Two events that aggravate the world crisis of capitalism

China's speculative bubble begins its way to explode as the world economy slows into recession

By Daniel Campos, La Marx International 10/7/21

Two events aggravate the world crisis of capitalism: 1) The "recovery" has ended and the slowdown of the global capitalist economy begins 2) China's speculative bubble begins to burst, the largest in the history of capitalism, a process synthesized in the crisis of the real estate giant Evergrande. 

We are going to analyze these two great facts, which the defenders of capitalism keep silent and hide. 

1) End of the "rebound" and slowdown in the world economy 

The crisis of capitalism has been going on for more than 20 years, and it continues to worsen. What did the capitalist rulers, analysts, and economists say? That after the application of the vaccines against COVID-19, and the reopening of activity, the world capitalist capitalist economy would emerge from the recession with a "rebound" and a period of growth. But as it has been happening in the last 20 years, all the false forecasts of the defenders of capitalism are denied by reality. 

The data shown by the Global Manufacturing PMI indicator (PMI, Purchasing Manager's Index, in Spanish, Purchasing Manager Index) (1), is that the productive capacity of capitalism has already reached its peak and started to decline. The "rebound" in the field of production in the first half of 2021 has already occurred. And it lasted less than a sigh. In addition, it is lower than the levels of the two previous bounces, that of 2003-2005 and that of 2009-2011.

The title indicates: "The Global Manufacturing PMI has reached its maximum point" the circle in red shows the peak that world production reaches in 2021, after which it begins to decline. In addition, it is lower than the levels of the two previous rebounds, that of 2003-2005 and that of 2009-2011 (Source Deutsche Bank, Haver Analytics) 

The Global Manufacturing PMI indicates "the reality" of what happens in capitalism. In other words, it is an index that does not measure financial speculation, nor the stock markets, nor trade, but the central element of the economy: production. And what the Global Manufacturing PMI is indicating is that production after the brutal fall of 2020, rose, "bounced", and has already started to fall again. 

Following the release of this data, Michael Wilson, chief equity strategist at Morgan Stanley, one of the 10 Corporations that dominate the world economy, said: "With the reopening, instead of getting excited, we are more concerned." The same Morgan Stanley concern has been expressed by Bank of America (BofA), Deutsche Bank, Haver Analytics, etc. What are all these institutions and bankers seeing? That if production does not advance, everything else falls like a house of cards. 

These data coincide with those of the World Bank (WB), which in the publication of its work "World Economic Outlook", states: "Despite the reactivation, by the end of this year, world production will be around 2% lower than what was projected before the pandemic ... "(World Economic Outlook, World Bank, press release June 08, 2021). In other words, for the World Bank, production will fall lower than the pre-pandemic levels of 2018 and 2019.

The work table "World Economic Outlook" of the World Bank (WB) predicts that by 2023 the world capitalist economy (World) will fall from 5.6 to 3.1, the economy of the imperialist countries (advanced economies) will fall from 5.4 to 2.2, while that China, and developing countries (emerging economies) will fall from 6 to 4.4. The data show that after the "rebound", the trend is downward in the coming years 

After the "new rebound" of the year 2021, the global economy will fall to 3.1 in 2023. In the imperialist countries it will fall to 2.2 on the verge of recession, and will fall from 6 to 4.4 among the "emerging economies" where China is located, numbers that for China, and the world represent a downward trend, and recession. 

These trends emerge despite the fact that imperialism injected between the years 2020-21 the "bailoutss", the largest in the history of capitalism to prevent the fall of global GDP. As the injection of monstrous masses of money cannot reverse the downward trends, the prospect that opens up for the world capitalist economy is one of recession or depression. 

Those monstrous masses of injected money are Saviors to the Corporations that dominate the world economy, and they are bankrupt. They are called QE4 (in English Quantitative Easing 4, in Spanish "Flexibilización Quantitativa") a mountain of money that implies a daily injection of the central bank of the United States of 120 billion dollars, and that if the injections of the central banks are added from Japan, Europe, England, China, etc., they total money masses of around 30 billion dollars.

The chart reads: "The largest bailouts in history in trillions of dollars, compared to the gross product of the G7 countries." In blue, the salvages of QE4 only in 2020 quadruple the QE1, QE2, and QE3 of the years 2008, 2010, and 2016 (Source Deutsche Bank, IMF) 

After the fall of the world capitalist economy between the years 2019-2020, billions of dollars were injected into the Corporations that dominate capitalism as "bailouts", which causes the economy to "rise" again, and at this defenders of capitalism call it "rebound." 

But the "rebounds" and "recoveries" are increasingly fragile, precarious, and short-lived. Despite having been injected billions of dollars into the Corporations that dominate world capitalism, the data shows that capitalism, far from "recovering", is sinking more and more every day. First, because the pandemic is far from over, and second, because the recovery is the most ephemeral in history. 

This is what explains why the bosses of capitalism are very concerned about the tendencies that emerge from the "bailouts". But in addition to the fact that the trend is for the global GDP to fall, and therefore, the perspective that opens for the world capitalist economy is one of recession or depression, other data are very serious for the heads of world imperialism. 

Interactive World Bank chart showing the worsening crisis of capitalism. In the last 20 years there have been the fall from 2001 to 1.9, (recession), the fall from 2009 to -1.6 (depression), and the fall from 2020 to -3.5 (depression). You can move with cursor, or mouse the box to verify data 

The development of revolutions, insurrections and uprisings on all continents against capitalism, such as those that have been developing in France, Iraq, Chile, Lebanon, Cuba, Colombia, the United States, Palestine, etc. make it impossible for capitalist governments to be able to carry out the necessary exploitation, to obtain the rates of profit that capitalism requires to be able to get out of the crisis. 

The current panorama of capitalism presents a spectacle of billions of people mired in hunger and poverty, inequality, pandemics and climate change, which reaffirm Leon Trotsky's Marxist thesis that capitalism is incapable in its imperialist stage, of decadence, to develop the productive forces of humanity. 

That is why we are experiencing a crisis of epochal, historical and civilizing capitalism. The revolution of the workers and peoples of the world goes against a collapsing mode of production that must be expropriated to march towards Global Socialism 

2) The bursting of the bubble in China begins to develop

The table shows the "dot.com" bubble in the year 2000, the "sub-prime" bubble ("housing bubble") in the years 2009-2009, and to the right you can see the spectacular development of the "Everything bubble" that we are currently experiencing (Source ZeroHedge) 

In China, a gigantic bubble called "the mother of all bubbles" formed when the bailouts of the years 2007-2008 began. When the world crisis of capitalism hit China, the response of the Communist Party government was the same as that of all capitalist governments: They injected monstrous sums of money into Chinese corporations and banks to save local and foreign bankers and multinationals. operating in the country. 

This economic move by the People's Bank of China was part of an international division of labor carried out by all the central banks of the world to save the imperialist Corporations. The bailouts were consolidated at the 2009 G20 meeting, and implemented simultaneously by the US Federal Reserve (Fed), the European Central Bank (ECB), the Central Bank of Japan (BoJ), the Central Bank of England ( BofE), etc. 

Do you know which are the 10 Corporations that dominate the world economy? Watch the video "The crisis of Capitalism Part 1" on the Youtube Channel of The End of the Corporations 

The birth of the "Chinese bubble", the mother of all bubbles 

By flooding the banks with cheap money, the Communist Party government encouraged thousands of companies to grant all kinds of cheap loans to the population. The governments of the Chinese provinces and cities launched lines of credit for housing intended in principle for the bourgeois sectors, and the upper Chinese petty bourgeoisie. But the business grew exponentially, and provided such important profits, that the credits began to be extended to sectors of the working class and the people. With the economic "boom" the Chinese state and provinces accumulated an enormous mass of capital. 

Thus developed a home buying boom, taking advantage of the extremely low interest rates and the cheap price of the yuan, the national currency. Homeownership and sale became a business for government and Communist Party officials who became obscenely rich. Real estate companies are owned by local governments, whose profits from land sales increased up to 43.2%. Commissions for these transfers are the main source of income for China's local governments, which are also the main beneficiaries. 

In turn, local governments decided to launch all kinds of businesses, from international tourist centers to cities that imitated the main capitals of the world such as New York or Paris. But following the laws of capitalism, the spectacular demand for houses, loans, land, building materials, bricks, triggered inflation. Housing prices, due to the high demand, began to suffer an upward trend, despite the government's policies to curb the price boom. 

On the left, the table shows the spectacular jump in bank loans, real estate in China (source World Bank). On the right, Tianducheng the incredible city that imitates Paris 

The most outrageous figures are recorded on the southern Chinese island of Hainan, with increases of 64.8% for new housing in Haikou, the capital. And with increases of 50.4% for second-hand houses, local governments fled forward to avoid the crisis: Beijing made the granting of loans more flexible, thus repeating exactly the same movements that United States imperialism made when built the spectacular "sub-prime" bubble. As the business cannot be stopped, credits were granted to practically anyone, even if they did not accredit conditions to obtain the loan. 

By 2009, home prices had already doubled. By 2010 the Financial Times announced that the Chinese housing bubble was worse than the one that exploded in the US in 2007. Soon, the price of Chinese housing exceeded 27 times the average income of the country's citizens. Then it was five times the world average. Thus the "real estate bubble" in China began to show spectacular data such as that the annual per capita income in China is about 1,500 US $ S in urban areas, while the square meter in Beijing exceeds 3,000 US $.

The graph shows the rise in house prices in China. From the years 2007-2008, prices begin to climb unstoppably 

As home prices go up and up, real estate companies look for more land to build, and they have to expropriate residents to obtain new land, who demand high compensation to be expropriated. As a consequence of these compensations, the government is in massive debt, so it needs to sell the land at very high prices to recoup its costs. The brutal rise in prices caused millions of people to stop paying their mortgages, and they lost the possibility of accessing their home.

But unlike what happened in the US, when the massive defaults occurred, construction companies in China continued to build. The wheel can no longer stop, because if the construction of houses, and the mega-pharaonic works of cities, and all the necessary infrastructure are stopped, millions of contracts of construction companies, brick factories, banks, finance companies are canceled, cities, and provinces, which could cause a massive bankruptcy earthquake, wiping out the country's capitalist economy. 

Contrary to what all kinds of hired charlatans claim that China's economy is socialist, independent of imperialism, or a "new imperialism", the Chinese economy is fragile and deeply dependent on imperialist capital. If the imperialist corporations withdrew their capital, China's stock markets would collapse in seconds. China is a capitalist country deeply dependent on foreign investment, which outsources capital through the legal form of "outsourcing". 

It is therefore a sub-metropolis of imperialist capital, which does not have absolute control of the capitals that flow. For this reason, China cannot stop the bubble that it has started. Unlike US imperialism, which stopped the sub prime bubble at the cost of destroying a part of its own banking because the banks and capital are its property, China cannot stop the development of the bubble that it has started, because You cannot make decisions about capital and properties that are not your own. 

In turn, the brake of the bubble would cause its immediate explosion, and the generalized bankruptcy, which would produce an insurrection of millions of affected people. The United States lived through this situation that it diverted because it had a political alternative to the Bush Administration, and the Republicans, with the two terms of the Obama Administration, and the Democratic Party, to avoid a socialist revolution in the US But China does not have that possibility since it is a one-party dictatorship, it is not a bourgeois democracy. There is no alternative to the regime of Xi-Jinping and the Communist Party, therefore, the fall of the CP, product of the bursting of the "bubble". it would accelerate the times of socialist revolution in China, Asia, and the world.

The impact of the bursting of the Chinese bubble would mercilessly hit every bank and corporation in the world, and would brutally shake Wall Street. The dictatorship of Xi-Jinping and the CP has no choice but to move forward with the construction and announcements of mega-enterprises that stimulate and allow the bubble not to stop. As millions of people defaulted on mortgages, China went ahead building the planned homes, even though no one inhabits them after they are finished. 

This is how the shocking phenomenon of "ghost" cities emerged then, gigantic cities that are built in which no one lives. Thus were born Ordos Kangbashi, the largest ghost city in the world, Tianducheng that imitates Paris, the Chenggong District, Kunming, in Yunnan Province, the New Soutch China Mall, in Guandong province, Yujiapi in Tianjin or Zhengdong in Henan, to cite a few examples, with millions of unoccupied homes.

The shocking spectacle of China's ghost towns. Giant cities with millions of houses in which nobody lives, a large-scale expression of the irrationality of capitalist production 

On the other hand, starting in 2013, Xi- Jinping and the Communist Party of China announced the mega project of the "Silk Road", (in English, "Belt and Road Initiative", BRI) a trade network and infrastructure that connects Asia with Europe and Africa, repeating the old commercial routes called the Silk Road, which includes gas pipelines, highways, electrification, bridges, mega cities, terminals, etc. All kinds of charlatans in the pay of imperialism have launched the idea that BRI is a demonstration of the "imperialist ambitions" of China, which goes out to dispute half the world to the US. Nothing could be further from reality 

The entire BRI project rests on the creation of the Asian Infrastructure Investment Bank (AIIB). Imperialist capital plays a fundamental role in the development of BRI, just created, AIIB received the highest credit ratings of the three North American rating agencies that are the most important in the world, Moody's, Fitch Ratings and Standard and Poor's, and the China-EU Joint Investment Fund, which began operating in July 2018 with an injected capital of 500 million euros. 

BRI is financed by China together with the imperialist capitals of the United Kingdom, France, Italy and Germany. The presence of the United Kingdom within this entity is entirely significant because it is the main ally of the US Along with the imperialist capitals, the capitalist countries of Australia, Hong Kong, Switzerland, Russia, Luxembourg, Saudi Arabia are part of BRI. , etc. However, the announcements of new works, and megaprojects, are not able to stop the crisis.

The Evergrande Crisis, China's "Lehman Brothers" 

The "China bubble" crisis can be summed up in one word: Evergrande. The China Evergrande Group Corporation, or Evergrande Real Estate Group is the second largest real estate developer in sales in the country and sells apartments, mostly, to clients with medium-high purchasing power. Today Evergrande is completely bankrupt, and if it formally declares bankruptcy, it can drag down the entire Chinese financial system and part of the world. 

The China Securities Depository and Clearing Co. (CSDC) authority reduced the "conversion ratio" of the July 2022 bond to zero. The Shanghai Stock Exchange suspended trading on the Evergrande corporate bond. I mean, the Evergrande papers are no longer wanted by anyone. The crisis hit other dollar bonds, and raised the cost of borrowing for real estate companies. In turn, Evergrande is hitting real estate giants Fantasia Holdings Group Co., Central China Real Estate Ltd. and Guangzhou R&F Properties. 

Evergrande reached a debt of more than $ 300 billion dollars. Several mini banks, creditors, financiers, demand an immediate refund and now Evergrande bonds are no longer accepted as collateral. All eyes of world capitalism are on the Xi-Jinping government, to see if it will carry out the rescue of Evergrande, just as they have recently carried out the rescue of the huge Chinese financial corporation Huarong, to avoid the run. bank that hits all China's assets in the world.

The chart shows the collapse of Evergrande's bonds between May and August 2021. Ironically he calls this image "Nevergrande" ("Never Big"). Source Bloomberg  

The Evergrande bond crash is reminiscent of what happened with Lehman Brothers. Lehman was one of the largest corporations in the world, but when the "sub-prime" bubble burst, it went bankrupt, dragged all of Wall Street, impacted on world trade and the global economy. But now Evergrande is the Lehman Brothers of China, and in case of bankruptcy, it can generate the same effects on the capitalist economy of China, and the world. 

The Evergrande bond crisis shows that the Chinese bubble burst is just beginning. The Xi-Jinping government and the CP of China removed a foreign ownership limit on the financial system on April 1, 2020, allowing imperialist capitals to launch themselves into dominating large portions of the Chinese economy. In August, BlackRock began operating a mutual fund business in China for billions of dollars. 

But on August 30, 2021, George Soros, one of the world's largest millionaires, with strong interests in BlackRock, the world's largest capitalist investment fund, and Bank of America (BofA), one of the largest corporations. globally he went out to warn BlackRock managers of the crisis in China. In his Financial Times article he said "investors in Xi's China are facing a rude awakening." Soros began warning investors to "get out of China." In another Wall Street Journal (WSJ) article on 9/6/21 titled "BlackRock's China Mistake," Soros argues, "Pouring billions of dollars into China now is a tragic mistake ... Customers are likely to BlackRock companies lose money and, more importantly, it will harm the national security interests of the United States and other democracies. " 

The lying governments, analysts and economists who defend capitalism receive a new slap in the face with these events. His lies about a "recovery" of capitalism are crashing against the categorical facts of reality. It is a fact that the slowdown of the global capitalist economy begins, despite the millions of dollars that irrationally and immorally the imperialist governments of the world put in the pockets of speculators, millionaires and aristocratic parasites of the 1%, in the character of bailouts. 

And it is a fact that as capitalism develops its crisis with force, and the world economy continues its course towards recession and depression, the lies about the "Chinese empire" and its unstoppable advance collapses. The Evergrande crisis highlights the weakness and fragility of the Chinese economy, deeply dependent on imperialist capital. Those who are confronting the corporations, the bankers, the multinationals, the aristocrats of the 1% who concentrate the wealth are the workers and peoples of the world, who are putting profits in check with the uprisings, insurrections, mobilizations that travel the world. 

The two events, the global slowdown, and the Evergrande crisis, show us that QE4, the bailouts carried out by the world's central banks, have not brought capitalism out of the collapse. On the contrary, the collapse worsens. And as it exacerbates its collapse, the world crisis of capitalism clearly shows that the time has come to abolish this corrupt, cruel system to impose Global Socialism. 

NOTES 

(1) The PMI (Purchasing Manager's Index) measures what is really happening in the economy. is an NTC Economics indicator for the Royal Bank of Scotland (RBS) which is one of the largest capitalist Global Corporations in the UK, Europe and the world. 

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