The following article is translated from Lutte de Classe (#170, Sept-Oct 2015), the monthly journal published by our French comrades of Lutte Ouvri?re.

In the summer of 2015, China was at the centre of economic uncertainty. Stock market crashes in Shanghai brought about a fall in financial market indices worldwide. The yuan was devalued, leading to talk of a currency war. Prices of raw materials rapidly declined. And finally, the International Monetary Fund (IMF) lowered its estimates of global economic growth.

The most tangible event was the fall in the prices of raw materials, but in fact this was nothing new. Between 2011, when raw materials were at an all-time high, and today, the price of coal, iron, copper, nickel and oil, among other commodities, has fallen by 50%. But although these prices have been declining over a long period, returning to what they were before the crisis of 2008, they fell sharply over the past year. So for instance, The price of iron fell from ?117 to ?41 per ton. For copper, from its peak of ?6900 per ton in 2011 is price today has fallen to around ?3448. The price of nickel fell by even more, from over ?1793 per ton in 2011 to less than ?6900 today Oil prices are the most striking example of this rapid recent slide, with the price of a barrel of Brent Crude falling from ?83 in 2011 to ?76 in 2014, but then to less than ?34 in the summer of 2015.

This trend has generally been interpreted as a consequence of slowing growth in the Chinese economy. China is the last survivor of the so-called "emerging" countries that the politicians and leaders of the system used to present as capable of being "engines" for global growth. In other words, offering markets and outlets to Western corporations. These "emerging" countries, not so long ago showered with praise, are now being singled out as responsible for the global crisis! The fall in raw material prices poses a serious threat to the countries that produce them, given that this is their source of dollars. The press has already been talking about a debt risk for these countries. The prices of credit default swaps for Russia, Venezuela, and some other countries like Brazil have risen due to the increased risk of default. The slowdown of Chinese economic growth would endanger even the economies of the industrialised countries, which, economists have warned, are threatened with deflation. The global economy is in fact still bogged down in the crisis, and the fall in the price of raw materials is only one rather striking manifestation of this.

Overproduction hits the raw materials industry

In fact this fall in raw material prices is just as spectacular as their rise at the beginning of the 2000s. The massive influx of speculative capital, gambling on a sustained rise in prices, was the main cause of this increase. This mass of capital in search of an outlet has itself created a real "demand shock," in the words of one of the players in this market, generating and then inflating the bubble that has since deflated. After having climbed ever upwards in the preceding years, the prices of raw materials plunged in 2008 with the rest of the economy. However, they were quickly on the rise again, with raw materials taking the place of real estate as the chips in finance's casino game.

For example, the price of copper went from $4,000 per ton in 2005 to $8,500 per ton in 2008 before plunging to less than $3,000 per ton by the beginning of 2009, then mounting to $10,000 in 2011. There is something other than just the relation of supply and demand behind these ups and downs: there is also speculation, and this is probably the most important factor. Ninety-eight percent of transactions related to raw materials are purely financial transactions, while only 2% correspond to concrete exchanges. After 2008, the speculative bubble for raw materials inflated in proportion to the hundreds of billions of dollars and euros that world governments injected to save the financial system. In this way, the world's populations have paid dearly for the rise in prices, notably in food commodities such as wheat, rice, and corn, with the consequence of food shortages and famines imposed by high costs.

One of the reasons that pushed speculators in the direction of raw materials in the early 2000s was the perception that they would be guaranteed by a long-term, growing market. They themselves contributed to this perception with their capital. But it also appeared to rest on facts, in particular on productive capacity being less than the growing global demand, coming notably from so-called emerging markets like Brazil, India, and China. Either way, this rise in prices encouraged many capitalists to invest in the production of raw materials. For example, the market for copper was in deficit in 2010 and 2011, but then the rise in prices caused capitalists to open new mines. This created a surplus so large that specialists say it will last until 2018 if all of these mining projects are realised, which certainly seems questionable today, given the fall in prices. In the coal industry, the rise in prices also fuelled many ambitions. The bank Goldman Sachs invested $600 million in Colombian coal mines between 2010 and 2012. But it parted with them on August 13 last year, for only $10 million , deciding in the end to withdraw from all raw material production.

The oil industry provides yet another example. The high price per barrel allowed oil companies to develop and quickly make profitable the production of shale oil and shale gas. Shale oil mining has increased oil production in the United States by 70% since 2008, placing the country on a par with Saudi Arabia and Russia. This has also led to an oil surplus in the order of 2 to 3 million barrels per day, according to the press, in part because the countries of OPEC decided in July not to decrease their own production - so as not to leave the profits to their competitors.

In the iron industry, the second largest after oil, the rise in the price of iron ore opened handsome prospects for the three corporations that monopolise one third of global production. Each of the three launched investment plans allowing them to increase their productive capacities by between 50% and 100%. Vale, the Brazilian multinational, gave itself the goal of increasing its production by 50%, from almost 300 million tons in 2008 to 450 million tons in 2012. The Australian multinational Rio Tinto planned to double its production, from 191 million tons in 2008 to 360 million tons in 2017. BHP Billiton, another Australian corporation, made it its project to ramp up production from 127 million tons in 2008 to 290 million tons in 2017. The smaller iron mining companies all increased their production for the same reasons. Today, with the decline in prices, a number of these projects have come to a halt, but the overproduction of iron remains about 100 million tons per year.

Besides speculation and the relation between supply and demand, the monopoly control and sheer financial power of certain firms are key determinants of prices. In the aluminium sector, the US. government has concluded that JP Morgan Chase, Goldman Sachs, and Morgan Stanley were in a position between 2010 and 2012 to manipulate the market to their advantage, notably by hoarding large quantities of some raw materials. In September 2010, the price of aluminium shot up, while Goldman Sachs was hoarding aluminium with the help of Deutsche Bank in order to create a mini-shortage. This manoeuvre translated into a lengthening of the period needed to deliver the metal to industry from 20 days to 4 months.

But the development of productive capacity increased well beyond the level of real demand for raw materials. Financial speculation can sustain itself for a whole period of time, with financiers exchanging shares of ownership among themselves with goods never even leaving the storehouses. However, in the capitalist economy, the raw materials produced must change hands at some point, eventually finding a buyer. If they never find someone to purchase them, they are useless from the market's point of view and their price drops. In fact, these excesses of capacity have weighed on prices for the past four years, leading a number of speculators to gamble on their decline. The announcement of a weaker level of Chinese growth than expected, proved to be the straw that broke the camel's back. All of this only underlines the absurdity of a system regulated by the market a posteriori, in other words, after the event, designed to fulfil only those needs for which people are able to pay. It's an absurdity that becomes a catastrophe for the world's populations, who must deal with its consequences:, the rise in prices for some and the drop in prices for others.

A decline in prices would normally be the occasion for the biggest capitalists in each industry to eliminate their competitors. In the iron industry, the CEO of Fortescue, the third largest mining company in Australia, estimates that the industry's three heavyweights deliberately flooded the global market with ore in order to drive down iron prices even further and eliminate their competitors. These giants are able to lose in value what they gain in volume. In Africa or China, where a series of new mines opened just 4 or 5 years ago with higher production costs than those of the three giants, the fall in prices was fatal.

The Chinese demand for raw materials

In early September, financial commentators were leading one to believe that the Chinese slowdown was threatening the entire global economy with recession. This argument is based on the fact that according to available statistics China is the main global consumer of raw materials: 40% of worldwide industrial consumption of metals is Chinese, as well as more than 20% of food commodities, and 20% of non-renewable energy consumption (notably oil and coal).

However, other statistics indicate that the consumption of metals in China has not declined. According to Radio France International's raw materials specialist, "Twenty-one raw materials saw their importation by China climb by more than 20% in July, in comparison with the previous year." What caused prices to drop and speculators to lose out was therefore not a decline in Chinese demand for raw materials in itself, but the combination of global overproduction and a lower-than-expected level of Chinese growth. The speculators realized that the Chinese economy was not in a position to absorb the worldwide excess of production.

The slowdown of the Chinese economy seems to be the result of a situation where overproduction has also reached certain industries, particularly real estate and infrastructure, which had been the engines of Chinese growth since 2008. In 2013, some observers estimated that 20% of all housing units (representing several tens of millions of housing units) were unoccupied. Whole neighbourhoods, even entire cities, shot up from the ground, but they remain deserted ghost towns, despite all of the authorities' best efforts. The excesses of capacity are even more striking when looking at the capital goods sector. For example, Chinese industry produced 2.5 times more mechanical excavators than it could unload onto the market, where the sale of construction machinery was down by half since 2011.

This is why the IMF, Western finance and the Chinese government have all urged China to "change its model" and to push forward with its "transition."

A Chinese "transition" or a blind leap forward?

Since 2008, not only those Western capitalists that produce raw materials, but also those desperately searching for a future for capitalism have counted on China and its markets. Faced with the obvious signs of a Chinese economic slowdown, they all hope for a "transition" or a "change of model" f, from the present one based on exports, real estate and infrastructure toward one based on domestic consumption. The hundreds of millions of Chinese consumers, a good part of whom are still only potential consumers, encourage the world's capitalists to have all sorts of greedy dreams.

From the 1980s to the 1990s, Chinese economic growth was primarily the result of investment in the means of production of goods destined for export. This made China, if not "the workshop of the world" as some have said, at least an important centre of production. It took over part of the former production of Western countries (in textile, for example) and concentrated the production of new sectors (such as the electronics industry). In this way, a significant portion of the country's imports ended up being shipped out again right away as a component of its exports. But such a level of dependence on the world market had consequences: starting in 2007 with the financial crisis, these activities have stopped expanding, which has prompted certain commentators to say that, "the engine of the world is running slowly." Twenty million migrant workers who lost their jobs in the export industries have gone back to their homes in the countryside. In order to avoid any social unrest, and above all to support the new Chinese wealthy class, the Chinese government decided to inject ?404 billion into a "stimulus package" along the same lines as those that Western governments have carried out for their own bourgeoisies. The plan was focused on the real estate and infrastructure sectors. This policy is responsible for the current bubble, even if it has made a fortune for some real estate promoters. Not only that, but it has also satisfied a good number of Western capitalists by offering them outlets for speculation, most notably in the raw materials that China has imported as part of this plan.

As noted, this economic policy is revealing its limits, which translates into the lowered official rates of growth. The decline in real growth is far more important. For this reasons, the IMF asked the Chinese government how it could justify a 7% growth rate when the country's production of electricity has stagnated over the course of the past twelve months. But this slowdown also threatens to become a collapse, since the real estate frenzy brought about a colossal accumulation of debt (2.5 times greater than the country's GDP, adding together private and public debt), which poses no less of a danger than the important stock of unoccupied housing units. This is why the Chinese government has repeatedly intervened in the country's stock markets, bailed out its banks, lowered interest rates, and loosened credit for individuals. This is also why the hopes of Chinese politicians and Western capitalists have been pinned on a change of model.

The bet, or the dream, of the leaders of this system is that China transforms itself from an essentially rural country into an urbanized country, like Japan did in the 20th century or the Western countries did in the 19th century. This transformation would mean the creation of a vast domestic market that would make up for the weaknesses of Western markets. The rural exodus of hundreds of millions of peasants coming out of their isolation would transform them into consumers of manufactured products. There is no question that China has changed a great deal in the past 40 years. The urban population only represented 20% of the total in the 1970s. This has climbed to 40% or 50% today, which translates into an increase of tens of millions of urban residents. This certainly represents a market for the capitalists, for housing, transportation, and food, but it is still too narrow for their liking. Since the manufacturing sector seems to be flagging at the moment, some commentators now dream of a transition to a service economy. There is a certain irony in that all of these champions of capitalism and the free market are counting on the government to partially administer the Chinese economy, using state currency reserves to invest in the healthcare, retirement, and education systems that these commentators see as the major condition for Chinese workers to start consuming their wages rather than saving them. "The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy," declared Christine Laggard, the Managing Director of the IMF. "That said, the authorities have the policy tools and financial buffers to manage this transition," she added.

However, only a small fraction of urban dwellers, some tens of millions of Chinese people, have at present been able to grow wealthy from the billions injected into the economy. Only this limited number has acquired a lifestyle like that of the Western countries, consuming cars and vacations while offering sales outlets to Western auto and air plane manufacturers. This hardly compensates for the decline in exports and real estate and infrastructure investment, which is why growth is declining. No one can tell how far this decline will continue. It's a fantasy to think that China could become a modern society. Europe reached its dominant position at the end of the 19th century only by pillaging the rest of the world for centuries, imposing its laws, its capital, and its goods on the entire planet. All that China has is its 1.4 billion inhabitants, which certainly counts for something. But as this recent history has shown, it is not enough to build houses, for them to be occupied. And urbanization does not equal an extended consumer market, nor a working class with a high standard of living. The favelas of Brazil (85% urbanized) or the slums of Mexico (78% urbanized) should serve as a reminder of this.

The only tangible and truly promising result of China's evolution in the past 30 years has been the growth of a Chinese proletariat, numerous, young, and dynamic. We have no doubt that in its turn, just as at the beginning of the 20th century, it will find the way toward the ideas of its class: communist and revolutionary ideas.