What Is China’s Future? Economic Decline, or the Next Industrial Revolution?

Yves here. As readers know well, there is a big industry of China economic prospect-doubters and worry warts. Even though a China crisis or very protracted rough patch has been vastly over-predicted, it is still true that China’s growth has been overly dependent on a simply stunning level of real estate investment, and that can’t continue. There has already been a significant correction in values with is alleged to be dinging consumer demand (negative wealth effect) and had the potential to become deflationary.

Radhika Desai, Michael Hudson and Richard Dunford give their views of China’s economic prospects.

Originally published at Geopolitical Economy Report

Please see Geopolitical Economy for a version of the transcript with the charts from the talk embedded.

Political economists Radhika Desai and Michael Hudson are joined by Beijing-based scholar Mick Dunford to discuss what is actually happening in China’s economy, explaining its technological development and transition toward a new industrial revolution.

RADHIKA DESAI: Hello and welcome to the 24th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai.

MICHAEL HUDSON: I’m Michael Hudson.

RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host, Ben Norton, our videographer, Paul Graham, and our transcriber, Zach Weiser.

And with us today, we have, once again, Professor Mick Dunford, Professor Emeritus of Geography at Sussex University and now working at the Chinese Academy of Sciences, keeping a close watch, among other things, on China’s economy. So, welcome, Mick.

MICK DUNFORD:  Thank you very much.

RADHIKA DESAI: So, China’s economy is what we’re going to talk about today. Where is it at after decades of breakneck growth, after executing the greatest industrial revolution ever? Where is it headed?

Trying to understand this is not easy. The disinformation that is fake news and even what I often call fake scholarship that distorts the view that any honest person may be trying to take on China’s economy is simply overwhelming. It’s absolutely wall-to-wall propaganda, no matter which Western publication or website you open.

If we are to believe the Western press and the leading scholarly lights of the West, who are the major generators of the Western discourse on China, we are at peak China. That is to say, they claim that China has reached a point, reached the highest point, that is, that it ever can. And from here on, it’s only going to be downhill, more or less rapidly. They say that China has, in recent years, inflated a huge property bubble to compensate for the West’s inability to keep up imports. And this bubble is about to burst. And when it does, it will subject China to a 1980s and 1990s Japan-style long-term deflation or secular stagnation. They have even invented a word to talk about this, Japanification. We are told that the Japanification of China’s economy is impending.

They say that the U.S.’s trade and technology wars are hitting China where it hurts the most, at its export and its reliance on inward foreign investment. They are saying that China has grown only by stealing technology. And now that the U.S. is making it harder for it to do so, its technological development can only stall. They are saying that China followed disastrous COVID-19 policies, leading to mass death, draconian lockdowns, and economic disaster. They are saying that China over-invests, and its growth will not pick up unless China now permits higher consumption levels. They are saying that China has a serious unemployment crisis, that the CPC, the Communist Party of China, is losing legitimacy, because it is failing to deliver ever-higher living standards. And they are saying that Xi Jinping’s authoritarian leadership is ensuring that the private sector will stall, and with it, so will China’s growth.

All this, they say, before even beginning to talk about China’s foreign policy. And there, of course, lie another long litany of alleged disasters and misdemeanors that China is responsible for, beginning with debt-trap diplomacy and China’s allegedly voracious appetite for the world’s resources. The only reason why Western experts ever stress the strength of China’s economy is when they want to argue that the West must redouble its efforts to contain China and to stall its rise.

So today, we’re going to take a closer look at China’s economy, and in doing so, we’re going to bust a lot of these myths. We’re going to show you that, sadly, for the purveyors of the fake news and fake scholarship about China, no amount of their huffing and puffing has been able to blow down China’s house, because, like the good, the smart little pig, China is actually building its house with bricks. So, we have a number of topics to discuss in this show. Here they are. Sorry, let me just share my screen. So, these are the topics that we hope to discuss. We want to begin by talking about how to characterize China’s economy. Is it capitalist? Is it socialist? Then we will do the most important and primary basic thing. We will look at the growth story with some statistics. We will then look at China’s COVID response. We will look at the alleged debt and property bubble and whether China is being Japanified. Then we will look at the issue of whether China is overinvesting and neglecting consumption and living standards, etc. How reliant is China on exports? What is China’s growth strategy? And what is China’s foreign policy? And are those myths about it true? So, this is what we hope to discuss.

So, Mick, why don’t you start us off with your thoughts on exactly how to characterize China’s economy?

MICK DUNFORD: Okay. I mean, the way I would characterize China is as a planned rational state. I mean, right the way through, it has maintained a system of national five-year planning and it also produces longer-term plans. But it’s a planned rational state that uses market instruments.

China has a very large state sector. And of course, some people have claimed that this state sector is, in a sense, an impediment to growth. And we’ve seen a resurrection of this idea, guo jin min tui (国进民退), which is used to refer to the idea that the state sector is advancing and the private sector is retreating. It’s a very, very strange concept, in fact, because the third word is min (民), and min refers to people. So, what they are actually, in a sense, saying – these ideas were invented by neoliberal economists in 2002 – the private sector is equated with the people, which I find absolutely astonishing. But, I mean, the country does have a very significant public sector.

What I find striking is that one can actually turn it around and say, what is it that these Western economists seem to think China should do? And they seem to think that China should privatize all assets into the hands of domestic and foreign capitalists. It should remove capital controls. It should open the door to foreign finance capital. It should transfer governance to liberal capitalist political parties that are actually controlled by capital.

I think one of the most fundamental features of the China system is actually that it’s the state that controls capital rather than capital that controls the state. And it’s, in fact, this aspect of the Chinese model, and in particular, the rule of the Chinese Communist Party that has basically transformed China from what was, effectively one of the poorest countries in the world into one of its largest industrial powers. So, in a way, it’s a planned rational state in which the CPC has played an absolutely fundamental role. And without it, I mean, China would never have established the national sovereignty that permitted it to choose a path that suited its conditions and to radically transform the lives and livelihoods of its people.

RADHIKA DESAI: Michael, do you want to?

MICHAEL HUDSON: The question is, what is the state? There are two aspects of the state with China. One is public infrastructure. And the purpose of China’s public infrastructure is to lower the cost of doing business because infrastructure is a monopoly. That’s what really upsets the American investors. They wanted to buy the phone system, the transportation system, so that they could benefit from charging monopoly rents, just like under Ronald Reagan and Margaret Thatcher.

The most important sector that China’s treated in the public is money creation and banks. Americans hope that American banks would come over and they would be making all the loans in China and benefiting from China’s growth and turning it into interest. And instead, the government’s doing that. And the government is deciding what to lend to.

And there’s a third aspect of what people think of when they say state. That’s a centralized economy, centralized planning, Soviet style. China is one of the least centralized economies in the world because the central government has left the localities to go their own way. That’s part of the Hundred Flowers Bloom. Let’s see how each locality is going to maneuver on a pragmatic, ad hoc basis. Well, the pragmatic ad hoc basis meant how are localities, villages, and small towns going to finance their budgets? Well, they financed it by real estate sales, and that’s going to be what we’re discussing later. But once you realize that the state sector is so different from what a state sector is in America, centralized planning and the control of Wall Street for financial purposes, finance capitalism, hyper-centralized planning, you realize that China is the antithesis of what the usual view is.

RADHIKA DESAI: Absolutely. And I’d just like to add a few points, which dovetail very nicely with what both of you have said. I mean, the fact of the matter is that this was also true of the Soviet Union and the Eastern European countries when they were still ruled by communist parties. We generally refer to them as socialist or communist, but in reality, they themselves never claimed to be socialist or communist. They only said they were building socialism, especially in a country that was as poor as China was in 1949. The leadership of the Chinese Communist Party has always understood that there has to be a long period of transition in which there will be a complex set of compromises that will have to be made in order to steer the economy in the direction of socialism, in order to build socialism. So, from its beginnings, the revolutionary state in China was a multi-class state and a multi-party state. People don’t realize very often that while the Chinese Communist Party is the overwhelmingly most powerful party in China, there are other parties that exist as well, which reflect the originally multi-class character of China.

Now, it’s true that since 1978, the government has loosened much of its control over the economy. But the important thing here is that the Communist Party retains control of the Chinese state. The way I like to put it is, yes, there are lots of capitalists in China. Yes, those capitalists are very powerful. They are at the head of some of the biggest corporations in the world, and they are quite influential within the Communist Party. But what makes China meaningfully socialist or meaningfully treading the path to socialism, let’s put it that way, is the fact that ultimately the reins of power are held in the hands of the Communist Party of China leadership, which owes its legitimacy to the people of China rather than to the… So, the reigns of power, the reigns of state power are not held by the capitalists, they are held by the Communist Party leadership.

So, in that sense, I would say that China is meaningfully socialist, although, as Mick pointed out, there is a fairly large private sector in China, but so is the state sector very large. And the extent of state ownership means that even though the private sector is very large, the state retains control over the overall pace and pattern of growth and development in the country.

And I just add one final thing here, which is going to become quite important as we discuss the various other points, and that is that the financial sector in China remains very heavily controlled by the state. China has capital controls, China practices a fair degree of financial repression, and China’s financial system is geared to providing money for long-term investments that improve the productive capacities of the economy and the material welfare of the people. And this is completely different from the kind of financial sector we have today.

So, Mick or Michael, did you want to add anything?


MICK DUNFORD: I mean, just to reiterate, I mean, the point is, the government sets strategic targets that relate to raising the quality of the life of all the Chinese people. And it has strategic autonomy, which gives China the opportunity or the possibility of actually choosing its own development path. And I think that’s something that very strikingly marks China out from other parts of the Global South that have had much greater difficulty, in a sense, in accelerating their growth, partly because of debt and their subordination, to the Washington financial institutions. So I think that is critically important, the role of sovereignty and autonomy in enabling China to make choices that suited its conditions, and at the same time making choices that are driven by a long-term strategic goal to transform the quality of the lives of all Chinese people.

MICHAEL HUDSON: I want to put in one word about sovereignty. You put your finger on it. That’s really what makes it different. What makes other countries lose their sovereignty is when they let go, how are they going to finance their investment? If they let foreign banks come in to finance their investment, if they let American and European banks come in, what do they do? They fund a real estate bubble, a different kind of a real estate bubble. They fund takeover loans. They fund privatization. Banks don’t make loans for new investment. China makes great money to finance new tangible investment. Banks make money so you can buy a public utility or a railroad and then just load it down with debt, and you can borrow and borrow and use the money that you borrow to pay a special dividend if you’re a private capital company. Pretty soon, the country that follows this dependency on foreign credit ends up losing its sovereignty. The way in which China has protected its sovereignty is to keep money in the public domain and to create money for actual tangible capital investment, not to take your property into a property-owning rentier class, largely foreign-owned.

RADHIKA DESAI: Thank you. Those are very important points. Thank you.

I’d just like to add one final point on the matter of how to characterize the Chinese economy and the Chinese state. At the end of the day, it’s not just important to say that the state controls the economy, but whose state is it? The way to look at it as well is that in the United States, essentially we have a state that is controlled by the big corporations, which in our time have become exceedingly financialized corporations, so that they are directing the United States economy essentially towards ever more debt and ever less production, whereas that is not the case in China.

And the question of whose state it is makes use of the word autonomy. The autonomy refers to the fact that it is not subservient to any one section of society, but seeks to achieve the welfare of society as a whole and increase its productive capacity.

MICK DUNFORD: If I may just add, I think also it’s important that you pay attention to the policy-making process in China. It’s an example of what one might call substantive democracy. It delivers substantive results for the whole of the Chinese population. In that sense, it delivers improvements in the quality of the lives of all the people, and therefore, in a sense, it’s a democratic system. But it’s also a country that actually has procedures of policy-making, experimentation, design, and choice and so on that are extremely important and that have fundamental aspects of democracy about them.

When Western countries characterize China as authoritarian, they’re actually fundamentally misrepresenting the character of the Chinese system and the way in which it works, because they, in a sense, merely equate democracy with a system, whereas China, of course, does have multiple political parties, but a system with competitive elections between different political parties. There are other models of democracy, and China is another model of democracy.

RADHIKA DESAI: Mick, you’re absolutely right to talk about the substantive democracy. Indeed, in China, they have recently developed a new term for it. They call it a “whole process democracy”, and it really involves multiple levels of consultation with the people, going down to the most basic village and township levels, and then all the way up the chain. And I think this process does work, because the other remarkable thing about the CPC leadership is its ability to change direction pragmatically. If something does not work, then it assesses what it has attempted, why it has failed, and then it revises course. So, I think we will see several instances of this as we talk as well.

Michael, you want to add something?

MICHAEL HUDSON: One thing about democracy. The definition of a democracy traditionally is to prevent an oligarchy from developing. There’s only one way to prevent an oligarchy from developing is people get richer and richer, and that’s to have a strong state. The role of a strong state is to prevent an oligarchy from developing. That’s why the oligarchy in America and Europe are libertarian, meaning get rid of government, because a government is strong enough to prevent us from gouging the economy, to prevent us from taking it over. So, you need a strong central state in order to have a democracy. Americans call that socialism, and they say that’s the antithesis of democracy, which means a state that is loyal to the United States and follows U.S. policy and lets the U.S. banks financialize the economy. So, just to clarify the definitions here.

RADHIKA DESAI: Very, very true, Michael. But let’s not go, I mean, maybe we should do a separate show on political theory of the state, because that’s equally important.

But for now, let’s look at our next topic, which is, we hope, of course, that everybody understands how we characterize China’s state. But now, let’s look at China’s GDP growth. So, here you have a chart, and we have several charts on this matter, but we’ll take them one by one and comment on them. So, here we have a chart showing the annual rate of GDP growth from 1980 to 2028. Of course, post-2023 are their projections, which are shown by the dotted lines. And I’ve only taken a few selected countries from the Our World in Data website, and anybody can go there and look at this data, by the way.

So, you can see China and then a handful of the most important Western countries. And you can see that going back to 1980, essentially China’s growth rate, which is here, the top red line here, has absolutely been massively higher on practically any year than the other countries. In fact, you see, I mean, I left Russia in here. I should probably have taken it out. It’s a bit of a distraction, because here you see Russia’s growth rate massively bouncing up from the late 90s financial crisis. But let’s leave that aside.

All the other major countries, which you see here, they are all showing considerably lower growth. So, the United States here is this orangish line. And essentially, they’re all showing much lower growth. And more recently as well, this is the COVID-19 pandemic. And you can see that China, again, like all the other countries, it experienced a fairly sharp decline in the growth rate, but it still remained positive, unlike all the other countries. And it remains substantially above that of the rest of the economies that constantly are telling China how to improve its economic policy. So, that’s what I want to say about this chart.

But Mick, go ahead.

MICK DUNFORD: But can you, if you just show that table that I sent, can you show that? Yeah, sure. Yes, here we go. Okay. I mean, these are more recent growth rates for China, for the world, and for the G7. And I mean, first of all, they show absolutely clearly that China’s growth rate is still a long way in excess of the average growth rates of all G7 countries, many of which have actually performed abysmally. I mean, Germany is now in recession, it declined 0.3% per year this year. I mean, Italy has had extremely low rates of growth, France, Germany, the United Kingdom, Japan, all had extremely low rates of growth.

China last year achieved a growth rate of 5.2%. It itself expects to grow at 5% next year. The IMF forecast 4.6%. Even that 4.6% target is quite close to the average growth rate that China needs to achieve to meet its 2035 target. It has a 2035 target of doubling its GDP, its 2020 GDP by 2035. I think that that goal is perfectly realizable. And in that sense, I strongly disagree with people who argue that China has in a sense peaked.

But I do find it, really quite astonishing, that Western countries, whose economies have performed extremely poorly, feel in a position to lecture China about how it should address what is said to be an unsatisfactory rate of growth. That’s the first point I want to make.

I just want to say something else, if I may. When we talk about, I mean, China’s growth has slowed. And, there’s no doubt that in terms of people’s everyday lives, there are many difficulties. And I just want to quote something. At New Year, I mean, Xi Jinping gave a speech. I mean, I wanted to cite his actual words, but I mean, okay, I can give you them. He recognised that in these years, China faces what he called the tests of the winds and rains. And then he said, when I see people rising to the occasion, reaching out to each other in adversity, meeting challenges head on and overcoming difficulties, I am deeply moved.

So, the leadership and all Chinese people are well aware that there are many, many difficulties and challenges confronted, because China is actually undergoing a major structural transformation about which we shall speak later. But China is also in the short term undertaking a lot of important actions that are actually designed to cope with some of the real difficulties that people confront. So, if you listen to Li Qiang’s government work report, he addressed the problem of short-term employment generation. And there are proposals for 12 million new urban jobs to increase employment, especially for college graduates and other young people, because for young people, the unemployment rate, including college students, is in the region of 21 percent. Urban unemployment is 5 percent. So, there are issues to do with the generation of employment.

Government expenditure this year will target a whole series of strategic issues, but also livelihoods. So, affordable housing, youth unemployment, job security, insurance, pensions, preschool education, the living conditions in older communities. So, I’m just saying that, in the current context, difficult economic situation and a particularly turbulent global situation. I mean, China, as every other country in the world, faces challenges, and it is in many ways directly addressing them in very important ways.

RADHIKA DESAI: Great. Thanks, Mick. Michael, do you want to add anything?

MICHAEL HUDSON: No, I think that’s it. The question is, what is the GDP that’s growing? There are a number of ways of looking at GDP. And when I went to school 60 years ago, economists usually thought of GDP as something industrial. They’d look at energy production. They’d look at railway cargo transportation. If you look at the industrial component of what most economists used to look at, electricity is the power for industry, electricity is productivity growth for labor. If you look at these, what is the component of GDP, you realize that these differences in mixed charts are even wider than what he showed, because the American GDP, very largely interest, overdraft fees of credit card companies, as we’ve said, is providing a financial service. 7% of American GDP is the increase in homeowners’ view of what their rental value of their property is. That’s 7%.

Now, I doubt that China includes a measure like this in its GDP. But if it did, with all of its rise in real estate prices, its GDP would be even higher in a reality-based basis. So real GDP, as we think of it, and the public thinks of it, is something useful and productive. Actually, China’s doing a much more efficient job in minimizing the kind of financial and rentier overhead that you have in the United States.

RADHIKA DESAI: Exactly, Michael. What I was going to point out as well is that these figures of U.S. GDP growth and the absolute level of U.S. GDP are heavily financialized. The financial sector, which actually is not a force for good in general in the U.S. economy, it is out of which the indebtedness comes, out of which the productive weakening comes. The growth of the financial sector is counted as GDP in the United States and massively inflates U.S. GDP, which would not be as high as this.

And this is particularly important given that President Biden, for example, is congratulating himself now for having the strongest economy in the world or the Western world or whatever it is. Well, that’s what the U.S.’s boast is based on. And China does not do that, nor does it have the kind of financial sector which creates, which destroys the productive economy. Rather, as we were saying, it has the kind of financial sector that supports it.

So, just another general point I want to make. We were talking about this chart, which shows from 1980 to 2028, and the projections remain, by the way, even from conservative sources, that China’s growth is going to remain higher than the rest of the world, particularly the Western countries, for a long time to come. And I also decided to show you this chart, which is the chart of growth, which is just a more focused version of the previous one, which shows growth rates from 2008 to 2028. So, 2008 is when we had what Michael and I call the North Atlantic Financial Crisis. And since then, what we’ve seen is, yes, of course, all countries have seen a sort of a reduction in their growth rate, and certainly China has. But even since then, you can see that China’s growth remains high and stable. So, that’s another thing that we wanted to show.

And this is a chart showing the rise of per capita GDP. That is to say, you can have a higher GDP, but if your population is expanding, then to what extent is per capita GDP rising? So, you can see here that, again, even in terms of per capita GDP, and this only again goes to 2021, but in terms of per capita GDP, China has remained head and shoulders above all the major Western countries.

And this bounce here that you see in the case of the US and the UK here, it is only a dead cat bounce from the absolute depths to which their economies had sunk during COVID, and so they came to some sort of normalcy.

So, unless somebody else wants to add anything, we can go to… Oh, sorry, Mick, you may want to say something about this chart, because you sent it to me. So, please go ahead.

MICK DUNFORD: No, it’s okay, but I will say something. It’s correct, of course, that China’s growth slowed. Now, in 2013, China entered what is called the New Era. At that time, China decided that its growth rate should slow. It chose slower growth. It spoke of 6 or 7 percent per year, and it more or less achieved that, until the COVID pandemic. So, China chose slower growth for very particular reasons, and I think in this discussion, we shall come to some of these reasons later on.

But in a sense, what they want is what they call high-quality growth. And what China is seeking to do is undertake a profound structural transformation of its economy, establishing new growth drivers by directing finance towards high-productivity sectors and directing finance towards the use of digital and green technologies in order to transform its traditional industries. So, in a sense, it’s undergoing a profound process of structural transformation.

And I mean, if you, for example, look at Li Qiang’s speech, the major tasks include invigorating China through science and education, so to strengthen the education, science and technology system, to improve the capabilities of the workforce, or promote innovation, industrial investment and skills, and another, striving to modernize the industrial system and accelerate the development of new productive forces, bearing in mind that we’re on the verge of a new industrial revolution. But these are very important issues, fundamentally important issues.

RADHIKA DESAI: And I would say just, and I know we’ll talk about it at greater length later on, but it is really important to bear in mind that really, when the world stands at the cusp of being able to exploit new technologies like quantum computing or nanotechnology or artificial intelligence or what have you, a relatively centralized decision-making process about how to allocate resources, for what purposes, for what social benefits, etc., is likely to prove far superior, that is to say, China’s method is likely to prove far superior than the Western tactic of leaving private corporate capital in charge of the process.

And just to give you a couple of instances of this, the fact that private corporate capital is in charge of the development of digital technologies is already creating all sorts of social harms in our Western societies, whether it is harms to children’s mental health or even adults’ mental health, to political division that the algorithms sow and so on.

And also, it is leading to a situation where even these mega-corporations, these giant corporations, actually do not have the resources to invest, the scale of resources that will be needed to invest. So, for example, you hear in the Financial Times that Sam Altman is looking for people to invest in his artificial intelligence ventures, which will require trillions of dollars, and he cannot find private investors for it. So, this is really quite interesting.

Okay, so if we’re done with the growth rate story, oh, and I just want to say one other thing about this, which is, this is a GDP per capita in purchasing power parity, and China, in the space of a few decades, essentially, has experienced the biggest spurt in per capita well-being, etc., which includes important achievements like eliminating extreme poverty.

The Communist Party has brought China to essentially per capita GDP in purchasing power terms of next to nothing in 1980 to about $20,000 per annum in 2020. This is really quite an important achievement. And to do this for a country of 5 to 10 million people would be laudable, but to do this for a country of 1.3 billion people is a massive, historic achievement, and I think that’s something to remember.

MICK DUNFORD: I just, if you just go back for one minute, I mean, I absolutely agree with what you’ve just said, Radhika.

I’ll just make a comment about this chart, but it’s because we were probably going to speak about Japanification. It basically shows, the GDP per capita of Japan, and indeed of Germany, closed on the United States, and actually Germany overtook in the 1980s. But after that point in time, I mean, after the revaluation of their two respective currencies, and after the, the bubble, the stock market and property market bubble in Japan, you saw stagnation set in. And there’s a question as to whether that will happen with China.

But I mean, I think that one thing that’s striking in this diagram is that China is still at a much lower level of GDP per capita than Japan, or indeed Germany was at that time. And those economies, because, they were at the technological frontier to some extent, had to innovate, move into new technologies. I mean, China, because there is still a technological gap, has enormous opportunities to accelerate its growth in a way in which, well, Japan failed because it chose not to take up opportunities, and it gave up semiconductors manufacture. But China has enormous opportunities, and that’s one reason why we must anticipate China’s growth as continuing.

RADHIKA DESAI: Absolutely. Thank you, Mick. Okay, so if we’re done with the growth story, let’s go to our next topic, which is what happened in China under COVID-19. Now, of course, there is just so much dispute about and controversy around COVID and COVID strategies, etc. So we don’t want to get into all of them, but I just want to emphasize two things.

In general, we are told that, we’ve already looked at the growth figures, we looked at the growth figures around COVID. So you can see here that in 2020, all economies had a big dip thanks to COVID in their economies, but China is alone among the major economies to have remained in positive growth territory, and to have, of course, remained much higher than the rest of the other major world economies. So essentially, China, whatever China did, it did not sacrifice growth.

Now, this is very ironical, because in the Western countries, we were told that we need to, in order to continue growing, we need to, so in order to preserve livelihoods, which was the euphemism for preserving the profits of big corporations, in order to preserve livelihoods, we may have to sacrifice some lives. And the Western economies went through an absolutely excruciating process of lockdown here, and opening there, and lockdown again, and opening again, and so on. But all of this had devastating impacts on Western economies, whereas China prioritized the preservation of life above all. And it imposed a lockdown knowing that, okay, even if we are going to develop vaccines, and remember, China developed its own vaccines, and effectively inoculated over 70 percent of the population by the time they began reopening.

China prioritized the saving of lives, and it was accused of essentially creating world shortages by shutting down its economy, etc. But in reality, China’s strategy, which focused before the availability of vaccine, on essentially physical distancing, isolation, etc., as was necessary, but China managed to do it in a way as to keep up a relatively robust growth rate, and very importantly, lose very few lives. This is a chart, again from Our World In Data, of cumulative COVID-19 deaths per million of population. So here we have all these countries, the United States and United Kingdom are these top two lines, Germany, Canada, Japan, even though we are told that East Asian economies did well because they had experience with SARS, etc., even then, compared to China, which is down here with a cumulative COVID death rate per million of about 149 or something people dying per million, and these numbers are over 3,000, almost 4,000 per million at this point in the United States and the UK, and then you have these other economies. So China actually managed to avoid the worst of COVID, both in terms of lives and in terms of livelihood, and it did so because it did not compromise the saving of lives.

Does anyone else want to add anything? Mick? You were there.

MICK DUNFORD: Well, I know, okay. I mean, all right. I mean, obviously, there were difficulties for some people in some places at some times. I mean, I was here right through it. I mean, all I can say is the impact personally on me was extremely limited. You know, I mean, it was a very effective system for protecting life. And if you were, if you lived in some places, then in fact, the impact on your life, apart from having frequent nucleic acid tests and so on and ensuring that your health code was up to date, the impact on one’s life was relatively limited. But in some places, obviously, in Wuhan at the outset, in Shanghai later on, the impact was very considerable.

But, I mean, I think, it’s an indication of the importance of kind of collectivism and the priority given to the protection of human life. And as you said, it is quite striking that actually through it, China’s economy actually kept ticking over. And of course, China produces so many important intermediate goods that obviously it was also very important in providing things that were needed in many, many other parts of the world. It also shared its drugs, its vaccines, which is really quite different, in a sense, from the conduct of the United States. And to some extent, the Western pharmaceutical companies.

RADHIKA DESAI: Absolutely. Michael, go ahead.

MICHAEL HUDSON: In the United States, that would be considered a failure of policy. The United States used COVID as an opportunity to kill, for instance, the governor of New York, Cuomo, took the COVID patients and he moved them into all of the assisted living and old people’s homes. And that had a great increase in productivity. It resulted in enormous death rates for the elderly. That helped save New York’s pension plan system. It helped save other pension plans. It helped save Social Security because the dead people were no longer what America called “the dead weight”. The American policy was to indeed infect as many people over the age of 65 as you could. And that helped balance state, local budgets, pension plan budgets. The increase in the death rate is now the official policy of the Center for Disease Control in the United States. They say do not wear masks. They’ve blocked any kind of mask wearing. They’ve done everything they could to prevent the use of HIPAA filters or airborne disease. The Disease Control Center says that COVID is not an airborne disease. Therefore, do not protect yourself.

Well, the result is many children have been getting COVID and that weakens their resistance system. And they’re getting measles and all sorts of other things. And all of that is greatly increasing GDP in America. The health care costs of America’s destructive policy. I think Marx made a joke about this in Capital. He said when more people get sick, the doctors and the economic output goes up. Are you really going to consider sickness and destruction and fires rebuilding and cleanup costs? Are you going to count all of this there? Well, what are the…

RADHIKA DESAI: But the irony is Michael, even with all of that, America’s GDP plunged so deeply down. But Mick, you want to add something?

MICK DUNFORD: No, no, no. No? Okay.

RADHIKA DESAI: Well, I think we should move on to the next topic, but I will just say one thing. It is generally said that China in a panic, the Chinese government reversed its draconian COVID policies because there were popular protests and blah blah and so on. I would not agree with that. Certainly, there were some popular protests. It also seems as though at least some of them were being pushed by the National Endowment for Democracy with the typical color revolution style. They have one symbol that symbolizes it. So, they decided to put up blank pieces of paper, etc. So, there’s no doubt that there was some of this going on. And as Mick said, undoubtedly, there were local difficulties in many places.

But what becomes very clear is that China decided to lift COVID restrictions towards the end of 2022 only after it has satisfied itself that the risk… And I should also add one thing. It was under pressure to lift these restrictions a great deal because the fact was that the rest of the world was not following China’s footsteps apart from a handful of other countries. They were not following… And they were socialist countries. They were not following China’s footsteps. So, it’s very hard to be the only country that’s doing it. But nevertheless, despite all those pressures, China had a very deliberate policy. It lifted COVID restrictions after assuring itself that enough of the population had been vaccinated as to achieve something close to herd immunity. And these figures of deaths per million demonstrate that China has actually… China’s bet proved right and China continues to monitor the situation. COVID hasn’t gone away. And so, in all of these ways, I think that it’s important for us to understand that China’s policy has actually been above all about protecting people’s lives.

MICK DUNFORD: Just from my recollection, the demonstrations of which you spoke, where the slogans were written in English, I wonder who they were talking to, were on the 1st of December. China had, on the 11th of November, already announced the steps of, in a sense, removing restrictions. And then they were finalized in early December. So, the change was already underway.

RADHIKA DESAI: Exactly. Great. So, I think we are at almost, I think, 50 minutes or so. So, let’s do the next topic, which is the property bubble. And then we will stop this episode and we will do a part two of this episode and do the other four topics that remain in part two. So, Mick, do you want to start us off about the property bubble and the alleged Japanification, impending Japanification of China’s economy?

MICK DUNFORD: Okay. Well, I mean, if you want, you can just show the chart, if you like. I mean, first of all, I sent you one with house prices. Yes, here it is. So, I mean, basically, you can see that throughout this period, Chinese house prices have risen quite substantially. You know, in a sense, the story started, with housing reform, after 1988, when China moved from a welfare to a commodity system. And then, in 1998, it actually privatized Danwei Housing, and it adopted the view that housing should be provided, as a commodity by developers. And in 2003, that course of action was confirmed. And from that point in time, one saw very, very substantial growth in the number of developers, many of which, the overwhelming majority of which were private developers. So, in a sense, they moved towards a fundamentally market system. And they very quickly had to make certain adjustments because they found that while the quality of housing and the amount of housing space per person was going up, these developers were orienting their houses, towards more affluent groups. So, there was an under-provision of housing for middle-income groups and for low-income groups. And so, there were progressively, you saw over the years, increasing attention paid to the provision of low-cost housing and of low-cost rented housing. And in fact, in the current five-year plan, 25% of all housing is meant to be basically low-cost housing.

So, the important point is, that this problem emerged in a system that was liberalized, actually, I mean, in line with recommendations that were made in 1993 by the World Bank. So, in other words, it’s an example of a liberalized, predominantly market-led, private-led system, in which these difficulties and these problems have emerged. So, that’s the first thing I want to say. And I mean, obviously, to address housing needs, China has had, over the course of time, to considerably move back in the direction of providing low-cost housing in order to meet the housing needs of the Chinese people.

But basically, in August 2020, the government got very, very deeply concerned about, on the one hand, increasing house prices and, on the other hand, the explosion of borrowing and the fact that the liabilities of many of these developers substantially exceeded their assets. And of course, the other line on that chart is a line indicating house prices in the United States. And of course, it was the crash of prices in the subprime market that, in a sense, precipitated the financial crisis. So, China, in the first place, is absolutely determined that it should not confront that kind of problem that was generated by the liberalized housing system in the United States.

So, I mean, that’s the first thing I basically want to say. I mean, I think, if you want, I can say something about the case of Evergrande. But basically, what China did in 2020 was it introduced what it called Three Red Lines, which were basically designed to reduce financial risks. But it had a number of consequences because it, to some extent, deflated the housing market. You know, housing prices started to fall. Some of these developers found themselves in a situation where their liabilities substantially exceeded their assets. You know, there was a decline in housing investment.

But to some extent, I think this is a part of a deliberate goal of basically diverting capital towards, as I said earlier, high productivity activities and away from activities, especially the speculative side of the housing market. So, I’ll just say that for the moment, but I can come back and say something about Evergrande, if you wish, in a few minutes.

RADHIKA DESAI: Okay, great. Michael, do you want to add anything?

MICHAEL HUDSON: Well, what I’d like to know as the background for this is what is the, how much of this housing is owner-occupied and how much is rental housing? That’s one question. The other question is how much are the ratio of housing costs to personal income? In America, it’s over 40% of personal income for housing. What’s the ratio in China? I’d want to know the debt-equity ratio. How much debt, on the average, for different income groups? Debt relative to the value of housing. In America, for the real estate sector as a whole, debt is, the banker owns more of the house than the nominal house owner, whose equity ratio for the whole economy is under 50%. These are the depth dimensions that I’d want to ask for these charts, if you know anything about them.

RADHIKA DESAI: Okay, thanks for that. And so, I just want to add one thing, which is that, this graph actually really says it all, and in some ways implicitly answers Michael’s questions. Because the blue line, which shows the United States property prices, you can see that they reached a certain peak at you know, of 150 times the, or 150% of the value of its 2010 values in 2008. Then it went down to below the level of 2010. But U.S. monetary policy, Federal Reserve policy, it’s continuing the regulated financial sector, the easy money policy that was applied in a big way with zero interest rate policies, with quantitative easing, etc., etc., has simply led to a new property boom, where the prices of property prices have reached a peak, which is even higher than that of 2007-8, which was such a disaster. And this was all made possible precisely by the, by increasing housing debt, etc. Whereas in China, a big driver of the housing boom has actually been that people are investing their savings in it. So, by logically, it means that the extent of a debt in the housing market will be comparatively lower. The entities that are indebted are actually the developers. And that’s a very different kind of problem than, than the, than the owners being indebted. So that’s the main thing I want to say.

And Mick, you wanted to come back about, about Evergrande, so please do. And then remember also that we want to talk about this chart in particular, and deal with the question of Japanification. So, please go ahead, Mick. Let’s talk about that.

MICK DUNFORD: Okay, well, I mean, as Radhika just said, the problem is, the indebtedness of developers, and, the existence of debts that considerably exceed the value of their assets. And the way in which this situation has come about, and I mean, as I said, the Chinese government, in a sense, wants to address the financial risks associated with that situation, and did so by introducing these so-called Three Red Lines. It also is interested in reducing house prices, and it’s also interested in redirecting finance towards productivity-increasing activities.

So, Evergrande is an enormous real estate giant. It has debt of 300 billion dollars. It has 20 billion of overseas debt, and its assets, according to its accounts at the end of the last quarter of last year, are 242 billion. And 90 percent of those assets are in mainland China. So, its liability asset ratio was 84.7 percent, and the Three Red Lines set a limit of 70, 70 percent. So, it’s substantially in excess of the red line.

In 2021, it defaulted. And then, in January this year, it was told to liquidate after international creditors and the company failed to agree on a restructuring plan. In September, by the way, last year, its chair, Su Jiayin, was placed under mandatory measures, on suspicion of unspecified crimes. Basically, it was a Hong Kong court that called in the liquidators, and the reason was that, in a way, outside China, Evergrande looked as a massively profitable distressed debt trade opportunity. There were 19 billion in defaulted offshore bonds with very substantial assets and, initially, a view that the Chinese government might prop up the property market.

So, large numbers of U.S. and European hedge funds basically piled into the debt, and they expected quite large payouts. But it seems as if this negotiation was, to some extent, controlled by a Guangdong risk management committee. And the authorities, basically, were very, very reluctant to allow offshore claimants to secure onshore revenues and onshore assets. And, in fact, to stop the misuse of funds, I think about 10 Chinese local provinces actually took control of pre-sales revenues. They put it into custodial accounts, and the idea was that this money should basically—the priority is to ensure that the houses of people who’ve paid deposits on houses are actually built, and people who’ve undertaken work in building houses, are basically paid. So, that, then saw the value of these offshore bonds collapse very rapidly, indeed.

And I think that, to some extent, explains, the concerns of the international financial market about the difficulties of this particular case. But I think, it’s clear that China intends, basically, to deflate this sector and to put an end to, this speculative housing market in as much as it possibly can, and to direct capital, towards productivity increasing, essentially, the industrial sector. And we shall talk about this direction of finance later on.

MICHAEL HUDSON: Evergrande debt, and other real estate debt, is to domestic Chinese banks and lenders. Certainly, the internet— many Chinese home buyers did not borrow internationally. So, I want to find out how much the domestic Chinese banking system, or near banking system—not the Bank of China itself, but the near banks intermediaries who lent—to what extent have the banks given guarantees for the loans for Evergrande and others? I understand that there are some guarantees domestically, and if the banks have to pay them, the banks will go under, just as occurring here in New York City. Do you have any information on that?

MICK DUNFORD: No, I don’t really have any information, except, I mean, some of the literature that I’ve read suggests that these creditors, bondholders and also other creditors, basically shareholders, are going to take a very, very major haircut.

RADHIKA DESAI: Exactly. I think that this is the key, that there will be an imposition of haircuts on the rich and the powerful, not just subjecting ordinary people to repossession of their homes, which they should have access to. So, as Mick has already said, the Chinese government is doing everything possible to make sure that the ordinary buyers who have bought these houses do not lose out, which is the opposite of what was done in trying to resolve the housing and credit bubble in the United States.

So, I just want to say a couple of things. I mean, the Chinese government is quite aware, as Mick pointed out, the whole thing has begun by, this whole property bubble is in good part a product of the fact that when relations between China and the West were much better, China accepted some World Bank advice, and this is partly a result of that and the kind of deregulation that the World Bank had suggested.

But very clearly, now relations between China and the West are not good. In fact, they’re anything but good. China is unlikely, once bitten, twice shy, to accept such bad advice again, even if they were good. And now that they’re not good, there will be, and China is clearly looking at distinctively pragmatic, socialistic ways out. And you see in the new, in the address to the NPC by the Premier, that social housing has become a major priority, not building houses for private ownership, but rather building houses which will be kept in the public sector and rented out at affordable rates. And I think this is really an important thing, really the way to go.

And finally, I would say that, the property bubble in Japan and the property bubble in the United States were bound to have very different consequences, partly because, well, for two reasons, mainly. Number one, the nature of their financial systems were very different. In the case of Japan, the financial system was being transformed from one that resembles China’s financial system to something that resembles much more the US financial system. And Japan has continued this transformation and has suffered as a result. I would say in short, really, Japan has paid the price of keeping its economy capitalist. So in many ways is the United States.

And the second reason, of course, is that, funnily enough, one of the effects of the Plaza Accord was that, by the time the Plaza Accord came around, Japan was no longer interested in buying US treasuries. And as a result, the United States essentially restricted its access to US markets in a much bigger way. And so, essentially, Japan lost those export markets. And it was, it did not do what China is able to do. It perhaps could not do what China is able to do, being a capitalist country, which is massively reorient the stimulus for production away from exports and towards the domestic market, including the market for investment.

So I think that we are, maybe this is the cue at which we can talk about Japanification. So maybe you can start us off by commenting on this chart, and then Michael and I can jump in as well.

MICK DUNFORD: Oh, this one? Okay. Yeah, this is, okay. I’ll tell you what the chart, the blue line, of course, is this is the flow of loans to different sectors. So the blue line is the flow of loans to the real estate sector. And you can see, you know —

MICHAEL HUDSON: Only the Bank of China or by?

MICK DUNFORD:  All the banks, all banks. You can see from 2016, the share going to real estate, has diminished very significantly, whereas, where it says industrial MLT, that’s medium and long term loans for industrial investment, you can see a very, very strong, steady increase in the share of loans going to industrial investment. In agriculture, it declines. And then also, that has actually increased since 2016. So this is a directing of investment, towards manufacturing and towards the industrial sector of the economy.

So why is that? Well, I think the first thing one can say is that, in the past, basically, the growth drivers of the Chinese economy were, to some extent, export manufactures. But China was predominantly involved in processing activities, employing very unskilled labor and associated with very low levels of labor productivity. So one of China’s goals is to significantly, basically, strengthen, upgrade the quality of these traditional industries, to make them digital, to make them green, and to radically increase productivity through a large-scale investment wave.

And then, secondly, we’re on the verge, of a new industrial revolution, which Radhika has spoken about. So the aim in this case is, basically, to divert investment towards the industries that are associated with the next industrial revolution.

The other main growth drivers in the past, alongside this export sector, were obviously real estate, which, I mean, if you look at GDP by expenditure, was accounting probably with household appliances and furniture and household goods and so on, about 26, 27 percent of the economy. But it’s a sector that’s associated with relatively low productivity, and of course, it was associated with very substantial speculation and generated very considerable financial instability. So, as Radhika said, there will be, in dealing with this financial crisis, basically an underwriting of existing, of obligations to existing home buyers, and in the future, an attempt to establish a more sustainable housing market.

The other area of the economy was basically this sort of platform economy. But, I mean, this platform economy was associated with very, very strong tendencies towards monopoly, and in the, about four or five years ago, a series of measures were adopted, basically, to restrict, some aspects of this platform economy, and other areas, like private tutoring, which was generating large disparities in the educational system, and is associated with the fact, that the cost of raising children in China is extremely high. I mean, it’s the second highest in the world after South Korea, actually.

So, these growth drivers, these old growth drivers, are basically seen as not offering potential to sustain the growth of the Chinese economy into the years ahead, and so there’s this attempt to look for new growth drivers. And basically, for that reason, you’ve seen this redirection of investment, and I think one can distinguish that, from what happened to Japan, because basically, in Japan, industrial investment did not increase, largely, I think, because the profitability of investment was not sufficiently high, and also Japan, in a sense, adopted a neoliberal program. It didn’t implement industrial policies, whereas China is seeking to undertake this transformation, basically, through, it’s a kind of supply-side restructuring, driven by industrial policy, and driven by financial policies, providing strategic funding for industrial transformation, and then linking that also, to the transformation of education, to try to ensure that the output of the education system, in terms of skill profiles, and so on, corresponds much, much more closely with the profile of work and employment, with much more emphasis upon STEM, in the context of this new industrial revolution, radically raising productivity, and by radically raising productivity, you increase income, and ultimately, you’ll increase consumption, and so on.

So, I think, that the Japanification course is not one, that China will follow, that China will actually address this need to innovate and transform its industrial system, in order, to, in a sense, address, the problems that are associated with the earlier drivers of Chinese development.

MICHAEL HUDSON: We probably need a whole other program to talk about the difference in structure. Real estate is the largest sector of every economy, and China is so different from Japan. The Ginza district in Japan, right around the palace –  that district was larger than all of the real estate value in California. So, we’re dealing with a huge debt finance explosion there, and then you have the largest collapse of property prices in Japan, everywhere, anywhere in the world.

In a way, what you’ve described brings us back to what we were talking about at the beginning of the show, about China’s structure. The effect of the real estate slowdown and falling in prices has a disastrous effect on localities, small villages and towns in China, who are dependent on real estate sales as funding their budget. So, the real estate crash in China, if we’re talking about what policy is China going to take, how is it going to solve the problem of local budgets without solving it by creating a booming real estate market for towns to sell off their property to developers, and developers to make a profit selling off a property to private buyers, mainly. I assume they’re not just selling it to the government to make a profit. I think there’s a lot of structure that I’d like to know. I don’t know what it is now, but it’s so different from what you have everywhere else. I think that really is what I hope will be the focus of our show, the geopolitics of different real estate structures and the real estate tax that goes with it.

RADHIKA DESAI: That’s a really interesting question, and much of that we will be discussing in the second part of this show, which we’ll be recording in a week or so, I think. But let me maybe then just bring this to a conclusion by simply agreeing with what both of you have said, which is that China has a very good chance, in fact, very likely, China is not going to follow the Japanification model because, as Michael is emphasizing, the structure of China’s economy and the imperatives generated by that structure are very different.

To name just one, if something is not profitable in a capitalist economy, it will not get done. Whereas in the case of the Chinese economy, the Chinese government can always say, well, if it’s necessary, we’ll do it even if it isn’t profitable, because it is necessary for the welfare of the people or the productive capacity of the economy, etc. So, profitability just does not play the role of a brake in the same way as it does in capitalist societies.

Secondly, the role of the state, both in terms of initiating new projects and taking responsibility for new projects, and we can already see in the current NPC and the discussions there that the role of the state is already once again expanding again in China, and it can continue to do so. And I think that’s a very good thing.

And remember also that, Mick, you emphasized in the case of when you were discussing one of the graphs, that the per capita GDP of China today is considerably lower than what it was in Japan, even in the late 80s and early 90s. And that means that, number one, domestic consumption can be a big stimulus for further economic expansion. And secondly, of course, the industrial opportunities, the opportunities for a new industrial revolution are many, and China in particular, because of the important state role in the Chinese economy, the centrality of the state role in the Chinese economy, and the aim of the Chinese economy and the Chinese economy’s managers to develop China’s productive capacity in whatever way that works, not necessarily through private ownership. These elements are actually going to ensure that China will exploit the opportunities of the new technologies much more effectively and execute a transition to the next industrial revolution much more successfully, and that will be an important road to avoiding what’s called Japanification.

MICK DUNFORD: Do you want me to, do you want me to add anything?

RADHIKA DESAI: Yeah, go ahead, Mick.

MICK DUNFORD: You know, I think the difference is that Japan, I thought, in the 1980s was at the technological frontier and China is not. But just, what Michael was referring to is the fact that in China, local government revenue came to depend to a very considerable extent on what is called land revenue.

You know, basically all land is state-owned, is either state-owned or owned by the rural collectives. But what happened was that if land was converted for use for urbanization, was converted for use for urbanization, for housing, then basically the local government could sell, in effect, sell leases, because the land is not, 90-year leases. They could, or leases depend on the activity, different lengths of lease. They could sell these leases, to developers. And then that revenue was used by local government, to fund infrastructure.

It’s to some extent, to some extent that model, that’s come up against limits. And I think, the issue Michael raised really concerns how in future will local government be funded, and will there be a reform in the system of taxation? Will a property tax be introduced in order to generate government revenue rather than relying upon this land tax? Because of course that did encourage local government, to allocate that land to people who are going to build, housing for upper income groups, because the implications for land value were under that situation, they would actually be higher rather than providing that land to construct housing for low income groups.

So, this issue of land revenue is one that has to be addressed by basically by someone who’s an expert, in public finance.

MICHAEL HUDSON: That should be what we talk about in the next show, I think.

RADHIKA DESAI: Great. So I think that we should bring this part of the show, the first part of this show to an end. And let me just do that by going back to our list of topics.

So just to conclude, we managed to cover the first four, although the question of Japanification and the alleged property bubble will resonate into all the rest of the topics, certainly the question of consumption, exports and China’s new growth strategy. So we will return to it.

But in the next [Geopolitical Economy] Hour, we will be talking about these topics, restricted consumption, exports, new growth strategy, and of course, China’s foreign economic policy. So thanks very much both. Thanks to all the listeners. And we look forward to seeing you in another week or two. Thank you and goodbye.

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  1. Louis Fyne

    If the US only had China’s problems, it would be considered a miracle for the US.

    Agree to disagree

    1. timbers

      It’s going to be interesting to how US confrontation w/China plays out, in that China presents different issues for the US. For example, doing Sanctions From Hell probably is not an option unless the Western elites are willing to inflict a lot of harm on their own economies and peoples (and might powerful and wealthy business interests benefiting from trade w/China step in and stop the insanity?), because there is so much trade with China that an abrupt sanctions regime would substantially impact Western populations. But perhaps the no-reverse crowd is so bubbled up they have not even considered this or don’t care or, they think they are prepared to put down – even violently if need be – any internal problems their action might cause in their own nations

      But has this bubble crowd in D.C. thought this through, the fact China poses different facts that require the Blob to take different approaches than those used against Russia (which as we can see didn’t really work but can they even see that?)

  2. Froghole

    The Pettis argument is that China needs to increase domestic demand, needs to consume more, and needs to spread the wealth internally (including by means of a meaningful social safety net) in order to resolve chronic imbalances between China and the US. This might well happen, and it is certainly cogent, but it doesn’t seem entirely likely to me.

    Insofar as there has been a real estate bubble, which has now deflated, has it not been a function of regional bosses trying to generate revenues to buy the loyalty of local elites? The rise of the bubble could have been construed as a menace to party discipline. The implosion of the bubble permits the centre to reassert its authority and so forestall a return to the usurpation of the authority of the Nanjing government under the KMT by local warlords. In addition, it allow the centre to make the point that the bubble was a function of China adopting real estate policies frequently applied in the West. As these policies have, evidently, failed it may have the effect of increasing the authority of the centre.

    However, it also seems to me that the overriding objective of the CCP is to maintain an impregnable defensive rampart against Western predation. That rampart not only includes the deep alliance with Russia, which allows China to concentrate its forces in the Yellow, East China and South China seas, but also the preservation of a permanent current account surplus with the US, and a refusal to permit RMB convertibility and the liberalisation of its capital account.

    The US wants to resolve these deficits, because of the long term threat to dollar paramountcy (the example of sterling after WW2 being ominous). Given the reluctance of China to increase spending at home to help re-balance trade, the US is now heading in the direction of punitive tariffs (of the kind applied by Reagan to Japan due to the very strong dollar policies which Reagan and Volcker had adopted). However, if such tariffs are applied, then the result would be significant falls in the real incomes of many Americans. So is Trump’s threat merely rhetorical? Is it not more likely that US deficits will not be resolved in their entirely, but will instead be moderated by the application of revived cold war dynamics in Europe (even after a negotiation over Ukraine) which will permit the US to remain a primary provider of energy inputs to the European economy, at a high premium, which will turn Europe into an outhouse for US financial interests. Therefore, it may be Europe which is the fall guy.

    A greater concern is who is to absorb China’s surplus production if US deficits are resolved at the expense of Europe, if China wishes to retain its surpluses as part of its 360 degree defensive rampart, and if the purchasing power of the Global South is insufficient to function as a vent to such surpluses. Might there not be a crisis of over-production, as in the US in the 1920s? Again, we come back to Pettis’s argument, but that argument slams up against the perceived need for a impregnable rampart.

    1. Em

      I think the long term goal has to be to move a large portion of the world off of dollar. As long as global trade is dominated in dollars, the US can impose sanctions, freeze assets, and offload its inflation onto other countries.

      Orthodox Western ideas about growth of developing economies is based on conditions observed when they’re actually under Western imposed de-development. Many post colonial economies actually grew fairly well until the oil shock and Volcker shock, and have since been collared under IMF/WorldBank “liberalization”.

      Look at how quickly Germany or Japan economically recovered from WWII. Or the USSR going from basically zero to having enough industrial strength to defeating Nazi Germany largely singlehandedly in about 15 years. Or how quickly China was able to grow when it aligned favorable conditions for itself and resisted Western interference. Or just compare the still very poor Cuba and Nicaragua to Honduras and Ecuador – the former are doing so much better for their people despite dealing with crippling sanctions and Western interference.

      So if China/Russia/Iran and the more progressive governments in Africa and LatAm can work together to free the global South from Western domination, they may be very different economically in 10 years.

      As for overproduction, I would argue that China should be looking for a path off of permanent growth and look for ways to better distribute their production to meet the needs of their people. The long term goal for the world should be smart degrowth where people consume less but live objectively better lives.

    2. Roger Boyd

      Investment in productive capacities and infrastructure increases real wages and therefore leads to the rapidly rising GDP per capita (still at 5% a year) that we see in China. With China not being at the productive frontier, as Japan was, the scope for improvement is still vast.

      If you take a snapshot you will say that “China should redirect money to consumption” but this does not take into account the dynamical process of high investment creating ever increasing living standards and therefore consumption – which has risen very rapidly in China in the past few decades. High consumption low investment economies, like the West, restrain the growth in productive forces and therefore of future consumption.

      China’s current account surplus is about 1% of GDP while that of Germany is 7% of GDP, so typifying China as relying on export markets for growth is completely inaccurate. The vast majority of China’s growth in production is to serve the home market, as with the huge increases in Chinese made EVs, solar farms, wind farms, and the recent Huawei phone – much of which act as import substitution as they replace foreign brands (many made also in China in JVs etc.) with Chinese ones. The profits then flow to Chinese entities not foreign ones. China has also greatly diversified its trade, so is much less dependent on the US than it was (while the US is very dependent on Chinese goods, even in its defence sector).

      1. CA

        Investment in productive capacities and infrastructure increases real wages and therefore leads to the rapidly rising GDP per capita (still at 5% a year) that we see in China. With China not being at the productive frontier, as Japan was, the scope for improvement is still vast….

        [ Really nice explanation, all through.

        This is essentially the growth theory that Nobelist Robert Solow described long ago and which Chinese planners understand well. Chinese national investment as a percent of GDP has been quite high since 1980 but especially high – over 40% – since 2003. American government officials have for years now been openly threatening Chinese development. ]

      2. Froghole

        Very many thanks for that, Dr Boyd. I was not necessarily intending to characterise China as being completely dependent upon export markets, although I note the risk of over-production in certain sectors, like steel, where there is now a heightened risk of dumping excess production on world markets (and potentially eviscerating production in other countries). Presumably, this is seen as important to prevent mass lay-offs in a key sector, which remains largely state-owned.

        It seems to me that China is reverting to its pre-c. 1840 status of being a largely self-sufficient market which is able to satisfy most of its own needs, saving only where it lacks key mineral and other commodities of its own. This, then, is part of its rampart and could serve to preserve a favourable trade balance in perpetuity. In the second and third quarters of the 19th century the UK/India was only able to resolve its chronic deficits by selling China a good (opium) which sold itself – the intention being to use that good to prise open the Chinese market more generally. Presumably, the Chinese leadership wishes to prevent any repeat of the century of humiliations, and the surplus is an important part of that prospectus. If that is the case, then the question is how the US is going to resolve or reduce its deficits, and at whose expense. It seems that Europe is likely to be the obvious candidate, but that both Europe and the US alike will eventually be in the position of the Macartney and Amherst missions – in other words, of remonstrating without any meaningful suasion over China.

        More generally, I am grateful to you and others for correcting the many mis-characterisations of the Chinese economy which seem to be so commonplace in much of the Western media.

  3. The Rev Kev

    I sometimes wonder what would have happened if China had taken the other road instead. That they had fully taken onboard what the west was offering back in the 90s so that they were now a Neoliberal State. What would it look like? I suppose that there would be several hundred Chinese still living in rural poverty and left to rot and being blamed for doing so. And there would be a whole class of billionaires running the country with the government doing whatever they say or want. Many cities in China would be like Cuba in the 50s – rife with gambling casinos and brothels with bodies being picked up in the morning like was done in China a century ago. Most of China’s resources would have been sold to western corporations with local billionaires getting their cut. The Chinese Navy would be a glorified coast guard and the Chinese Army an overgrown militia with some regions ruled by powerful generals. Maybe some parts of China would have been encouraged to rebel and break away from China itself, particularly if they had a lot of resources. There would be US military bases scattered in the country for the purposes of ‘training’ and ‘assistance.’ The place would be a mess and if you weren’t wealthy, you would be doomed.

      1. Em

        China in the late 1990s and early aughts did seem like it was going in that direction. A lot of open corruption and lawlessness. Huge wealth disparity. Massive food/pharma scandals like gutter oil and fake drugs. High level corruption particularly in the military and in large civil infrastructure projects. WTO entry caused a huge unemployment crisis in a large swath of the northeast industrial heartland.

        It’s probably why the US was not antagonistic towards China until after 2008, when they realized that China actually had a powerful economy that could resist economic forces of the West. By then the Chinese already got most of the available technology transfers that they needed.

      2. Mikel

        And the process probably would have included some of the same type of partitioning.
        Me: Looks at Taiwan.

        1. Em

          I suspect China would be fine with Taiwan as a autonomous state as long as it has appropriate security and trade agreements in place. Similar to what Nepal and Bhutan has arranged with India, Russia with CSTO states, or US with Mexico and Canada. The Chinese are okay with the status quo of letting Taiwan keep it’s own government and economic arrangements. In fact that is what they are doing in Hong Kong and Macao, NED funded accusations of Chinese authoritarian-ness notwithstanding.

          The problem is that the DPP is not just pro-independence but very very anti-China. Their politicians largely come from families who were “loyal citizens of Japan” during the Japanese occupation. They’re also closely aligned with the US not for gaining benefits for Taiwanese people, but so they can act as compradors turning Taiwan into a sacrifice zone against China. They’re rewriting their own history to justify independence, much as Ukraine and other European states have rewritten the history of WWII to justify their Russophobia.

          I think Taiwanese who support the DPP without a second home elsewhere and an NED connected job is a fool. But as we saw in Hong Kong, anti-Mainlander bigotry, fearmongering, and some NED funding/coordination can get you very far with brainwashed masses of people.

      3. Al

        Yep. India is reverting back to the princely states period. One world of extreme poverty and other compromised of the business elite with excessive and vulgar displays of wealth which would make an Arab sheik hide in shame.

    1. CA

      “I sometimes wonder what would have happened if China had taken the other road instead. That they had fully taken onboard what the west was offering back in the 90s so that they were now a Neoliberal State…”


      December 1, 2015

      Ever since I became an adult in 1980, I have been a stopped clock with respect to the Chinese economy. I have said–always–that Chinese supergrowth has at most ten more years to run, and more probably five or less. There will then, I have said, come a crash–in asset values and expectations if not in production and employment. After the crash, China will revert to the standard pattern of an emerging market economy without successful institutions that duplicate or somehow mimic those of the North Atlantic: its productivity rate will be little more than the 2%/year of emerging markets as a whole, catch-up and convergence to the North Atlantic growth-path norm will be slow if at all, and political risks that cause war, revolution, or merely economic stagnation rather than unexpected but very welcome booms will become the most likely sources of surprises.

      — Brad DeLong

    2. CA

      “I sometimes wonder what would have happened if China had taken the other road instead. That they had fully taken onboard what the west was offering back in the 90s so that they were now a Neoliberal State…”


      April 5, 2016

      I do not understand China. But it now looks more likely than not to me that Xi Jinping’s rule will lose China a decade, if not half a century… *

      * http://www.economist.com/news/china/21695923-his-exercise-power-home-xi-jinping-often-ruthless-there-are-limits-his

      — Brad DeLong

    3. CA


      Gross Domestic Product and Share of World Total based on purchasing-power-parity (PPP) for China, European Union & United States, 1980-2023

      October 15, 2023


      China ( 2.3)
      European Union ( 25.9)
      United States ( 21.3)


      China ( 4.0)
      European Union ( 23.5)
      United States ( 21.6)


      China ( 7.6)
      European Union ( 20.2)
      United States ( 20.3)


      China ( 14.1)
      European Union ( 16.2)
      United States ( 16.7)


      China ( 18.5)
      European Union ( 14.9)
      United States ( 15.7)


      China ( 19.2)
      European Union ( 14.5)
      United States ( 15.4)


      China in 2023 was 32.4% larger in real GDP than the EU
      China in 2023 was 24.7% larger in real GDP than the US

      1. CA

        “Wait a minute! Aren’t you describing New York City?”

        Forgive me, I have trouble understanding Western sarcasm.

        I was, however, quoting a prominent Western economist who has been forecasting catastrophe for China since 1980, because China does not have the necessary North Atlantic institutions to continue to develop. Berkeley’s Brad DeLong could just as well have been Nobelist Paul Krugman for whom the specific problem with China is much too much infrastructure and industrial investment.


        August 4, 2014

        Real per capita Gross Domestic Product for China, United States, India, Japan and Germany, 1977-2022

        (Percent change)


        August 4, 2014

        Real per capita Gross Domestic Product for China, United States, India, Japan and Germany, 1977-2022

        (Indexed to 1977)

        1. Albe Vado

          Ah yes, ‘too much industrial investment’. What a problem to have.

          That was absolutely sarcasm, by the way.

  4. Paul Art

    I wonder if the biggest reason the Fat Cats in the US hate the Chinese is because China adopted Capitalism, regulated the worst aspects of it and proved what a great force it could be to lift millions out of poverty. The rich reprobates in the US want all of us to very much believe that trickle down is all that could be achieved in their Laissez Faire Monopoly/Oligopoly Capitalism model. Biden I would like to think is a recent convert to the “Chinese Capitalism” model which some say is just plain old Industrial Policy. However, nothing can be achieved in the US without a total decimation of Wall Street which alas has little chance of happening. Glass Steagall and the other accompanying reforms of the 1930s happened because money did not have that much of an effect on politics and the Israel Lobby was non-existent? Today the only effect anything has on politics is money. A closed feedback loop between income inequality and money flooding into politics has been created. The output of this closed loop while increasing the returns to the 0.01%, also increases the poverty rate ergo we reach the ‘Stalin Stage’ of Capitalism, the phase that is so savage that some form of 1917 reruns in America.

  5. Gregorio

    I particularly enjoyed the discussion on the idea of what constitutes “democracy.” It seems like the hollowed out western concept of democracy, is actually more of a one dollar, one vote, kind of system, where someone with one billion dollars has one million times more influence over the political direction of the country than someone with one thousand dollars. The ability of the CPC to level the field to avoid the western Hunger Games version of the democracy of money is something that they’re getting right, no matter how much it’s denigrated in western corporate media.

    1. Em

      It’s actually worse than that. A million people with a dollar each doesn’t have the spare time to figure out what policies would best benefit them, identify a strategy that gives them the best bang for the buck, and can personally make their thoughts known to the politician at a fundraising dinner or via their hired lobbyist. They also can’t nurture baby-pols through the Byzantine party machines or ensure that favored pols can have a lucrative post political career.

      It’s not an accident that the US has the longest and most money intensive political cycle in the world, and that its political class is most resistant to meeting any of the needs of the populace.

  6. ISL

    This is the key: “the state that controls capital rather than capital that controls the state.”

    All the rest is derivative.

    As recent AI experiments indicates, it is more profitable to game the system (monopoly rents, outright theft, lower quality, shrinkflation, etc.) than be productive. Without a state that ensures theft is illegal, neoliberal economies follow the Somalia example (market competition by AK47), except for the inevitable crash when neoliberals scream for a bailout.

    Ok, caveat: Not derivative, is that as China graduates annually multiples of STEM of the entire west, it will grow faster in the long term.

    As I know from comments, that Michael Hudson reads NC, Here is my request: please investigate “What is the modern Russian Economy?” It clearly was neoliberal in the 1990s, it clearly is not neo-liberal now, it clearly is opaque to western economists. Is it following the Chinese model of 100 flowers bloom? The war on Russian oligarchs has clearly lessened monopoly rents (as has the recent same on Chinese tech oligarchs). Are Russian anticorruption purges ongoing? Carl Zha (in a recent youtube video) described the enormous lessening of Chinese corruption.

      1. ISL

        my point exactly. If that was true, then Russia would have collapsed with the economic warfare. IMO, I think, Western economists do not know (and do not want to know) how to assess the value of an autarchic, economy with significant state control, where many prices are not market set (aside from corruption is GDP growth, etc.).

        This is how one gets stupidities like Russian economy is the size of Texas, yet is one of the few that can actually field space ships or airplanes at all levels of the production chain. Something does not add up.

        Or the Russian economy is surprise, now, the fifth largest globally and larger than Germany. WTF!

        1. CA

          “Western economists do not know (and do not want to know) how to assess the value of an autarchic, economy with significant state control, where many prices are not market set…”

          Importantly so.

          A remarkable range of Western economists make a point of running down Chinese growth data, year after year. So that China can produce more than half the tonnage of global shipping in a year, and high-level papers will be published explaining that even were this true China should be producing more if only China had not focused on shipbuilding after America had set a policy of China “containment.”

    1. James


      Mark Ames says that Russia’s current economy is neoliberal and I think he is in a position to know.

      1. Em

        He really isn’t. His read on Ukraine situation was/is very poor and he lets his absolute hatred for Putin override any rational assessment of contemporary Russian society. He’s just your typical “both sides bad” liberal.

        The Russian economy is probably what Marx would describe as progressive Bonapartist. It’s industrial capitalism with a lot of state intervention in key sectors and pretty firm control in the financial sector. I think though it arrives at this point from a very different theoretical framework, functionally it’s not that different from China or Iran. A neoliberal economy is financial capitalism, that’s the sort of economy that can’t build enough warheads to fight a limited SMO in Ukraine but could put illegal economic sanctions on half of the world.

  7. Paris

    I never read so much BS about Covid in my life. Also, so funny to see the China cheerleaders portraying it as a very, indeed VERY democratic country. Lol.

    1. CA

      “China cheerleaders portraying it as a very, indeed VERY democratic country. Lol.”


      March 4, 2024

      People’s democracy — a glimpse into China’s unique approach

      BEIJING — As China’s annual “two sessions” draw global attention to its economic targets and policy announcements, the nation’s democratic processes during this major political event warrant deeper examination.

      Over 5,000 legislators and political advisors gather in Beijing for the sessions of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC).

      The gathering is more than a mere legislative exercise. It represents China’s brand of democracy, featuring the Party’s leadership, the people running the country, and law-based governance.

      Some Western observers often overlook or ignore the extensive consultation involved. Opinions from diverse groups — including experts, entrepreneurs and netizens — are solicited through various channels for the government work report before the NPC’s annual session.

      The Great Hall of the People echoes with diverse voices channeled through legislators and political advisors. This inclusive approach is seen as the hallmark of a functional democracy.

      Whole-process people’s democracy is a true democracy that works.

      In response to suggestions and proposals raised during last year’s “two sessions,” the State Council introduced over 2,000 policies and measures, addressing key economic and social challenges. The Ministry of Human Resources and Social Security, for instance, acted on 962 suggestions and proposals, leading to substantial employment and entrepreneurship initiatives.

      China is also innovating in terms of democratic participation. Last year, the Legislative Affairs Commission of the NPC Standing Committee expanded its local legislative outreach offices, ensuring direct representation of local voices in national lawmaking…

    2. cfraenkel

      Wow – do you not know the audience here. If you’re going to smear Prof. Hudson, you’d better have supporting data to back it up. As a starting point, go back and re-read where democracy came from in the article. Here is a good primer: The Collapse of Antiquity

      1. JonnyJames

        Yeah, “Paris” does not know the audience nor the issues, judging by the comment. The US has no democracy, the institutional corruption gets worse daily, war criminals and financial fraudsters are above the law – and subsidized by the puppets in Warshiton. The US is funding and enabling genocide, and BOTH of the freaks that they call “candidates” for POTUS are in lock-step on genocide and subsidizing the oligarchy.

        I guess the reality is too terrible, better to remain in denial and blissful ignorance while taking pot-shots at folks who point out the facts. Some people are not emotionally capable of seeing the truth, it’s too disturbing. China is a brutal communist dictatorship is what the puppet emperor and the MassMediaCartel say, and we can believe it because that’s what the TV “news” says.

    3. Em

      By all objective metrics the CPC is far more responsive to the needs of the Chinese people than your Macron and his superannuated groomer-missus. Better the rule by the dictatorship of the proletariat than dictatorship of the WEF.

    4. Kouros

      As opposed to the western system which is the epithome of democracy? The ad nauseam repetition of the fact that the west and the US especially are democratic are prima facie evidence to the contrary. The west is constituted either as constitutional monarchies or republics or federal republics.
      The election mechanism, which is a method of implementing popular will has been so perverted in the west, from the beginning, starting with the English Revolution and the French Revolution, that one cannot but conclude that the mechanism has been designed on how to best control the masses while providing the rising power of oligarchy a positive feedback loop in reaching to the sky.


  8. Susan the other

    Very interesting about japanification. Kinda like Californication. Just faster. California managed the economic mechanisms to prevent implosion and that was most likely due to the fact that they had the entirety of the rest of the US trying to catch up to them. “As goes California so goes the rest of the country” was the catch-phrase for decades. China, similarly, has a long horizon because it has a huge population and we can see that China understands the virtue of steady balanced progress. They can also see that we in the US are caught between a rock and a hard place when it comes to the intersection of profiteering and investing and they would rather engage on a “new Industrial Revolution” than sink into our private capital quagmire. We can always hope that “private” might become honorable again by downsizing and localizing as China does. It is a question of balance with a sustainable environment.

    1. Susan the other

      Also it could be like a human nuclear explosion if a population of 1.5 billion people were driven to to keep up with the Zhous with relentless advertising pushing brainless consumerism at an ever faster pace, borrowing money and maxing out their credit cards like Americans. We’ve taken care of that particular cause of inflation but impoverishing over 40% of our population, deindustrializing, and creating 40% more of us living as the “precariat” class just so our corporations can earn vast profits in order to reinvest, rinse and repeat. Nuts.

  9. Jason Boxman

    It’s heartening to see that Hudson minces no words on COVID, he tells it as it is.

    China’s bet proved right and China continues to monitor the situation. COVID hasn’t gone away. And so, in all of these ways, I think that it’s important for us to understand that China’s policy has actually been above all about protecting people’s lives.

    I do find it puzzling that Desai suggestions that China choosing to lift these effective, life saving restrictions were ultimately “proved right”. After all, look at the increase in disability year after year due to long-COVID in Canada, the UK, and the United States. Is the same thing happening in China, or are the Chinese somehow immune to this? I doubt it. So it’s hard to believe long term that China is not going to suffer the same consequences of the west for abandoning reason for fantasy.

  10. XXYY

    RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host, Ben Norton, our videographer, Paul Graham, and our transcriber, Zach Weiser.

    This is one of the nicest bits I can remember seeing in a podcast: Up front appreciation to the people who do the grunt work of the production. Imagine how these peoples’ chests swell a bit with pride at being prominently included in the roster, and how much more invested they feel in the program’s success. And it’s a good reminder to the audience that something like this is more than just one or two people sitting in front of the camera talking.

    I hope this becomes a normal, standard feature of every internet production, much as it long has for commercial cinema and TV.

    1. Em

      Radhika Desai seems like a most lovely person. I’ve learned so much from her and really appreciate her tireless efforts to educate Westerners about China and the global South.

  11. Mikel

    China did well enough for being considered ground zero for the pandemic.
    Why would anyone be surprised they are making it through Covid even with their rough patches? They make stuff that people actually need all over the world and don’t hang their hat on financialization. They will be fine if they avoid that.

  12. steppenwolf fetchit

    This will all stay true over the long run if China can handle the rising tide of global warming. As the sea level keeps rising, China will eventually need a Great Seawall of China to keep low elevation land protected and livable. If anyone can build a Great Seawall of China, China can.

    But if even China can’t, then what happens to all this economic success over the long run?

    1. SocalJimObjects

      Not only global warming, but also the coming energy crisis. Maybe they will figure out some alternative source of energy, but once fossil fuel becomes prohibitively expensive to extract, everyone, not just China can say bye bye to any sort of large scale industrialization.

      1. CA

        Maybe they will figure out some alternative source of energy, but once fossil fuel becomes prohibitively expensive to extract, everyone, not just China can say bye bye to any sort of large scale industrialization…

        [ Forgive a poorly organized disagreement, but China has already become energy self-sufficient. * A majority of electricity use is just now coming from renewables. Emissions should peak this year, which is 6 years earlier than anticipated by the last China-UN agreement. Green hydrogen will be increasingly important. Third and Fourth generation nuclear energy is already being produced.

        Also, though the ramifications are unclear to me, China has found and is developing ultra-deep energy supplies.

        There seems no reason to think Chinese industrialization will be limited.

        * Though energy imports will continue, especially for chemical refining. ]

    2. Em

      Climate change and resource depletion are such big challenges that yes, it is entirely possible that every country in the world will fail the final exam. But it does seem that if any country could solve the problem, it would be the one that solved so many other “impossible” problems. That’s particularly if they can bring a good chunk of the rest of the world to with together in the problem.

  13. Gulag

    ” A planned national state controls capital.”

    Yet, is it also fair to say that the most dynamic force behind China’s economic growth (maybe 70% of the country’s economic output) is because of private business?

    To what extent is the ancient Confucius sentiment of benevolence toward their people (behaving like a good parent) responsible for the acceptance of Party and State control in China?

    Is the success of local government officials in China, to a large extent dependent on them thinking like an entrepreneur (solving problems, looking for ways around regulations, identifying new local markets)?

    Taken the present nature of right and left populist revolts in different places around the world is a left or right vanguard model of party and government a viable vision for the future?

  14. TimH

    Worth highlighting for those new to NC:

    MICHAEL HUDSON: In the United States, that would be considered a failure of policy. The United States used COVID as an opportunity to kill, for instance, the governor of New York, Cuomo, took the COVID patients and he moved them into all of the assisted living and old people’s homes. And that had a great increase in productivity. It resulted in enormous death rates for the elderly. That helped save New York’s pension plan system. It helped save other pension plans. It helped save Social Security because the dead people were no longer what America called “the dead weight”. The American policy was to indeed infect as many people over the age of 65 as you could. And that helped balance state, local budgets, pension plan budgets. The increase in the death rate is now the official policy of the Center for Disease Control in the United States. They say do not wear masks. They’ve blocked any kind of mask wearing. They’ve done everything they could to prevent the use of HIPAA filters or airborne disease. The Disease Control Center says that COVID is not an airborne disease. Therefore, do not protect yourself.

  15. mcwoot

    Is there any concern that China’s growing adoption of western consumption (expensive cosmetics, fashion, etc.) will be a back door for western imperialism/friction against the communist government?

    1. Yves Smith Post author

      That is a VERY astute comment.

      One of our readers, who grew up in a Warsaw Pact state and was born long enough before the USSR fell to remember it, says that life under Communism was better for 95% of the people. Remember, free housing and free medical care. But the 5% at the top were often in positions where they would travel to the West on what amounted to business, and would see how much better Europeans of similar status lived (they likely unintentionally got an even prettier picture since if they were there in a formal capacity, they were probably wined and dined). It was this cohort that railed against the negative consequences of Communism….without saying that they felt they as a group felt short changed.

      1. Willow

        This is what was happening and precipitated the rise of Xi. Xi’s rise was principally on the back of the CCP Marxist/Leninist core trying to protect itself from these Western imperialist backdoors. Xi’s purging eliminated a lot of the West’s attempts at eroding the CCP. Really important to listen to/read Kevin Rudd’s analysis of the CCP as a Marxist/Leninist political ‘beast’. What we have now is overshoot and a likely reversion to a new form of Cultural Revolution which will have a dire impact on China’s social structures and hence economy. Anyone looking back at the last few decades and saying that everything is ok because the band continues to play is going to be in for a shock. What’s happening in China is not too different to what’s happening in US. It’s just coming from different ends of the spectrum. Increasing crapification, increasingly lax standards compliance, bubbling social unrest & fractures, and coercive social control. (Woke is the US equivalent of an Asian Cultural Revolution).

        1. CA

          What we have now is overshoot and a likely reversion to a new form of Cultural Revolution which will have a dire impact on China’s social structures and hence economy.

          [ Yes, surely, yes:

          China was 32.4% larger in real GDP than the EU in 2023, while China was 24.7% larger in real GDP than the US in 2023.

          Look to the Nature Index of high-quality international research publications for the year. and notice that 3 of the top 5 publishing institutions are Chinese, 7 of the top 10 are Chinese, 9 of the top 15…

          Look to the more than 4 million Chinese domestic invention patents, of which 40% are classed as high-value. Look to the 25% more yearly patent grants to the Chinese, than to the following country.

          Look to the 180,000 new book titles from China in 2023.

          I need to start counting Chinese libraries and concerts and operas and classical and modern dance troupes…

          Oh, I also need to count the museums and the botanic gardens.

        2. CA

          I need to start counting Chinese libraries and concerts and operas and classical and modern dance troupes. I also need to count the museums and botanic gardens. But, such counting happily will take a while:


          February 28, 2024

          Museums in rural China preserve culture as nation rapidly modernizes

          * While modernizing its rural regions, China is also seeking solutions to preserve the distinct history and vibrant culture of different regions, with the building of rural museums being an important part of this strategy.
          * In 2021, China started to develop Jilin, Zhejiang and Shandong into pilot provinces for constructing rural museums. So far, 91 museums have been built in rural areas in Jilin. As of Sept. 30, 2023, a total of 692 rural museums had been built in Zhejiang.
          * Rural museums, integrated into the daily lives of rural residents, provide a space for leisure and entertainment, and can help enhance understanding of local history and identity.

    2. Em

      The Chinese have long been enamored by Western luxury brands going back to the 1980s. Even for the same brand such as Tesla or Audi vehicles, they’re willing to pay something like 30% premium for imports compared to domestic productions of the same models. Due to the very high customs duty for luxury imports, there has long been a huge graymarket for Lacoste polos, cosmetics, and $1,000 leather handbags.

      I would say it was a major corrupting influence (not the least because luxury bags and watches were often used for bribes and as a way to stash ill gotten gains by corrupt officials) but it’s probably on its way out.

      Chinese leadership in EV development probably also pushed the consumer tastes off from MB, BMW, and Audis and towards domestic brands. I imagine that something similar could happen in the cosmetics and consumer products brands, as stronger Chinese brands emerge or consumers move towards Korean and Japanese brands that they have higher cultural affinity for (so Shiseido over Estee Lauder).

      The urban sophisticates who bought Western brands to to distinguish themselves from the riffraff has been able to do this since at the the early aughts. Once most people become well off enough to afford some of these sumptuary goods, then having a Fendi bag (which may be a knock off anyways) isn’t so impressive. Even a European vacation that costs $10,000 isn’t very impressive when a small, marginally located Shanghai flat can cost well over $1 million. Having a new MB S600 in Beijing isn’t so impressive if you’re stuck in traffic with a non-local license plate and could have gotten to your destination via subway in a third the time and not have to worry about parking once you get there. The rich already have offshore bank accounts, foreign educated kids, and houses in pricier West Coast zip codes. Right now they’re probably really worried about getting their overseas assets seized by US sanctions.

      1. Michael Hudson

        It’s worse than that. The main luxury brand is going to Ivy League universities. That reached a point where China’s government told the princelings NOT to send their children to Harvard and its peers. One man told me that he had arranged with a U.S. investment banker for his daughter to attend Harvard, and had to reverse his decision.
        My Chinese students tell me that their colleagues who study economics in the United States get priority and more respect than those studying in China. (But my trade theory textbook is translated into Chinese and taught there — but not in US economics courses.)

        1. CA


          September 7, 2019

          Attempts to instigate color revolutions in Hong Kong doomed to failure

          The U.S. National Endowment for Democracy also helped Nathan Law Kwun-chung, who was under-performing academically, to gain admittance to Yale in return for what he has “contributed” to the chaos in Hong Kong. The NED has been recruiting the so-called backbone of “Hong Kong independence” in exactly the same way that it has tried to recruit agents to instigate color revolutions in other countries and regions…

          1. Fireminer

            I’m not Chinese, but I grew up among the aspirational would-be-Ivy-leaguer kids. Competition amongst them is crazy, and they will do anything to get in. That way even if they fail to make a fortune in the US — the ultimate dream — then they still can return home and enjoy a sinecure. I’ve seen my friends broke down and grinded out in this machine. Theirs is the world of the cutthroat adults superimposed on a bunch of kids.

        2. CA

          Look to the Nature Index of high-quality international research publications for the year, and notice that 3 of the top 5 publishing institutions are Chinese, 7 of the top 10, 9 of the top 15…


          The Nature Index

          1 November 2022 – 31 October 2023 *

          Rank Institution ( Count) ( Share)

          1 Chinese Academy of Sciences ( 7616) ( 2270)
          2 Harvard University ( 3639) ( 1108)
          3 University of Chinese Academy of Sciences ( 3261) ( 655)
          4 University of Science and Technology of China ( 1917) ( 654)
          5 Max Planck Society ( 2606) ( 636)

          6 French National Centre for Scientific Research ( 4350) ( 618)
          7 Nanjing University ( 1459) ( 616)
          8 Peking University ( 2287) ( 608)
          9 Tsinghua University ( 1890) ( 594)
          10 Zhejiang University ( 1475) ( 570)

          * Annual Tables highlight the most prolific institutions and countries in high-quality research publishing for the year

          1. James

            I agree with CA that the Nature Index rankings are very important and very much worth paying attention to. I think the top Indian institution is ranked at 163 or some such. China and India are not in the same league.

        3. SocalJimObjects

          Well, Mr Chief Princeling, Xi Jinping, did send his daughter to Harvard. Do As I Say, Not As I Do also applies to China. If every princeling were to go to an Ivy, then the value of the later will be diluted or it prevents one princeling from bragging to another.

          1. CA

            Xi Jinping is President of China and deserves to be addressed respectfully as any head of state. Years ago, Xi lived in the US in Iowa for a time and has friends still from the experience and they correspond and visit. Recently, Xi personally invited students from Iowa to China and the parents and students responded.

            As for inviting students to China, Xi recently invited 50,000 US students to visit China.

            As for Chinese students attending schools in America, there has been increasing friction in recent years, repeated friction in recent years. This is saddening, but China has not been a problem in this regard.

          2. CA


            February 13, 2024

            U.S. teachers and students thank Xi for Chinese New Year greetings, look forward to visiting China

            Teachers and students of Lincoln High School from the U.S. state of Washington expressed thanks to Chinese President Xi Jinping and his wife Peng Liyuan through China Media Group (CMG) on Monday, saying they are looking forward to the upcoming exchange activities in China.

            Xi and Peng recently replied to a Chinese New Year greeting card from the students and teachers at Lincoln High School. In the greeting card sent to the teachers and students, Xi and Peng invited them to come to China for exchange and study and contribute to the friendship between the two peoples, especially among the youth.

            Karl Hoseth, principal of Lincoln High School, said that when the teachers and students received the New Year card from Xi and his wife, they were very excited and Lincoln High School is willing to become a bridge and bond between China and the United States.

            Noting that Xi and his wife’s card shows they care deeply about teachers and students at Lincoln High School, Hoseth said it stands as testament to the genuine friendship between Lincoln High School and China over the past few years.

            One of the students said he would make the most of the trip to learn more about Chinese culture and its people.

            The students and teachers of Lincoln High School also watched the English version of the 2024 Spring Festival Gala of the Year of the Dragon produced by CMG, which gifted teachers and students the official mascot of the 2024 Spring Festival Gala.

            Last November, President Xi announced in San Francisco that China is willing to invite 50,000 young people from the United States to study in China in the next five years….

          3. Em

            The Chinese had a policy of sending their best and brightest to study in the USA since the 1980s. They wanted to learn from the West and invested a lot in this project when they were still quite poor. A lot of those students never went back because the opportunities in the USA were so much better, but ironically the recent prosecution of Chinese academics is forcing more of them to return to China after decades in the USA.

            At the undergraduate level, yes lots of rich kids got channeled through the much easier Anglophone schools. That’s because they could never get into Beijing University or Tsinghua, but could get into Harvard or Stanford rather easily. That trend is likely to reverse as Western academics is increasingly perceived as backwards and dysfunctional.

            Also, I don’t think Xi’s daughter has ever had a public role or been accused of nepotism, unlike the offsprings of the Bush’s, the Clinton’s, the Obama’s, the McCain’s…

            1. CA

              The Chinese had a policy of sending their best and brightest to study…

              [ This is a fine, fine comment, beyond what I could have written though I agree with each passage.

              Remember as well, that though education was emphasized at all levels from the beginning, building schools takes a considerable time and building a University of Chinese Academy of Sciences is a work of decades. A Yuan Longping, who developed hybrid rice, needs students and colleagues and institutional consciousness. ]

            2. CA

              “The Chinese had a policy of sending their best and brightest to study in the USA since the 1980s. They wanted to learn from the West and invested a lot in this project when they were still quite poor…”

              In 1980 real per capita GDP in China was $307, that in India was $534, while that in the United States was $12,553.

              In 1990 real per capita GDP in China was $969, that in India was $1,105, while that in the United States was $23,848.

              What China has accomplished in education is miraculous, but completely real and exceptional.

        4. CA

          “The main luxury brand is going to Ivy League universities. That reached a point where China’s government told the ———– NOT to send their children to Harvard and its peers. One man told me that he had arranged with a U.S. investment banker for his daughter to attend Harvard, and had to reverse his decision….”

          There are many fine universities in China as in other countries. Chinese university students have seemingly arbitrarily been harshly treated at times in recent years in the US, so there is every reason to ask that students adjust choices at times. Similarly, Chinese scholars in the US in recent years have felt harshly treated at times:


          June 27, 2023

          Caught in the crossfire: Fears of Chinese–American scientists
          By Yu Xie, Xihong Lin, Ju Li and Junming Huang


          Our study reveals the widespread fear among scientists of Chinese descent in the United States arising from conducting routine research and academic activities…

        5. Em

          Professor Hudson,

          It’s far easier to get into Harvard or Stanford, especially with the right alumni sponsors, than to Beida or Tsinghua. Plus its probably easier to stay anonymous in the latter and arrange private accommodations, so I can certainly see the appeals for rich Chinese.

          I am curious about how much the princeling persist as a grouping. There was a lot of chatter about this grouping about 15 years ago but it seems to have died down after Bo Xilai’s arrest. It sounds like they’re still around but perhaps told to keep a lower profile? I know Xi and Bo are famously both offsprings of national officials, but I believe most of this group basically wandered off to make money off their connections?

          I am a little surprised that Western diplomas are still prioritized. I would have thought that two decades of useless haiguai (rich kids who got an expensive foreign education but didn’t have the wherewithal to stay abroad after graduation) killed off the value of the foreign diplomas, especially outside of STEM degrees. But China still has some ways to go before it can get rid of West envy, especially in Shanghai.

  16. Chris Maden

    Michael Hudson, above: “That’s part of the Hundred Flowers Bloom.”

    The article lost all credibility at this point. The Hundred Flowers movement was launched by Mao in 1952, and resulted in the arrest and imprisonment of a swathe of China’s intelligiensia.

    Read your history.

      1. Em

        I didn’t think Mao was right per se, but a lot of his actions make sense given the Sino-Soviet split, the Korean and Vietnam wars, and the coup in Indonesia. It’s reasonable to fear “right revisionist” compromising the state.

        His position that the USSR was “social imperialist” and a greater threat to China than the US was dubious to say the least. Chinese foreign policy (including losing that war against Vietnam, yes that was after Mao) between 1970 and 1990 will likely prove very embarrassing for future Chinese state historians.

        1. ilpalazzo

          I meant particularly the so called Cultural Revolution in response to poster above. Mind you, I was born in a WP country, was a kid/teenager in the eighties and all my ancestors are peasants/simple folk from the country, in fact my generation is first with uni degrees in my extended family. As my class consciousness and experience grows, so does my understanding of policies of actually existing socialist countries, including somewhat harsh treatment of the so called “intelligentsia”.

          1. Em

            There’s a good case to be made that whether good or bad in itself, Cultural Revolution saved China from going down the same path as the WP and the USSR. That 10 year delay meant that China was able to see the wreckage of the post-Bretton Woods world and realized that it had to take a different path to development. The option they chose caused a lot of corruption and pain, especially right after entry into the WTO, but now it seems that they have won their big bet.

            The Cultural Revolution was a big purge and it’s victims were primarily party members and cadres. They did suffer greatly and unfairly – vast majority were honest, well intended Communists. Very few of those purged during CR left the CPC and most continued to be good Communists to the end of their days.

            The impact on the urban youths who got sent down is a different matter. Most resented the hardship and the interruption in their education/career prospects. Economically, the CR stall meant the economy didn’t produce the jobs and housing that they needed to start off their lives. I think the bitterness is primarily concentrated in this group even though they were not the target for the worst part of the state repression.

            Ultimately, the CR and the Stalinist Purges and everything else that happens outside of the West, are problems of history for the people and regimes of the land where they happened. Any Western narrative about them is automatically suspect as to both facts and motive.

      2. bonks

        The longer I live in China the more I understood why he’s still revered to this day. It is now my ninth year and I look forward to further unlearning the false history I had been taught in the West.

        1. CA

          The longer I live in China the more I understood why he’s still revered to this day. It is now my ninth year and I look forward to further unlearning the false history I had been taught in the West.

          [ Really important comment. China however is increasingly intent on telling its history. ]

    1. Fred

      Bourgeois enemies of the socialist revolution trying to restore the liberal class system of economic, social and political inequalities of the western variety – all of them, because the only reason why those forces always fear any form of people’s democracies and socialism is the fact that they will loose their privileges.

  17. Yaiyen

    In my opinion decline, China moving companies to Mexico and Vietnam proof China will never build big enough local consumers base to stop depend on USA. There economy is not sustainable if they don’t have good welfare state, they need UBI but they will never do it even if this would save there economy. A job less finish alkoholic is better consumer than average Chinese person who have a job because Chinese person know he is in alot of trouble if he lose his job and they have a saving culture

  18. Gulag

    There are many, many millions of examples in China today of being a successful private entrepreneur as well as a model Communist Party member.

    Many of the comments above seem to imply that such a dynamic would be impossible or not at all desired.

    But the actual reality seems to be that being an entrepreneur and a party member are not in conflict. Why is this the case?

    1. CA

      “There are many, many millions of examples in China today of being a successful private entrepreneur as well as a model Communist Party member…”

      There are about 100 million members of the Communist Party, and the point is that these members come from the range of life in China and represent and contribute to the range of life in China. Farmers and teachers and scientists and construction workers and fire fighters and machine operators and forest protectors and soldiers and on and on.

      A party of 100 million, meant to represent and exemplify the 1.4 billion Chinese, shows how inclusive life in China is meant to be.

      There are by the way other representative parties that work along with Communist Party members.

    2. CA


      March  14, 2024

      Once-impoverished China village shares with world story of green shift

      YINCHUAN — A village in Xihaigu, an area in northwest China once declared “uninhabitable” by the United Nations, has attracted international acclaim because of its green transformation.

      A representative of Longwangba Village in Guyuan City in Ningxia Hui Autonomous Region, northwest China, recently shared his recipe for success at the 60th International Agriculture Fair in Paris.

      “I was happy to share the story of rural revitalization in our village and ecological achievement in China with the French people and the world,” said Jiao Jianpeng, deputy Party chief of Longwangba.

      Jiao brought local agricultural specialties to the exhibition, including wolfberries, millet, and parsley juice, as well as intangible cultural heritage products such as paper-cutting, shadow puppets, and facial makeup.

      Parsley juice might not sound too appealing, but it found a fan in Daniel VIAL, who was awarded the Chevalier de la Légion d’Honneur by a former French president. When VIAL visited Jiao’s booth, he tried the juice, gave it a thumb-up and said “Fantastic taste!”

      The exhibits were popular among visitors to the fair, with total sales surpassing 400,000 yuan (about 56,367 U.S. dollars) in just a few days. Back in China, Jiao is still receiving purchase inquiries from French customers.

      Not so long ago, Xihaigu, where Longwangba is located, was one of China’s most impoverished areas, with over 80 percent of people living under the poverty line during the early stage of reform and opening up.

      In the water-starved Xihaigu area, the per capita water resources accounted for less than 8 percent of the national average level. It was declared as “uninhabitable” by UN experts in 1972.

      The harsh natural conditions made surviving and thriving extremely difficult. But the ecological environment in Xihaigu has gradually improved because of a series of ecological protection initiatives, such as the Three-North Shelterbelt Forest Program. In Guyuan, the forest coverage rate has increased from 1.4 percent in the late 1970s to 27.28 percent in 2022.

      China’s poverty alleviation efforts have also improved infrastructure in Longwangba, including roads, electricity, housing and access to clean water.

      Based on the mountainous terrain, villagers have built terraced vegetable fields and oil peony farms. They have also constructed science and technology museums as well as traditional cave-dwelling hotels with local characteristics.

      In 2023, Longwangba received more than 410,000 tourists, with a tourist revenue of 19.41 million yuan. Through diversified development modes such as tourism and health and wellness, the villagers’ annual per capita disposable income has grown from less than 2,300 yuan in 2012 to 15,500 yuan in 2023….

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