China’s central bank does not have the mechanism to expand its monetary base (基础货币) directly through printing high-powered money as you easily could in the US (at least not at a scale large enough to drive up its consumption base), and has to rely on increasing accumulation of foreign currencies (through export or foreign direct investment) or through various refinancing instruments like MLF, repo etc (where the local government debt burden is already strenuous and would be greatly relieved by the US Federal Reserve lowering its interest rates).
Just because China’s economy not going to collapse doesn’t mean there aren’t significant challenges. This is why China has been opening up its financial markets in recent months because that’s how the leadership has decided to save the property market and the local government debt crisis.
This system seems pretty retrograde/self-defeating to me. From your descriptions, it seems like a gold standard system, just with substituting the US dollar for gold. Are there any proposals to reform the bank’s monetary powers?
You have described exactly the problem that China is facing - breaking from an ideological indoctrination imposed by the West.
Many critics from the left had hoped that the US sanctions, hostilities and the “de-dollarization” wave kickstarted by Russia’s invasion of Ukraine would push China towards reclaiming its monetary sovereignty, but instead we’re seeing doubling down on more exports, more integration with the global market etc. all of which actually render the Chinese economy more vulnerable to US imperialist control, not less. (I have written many many times about why China needs to transition into a domestic consumption economy and will not elaborate here)
At the same time, it should also be said that China’s economy itself is a force to be reckon with, so the US cannot and does not have the capacity to collapse China’s economy, at least without significantly damaging its own economy. What they’re hoping to achieve (through threats of tariffs and sanctions etc) is to get China to fully open up its financial markets so Western capital can enter and starting laying financial claims on Chinese assets etc.
We’re probably going to see a new equilibrium reached with both sides satisfied with a new status quo. The dollar hegemony will be retained and China can continue to grow its economy and bring prosperity to its people. Europe will be (and has been) the biggest loser and unfortunately if the dollar hegemony isn’t challenged, the Global South won’t see a better deal for themselves either. China can continue invest in Global South countries to help development (which is good) but because the US continues to control the global market through dollar, they still have a lot of reach into the global supply chain (and able to lay financial claims on to their assets through IMF etc.).
A completely new economic order is needed to challenge the Washington consensus and its imperialist power.
I disagree with your analysis. First of all, Chinese central bank can print as much currency as it wants for domestic circulation. There’s literally nothing stopping them. Second, there’s little indication that they actually have to. The property market will continue. to be wound down, and it’s no longer central to the economy. What will happen is that a bunch of investors will lose money, and that’s not really a problem in China where the role of private sector continues to decline.
If it is as you said, then you also have to answer the following three questions:
Why does China need to accumulate $3.3 trillion foreign reserves (money they can’t use) when they can just print the money for domestic need? Even if we leave $800 billion reserves as a safety measure (which is still far more than actually needed), there is still a massive $2.5 trillion surplus that Chinese labor had effective gifted in real goods and services to the West.
Why, in spite of the fact that China’s purchasing power parity (PPP) has already exceeded the US, the average Chinese worker’s income is still one quarter of the US worker? The government could literally print the money to raise the wages of the workers to boost the much needed consumption right now.
Why is China still so strongly reliant on an export economy (just made a $1 trillion trade surplus this year) when it could have just printed the money to drive internal development instead? Why not allocate the labor and resources to actually give people, like free universal healthcare and free higher education, instead of utilizing them to make cheap goods for the West to consume while getting junk papers in return?
There is no way to answer any of the above questions if China is behaving exactly like you said.
There is no way to answer any of the above questions if China is behaving exactly like you said.
Actually, there are obvious and simple answers to all these questions.
China is using US foreign reserve to fund BRICS projects and to issue bonds that compete with the US. The fact that you think this is money they can’t use shows that you haven’t bothered to actually research the subject even a little.
Why, in spite of the fact that China’s purchasing power parity (PPP) has already exceeded the US, the average Chinese worker’s income is still one quarter of the US worker?
Talking about income without considering the context of cost of living is meaningless. PPP is the measure of how far income goes within the country. Why would the government print money and create inflation when incomes are rising on their own.
The real (inflation-adjusted) incomes of the poorest half of the Chinese population increased by more than four hundred percent from 1978 to 2015, while real incomes of the poorest half of the US population actually declined during the same time period. https://www.nber.org/system/files/working_papers/w23119/w23119.pdf
Full year results of household survey for 2024 in China just posted. Real household income and consumption rose faster than overall GDP growth. Gains to rural households are higher than urban ones.
Why is China still so strongly reliant on an export economy (just made a $1 trillion trade surplus this year) when it could have just printed the money to drive internal development instead?
China has been pursuing dual circulation for a while now, and they have been redirecting their exports largely towards the Global South
Why, in spite of the fact that China’s purchasing power parity (PPP) has already exceeded the US, the average Chinese worker’s income is still one quarter of the US worker? The government could literally print the money to raise the wages of the workers to boost the much needed consumption right now.
something ive been mulling over in my head recently, how much more should china even actually boost consumption? a lot of american consumption is shit that china really does not need, like spending tons of money on cars and funko pops and shit (hell, there’s already too many cars in china, im so anti car i think you should only be able to drive a vehicle if you need it for work.) I honestly think what’s needed is just better working conditions and less hours while receiving the same pay. is this similar to what you have in mind when you say they need to boost consumption?
Because low consumption is really just a symptom to a much more fundamental problem. The real problem, and the elephant in the room that nobody wants to talk about, is wealth inequality. Huge wealth disparities that have widened over the past two decades.
This is why you see everything looks so good on paper, amazing development in China that is truly out of this world, and yet most average people find themselves running out of money to spend, company layoffs, youth unemployment reaching double digits with like one third of university graduates last year not able to secure a job, local governments are heavily burdened in debt and need the interest rate to be lowered so they can keep refinancing themselves out of the outstanding debt (instead of, you know, just having the central government cancelling the debt).
Also China’s tax system is weird in that a disproportionate amount of its revenues came from value added tax (VAT), with personal income and corporate taxes comprising only a small fraction of it. This means the excess wealth of rich people and corporations are not being effectively taxed away, when taxation is one of the most powerful tools a government can use to reduce wealth inequality.
There are many ways to solve such economic problems. One is to revamp your financial and monetary system, which would give the government the power to directly inject money into people’s pocket and fix the wealth distribution problem. Another is to double down and keep selling more to earn foreign currencies, attract foreign businesses to bring their currencies over to save the economy etc.
gonna reply to both recent comments you made to me in this one:
Shanghai is the city with the highest GDP in the entire country and also its premier financial center. These people have a lot of power and seriously screw with the growth of the economy. One example is pension/retirement fund, which has become a hot topic recently. Because China cannot print money at will (and also the pension fund cannot be used in stock investment like you’d see in the US), it has to generate growth/revenues to finance the pension payout - there is some calculations floating around that the country will run out of its ability to pay retirement salaries to an increasingly aging population by 2035 if it cannot sustain a continuous growth at 5% over the next 10 years. This is why China is so obsessed with GDP growth even though we all know it’s just a number, and why they had to raise the retirement age recently.
All this can be solved by the central bank directly printing money, but that’s not the model they’re going after.
i guess my confusion comes down to why it seems like the libs are making a comeback. are the central leadership really unaware that they could reform their finances and then probably just have free reign to purge shangai? but if libs are actually making a comeback, why did the party tell all those property developers to go pound sand? why are they still pushing through with the poverty alleviation initiatives? it’s why i keep harping that i think they must just be overly afraid of instability or something like that, it’s the only explanation that makes sense to me with my relatively limited knowledge and am trying to see if you have a better idea? i find it even more unbelievable that they are simply unaware of this idea.
also, i dont disagree that wealth inequality needs to be combated, but again im wondering how much actual consumption can/should be boosted, really the technically best way to quickly rectify these problems you’re mentioning would be to move back to a fully centrally planned economy but uh i dont think thats anywhere close to being on the books lol.
its capitalist restoration, liberal parts of the CPC are becoming actively opportunist like in the USSR. The party is ineffective at crushing them because they’re trying to do a ‘both sides’ to appease them but it just plays into their hands.
They’ll do poverty alleviation but then do nothing above that, they told the property developers to get over it because they’re going to revive that economy eventually, and have made immense efforts to save that part of the economy.
from my understanding late 90s/2000s were much worse until president xi came into power, i dont think we could say for sure yet. it is concerning though
Read the analyses linked in my comment.
China’s central bank does not have the mechanism to expand its monetary base (基础货币) directly through printing high-powered money as you easily could in the US (at least not at a scale large enough to drive up its consumption base), and has to rely on increasing accumulation of foreign currencies (through export or foreign direct investment) or through various refinancing instruments like MLF, repo etc (where the local government debt burden is already strenuous and would be greatly relieved by the US Federal Reserve lowering its interest rates).
Just because China’s economy not going to collapse doesn’t mean there aren’t significant challenges. This is why China has been opening up its financial markets in recent months because that’s how the leadership has decided to save the property market and the local government debt crisis.
This system seems pretty retrograde/self-defeating to me. From your descriptions, it seems like a gold standard system, just with substituting the US dollar for gold. Are there any proposals to reform the bank’s monetary powers?
You have described exactly the problem that China is facing - breaking from an ideological indoctrination imposed by the West.
Many critics from the left had hoped that the US sanctions, hostilities and the “de-dollarization” wave kickstarted by Russia’s invasion of Ukraine would push China towards reclaiming its monetary sovereignty, but instead we’re seeing doubling down on more exports, more integration with the global market etc. all of which actually render the Chinese economy more vulnerable to US imperialist control, not less. (I have written many many times about why China needs to transition into a domestic consumption economy and will not elaborate here)
At the same time, it should also be said that China’s economy itself is a force to be reckon with, so the US cannot and does not have the capacity to collapse China’s economy, at least without significantly damaging its own economy. What they’re hoping to achieve (through threats of tariffs and sanctions etc) is to get China to fully open up its financial markets so Western capital can enter and starting laying financial claims on Chinese assets etc.
We’re probably going to see a new equilibrium reached with both sides satisfied with a new status quo. The dollar hegemony will be retained and China can continue to grow its economy and bring prosperity to its people. Europe will be (and has been) the biggest loser and unfortunately if the dollar hegemony isn’t challenged, the Global South won’t see a better deal for themselves either. China can continue invest in Global South countries to help development (which is good) but because the US continues to control the global market through dollar, they still have a lot of reach into the global supply chain (and able to lay financial claims on to their assets through IMF etc.).
A completely new economic order is needed to challenge the Washington consensus and its imperialist power.
I disagree with your analysis. First of all, Chinese central bank can print as much currency as it wants for domestic circulation. There’s literally nothing stopping them. Second, there’s little indication that they actually have to. The property market will continue. to be wound down, and it’s no longer central to the economy. What will happen is that a bunch of investors will lose money, and that’s not really a problem in China where the role of private sector continues to decline.
https://www.piie.com/research/piie-charts/2024/chinas-private-sector-has-lost-ground-state-sector-has-gained-share-among
If it is as you said, then you also have to answer the following three questions:
There is no way to answer any of the above questions if China is behaving exactly like you said.
Actually, there are obvious and simple answers to all these questions.
China is using US foreign reserve to fund BRICS projects and to issue bonds that compete with the US. The fact that you think this is money they can’t use shows that you haven’t bothered to actually research the subject even a little.
Talking about income without considering the context of cost of living is meaningless. PPP is the measure of how far income goes within the country. Why would the government print money and create inflation when incomes are rising on their own.
The real (inflation-adjusted) incomes of the poorest half of the Chinese population increased by more than four hundred percent from 1978 to 2015, while real incomes of the poorest half of the US population actually declined during the same time period. https://www.nber.org/system/files/working_papers/w23119/w23119.pdf
From 1978 to 2000, the number of people in China living on under $1/day fell by 300 million, reversing a global trend of rising poverty that had lasted half a century (i.e. if China were excluded, the world’s total poverty population would have risen) https://www.semanticscholar.org/paper/China’s-Economic-Growth-and-Poverty-Reduction-Angang-Linlin/c883fc7496aa1b920b05dc2546b880f54b9c77a4
From 2010 to 2019 (the most recent period for which uninterrupted data is available), the income of the poorest 20% in China increased even as a share of total income. https://data.worldbank.org/indicator/SI.DST.FRST.20?end=2019&%3Blocations=CN&%3Bstart=2008
Chinese households had stashed away in savings by the end of 2023, hitting yet another record high, data from the People’s Bank of China shows https://www.wsj.com/livecoverage/stock-market-today-dow-jones-bank-earnings-01-12-2024/card/chinese-household-savings-hit-another-record-high-xqyky00IsIe357rtJb4j
Full year results of household survey for 2024 in China just posted. Real household income and consumption rose faster than overall GDP growth. Gains to rural households are higher than urban ones.
China has been pursuing dual circulation for a while now, and they have been redirecting their exports largely towards the Global South
I found a YouTube link in your comment. Here are links to the same video on alternative frontends that protect your privacy:
something ive been mulling over in my head recently, how much more should china even actually boost consumption? a lot of american consumption is shit that china really does not need, like spending tons of money on cars and funko pops and shit (hell, there’s already too many cars in china, im so anti car i think you should only be able to drive a vehicle if you need it for work.) I honestly think what’s needed is just better working conditions and less hours while receiving the same pay. is this similar to what you have in mind when you say they need to boost consumption?
Because low consumption is really just a symptom to a much more fundamental problem. The real problem, and the elephant in the room that nobody wants to talk about, is wealth inequality. Huge wealth disparities that have widened over the past two decades.
This is why you see everything looks so good on paper, amazing development in China that is truly out of this world, and yet most average people find themselves running out of money to spend, company layoffs, youth unemployment reaching double digits with like one third of university graduates last year not able to secure a job, local governments are heavily burdened in debt and need the interest rate to be lowered so they can keep refinancing themselves out of the outstanding debt (instead of, you know, just having the central government cancelling the debt).
Also China’s tax system is weird in that a disproportionate amount of its revenues came from value added tax (VAT), with personal income and corporate taxes comprising only a small fraction of it. This means the excess wealth of rich people and corporations are not being effectively taxed away, when taxation is one of the most powerful tools a government can use to reduce wealth inequality.
There are many ways to solve such economic problems. One is to revamp your financial and monetary system, which would give the government the power to directly inject money into people’s pocket and fix the wealth distribution problem. Another is to double down and keep selling more to earn foreign currencies, attract foreign businesses to bring their currencies over to save the economy etc.
gonna reply to both recent comments you made to me in this one:
i guess my confusion comes down to why it seems like the libs are making a comeback. are the central leadership really unaware that they could reform their finances and then probably just have free reign to purge shangai? but if libs are actually making a comeback, why did the party tell all those property developers to go pound sand? why are they still pushing through with the poverty alleviation initiatives? it’s why i keep harping that i think they must just be overly afraid of instability or something like that, it’s the only explanation that makes sense to me with my relatively limited knowledge and am trying to see if you have a better idea? i find it even more unbelievable that they are simply unaware of this idea.
also, i dont disagree that wealth inequality needs to be combated, but again im wondering how much actual consumption can/should be boosted, really the technically best way to quickly rectify these problems you’re mentioning would be to move back to a fully centrally planned economy but uh i dont think thats anywhere close to being on the books lol.
its capitalist restoration, liberal parts of the CPC are becoming actively opportunist like in the USSR. The party is ineffective at crushing them because they’re trying to do a ‘both sides’ to appease them but it just plays into their hands.
They’ll do poverty alleviation but then do nothing above that, they told the property developers to get over it because they’re going to revive that economy eventually, and have made immense efforts to save that part of the economy.
from my understanding late 90s/2000s were much worse until president xi came into power, i dont think we could say for sure yet. it is concerning though