xiaohongshu

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.

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?

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.

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.

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.

I actually have distant relatives there and my parents went there in the early 2000s (before the Uyghur terrorism started). I’ve never been there but would be interesting to visit for once haha.

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.

(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?

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.

Haha CK Hutchison… it’s been in deep trouble on Chinese and Hong Kong media after Li Ka-shing announced the selling of the Panama Ports. It’ll be interesting to see whether the Chinese government will stop the sale, but that will further raise tension with the US.

Niger orders three Chinese oil officials out of country, sources say

NIAMEY, March 14 (Reuters) - Niger's junta has ordered three Chinese officials working in the oil sector to leave the country, two sources familiar with the decision told Reuters on Friday, in the latest move by regional military governments to assert greater control over resources.

The request for the departure of the Niger-based directors of the China National Petroleum Corporation (CNPC), the West African Oil Pipeline Company (WAPCo) and the joint venture oil refinery SORAZ was communicated Wednesday, the sources said.

The Chinese officials were given 48 hours to leave, and one source close to the government said on Friday they were out of the country.

The other source, who is close to the affected companies, said the directors were asked to leave because of disputes over pay for local staff and the pace of work on projects.

Separately, Niger's tourism ministry last week rescinded the license for a Chinese-operated hotel in Niamey, citing discriminatory practices.

Spokespeople for the military junta, which took power in a coup in 2023, and the West African country's oil ministry did not respond to requests for comment.

WAPCo and CNPC did not respond to requests for comment. SORAZ could not be reached for comment. Niger last year signed a memorandum of understanding with CNPC worth $400 million linked to the sale of crude oil from its Agadem oilfield.

The Niger junta has torn up defence agreements with the United States and former colonial power France. Authorities also took control of French nuclear fuels company Orano's Somair uranium mine.

Military governments in Mali and Burkina Faso have similarly used legal disputes to assert greater control over resources including gold.

Niger is not playing around with its nationalization, it seems. After kicking the French out, they’re even kicking Chinese officials out wtf. At least try to re-negotiate or something.