The subprime mortgage crisis and ensuing global downturn led many to speculate whether any challenger might emerge to replace the us as the dominant player in the capitalist world economy.footnote¹ Because the financial crisis in the us and global North had originated in high indebtedness, low productivity and overconsumption, it seemed natural to look to their polar opposites—the East Asian exporters’ huge holdings of us debt, productive capacity and high savings rates—to identify likely candidates. Immediately after last year’s collapse of Lehman Brothers lifted the curtain on the global recession, there were proclamations of the final triumph of the East Asian, and above all Chinese, model of development; American establishment commentators concluded that the Great Crash of 2008 would be the catalyst for a shift of the centre of global capitalism from the us to China.footnote²

But by the spring of 2009, many had realized that the East Asian economies were not as formidable as appearances had suggested. While the sharp contraction in demand for imports in the global North had led to crash landings for Asia’s exporters, the prospect of either the us Treasuries market or the dollar bottoming out presented them with the difficult dilemma of either ditching American assets, and hence triggering a dollar collapse, or buying more, preventing an immediate crash but increasing their exposure to one in future. State-directed investment, rolled out late last year under the prc’s mega-stimulus programme, fostered a significant recovery for China as well as its Asian trading partners, but the growth generated is unlikely to be self-sustaining. Chinese economists and policy advisers have been worrying that the prc will falter again once the stimulus effect fades, as it is unlikely that American consumers will be picking up the slack any time soon. Despite all the talk of China’s capacity to destroy the dollar’s reserve-currency status and construct a new global financial order, the prc and its neighbours have few choices in the short term other than to sustain American economic dominance by extending more credit.

In what follows, I will trace the historical and social origins of the deepening dependence of China and East Asia on the consumer markets of the global North as the source of their growth, and on us financial vehicles as the store of value for their savings. I then assess the longer-term possibilities for ending this dependence, arguing that, to create a more autonomous economic order in Asia, China would have to transform an export-oriented growth model—which has mostly benefited, and been perpetuated by, vested interests in the coastal export sectors—into one driven by domestic consumption, through a large-scale redistribution of income to the rural-agricultural sector. This will not be possible, however, without breaking the coastal urban elite’s grip on power.

The story of the rapid postwar rise of Japan and the four Tigers—South Korea, Taiwan, Hong Kong and Singapore—is well known, and need not be repeated here. But if their dynamic ascent can be attributed to the role of their centralized authorities in directing precious resources to strategic industrial sectors, it is equally important to recognize that it was the Cold War geopolitics of East Asia that made developmental states possible there in the first place. What was being fought during the Cold War period in East Asia was actually a hot war. Communist China’s support for guerrillas and its involvement in the Korean and Vietnam wars had led the region into a permanent state of emergency, and Washington regarded East Asia as the most vulnerable link in its strategy for containing Communism. Considering its key Asian allies—Japan and the four Tigers—too important to fail, it provided them with abundant financial and military aid to jump-start and direct industrial growth, while also keeping American and European markets wide open to Asian manufactured goods. This access to Western markets constituted a further advantage that other developing countries did not enjoy, and without which it is unimaginable that the Asian economies would have had such success. Viewed in this light, the rapid economic growth of East Asia was far from a ‘miracle’. The us engineered it as part of an effort to create subordinate and prosperous bulwarks against Communism in the Asia-Pacific region. These economies were never meant to challenge American geopolitical and geo-economic interests; instead they were subservient clients helping Washington to realize its designs in the region.

Organized in multilayered subcontracting production networks centred on Japan, Asian exporters occupied different links in the value chain, each specializing in goods at a particular level of profitability and technological sophistication. Japan focused on the most high-value-added items, the four Tigers on middle-range products and the emerging Tigers in Southeast Asia on low-cost, labour-intensive ones. This famous flying-geese pattern formed a network of reliable suppliers of a wide range of consumer products to the First World.

When Cold War tensions started to ease in the 1980s, us current-account and fiscal deficits were mounting as a result of neoliberal tax cuts and escalating military expenditure in the final stages of the Cold War. Instead of breaking out of the orbit of American hegemony, however, the Asian economies tightened their ties to the us by financing its skyrocketing twin deficits. East Asia’s export-oriented industrialization had been coupled with low domestic consumption. Subsequent trade surpluses and high savings rates enabled these states to accumulate substantial financial power in the form of large foreign-exchange reserves. Regarding us Treasuries as the safest investment in global finance, most East Asian exporters voluntarily parked their hoarded cash in low-yield us Treasury bonds, turning themselves into America’s principal creditors. Their financing of the us current-account deficit then fuelled America’s appetite for Asian imports, and the further increase in Asian trade surpluses led to yet more purchases of Treasury bonds. These mutually reinforcing processes continuously amplified East Asia’s market and financial dependence on the us, helping to prolong its fragile prosperity while American hegemony unravelled.

Beginning in the 1980s and accelerating in the 90s, the prc’s market reforms turned it into a latecoming Asian Tiger. Many predicted that it would be uniquely capable of breaking away from Asia’s twin dependence on the us because of its geopolitical autonomy and exceptional demographic and economic size. But so far China has not freed itself from the servitude of providing America with cheap credit and low-cost imports. Worse, the intensity of the prc’s export-led and private-consumption-repressing growth model has made its market and financial dependence on the us even greater than that of its predecessors. If we compare the most important aspects of China’s political economy with those of its neighbours at a similar stage of development, we find that the Chinese model is largely a replication in extreme form of earlier East Asian growth. Figure 1 shows that the Chinese economy’s trade dependence, as measured by the total value of exports as a percentage of gdp, has been mounting continuously, reaching a level never attained in other East Asian economies. On the other hand, the weight of Chinese private consumption as a percentage of gdp has been declining, dropping well below that of the other countries during their takeoff (Figure 2). As Table 1 indicates, for China—like Japan and the Asian Tigers before it—the us is the single most important export market, only surpassed recently by the eu taken as a whole. China has already become America’s leading Asian supplier.