China and the World: Global Crisis of Capitalism

By Ben Mah

Ben Mahs book is an excellent warning of the problems indeed, economic depth charges that were planted in China by the neoliberals who have destroyed nearly every economy where their advice was followed. Ben Mahs China and the World describes what China should accept and what it should reject in Western advice.
Michael Hudson: Distinguished Professor of Economics at the University of Missouri

Mr. Ben Mah is an acute observer. This book explodes the myth of Chinas Rise, reveals the truth about how Chinas economic policies have been misguided by neoliberalism. This is a good book that anyone concerned about Chinas future should not miss.
Genliang Jia, Professor, Peoples University of ChinaAndong Zhu

The essays in this book deserve great attention.
Dajun Zhong, renowned economist

Mr. Mahs work could help us re-think the related policies and eliminate the influence of neoliberal ideology.
Andong Zhu, Director, Qinghua University, China

Mr. Mahs work is a biting revelation of the unpleasant reality that lies behind such currently popular buzzwords as privatization, marketization, freedom of capital flow and free trade. Haibo Liu Chinese Academy of Social Sciences

• Language: English
• Publisher: iUniverse
• Release date: Oct 19, 2011
• ISBN: 9781462056811

Ben Mah

Ben Mah, a successful professional investor with a keen interest in business, economics, finance, and international affairs, is an author of six books which include America and China, America and the World, America in the Age of Neoliberalism, Financial Tsunami and Economic Crisis, China and the World. Many of his recent commentaries as well as three of his books have been translated, published and well received in China.

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Contents

P

REFACE

INTRODUCTION

THE OBAMA PRESIDENCY AND CHINA

THE THATCHER REVOLUTION AND THE FINANCIAL CRISIS

OBAMA AND THE ECONOMIC RECOVERY PLAN

EASTERN EUROPE AND ECONOMIC CRISIS

CHIMERICA AND ECONOMIC INTEGRATION

THE BANKRUPTCY OF AMERICA

FINANCIAL WARFARE

THE TREASURY BUBBLE

CHINA, MEXICO AND GLOBALIZATION

G-20 LONDON CONFERENCE AND CHINA

THE GLOBAL CURRENCY AND CHINA

THE REAL ESTATE BUBBLE AND CHINA

CHINA: FRIEND OR FOE

URBANIZATION AND CHINA

THE AMERICAN ECONOMIC MODEL AND CHINA

AFGHANISTAN, PAKISTAN, THE U.S. AND CHINA

U.S. FINANCIAL, ECONOMIC CRISIS AND CAPITALISM

THE INTERNATIONAL FINANCIAL CENTER AND SHANGHAI

CONSUMER CREDIT AND CHINA

THE BANKRUPTCY OF GENERAL MOTORS

WORLD DEPRESSION AND CHINA

RESOURCE WARS AND CHINA

OVERSEAS INVESTMENT AND CHINA

THE BRIC SUMMIT AND CHINA

EXPORT RESTRICTION AND WORLD TRADE

THE JULY 5 RIOTS IN XINJIANG

GLOBAL WARMING AND CHINA

MULTINATIONALS AND CORRUPT PRACTICES

IPO AND CHINA’S BANKING INDUSTRY

THE PRIVATIZATION OF CHINA’S STEEL INDUSTRY

THE 2009 U.S.-CHINA STRATEGIC AND ECONOMIC DIALOGUE

CHINESE BRANDS AND THE OPEN DOOR POLICY

THE DIVORCE OF CHIMERICA

TRADE AND SOVEREIGNTY

NUCLEAR PRIMACY AND CHINA

ASIA 2025 AND THE CONTAINMENT OF CHINA

THE DEFAULT OF U.S. TREASURY BONDS

THE CHINESE MARSHALL PLAN

RAND CORPORATION AND CHINA

ETHNIC STRIFE AND CHINA

FREE TRADE AND PROTECTIONISM

FOOD CRISIS AND CHINA’S AGRICULTURE

FOREIGN LOBBYISTS IN CHINA

THE IMF AND CHINA

IRAN, THE U.S. AND CHINA

CHINA’S NEOLIBERAL ECONOMIC ADVISORS

CHINA’S INTELLIGENTSIA - THE NEW RIGHT AND THE NEW LEFT

INDIA, THE U.S. AND CHINA

THE WAR ON CANCER AND CHINA

OBAMA VISITS CHINA

EPILOGUE

THE CONTAINMENT OF CHINA

- WAR OR PEACE IN THE 21ST CENTURY

APPENDIX

CHINA IN THE GLOBAL CRISIS OF CAPITALISM

A SPEECH DELIVERED AT PACE UNIVERSITY, NEW YORK APRIL 18, 2008

ABOUT THE AUTHOR

Praise for China and the World— Global Crisis of Capitalism

Ben Mah’s book is an excellent warning of the problems — indeed, economic depth charges — that were planted in China by the neoliberals who have destroyed nearly every economy where their advice was followed. The most important theme of his book is that China and every other economy should keep the free lunch of rent and interest as the public tax base. Instead, neoliberals urge the privatization of finance, monopolies and land ownership. If this advice is followed, it will sharply increase the cost of living and doing business, eroding economies.

Successful capitalism spent many centuries fighting off economic rent and financial charges not needed for the technology of production. Ben Mah’s China and the world describes what China should accept and what it should reject in Western advice.

— Michael Hudson: Distinguished Research Professor

of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire

Mr. Ben Mah is an acute observer. This book explodes the myth of China’s Rise, reveals the truth about how China’s economic policies have been misguided by neoliberalism, and denounces the despicable demeanor of the comprador interest groups and a handful of academic elites in betraying China’s national interests. The author shows with numerous facts that the so-called China model for economic development based on comparative advantage, free trade, financial opening-up and reliance on foreign direct investment is bringing tremendous disasters to the Chinese nation, and he calls for a revolution in China’s economic development strategy and economic policy. This is a good book that anyone concerned about China’s future should not miss.

—Genliang Jia, Professor, People’s University of China, Chair, China Evolutionary Economics Annual Meeting

As early as 2002, I started to warn people that the U.S. economy was a growing bubble and would burst sooner or later and that China’s mercantile export-oriented development strategy would suffer severely from it. Unfortunately, my predictions have been substantiated by actual events. Now it is gratifying to find that Mr. Ben Mah, living in the heart of the capitalist world, holds many views similar to my own and has made a detailed and in-depth elaboration of his views with economic data from developed countries that he is familiar with, showing something in common between the East and the West. The essays in this book deserve great attention.

—Dajun Zhong, renowned economist, Director, Beijing Dajun Economic Observation and Research Center, China

This book by Mr. Ben Mah shows that the U.S.-promoted neoliberal development model is untenable in theory and seriously harmful in practice. The many troubles facing China today, such as polarization between the rich and the poor, weak consumer demand, and problems in education and health care, are perhaps not unrelated to the influence of the neoliberal model. Mr. Mah’s work could help us re-think the related policies and eliminate the influence of neoliberal ideology, potentially pushing China’s development to a new high.

—Andong Zhu, doctor of economics, Director, Development Economics Department, Political Economy Research Center, Qinghua University, China

China’s neoliberal and monetary economic policies adopted since the mid-1990s have caused China to experience a shortage of available institutional capital and insufficient domestic demand. This has resulted in U.S. outsourcing to China, trading consumer goods from China for paper money. We need to make a thorough review of such economic policies and of the so-called globalization with the globe still deeply divided while capital is freely liberalized. Otherwise, the Chinese nation may not be able to maintain unity and achieve common prosperity. Mr. Mah’s work is a biting revelation of the unpleasant reality that lies behind such currently popular buzzwords as privatization, marketization, freedom of capital flow and free trade.

—Haibo Liu, scholar, researcher at Law Division, Chinese Academy of Social Sciences, China

Mr. Ben Mah has constantly studied important issues in global economics, finance and geopolitics, and as a patriotic overseas Chinese also gives great attention to how China can avoid the traps of neoliberalism. This has a high degree of accordance with my own research on potential hidden economic and financial war on China by global financial capital, and consequently we closely follow each other’s research. Now he is simultaneously publishing in the U.S. and China his fifth book, China and the World, and I have gladly responded to his wish for me to write a preface for it by presenting my observations on some of the issues discussed therein, which may also be considered a testimony in support of the value of Mr. Mah’s latest opus.

—Yan Bin, Professor, Chinese Academy

of Social Science, Beijing.

To the working people of China and the world who suffer the brunt of neoliberal economic restructuring and globalization

PREFACE

SINCE THE ACCELERATION OF U.S. debt expansion and the economic bubble of the 1970s, the U.S. economy has been transformed from a core strength in advanced industrial production to a highly financialized economy that is largely parasitic in nature. The neoliberal globalization increasingly advanced by U.S. rentier capitalists through this type of economic model has resulted in great harm to the people of China and various countries of the world including the United States.

This type of economic model serves the interests of American financial capital, but has caused great harm to the American common people, a point not often discussed by scholars, but still mentioned by New York Times columnist Thomas Friedman, writing that America faces a huge education deficit, energy deficit, budget deficit, health care deficit and ambition deficit. The administration is in denial on this, and Congress is off on Mars. Why does the American elite choose to ignore these serious issues?

The answer is that the bulk of the American elite’s profits originate from financial liberalization and the financialization of the world economy facilitated by financial globalization. The financialized and globalized world economy that currently exists serves only the interests of the global elite, who comprise about 5% of the world’s population, while damaging the interests of the remaining 95% of the population. It is precisely these factors that have led to the current plight of American workers reeling in prolonged economic stagnation, in ever sharper contrast to the good life of Wall Street executives.

For working Americans, the reality is declining real wages, cuts in benefits and the deterioration of work environments. Where working Americans live, income inequality is worsening, health care costs have risen to beyond what families can afford, and the prospect of a stable, predictable retirement life has vastly diminished. However, the corporate elite still hide the truth, asserting that these are sacrifices the common people must make to recover American competitiveness. The problem is that since the financial crisis, the newly created U.S. fiscal deficits and external debt have not been used for necessary investments in raising productivity, thereby generating income for repayment of debt, but instead to compensate the rentier class for their financial losses and military expenditures.

An economic model that only benefits the rentier class is clearly not viable, yet this appears to be the agenda America is currently following and while it continues to do so the sacrifice of the American common people will be prolonged and this strategy will not result in the growth of employment and income. The present American domestic policy of continued financialization of the economy and its foreign policy of military expansion will not benefit the average American.

The U.S. domestic rentier capitalists’ increasingly dominant position is closely related with U.S. global ambitions and its imperialist program. The United States is in essence an economy of the super-rich in which the typical consumer is of little importance. The highest-income 1% of the population shares the same amount of income as the entire bottom 60% of the population. The slowing of the U.S. domestic economy and saturation of its domestic market in addition to after-tax income distribution favoring the ruling elite all encourage the investor class to seek opportunities overseas.

Hobson, a renowned scholar who studied imperialism in the early 20th century has pointed out that governments must impose relative higher taxes on investment income and adopt means to equalize income distribution so that the middle-income working class can consume more—thereby stimulating domestic investment—with the highly desirable result of making imperialism a less attractive option. He made the trenchant observation that the problem lies in choosing between expansion of external markets and territory or domestic social and industrial reforms; or alternatively, in choosing between promoting military imperialist economic expansion as a means for the ruling class to monopolize political power and industrial hegemony, or improving the material wealth of all people through peaceful and democratic methods by creating conditions to entitle all members of society to a meaningful life with a decent level of comfort, security and recreation.

The situation in the U.S. today is extremely similar to Britain’s economic circumstances in the early 20th century, and Hobson was attempting to warn of the consequences of that situation. Similarly today, the U.S. does need to carry out internal social and economic reforms and not continue on its current path. Following the eruption of the 2008 U.S. financial crisis, during my exchanges with a renowned American scholar, I frankly pointed out that the massive release of U.S. dollars to rescue financial institutions not only threatened the wealth of the American people, but also the foreign exchange reserves of various countries in the world, and that the U.S. urgently needed to carry out deep democratic reforms because the heavy influence of money on politics endangered the welfare of the entire world’s people.

This renowned American scholar expressed full agreement with my view, stating that the financial crisis had brought about trillions of dollars in losses to retirement funds of the American common people, and that due to the influence of oil monopolies on some U.S. state elections, many environmental protection laws are either bogged down in the legislative process or remain unimplemented, causing great harm to the lives and health of the local population. In 2010, the American corporation Goldman Sachs was subject to proceedings by the U.S. Security and Exchange Commission in which many fraudulent activities by Goldman Sachs were revealed. Despite a great amount of evidence indicating the extreme danger of financial derivatives, the U.S. Congress and government found it so hard to resist billions of dollars of lobbying funds from Wall Street that in the end they still passed a series of financial liberalization measures, while fully aware of their risks.

American financial monopolies have also spent enormous amounts on economic research to prove that free financial markets without government intervention are most efficient. Goldman Sachs has even extended its money-for-political-influence method to its business dealings in China, brazenly carrying out a series of operations in violation of related Chinese laws and eventually causing great damage to many Chinese businesses and individuals.

As described by this American friend of mine, the American people have entrusted their own savings, retirement funds and various forms of insurance to be managed by banking institutions and various funds and insurance companies, which bet them on highly leveraged speculations in the name of risk-hedging, resulting in gambling losses that gave rise to enormous amounts of bad debts and toxic assets; and, as their bets went bad, proceeded to use the common people’s savings and retirement funds as a hostage to extort agreement from the government to inject a staggering amount of money to ‘rescue’ the financial markets.

Supposing that these American and European financial institutions, funds and insurance companies were directly operating in Las Vegas, and as a result generated trillions of dollars of gambling debts between them, the people would clearly see that these financial institutions were engaged in illegal activities, and would demand that these financial managers who have become gamblers be fired and criminally prosecuted, while treating the contract among gamblers as a mere scrap of paper with no legal effect whatsoever. They would certainly not agree to the government’s use of taxpayer funds to bail out huge gambling debts. However, as the speculative bets were cleverly disguised in the form of very sophisticated financial derivatives, financial capital openly demanded government rescue of the market on the pretext of safeguarding the interests of the people, thereby handily acquiring a windfall of more than a trillion dollars. As the U.S. government and Federal Reserve bailed out the banks loaded with toxic assets by operating the printing press at full speed, the deluge of money thus unleashed will eventually result in ever-increasing inflationary pressures, inexorably swallowing up the public’s savings, bonds and various assets, as well as the foreign exchange reserves and U.S. dollar assets of China and various countries of the world.

Following the 2008 crisis, I proposed that the correct solution to the crisis was for China and the world’s people to unite and demand that the U.S. government should draw a distinction between two fundamentally different kinds of credit: the first is the type of credit that has resulted from the expenditure of real money, such as American people’s savings and retirement funds, the AAA-rated bonds bought by Chinese financial institutions, issued by Fannie Mae, Freddie Mac, and others, the huge foreign reserves of all nations in the world and U.S. government bonds, which are essentially debts guaranteed by the U.S. government; a distinctly different type of credit includes the gambling debts arising from speculation by financial institutions, such as highly leveraged financial derivatives, the astronomical amounts of which have made it impossible to engineer bail-outs without unleashing extremely damaging inflation.

The U.S. and European governments should immediately cease to rely on the injection of cash to bail out the banks’ toxic assets, correct the wrong-headed rescue of financial markets dubbed cash for trash by Economist Paul Krugman, put a complete freeze in effect on the bailout of gambling debts arising from transactions of financial derivatives, and actively defuse the time-bomb of derivatives with a notional value of over $600 trillion. The funds thus spared could be used to protect the public’s savings and retirement funds, to preserve the value of foreign exchange reserves and U.S. dollar assets of the various countries in the world, and to promote the revitalization of global trade and avert a severe recession of the real economy.

Otherwise, round after round of financial tsunamis and global economic recessions will be triggered, finally resulting in a disaster of economic collapse coupled with hyperinflation and in the serious loss or dissolution of the American people’s savings, retirement funds and holdings, in addition to the loss of foreign reserves and various U.S. dollar assets of the world’s various countries, similar to the consequences of hyperinflation in Germany during the Weimar period. The interests of various segments of U.S. society including the middle class and industrialists are in sharp opposition to those of Wall Street financial capital, and in broad agreement with those of the Chinese people and the people of the world’s various countries, and even coincides with those of the industrialists and financial institutions operating in the interest of real economies of the world’s various countries.

During his election campaign, Obama’s scathing criticism of Wall Street financial institutions endeared him to the American public, but following his inauguration he kept appointing Wall Street executives to important government posts, to the great disappointment of his supporters. Were China to put forth some of these proposals above in defense of the interests of all the world’s countries she would win the broad support of all the world’s peoples including that of the American people.

At present, the global economy has yet to recover decisively from recession and is in an unstable oscillatory state, and the crisis has only evolved from a state of naturally breaking out to a state of artificial repression, becoming more dangerous just like a tightly sealed container of boiling water. Ten years ago I proposed that China, in facing the serious challenge of a global economic recession and long-term turmoil triggered by the outbreak of a serious financial crisis in the U.S., should establish a type of stand-by mechanism to deal effectively with economic crisis. China would then have this mechanism ready to activate idle resources which are unable to be employed by the market and apply them to uses of benefit to society; to interrupt the multiplier effect of the economic crisis in the form of an aggravated chain reaction; to mitigate the impact of periodic crises so as to safeguard the interests of the common people and protect their economic and financial security; and to avert social turmoil likely to be triggered by massive unemployment and wide-spread financial losses.

I also discussed how to rely on the Marxist theory of balanced development of the national economy to determine the appropriate scale and intensity of an economic stimulus plan using baseline surveys and pilot projects, and implement a differentiated credit policy based on a carefully drawn distinction between the real and bubble economy. I proposed a financing scheme similar to a precision weapon that both suppresses the bubble economy and stimulates the real economy, effectively overcoming crises without the need for enormous debts and fiscal deficits and having practical relevance for China to face the complexities of continuous deepening and lengthening of the European and American sovereign debt crises, possibly leading to long-term global economic turmoil.

10 years ago I pointed out that, to address the need to mitigate the impact of a global crisis and stimulate its economy, China must guard against the forming of real estate bubbles that would create excessive demand and encourage a wealthy minority to speculate in multiple residences, or China would inevitably suffer consequences similar to what has happened in the wake of the southeast Asian and Japanese bubbles or of the 1992 real estate bubble in China.

Historical experience has amply demonstrated that the artificial stock and real estate bubbles, though temporarily stimulating false social demand, inevitably result in more severe economic recessions. If these economic policy recommendations had been given serious attention by relevant authorities, China would have been able to avoid the ensuing real estate bubble resulting from stimulation policies that eventually has reached the point of being only steps away from the height of the Japanese real estate bubble.

I have also proposed a series of policy measures, which, by strictly distinguishing between the real economy and bubble economy, would serve to give enough boost to the Chinese economy while effectively protecting it from overheating. These, I submit, are of a great deal of immediate relevance for present-day China, which needs the right kind of policy to mitigate the impacts of the current global economic crisis and that will allow China to successfully avert the dangers of surging inflation and the forming of a bubble economy resulting from an excessive amount of credit; in other words, to ensure that China does not get caught in a terrible dilemma for macro-economic policy-making.

At present, China and the world’s progressive governments should draw upon Roosevelt’s New Deal and mobilization of the economy and the lesson of the New Deal’s relapse into recession due to insufficient stimulus, and on the successful experience of mobilizing the economy to rapidly extricate itself from recession to decisively increase the scale and strength of the initial phase of the social infrastructure program, promote the entry of the national economy into a state of partial mobilization, and rapidly eliminate the consequences of the international economic crisis and preserve social stability. I dare to suggest that the social ills that have for years remained intractable would be effectively cured by following my prescription.

Mr. Ben Mah has constantly studied important issues in global economics, finance and geopolitics, and as a patriotic overseas Chinese also gives great attention to how China can avoid the traps of neoliberalism. This has a high degree of accordance with my own research on potential hidden economic and financial war on China by global financial capital, and consequently we closely follow each other’s research. Now he is simultaneously publishing in the U.S. and China his fifth book, China and the World, and I have gladly responded to his wish for me to write a preface for it by presenting the foregoing observations on some of the issues discussed therein, which may also be considered a testimony in support of the value of Mr. Mah’s latest opus.

The Threat of Economic War to China published by me ten years ago was recently republished, and similar works have unceasingly emerged in large numbers, indicating that the people in China and the world are increasingly aware of the nature and danger of neoliberalism which represents the latest development of capitalism. This has opened up the possibility of following a new development path, and, in view of this, we, as pioneers in a common quest for this new path, each have reason to view the other’s work with pleasure.

Yan Bin,

Professor, Chinese Academy of Social Science, Beijing.

INTRODUCTION

BY 1975, IN THE aftermath of the War in Vietnam and three decades subsequent to the conclusion of the Second World War, the Golden Age of Modern Capitalism came to an abrupt end. This was a frightful experience for the ruling class in the West, as all industrial countries experienced stagflation. Stagflation was characterized by high inflation, slow growth, rising unemployment and declining corporate profit.

Stagflation and economic difficulties set the stage for the rise of neoliberalism with the election of Margaret Thatcher as the prime minister of Great Britain and Ronald Reagan as the president of the United States in the 1980 U.S. presidential election. A neoliberal agenda of privatization and deregulation was soon implemented throughout the English speaking world, and Anglo-American university economic faculties all embraced neoliberalism as the modern political philosophy and accepted school of economic thought.

Coincidentally, the 1980s was also the time when China declared its Open Door policy. As a result, half a million Chinese scholars were sent to the West for advanced studies. Among those scholars was Wu Jinglian, an economics professor from Beijing, who professed to be an Idealistic Socialist. However, after only three semesters at Yale, Wu was completely indoctrinated by the neoliberal economic professors in the West and, like most students, came to a firm belief in the equation of ‘modernization’ with capitalist liberalization, the positive role of multinational corporations with foreign investment, that efficiency was identical with profitability and privatization, that inequality was a result of ‘merit’ (or lack of it).1.

After little more than a year of studying modern economic theory in the undergrad class at Yale, Wu returned to China in 1984 and soon became economic advisor to China’s Paramount Leader Deng Xiaoping. Wu at once became a person of great influence in the formulation of economic policy in China’s transition from socialist to market economy.

As a result of the neoliberal economic policy advocated by Mr. Wu and his colleagues and accepted by China’s decision-makers, privatization and the auctioning off of state-owned enterprises became the order of the day during China’s economic reform. Tens of millions of Chinese workers were laid off, and those remaining on the job were deprived of the customary life-time employment security and the social safety net. At the same time, privatization and the dissolution of cooperative farming also eliminated basic health care and educational opportunities for the vast majority of the rural population. Hundreds of millions of peasants had to migrate to the coastal cities and work in ‘sweatshop’ factories to earn a meager wage. In 2001, China embraced globalization fully integrating herself into the global capitalist economy by joining the World Trade Organization (WTO).

Unfortunately for China, the conditions imposed upon China’s WTO entry were so onerous that they provided easy access for the multinationals to penetrate the Chinese market. In the face of the intense competition, many Chinese domestic industries experienced bankruptcy resulting in more layoffs, while Chinese farmers suffered equally from the dumping of American subsidized agricultural products on the Chinese domestic market. The impoverishment of the Chinese working people resulted in insufficient domestic demand and led China to depend on exports for economic growth. At the same time, as a result of the neoliberal economic policy of cheap labor, China became a popular destination for outsourcing by Western multinational firms.

Having been thoroughly indoctrinated in the positive role of multinational corporations, China’s neoliberal economic advisors naturally welcomed foreign investment with open arms. Consequently, Western multinationals increasingly dominate key sectors of the Chinese economy. It is not surprising then that after 30 years of reform and opening up, China still possesses only a few global enterprises. China’s neighbors Japan and Korea, having protected their own industries by restricting foreign investment, all have world class corporations with global brands. This is a pity, as Chinese are traditionally the most creative and ingenious people in the world and have a long history of inventive tradition; they should play a bigger role in the development of national brands. However, this cannot be done with the neoliberal economic policy of embracing free trade, globalization and the WTO with its intellectual property rights regime.2.

Trying their utmost to integrate into the capitalist world-economy, the Chinese policymakers have not hesitated to adopt the American economic model of consumer capitalism for fostering development in China. One of the key features of this economic model is the powerful presence of the auto industry, and it has been promoted as a pillar of the Chinese economy.3. Accordingly, China has experienced phenomenal growth in auto production and sales. If this growth continues apace, 150 million cars could jam China’s streets by 2015—18 million more than were driven on U.S. streets and highways in 1999.4. This could have huge implications for China in terms of fuel supplies and environmental problems.5.

What is even more ominous for China’s agriculture is the conversion of fertile farm lands to industrial and residential uses in the process of urbanization. According to American management consultant McKinsey & Co., by 2025, China will build the equivalent of two Chicagos every year. Unfortunately, development on such a scale will have heavy social and environmental costs.6. Environmental issues such as water and air pollution will create a major health problem as well as endangering the supply of fresh water for China’s agriculture. Real estate is an unproductive investment and draws resources from heavy industry such as steel and cement, also major pollutants to the environment.

Rapid urbanization accompanied by speculative real estate development will eventually lead to a financial bubble. This will be a disaster for China, as she channels 85% of fixed asset investment annually into the urban areas, with much of it into the real estate sector. However, this will not deter China’s capitalist class from appropriating millions of hectares of fertile farm lands, as real estate development has been a high volume, high margin and very profitable business.16.

Another profitable business is financial services, and China’s economic elite have long dreamed of making Shanghai an international financial center. In this regard, they have not learnt the lesson from the development of a financial center in London and the recent Wall Street debacle. As a result of the Thatcher revolution, Britain has neglected the manufacturing industry; well-paying jobs were lost and have been replaced with low-paid, low-skilled employment. Consequently, Britain, as in the U.S.A., finance and banking became the motor of economic growth [for] the past two decades. That motor has now broken.7.

Indeed, the impoverishment of the working class, middle class and the urban poor is one of the root causes of the U.S. economic crisis; as a result the U.S. economy will not be able to generate demand to stimulate the economy.8. The shrinkage of demand together with the channeling of investment capital to the financial sector, which contributes little to the growth of the real economy, will eventually lead to a debt crisis and financial explosion in Wall Street.

The U.S. economic crisis raises the question of the viability of the U.S. model of capitalism, which the Chinese mainstream economists and economic elite are so eager to emulate and adopt as a blueprint for China’s national development.

In financial services, the Chinese elite also view the U.S. financial system as the most advanced and are anxious to integrate with the United States. In endeavoring to conform to international banking standards, the Chinese state-owned banks underwent the process of privatization, or IPO. This was done after the government absorbed $400 billion of so-called non-performing loans and injected $260 billion of capital into the banking system.9. In the name of efficiency, China’s state-owned banks cut 250,000 employees from 1998 to 2002.10.

China’s banking IPO turned out to be a financial windfall for American and European banks, as finance wizards in New York, London, and Frankfurt are making an absolute killing thanks to this great China banking industry makeover.11. The reason the valuation was incredibly low was because of bad press in the West about China’s banking system. The IPO offerings of the banks were at such fire sale prices that the industry insiders like Goldman Sachs and Bank of America rushed to buy a sizable stake. The Bank of America’s $3 billion stake in China’s Construction Bank realized an increase of 1,000 %, while Goldman Sachs’s shares in the Chinese Industrial and Commercial Bank had a five-fold increase in value at the peak of the stock market.11.

Evidently, China’s financial elite, for their own self interest to achieve higher profits, had no hesitation in laying off a quarter of a million employees and destroying their livelihood, while at the same time catering to Western financial capital by allowing the shares of banking IPO’s to be offered at the lowest possible price, directly hurting China’s national interests. It is puzzling that this kind of financial appropriation by Wall Street bankers could happen and be allowed by any sovereign country, let alone a socialist one like China.

In order to carry out this kind of predatory practice against the Chinese people, Wall Street bankers need Chinese collaborators who have long been divorced from the Chinese working class and the ideals of serving the people. They clamor for economic integration with the United States and call for deepening relations with the West. Under American pressure during the WTO entry negotiations, they agreed to the removal of China’s restriction on foreign ownership of sensitive industries such as telecommunications and the banking and insurance sector, while failing to obtain similar privileges for Chinese firms in America and other Western countries. They facilitated the penetration of American financial capital into the Chinese market. Due to the preferential treatment they offered multinationals under the banner of national treatment for foreign direct investments, Western capital accelerated their effort to dominate all sectors of the Chinese economy, from manufacturing, consumer market, and telecommunications, and gradually to the banking industry.12.

The domination of China’s banking sector by American capital will indeed be a sad day for China, as the savings of hardworking Chinese people will be appropriated, and Chinese banks, institutions traditionally channeling funds for China’s economic construction, will become an unproductive, speculative sector of the economy, solely for the benefit of U.S. financial capital.

Ironically, the penetration of U.S. capital into China’s banking sector occurred at the precise time when the American financial edifice was facing imminent collapse, initiated with the housing crisis and the collapse of Bear Stearns, the bankruptcy of Lehman Brothers and the government rescue of AIG and the entire U.S. banking system. It is unthinkable that the financially strong Chinese banking system, into which the Chinese government has poured over $700 billion of capital in the past decade, will be controlled by the bankrupt American banks.

Fiscally, the bailout of the bankrupt American banks which added up to the colossal sum of $11.45 trillion already placed the U.S. government’s finances in a precarious position. This is especially significant as the U.S. government is vastly understating is budget deficit and makes no provision for future obligations such as Social Security and Medicare even though taxes are collected for that purpose. For example, the