How does a socialist state negotiate its way within global capitalism? It feels each stone on the bed of the stream with its feet before proceeding (as Deng Xiaoping out it). Let me give a few examples, drawn from Adrian Chan’s Chinese Marxism. Each of them provides a partial answer as to 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. (Another part of the answer is, of course, the massive integration of the economy and the government in what some may call a planned economy, but what is perhaps better called a ‘focus-field’ system.)
An indication may be found already back in the early 90s. In 1993, inflation was running at 25%; by 1997 it was 2%. At the same time the economy ‘grew’ by that steady average of 8-9%. How was this managed? Instead of ‘opening’ the economy up to international speculation and competition, China retained control of its currency and the exchange rate, thereby protecting itself from the ravages of the international money market. Even now, the government refuses to make the currency fully convertible – much to the fury of regimes such as the USA. The result is that the state retains fiscal control and yet encourages enterprises, both local and international, to prosper and survive and thereby reduce inflationary pressure.
A similar level of control over the currency took place during the Asian Economic Crisis of the late 1990s. Despite the fact that most of the other currencies in South-East Asia did plummet, and despite the threat of Moody’s 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, 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, Hong Kong itself was 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.
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’ (p. 200).