https://archive.is/FKuhi (reuters)
https://archive.is/MIdNc (afp)
Chinese Vice Premier He Lifeng met for about eight hours with U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer in Geneva in their first face-to-face meeting since the world’s two largest economies heaped tariffs well above 100% on each other’s goods.
U.S. President Donald Trump said on Friday that an 80% tariff on Chinese goods “seems right”, suggesting for the first time a specific alternative to the 145% levies he has imposed on Chinese imports.
Neither side made any statements about the substance of the discussions nor signaled any progress towards reducing crushing tariffs as meetings at the residence of Switzerland’s ambassador to the U.N. concluded at about 8 p.m. local time. (1800 GMT)
The discussions are expected to restart on Sunday in the Swiss city, according to an individual familiar with the talks, who was not authorized to speak publicly.
The 80% number is just something that Trump posted on his social media early on Friday morning, before any meeting ever happened.
UPDATE Trump posted on truthsocial, 1 hour ago. He describes the meeting with the phrases “total reset” and “great progress”. I won’t believe this until I hear the perspective from China’s government.
Because China has to. The moment I saw Trump having his little quarrel with Powell about not lowering the Fed key rate last week, I knew that China would bring itself to the negotiation table despite all the “no surrender to imperialists” rhetoric.
How come? Because the local governments are too heavily indebted, having borrowed massively since the past 15 years (2009 GFC) to build new cities, housing and infrastructure like high speed rails to circumvent the dwindling export revenues, betting that the land value would rise so much that they could easily pay off the debt and even with dividends to spare.
This was due to the highly decentralized nature of China’s economy, with the local governments contributing 50% of national tax revenues and 85% of the budget spending. Instead of the central government/state bank directly creating the money to finance all these developments, the neoliberal brained policymakers let the local governments borrow from the financial institutions.
Then, Covid happened in 2020. Three years of Zero Covid saved plenty of lives (it was a good decision), but it also decimated the local governments revenues and placed them under severe financial strains.
Evergrande’s implosion from 2021-2023 further exposed the deep corruption scandals between the local governments, financial institutions and property developers, ending with 2.4 trillion yuan evaporated from the people’s savings. And this is certainly only the tip on the iceberg given how many property developers have similarly engaged in such shady activities but have not been interrogated in the court yet (the government is actually afraid of a market panic it would set off if the rest of the property developers are charged, because too many people and corporations have invested in the property market since the past decade).
Then came the Ukraine war in 2022, when the US raised its interest rate to 5% in just a year, which further imposed financial stress to the local governments. Ironically, Russia tried to show China the way by forgiving $23 billion debt among African countries, which, if China had followed suit, would have paved the way towards dedollarization and ending the US monetary hegemony. Instead, China doubled down on protecting the dollar hegemony (can’t give up that $4.5T USD reserve that easily huh) and effectively putting an end to the whole BRICS dedollarization push.
So, here we are with Trump launching a global trade war, which is actually a financial war in disguise, and China really only have 3 options here:
There will be a lot of back and forth along the process, but it will ultimately lead to a renewed status quo between the US and China. Trump gets to boast about getting Powell to drop the key rate and reduced trade deficits. China/Xi gets to boast that the US has panicked and begged China into negotiations, lowered the tariffs and saved China’s deflationary economy.
But the key outcome is as follows:
In short, we are entering a new phase of American fascist imperialism - it wants to have its cake (lower trade deficits which have caused tension from the working class and petty bourgeoisie due to ongoing deindustrialization) and eat it too (preserving the dollar hegemony through finance capital entering China and IMF bailout of the Global South), and China needs to step up to take on this challenge, for which it has refused to do so.
So, how did we get here in the first place?
Now, let’s have a brief overview of China’s current economy. I have warned for more than 1.5 year (actually, since the end of Zero Covid in 2023) that China’s deflationary spiral is not something that you can stimulus/subsidy out of. That’s because nobody wants to address the elephant in the room that is the root cause of low consumption among Chinese citizens today - a massive wealth inequality. Lifting millions of people out of poverty sounds great (and so did many industrial capitalist countries like Japan and South Korea) but at the same time a growing inequality combined with geopolitical uncertainty have driven people to save (25% savings rate among average Chinese households, which is 6 times higher than an average American family) instead of spending.
Growth in recent years has mostly come from investments rather than increase in disposable income of the working people, and while you can paper over all these inequality problems while exports were running high (selling goods to foreign countries), investments were still generating its returns (rising property market value), we have finally come to the point where the net deficit spending country aka the US empire has decided it’s time for a recession to kill off the export economies, while the property market bubble bursting signals the coming end of the massive infrastructure building era.
Consumption becomes the only way out, except that building a huge consumer base (with such an advantage of a 1.4 trillion people to begin with!) should have started 15 years ago (in the wake of the 2009 GFC), not today. China has recently unveiled its plan to boost consumption, which can quite literally be summarized as “look, our household debt level isn’t quite as high as those in the Western countries and Japan yet, why not loosen the credit requirement so our citizens can borrow more to spend their way out?” Completely neoliberal brained, and ironically following the footsteps of Japan which served as a precautionary tale to what China should NOT be doing.
Ok, hold on. Let’s slow down and be more exacting here, so I can understand what you’re saying. I am sure many people like me are reading this and just overloaded with the deluge of statements you’re making here.
Tell me if the following is true and what you’re saying:
Chinese citizens have a high savings rate, and that means a lot of money sitting in banks not being productive.
This is problematic for indebted entities because they need to remain solvent but the billions in savings are not circulating.
Local governments in China are heavily indebted because they borrowed Chinese money from private Chinese financial institutions.
The way local governments remained solvent in the recent past was through revenues from exports to the whole world.
The USA’s tarrif regime not only impacts direct China-to-USA exports but, through China’s search for replacement revenue, increases the flow of Chinese goods to other nations.
This increased flow threatens to flood markets in every nation which will cause every nation’s industry to fail. In Europe, this threat requires Europe to tarrif China. In the Global South, this will cause a bunch of insolvency that will give the IMF casus belli to expand globally.
When the USA raises interest rates, it harms local governments in China.
Let me stop there.
Are all 7 of these points things that you are claiming and are they accurate representations of a subset of your claims? If not, could you help me understand?
Kind of, but not exactly. Let me try and see if I can simplify it a bit:
China already has the world’s largest industrial capacity (31% of the world’s manufacturing capacity, compared to 18% in the US, and 5% for the EU and Japan each). There is no need for China to accumulate US dollars in order to finance its own development. That also means, there is no need for China to suppress its wages to make exports competitive (for the record, the average working class purchasing power in China is half that of the average working class in South Korea).
From an MMT perspective, the People’s Bank of China can simply create the currency needed to develop all these amazing cities, technologies, infrastructure like high speed rails etc.
However, the Chinese economic model (very neoliberal brained) is still stuck to very much to the model IMF has been recommended to developing countries - balance your budget (keep budget deficit within 3%), don’t spend more than what you can earn. This means that in order to finance internal development, you have to either earn foreign reserves (export goods to Western countries), or borrow from financial institutions (banks).
For the former, a Chinese exporter sells goods to the US importer, earning US dollars in its US bank account. The Chinese exporter can now do three things:
For the third option, the exporter sells the US dollars (in its US bank accounts) to the PBoC, who in turns uses the dollar to buy US treasuries or other dollar-denominated securities. This becomes the foreign reserves of the PBoC. Note that all of the dollar transactions involved never leaves US shores and always takes place within the US banking system.
In turn, the PBoC creates an equivalent amount of yuan (backed by the dollar it just purchased from the exporter) in the Chinese bank account of the Chinese exporter, who can now in turn use the yuan to pay its workers and invest etc.
The other way is to borrow from financial institutions, either foreign or local. But note that the loans that are created also have matching liabilities + interests. If you borrow 100k yuan, you have to pay back 100k to the lender + interest payment. No new net financial asset is created in this process. (Note that this is the primary mode of investment in China today that weighs just as much as the central bank creating new money from export earnings, and it is becoming a big issue for the solvency of many local banks and local/municipal governments)
So, the more goods you export to the US, the more foreign currencies you accumulate, the more you can convert them into local currencies to spend locally. This is why developing countries run trade surplus, such that they can accumulate foreign currencies (the US simply prints its dollars out of thin air, without having to contribute anything tangible to the global) and finance their own development. This allows them to stay within the 3% budget deficit as imposed by the IMF, and using the trade surplus earnings to cover for their expenditures. And so, to keep their exports competitive, you as a developing country will always have to make sure your currency exchange rate is lower, suppress labor wages etc. to maintain that competitive advantage. This is also the so-called “middle income trap” - developing countries cannot make the leap into high income countries because they have been told to keep earning export revenues to finance their own domestic development.
MMT says this is nonsense. MMT says that a government with monetary sovereignty (that creates its own currency, is not running a fixed exchange rate where its currency is pegged to a metal or another currency) can always finance its own development so long as it is backed by the availability of labor, resources, and technology.
That means if you’re a poor developing country that has to import food and energy, usually kept impoverished by global imperialist institutions like the IMF and World Bank, you simply cannot create the money as you wish. But for China, it’s a different story - there may be food and raw resources that China has to import - but it still has the world’s largest industrial capacity and is technologically self-sufficient to not have to rely on advanced machineries from wealthy Western imperialist countries to keep their lights on.
However, because the Chinese economists are all Western educated, neoliberal brained, they continue to stick to this model, orientating their economy to one that is heavily reliant on export-led growth. In other words, using Chinese labor and resources to send cheap goods to Western countries and get a bigger number in their bank statement in return.
This was all going well in the 2000s as China became the world’s factory and enjoyed double digit growth. Then, the 2009 GFC happened, and starting from the US consumers, but soon spread across the world, the slump in consumption would hit the Chinese export-oriented economy hard.
To mitigate the crisis, the Chinese central government prioritized infrastructure building domestically, to absorb the loss in export revenues. This culminated in the infamous 4 trillion yuan stimulus, most of which financed by bond issuance. And it did work - not only did China not experience global recession, due to the timely reallocation of economic activity into construction, but even saved the surrounding economies from complete disaster. For example, Australia was saved by China’s infrastructure building phase due to increasing demand of imported raw materials.
Now, before we move on, I need to introduce the unique style of Chinese governance. As opposed to the stereotype that present day China is run by dictators with a centralized bureaucracy, the matter of fact is that Chinese economy is highly decentralized. Local governments contribute nearly half of the national tax revenues, and 70-85% of the budget expenditures. The central government in Beijing, in turn, controls the local governments through its authority to promote local officials. So Beijing sets a goal for promotion, the local officials work to meet that goal in order to get promoted. One of the main performance indicator is GDP growth, and this will become very important later on.
The decentralization of authority was one of the most significant changes under Deng’s reform, but the key event that would precipitate in the property market bubble today was the 1994 Tax-Sharing Reform, that conferred local governments with the authority of land financing.
So, back to 2009, with export revenues falling, the local governments began to find themselves under financial strain. Their inability to pay back outstanding debt also denied them from obtaining fresh credits from the financial institutions. Furthermore, the cut in GDP growth numbers almost certainly meant that they’re going to miss the score needed for promotion.
The 4 trillion yuan stimulus aimed at infrastructure building came at just the right time, for local governments with the power of land financing. The keep the GDP growth numbers up, local governments bet on leasing/selling land initially owned by the state to drive up revenue.
The schemes are extremely varied, “innovative” and complex to skirt various laws and legal enforcements, but it follows the general pattern: local governments would use its state authority to pressure financial institutions (local banks) to release loans to property developers, who would use the loans to finance building new cities, housing, infrastructures, high speed rail, you name it. The local governments would then bet on the land value to rise with development, and the revenues earned from selling/leasing the land at high price would pay off the debt they have borrowed to finance public utilities/domestic development.
The reason we know all this in explicit detail, ironically, is because of the Evergrande’s court case. But the investment in infrastructure building under the relationship formed under trifecta of local governments-financial institutions-property developers would become a primary mode of sustaining GDP growth in the face of falling export revenues. Many local officials made the career promotions of their lifetime during this period.
Because local governments were not allowed to issue debt, from 2009-2015, the borrowing was initially performed by the local governments setting up the Local Government Financing Vehicles (LGFV, effectively shadow banks). The borrowing that took place under this period would build up the so-called “hidden debt”, because they are not included in official accountings.
By the mid-2010s, it became apparent that the hidden debt problem is running out of control. We still don’t know the exact amount of cumulative hidden debt to this day, either because the government is worried about a market panic should the true number be revealed, or because even the central government has lost tracked of them. In either case, the amount has to be huge.
And so by 2015, the central government became fed up with the local government’s reckless hidden debt problem, and directly conferred the local governments with the authority to issue bonds/debt themselves. In other words, the central government no longer want to keep “bailing out” the excessive debt taken out by the local governments. You want to borrow, you shall be responsible for paying them yourselves.
(continued in the next comment)
(continued from above)
This further emboldened the local governments to directly sell bonds and accumulating the debt on their official books. By 2016, scholars began to raise alarms about the excessive housing capacity in China (note: 2016!). This should have signaled the local governments to stop building new cities, right?
Not so fast, because the most egregious part has yet to come. In 2015, the Monetization for Shantytown Redevelopment act (棚改货币化) from the PRC State Council will become the catalyst for a property market speculation frenzy at a scale never seen before in human history.
What is Shantytown Redevelopment (棚改)? In short, it is simply the local governments identifying old, dilapidated houses/buildings within urban areas, and rebuilding them to fit modern living and safety standards. This would involve resettling the original residents somewhere else, at least temporarily, while the municipalities work on the construction tasks. This is nothing new, it was a program started back in 2004.
However, by the mid-2010s, the proliferation of new cities and the excess housing capacity had prompted a new innovation of how to take care of residents living in these dilapidated housing conditions. How about instead of spending money to rebuild, we simply give them the money to buy new houses in the new fancy condos and apartments? (A note on where did the money come from: the local governments borrow from the banks to pay for the redevelopment, and now they’re borrowing to give people the money to buy new houses)
And so, the Monetization of Shantytown Redevelopment would usher in the craziest of the property speculation era. Initially, only those who are qualified received the money to purchase the new houses. Completely unforeseen by even the governments themselves, the new liquidity injected for housing purchase immediately pumped up the housing prices. Soon, even other residents began to take out mortgage loans to jump in on the bandwagon, for the fear of missing out on this golden opportunity. Everyone was afraid that if they had waited a bit longer, they would miss the wave of buying into the properties at the low point.
Initially, this only took place in Tier 3/4 cities. But soon, as housing prices shot up, even Tier 1/2 cities could no longer contain themselves. They simply could not let this opportunity pass by them while their lower tiered cities are raking in all the profits. This frenzy would spread to the entire country, with endless new cities - cities that even to this day have like 3-4% occupancy rate only! - proliferating all across the country. Tier 1/2 cities sucked people in from Tier 3/4 cities, while Tier 3/4 cities losing their citizens in turn put in a lot of effort to attract new migrants from the provincial towns and rural villages. (Note: this also screwed over a lot of long term urban planning that many cities already had in place, since the influx and egress of citizens shifted the composition of the type of labor/skills etc.)
As anyone would have known, this cannot possibly last. By late 2016, the central government announced the “housing purchase restriction” act (限购令) to mitigate the reckless housing price inflation. It restricts citizens from purchasing houses they don’t intend to live in to curb housing speculation, and in some cities, non-citizens (citizens from other cities) from buying up properties.
And yet, housing prices continued to rise. The policy imposed by the central government had completely failed to mitigate property speculation, and people simply found new ways to skirt the rules.
Let’s examine for a moment why this is the case: if you have been following everything I’ve written, you would have noticed that in China, local governments ARE the landlords! The very same local governments that the central leadership relied on collecting tax revenues and spending for internal development, have taken an “all-in” approach on property speculation! If you fight to keep the land price low, you are fighting the local governments who are effectively the backbone of the nation’s economy. Now do you see how much of a problem this poses to the central leadership?
This twist could not have been more ironic given that Mao had purged all the landlords back in 1954 under the Three Socialist Transformations. The landlords did come back, but this time as local governments!
The property market bubble would reach its zenith in 2019. By then, many households and even companies that had nothing to do with real estate, have invested heavily in the property market by taking out huge mortgage loans. Nobody wanted to miss out on the bandwagon. This also meant that much of people’s and corporation’s savings are now tied to the real estate, and if the land/property prices fall, so too will their investments. In other words, if their savings are wiped out, they will be more reluctant to spend/invest in the local economy, leading to a deflationary spiral.
Finally, we get to the consumption problem.
Amidst all this frenzy, a global pandemic was brewing. In 2020, Covid would happen and China immediately went into a lockdown that would last until early 2023. There was a year of opening the economy in 2021, post-Delta/vaccine, but with various restrictive measures on migration, and the economy went into lockdown again post-Omicron, when the liberal Shanghai decided to defy Beijing’s Zero Covid policy to emulate “Western style” limited lockdown, leading to an unmitigated spread of Covid across the country and breaking the containment put in place over the past two years.
Nevertheless, local governments went into even more severe financial strain as the property prices began to peter out and even started to fall by 2020, and made worse by the falling export revenues due to complete stop in shipping as the global supply chain was interrupted by the pandemic.
The Evergrande implosion, one of the biggest property developers in China, took place from 2021-2023, wiping out a total of 2.4 trillion yuan in people’s savings. This was certainly only the tip of the iceberg, as many property developers have similarly engaged in shady deals and misallocation of the money that have been sucked into purchasing properties (looking at you, Vanke).
With the dual implosion in exports (Covid) and investment (property bubble), Chinese society in general favors savings to soften potential financial trouble down the road. For example, a contraction in economy means you could lose your job six months from now. And so, people started saving/refusing to spend in the face of economic uncertainty.
Initially, people thought this was just the post-Covid opening up period, and it would just take more time for the economy to revive. By mid-2024, it became apparent that the economic resuscitation promised by the reopening had not arrived, and consumer sentiment fell even deeper. This is actually what is happening in China today, with a deflationary spiral as people prefer to save than to spend, in spite of all the subsidies/promotion programs initiated by the governments for discount EVs and electronics.
And deflation is much much worse than inflation, which is what the government is desperately trying to target. Inflation means you have more demand than your productive capacity, and you can always invest in productive capacity to increase the supply to match the demand.
Deflation is the opposite - you have excess productive capacity but nobody wants to buy them! And if nobody is buying them, factories are going to scale down production and layoff workers, leading into further deflationary spiral. That means you are becoming even more reliant on exports! And at this key moment,the US and the EU imposed tariffs on Chinese goods, making it even more difficult to sustain your production level.
And now we finally come to the crux of the problem: why are people reluctant to spend? Why would you be reluctant to spend money to consume?
In two words: wealth inequality. This is the elephant in the room that economists keep ignoring. With the falling property prices wiping out people’s savings, and with businesses failing following the asset prices falling as well as the intense competition driven by US imposed tariffs, income has not been increasing for most working people.
The way out of this deflation problem is of course raising the income of the Chinese working class, increasing their purchasing power to absorb the productive capacity of both domestic and foreign goods. This will mean the yuan exchange rate will go up, and China will lose its net exporter status, and I have written about how a Chinese-style Marshall Plan is the path forward.
Deflation seems extremely easy to solve? Literally just give people free money! What am I misunderstanding about this?
Yes, when unconstrained by the neoliberal framework. This is why I said a Marshall Plan with Chinese characteristics is one way to fundamentally resolve the problem.
It is more elaborate than just “print money” though as it has to be fiscally targeted. MMT suggests a price anchor through Jobs Guarantee, and the USSR under Stalin had a dual circuit monetary system to target development while preventing inflation. Both are very similar in concept though differing in implementation.
And if you look at the consumption stimulus program that Chinese government has unveiled recently, apart from more subsidies (which will temporarily boost sales but not a permanent fix), it’s still very much the “look our household debt to GDP ratio is still lower than Western countries and Japan, let’s lower credit requirements so people can borrow more to consume.” Anything to avoid directly raising the income of the working class (except in small doses).
Could China conceivably just move beyond the western funny money financial magic tricks and transition slowly into a planned economy, or at least a more closed off socialist market economy? They have the productive capacities in their control, if push comes to shove and there’s a total blockade of trade between China and the West wouldn’t they just win?
The point is not that China will “lose”, which is why I think a lot of people and spectators of this US-China trade war are missing. The Chinese economy is strong enough that even with continual assault from the US, it’s going to survive. Just look at Japan’s zero growth trajectory for the past 35 years, did Japan “collapse”? No, it’s doing just fine, just that it won’t enjoy a spectacular growth any longer.
The crucial point, however, is whether China is interested in forging a new economic model - a socialist one - that serves as an alternative to the current neoliberal system. This is what is going to determine if the rest of the world (i.e. the Global South) can be emancipated from the financial and economic hegemony of the US empire.
So far, China seems interested in retaining the pre-Trump status quo, as the huge trade imbalance run by the US and China over the past few decades have strongly benefited both countries, to the expense of the rest of the world. In fact, if you think about it, the US working class lose more due to deindustrialization while their bourgeoisie reaped all the benefits.
What I am saying is that China has to step up and play the global consumer role is the US is going to step back from spending money, simply because our global economy has been shaped for the past 50 years by US turning itself into a permanent deficit spender.
If the US scales back on its spending, then somebody else has to step up and spend, so as to absorb the surplus capacity in the export economies. Otherwise China will be competing with everyone else selling low value added manufacturing goods to one another, and of course the poorer economies will lose out in this pure mercantilistic fight, priming them to be harvested by the IMF and foreign capital.
China is the only country in the world today with a strong manufacturing capacity and robust financial system to play that role. A few years ago, the EU could be a big player, but with Nord Stream bombing hiking their energy input prices, the EU is now in austerity and leaning into militarization, so it could no longer play this role.
That is pretty much what is missing here. They have a strong central bank and speaking that they own a majority of the productive forces as you said; the U.S can just cause collapse and China can make them suffer deeply for it.
There is more to this than just “Liberals own the CPC and China should spend trillions in directly challenging the monetary hegemony through marshal plans that could get derailed by American intelligence programs”.
You’ve made a lot of unsourced claims here:
What are your sources that China doesn’t have a goal of dedollarizing, or that it hasn’t forgiven debts?
You know better than the PRC’s planners?
If you understand anything about China’s monetary system, you’d know this is true.
In fact, I have laid out the exact mechanism that China can deploy to internationalize the RMB in the second part of my comments. A Chinese-style Marshall Plan is going to be needed if China is even half serious about challenging the dollar.
If you want to earn/save money, somebody else has to be willing to spend first. If the world’s biggest deficit spender decides it wants to stop/reduce spending, then somebody else must step up to deficit spend to absorb all the surplus exports from the Global South. If China still wants to be a net exporter country, then everyone would be competing with one another, racing to the bottom with poorer countries losing out first and allowing IMF to come in and reap a harvest.
China’s insistence to rely on earning foreign currencies through trade surplus such that they don’t have to overshoot their budget deficit target of 3% (an arbitrary value as determined by the IMF) should tell you everything about how Chinese economic planners see their role within the framework set by the IMF.
Why can’t the People’s Bank of China simply create the currency out of thin air to finance development? Why can’t China just go to 5%, 6%, 7% or even 8% budget deficit instead of relying on current account surplus to issue the yuan? But oh no, IMF says we’re not being fiscally responsible if we go above 3%! We want to show IMF we’re the goodest boys and so we continue to suppress the wages of our labor, sell cheap goods to Western countries and let foreigners enjoy cheap Chinese goods in exchange for… a bigger number on my bank account which I won’t be using anyway.
I never said that. China is a country with monetary sovereignty, which means it cannot go bankrupt unless it is a political choice chosen by its leaders.
I said that the property bubble bursting in putting significant financial strains on the local governments’ debt burdens. Last November, the Chinese government unveiled the 12 trillion yuan debt relief program - raising 6 trillion yuan debt ceiling such that local governments can borrow at a cheap rate to pay back their higher rate debt, 4 trillion yuan to be financed through bond issuance, and 2 trillion yuan to be paid as agreed by the initial contracts.
So, in order for the local governments to borrow new debt at a cheaper rate, the interest rate in China has to go down, and what better way to lower the interest rates than the Fed itself lowering the key rates? I never said anything about bankrupting the country lol, as if the world’s second largest economy with the largest industrial capacity can go bankrupt without the leadership doing so by choice. Japan has been on a zero growth trajectory for the past 35 years, and yet I never heard anyone saying about Japan going bankrupt or collapsing or going to become “third world country”??
If you have paid attention to anything I’ve written, in China, the local governments ARE the landlords! And that’s a big problem for the central leadership right now. Mao’s purging of landlords that was completed back in 1954 under the Three Socialist Transformations had been reversed, with quite an ironic twist.
As I have said, the local governments contribute nearly 50% of the tax revenues and 85% of budget expenditures. If the central leadership decides to punish the landlords, the plunging land revenue would mean the local governments running out of money to finance themselves, and that inevitably means cutting spending on public utilities and social spending, and ultimately bring forward a recession. The entire monetary system needs to be reformed, or else being tied to the property market would have disastrous consequences. It’s a damned if you do, damned if you don’t situation.
One of the most significant changes in the Chinese governance under Deng’s reform was the decentralization aspect of the central authority - a clear shift from Mao’s highly centralized planned economy to the relegation of political and economic authority to the local governments. However, what truly precipitated in today’s property market crisis began under the 1994 Tax-Sharing Reform, which imparted the land financing role to the local governments.
What is important to recognize is that under the unique style of Chinese governance, the local/municipal governments are largely responsible for financing developments, while the central government controls the priorities/set focus through the promotion of the local governments bureaucrats. A major performance indicator is GDP growth - and this will become very important below.
After the 2009 GFC, with dwindling export revenues as the world went into a recession, many local governments under financial strains began to look elsewhere to sustain their GDP growth. With the central government’s 4 trillion stimulus package to shift the nation’s priority into infrastructure building, the local government officials found a way to game the system.
Here’s how it works in a simplistic sense (and we know all this, ironically, because of the Evergrande’s court case documents lol): the local government would use its political power to court financial institutions (commercial/investment banks) into issuing new loans to property developers, who would then build new cities, infrastructure, high speed rails etc. to raise the land value. Since the local governments have the power of land financing, they’d be able to ride on the rising land value to reap the profits through leasing/selling land. The calculation is such that the development of new cities and infrastructure would raise the land price by so much that they’d be easily pay off the massive debt they had taken out and even with excess profits to spare. All the investment would made the GDP growth numbers go up, and many local government officials made the career promotion of their lifetime throughout the 2010s.
And I have said this before: the reckless property market speculation starting in the mid-2010s would end up being the biggest misallocation capital in history. Instead of deploying the labor and resources toward ensuring universal healthcare and social welfare, all of that instead went into an asset speculation frenzy that anybody with some common sense would know it cannot possibly last, and yet everyone feared that they would be the one to miss out! This sort of psychology is all too common and so everyone, including the leadership at the highest level, continue to turn a blind eye to it - until the inevitable happened.
Please explain why China shouldn’t use its massive dollar reserves to pay back the Global South’s debt. Why would China need $4.5 trillion dollar reserve (with ~$800 trillion in US treasuries) other than it making the bank account number look big?
I never had anyone who can answer the question but you’re welcome to give it a go, and I promise I will provide a satisfactory explanation in response.
Yes, my sources are actual Marxist economists like Jia Genliang and Zuo Da Pei, who have been warning that the lack of a strong consumer base in China is going to put China in a hugely disadvantageous position when the American empire decides to flip the table, going as far back as the 2000s!
And for the record, you should know that the most prominent economic advisor in China today, Justin Lin Yifu, is literally the protege of Theodore Schultz, the co-founder of the Chicago School of Economics together with Milton Friedman. Lin himself was the first Chinese PhD student to ever graduate from the Chicago School of Economics - the heartland of neoliberalism.
So yes, I am confident in saying that neoliberals are almost always wrong about economics, and even a tiny bit of Marxist/MMT knowledge would put you in front of them.
I have said this before and I will say this again: China’s economics profession has been completely captured by Western-educated neoliberals. Legendary Marxist economists like Xue Muqiao are a thing from the past, and the fervent Marxist ideologues like Chen Yun et al. have long been purged from power since the 1990s during the clash between Deng Xiaoping (who came out of retirement during the 1992 Southern Tour) and Chen Yun (who advocated to stop the liberalization and return to Maoist planning era after the June 4th Incident aka Tiananmen Incident in 1989).
Deng threatened to launch a coup against Jiang Zemin (Chen Yun’s protege) during the Zhuhai meeting in 1992. Jiang folded - and opened China’s road wide open for liberal reform. The vestiges of Marxist ideologues were all purged in the 1990s. Xi is an interesting figure who has (had?) aspirations to turn away from neoliberalism, but as you can see from the ending of Zero Covid to the more recent events - with Li Qiang (from the liberal Shanghai gang) promoted to the Premier and making numerous public appearances and openly boasting about promoting a business friendly environment to the capitalists - it is very clear that Xi is no longer capable of stopping the liberals.
This is all gang of four ultraleft nonsense and vibe-posting, with zero sources, to try to drivie home the long-debunked propaganda that China abandoned the socialist road.
If you’re going to claim that the PRC is a liberal country now, and that the CPC “hasn’t been a marxist party since the 1990s”, then there’s zero point in engaging.
No offense, you NEVER lived in China. You have no idea what China was like in the 1990s, in the 2000s.
Deng’s reform had effectively ended in the 1990s with China experiencing an economic crisis with an unemployment rate never seen before under Mao. By 1998, Zhu Rongji ended the welfare housing program and fully opened up the property market to private capital in China. By 2001, it would join the WTO and stripped the last vestiges of worker’s rights in China.
China returning to its Marxist roots is a very recent phenomenon, with Xi ascending to power in 2013. He had vowed to take on the neoliberals on many occasions, which I fully support. As I said, it seems that the libs are still too powerful in China (especially after sabotaging Zero Covid) and if you have been paying attention at all, Li Qiang, the new Premier, has been running the show for a while now, engaging with business leaders and private capital, vowing to open up China’s capital markets etc.
Again, most Western leftists have zero idea on what they’re talking about when it comes to the pre-2018 history in China. They only know Xi and Deng, but what happened in between, few had any clues at all.
All ultraleft vibes, not a single source, yet again.
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For the record I lost all of my notes and references that I had been writing for over a year. This is literally my first day back on Hexbear and I typed all those out from memory lol.
Funny that you literally had a chance to converse with someone who knows so much more about China than you do, and instead of taking this as an opportunity to learn and ask questions, you stubbornly chose to remain ignorant. Typical arrogant Western leftist lol.
You said not two comments ago that you, “know better than the PRC’s planners on how to correct its economy”.
You also claim than the PRC abandoned workers rights by the 90s, and purged all Marxists from the CPC’s leadership stucture.
You apparently know better than the 100 million members of the CPC, that their country is a neoliberal one now? Who’s being arrogant?
I literally named the key authors of the theories I wrote in one of the comments above: Jia Genliang and Zuo Da Pei, who are both Marxist economists who understand the Chinese economy better than most of the neoliberals (for example, who could have seen the consumption problem coming from more than a decade ago?)
If you want a good read (or if you can find someone to translate into English), I strongly recommend Jia Genliang’s 《国内大循环：经济发展新战略与政策选择》 (The Great Domestic Circulation: Economic development strategy and policy choices, 2020) and 《现代货币理论在中国》 (Modern Monetary Theory in China, 2023). I was already doing some of the translation and posted sporadically here until my laptop blew up a couple months back. Nearly all of the author’s points about the mistake of not building up a strong consumer base and doubling down on export led growth, some made as far back as 2013-2015, and how that would make the Chinese economy vulnerable to US unilateral ending the longstanding economic arrangement, is all being played out today.
And somehow you think Justin Lin Yifu, literally the protege of Theodore Schultz and co-founder of Chicago School economics with Milton Friedman, is somehow the beacon of Chinese socialist economics?
And for the record (this is going to shock you), you know I’m a firm supporter of Deng’s reform right? I literally explained above how Deng’s reform ended in the 1990s and the entire 2000s was a wild neoliberal ride for China until Xi came to power in the mid-2010s to rein in private capital.
If you don’t know anything about this period, then I’m here for discussion and education, no need to be so arrogant and dismissive about a topic you don’t understand. The claim that my arguments are somehow “ultraleft” is complete nonsense and only exposes how little you understand China’s history. You have not put up any argument (any substantive pushback is totally fine by me, I like to engage in discussions, that’s the point of this forum) and simply dismiss them as “ultraleft” without anything to back them up.
And for all the historical events, you can simply look them up. How is China joining WTO in 2001, the US-backed organization that literally demands developing countries to strip off labor rights in order to gain a foothold in the global market, somehow a controversial topic here? Are we not agreeing that the WTO is an imperialist arm of the US empire?
What argument are you making exactly? There are a lot of members of the CPC therefore it is definitely communist and couldn’t be infiltrated by liberals? It’s not exactly unheard of in history that a communist party would be infiltrated by nationalists and/or liberals.
I would definitely not like that to happen to China but it’s not outside the realm of possibility. Also xiaohongshu seems way more knowledgeable about recent Chinese history than you, you moan about sources yet you haven’t posted any yourself.
Are you sure? Both Ezra Vogel’s biography of Deng and Isabella Webber’s “how china escaped shock therapy” put Chen Yun in the “cautious reformers” camp they didn’t say he wanted to rollback reforms
Yes, Chen Yun was on the reformer side after the Cultural Revolution but he was still much more in favor of planned economy than liberalization.
After Deng Xiaoping screwed up the price reform in 1988 and after the June 4th incident in the following year, he went into a “retirement” state. The party split into two embittered factions in 1989, with the “conservatives” vowing to turn back the liberalization. Amidst the power struggle, Jiang Zemin (Chen Yun’s protege) was elected as the new head of state, but coming north from the south (Shanghai, Jiangsu), his position was still relatively shaky.
By 1992, Deng came out of retirement to do his Southern Tour, and at the August Wuhan speech, hinted at “replacing the leadership by any means necessary” if anyone dared to stop the reform. The secret meeting at Zhuhai with high ranking officials and generals, not sanctioned by Beijing, caused quite a stir at the very top of the leadership.
This drama ended with Jiang Zemin’s submission to Deng, and pretty much sealed the demise of the planned economy faction. By then, China was already reaching the limits of Deng’s reform and experienced its first economic crisis by the mid-1990s. It would join the WTO in 2001 and usher in the neoliberal era of the 2000s, until Xi came to power in the mid-2010s.
And yes, Vogel’s biography of Deng is excellent. Officially endorsed by CPC, even though certain parts had been censored in the PRC edition - I read the unabridged Hong Kong edition.
Ok thanks for clarifying
Dessalines vs XHS, a meeting of the minds
Not much of an engagement. XHS claimed that the PRC is now run by liberals and abandoned marxism in the 90s.
I disagree with most of what they say, including this post, I just haven’t read enough history to argue against it. I was hoping the “engagement” would produce some clarity.
Omg are you the real dessalines?
I’ve read (listened?) to a ton of your audiobooks thank you so much for everything.
Yup, no probs!
(went too long, here’s the rest of the comment)
What should China have done instead?
To understand how to get out of this mess, we need to understand what made the post-war Marshall Plan so successful in the first place.
As WWII was coming to an end, and with the war economy under FDR solving the unemployment issue caused by the Great Depression, and instead greatly increased the wages and living standards of the working class in America, the country now faces a new world that is rapidly demilitarizing. To keep American industries running and to prevent a massive layoffs that would have plunged the US into a recession once more, the Marshall Plan was enacted.
Now, did the US lowers the wages of its own people to maintain its export competitiveness? No, the US literally gave Germany a whole lot of dollars, which enabled the Germans to purchase American goods made by American factories and workers, and in turn raised the income of the American working class. This was what led to the postwar boom of the US economy in the 1950s. Eventually, the reindustrialization of postwar Germany and Japan would surpass that of America’s, and to maintain its imperialist streak, the empire chose to end the Bretton Woods arrangement and hyperleaped into finance capitalism, but that’s a story for another day.
The important point here is that China has to launch a Marshall Plan if they are serious about challenging US dominance. There is no point selling cheap Chinese EVs to African countries in exchange for their raw materials, for that will not help those countries industrialize and will only perpetuate their status as colonies to yet another superpower.
What China needs to do is to first, use its massive dollar reserves to pay back Africa’s and the Global South’s debt, then give those countries yuan - the Chinese currency - in order to support purchase of Chinese goods. This will in turn raise the income of the Chinese working class, increase their purchasing power, and will enable the Chinese workers to import goods and services from the Global South countries, raising their income too and fund the development of those countries.
Most important of all, this will also lower the massive trade surplus in China (yes, China will lose its net exporter status, but does China really want to compete with other poorer economies to manufacture low value added goods like shoes and clothings?), paving the way towards a bancor-like mechanism to return the world economy to a more balanced trade, and towards ending US monetary imperialism once and for all.
But there is no indication at all that China is willing to do this. The dollar hegemony has greatly benefited the Chinese economy over the past 30 years, and so we end up in this comical situation instead, where Trump is actively trying to end this mutually beneficial arrangement while China runs with “protectionism bad! free trade good!” defense.
But sooner or later, everyone will have to accept that neoliberalism has run its course. But, will it be the US new fascist technofeudalism that takes its place, or a socialist model upheld by the Global South?
Now I know who to follow.
One thing I didn’t understand was about the IMF buying up a of the assets? I thought that the IMF just loaned money with liberalization agreements? Like, well give you money as long as you open up your markets, and privatize your public services.
Also, (still reading) what is the incentive for foreign capital to invest in regional governments? Is it like a bond thing? What would give confidence to an investor to buy local government debt?
IMF doesn’t buy up assets, IMF lends money to countries under economic distress and often makes demands like you have to balance your budget (“structural adjustments”), and to meet that target you cannot spend more than you earn (austerity), and so you have to cut social spending and public services, privatize this and that to get the money rolling. Show us low budget spending, show us you are financially responsible, and we will lend you the money.
In other words, it restrains economic development and further entrenches the influence of Western imperialism in the Global South.
For foreign investment, you gain access to that country’s market share. For example, the entire supply chain (including intermediaries) that Apple has built in China comprises nearly 5 million people. That’s about 0.6% of all employed workforce in China. Of course China can destroy Apple in a moment’s notice, but they have to be careful about the fallout in unemployment because 0.6% is not a small number and can have knock-on effect on the entire economy.
For banking capital, it’s about bypassing capital controls. Typically countries want to protect themselves from foreign capital speculation, so they impose capital controls. The downside to this is that if your economic policy requires that you attract foreign capital/earning export revenues in order to keep budget deficit down, because - no surprises here anymore - IMF says so (see my response to another user here), you’d want to open up your capital markets to let foreign capital in.
As you can see, China can easily solve half of its problems by simply stop believing in all the IMF neoliberal nonsense. From what I’ve seen, they are far too indoctrinated to do that, to the point of “accusing” Trump of violating IMF free trade agreement!
Now this is a fucking xiaohongshu post
How did any of us believe the impostor for a second
yellow snow funny
pure cope that our penpal was back
Made a new account just in time to catch and upbear another banger xiaohongshu post. Massive bummer to hear about your laptop, glad you stopped by Hexbear again though!