This is going to shock some people, but Putin is not a mass murderer.

Unlike NATO which destroyed every critical infrastructure (energy, water etc.) during the invasion of Iraq and Libya and condemned millions to death and destruction, the Russian invasion of Ukraine has shown magnitudes of order of restraint, repeatedly, even to the detriment of its own military campaign (of course, there is also a propaganda component at play here).

In fact, Russia only steps up its strikes on energy infrastructure as responses in kind, when their opponents first had initiated a provocation. This also happens on the economic front, where their sanctions on gas delivery was made in response to the Europeans violating the contractual agreements first. This is why you’d never see a lawsuit against Russia turning off the gas flow where the court ruling favors the European party.

Russia wants to punish NATO, but not the European people, just like it wants to punish the Banderite Nazis, not the Ukrainian people.

Collapsing Europe also wouldn’t end the war, it would create a chaotic and disastrous political situation right next to its border in ways that nobody could predict (nobody wants to plunge the world into another world war again).

Remember, Putin is a soft-hearted lib and has demonstrated this trait again and again, over decades. The US wants Russia to be the bad guy so they can probably justify nuking Russia or something, but Putin is not that person.

Also, the Mongols.

The Kievan Rus was geographically unfortunate enough to stand in between the Mongol invasion and the rest of Europe in the 13th century, and the Russian/Eastern Slavic people spent the next four centuries on a stalemate with the descendants of the Mongols (Tatars), became the victims and captured slaves of frequent Tatar raids that went on for centuries, while effectively shielding the European subcontinent from total destruction.

Edit: obviously the Islamic civilizations were destroyed during the Mongol invasion and China itself suffered from both an external invasion and internal political upheaval until the Ming dynasty in the 15th century.

I will add that under Stalin, pension and free healthcare were maintained throughout the entire Great Patriotic War from 1941-45, when 27+ million Soviet lives would perish. The economy fully recovered to its pre-war condition within 5 years without austerity.

The working conditions in the USSR have always been at the leading edge of the world and comparable to the wealthier post-war Western European countries, until the demise of the USSR in the 1990s.

You used it correctly haha. Not just that, a large part of the academic circle as well. The mentality is slowly changing since Trump, but the academic/institutional culture will move slower for sure.

That’s because you don’t understand the Chinese academic culture.

Without doxxing myself, I run in these circles. Prestige is extremely important, where you did your PhD or postdoctoral training, and if you don’t have top tier journal publications like Nature/Science, or if you don’t graduate from some of the most prestigious schools/labs in the US, chances are they won’t even pay attention to you. For the record, in the US/Europe, while important, you still get considered for academic positions even if you don’t have super amazing CVs. The competition is much much more intense within China.

There are 250k Chinese students who went to study in the US every year (half of which are in STEM field), and that’s not including postdoctoral trainees in some of the best labs in the US. The competition is that fierce. The DeepSeek team was mostly local graduates from the highest ranking schools in China.

A bit of a tangent, but the funniest part to me is that nobody (important) in China gave a shit about DeepSeek until prestigious universities in the West like MIT talked about how much of an innovation it was.

Only then did the government realized “oh wow we have something good in our hands (approved by prestigious Western academics!)” and began to roll out this whole initiative about economic transformation with AI.

If the West hadn’t freaked out about DeepSeek, the paper would probably have passed unnoticed amidst hundreds of AI papers published every month, and the government most likely wouldn’t have given a damn thought about it.

This is a serious problem with the Chinese leadership and the elite class, to be honest. A lot of emphasis is being placed on whether Westerners approve of us or not.

And honestly this is nothing new. The same happened with the EV industry too. BYD began its EV production back in 2008 (same year as Tesla), and there had been some initiatives by the government to promote EV as early as 2009 with tax credits. But for the most part, nobody gave much of a damn about BYD or EVs as a whole.

Do you know why the Chinese government suddenly turned its attention to EV and decided to place a big bet on it?

It wasn’t BYD, it wasn’t any Chinese company. It was Elon Musk lol!

To understand this part, we need to go slightly back in time. By the early 2010s, a lot of internet companies in China had accumulated vast amount of capital, and they were looking for new avenues to invest in as their new business ventures. These are your typical techbro companies where their CEOs and employees alike worship Elon Musk.

Tesla delivered the first batch of Model S to Shanghai, China in 2014, to the first dozen of their owners - most of them CEOs from tech companies like Sina, Xiaomi etc. It was also Elon Musk’s first visit to China and was given enthusiastic reception as he passed over the keys to the new owners.

The Chinese leaders were so enamored with Elon Musk that it was in 2014, the EV industry was set to become a national project. They really believed that Elon Musk is some kind of a visionary genius that just showed them a vision of the future lol.

It is not at all controversial to say (I actually read this on Chinese internet) that “Elon Musk is the grandfather of Chinese EV industry.” You can even make the argument that Elon Musk arguably was one of the most important persons who defined the next national priority of the Chinese economy in the 2010s.

Immediately afterwards, at least 300 EV companies were registered in 2014-2015. A lot of them wouldn’t survive the take off, but the traction never stopped and by 2018, at least 500 EV companies existed in China! (Today, less than 50 survived, and it is estimated that the price war would cull off the rest of them to the last 5 or so).

Tesla became the only automobile company in China that is fully autonomous and did not have to partner up with a local company. It is no secret that the Shanghai Municipal government has a lot of affection for Elon Musk that they gave Tesla all kinds of benefits and tax exemptions.

In 2019, the Tesla Shanghai megafactory opened, boasting a “same year construction, same year production” achievement. This acted as a catalyst for the entire Chinese EV industry and it was then, starting in 2020, that the Chinese EV industry really took off, and would surpass Tesla itself in just a few years.

I guess the point I wanted to make is that these leaders really need to stop looking up to Westerners for their approval.

Many people are rightfully angry about Trump’s assault on public institutions, but I believe the endgame is far more sinister than “fascists are dumb and fell for the DEI bullshit so they sabotage their own country”.

One question I’ve seen some people raising is: why don’t the bourgeois elites do something about it? Why let Trump ravage cut off billions of university fundings and cleaving off many government agencies that serve actual purposes, to the detriment of even the bourgeois class itself?

Well, if you follow the trajectory to its endpoint, it all makes sense. The bourgeois class is poised to reap the ultimate benefits of Trump’s misbehavior.

Many people can see the goal of ultimately privatizing these government agencies, but this is not just a mindlessly forced privatization of public institutions. Instead, it is to foment a new narrative about the perils of nationalization.

As people are becoming increasingly critical about billionaires and private capital owning large chunks of the economy, left wing narrative on nationalization has gained traction in recent years, at least in reasserting control on critical sectors.

In my opinion, Trump has correctly demonstrated the true unfettered authority of the federal government. Yes, the executive branch can really do all that and get away with it, in spite of what the Democrats tell you about the complex rules and Republican obstructionism. The federal government is so powerful that it can literally tax away all the wealth of the billionaire class and get away with it. Not even Harvard backed by multi-billion private capital can possibly fight the authority with the power of the purse. The government can end homelessness and give free universal healthcare in a moment’s notice.

These would have infinitely improved the lives of the people and curbed the political and economic influence of the wealthy elites. But… there is a BUT:

What if the government use its authority for nefarious purposes, like Trump is doing right now?

“What, you want universities to be funded by the government? Have you seen what Trump has done? Do you want billions of funding to be abruptly cut off just because right wingers are scared of DEI? That’s why you need FREE MARKET! No matter your ideology, there will be someone willing to finance your institutions. Free market is DIVERSITY! Nationalization is authoritarianism where absolute power will absolutely corrupt!”

I think when Trump’s shenanigans finally end, a new wave of criticisms against the excess power of the federal government would emerge. This will lead to further decentralization of its authority, and pave the way towards mass privatization with consent manufactured.

I haven’t seen people from the left talking about this and I think that if the left is serious, they have to start conceiving of counter-narratives, or else they’ll just be caught off guard by this new phase of capitalism, once again. Remember when the American left completely failed to achieve any concession on healthcare during Covid because they were so afraid of being seen as touting right wing conspiracy theories? Same principles here.

Yes that’s what I was doing, by writing fully sourced articles until my laptop blew up a couple months back. Now I had to rewrite everything from scratch.

Believe it or not I typed all of those out from memory lol.

I would be surprised if AI can write all this stuff. Some of the information you’d be hard pressed to find on the English speaking internet, although I’m sure a quick google could reveal all the facts I’ve cited, but not the way how all these information are put together with a coherent, material analysis.

(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.

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:

1. Use the dollar it earned to import goods/services sold in US dollar (trade for real goods/services)
2. Use the dollar it earned to buy US securities (to earn interests)
3. Convert the earnings to yuan and use the money to pay its workers, invest in its business locally etc.

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)

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.

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.

China does not want to internationalize the RMB to challenge the dollar

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.

Evergrande bankrupting the PRC and putting it in a weak negotiation position

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.

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.

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.

You know better than the PRC’s planners?

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.

Checking in on the news mega - and what the hell someone tried to impersonate this account?

I honestly don’t know what happened but if the vibe’s wrong, it’s not me lol.

And in case anyone is wondering, long story short, laptop died together with hundreds of sources/references/links and pages and pages of notes I’ve written up. No backup on the cloud. Decided to touch grass and forget about the site. May or may not return as a regular. Meanwhile, I hope everyone has been doing well. The world hasn’t been kind lately and certainly hasn’t to me in many ways. Hang in there, everyone.

Edit: also in case anyone wants to hear my thoughts about the recent events, I wrote a long comment in this thread. May not be everyone’s cup of tea, and if so, just treat it as an entertaining read. Happy to be proven wrong.

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:

1. Let the tariffs and counter-tariffs continue, the US goes into recession, which will kill off the rest of the world’s export economies, and equally bad to China’s export-led growth model. IMF then comes in and scoop up all the world’s failing assets and the US finance capital wins anyway. No go.
2. Unilaterally lower the interest rates before the Fed does, which would open up the RMB for a harvest by international currency speculators. Risky to bad outcome. In fact, the PBoC already did a small 10 bps drop the day before the negotiation with the US, and this really shows you how stressed the local government debts are.
3. Negotiate with the US - Trump gets Powell to lower its interest rates and reduces tariffs, and in turn, China lets foreign investment enters to save the local government’s debt problem. This is the most realistic and pragmatic option left.

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:

1. The US hides behind tariffs (Trump has said the tariffs against China won’t go down below 80%) and by weaponizing China’s industrial capacity and threatens to unleash cheap Chinese goods into Europe, the US has effectively subjugated the European economies.
2. If Europe doesn’t put up tariffs against China, its domestic industries are effectively gone, for they simply cannot compete with China’s superior EVs and green tech. Pure mercantilist destruction unleashed by the US under the guise of a “trade war with China”. If Europe puts up tariffs, the loss of Nord Stream already drove up their energy input prices making their high end products highly uncompetitive. It’s lose-lose for Europe.
3. With Europe being coerced into buying American products and effectively deindustrializing themselves along the way, the US gets to reduce its trade deficits. A propaganda win for Trump.
4. At the same time, Wall Street finance capital enters China, which will be key in preserving the dollar hegemony.
5. The strain on China’s economy is alleviated by the lower Fed rate, influx of foreign investments and somewhat loosed tariffs.
6. A Damocles Sword hangs over the rest of the Global South. The US gets to set the tariff rate against China, which will in turn determine how much China can dump its surplus goods into the rest of the Global South, many of which its export competitors, including the Belt and Road countries themselves.
7. If the Global South countries could not stop cheap Chinese goods from entering their market, then the failing businesses will render the country vulnerable to financial stress, making IMF bailout (and mass privatization of public utilities) a high probability if not an inevitability.
8. Since China has refused to use its dollar reserve to pay off the Global South debt, and does not want to internationalize the RMB to challenge the dollar, these countries will remain susceptible to US monetary hegemony.

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.