US and Chinese officials met for 8 hours today to discuss trade and tariffs, no signs of progress -- Update Trump claims progress is made

Now this is a fucking xiaohongshu post

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!

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?

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.

Omg are you the real dessalines?

I've read (listened?) to a ton of your audiobooks thank you so much for everything.

Dessalines vs XHS, a meeting of the minds

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)

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".