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AUSTRALIAN
MARXIST
REVIEW

Journal of the Communist Party of Australia

ISSUE 69December 2018

Impending global debt crisis, development and the role of the People’s Republic of China

The global economy is still not fully recovered from the 2008 financial crisis and subsequent deep recession, yet economic indicators suggest that the next financial crisis is looming large. Historically, debt-ridden industrialised countries have resorted to war or the further plunder of developing countries to climb out of crises. The highly militarised US economy is in bad shape despite all President Trump’s claims to the contrary and since former President Obama announced the US’s pivot to Asia the Pentagon has focused on preparing for war against China. However, China is playing a leading role in international relations, in particular with the developing countries, by presenting to the world a way forward without war.

Debt-led “recovery”

Globally, investment and productivity growth are low and average incomes are stagnant or even falling. “Global flows of foreign direct investment fell by 23 per cent in 2017. Cross-border investment in developed and transition economies dropped sharply, while growth was near zero in developing economies.” (UNCTAD, World Investment Report 2018) The UNCTAD report also noted some of the challenges facing developing countries, such as “the lack of adequate infrastructure and scarce access to finance.”

The situation is compounded by high and rising inequality in incomes and wealth within and between nations. Extensive quantitative easing by the US Federal Reserve has created new problems that have been added to by the threat of all-out trade wars initiated by the US. If interest rates rise, this could bring down stock markets and precipitate a deep recession.

What recovery there has been has to a large extent been based on debt. The US, Japan and many European economies have huge and mounting sovereign debts as well as large corporate and household debts. The US’s sovereign debt, for example, reached US$21.46 trillion at the end of the 2018 financial year. China was the largest foreign holder of US treasury debt as of June with around US$1.7 trillion in securities. A significant component of the US’s fast-growing budget deficits and debt is driven by interest payments on that debt and military spending. “Defence” is big business for the military-industrial complex. They need wars to keep new orders and mega profits flowing in. Massive corporate tax cuts have added to debt repayment problems.

Developing countries’ debt trap

It is not just the developed countries that are carrying large debts. According to Jubilee Germany and the Catholic aid organisation Misereor, 119 developing countries are in dire financial straits with the threat of bankruptcy looming large and some already unable to service their sovereign debts. Loans from western financial institutions such as the International Monetary Fund (IMF) and World Bank (WB) come with neo-liberal conditions attached. Conditions such as privatisation, corporate tax cuts, financial deregulation and pension and wage cuts have a contractionary effect on economies. This guarantees future failure to meet debt repayments and the necessity to negotiate new larger loans with even more strings attached. It is a vicious downward spiral, often referred to as the “debt trap.” At the same time, working people experience impoverishment and unemployment while the profits of US and other corporations rise.

US imperialism

Developing countries need to be able to enforce capital control measures. They also need a cancellation or a restructuring of their debts on non-exploitative terms that are not disadvantageous to them and not tied with countless conditions that do further damage to their economies and peoples. Clearly western financial institutions and governments have no intention of agreeing to this as it would eat into their profits.

The US and some other industrialised countries have opposed moves to establish a multilateral legal framework for sovereign debt restructuring. Clearly it would not be in the interests of US imperialism to do so.

Any attempt by a government to take a politically and economically independent path in the interests of their people or national capital, are met with a strong reaction. This response can take various forms of political and economic destabilisation and interference, blockades, coups and even invasions. Witness Chile, Libya, Venezuela, Brazil, Iraq, Iran and so on. US imperialism constantly strives for global hegemony.

US-China relations

Since “Reform and Opening-up” began under the leadership of the Communist Party of China, China’s growth as an economic power has been phenomenal and taken most of the world by surprise. This rapid growth has been accompanied by the spread of investments around the world, offering developing and other countries much needed assistance.

I believe the US underestimated the speed of this growth and the sophistication of China’s economy and defence capacity. A new defence act passed recently in the US declared competition with China a principal priority, vowing to take comprehensive measures to contain Beijing. This act escalates an already very dangerous situation – with all indicators pointing to plans for war against China. The US’s pivot and its provocative behaviour in the South China Sea are suggestive of this.

Australia is a host to the US’s Pine Gap communications and spy facility which would be central to any war. At present, an intense anti-China propaganda campaign is being waged by the Murdoch media and by sections of the Australian government and ruling class, preparing the Australian people for aggression against China. Australia has strong military ties with the US through the US-Australia military alliance and a number of other alliances. It has participated in all of the US’s major wars since the Second World War and hosts a network of over 50 secretive US military bases and other military facilities across Australia, including Pine Gap.

In addition, the US has access to Australian Defence Force facilities and carries out training of its forces in Australia. The US is also using Australia to bring India, a nuclear power, into its orbit as a partner in joint military exercises.

The Australian capitalist ruling class, however, appears to be divided over China. Those sections that see their economic future lying with China are showing signs of backing off from blind subservience to US imperialism. They see no benefit in a war with China. This illustrates the strategic importance of strong economic ties and economic integration in preventing war and maintaining peace.

Australia’s increase in military spending is of an aggressive, rather than defensive nature. It is being increased to two percent of Gross Domestic Product in line with instructions from the US.

The bellicose attitude towards China, in Australia and elsewhere, raises the question of the importance of the anti-war movement in western developed countries. Unfortunately, in Australia, it is not large or strong enough to have the impact required to bring about a breaking of the US-Australia alliance or removal of US bases. The Communist Party of Australia calls for an independent, non-aligned foreign policy.

Belt and Road Initiative (BRI)

China, in putting forward the concept of the BRI, speaks in terms of new globalisation. This brings me back to the question of developing country debt. There are already a number of bodies in existence based on South-South relations such as the Association of South East Asian Nations (ASEAN), Bolivarian Alliance for the Americas (ALBA), the BRICS grouping of Brazil, Russia, India, China and South Africa (BRICS), the Shanghai Cooperation Organisation (SCO) and growing ties between Asia and Europe. But they are not enough.

China’s Belt and Road Initiative (BRI) offers considerable scope, holding out hopes for greater autonomy and less vulnerability to the US and other former colonisers. The loans being offered through the BRI are for key infrastructure such as communications, transportation, pipelines, ports, schools, hospitals, and cultural and environmental projects. These are all key to trade and development as well as having long-term job creation potential. They provide the opportunity to reduce or eliminate reliance on the West. China and its state banks do not have a record of imposing harsh and destructive IMF-style conditions but rather offering loans that are of mutual benefit to the borrowing countries as well as to China.

The BRI, initially for developing and emerging economies has been opened up to any country that wishes to join. Australia, which could benefit considerably from investment attached to the BRI, has so far refused to join on the advice of its security officials.

The BRI is an economic infrastructure project of unprecedented magnitude assisting mostly developing countries on mutually beneficial terms with considerable spin-offs in other areas such as climate change. President Xi Jinping spoke of it in terms of “peace and cooperation”, “openness and inclusiveness”, “mutual learning” and “mutual benefit.” It has the potential to provide a different model for international relations and co-operation, and be a force for peace and friendship.

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