement his control for the coming decades, will be much stormier. China’s demographic crisis – fewer workers and consumers – and its stalling debt-ridden economy looks more and more likely to wreck the regime’s grand ambitions to overtake U.S. imperialism, while the latter faces its own serious problems. For socialists, these developments are of enormous significance as the two biggest economic and military powers of world capitalism enter a phase of unprecedented crisis and political upheaval. J