China is not a rich country, it’s poor!

If you were asked to compare the average Chinese income with the average income in the USA, what would you say? 80%? 60%? 30%? If we judged by the establishment propaganda campaign, Chinese income would be fast approaching that of the USA, Australia or the other rich countries.

Bear in mind that average income includes every Dollar or Yuan earned by every capitalist and worker in China, and everyone else. Same for the USA. Yet income per person in China was just 16% of the US figure in 2018. According to World Bank data, average annual income is USD$9,771 in China but $62,641 in the USA.

Obviously both places have a problem with who inside each country actually gets most of the money. But that is a separate issue. Would you rather be fighting for a better share of $62,641 or $9,771?

And no, the two incomes are not converging overtime. They are actually getting further apart – despite the impression one gets from reading papers like the New York Times, The Washington Post or listening to the speeches of Donald Trump, or even Bernie Sanders.  As shown on Chart 1, since 1978 – that is, during the period of China’s market reforms and supposed catch up – its income is both tiny and stagnant compared to the USA and other rich countries.

Chart 1
GDP per capita databank 1978-2018 top 8 selected

In 1978, the gap between Chinese income ($156) and the United States ($10,565) was $10,400. China’s income growth does represent some degree of ‘catch up’. What it doesn’t represent is any sort of levelling with the US or other rich countries. Today, the income gap has grown to almost $53,000. So the gap, in aggregate terms, is over five times greater than total Chinese income and many times greater than it was in 1978. Some ‘catch up’! The racism contained in the idea that even a little bit of development in Asia constitutes a threat is pretty obvious.

As can be seen from Chart 1, what has happened over the last 40 years is not that China has caught up with the rich countries’ income, rather it has caught up with the large, relatively well developed Third World countries – namely Mexico, Brazil and Russia. Today, all have similar incomes of around USD$10,000 or one sixth of US income. In doing so China has diverged from absolutely poor countries in South Asia like India (average income $2,016) or most of South east Asia, such as Indonesia ($3,894). The significance of this change is enormous. However what it does not signify is that China is becoming a rich country – clearly it remains poor.

If we look at the incomes of the world as a whole we can see even more clearly that China’s income remains strictly that of a Third World country. In case we are told the term “Third World” has no meaning anymore, let’s clarify. Here it means the poor countries – that is, most countries on earth. As can clearly be seen from Chart 2, despite hype to the contrary, the world is cleanly divided between rich and poor countries. Like China and the USA, the income of these two groups has been diverging, not converging.

Chart 2 (75 Largest states 1960 – 2016)
75 countries income to 2016

It is not possible to label all 75 countries included in the chart – so we might ask, “where is China?” No, it’s not the solitary line that partially emerges from the Third World. That is South Korea, which developed as a US client and was given special treatment in the cold war.

China’s line can’t be seen because… it is a Third World country and thus appears among the huge cluster of lines at the bottom of the chart.

Five types of bullshit about China’s ‘catch up’

China’s transition from an absolutely poor country to one of several relatively developed Third World societies has involved Chinese capital (i.e. Chinese workers) producing and exporting many products that used to be produced in the United States or other rich countries.

The terrible cost this change has had on working people and communities across the USA and other rich countries is one of the significant social phenomena of the whole period. However, the reality of this shift is not that China is now out competing US capitalists for control of the strategic sectors of the economy. Rather, the strongest sections of US capital have abandoned or lost control only of the least strategic and least profitable labour processes and therefore economic sectors.

US capitalists paying US wages can’t compete at, say, sewing T-shirts, with a business that does the exact same thing but pays wages only 10% as much. However, they can and do compete doing things like designing, developing and producing new machines, new materials and high technology equipment. That is how US corporations continue to make huge profits and the reason that incomes have not converged.

US capitalists have upgraded and modernised their production processes, thrown off the least profitable aspects and ruined many workers’ lives in the process. This maltreatment of US workers by US companies actually has very little to do with China whose principal role in the global division of labour, like every Third World country, is essentially to pick up the pieces caste off by the rich countries; to do this undesirable, dangerous, polluting, thankless and low value work as cheaply and efficiently as possible.  China has become among the most efficient in this type of production.

From the perspective of US capitalists, there are compelling political reasons to blame China for the fate of US working people. If workers feel their jobs are under threat, they think twice before asking for pay rises and better conditions. Politically, Donald Trump has been the main beneficiary of anti-China hysteria. The same hysteria also provides a boon for the US state security agencies’ funding proposals and ever greater encroachments into democratic rights, including the persecution of Chinese academics and students.

To break this political deadlock that welds many working people to Trump and divides American from Chinese workers, it’s high time to pull the plug on the racist bullshit that underpins the whole mythology of China’s supposed “rise”. There are a range of specific rubbish arguments that serve to re-inforce the view of China’s rise as a threat to US imperial dominance.

Bullshit no. 1
‘China is the banker to the US’
When people say China is USA’s ‘banker’ this is usually shorthand for financial dominance. The idea rests on the fact that the Chinese government holds $3.1 trillion US Dollars in currency reserves while the US has a huge foreign debt. So the idea is logical enough. However much of China’s foreign reserves is actually invested in US banks. If China were truly the “banker” to the USA – i.e. the world financial power that it is portrayed as – these funds could be invested profitably in China, not sitting in New York banks, mostly at zero real return and thus providing a source of cheap finance to US business groups. That China’s reserved are ‘invested’ (really just parked) in this way is not just a bad policy. It reflects China’s broader economic and financial weakness.

Three trillion is a lot of dollars, yet China is a big place. Compared to the size of its economy $3 trillion is actually not much. Since the widespread adoption of floating exchange rates and especially after the 1997 ‘Asian’ economic crisis, which decimated the value of the currencies in Indonesia, South Korea and Thailand all poor countries have been forced to amass larger foreign currency reserves.

However, measured by regional standards China’s reserves are actually not especially high. China’s reserves were 28% of its GDP in 2016. This compared to 13% in Indonesia, 27% in the Philippines and 32% in Malaysia. China’s reserves have already dropped from 4 trillion to 3 because in 2016 it was forced to use this money to defend its currency.  Since then, China has imposed punitive capital controls to stop capital flight which had threatened to bring down the currency’s value and provoke further capital flight. Those capital controls, by the way, are a big reason why talk of the Chinese currency becoming a world currency is also bullshit. The Yuan cannot be a world currency if capital is not free to trade in it.

Bullshit no.2
‘China is buying the world’
Back in 2009 Fortune ran a cover story “China Buys the World: The Chinese have $2 Trillion

and are Going Shopping. Is your Company—and your Country—on their List?” Ten years later we can definitively answer… ‘no’. These days all countries have some Foreign Direct Investment (FDI) – that is even true for Papua New Guinea and Guatemala. It’s easy for those wishing to hype China’s ‘rise’ to find examples of Chinese foreign investment.

However, almost all FDI actually comes from the rich countries, not poor countries, even the better off ones like China and Brazil. Despite the barrage of racist bullshit about China buying Africa, Latin America, the Pacific, Eastern Europe, you name it, the actual amount of Chinese foreign investment abroad is completely insignificant compared to that of the United States and other rich countries. Actually, Chinese foreign investment totals began to reverse around 2016 due to increasing financial instability. However, even before that, Chinese FDI was negligible in world terms.

Pollution-in-china

Take Africa, for example. We are all told China is taking over (and the most racist version of this narrative says that Chinese investments are exploitative whereas Western investment is developmental!). Yet, as the Brookings Institute points out:

“The European Union countries, led by France and the United Kingdom, are the overwhelmingly largest investors in Africa. The U.S. is also significant, and even South Africa invests more on the continent than China does.”[1]

The authors put the Chinese proportion of new investment in Africa at between 3 and 4.4% of the total. Its portion of the total stock of FDI is lower still.

Bullshit no.3
‘Big Chinese companies increasingly dominant the world economy’
Each year Forbes and Fortune publish lists of the biggest companies in the world and each year there is a larger number of Chinese companies that make it onto these lists of ‘top’ companies. In 2019, Forbes ranked 4 Chinese companies in its top ten public companies, including three of the top four.

Yet if we rank the companies not by Forbes’ own metric but by market value – i.e. by how much the capitalists think they are actually worth – the number of Chinese companies drops from four to two and these are not in the top four but ranked seven and eight. On this measure there are only 4 Chinese companies in the top thirty. Importantly, these Chinese companies are not – like the American and European companies listed – globally dominant multinational corporations. Rather they are large Chinese domestic companies.

main_3009516045_e176a87d6c_cropped

Again, China is a big place so its large domestic firms are going to be big whether they are banks, electric companies or online retailers like Alibaba. The point to understand is that there are almost no globally dominant Chinese firms, still less those dominating high-tech production processes. Perhaps the only important exception and true Chinese multinational is Huawei.

Bullshit no.4
‘Chinese technological development threatens US industry’
It doesn’t. The reality of complete US technological dominance over China was uncovered in 2019 with the outbreak of the US China “trade war”.  See my article Why China Cannot Win a Trade War against the USA.

In 2019 the US Department of Commerce started banning and restricting US technology companies from doing business with Huawei and other Chinese companies said to pose a ‘security threat’. The result of this has been too badly undermine the operations of effected Chinese companies because they are dependent on US technologies that China cannot produce domestically. That is why the US is winning the trade war.

Huawei is presented as the world leader in 5G technology and mobile phones. The reality is it depends on US and British companies like Intel, Qualcomm, Xilinix, Broadcom, Infineon and ARM to supply it with the most advanced microchips and other high-tech parts. The Financial Times reported that “Analysts reckon China is more than 10 years behind in designing high-end logic chips of the kind used in Huawei’s switches and routers”.[2]

photo-1535909201578-d618d2bf50d3

And no, that doesn’t mean China will catch up in ten years – unless we imagine that US technology will stand still for decade. It’s not that China can’t produce microchips, routers or operating systems – it can and does. The point is it can’t produce high-endones. Without the best parts and software, Huawei can still roll out 5G networks and produce phones, but these are increasingly second rate products sold on Chinese and other Third World markets to buyers that can’t afford world class technology. And lower profits reflect this second tier role. China’s technological lag is not for want of trying to catch-up. In microchip production state led efforts to force march its development date back to the 1980s, but these have not worked out well.

One question completely undermines the myth of a Chinese technological catch up. In 2019 when the US Department of Commerce implemented the technology bans – preventing US, British and other companies selling high tech goods to China – why didn’t China respond in kind with its own bans and restrictions curtailing the use of Chinese technology in the USA or elsewhere? The simple answer is that China does not possess any significant technological monopolies to ban. No US companies are dependent on Chinese technology in the same way. The idea of a technological threat coming from China is… well… bullshit.

Bullshit no.5
‘China’s military threatens the US and other rich countries’ dominance’
If this were true, the Peoples Liberation Army would already have taken control of Taiwan – which is considered a Chinese province – or at least have a plausible way to do so. Yet, the PLA is utterly unprepared to defeat the advanced and US backed Taiwanese armed forces. It is not attempting to accumulate the numbers of amphibious vehicles and landing ships to cross the Taiwan Strait.

Claims of China’s military advance usually mention its large numbers of tanks, planes, ships or other weapons. While China may possess many of these, almost all are so archaic as to be completely irrelevant in a military conflict with any modern armed forces. The comparatively tiny number of advanced systems that China is trying to build are also beset with problems and lag far behind the technologies already operational not only in the USA, but also Russia, Japan, the European powers and Australia.

China’s flagship “stealth” fighter jet – the J20 – is a case in point. The fighter plane was supposed to be fitted with a purpose built Chinese engine – the WS-15. Development of the engine started in the 1990s, with the first prototype delivered in 2004. Beijinginvested some US$23.7 billion in advanced engines programs between 2010 and 2015. But in 2015 the WS-15 blew up during testing and the problems remain unresolved.

As result, the J-20 planes have been fitted with older less powerful, Chinese made WS-10B engines or Russian AL-31 engines. Neither engine has the power to propel the plane to hypersonic speeds without the assistance of an after burner.[3] However, use of an afterburner means the jet is no longer stealth – and that is the point of the J-20 project. Further, the plane has limited manoeuvrability, also due to lack of power. At the November 2018 air show, Beijing suffered a major humiliation. The J-20s had to be fitted with AL-31 Russian engines as these are considered more reliable.

Any serious comparison of Chinese and US military capacity concludes there is no real contest. Yet all the bullshit about the China threat is a great justification for higher military spending. This happens at the same time as US and Australian warships freely sail through the South China Sea.

pollution-environmental-issues-photography-china-16

That China is not a rich country but a poor one shouldn’t really surprise us. There are no examples of poor countries catching up to the rich countries over the last 100 years – except where the US has orchestrated this (as in South Korea). What perhaps should be more shocking is that almost everyone – including on the left – seems to have swallowed the propaganda line about China’s imminent threat.

It’s time to call bullshit on this. Poor countries do not invade rich countries (ever), nor do they rip them off and exploit them. Rich countries do those things to the Third World. And China, like 85% of the World’s population remains just that – part of the Third World – even if it is a large and now relatively developed part.

[1] Chen, W., Dollar, D., and Tang, H., ‘China’s Direct Investment in Africa: Reality Versus Myth’,

Brookings, 03-09-2015.

[2] Yang, Yuan. (2019) ‘How Trump blacklisting affects the inside of a Huawei smartphone’, Financial Times, June 3.

[3] Chan, Minnie, Why China’s first stealth fighter was rushed into service with inferior engines, South China Morning Post Feb 10, 2018.

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