Presented at the AEPF 13 Plenary : Covid 19 and the Broken Economic System. 20 May 2021

By Walden Bello

Covid 19 and the Global Economy

I have been asked to address the impact of Covid on the global economy. This is a big topic, but I would like to address just one dimension of it, and only briefly—its impact on China’s rise to very near the summit of the global economy. Let me say here that Covid was a very temporary setback to this ascent, and indeed in 2020, China, despite suffering setbacks at the beginning of 2020, was the only major economy to register growth. What I would like to dwell on at length in this presentation is what I see as the ongoing hegemonic transition from the US to China as the center of global capital accumulation that continues despite Covid 19.

China as the new center of global capital accumulation

At the beginning of the third decade of the 21st century, China was not only the world’s second biggest economy. It had become the center of global capital accumulation or, in the popular image, the “locomotive of the world economy,” accounting for 28% of all growth worldwide in the five years from 2013 to 2018, more than twice the share of the United States, according to the International Monetary Fund.

China as the new center of global capital accumulation

At the beginning of the third decade of the 21st century, China was not only the world’s second biggest economy. It had become the center of global capital accumulation or, in the popular image, the “locomotive of the world economy,” accounting for 28% of all growth worldwide in the five years from 2013 to 2018, more than twice the share of the United States, according to the International Monetary Fund.

Origins of the present

Coincidence of two crises in the 1970’s

  • Crisis of profitability of US capital
  • Crisis of legitimacy in China

Rosa Luxemburg and China

“The existence and development of capitalism requires an environment of non-capitalist forms of production,” Luxemburg writes. “Capitalism needs non-capitalist social strata as a market for its surplus value, as a source of supply for its means of production and as a reservoir of labor power for its wage system.” (Rosa Luxemburg from The Accumulation of Capital)

The last function is the most important. Capitalism’s relationship to non-capitalist modes of production is contradictory: it needs them even as their destruction is necessary for its survival.

Why China was special

TNCs had started moving their labor-intensive processes to developing countries to counter the fall in the rate of profit since the early 1970’s, but China was special

First of all, here was a large labor pool, previously un-integrated into capitalism that started from a very low wage base and was relatively sealed off from immediate market pressures for wage increases but owing to its very existence and impact on investment decisions, exerted downward pressure on global wage rates in manufacturing.   In the first decade of the 21st century, China was to release an enormous 121 million workers to its manufacturing and service sectors.

Second, it had a large reservoir of rural labor that, via migration, would serve as an internal check on wage rates in the cities. In the 2000-decade, more than 80 million rural people went to the cities to fill urban jobs.

Why the global conjuncture favored China

Several conditions external to China facilitated this phenomenal ascent. First was the fact that China appeared on the scene as the provider of the cheapest accessible labor around at a time that the US corporate elite was tearing up its informal social contract with labor that had prevailed during the so-called “thirty golden years” from the late forties to the late seventies.

Second, China’s emergence as an export-led industrial power coincided with the TNC’s perfection of revolutionary technology of dispersing the different phases of production according to the complementary logics of labor cost reduction, locational advantage, and fiscal advantage to gain maximum profitability, a process that came to be known as the “value chain.” A key innovation here was the development of containerized shipping.

Third, China benefited from the bringing down of tariffs and elimination of quotas that came with the establishment of the World Trade Organization, which China joined, with the US virtually acting as wedding sponsor, in 2001. Unlike the western capitalist powers during their rise of dominance, China did not have to violently seize markets.

The deal behind the TNC-China alliance

While the China-US TNC alliance was based on mutual interest, their strategic goals were different. The TNCs were out to exploit Chinese labor for super profits. China offered its manufacturing labor force for exploitation but its goal was to gain the investment and technology to comprehensively develop the economy. Essentially in pursuit of its strategic goal, the Chinese leadership used foreign investment as a substitute for a domestic capitalist class. US economic and political elites were behind this deal until Trump came into office.

China’s devil’s bargain

From the Communist Party’s perspective, the cost in the short and medium term of allowing global capital to exploit China’s labor in return for comprehensive development of the economy–and securing its own legitimacy in the process–was a devil’s bargain that had been worth entering.

In any event, by the end of the second decade of the 21st century, the importance of Beijing’s corporate allies had been reduced by the combination of a decade-long stagnation followed by a Covid 19 recession in the US market and China’s own technological advances, though there were areas where selected American high tech companies remained important.

What made the difference: a strong state emerging from an anti-imperialist revolution—not the state of a defeated power like Japan or that of a protectorate like South Korea.

Rapid Industrialization (in China) and de-industrialization (in the US) as two faces of the same process

Eager to take advantage of wages that were about five per cent of those of the US, American transnationals essentially moved a great many of their manufacturing processes to China. China’s rapid industrialization was thus related to the US’s deindustrialization, particularly in the Mid-West. This was, in turn, the law of global capitalism working itself out—that is, the integration of non-capitalist social modes of production to counter the fall in the rate of profit.

Crises of growth in China

  • Rise in different dimensions of inequality
  • Environmental crises
  • Surplus capacity
  • Many protests but no systemic challenge

Why the absence of a systemic challenge?

While inequality has indeed grown, incomes have risen even faster. Average per capita income in China rose between 1988 and 2008 by 229 per cent, ten times the global average of 24 per cent and far ahead of the rates for India (34 per cent) and other developing Asian economies. “For most of the past three decades, all boats have been rising,” one analyst speculates, “and most people pay more attention to their own boat than the boats that have risen higher…They may, in short, have bought into Deng Xiaoping’s motto early in the reform era that ‘some people and some regions should be allowed to prosper before others.”

Crises of Decline in the US

Long before the banking collapse of 2008, key U.S. industries as “machine tools, consumer electronics, auto parts, appliances, furniture, telecommunications equipment, and many others that had once dominated the global marketplace suffered their own economic collapse. While not all moved to China, moving to China was a central factor in deindustrialization.

The “China Shock” is estimated, conservatively, to have led to the loss of 2.4 million American jobs. Most likely, the number of jobs lost was much higher.


Rise of inequality in the US, to which deindustrialization was a central contributor owing to loss of well paid manufacturing jobs. But this was not the only reason and one must see rise in inequality as a product of neoliberal policies as a whole.

Piketty: “[I] want to stress that the word “collapse” [in the case of the US] is no exaggeration. The bottom 50 per cent of the income distribution claimed around 20 per cent of national income from 1950 to 1980; but that share has been divided almost in half, falling to just 12 per cent in 2010-2015. The top centile’s share has moved in the opposite direction, from barely 11 per cent to more than 20 per cent.”

Political and ideological crises of the US

  • Political crisis: undeclared civil war has severely damaged US political system as majority population embraces white supremacy.
  • Ideological crisis: loss of American Dream and missionary democracy; inward turning.

Political Legitimacy and Ideology in China

Unlike in US, China, though it had tensions associated with breakneck industrialization, was not suffering from political polarization. Partisans of western-style democracy were a very small minority, though spontaneous feelings of alienation against the authorities were expressed widely on the Internet.

Xi’s Ideological renovation: anti-corruption campaign, Chinese dream of shared prosperity, and national rejuvenation.

Push for global leadership of globalization, promotion of “connectivity,” the BRI.

US-led multilateral order in crisis

  • Unraveling of WTO
  • IMF’s loss of legitimacy
  • World Bank and the neoliberal crisis

China’s cautious multilateralism

  • China’s cautious multilateralism through the AIIB, NDB, CRA, and RCEP.
  • China now preferred by many in global South for two reasons: 1) more resources, and 2) success of state-led development model

Strategic Competition

  • Military balance
  • US’s Offensive Strategy and China’s Strategic Defense
  • South China Sea/West Philippine Sea
  • Destined for War?

*This presentation is based on the author’s piece titled “At the Summit of Global Capitalism: Accommodation, rivalry or confrontation between the US and China?” that will appear in Socialist Register 2022.