China is a genuinely safe place to live in!
Unfortunately I’ve also seen a lot of nationalist propaganda who justify this with “that’s why you shouldn’t let immigrants to get into your country. look at how Europe has fallen blah blah.” People losing their shit over the K visa debacle really left a bad taste in my mouth.
You’re right in that the framing is just an excuse. The root cause is that the US has shaped the geopolitical and economic conditions through various pressures to coerce these countries into their current predicaments.
European industries cannot possibly compete with Chinese industries. The cheap Russian energy allowed Europe to stay competitive post-2009 GFC while paying their workers relatively well compared to the rest of the world. This advantage is now lost.
Additionally, wages aren’t regulated/enforced in China and the price wars among Chinese capitalists have been putting downward pressure on the worker’s wages. It has gotten so bad that the government is forced to step in with their “anti-involution” policy to stop the industries from killing themselves. If Europe wants to compete on Chinese wages, good luck, it’d be a political suicide for any country that even attempts that.
And as I’ve said before, since these countries have bought into the neoliberal free trade ideology, where they all want to run trade surpluses, which can never happen, one of them is going to lose. And if both refuse to budge, it’ll have to be a war.
As such, Europe has no choice but to sanction and impose tariffs on China. The “China is evil” narrative is simply the excuse used to justify why the European economy is uncompetitive, in order to better sell the propaganda to its populace on why they have to militarize.
This wasn’t so much of a problem in the previous decades because the US had voluntarily run a trade deficit strategy to absorb the global surplus goods. Now that Trump wants to cut back its trade deficit, and if no country is willing to run its own trade deficit to take up the oversupply of goods from global exporters, it can only result in mercantilism as it did in the 19th and early 20th century.
It is the same for Japan where their car manufacturers have been suffering from Chinese competition, and once again, neoliberal free trade ideology will only further intensify the mercantilistic warfare, where the country with the cheapest and most efficient export production ends up killing its competitors.
The real beneficiary of free trade is obviously the US, who can use its financial power to “bail out” the economies of those countries under pressure, and coerce them into submitting to the US interests and reshape the global supply chain through weaponizing China’s industrial prowess.
An analogy here is a landlord deliberately create situations that drive down the land value in a neighborhood (e.g. increased crime) or an industrial zone (increased business cost) they are interested in, and then come in and buy out the land for cheap for re-development. The financial hegemon is the landlord, the industrial and commodity supplier nations are the factory owners and producers.
And for the 100th time, the only way out is China tapping into its huge domestic market to absorb the global export capacity, which it has found very difficult to do in practice.
Tony Blair’s New Labour campaign which made heavy use of media narrative and advertisements was copied from the Clinton’s presidential campaign.
It marked a new era of political campaigning where politicians package their image through slick PR advertisements with carefully selected words and messaging to subliminally influence the audience.
It should not surprise you to see that progressive stances like LGBT acceptance also occurred the fastest in a country like the US, but at the same time it is also tenuous, and it can easily go the other way just as fast. The civilizational DNA, as we can call it, is still young and malleable.
It is true that the US is founded on white supremacy and colonialism but if you compare it to the lengthy history of an ancient civilization like China, there are still plenty of opportunities for change before the culture becomes entrenched, at which point it becomes an uphill battle. I feel like it’s actually harder for European culture to change for this reason.
It pays good money, for a job that doesn’t require much skill or thinking, and the job market isn’t doing so well right now.
I’ve always said that American will easily fix its military recruitment problem the moment it goes into recession.
Having said that, the Mandarin Chinese dub is very bad and the audience complaints became a source of controversy a few days ago. I listened to a clip of the Cantonese dub (HK version) and it is so much better.
And what made these people so susceptible to foreign meddling the moment the state collapses?
70 years of socialist institutions under the USSR went down the drain and material conditions immediately took over. Socialist fraternity was immediately forgotten and people turned on each other while struggling to survive.
GDR (East Germany) turned from an LGBT progressive haven to a land full of reactionary fascists and AfD breeding ground as the economy degraded after the reunification.
Mao was right in that you cannot purge the reactionary base elements out without a true break from one’s cultural past, which has been shaped by thousands of years of traditions (and hundreds of years for some other countries) and has become deeply etched into one’s sociocultural behavior, whether you are consciously aware of it or not. His method, on the other hand, was far too radical and it ended with disastrous consequences.
I mean in practice, in an entire state with real people. Nobody has been able to do that over the 100 years of AES history. We have enough historical evidence for this.
70 years of socialist institutions under the USSR did not make the Russians and the Ukrainians and the likes more progressive. The moment the USSR was gone, material conditions took over and all forms of reactionary fascist elements came back in seconds. Heck, even the late stage USSR was already corrupt as fuck, let’s not pretend as though it was all Gorbachev’s fault.
China also faced the same problem. After the landlords were purged, Mao noticed that it’s not the people he had to purge, but an entire deeply entrenched sociocultural norms evolved over thousands of years. Mao’s mistake was to fight a 2000-year old institution. The ancient institution fought back and won. The landlords class that he purged in the 1950s was already back the moment the liberal reforms took place. Today, it is deeply integrated into the governmental ranks. The local governments have become the new landlords, with the same excesses as the feudal landlords once did. Once you understand this, the property crisis in China today - a socialist country, I remind you - isn’t so hard to grasp at all.
Yes, one could imagine we can slowly weed that out over the next 1000 years, but anyone who understands Chinese history knows that even the current CPC reign is merely a blip through its entire history. The Chinese civilization will still be here centuries after the CPC is gone. It’s a cyclical pattern of dynastic changes that is a fundamental characteristic of the Chinese civilization unless there is a decisive, radical change that breaks the cycle. Hence, Mao’s Cultural Revolution, which failed and we go in circles here.
You are correct in that we are also changing society, but how are you going to weed out 2,000 years of deeply entrenched sociocultural norms? Is it going to take another thousand years? This was a problem that Mao had to face when taking the country to a completely new direction.
Chinese practices are very ancient, so ancient that Mao could not see any other way but through a Cultural Revolution.
I’ll just give you an example: the Imperial Court Examination began to emerge during the Northern Wei Dynasty and became a fully matured institution by the Tang Dynasty (5th to 8th century AD). It was an important institution that allowed the Emperor to form his own cliques and power base against the feudal aristocratic class that controlled much of the imperial court at the time, shifting the balance of power towards the monarchy.
The Imperial Court Examination allowed people from the lower classes to gain social mobility and ascend to the higher class, and back in the days (as well as today’s), a young man from a poor family who passed the examination and became a local official would allow his entire family and those related to him to leap to a different social class. 一人得道，鸡犬升天: “one person gets promoted, even his chickens and dogs get to ascend to the heaven.”
His examiner (the person who decided to promote him) and his teacher would become his second fathers. His entire life would now be indebted to the examiner and the teacher. At the court, you are expected to be the “attack dog” of your examiner’s political stance, to help attack his opponents int he court, defend him at any cost, and in some cases, even with your life. This is because he was the one who made you who you are today, who chose to promote you and not anyone else. You will be his “boy” for the rest of your career. Can you see how corruption can so easily emerge in such an institution?
This was a very important cultural element in the Chinese society - the so-called filial piety - where betraying the will of one’s father(s) would cause one to be ostracized by society and become an outcast. Of course, exceptions exist but they became very controversial.
One thousand and five hundred years later, literally the same cultural practices still exist in Chinese academia, and occurs at the highest and most prestigious level. Your “lineage” is very important in Chinese academia today, far more important than Western academic institutions. You are very much indebted to the person who “gifted” you your prestigious career.
Again, once you understand this, you can see why corruption is almost impossible to weed out even under the present socialist system.
This is just one of thousands of “hidden” rules that everyone expects to accept. It is deeply entrenched into the societal norms. You are not expected to break the rules imposed upon by the society. The institutions may have changed to a more modern one, heck, we have a socialist system, but these essence of these practices remain. We’re not going to see radical changes any time soon.
At the end of the day you probably know much more about the Cultural revolution that I do, but as far as I understand Mao and the revolutionaries were pretty idealistic, to the point of being pretty ultraleftist in some beliefs.
Idealistic, to a degree, yes, but Mao was also extremely pragmatic (Chen Duxiu’s faction, the Trotskyists, were the idealist ones). Mao took land reform seriously and worked on that for years, and the end result was that he could unleash the revolutionary potential of the masses even when completely outnumbered and outgunned by the KMT. In fact, there were mass defections among the KMT’s own ranks. This shows you how Mao was able to identify the fundamental contradictions of the Chinese society, and used that knowledge to plan and devise a successful strategy that would take years to materialize.
The problem with the Cultural Revolution was that Mao tried to fight a 2,000-year old institution. The ancient institution fought back and won. The landlord class that were purged in the 1950s have now fully integrated into the governmental ranks.
Clearly the solution is to counter it with Hexbear GPT.
Every country should make their “best foreign leader prize” or “world leader prize” and award it to Trump in exchange for lowering the tariffs. He’ll love it.
“I won so many prizes from all the countries in the world. They all love me. I told them, stop, don’t give me any more of those prizes, I’ve had enough of them. They said, no, President Trump, we have to give you the prize because you’re the smartest American president ever. You’re the most handsome president ever. Nobody ever said that to Biden! [crowd bursts out in laughter] I said well, since you’re so smart, you’re gonna get a tariff free deal with us. We’re gonna lower your tariff to zero percent, because you’re smart, you know what you’re doing, and I trust you won’t be ripping us off.”
Ukraine is just Russia without Putin. Seriously, if Yeltsin had picked a different successor, chances are we’re going to see an even worse version of Ukraine in today’s Russia.
My friend’s dad lived in Moscow during the dissolution of the USSR as an Algerian exchange student, and he said Moscow was an incredibly wild place at the time. There were neo-Nazis everywhere that literally murdered people on the metro and in other public spaces. There were no rule of law, and criminal gangs and violent crimes were everywhere.
Moscow turned from the beacon of socialism into one of the most dangerous cities over a short span of time. You can imagine what the rest of Russia looked like.
Putin came in and cleaned up the neo-Nazis and cracked down on violent crimes. People often joke about how business people are randomly murdered in Russia, but rest assured the public safety was dozens times worse back then, and today Moscow is one of the safest cities in the world, and definitely safer than any large American cities.
We all dunk on Putin for being a lib, for having a corrupt oligarchy under his regime, but somehow he managed to form an uneasy truce with the oligarchs (and even the Chechens, who were launching terror attacks across Russia at the time). Yes, the oligarchs continued to accumulate their wealth through corruption, but at least the outflow of capital was mitigated to a large extent, and public safety and stability were restored. Russia was one of the fastest growing economy (GDP increased by 10-fold in a decade since 2000) until the 2008 global financial crisis, then later the sanctions during the Ukrainian civil war in 2014).
Put another way, Putin somehow managed to stitch together the disemboweled body of Russia after Gorbachev-Yeltsin and had it limping along towards the finish line. Not great, but at least it isn’t dead yet.
Ukraine doesn’t have that historical development. If anything, this is proof that the socialist institutions of the USSR can only curb the reactionary elements for so long, but could not eradicate them. Putin’s governance, which is far from socialism, may keep the stability for now, but in the hands of another leadership, things could go way worse after he’s gone.
Russia is an old civilization and like many European countries, corruption is deeply entrenched. In fact, in China we have an even worse corruption problem, as a 2,200-year old unified civilization.
One of the best things Xi has done was to massively crack down on corruption, but have you ever wondered why after 10 years of intense crackdown, corruption is still everywhere in China? Just a few months ago, we get heads of national banks getting caught laundering money, and it is not uncommon to see all kinds of party officials and bureaucrats doing that. The more crackdowns there are, the more corruption thrived. Why?
My take is that when you are an old civilization, you inherit all the goods and the bads with it. They are deeply etched into the DNA of the Chinese civilization. You don’t get to choose. Socialist institutions can only curb such excesses for so much, but they can never eradicate it.
Why do you think Mao felt the need for a Cultural Revolution?
This was because he had realized that in order to weed out the reactionary elements (where multiple iterations of feudal oligarchy had risen and fallen over the dynasties, where corruption in the bureaucracy was an essential component of the system) so entrenched in the Chinese society, one must make a complete and decisive break with its 2,000-year old past.
Mao’s solution was radical, and the Cultural Revolution failed with disastrous consequences. Today, the feudal landlords (which were purged in the 1950s) have made a comeback and fused with the local governments of the CPC after the reform and opening up era, and continue to cause a lot of trouble for the economy today.
But my point is that Mao wasn’t some madman who wanted to cause chaos and destruction with a Cultural Revolution, as popular narrative would tell you. It was a genuine problem inheriting a civilization with thousands of years of sociocultural norms and practices that have pervaded every aspect of the society - the question is, how are you going to root out the reactionary elements in a socialist society?
So far, nobody has managed that, and nobody seems to have a solution that worked.
A lot of this information is publicly available and reported on bne Intellinews, Naked Capitalism and some pro-EU news websites throughout the 2010s. However since 2022, it has become a lot harder to find them using Google search. You probably have to try with Yandex or something. I wish I had the foresight to have all the references saved, but they’re out there.
Because it wasn’t a red line.
The whole Ukraine conflict goes back to 2013, when President Yanukovych was about to sign the EU Association Agreement which would be a stepping stone towards ascending to the EU. The far right Nazis hated Russia, obviously, so Ukraine joining the EU was a very big deal for them.
On the other hand, Russia (and Putin) had no problem with it, except for one part: Ukraine and Russia had tariff free agreement, and Ukraine signing the Association Agreement would complicate things.
Back in 2010, the Eurasian Customs Union was established and was composed of Russia, Belarus and Kazakhstan. It was an attempt to revive the Soviet era heavy industry chain in these post-Soviet states. It was also explicitly a customs union (as you can tell from the name), which means that it is a protectionist bloc that would help prevent foreign interference in the form of free trade arragements. Ukraine was also a country that was being courted by the Customs Union, because, well, it was a post-Soviet state and inherited some very advanced shipbuilding and aviation industrial capabilities.
The EU Association Agreement was a targeted attack against Russia’s Eurasian Customs Union. Unlike their Russian counterpart, the EU Association Agreement is explicitly a free trade agreement, which means that if Ukraine signed the agreement, it would not be allowed to join a customs union (protectionist bloc) in the future. Ukraine was forced into a dilemma where it could only choose one side: the EU or Russia.
This became a problem for Russia because Ukraine and Russia had existing tariff free agreement, and the free trade deal with the EU would allow European goods to enter Russian market without tariffs, but Russian goods cannot do the same against the European market. This was all made clear in Putin’s statements back in 2013, who explicitly said that this was an attempt to flood the Russian market with European goods to destroy its domestic industries.
However, Putin was not objecting to Ukraine joining the EU, he simply asked that the tariff issue be sorted and proposed a trilateral meeting between the EU, Ukraine and Russia to work out the specific details. The EU rejected Russia’s proposal, and pushed Yanukovych into committing to the deal. Again, forcing Ukraine to make a choice between the two.
Furthermore, the EU deal came with additional conditions: Ukraine would also have to commit to IMF loans and implement austerity (reduced spending on healthcare and education) as well as privatizing parts of their land (which had remained illegal in Ukraine even in the 2000s).
Around that time, Moscow also floated an alternative proposal that would have given Ukraine pretty much the same deal, but without the austerity part. Instead, Ukraine would actually get discounts on Russian energy.
President Yanukovych hesitated. Contrary to popular narrative, Yanukovych did not agree to a deal with Moscow. He had remained a pro-EU politician, and simply hesitated because the conditions were unfair to the Ukrainian people.
But that was already too much for the Banderites, who saw Yanukovych as betraying their cause, and set off the Maidan revolution by late 2013. Attacks and hostilities against ethnic Russians, who predominantly occupy the eastern regions of Ukraine (the Donbass and Crimea) ramped up.
On February 22nd, 2014, a coup was initiated and the far right nationalists took over the government. Yanukovych fled. The next day, on the February 23rd, the very first act of the coup regime was to repeal the Kivalov-Kolesnichenko Language Law, a 2012 law that granted official status to minority languages in the country, including the Russian language.
The act invoked strong condemnation from the ethnic Russians in the Donbass region, and seeing that an ethnic cleansing was about to take place, they rose up as a separatist movement against the Maidan coup regime. The Ukrainian civil war had erupted, and Russia - seeing that the ethnic Russians were about to be slaughtered - intervened. The rest is history.
For that, Russia would be subjected to an international sanction so deep that it would kill their economic growth for the next 4 years, and barely able to breathe when Covid hit in 2020.
Also, completely unrelated - the Nord Stream 1 pipeline, which guaranteed cheap natural gas supply to the EU, was commissioned in November 2011, just a little over two years before Maidan coup happened.
The problem with NATO came later after the Ukrainian fascists were defeated in the civil war, and paused with the Minsk Agreement. The fascists violated the truce fairly quickly, and were beaten again in 2015, and the Minsk II was forged, with German Chancellor Merkel and the French President Hollande giving their promises to Putin that Ukraine would take it seriously this time, for real.
Importantly, the Minsk Agreement would hand the Donbass back to the Ukraine authorities, under the condition that the local governments would be given the autonomy on cultural matters (such that Ukrainian politicians cannot simply ban the Russian language without the agreement of the local population). However, Russia would keep Crimea.
Ukraine never even bothered to adhere to the Minsk Agreement. Instead, over the next 7 years, they would be armed and trained by NATO, and reformed the Ukrainian Armed Forces to a formidable fighting force. Implicit (and not so implicit) in Ukraine’s actions showed that they intended to retake Donbass and Crimea by force. Putin continued to wait.
By 2019, President Zelensky was elected as a peace president with popular support from the ethnic Russian heavy regions (not part of the separatist state). However, when Biden took office in early 2021, a visit to the White House completely changed Zelensky’s outlook, and he went back on his promise to bridge the divide between ethnic Ukrainians and Russians. Instead, his rhetoric changed significantly and teased about joining NATO.
This raised the alarm on the Russian front, and resulted in the US-Russia Summit in June 2021, when the Russian side prepared hundreds of pages of proposal on the various scenarios for de-escalation. The Americans ignored Russian concern, and in August 2021, and then again in December 2021, the US sent Javelins and Stingers to the Ukrainian side, further flaming the tension.
By early February 2022, the Ukrainian military had been mobilized, and artillery shelling into the separatist territory ramped up by an order of magnitude. Russia made its move.
Also, another yet completely unrelated incident - Nord Stream 2 pipeline completed its construction in 2021, and was awaiting commission at the time the war broke out.
Despite an increase in free trade agreements outside the WTO’s purview, over 70 percent of global trade is still conducted under the WTO’s “most favored nation” principle. The point of the multilateral trading system is to ensure the fair and equitable treatment of all its members. Tariffs and other infringements of WTO rules end up hurting everyone.
The keyword missing from the entire article is “neoliberalism”.
The global trade over the past few decades has been sustained by the US running a permanent trade deficit and becoming the global debtor (as opposed to the previous superpowers e.g. British empire that ran a global creditor strategy), which allowed productive capacity to migrate into the developing world to drive global wages down and destroy domestic labor union movements that had grown very powerful in the post-war industrialization era.
The end result is a global overcapacity of production from the Global South, which is what made cheap goods possible. Trade is no longer used for exchanging goods between countries, but as a deliberate strategy to accumulate financial assets (US dollars) to make their budget deficit look small, as advised by the IMF. In other words, Global South labor produce real goods and services for the wealthy Global North countries to enjoy, in exchange for a number in their bank accounts.
The Euros had been enjoying the benefits of this US imperial strategy and it is only now that they are being outplayed by the US, their industries are uncompetitive against the Chinese, that they start worrying about “international trade is unfair”. Well, it has always been.
The wildcard for the global West in all of this will be whether the United States wants to preserve the multilateral world order it has been so instrumental in building and from which it has benefited so greatly.
Yes, and the preservation of this world order (or rather, the new iteration of this world order) requires Europe to make the sacrifice. The long-term deindustrialization of the US had intensified the contradictions of American capitalism, and the most prominent trend over the past decade has been the rise of Trump MAGA movement on the right and Bernie Sanders and now Zohran Mamdani’s movement on the left, after the great financial crash in 2008.
This contradiction cannot be resolved internally, but it can be exported to other parts of the world. The Europeans are being disciplined because after the fall of the USSR, the euro has emerged as a major competitor to the US dollar, which threatened the hegemony of the US financial empire. You can imagine what the US has ready for the Europeans now that their economic sovereignty has been strangled after the Ukraine war, and totally outplayed by the US.
Without examining the contradictions of global capitalism, geopolitical analysis is reduced to arguing which sport team is better or more fun to watch (which is what this article essentially is), but ultimately unable to understand the fundamental driving force of capital that shapes geopolitical tensions around the world.
The wildcard for the global East will be how China plays its hand on the world stage. It could take more steps to fill the power vacuums left by the United States in areas such as free trade, climate change cooperation, and development. It could try to shape the international institutions it now has a much stronger foothold in. It might seek to further project power in its own region.
Until China has finally come to the realization that neoliberalism needs to be abandoned, we will not see any fundamental changes.
The excitement about the rise of BRICS a few years ago only made it so much more disappointing when literally none of the BRICS countries shows any will to abandon neoliberal policies.
Where is the new economic doctrine proposal? You won’t find any, and certainly none in all of the BRICS summits since 2022.
How is the foreign currency-denominated debt of the Global South countries going to be resolved? Meanwhile, China is hoarding trillions and trillions of dollar reserves which has become an obsession, rather than putting them into good use. If a solution to this key issue cannot be found, the finance capital led by the US will continue to reign supreme.
And where is the plan of BRICS setting up their own currency?
They have been trying for the last three years, and learned the hard way that a confederated currency cannot possibly work among the different countries. If anything, it will only lead to an internal fracturing and the result is the dollar becoming even more hegemonic. This was the key lesson from Russia’s Kazan proposal on dedollarization at the BRICS summit in 2024.
The only way out is to use a federated currency backed by a strong economy. Euro and yen were two good, internationalized currencies that have the potential to challenge the dollar, but the US already pre-empted the dominance of the euro by destroying the European economy through the Ukraine war. The Japanese economy isn’t growing fast enough and isn’t up to the task anymore.
This brings us to yuan, which is backed by China’s strong economy, but since China refuses to give up its net exporter status, it cannot become a reserve currency that others can use for saving. China seems content with reaping the benefits of the dollar hegemony, so it’s a no go on that front either.
it's just not the case anywhere in developed countries for the past 40 years.
How much have productive capacity and number of workers increased by in Europe and the USA over the past 3 years?
That’s literally what I said at the top comment. The wealth is being concentrated at the top 1% due to neoliberal policies and monopolists charging what they want (this is known as the sellers inflation, which Marx talked about). This happens due to a lack of strong labor union movement that can push wage growth through the price increase set by the capitalists.
What I am saying is that deflation is much more dangerous than inflation, because inflation, as you described, can be easily fixed through policy change - you simply expand the productive capacity, more workers can be employed, and the increased supply of goods will lessen the inflation. The fact that your neoliberal governments refuse to help poor people is beside the point.
Deflation is much harder to get out because once baked in, can spiral very easily. This is because money is debt… it has a time component, and if the system does not have a debt cancellation mechanism, it can drag the entire economy down. This is a problem you don’t have to face under inflation.
Your example of Spain with the stagnating wages (stagflation) is why, as I wrote in the original comment, that workers are feeling financial strained.
However, believe it or not, deflation itself is even worse!
You may think if products are getting cheaper, the purchasing power of the consumers will increase. Yes, but only up to a point.
Neoclassical economists think there is no difference between the scenarios because they treat money as a medium of exchange. But this cannot be the case because money is debt…
Consider the inflation scenario:
You have $1000 income, Treat is $100 a piece. If you take out a $2000 loan, you can get 20 Treats this month.
Next month, your income has doubled, so you have $1000 + $2000 = $3000, you use $2000 to pay off your debt, you still have $1000 left in your bank account that allows you to afford another 5 Treats if you wish!
Now, consider the deflation scenario:
Same as above, you take out a $2000 loan to consume 20 Treats. But next month, your income is only $500, you have a total of $1000 + $500 = $1500 but with a $2000 debt to service. You are $500 short with no liquid cash to afford more treats this month.
Of course it’s an exaggerated scenario, but it very much reflects how money works in an economy. First, consider the business sector:
For many private firms, they take out commercial loans for investment, for expansion of production, hiring workers etc. Under an inflationary scenario, the loans become cheaper to service, wages can be raised etc as long as profit is expanding. This also means you can hire more workers, expand productive capacity which will lessen the inflation over time.
But under a deflationary scenario, your profit margin gets squeezed (prices become cheaper = profits falling) but you still have the same amount of debt to service. There is no good way out of it - you can’t pay your workers more, and as they receive less wages, they will consume less, which means the deflation gets worse over time, and more workers become unemployed as a result!
Now let’s consider the household sector, which is very much the relevant situation for the Chinese middle class today.
Let’s say you purchased a house at $100k. Now you may say the price of the house is irrelevant because you’re not interested in speculative investment, you just want to stay in it.
But does it really not matter? Can you make sure that you can stay employed over the next 30 years of your mortgage?
You bought a house at $100k, the inflation has made your house worth $150k. We’ll dispense with how much downpayment and how much you already paid for the mortgage because it’s too complicated.
But let’s say you lose your job and can’t find one in months. Your savings is running thin. At this point, you can sell your house and take the cut (say $30k after all the expenses) and downgrade your living condition to a cheaper rental place. You now have a $30k buffer to get through the unemployment.
But if the deflation has made your house worth only $70k, you’re pretty much screwed!
First, it’s unlikely you can see your house, because who would want to buy it at $70k when it could be $50k next year? Not only are you already making a loss in real time, but you’re not even allowed to cut your losses!
If you choose not to default on your mortgage, you still have to pay that $100k + mortgage over the full 30 year period, while having lost your entire income!
This means austerity, cut all spending and use whatever you have to keep servicing your loans, and this automatically translates to less consumption, contributing to the deflationary spiral of the economy.
As the middle class spending stops, the economy begins to stagnate. These two situations are very real in China right now, and it is made worse by the fact that there is little to no social safety nets in China, unlike European countries.
There is no need to wonder, the chief architect of the Great External Circulation already laid it out as clear as he could. China is more afraid of the dollar system collapsing than the US itself lol.
I posted it before here:
Wang Jian (王建) from China Society of Macroeconomic Research, who proposed the Great External Circulation strategy back in 1987 that was officially adopted by the central government, talked about this in an interview in the early 2000s:
中国是享受到美元霸权的好处最大的国家……美国巨大的贸易逆差，是对中国产品的巨大需求， 拉动了我们经济的增长……我们现在要担心的是，美元贬值引起国际金融大动荡，美元失去国际的货币的霸主地位，没有能力继续用经常项下的逆差来拉动亚洲，特别是对于中国的经济增长的影响，这才是最可怕的事。”
China is the greatest beneficiary of the dollar hegemony… the huge trade deficit of the US also represented a huge demand for Chinese products, and spurred our economic growth… What we have to worry about now, is the global financial instability caused by the depreciation of the US dollar. If the dollar loses its global currency hegemonic status, it will no longer have the capacity to sustain its deficit to drive Asia’s growth, and this will especially affect China’s economic growth. This would be the most terrible thing to happen.
In September 2020, months after China proposed the Dual Circulation Strategy (export balanced by domestic consumption), Wang Jian reasserted the importance of dollar hegemony in an interview:
中国是最依靠美元体系的国家，因为人民币没有国际化，而欧元、日元、韩元等都是国际化货币。过去，中国一直享受着美元霸权的好处，人民币不是国际化货币，但是中国的生意可以做到世界最大，因为中国用美元结算。如果美元体系崩溃，即美元作为储备货币和结算货币的比例发生断崖式下降，比如从60%下降到30%，受到伤害最大的一定是中国。 所以在 “十四五”期间，一旦美元出问题，会对中国产生非常大的影响。
China is the country that relies the most on the dollar system, because the RMB is not internationalized, whereas the Euro, the Japanese yen, the Korean won, are all internationalized currencies. In the past, China has continuously enjoyed the benefit of the dollar hegemony - the RMB is not an internationalized currency, yet Chinese businesses can expand to become the world’s largest, because transactions in China are settled in US dollars. If the dollar system collapses, then the proportion of the US dollar as a reserve currency and settlement currency will fall steeply. For instance, if it drops from 60% to 30%, the country that is hurt the most must be China. Hence, if the dollar system encounters trouble during the 14th FYP period (2021-2025), it will cause great impact to China’s production.
Source is from Jia Genliang’s Modern Monetary Theory in China (2023)
Once you understand this, you will understand that China cannot and will not give up the dollar system, especially its hegemonic status. The status quo greatly benefited the Chinese economy and there is no reason to give up even when the US itself is threatening to end the arrangement, because China still has plenty of cards to play (e.g. rare earth export). The US will find itself unable to decouple from China.
This is also why when the US confiscation of Russia’s $300 billion foreign reserve at the start of the Russia-Ukraine war, and the Fed rate hike that caused dollar liquidity crisis in many Global South countries and spurred strong interest in many to leave the dollar regime, China has been the one that was and still is the most reluctant to abandon the US dollar. If China doesn’t want to, then nobody else can do anything about it. The Biden administration correctly gambled that China would not threaten the dollar hegemony during the rate hike in 2022.
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The US couldn’t even beat the PRC in the Korean War, I strongly doubt they think they can win a war in the 21st century.
Good for pumping trillions more into the military industrial complex though.