China: how to resist currency attacks during the Asian economic crisis

Why China did not suffer any great pain with the Asian Economic Crisis of the late 1990s and now the Atlantic Economic Crisis that began in 2008? The more basic answer is that it was due to the reform and opening up since 1978 (which has its own agenda and is not overly beholden to international patterns) and its attendant socialist market economy. The specific historical reason is as follows.

As the currencies in South-East Asia plummetted, and as Moody’s threatened to downgrade the credit ratings of China and Hong Kong, the government refused to devalue. Why? One reason put forward was that China was thereby helping the struggling Asian economies to get back on their feet, since their exports were now considerable cheaper. Another reason is that the government was keen to block currency traders and manipulators from attacking its own banks.

Here the successful defence of Hong Kong and China shows how such a policy works. Many Asian countries were attacked by manipulators (George Soros was at the forefront), forcing the central banks to use their reserves, usually in US dollars, and when they were depleted, to devalue and then be forced to follow the infamous harsh measures of the World Bank and IMF. In August 1997, just after Hong Kong was finally returned to China under the ‘one country, two systems’ policy, Hong Kong was itself attacked. China immediately pledged its then considerable reserves of $140 billion (now much higher) to resist. Hong Kong threw in its own $98 billion. The result: after six weeks the attack was called off. The Monetary Authority of Hong Kong, in coalition with the Chinese central bank, had used about $30 billion to defend the Hong Kong dollar. Since that dollar had risen by $0.02, the gain was about $600 million.

As Adrian Chan concludes: ‘This ability of China’s new socialists to take advantage of the contradictions of the capitalists would probably have been cheered on by Mao’ (Chinese Marxism, p. 200).

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Exchanging ideas: between east and west

‘I couldn’t understand what you were saying’, she said.

‘Was it my English?’ I said.

‘No, no’, she said. ‘We had the English text and a Chinese translation. I read through them both carefully. I could understand each sentence, but they didn’t seem to connect to make a main point’.

‘We’d call that missing the forest for the trees’, I said.

She laughed. ‘Exactly! That captures it’.

We were talking after a lecture I had given for students and faculty at a major university in China. The topic was one on which I had spoken often – Marxism and religion. But after this discussion I was a little alarmed. Had all those overflowing lecture halls, conference venues, small groups and intimate gatherings simply missed the point of what I had been saying until now? Was I that obtuse, unclear, muddled?

‘You know’, she said, ‘whenever a Chinese lecturer speaks, she or he goes straight to the main point, to the core issue. But when you, or any other outsider I have heard, speak, it seems like a mass of detail and I can’t find the main point’.

I had come across all manner of characterisations of Chinese, or indeed Asian education. They are taught to listen and absorb the words of the master, it is said, never to think critically or question. On my first visit to China, I found that was absolute crap. Students fearlessly and vigorously challenge all and sundry on the big issues. Chinese academia is slowly catching up to other places, it is said, and it has a long way to go – quality control, intellectual depth, awareness of the richness of Western thought. They may occasionally stumble across the odd book from the West and become all excited about it, but they really don’t know what they are talking about. And on it goes – one chauvinistic piece of grandstanding after another.

But this conversation after my lecture set me thinking, inquiring, returning to ask more. For here lay a profound difference in intellectual life, a stumbling block for many a Chinese student heading overseas to pursue their studies elsewhere. Slowly what characterises a Western approach dawned on me – and the West really begins somewhere around Iran (ancient Persia) with a Near West and a Far West.

An argument works through a mass of detail to a carefully qualified conclusion, the main point held off until the end in a curious form of delayed satisfaction. On the way there it must wade through a mass of detailed commentary, struggle through the thick undergrowth of references and footnotes, deal with objections (real or imagined), until the conclusion. Like a hunter pursuing a particularly evasive quarry, it finally emerges triumphant, the tattered and sorry-looking central point held aloft triumphantly. Never mind that the reader or audience has been snoring for some time now.

By contrast, a Chinese speaker sprints at breakneck speed to the central issue. He or she states it boldly, clearly, and then explores its implications. Now the details appear, the careful attention to a text or idea, the confrontation with objections. Yet all of this is constantly drawn back to the main point, elaborating and reiterating it.

For students brought up in either tradition, the generic expectations become quite different, the modes of thought and listening move differently and take quite some time to learn. To a Western student, a Chinese lecture or paper seems blunt and unsophisticated, missing the nuance of an argument. To a Chinese student, a Western speaker simply trots out endless detail, massing together loosely related ideas. During the process, the conclusion is lost amidst the clutter, as though one had no real point to make at all, as though one were afraid of dealing with anything important.

Stalin and the origins of West Germany and East Germany

How and why were the two Germanies divided after the Second World War? Was it because of Stalin’s aggressive policy to put under the Soviet yoke as much of Europe as possible? Was it a defensive act on the part of the occupying powers in western Germany against communist world domination, all of which was embodied in the ‘Berlin blockade’ of 1948-49?

Not quite. Let us go back to the Potsdam and Yalta conferences, where Stalin, Churchill and Roosevelt had agreed to three key items:

1. The four Ds: disarmament, demilitarisation, denazification and democratisation of Germany.

2. Reparations, vital for USSR’s recovery.

3. German unity.

And Stalin had even agreed to three occupation zones, with each symbolically represented in Berlin, despite it being deep in the Soviet zone. (How the French ever managed to get a shoe in was beyond many, since they had embraced the Nazis a little too enthusiastically.) This was despite the fact that the USSR had exerted by far the major effort and lost the most in winning the war.

How did these three items fare after the end of the war?

1. The four Ds. Only in the eastern, Soviet sector was there any significant progress on these items. The occupying forces in the western areas were too keen to rearm Germany, which already began by the early 1950s. They found ‘ex-’ Nazis willing participants in the anti-communist struggle, and they fostered pliant governments.

Of course, Stalin too favoured a government sympathetic to the USSR’s concerns, but he believed this would happen through popular groundswell.

2. Reparations. Soon enough, the occupying forces in the western zones reneged on the earlier agreements. The last thing the Anglo-Americans wanted was for significant resources, technology and money going to the USSR, so they stalled and blocked reparations from the west of Germany.

3. Unity. Stalin favoured political unity, the Anglo-Americans did not – this is perfectly clear from the increasingly rancorous discussions over what was to be done with Germany. Whenever Stalin or Molotov or other Soviet representatives pushed for a unified German government, the Anglo-Americans countered by arguing that the economic situation had to be addressed first. In other words, they wanted to axe reparations and keep Germany divided.

Why? The Americans and British could see that communist parties were becoming extremely popular, not only in Germany but across Europe. For his part, Stalin hoped that this ‘new democratic’ wave would continue in a united Germany and lead to a government favourably disposed to the USSR. In March 1948, Stalin urged the east German communists to draft a constitution for the whole of Germany as a beginning point for discussion with western politicians. He was even prepared for a non-socialist government as long as it was ‘democratic and peace-loving’. Yet he was realistic enough to see that the Americans in particular would not agree since it would threaten their desire to control western Europe. On that point he was correct: the Anglo-Americans were certainly not interested in such a united Germany, for then it would risk falling out of their control. So they preferred a divided Germany.

Events unfolded. In June 1948, the UK, France and USA issued a communiqué stating their intention to form a western German state. A few days later a new currency was introduced in the western zones. By the end of June, Stalin ordered restrictions on access to West Berlin. Despite all the western propaganda concerning the ‘Berlin blockade’, it was not a blockade. Air access was permitted the whole time, for the purpose of supplies. Stalin’s reason for the restrictions was simple: he wanted to get the former allies back to the negotiating table. As soon as they agreed, the restrictions were lifted in May 1949.

Despite clear Soviet desires for unity, the fours Ds and reparations, the Anglo-Americans were simply buying time. By this time NATO had already been formed. In September 1949, the Federal Republic of Germany was declared and the first formal meetings of government held. The east had no option but to respond with its own state soon afterwards.

On the development of early Chinese Marxism

Among other things, I am reading a book called Chinese Marxism by Adrian Chan. It is a bit thin in parts, especially in terms of the Russian Revolution, but the core of the book is excellent. In a devastating chapter, he demolishes what has become a standard position among Sinologists and ‘authorities’ on Chinese Marxism: the early theorists and members of the CCP were deluded and did not understand Marx properly. And since those early leaders became the teachers of Mao, he too misinterpreted Marx. That is, the adoption of Marxism was opportunist and that approach was used as a convenient screen for nationalist and specifically Chinese concerns.

Let us have a closer look at Chan’s points. The key text here is Benjamin Schwartz’s Chinese Communism and the Rise of Mao (Harvard, 1951), which set the agenda and became an ‘authority’. In discussing the key early figures Chen Duxiu and Li Dazhao, Schwartz proposes that they were opposed to socialism until quite late, they were ‘Manchester Liberals’ even after founding the communist party, they read little Marx, what they read they misunderstood (focusing on peasants rather than workers), their late turn to a misunderstood Marxism was inspired by nationalist resentment after the May 4th Movement, as well as direct Comintern intervention, and they passed on this distorted approach to Mao. That is, they simply used Marxism as a convenient screen for their own political agenda and lust for power. Schwartz’s basic position soon became authoritative, adopted by others, such as Maurice Meisner, Carrère d’Encausse and Schram, and even Arif Dirlik’s The Origins of Chinese Communism (1989). And we see it today in the common position among the Left that Chinese communists are that in name only, using Marxism as a convenient ideology for their own very different agenda.

Chan thoroughly demolishes Schwartz’s position, showing that he was highly selective in what he used from these early Chinese Marxists, altered their texts, left out crucial sections of those texts and attributed works to them that they had not written. And as Chen points out, Schwartz had been appointed to Harvard by both the Departments of Government and of East Asian Studies. The head of the latter department, John King Fairbank, made it quite clear that the purpose of Asian Studies at Harvard was to train ‘capable’ intelligence officers, who would ‘contain’ and resist the ‘disaster’ of ‘modern Asian totalitarianism’. That sounds strangely familiar today, echoed in quarters as apparently different as Rick Santorum and Slavoj Žižek.

Dirlik is particularly interesting, since he at least claims to be a Marxist. Yet his 1989 book makes many of the same Cold War assumptions: the Chinese turn to communism was a direct result of intervention by the Comintern (based in Moscow and decidedly Bolshevik); they misunderstood communism as social democracy; they did not understand Marxism ‘in its totality’. Apart from the fact that Marxism is not a total philosophical system, Chan also points out that in the early decades of the 20th century some key texts by Marx and Engels had not even been published (Grundrisse and the Economic and Philosophical Manuscripts), so no-one would have been able to know it in its ‘totality’.

Here I would add Eagleton’s recent Why Marx Was Right (2011), which carries on this venerable tradition. Holding to a romantic Marxism, in which the true revolution is yet to come, Eagleton argues that the Chinese communist revolution – along with all of the others from Russia to Vietnam – was deluded and misdirected. Why? A proper communist revolution should take place only in an advanced capitalist context. Given that the Chinese revolution occurred in a largely pre-capitalist, agricultural country, it was both a travesty of Marxism and bound to ‘fail’. Obviously, it has been a while since Eagleton seriously read Marx.

Back to those early Chinese communists: the reality is, of course, quite different, for Chen and Li and others engaged in intensive study of Marx and Engels well before 4 May 1919, using the library under Li’s direction with over 70 works by our good friends, engaging in active translations, and publishing items on Marxism in very influential journals from 1915. They worked closely with texts such as The Manifesto of the Communist Party, Capital, The Civil War in France and the introduction to A Contribution to the Critique on Hegel’s Philosophy of Right. And they were particularly interested in the points made by Marx and Engels that there was never a ‘master-key’ based on a supra-historical and ‘general historico-philosophical theory’. Rather, the path to communism will take very different forms, depending on particular historical, social and economic factors, or, in their words, ‘on the historical conditions for the time being existing’.

Stalin on the Stalin cult

Did Stalin believe or even foster all of the hype about him? It seems not, for he was always careful to demarcate ‘Stalin’ from Ioseb Besarionis dze Jughashvili. As he once told his son, Vasilii, who was trying to take advantage of the family name:

You’re not Stalin and I’m not Stalin. Stalin is Soviet power. Stalin is what he is the newspapers and the portraits, not you, not even me!

The Cold War as a self-fulfilling prophecy

After the Second World War, Stalin’s over-riding aims were peace and a buffer. Peace was to be attained by continuing the Grand Alliance with the UK and the USA, which would contain Germany from future aggression. The buffer against a potentially resurgent Germany was to be developed by encouraging the new democracies in eastern Europe that would be friendly to the Soviet Union. He calculated that the UK and USA would be quite amenable, given the social-democratic turns in those places and his urging of West-European communist parties to take it easy and assist with postwar reconstruction. He assumed that everyone would see the logic of having a buffer, just as they did in Western Europe.

The problem was that the other members of the Grand Alliance did not share Stalin’s assumptions and calculations. They saw the Soviet Union as a threat and with undue haste enlisted what would become West Germany as an ally (along with a goodly number of genuine Nazis). And that threat was regarded as immediate – if the Soviet Union didn’t collapse as a result of the massive war strain. They also assumed that Stalin was a conniving communist setting out the establish puppet states as a basis for world domination. It was, as Roberts points out, ‘a classic case of the self-fulfilling prophecy: the west’s overly defensive actions and reactions in response to a perceived threat provoked a counter-reaction in the form of a tightly controlled Soviet-communist bloc in Eastern Europe and a militant communist challenge in Western Europe – the very thing London and Washington had feared all along’ (Stalin’s Wars, p. 253).

Stalin was no fool, though. Already in late 1945 he observed:

Do not believe in divergences between the English and Americans. They are closely connected to each another. Their intelligence conducts lively operations against us in all countries … everywhere their agents spread information that the war with us will break out any day now. I am completely assured that there will be no war, it is rubbish … Whether in thirty years or so they want to have another war is another issue. This would bring them great profit, particularly in the case of America, which is beyond the oceans and couldn’t care less about the effects of war. Their policy of sparing Germany testifies to that. He who spares the aggressor wants another war (Roberts, p. 302).

Were the communist revolutions in Eastern Europe genuine?

As our teller of tall tales, Winston Churchill, put it in his infamous ‘iron curtain’ speech of March, 1946:

From Stettin in the Baltic to Trieste in the Adriatic an iron curtain has descended across the continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities … lie in what I must call the Soviet sphere, and are all subject in one form or another, not only to Soviet influence, but to a very high and, in some cases, increasing measure of control from Moscow … The Communist parties … have been raised to preeminence and power far beyond their numbers and are seeking everywhere to obtain totalitarian control.

In other words, they were not ‘genuine’ communist uprisings, but coups sponsored by Moscow, after which communism was forced upon unwilling populations.

Like Churchill’s ‘history’ of World War II, this account is somewhat gilded, more notable for its rhetoric than adherence to what was actually happening. It also provided the screen behind which former Nazis were given senior posts in Western Europe, since they were, after all, reliable anti-communists.

But let’s look at a few statistics concerning communist party memberships across Europe to gain a sense of how popular the communists were:

Country Pre-war membership Post-war membership
Albania 1,000 12,000
Austria 16,000 132,000
Belgium 10,000 100,000
Bulgaria 8,000 427,000
Czechoslovakia 80,000 1,292,000
Denmark 2,000 60,000
Finland 1,000 25,000
France 340,000 1,000,000
Germany 300,000 805,000
Greece n/a 100,000
Hungary 30,000 608,000
Italy 58,000 1,871,000
Netherlands 10,000 50,000
Norway 5,000 22,000
Poland 20,000 310,000
Romania 1,000 379,000
Spain 250,000 35,000
Sweden 11,000 48,000
UK 15,000 50,000
Yugoslavia 4,000 250,000

Apart from Spain, all communist parties across Europe made significant to phenomenal gains in membership, the highest being in Romania, with a 379% increase. Given that for every one person who joins a political party, ten more sympathise, these figures reflect a truly mass shift. It is also worth noting that the support was by no means restricted to Eastern Europe, for Italy and France experienced massive growth. Even the small Scandinavian countries saw significant rises in membership. This is far from a small cadre of crazed revolutionaries imposing their will on the masses.

Why? During times of severe and genuine crisis, communism typically gains mass support. The key, as Lenin tirelessly pointed out, is that the communist movement needs to be thoroughly organised and prepared for such situations. Of course, it helps if the Red Army is keeping order, but that, to my mind, is far preferable than the Americans or, in our time, NATO. To be added here is the fact that the Right, embodied by fascism, had been largely discredited in the popular mind after the war and that the most resolute opponent of fascism was communism. The result was an image of the communist as a straight-talking, trustworthy and resolute fighter for freedom. Even today in Russia, people tell me of a communist father or grandmother, who was precisely such a person: you knew where you stood; no mucking around; absolutely reliable.