The Global Impact of China’s Rise Why the Overcapacity Argument Is Incorrect

The Global Impact of China’s Rise: Why the "Overcapacity" Argument Is Incorrect

BCR: First, I’d like to discuss the trade war, a topic that has garnered significant attention in recent years. Mainstream neoclassical economics often adopts a depoliticized and ahistorical research paradigm, yet the trade war is precisely driven by political factors, and its causes must be sought in history. You have long been engaged in the study of Marxist political economy, which is inherently political and adept at conducting historical and structural analyses. So, I’d first like to ask for your perspective, from this angle, on the trade war initiated by the Trump administration in the United States.

Lu Di: To address such a practical issue, we must delve deeper step by step across multiple dimensions. First, why did the trade war occur? In other words, what are the driving forces behind it, and what objectives does it seek to achieve? On the most superficial level, the trade war initiated by the United States is primarily driven by two powerful forces, or rather, it aims to address two distinct real-world problems.

The first driving force is systemic demand deficiency, which refers to insufficient demand across the entire global economy. The most typical example is Trump's assertion—the so-called “China stole American workers’ jobs.” This statement presupposes that jobs are scarce or insufficient; therefore, if China occupies more jobs, the U.S. will suffer harm. This issue is not unique to the United States. At least in discourse, countries around the world now criticize surplus nations, arguing that they occupy an excessive share of global demand and market share, causing deficit nations to suffer losses. Many developed countries contend that no nation should be allowed to maintain sustained, large trade surpluses or current account surpluses. Following the trade war, some countries have even proposed that no nation should be permitted to maintain a surplus exceeding3% of its GDP. The premise behind these arguments is similarly that the global economy suffers from insufficient demand.

If we focus on the economic and trade relations between China and the United States, this situation was not considered problematic before2010. At that time, U.S. financial officials highly praised the “China produces, America consumes” economic relationship between the two countries, as China provided the U.S. with inexpensive goods, effectively subsidizing the U.S. to some extent. After acquiring dollars through trade, China allowed these funds to flow back to the U.S. by purchasing U.S. Treasury bonds or other dollar-denominated financial assets, enabling the U.S. to use Chinese funds to continue buying Chinese products. The U.S. financial assets purchased by China, particularly U.S. Treasury bonds, actually offered low returns—especially lower than the profit margins of U.S. investments in China. Thus, on the financial level, China once again subsidized the United States.

When2008 saw the outbreak of the financial crisis, the world entered the so-called “Great Recession”, global economic growth stagnated or even declined, and the issue of insufficient demand became unmistakably clear. U.S. financial officials subsequently changed their stance and tone, beginning to harshly accuse China of causing the so-called “global imbalances.” There was even a complete 180-degree reversal in attitude from the same individual: when Janet Yellen served as Chair of the Federal Reserve (2014~2018), she was still praising the “China produces, America consumes” economic relationship; but by the time she became Treasury Secretary in the Biden administration (2021~2024), facing the same reality, she switched to harsh criticism, believing that China occupies an excessive share of global economic demand, causing various economic difficulties in deficit countries, particularly the United States.

Theoretically, standard neoclassical economic theory does not acknowledge the problem of insufficient demand; it is New Keynesian economics that recognizes the possibility of systemic demand deficiency. Before the financial crisis, U.S. financial officials viewed the world through a neoclassical lens, so the economic and trade relationship between China and the U.S. did not appear problematic to them at the time. After 2010, they shifted to a New Keynesian perspective, arguing that systemic demand deficiency is indeed a problem for the world economy and for developed economies, and that China must bear responsibility for it. This judgment is a near-consensus among various Western narratives during the trade war.

The second major driving force, or the second real challenge faced by developed countries, is the shift in trade structure. Before 2010, in China's trade with developed countries, China primarily exported labor-intensive, low-value-added products, while importing high-value-added, capital- and technology-intensive products from the West. However, over time, China's industrial upgrading has accelerated, and its export product structure has become increasingly advanced. Capital-intensive and technology-intensive products made in China increasingly pose direct competition to developed countries. A significant turning point was the signing of the Paris Agreement in 2015. At that time, developed countries, particularly the European Union, were brimming with confidence, believing they would undoubtedly lead in the industrial transformation required for the green transition, thereby maintaining their “monopoly (semi-)rent” in high-tech industries. [1] The reason for the unequal exchange in the trade patterns between China and developed countries before 2010, and indeed in the long-standing trade patterns between the entire developing world and developed countries, is precisely that developed countries enjoyed such monopoly rents.

However, what the West did not anticipate is that in the green transition, China has taken the lead in the development of green industries. Therefore, during U.S. Treasury Secretary Janet Yellen's visit to China last year, she particularly emphasized two points: first, that China has “excessive savings,” meaning it occupies an excessive share of global demand; and second, that China has “overcapacity.” Her criticism was not directed at overcapacity in China's labor-intensive industries. In these sectors, even if Chinese products capture the entire world market, they are highly praised rather than criticized. Her concern is with China's capital-intensive and technology-intensive products, especially green technologies and industries. Because China's rise in these areas fundamentally undermines the monopoly status and rents previously enjoyed by developed countries.

BCR: High tariffs and trade protectionism were once primarily the domain of the Left. At the end of the 20th century and the beginning of the 21st century, there were voices from the Left, even protests, both in China and the West, opposing the World Trade Organization and globalization. However, in the wave of deglobalization since 2016, trade protectionism has largely become the policy stance of the so-called “far right” in Europe and the US. How did such a dramatic shift occur?

Lu Di: Ultimately, it is because China has risen in a way that no one expected.

Traditionally, the left opposes free trade because its essence is an unequal exchange. The trade relationship between developing countries and developed nations involves an exchange of Southern labor for Northern capital, often leading Southern countries to fall into “underdevelopment,” rather than development.

However, two new developments have emerged in this round of globalization. The first is China's rise. As a late-developing economy, under this premise of unequal exchange—where we were forced to accept low wages, and a major portion of the value we produced was taken by capital from developed countries—we underwent a grueling process of self-exploitation to complete capital accumulation, invested to drive industrialization, continuously advanced industrial upgrading, and step by step reached a point where we could shake or even disrupt the monopoly of developed countries in high-tech industries, especially green transition industries. This is something no one anticipated before. Facing such pressure, developed countries have come to realize that free trade has such a negative aspect for them, as it undermines their monopoly rents.

The second change is also a result of free trade. Under conditions of capital mobility and free trade, capital from developed countries naturally shifts labor-intensive industries to other nations, particularly China. Furthermore, due to the financialization and speculative nature of the economy, multinational corporations from developed countries generally seek to replace capital (investment in technology and equipment upgrades) with labor (illegal immigrants or cheap labor from other countries), keeping capital in financial forms rather than transforming it into machinery and factories tied to specific locations. Consequently, severe divisions have emerged within Western societies: in this process, capital has reaped enormous profits, but the labor force has suffered immensely—not only have numerous jobs been lost, but new positions have not been created, and workers themselves have become increasingly unable to receive new skills training. Of course, these developed countries previously managed to mitigate living costs through cheap goods from China and illegal immigrants from Latin America as a form of hedging. However, these two factors have become increasingly inadequate in counteracting the negative impacts of trade liberalization and economic financialization, leading to the rise of so-called right-wing populism in recent years, which demands a return to isolationism and opposes liberalization, among other things.

Although right-wing populists in the West oppose trade liberalization, their political representatives, including Donald Trump, do not fully align with this stance. For far-right politicians in Europe and America, they accept free trade that benefits their own countries and reject free trade that does not. Therefore, the political establishments of these developed countries oppose only a specific kind of free trade—the kind that threatens their monopoly positions and monopoly rents. In my view, this is the true meaning of right-wing opposition to free trade, which is precisely opposite to left-wing opposition: the left opposes the unequal exchange underlying free trade, while the right opposes the weakening of this unequal exchange.

BCR: You just mentioned that Yellen criticized China’s economy for so-called “overcapacity.” Of course, this rhetoric carries its own biases from the U.S. But the current situation is that China is close to completing industrialization, and in modern human history, there has been no precedent of a billion-population economy achieving industrialization as a whole. This reality indeed raises a question we should seriously consider: What kind of impact will China’s powerful manufacturing capabilities and comprehensive industrial system bring to the world? How should China and other countries, especially other developing nations, manage their economic relations with one another?

Lu Di: This actually involves issues at multiple levels. To answer whether China will squeeze the development and industrialization space of other countries, we must first address a preliminary question: where does development space come from? Development space is not fixed; it is an ever-changing category.

In the era of neoliberal globalization, the scope for development is closely linked to the issue of insufficient demand. If demand is lacking, the space for growth becomes constrained. To what extent, then, is China responsible for the systemic insufficiency of demand on a global scale? This prompts us to dig deeper and ask: What is the source of demand? Clearly, demand is not the same as need—market demand differs from social or human needs. For example, we may need various green transition products, or many people around the world may desire urban housing, but these do not necessarily translate into demand. Demand depends on purchasing power in the market: there may be vacant homes in cities, yet farmers cannot afford them. This is a need, but not a demand.

Thus, the source of market demand is income, and without income growth, there can be no growth in demand. The impact of income on demand manifests in two aspects: First, income distribution—even if there is sufficient overall income to purchase all products or all products that can be produced, if there is significant inequality in income distribution, many needs cannot be translated into demand. Second, insufficient overall income directly leads to insufficient demand.

The demand primarily consists of two parts: one is consumer demand, which refers to the final goods people purchase in their daily lives; the other is investment demand, which involves the demand for various capital goods. This includes installing machinery, constructing factories, purchasing a variety of raw materials and inputs, hiring workers to produce goods, and then selling these products. Throughout this process, demand is also generated.

In recent years, a very distinct characteristic observed worldwide is the inadequacy of investment.[2] Taking the World Bank’s World Development Indicators as an example, which is the most comprehensive dataset, we see the following. We roughly take1980 as the starting point of the most recent wave of globalization. Prior to this, from1970~1980, the average annual investment rate (ratio of capital formation to OECD) for developed countries (GDP) was26%, for China it was34%, and for developing countries outside of China it was27%. In the first20 years following the onset of globalization, i.e.,1980~2000, the average annual global investment rate experienced a significant decline. For developed countries, it fell to25%; for developing countries outside China, it dropped to 25%. 2000~2022, the rate for developed countries continued to decline to 22%, while for developing countries outside China, it largely stagnated, remaining at the level of 25%. China is the sole exception. From1980~2000, China's average annual investment rate rose to36%. 2000~2022, it further increased to 43%. Meanwhile, following the onset of globalization, the economic growth rates of all countries globally outside of China have also seen substantial reductions, whereas China's growth has simultaneously accelerated.

Therefore, the lack of global development space is due to slow income growth, and a significant reason for this slow income growth is insufficient investment. The issue we face today is a global shortage of investment, not excessive investment. Whether China has overinvested or occupies too large a share of global demand is debatable. However, the global deficiency in demand is primarily caused by factors outside of China—the entire capitalist world is experiencing investment stagnation, even decline. This judgment stems from Marxist and post-Keynesian theories.

However, the prevailing discourse has not taken this view. Previously, under the dominant influence of standard neoclassical economics, this was not even considered an issue because it never acknowledged insufficient demand as a problem. From the perspective of neoclassical economics, market economies may experience short-term demand deficiencies, but over the long term, the global economy will automatically adjust to a state of supply-demand equilibrium. Today, the dominant global discourse has shifted to new Keynesian economics, which indeed recognizes persistent global demand deficiency rather than viewing it merely as a short-term fluctuation. Yet, within new Keynesian economics, there are various differing explanations. Why is there insufficient demand? Theories focusing on investment often attribute it to "market failure": an imperfect market system, inadequate protection of property rights, and a reluctance of capital to invest. Since the Trump 1.0 era, mainstream discourse has particularly emphasized insufficient consumption. The implication is that with China's high investment rate, the flip side must be suppressed consumption. Because the proportion of consumption in China's total income is significantly lower than in most other countries, especially developed nations, using the term "insufficient consumption" better serves to point the finger at China.

What exactly causes insufficient consumption? Western new Keynesian economics doesn’t really offer a unified explanation, but there is one view that is quietly accepted by the mainstream establishment. Why say it is “quietly” accepted? Because this viewpoint is somewhat politically incorrect in the West. This perspective is prominently reflected in the bestselling American book from a few years ago, Trade Wars Are Class Wars. The authors of the book argue that income inequality leads to insufficient consumption. Since workers have a higher marginal propensity to consume (the proportion of workers’ income spent on consumption is much higher than that of profit earners), if income distribution excessively favors capital, it will lead to a low overall economic propensity to consume. They believe this is precisely China’s problem because workers’ income in China accounts for a relatively low share of overall income. But if we extend this analysis, we find that this is not only true for China but is a global phenomenon, particularly in developed countries like the United States, where income inequality leads to insufficient consumer demand. That is why I said earlier that this view is only quietly accepted. Although both Trump and his predecessors, such as Hillary Clinton and later Biden, talked about addressing income inequality in the U.S. and controlling Wall Street during their campaigns, once in office, none of them made serious attempts to rein in Wall Street or tackle income inequality. Instead, they directed their accusations toward China.

In summary, there are two main interpretations here. The more mainstream Western interpretation emphasizes insufficient consumption, a view supported by various social democratic political forces, such as the U.S. Democratic Party, European social democratic parties, and labor parties. The other interpretation emphasizes insufficient investment: this is a global issue. While China also faces a degree of insufficient consumption, the more serious problem is insufficient investment.

Although the earlier data show that China’s investment rate is very high, that is the average over the entire period. If we look at the actual trend, since 2012, China’s investment rate has been declining. Therefore, insufficient investment is a global issue; it’s just more severe and emerged earlier in other countries. In China, it appeared later and is less severe. To some extent, various pieces of evidence can be found to show that China also faces insufficient consumption, but this is not the primary cause of insufficient demand in China, let alone a significant factor in the global lack of demand. We must have this understanding of insufficient demand before addressing the second question—Does China’s comprehensive and massive industrial system squeeze out the industrialization space of other countries?

As mentioned earlier, the space for industrialization comes from two main sources: systemic demand and industrial structure. From the perspective of systemic demand, demand is not fixed. The growth of demand comes from the growth of income, and income growth ultimately stems from investment growth. The process of investment itself generates demand, and once investment is realized, it becomes a source of expanded production capacity and technological progress. If investment stagnates, income growth will also stagnate. This is precisely the situation in the world outside of China.

We can examine the performance of the average annual real growth rate of GDP per capita. GDP per capita. The average annual growth rate of GDP per capita for OECD countries fell from GDP per capita dropped from 3.03% in the period 1960–1980 to 1.59% in the period 1980–2023. For developing countries excluding China, it declined from 3.01% to 1.3%, while China's rate increased from 3.01% to 8.08%. Clearly, we can observe two important facts from this. First, the decline or waning of growth, or development. Compared to the "golden age" of 1960–1980, both developing countries and OECD countries have experienced a significant slowdown in growth over the past four decades. Second, the divergence in development. During the “golden age,” the growth rates of developing countries excluding China were very close to those of OECD countries; however, in the era of globalization, the income levels of developed and developing countries have tended to diverge rather than converge. This is clearly also related to the stagnation of investment growth and the decline in the investment rate.

From this, we can draw a crucial conclusion: at a systemic level, China has made significant positive contributions to expanding global development space. As a key productive economy, China’s sustained and rapid growth in productive investment has offset the stagnation of investment growth worldwide. Mainstream research and public discourse often focus on market competition between China and other countries, but overlook the more critical aspect of economic development: the creation and utilization of value within the entire system. This involves producing new value, which is then transformed into productivity gains, ultimately leading to income growth.

Highlighting the distinction between productive and non-productive economic activities, and viewing economic development as driven by productive activities, is a perspective shared by Marx, Schumpeter, and to some extent, Keynes. To address the question of how China affects the development space of other nations, we must examine it from the angle of systematically creating development opportunities—an aspect that current mainstream discourse has entirely overlooked.

Next, we move to the question at another level: Has China’s comprehensive industrial chain squeezed out the industrialization of other countries through market competition? First, we observe that in 2000, whether in terms of total volume or incremental growth, the Chinese economy accounted for only a very small portion of the world economy; at that time, China's external economic activities, including foreign trade,2000 outward direct investment, and financial activities, accounted for only a tiny fraction globally. Over the next two decades, China’s economy experienced a rapid expansion process. In terms of incremental growth, China's share of the world economy (i.e., China’s GDP as a proportion of global GDP) reached around1/4, far exceeding its share in terms of total volume. Yet, China's contribution extends beyond this. Simultaneously, China underwent a massive expansion in external trade and economic activities, becoming the world's largest goods trading economy in 2013, and the world’s second-largest outward investment economy in 2016. When these factors are taken into account, China's contribution to global economic growth undoubtedly exceeds1/4.

From the perspective of trade balance, since 2000, China has consistently maintained a trade surplus with developed countries, while running a trade deficit with other developing countries—only in recent years has a surplus emerged. Therefore, from a demand standpoint, the rise of China has not squeezed the development space of other developing countries. China exports to them and also imports from them. The products they manufacture would not remain unsold simply due to competition from China.

So, does it constitute a squeeze in terms of industrial structure? Prior to 2012, China indeed had comprehensive coverage across its industrial structure, from labor-intensive to capital-intensive products, competing with both developed and developing countries. Numerous studies indicate that labor-intensive products from other developing countries, such as textiles, clothing, toys, sporting goods, basic metals, and hardware, did indeed face competitive pressure from China. However, at the same time, China began to undergo a transformation in its trade structure. We started exporting capital- and technology-intensive products, with their proportion continuously rising, while our labor-intensive, export-oriented industries began to relocate on a large scale and systematically to developing countries such as Vietnam, Cambodia, Bangladesh, and Ethiopia. Therefore, in this sense, there has been no instance of China squeezing the development space of other countries through its comprehensive industrial chain.

Moving to the third level: Will China imitate the unequal exchange relationship that existed between developed and developing countries in the past, thereby establishing an unequal economic relationship between itself and developing nations? Setting aside the issue of financial hegemony, the unequal exchange between developed and developing countries primarily manifests as the former exchanging technology-intensive products for the latter’s resource- or labor-intensive products. If we look solely at the trade structure, trade between China and developing countries does indeed exhibit similar characteristics: China’s high-tech products, such as our new energy vehicles, are being exported in large quantities to developing countries. However, we must not forget that these high-tech products and various machinery and equipment from China are exported to developing nations at very low prices, unlike the monopoly rents enjoyed by developed countries. This is undoubtedly difficult for developed countries to accept, leading to their hostility towards China; but for developing countries, this is a very positive development—they previously could not afford automobiles and machinery from Germany or Japan, but now they can afford them from China. In this sense, even though there is such a trade structure between China and developing countries, it does not mean this constitutes unequal exchange, at least not the kind of unequal exchange seen in trade between developed and developing nations.

Similarly, China exchanges industrial products with these Global South countries for resources, agricultural products, minerals, etc., which on the surface somewhat resembles the so-called “colonial international division of labor” pattern; however, there is also a fundamental difference here: due to China’s substantial imports, the prices of their resource products have significantly increased. The price of the industrial products China exports to them continues to decline, while the price of resources imported from them rises substantially, leading to a significant improvement in their terms of trade (the ratio of export prices to import prices) with China, whereas China’s terms of trade have substantially worsened. This indicates that, despite superficial similarities, the actual content of the economic and trade relationship between China and developing countries is entirely different from that between developed and developing nations.

Whether during the colonial era or the subsequent neocolonial period, the profits from economic exchanges between the North and the South were taken by developed countries, leaving developing nations trapped in underdevelopment. They remained reliant on providing resources and primary products, unable to accumulate capital or invest in industrialization. Today, however, developing countries earn significant revenue from trade with China, which they can use for investment and to advance their own industrialization. Whether these nations choose to do so depends on their internal political-economic structures. If industrial capitalists or the national bourgeoisie hold sway, progress is possible; if comprador or speculative classes dominate, it is less likely. But the responsibility for this outcome never lies with China. Moreover, China steadfastly adheres to the principle of non-interference: even in purely economic terms, it refrains from influencing the development strategies of other developing countries. Should they focus on labor-intensive, low-value-added industries according to international comparative advantage, or pursue a so-called “leapfrog strategy“ aimed at developing technology- and capital-intensive industries from the outset? China remains entirely non-interventionist in such matters.

China’s relationship with developed countries is different. Indeed, we challenge them both in terms of demand and industrial structure. However, the root cause remains internal to these nations——their industrial upgrading and productive investments have stagnated for a long time, rather than stemming from China. Furthermore, they have long enjoyed unjust and unreasonable monopoly rents. China’s efforts to challenge and disrupt their monopoly positions are not deserving of blame. Of course, the question of what is just is another matter; the reality is that their stagnation in productive investment has hindered industrial upgrading. A clear example is seen in U.S. high-tech companies like Apple, Microsoft, Amazon, Google, and Meta. Their profits largely flow into various forms of financial speculation, particularly share buybacks aimed at boosting stock prices. This satisfies the high-salary demands of executives (much of whose compensation comes in the form of stock options) and meets the needs of external financial investors, rather than being reinvested to drive industrial upgrading.

China, in contrast, provides a striking example with Huawei. Huawei reinvests most of its profits, gradually eroding the monopoly rents enjoyed by U.S. companies. According to Keynesian theory, capital in developed countries is “on strike.” Their economies have become heavily financialized and speculative, with capital unwilling to enter productive sectors. Capital is no longer playing the role of industrial capitalists or entrepreneurial investors—this is their fundamental problem. China’s competitive pressure is merely a mechanism, not the cause.

BCR: Regarding the development issues of developing countries, China has been implementing the “Belt and Road” Initiative in recent years and carrying out various forms of international development cooperation and assistance. Have these practices helped these developing countries address their own development challenges? And how do China's practices compare with Western international development cooperation and aid in terms of similarities and differences?

Lu Di: As mentioned earlier, the primary principle of China’s foreign engagement is non-interference, not only political non-interference but also non-interference in other countries' development policies. “Belt and Road” mainly provides a platform or connectivity, linking relatively isolated developing economies. Up to now, “Belt and Road” has primarily focused on infrastructure — transportation, power, telecommunications, ports, etc. Correspondingly, the main investors in “Belt and Road” are state-owned enterprises. By around 2020, more than 80% of China's outward foreign direct investment stock was contributed by state-owned enterprises. Of course, the content of “Belt and Road” is gradually evolving. After state-owned enterprises established infrastructure such as power and transportation in countries along the “Belt and Road” routes, our private enterprises have also been significantly “going global”, particularly in labor-intensive export-oriented industries. This indeed has a profound impact on the development models of these regions.

In the face of the wave of labor-intensive industry transfers from China, if a developing country is willing to take over, the proportion of labor-intensive industries in that country’s economy will significantly increase. This will bring new challenges: only by maintaining low wages can these countries keep their newly acquired labor-intensive industries competitive. For example, initially, Vietnam took over many labor-intensive industries from China, but now Cambodia next door is willing to provide even lower labor costs. As a result, wages for workers in Vietnam cannot rise. If Bangladesh joins the fray, offering even lower labor costs, both Vietnam and Cambodia will feel the pressure. Against the backdrop of systemic insufficient demand in the current global economy, if developing countries all expand their labor-intensive industries, they risk falling into a race to the bottom and vicious competition, potentially trapping themselves in a developmental pitfall of low wages and low technology.

Despite these new trends and challenges, ultimately, the policies set by local governments, the operation of their political and economic structures and relationships, and the development paths and models they pursue are primarily determined by the countries themselves, though China may exert some influence.

China’s “Belt and Road” Initiative shares similarities with Western international development cooperation but also has differences. Regarding the transfer of labor-intensive industries mentioned earlier, it largely resembles the development model of the Pearl River Delta in the past: back then, multinational corporations, as well as capital from Hong Kong and Taiwan, went to the Pearl River Delta to establish factories and hire workers from inland regions. Today, it is China that goes overseas to build industrial parks. Both share similar characteristics, although this is not the main component of the “Belt and Road” Initiative.

Looking at the broader picture, after all, the overall economic and trade relations between China and developing countries are primarily focused on productive activities, whether in infrastructure or manufacturing. First, these are not short-term speculative activities. Second, even in the mining sector in these countries, China’s performance differs to some extent from that of developed nations. This is because the main actors in China’s participation in the local mining industry are state-owned enterprises, which tend to comply more with local laws. Their activities are not solely driven by economic considerations but also take into account diplomatic and political factors, among others. Politically, China does not seek hegemony, and its foreign economic activities are not designed to serve the interests of its enterprises through hegemonic means. China’s investments in these developing countries are purely economic activities, driven solely by economic forces, without resorting to any extra-economic power.

Of course, today we are in an era of financialization, where the dominant force above productive activities is finance. It is precisely in this regard that China and the West differ the most. The West often falsely accuses China of creating so-called “debt traps” in developing countries, but this claim lacks substantial evidence. A large amount of research data shows that it is not China creating "debt traps"; rather, it is often debt from the West that plunges many developing countries into “debt traps.” When developing countries face difficulties in debt repayment or debt crises, the West often engages in various debt negotiations that tend to favor the interests of creditors over those of developing countries. Additionally, the West often imposes various conditionalities when restructuring debt. In contrast, China often provides significant concessions to developing countries, even debt forgiveness. Furthermore, China never attaches any conditions and never interferes in the internal policies or systems of debtor countries through debt issues. China also does not participate in Western-led debt restructuring and debt negotiations, unwilling to become their “accomplice.”

BCR: Under the impact of various unconventional and unexpected policy measures introduced during the second term of the Trump administration, many people have realized that the world economy is unlikely to return to the previous era of neoliberalism. Against this backdrop, discussions about a new international economic order have begun to emerge in intellectual circles. What characteristics do you think the next phase of the international economic order might have?

Lu Di: Looking ahead, there are always many variables, including shifts in world politics, making it difficult to predict with certainty. Overall, the possibility of fundamental change remains unlikely for now, as the forces capable of overturning capitalism are still very weak. Whether in developed countries or the Global South, systematic opposition to capitalism is scarcely visible. Even the working classes in developed countries are relatively powerless, particularly in terms of subjective will and political organization. Therefore, it can be anticipated that capitalism will persist for a long time.

Under such circumstances, if developed countries wish to continue maintaining their existing capital accumulation model, they must sever ties with China. They have come to realize that China cannot serve as their "junior partner", content to remain in a relatively underdeveloped state and voluntarily contribute its production gains to developed nations. Furthermore, if China continues to develop at its current pace, it will progressively erode the monopoly rents on which developed countries rely for survival. In fact, even in monetary and financial terms, the monopoly position of developed countries is being challenged, albeit to a lesser extent. Politically, global capitalism cannot accommodate China as a member, especially not as a developed capitalist country—according to Western establishment judgments, the Earth's resources could not sustain it. Thus, the West can only choose to sever ties with China and attempt to suppress it as much as possible.

However, this will be a prolonged evolutionary process because the West is also heavily reliant on production activities related to China and can only gradually “decouple” (decoupling) from it. Therefore, in the foreseeable future, a fundamental transformation of the global political order is unlikely to occur, as mentioned earlier, due to a severe shortage of political forces capable of overhauling the existing system. A more probable scenario is the world dividing into two blocs: one dominated by developed countries and the other led by China. The relationships of other nations with these two blocs will depend on the intensity of the contradictions between China and the developed countries.

Currently, although the Trump administration has demanded that countries decouple from China, its ability to compel compliance is primarily limited to America's "junior partners", such as Japan, South Korea, and the Philippines. Whether the European Union is willing to follow America's lead is highly doubtful. Unless more acute contradictions, such as war, emerge, the present situation is likely to persist, eventually leading to the gradual formation of two increasingly distant cores heading two separate blocs. The broader Global South, including some European countries, may maintain varying degrees of relationships with both cores in trade, production, finance, currency, and other domains.

Within this global framework where two blocs coexist, the bloc centered around China is likely to foster more equitable relations, while the bloc led by the United States will likely continue to maintain hierarchical relationships. If free to choose, many nations would likely prefer to establish closer ties with China. However, the real world often differs; on one hand, choices are not always freely made, and on the other, nations may not fully recognize where their own interests lie. A country dominated by a comprador regime will possess a different self-awareness and scope for autonomous choice compared to an independent, self-reliant nation.

(Interviewed by Zheng Tao, editor of this publication)

Notes:

[1] In economics, “rent” refers to income derived from non-productive activities, essentially a transfer of gains from productive endeavors; “quasi-rent”denotes excess returns obtained through monopoly.

[2] The term "investment" here is used in its economic sense, not its financial one. In economics, investment refers to productive investment, such as constructing factories, installing machinery, purchasing raw materials and inputs, and hiring workers. In finance, investment involves trading stocks, bonds, foreign exchange, financial derivatives, and the like.

(Editor: Zheng Tao)