Class struggle in China – How to deal with multibillionaires?

by Sara Flounders, published on Workers World, November 23, 2020

The obvious, not always immediately obvious, can jump out at you and change your perspective. Of course the same predatory globalist entity that preys on the wealthy western states is doing its best to make a nest in China. Like a virus or a cancer, it converts local cells into agents and rewards them well for their work. I am gratified to see that the Chines government (under Xi) is making a real effort to counter the encroachment of this parasite into the Chinese economy through drawing it closer to the communist ideals and structures on which the PRC was founded. I hope it works for them. Our economy has been gutted despite early efforts (Roosevelt?) to set some boundaries. If someone doesn’t draw the line, the globalist entity will consume all of human society, the race and planet as well.

JB

The Sorcerer’s Apprentice” is an old story repeated in many variations, from Greek myths to a famous German poem by Goethe in 1797 to an Alfred Hitchcock film and several Disney versions. All variations deal with summoning or unleashing overwhelming forces that can’t be controlled.

In “The Communist Manifesto,” Karl Marx and Friedrich Engels compared modern capitalism’s wild, reckless overproduction that leads to uncontrollable crashes to “the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.”

That is China’s concern today: how to deal with multibillionaire Jack Ma and his Ant Group, the world’s biggest fintech (financial technology) enterprise and a modern-day sorcerer’s apprentice.

Ant had been set to sell shares worth a record-breaking $34.4 billion, but on Nov. 3, just two days before the company was to hold the largest initial public offering (IPO) in the world, the Chinese government and top state banks suddenly moved to suspend the sale. This unprecedented action was the most dramatic example to date of a continuing effort to rein in Chinese capitalists and restrict some of their most dangerous schemes.

Jack Ma is a strong proponent of an open and market-driven economy. His often expressed view is that government regulation stifles innovation. He is also a long-time member of the Chinese Communist Party. Allowing Chinese capitalists into the party began as an effort to secure the loyalty of these emerging capitalists to socialist construction and have some means of control over them. It is clearly a contradiction, however, because they use their influence and party positions to promote their own wealth. 

High interest, high debt

Ant Group was set up as a technical company, to get around stricter Chinese regulations on banks. But Ant Group actually is a bank — without one branch office, but making millions of micro loans and extending credit at the tap of a phone app.

Because Ant Group is registered as a technical company, it charged interest to consumers at a rate four times higher than what banks can charge.

Ant runs Alipay, whose one billion active users make it the main online payment system in China, overtaking cash, checks and credit cards. Through its payment and lending platforms, Alipay has processed $17 trillion worth of transactions in China over the past year.

Like other Chinese tech giants, Ant Group holds precious data on customers and controls a digital pipeline through which hundreds of billions of dollars are lent and spent. Having such power in private hands is a source of tension between socialist planners and capitalist entrepreneurs.

Ant Group began as a payment service for the giant, privately owned e-commerce platform Alibaba, also founded by Jack Ma. Alibaba owns one-third of Ant Group. The projected combined valuation of Alibaba and Ant is over $1 trillion.

For those who support the Chinese Revolution, the question is whether this abrupt government decision to stop the sale of shares is an essential choice or just a heavy-handed decision by banking regulators. 

Are these new financial entities disruptive to China’s socialist planning? Or are they a creative, cutting edge, a way to give millions of working people easy access to funds and products?

A state-compiled report examines the way microlending by Ant Group and other fintech companies encourages poor and young people to pile up debt – at four times the regular interest rate. This easy credit has led to a surge of bad debts, especially for inexperienced young workers. Credit card debt is rising by 30 percent a year and has reached 10 times the level of 2010.

How will the fact that hundreds of millions of people now face growing debt impact on China’s widely publicized plan to end poverty in 2020?

Can Chinese state banks weather a crisis the way global capitalist banks did in 2008? To bail out the banks, capitalist governments imposed ruthless austerity. Millions of people lost their homes, while social programs were cut to the bone.

Global banks jump in

The decision by Chinese financial regulators and the leadership of the Chinese Communist Party to suspend the Ant Technology Group has been covered extensively in financial and business publications in the capitalist West.

This coverage expresses shock and worry. Restricting the capitalist market in China, even at the risk of international criticism, is a new thing. The anticipated sale of Ant shares on the Shanghai and Hong Kong stock exchanges had been described in glowing terms. Billions were at stake and involved high financial leverage and anxious investors buying on margin.

China’s Ant Group hired Goldman Sachs as the joint lead manager in the IPO, while Citigroup Global Markets Asia Ltd., JPMorgan Chase & Co., J.P. Morgan Securities (Far East) Ltd., Morgan Stanley Asia Ltd., and Hong Kong Securities Ltd. are the joint sponsors.

Credit Suisse Group AG was reportedly working as a joint global coordinator.  Two state-owned banks, China International Capital Corp. and China Securities Co., were part of a listing on the Shanghai Stock Exchange Science and Technology Innovation Board – called the STAR Market. 

It is clear that imperialist banks, which are completely hostile to socialist construction, have had a big role in this privately owned Chinese bank. The listing had been expected to generate $400 million just in fees for global investment banks. 

“The IPO would have pegged Ant’s worth at a stunning US$359 billion, higher than the world’s largest bank, JP Morgan, and bigger than the state-backed Industrial and Commercial Bank of China (ICBC),” wrote Yahoo!News on Nov. 7. “China feared the privately-run company, which was on the cusp of bringing more foreign investors into its capital structure, had become too big to fail.”

Risk to socialist planning

The Economist of Nov. 14 called the action a shot across the bow of China’s largest financial-technology group.

The Nov. 5 suspension by regulators of Ant’s $37-billion initial public offering on less than 48 hours’ notice was at first interpreted merely as a warning to its founder, Jack Ma, who had previously criticized China’s state-owned banks. But on Nov. 10 the publication of an extensive draft of new rules for all technology groups made it clear that Ant was not the only target. The new regulations involve all of China’s tech industry.

Clearly, there is also a growing realization on the part of international capitalists that the Chinese Communist Party still plays a dominant role and is determined to maintain socialist planning. This means refusing to let powerful Chinese capitalists put the planned economy at risk. 

It is also clear from the sheer size of this one proposed sale that Chinese capitalists like Jack Ma are enormously powerful and internationally connected. Their size and influence has grown.

Do they actually pose a risk to the stability of the state? 

The media in China have paid much attention to explaining the risks involved. Similar speculative schemes involving financial leverage led to the 2008 global capitalist crash and earlier ones.

With so many imperialist banks involved in Ant Group and its risky leveraged set-up, China could be especially vulnerable in a capitalist crisis, especially when there are growing U.S. threats to deliberately sabotage China’s growth.

Debt trap

The People’s Daily, official newspaper of the Central Committee of the Chinese Communist Party, published an article on Oct. 28, a week before the Ant IPO was suspended, headlined “Maintaining financial security a top priority.” The article warned: “China has established a huge banking, stock market and bond system. However, this has led to new regulation risks and challenges…. Financial security is an important part of national security.” The article called for financial institutions to “strengthen the Party’s leadership.”

The Ant Group and other fintech companies promoted easy loans to customers who are young and Internet-savvy but do not have access to a credit card. Their claim was to be serving financially excluded, previously underserved customers, with instantaneous underwriting and receipt of funds.

Easy credit at a phone tap for consumer products, travel and small business start-ups can quickly lead to debt traps for millions who have no experience with being in debt.

In the U.S. today, almost all workers live their lives in debt. Some 41 percent are in medical debt. Millions are overwhelmed by student loans and car loans. Loss of a job can lead quickly to homelessness.

For three generations, since the 1949 Communist revolution, debt was almost unknown in China among workers and peasants. Before the revolution, millions of people had been born into debt, carrying the debt of their families, and were forced to sell themselves and their children to landlords to pay debts.

New regulations

Growing volumes of credit card debt are overwhelming some banks. Should a mass default occur, the Ant Group keeps the money while the state banks bear the risk.

How is this possible?

Ant Group policy has been to use the same Wall Street sleight of hand that led to the 2008 global capitalist crash. This is hardly new or innovative. The fintech companies have been repackaging and selling off millions of risky loans. Only 2 percent of the loans Ant had facilitated as of the end of June were on its balance sheet in October, according to its IPO prospectus.

Ant Group partners with China’s state-owned banks. The group reaps the initial fees and payments and then repackages millions of microloans and sells them to the state banks. Now 98 percent of Ant Group’s debt is owned by state banks. This leaves the state banks taking on most of the credit risk.

In brief, Jack Ma was putting up $2 to do $100 worth of business, using state banks to finance the other $98. This repackaging of debt is called securitization. It is the conversion of an asset, especially a loan, into marketable securities, typically for the purpose of raising cash by selling them to other investors.

Clearly, such capitalist schemes have nothing to do with modernizing China, raising its productive capacity, or improving the lives of working people.

Now the new draft regulations aimed at online micro lending would force fintech companies such as Ant to fund close to a third of their loans. This could reduce the value of the company by half, to $150 billion.

The antitrust regulations are also aimed at preventing digital platforms such as Alibaba from using their dominance to bully sellers into exclusivity contracts.

Struggle against Chinese capitalists

The struggle against Chinese capitalists is protracted. Both the power and wealth of the capitalists has grown explosively. But so has the growing coordination of socialist planning. Over 70 years, the conditions of life for millions have steadily improved.

The Economist, a British weekly business newspaper, described this growing tension, which is of great concern to the capitalist class as a whole. (“China takes aim at its entrepreneurs,” Nov. 14) 

Over the last few years, several campaigns have tried to rein in big Chinese capitalists and the resulting corruption and debt they bring, in order to maintain China’s social and financial stability. This has been especially true since 2013 and the presidency of Xi Jinping.

The first step was a 2013 campaign against corruption and lavish spending by party officials. 

The next was dealing with Chinese capitalists who were ploughing billions into overseas investments that state regulators considered thinly disguised maneuvers to divert capital out of China. These were not investments that in any way aided China’s development. 

Purchases such as the amusement park SeaWorld, European football clubs and large stakes in Hilton Worldwide Holdings were ordered reversed. Wu Xiaohui, chairperson of Anbang Insurance, purchased the Waldorf Astoria hotel in Manhattan. In 2018, Wu wound up with with an 18-year prison sentence for financial crimes – and Anbang was nationalized.

Ren Zhiqiang, a senior member of the Communist Party and a housing tycoon who ran a state-owned property firm, was sentenced to 18 years in prison in September 2020 for bribery and embezzlement.

The crackdown has put an abrupt end to a boom in global spending by Chinese firms. While in 2016 overseas mergers and acquisitions amounted to $200 billion, in 2019 they had shrunk to less than a fifth of that.

Raising strict standards for online lending, limiting the amount available for borrowing, and changing the financial regulatory environment are all efforts to regain control.

Workers’ oversight

How to safeguard state-owned property from corrupt officials and stop backroom deals with powerful Chinese capitalists who are linked to international finance is a far larger challenge. It takes the involvement and surveillance of the workers in each industry.

A new political structure is being established to empower workers to speak up and to encourage communist cadre at a local level to monitor what capitalist owners may be up to.

Most important, it is being set up through the All-China Federation of Industry and Commerce. This is a powerful nongovernmental organization of Chinese industrialists and business people under the leadership of the United Front Work of the Chinese Communist Party (CCP).

The federation was established in 1953, a very different era. Those were the early days of reorganizing industry and building a socialist base. The federation describes itself as a body to increase communication between government and the private economy, and to assist the government in managing the private economy and achieving sustainable development. It has a number of seats in the National People’s Congress. 

In the past its goal has been to build closer relations with foreign commercial and industrial entities and help Chinese members go overseas for business opportunities that would help further China’s economic reforms. This body has now called for private groups to establish human-resources departments led by the party and monitoring units that would allow the party to audit company managers in both private and state corporations. Party oversight committees are expected to play a larger role in the giant tech firms.

A raft of new regulations will also bar foreign investors from taking direct stakes in Chinese banking. 

Socialist base

Since 1979 China has cultivated the policy of opening up to the West and allowing Chinese capitalists to grow and accumulate vast wealth. They were meant to act as intermediaries with the West. Capitalism, both Chinese and Western, is usually given all the credit for the leap in productive capacity and modern development in China since 1979.

However, precisely because China maintained a planned economy and state ownership of core industries, it has been able to avoid the economic crises that hit all capitalist economies every seven to ten years.

The real driving force in China’s rapid modernization and leap from grinding poverty, illiteracy, famines and imperialist domination is the Chinese Revolution, led by the Chinese Communist Party.

The dramatic change that began with the 1979 opening of China was due to an agreement by the government, under Deng Xiaoping, to allow Western capitalist investment in China under controlled conditions. The goal was to achieve faster economic growth through the active introduction of foreign capital and technology, while maintaining its commitment to socialism.

It was a risk, especially because imperialism saw it as a way back into China.  

China’s opening to investment in 1979 was conditioned on the West lifting its complete economic sanctions, which ever since the 1949 Revolution had sought to strangle China and bar all technology, industrial equipment, investment and trade.

For 30 years, from the 1949 Chinese Revolution to 1979, China’s efforts at growth and modernization were made more difficult by the U.S.-imposed sanctions. Nevertheless, in these three decades China reorganized a chaotic, war-torn, underdeveloped society, building the technology and infrastructure and educating the working class. This is what made the next step possible.

As U.S. imperialism’s hostility to China grows, threatening military encirclement, and trade wars and sanctions tighten, the leaders may now be taking a closer look at the dangers internal capitalist forces bring to the country’s stable socialist development.


Sara Flounders is an American political writer who has been active in ‘progressive’ and anti-war organizing since the 1960s.  Sara is Co-Director of the International Action Center (IAC) and  a member of the Secretariat of Workers World Party  She also frequently writes for Workers World newspaper and publishes articles on the International Action Center website.

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