What happened in China? In a few words, from The Global Minotaur 2011,2013

Greece is off the headlines, for now, as China’s crisis has taken over. In our globalised world, the two crises are utterly intertwined, both the repercussions of global capitalism’s 2008 ‘moment’. Here are some extracts from my The Global Minotaur, both the 2011 and the 2013 editions…


Posted on 27th November 2012

In the book’s penultimate chapter, I discussed the Soaring Dragon which, as everyone tells us, is waiting in the wings, purportedly to take over from the Global Minotaur (click here for a pdf copy of that chapter). In my concluding remarks, written back in January 2011, I wrote: “To buy time, the Chinese government is stimulating its growing economy and keeps it shielded from currency revaluations, in the hope that vibrant growth can continue. But they see the omens. And they are not good. On the one hand, China’sconsumption-to-GDP ratio is falling; a sure sign that the domestic market cannot generate enough demand for China’s gigantic factories. On the other hand, their fiscal injections are causing real estate bubbles. If these are unchecked, they may burst and thus cause a catastrophic domestic unwinding. But how do you deflate a bubble without choking off growth? That was the multi-trillion dollar question that Alan Greenspan failed to answer. It is not clear that the Chinese authorities can.”

In the eighteen months that followed since those lines were written (in 2011), events have confirmed the projected pattern. The table below reveals that the falling rate of Chinese consumption is continuing unabated. In 2011 of every one dollar of income produced, only 29 cents entered China’s markets. With net exports making a small annual contribution to domestic demand (even though they contribute greatly to the country’s capacity to invest and, thus, boost productivity), the onus falls increasingly on investment to meet the demand shortfall. However, as suggested in the avove paragraph, this emphasis on investment is a double edged sword, as it threatens to let the Giny out of the bottle in real estate markets, where bubbles have been looming threateningly for a while now.

1990 1995 2000 2005 2009 2011
Private Consumption 49 44 45 40 34 29
Investment 35 42 36 42 48 58
Government Consumption 12 13 17 12 11 10
Net Exports 4 1 2 6 7 3

Composition of Chinese Aggregate Demand (Percentages of Gross Domestic Product). Source: National Bureau of Statistics of China

Indeed, in 2011 the Chinese authorities tightened up the administrative conditions for providing new housing loans, in the hope that such a move would leave productive investments unaffected while curtailing the funding of more white elephants and empty apartment blocks (which Chinese middle class professionals buy, having borrowed heavily, but leave empty in the hope of selling them more dearly later on – a standard bubble-in-the-making).

Unfortunately, while demand for housing fell, the tell-tale signs soon appeared that the government’s intervention was about to deflate not just the housing bubble but also industrial output. What tell-tale signs? The level of electicity output which, in early 2012, plataued. The last time that had happened, in 2008/9, the growth rate of industrial production declined sharply soon after, causing Beijing to stimulate the economy at a level that further suppressed the consumption ratio. To avoid this, the government is now relaxing its constraints on mortgage provision, accepting a renewed risk of a bubble in housing.

In summary, just as in Europe’s surplus countries, so too in China, the one fourth reduction in global aggregate demand occasioned by the Global Minotaur’s passing has impeded any meaningful recovery. Indeed, it has made the world we live in more precarious because the remedies attempted (stimulus in China, QE in the United States, and austerity in Europe) increase the probability that the Crisis will spawn nasty little appendages. For until and unless a global recycling mechanism rises from the Minotaur’s ashes to replace him, the world will remain an insecure, depressing place.


  • I believe that in times of profound crisis most people, even those who are thinking so critical and brighter as you are, seem to forget to alert the ‘main persons’ of a possible non return point effects that this ruined and ruining capitalist system is producing in our lives. Too few economists and still too few intectuals in general do not mention enough, from my humble point of view, that if we are living a terrible crisis this time it’s real different. Because now, “our” resources, “our” climate, our so called planet is exhausted. So, is there really a plan b still available?? Even Serge Latouche’s, ‘serene de – growing’ plan might of no use at all anymore?
    Do not want to sound catastrophic but should the political left speech not to mention this question more and more?
    Is China not a good example to mention?
    Thank you, Paula Serra, master in Development Studies, bachelor in romantic languages and literature, unemployed journalist

  • The time came to economic model change. The ever growing lust of the capital to earn higher and higher yields, forces the system to continuous growth, without to ask the question for what and for whom. Who is really enjoying the overcrowded shopping malls, traffic jams, polluted environment, the growing income gap between the wage earners and the yield earners or what is called the rentiers. Only the very few at the top of the income ladder enjoy it, but hey are the one who count. What about a new economic model, where the growth is not a necessity, rather looked upon as a evil. What about a model where rather the redistribution of the wealth is seen as an aim and not growing gap between rich and poor. What about admitting that the time came in many places in the world, where less is more than more. Less consumerism, more environment, less private carrs on the road, more confort in public transportation. Less meat eating, more natural environment left to non human spices. Less corrupted despotism, who are the agents of rentiers interests, wishing to become rentiers themselves, less wars and evil caused by human against human.