22.06.2023, Tomasz Konicz
Can state-capitalist China inherit the United States’ position as global hegemon?
If the Russian-Chinese summit declarations and Western assessments are to be believed, the 21st century will be defined as an era of Chinese hegemony. At their Moscow war summit in mid-March, Putin and Xi advocated a “just multipolar world order” that would put an end to the era of U.S. hegemony. A British government report, on the other hand, warned of a world of “danger, disorder and division” that Beijing was creating in an open, “epoch-shaping challenge” to the liberal, “rules-based world order.” Even British analysts should find it difficult to see the crisis-ridden late capitalist world as anything other than “danger, disorder and division.” Such assessments are obviously simple projections. But that does not necessarily mean that they are completely wrong – as a cursory glance at the carnage in Ukraine and the saber-rattling over Taiwan shows.
Talk of a multipolar world order is thus, on the one hand, the ideology of all those authoritarian states of the semi-periphery which, by means of imperialist power and war policies, are striving to take over from the eroding U.S. in order to achieve a similar supremacy or dominance at the regional or global level as Washington achieved in the second half of the 20th century. The rise of regional interstate conflicts is precisely an expression of this very real multipolar world disorder in a period of global crisis in which there is effectively no longer a world hegemon. Whether we’re talking about Russian imperialists, Iranian mullahs, Turkish neo-Ottomaniacs, or German out-and-out Nazis and Querfrontler, envy of Washington’s disintegrating means of power is what is motivating this new era of anti-Americanism. And this is especially true of the U.S. dollar. The greenback, as the world’s reserve currency based primarily on the oil trade, has given Washington the ability to borrow in the value of all commodities to finance, for example, its military machine. If, on the other hand, Erdogan turns on the printing press, inflation will simply rise.
This is why recent currency deals between China, Russia and a number of semi-peripheral states are raising eyebrows. In mid-March, during a state visit to Riyadh, President Xi proposed switching oil trade with Saudi Arabia to the Chinese yuan to counter the “increasing weaponization of the dollar.” Riyadh is said to be seriously considering the symbolic move to unwind some of its oil trade with Beijing. In warring Russia, the yuan has risen to become the most traded currency in the face of Western sanctions. Beijing has struck similar bilateral currency deals with Brazil, Pakistan and Venezuela. At the last BRICS meeting in February, the creation of an alternative currency system for “emerging markets” was even discussed. The Financial Times warned back in March that Western functional elites should prepare for a “multipolar currency world order” – which would mean the loss of Washington’s “extraordinary privilege” of borrowing in the world’s reserve currency.
On the one hand, these increased movements away from the dollar can be traced back to the U.S. sanctions against Russia at the beginning of the war of aggression against Ukraine, since this was the first time that Russian foreign assets were frozen (Lavrov spoke of “theft”), a fact that was carefully registered by all regimes that have to reckon with the prospect of coming into conflict with Washington. But this tendency towards de-dollarization and de-globalization can only be fully understood against the background of the imperial decline of the United States and the historical crisis process. Only when this is taken into account does it become clear why China will not be able to take over the United States’ role as hegemon.
Giovanni Arrighi, in his fascinating work Adam Smith in Beijing, has described the history of the capitalist world system as a succession of hegemonic cycles. A rising power achieves a dominant position within the system in a phase of ascendancy characterized by commodity-producing industry; after a signal crisis, this hegemonic power enters imperial decline, in which the financial industry gains importance, to be finally replaced by a new hegemon with greater means of power.
And this sequence can be empirically traced in the case of both Great Britain and the USA. The British Empire, which became the ‘workshop of the world’ in the context of industrialization in the 18th century, transformed itself into the world’s financial center in the second half of the 19th century, before being replaced in the first half of the 20th century by the economically ascendant U.S., which in turn experienced its ‘signal crisis’ during the crisis phase of stagflation in the 1970s. This was followed by the deindustrialization and financialization of the U.S., leading to the economic dominance of the U.S. financial sector. The indebtedness of the declining hegemon to the imperial ascender, which Arrighi also addressed, can be seen both in the case of Great Britain vis-à-vis the United States and through the deficit cycle of the United States vis-à-vis China.
The dollar thus achieved its world position in the context of the postwar Fordist boom, when the Marshall Plan also cemented U.S. hegemony in devastated Europe. And it was precisely this long period of Fordist expansion that formed the economic basis of U.S. hegemony. With the end of the postwar boom in the stagflationary phase, financialization and the implementation of neoliberalism, the economic basis of the Western hegemonic system changed: in the systemic crisis of valorization, the increasingly indebted United States became the “black hole” of the world system, absorbing the surplus production of export-oriented states such as China and the FRG through its trade deficits – at the price of increasing deindustrialization. Beijing and Berlin thus had every reason to tolerate U.S. hegemony and the dollar as the world’s reserve currency, for without the American market China’s rise to become the new “workshop of the world” would not have been possible.
Late capitalism, choking on its own productivity and increasingly running on credit, chained the “production sites” and deficit states together within the framework of this globalization of deficit cycles and the corresponding bubble economy, while at the same time increasing the potential for conflict due to processes of socio-economic disintegration. This crisis tendency was personified very concretely by Donald Trump, who was elected by an eroding white middle class and who wanted to reindustrialize the U.S. by means of protectionism – and thus unintentionally accelerated the decline of the dollar, which was accepted precisely because of the deficits of the dollar area. In fact, since Trump’s presidency, we can hardly speak of U.S. “hegemony” in the traditional sense of the word. The United States now holds its position only by means of naked dominance, mainly because of its military-industrial sector, which is the real backbone of the dollar – and this is what makes a military confrontation between China and the United States likely. The U.S. has its back against the wall globally, just as Russian imperialism did in the post-Soviet space on the eve of the Ukraine war. This was also evident in the current banking quake, which was triggered by U.S. government bonds, of all things.
The crisis-induced rise in protectionism thus seems to be giving the world’s reserve currency, the dollar, a break. And yet, because of the unfolding global socio-ecological crisis of capital, the 21st century will not usher in an epoch of Chinese hegemony. The yuan is not going to inherit the dollar. The hegemonic rise of the People’s Republic, marked by the dominance of commodity production, took place within the framework of the aforementioned global deficit cycles, in which the debt dynamics in the West generated demand for Chinese exports – and it ended with the crisis surge of 2008. With the bursting of the real estate bubbles in the U.S. and Europe, the extreme Chinese export surpluses declined (with the exception of the U.S.), while the gigantic stimulus packages launched by Beijing to support the economy led to a transformation of China’s economic dynamics: Exports became less important, and the credit-financed construction industry and the real estate sector became the main drivers of economic growth.
Thus, China already passed its ‘signal crisis,’ which marks the transition to a financial market-driven growth model, in 2008. China’s growth is thus also based on credit; the People’s Republic is highly indebted, just like the declining Western centers of the world system. The Chinese deficit economy generates even greater speculative excesses than in the U.S. or Western Europe, as the distortions in the absurdly inflated Chinese real estate market in 2021 made clear. Economically, the hegemonic decline of the People’s Republic has already begun due to the global systemic crisis, even though it has not yet been able to gain its hegemonic position geopolitically.
The lack of a new leading sector, of an accumulation regime that mobilizes wage labor on a mass scale in commodity production, which is a manifestation of the internal barrier of capital, constitutes the major difference between contemporary China and the U.S. at the end of World War II. This is particularly evident in Beijing’s foreign policy ambitions, where the “New Silk Road” initiated an ambitious global development project modeled on the Marshall Plan – and brought the People’s Republic its first international debt crisis. Of the approximately $838 billion that Beijing has invested in building a China-centered economic and alliance system in developing and emerging countries by 2021, about $118 billion is said to be at risk of default after the outbreak of the current wave of crisis (the pandemic and the war in Ukraine).
There is no global economic springtime in sight, only over-indebtedness and inflation. Because of its collapsing debt towers at home and abroad, China appears to be in decline even before it has achieved hegemony. In addition, there is the external, ecological barrier of capital, since the People’s Republic, in the course of its state-capitalist modernization, has become the largest emitter of greenhouse gases, which, given the threat of climate catastrophe, makes a similar development path for other countries of the global South pure ecological insanity (but at the same time, it would be simply perverse for the centers to preach renunciation to the global South). The historical hegemonic cycle of the capitalist world system is thus superimposed on the socio-ecological crisis process of capital, interacting with it and allowing the hegemonic rise and fall of China to merge.
A hegemonic system, in which the position of the hegemon would be tolerated, is no longer feasible due to the increasingly manifest internal and external barriers of capital, due to the economic and ecological double crisis. Imperialism in the current phase of crisis, in which the historical expansionist movement of capital has turned into a contraction leaving behind Failed States, amounts to isolation and pure resource extractivism. The isolation of the areas of socio-economic collapse, which no longer play a role as markets, goes hand in hand with the brutal struggle of various countries for the dwindling raw materials and energy sources needed to feed the sputtering valorization machine.
There is a clear historical trend here. The quest for direct control of colonies and protectorates in the 19th century, the era of British hegemony, gave way in the 20th century to informal imperialism, as practiced by Washington through coups and the installation of dependent regimes. In the final phase of the capitalist world system, imperialist rule seems to amount to the mere maintenance of infrastructural extraction routes through which resources and energy carriers are to be transported from the areas of economic and ecological collapse to the remaining centers.
Thus, what is unfolding in the current crisis imperialism is a logic of last man standing, in which the consequences of the crisis are passed on to the competition. These power struggles between state subjects, which have now reached the point of open war, are carrying out the objectively advancing crisis process. It is a geopolitical power struggle on the sinking late capitalist Titanic, in which there are in fact no winners. That is why all the apparent alliances are so fragile, as was seen most recently in the EU’s moves to distance itself from the United States on the Taiwan issue.
And yet, against the backdrop of the socio-ecological crisis, the struggle between Russo-Chinese Eurasia and the United States’ Oceania, in which Ukraine and Taiwan form an acute and a potential flashpoint, can certainly also be understood as a struggle between the future and the past. It is a struggle between the declining era of neoliberal governance and the emerging era of openly authoritarian rule, in which authoritarian structures and social disintegration interact, as can be seen almost paradigmatically in the Russian state oligarchy and mafia rule. The crisis is literally driving the eroding late capitalist state behemoths into confrontation, so that the unleashing of capital’s growing auto-destructive tendencies in a large-scale war is quite possible.
Originally published on the EXIT homepage on 05/10/2023