In the first of two articles on China, Adrian Budd looks at the Chinese economy and the headaches sputtering growth is causing for the country’s ruling class.
2025 is the Chinese year of the snake, associated with wisdom and renewal as old habits and ways of thinking are shed (analogous to the shedding of the snake’s skin). But the state-capitalist nature of China’s regime and its relations with private capital limit its capacity for policy renewal, while a developing economic malaise reduces the resources available for renewal.
Long-term trends have weakened the growth dynamic of the last 40 years. The migration of 300 million workers from the countryside to the cities after the destruction of the rural people’s communes cannot be repeated. Export-led growth is running up against the limited absorptive capacity of the global economy, even before the imposition of new sanctions threatened by Trump. The vast expansion of China’s infrastructure (trains, motorways, power stations, etc) is slowing amid frequent under-utilisation due in part to unplanned duplication. The population is ageing and the numbers of working age shrinking.
There are also more immediate problems. Business confidence is falling and executive pay has been slashed in the financial sector. Consumer spending is depressed and prices are falling in many areas of the economy. The property sector is in free-fall and the largest developer, Evergrande, has collapsed with liabilities of $300 billion. China has 65 million unsold homes, and rent and property prices are falling.
Youth unemployment has risen remorselessly from an annual average of 10 percent in 2018 to over 20 percent today. The September 2024 report by Hong Kong-based China Labour Bulletin highlighted widespread non-payment of wages, plant closures, and reductions in working hours. The trend of coastal firms relocating inland where wages are lower continues.
Annual growth of 10 percent is a distant memory and current growth largely dependent on a huge expansion of corporate, household and state debt since 2008. The combination of economic problems facing China has prompted fears in the world’s financial press that China faces Japanisation, where the bursting of a property bubble combined with vast amounts of debt lead to prolonged stagnation.
Facing these problems the Chinese ruling class implemented a huge stimulus package in November, promising $1.4 trillion of extra funding over 5 years, two-and-a-half times larger than the “bazooka” package after the 2008 financial crash (albeit that it represented 8 percent of national income versus 13 percent in 2008). The earlier package helped global capitalism to return to modest growth, but the results this time have been meagre. Why is this?
Domestic Malaise
Since the 1949 revolution the Chinese Communist Party (CCP) ruling class has prioritised capital accumulation over workers’ consumption while repeatedly promising to rebalance the economy towards consumption over the last two decades. But since 2000, household spending as a proportion of national income has fallen from over 40 percent to roughly 38 percent today. As elsewhere, China’s rulers want both high wages for buoyant consumption and low wages to maximise profits and maintain competitiveness. Workers’ struggles have pushed regional governments to increase minimum wage rates over recent decades and will be key to any future wage increases.
Boosting the economy (and simultaneously renewing society) via welfare payment increases is also unlikely, at least on the scale required to seriously address current problems. Such increases risk restoring working-class confidence, thereby tipping the balance of class forces towards labour. Additionally, Xi Jinping echoes Western neoliberal hostility to welfare as an “idleness-breeding trap”. The state frequently ignores employers’ failures to meet social insurance obligations and, according to the China Labour Bulletin,wants “to reduce the social insurance burden faced by employers and shift the burden of pension and other social insurance contributions onto individual workers”.
A Socialist State?
China’s constitution claims that it is “a socialist state under the people’s democratic dictatorship led by the working class”. Yet, China is one of the world’s most unequal societies and state-owned enterprises (SOEs) produce only 30 percent of output. Most measures of welfarism are spectacularly poor. Housing is 96 percent privately owned (65 percent in the US); public healthcare has expanded since the 2003 SARS pandemic but remains relatively under-developed and private health provision is commonplace; China has 10 percent of the USA’s intensive-care beds per capita. The average duration of a GP consultation is 5.4 minutes, but often just 90 seconds. Pensions barely cover basic needs for most people.
Weak welfare support forces ordinary people to save a high percentage of their wages (around 40 percent against an EU average of 24 percent) as insurance against future vulnerabilities and old age. Insurance is also sought in property ownership and savings are widely used for mortgage deposits. While the economy boomed and house prices were rising this seemed sensible, but China is now in the latest and possibly most severe of a series of property busts. House sales have halved in the last 3 years, prices and rents have fallen dramatically, and new home building has fallen from over 200m square metres in 2020 to roughly 70m in 2024. The impact of the housing crisis will not be easily contained as the property sector and associated industries (such as furnishing) comprise 30 percent of the economy. Additionally, sales of land-use rights to developers (a prime site of corruption) make up c.30 percent of local government income. They too have collapsed, compounding the debt crisis afflicting the local state.
The details of November’s stimulus reflected Xi’s attitude to welfare and the interests of the CCP’s regional leaders. Rejecting advice from many business analysts to encourage consumer spending, the stimulus allowed local government to reduce its vast holdings of bad debt and so release funds to promote further capital accumulation. Its negligible impact highlighted the depth of China’s problems and forced the finance ministry to announce that in 2025 it will implement measures to boost consumption by, for example, subsidising consumer goods trade-ins and raising state pensions. The following week the planned increase in the retirement age of 3 years for men and 3-5 years for women was implemented.
China’s defenders on the left argue that it is not capitalist because the state owns the means of production. In fact, only 30 percent of GDP is generated by SOEs. They also claim that the economy is planned, but the duplication of infrastructure and the speculative boom and inevitable bust tell a different story. In Yasheng Huang’s words China is “one country, 32 economies”: economic decision-making is decentralised and competition between provinces to meet Beijing’s targets is encouraged. China’s defenders also argue that 800 million have been removed from extreme poverty in the post-Mao reform era. But if we increase the poverty line from a miserly $2/day to a slightly less miserly $2.5/day the number falls to 400 million. Further tweaks by statistical researchers lower the figure to 140 million. Meanwhile, the CCP has become a party of millionaires and billionaires, with a staggering concentration of wealth in the National People’s Congress (parliament). As the CCP has become a party dominated by and serving the interests of the mega-rich its own internal documents proclaim that it is geared towards neoliberal economic management.
The authoritarian turn under Xi
China’s developing economic problems, allied to the threat to party-state legitimacy posed by popular anger towards inequality and corruption, explain the authoritarian turn under Xi Jinping since he became CCP leader and state president in 2012-13. Indeed, he came to office during a huge wave of strikes which took place despite what industrial sociologists have referred to as the “despotic” labour regimes and high rates of exploitation, particularly of migrant workers, that have flourished in “socialist” China.
Since 2013 there has been a sharp increase in state repression. Surveillance has been strengthened using new technologies such as CCTV cameras and internet censorship and eavesdropping. An anti-NGO law is designed to weaken social solidarity, particularly the support provided to workers by labour NGOs. New national security and intelligence laws require that every organisation and citizen must support national security, thereby enlisting them as agents of state security. Crack-downs of various sorts have taken place – in Hong Kong, in Tibet, against Uyghurs and other Turkic communities in Xinjiang. Islamophobia has been intensified against China’s Muslim minorities. Environmentalists, feminists, and LGBT+ centres all face police persecution: Xi describes feminism as Western thought “for posh women” while state media regulators demand that broadcasters “put an end to sissy men and other abnormal aesthetics”.
The authoritarian turn is framed by an intensified nationalism that attempts to impose a common identity that obscure the shared interests of workers and oppressed people against the state and ruling class. All forms of alternative identification, and all forms of allegiance beyond that towards the party-state face surveillance and repression. This also applies to private capitalists: they have been integrated into the system (by CCP membership, close ties with local government, etc) but are regarded with suspicion as a social force that does not fully identify with the regime, linked as they are to global circuits of capital and influenced by more liberal capitalist perspectives.
A headline aspect of Xi’s politics is his anti-corruption drive, widely portrayed in the West as a means to remove leadership rivals. China’s defenders conversely argue that it is a positive move to remove corrupt bureaucrats and pro-capitalist elements. Both are mistaken. While there may be a personal element in this, Xi’s greatest concern is the questioning of CCP legitimacy. The anti-corruption drive is designed to demonstrate that the system is basically sound but undermined by a few bad apples. Increasing numbers of people are not convinced.
Resistance
Xi’s authoritarianism is best understood against the background of the struggles of workers, women, LGBT+ activists, Uyghurs, environmentalists, students and others in the last two decades. Their anger persists, but state repression has had a major impact on struggle since 2017-18. It has, however, not removed its underlying causes or crushed activists’ resilience.
One important example of resistance came in late-2022 when a fire swept through a tower block in Urumchi, Xinjiang’s capital. A dozen or so Uyghur muslims, locked in the building by the police under the Covid lockdown measures, died. Local Han Chinese, recognising the danger to Uyghurs of police repression, demonstrated in solidarity, which quickly spread to 50 other cities and universities. The absence of demands in the “white paper” protests signified that “we all know what we are opposed to”. Calls for the downfall of the CCP appeared for the first time since the Tiananmen Square protests in 1989. The China Labour Bulletin website shows that workers too are not passive in the face of repressive authoritarianism. After the lifting of Covid restrictions in late-2022 the number of strikes doubled in 2023 and the rise continued into 2024. Most strikes are defensive – over payment of wage arrears, against cuts in working hours, factory closures and/or relocation, etc. Recovery of the strength of 2007-2016 is for the future, and the lack of independent workers’ organisation means that talk of a labour movement in China is problematic. But the raw materials of resistance have not evaporated.
Prospects
Pressure on the Chinese economy and regime legitimacy will intensify in 2025. Ruling class efforts to navigate these choppy waters will include passing the costs onto the working class. There is little prospect that attempts to divide workers by the demonisation of Uyghurs, feminists, etc will not continue. It will also intensify the nationalism that has already led to attacks on foreigners and the killing of a Japanese child.
However, the regime’s room for manoeuvre is narrowing. Debt cannot be thrown at economic problems, postponing painful adjustment, as easily as during the years of 10 percent annual growth. Not only do injections of debt have a decreasing impact on output expansion, but debt contributed to the speculative boom in housing the bursting of which has hurt tens of millions. The resigned acceptance of Evergrande’s illustrated the regime’s narrowing policy choices.
That said, the global left should beware fanciful predictions. The actions of the exploited and oppressed remain localised and sporadic, and state repression and censorship have so far prevented the development of independent movements beyond small groups using encrypted messaging services. There is no guarantee of a major upturn in working-class struggle in response to regime difficulties. The left should also be mindful that the perverse logic of capitalist geo-politics and inter-imperialist rivalry will, at least temporarily, strengthen both Trump and Xi who will parade themselves as the defenders of the national interest. But, as we will see in a future article, the contradictions of imperialism magnify the underlying contradictions of capitalism.
As those contradictions become more apparent, and as China’s growth dynamic falters, so the opportunities for the emergence of an independent revolutionary left in China improve. Without it anti-regime frustration can be turned inwards. With it, there is hope that the Chinese socialist revolution can stop the destructive logic of capitalism in its tracks.
