The Economist has been predicting a Japan style financial crisis in China regularly since the early 90s. They have always been wrong. You'd think they'd update their model of how China works, but they are so bought into the western system of finance that they can never do that.
China doesn't have boom bust cycles because:
1. It has little foreign debt.
2. It has a trade surplus.
3. It prints money to bailout any internal bad loans. It does this politically by picking and choosing winners and who gets bailed out, usually with foreigners getting stiffed.
4. Its bank bailouts do not require issuance of new debt or taxpayer austerity.
5. Banks do not all collapse at the same time because they get fresh new printed money to lend.
6. Anyone at the bank who takes advantage of that moral hazard to lend outside of guidelines gets executed.
7. The banks have very detailed guidelines for how they are to lend such that they are more or less partially privatized central planning.
8. The government regularly issues guidelines to preemptively crush bubbles on purpose by restricting lending to overheated sectors instead of across the entire economy via raised interest rates.
I am not a big fan of the CCP, but their financial system is impressive. That system, by design, has conquered the boom/bust cycle, but western observers refuse to believe this because they are so throughly bought into the architecture of the western financial system and the many billions of words written on the topic of the operation of that system which is based on very different rules that they cannot imagine it could work any other way.
> That system, by design, has conquered the boom/bust cycle
Either that, or it has simply deferred it. Remember that was once said about the US too.
Complexity is hard to tame and prone to punctuated equilibrium. If you eliminate the complexity, you end up with brittleness, which is prone to catastrophic failure.
One difference between your analysis and the Economists is that nobody will remember a hacker news comment that was proven wrong.
Rather, turning into a different kind of boom bust cycle. If history is to be rythmed, the answer might need another hundred years to manifest. The usual cycle of Chinese history is about 200-500 years in the unified state. Given the acceleration because of economics and technology, the lower end might be more likely this time.
They can also just set policy by fiat on the fly. When Lehman collapsed, Treasury and Congress had to scramble and scrap to utilize their limited authority to contain and cushion the crash. Then years later passed a law to give them more tools and watch it get chipped away by courts and future Congress's and whatever is left will be enough for the next crisis.
China can just do whatever, whenever. If they need to break up Evergrande, nationalize it, take its assets, censor the media, send their execs to gulags forever. They just do it.
But the effects of the strategy you detail, have caused China's debt to GDP to skyrocket to 270% (In contrast: we've got politicians getting nervous about USA's 100% debt-to-GDP ratio).
Its easy to stave off the bust if you just swipe your credit card to solve the problem and kick the can down the road. But the general assumption is that eventually, your country's debt becomes untrustworthy because of all the shenanigans you pull.
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I think the world markets have shown a need for "safe" bonds, aka government-secured bonds. So I'm sure foreign markets are still willing to buy Chinese debt up. There's also the issue of looking at your competitors (USA, Japan, Germany, etc. etc.), and other market conditions (if everything is overvalued in the stock market, then people buy bonds because they see it as a "less bad deal").
Eventually, the pool of debt and money will stop. It is a finite resource.
> That system, by design, has conquered the boom/bust cycle, but western observers refuse to believe this because they are so throughly bought into the architecture of the western financial system and the many billions of words written on the topic of the operation of that system which is based on very different rules that they cannot imagine it could work any other way.
One thing all markets at their very peak have in common is the widespread belief that the business cycle has finally been conquered. Whether that's the "permanently high plateau" of the 1920s or the "new economy" of the late 1990s.
Remember "The Maestro?" Alan Greenspan was the guy who knew what was what and kept the economy humming.
How is he viewed now?
Same story, different actors. I doubt that any of these notions are true:
1. All of the information about Evergrande is out.
2. Half of the information that is out is accurate.
3. The CCP rescue actions will not re-inflate the bubble.
You're using a narrative to analyze the economy though. That obscures the underlying dynamics of money creation in booms and busts, namely fractional reserve banking and the money multiplier that causes the money supply to rapidly decrease and increase in the western banking system as a result of loans and defaults.
I'm not even sure if the money multiplier effect even happens in China, or if it's 100% reserved. It's a bit hard to get information about Chinese banking regulations in English.
Centralization of power can do impressive things. Like conquering the boom/bust cycle, or mass imprisonment and ideological reprogramming of entire ethnic populations. I don't find it "impressive", just a consequence of different first principles.
If boom/bust is conquered, does that mean that there is no more boom either?
What economic function does a boom or bust perform, and why doesn't China need those functions?
I guess you can smooth them out a lot and limit the human impact. To a large extent, that's been done many places. People in the US don't normally starve because of a recession.
Growth happens through people's hard work building useful things; there's no reason that has to have a periodic boom/bust nature to it; it could just be a slow, steady upward trend. The fact that it does have oscillations in practice is mostly an artifact of collective psychology (and perhaps underpricing of debt).
To a controls engineer, oscillations are indicative of bad feedback tuning.
Let's say it's 2000 years ago and building boats is the next big thing, and you are a boat builder. It's exciting, and you and everyone else are building a lot of boats. It seems very productive, until one day there are just too many boats and nobody needs them.
Someone will eventually tell you "You're a good boat builder, but stop building boats, go learn to make fishing nets instead". That's a bust, even though growth is still happening.
If you are using western accounting methods, it might look like things stopped growing and reversed (negative gdp growth), because you thought last year that the boats were more valuable than they actually are, but there are still more boats, it's not like the accountant destroyed them.
So a bust doesn't mean destruction, it's just a realignment of resources and a realization that what you had wasn't as great as you hoped.
The oscillations are related to feedback delays and how conservative you are about overbuilding. Basically, debt is what feeds a boom/bust. If you wait for your previous boat to be sold before you build a new one, and if buyers wait for the last boat to pay for itself before they buy a new one, then there is no boom/bust.
You can tune the feedback, and that's badically what lenders are supposed to try to do. In practice, policymakers need to be involved as well, because lenders won't do that great a job because they aren't lending their money. Maybe China has a different way of tuning. But basically, debt is the mechanism of boom/bust, and China has a lot of it, so it's hard for me to believe that it is somehow conquered. Good for them if they are better at tuning it, but it's not clear that they are better, and certainly not so good that they've eliminated all the oscillations.
Part of the issue is that cheap debt lets a company like Evergrande, or even an entire sector, pretend that it's growing even when it's no longer producing things of value.
When debt is cheap, I can keep building boats by borrowing money, and even when they fail to sell, I can point to my growing inventory of unsold boats and borrow more money against that to build even more boats. This can basically keep going until someone asks for their money back and nobody else will lend me more. That's when we find out whether the boats are truly worth what I say, and whether the growth was real. Until that point, the fact that the boats are worthless can be disguised. It's even worse if I'm selling the boats to customers who buy up my inventory at rising prices but never sail them, just because they're so confident in the trend of their future value going up. Then even I might not realize that my boat factory is no longer building useful items.
I agree that a bust doesn't mean destruction. The waste already happened, in the long stretch of time where I kept building unnecessary boats. But smoothing out the cycle (and accurately pricing debt) may mean that discovery happens sooner, the pivot to nets happens earlier, and the roller coaster ride is avoided.
Right now I'm watching this happen, not in China, but in Canada where cheap debt is blowing a monstrously huge bubble in the housing market. An absurdly wasteful amount of capital is getting redirected into shuffling land titles back and forth, based on loans and valuations that continue to increase.
Canada is on a path to eventual heartbreak of one sort or another, and to the extent that monetary policy can influence it, the choice is either a large collapse now or an even larger collapse later. I can see that China is in a similar position, and they've chosen a large collapse now rather than procrastinating.
In a feedback controller, we cannot completely eliminate sensitivity to disturbances, but we can move it from one band to another, like a pile of dirt.
It's clear that China has not eliminated the oscillations in their economy, but this is one good example of scooping the summit off of a future mountain of pain, and paving it into the valley of the present.
Debt is one mechanism of boom/bust; another is moral hazard. If lenders are confident that their "risky" loans are de facto guaranteed, they won't price their debt accurately. Here we have government ministers saying that even a 10% correction in the price of housing must not be allowed to happen because innocent homeowners would lose their shirts, and you can bet they'll see to it that we can take on more debt to keep bidding up those boats. In times like this, I do respect the CCP's willingness to look past the short term pain.
>What economic function does a boom or bust perform, and why doesn't China need those functions?
Boom and busts do not perform a function. They are a symptom of a rigid money system.
If you put a thermostat on a heater that can only go on or off then it will overshoot or undershoot the target temperature in a cycle. If the heater is perfectly flexible and instantly responds to the current temperature then no cycles will occur.
If China doesn't experience any booms or busts then it either means their economy is in a range that suits their existing money system well or they simply are better at managing their money system.
The fundamental problem is they are determined to maintain a growth rate that can no longer be maintained (developing economies can grow 7% while catching up, developed economies can't.)
While they could bail this out with the printing presses it's really a symptom of the underlying problem and that can't be handwaved away.
In my opinion China won't face economic problems. At worst they will just chug along like Japan. What will happen is that they increasingly run into political problems. You can get away with a lot of sketchy things if you can promise your people that tomorrow will be a better day. Once the easy growth is gone China will have to figure out how to keep their people happy.
Very insightful. There are three other variables that are important here, but which unfortunately are very opaque to me:
* Is Evergrande an isolated case of "Ponzi finance" (taking money from new customers to pay interest to old customers), or just the tip of an iceberg? How many other Evergrandes are there in China? To what degree has uneconomic lending and investing underpinned the Chinese economy over the past three decades?
* If the mass of Chinese consumers who lent to the Evergrandes of China get stiffed, how will their behavior change? And how will that impact the Chinese economy?
* If foreigner lenders get stiffed, how does that affect credit markets -- in China, in Asia, and everywhere else?
A few things to note:
1. points 1-2 are often cited as to why China has been immune from prior global financial issues. IMO, we need to contextualize this. China was able to finance itself through an export-oriented economy and receive huge foreign inflows of cash from it as it became the factory to the world. This has been true for other developing economies. at some point, history shows that most large economies need to reach a better balance between exports and internal consumption (china is the 2nd largest country by GDP with 30% of world MFRU output; law of large numbers apply?)
It does seem now, that China's export economy has reached a stasis/equilibrium given a variety of factors (China labor inflation, regulations/trade wars, other economies like India, Vietnam becoming increasingly competitive vs China, and more vendors adopting China +1 sourcing strategy). You can also see this in China's more aggressive stance towards investing in Africa and LatAm. It's not to say that China's export economy crumbles, but it's likely not the same tailwind to economic growth. Typically when this happens, economies need to switch to a more consumption oriented economy (hence the Economists constant comparison to Japan)
Points 5-8 seem to ignore what actually happened with Evergrande. The new property development restrictions enacted last year point to worries that China's financial sector is exposed to something akin to a "shadow" banking system (Evergrande is both a property developer and offered financial instruments to consumers). The question is how much damage does this do to consumer balance sheets (and hence future consumption) - hard question to answer given everything we don't know about China's actual financial system (we didn't even know the ins/outs of our own system in 2008)
While i dont disagree that the Economist has been a Cassandra on China for a while, this situation seems like a potentially more difficult situation for the CCP to handle
The risk here is that China will follow in the footsteps of Japan.
Throughout the 70s and 80s it looked like Japan was the future. They made all the latest cool gadgets, and were buying up forgegin assets. Cyberpunk novels were set in the high tech mega-hub of Chiba City, a district of Tokyo famous for it's gadget shops.
The massive real estate collapse in the 90s ended all that, and when I visited Chiba around 2000 for work the bit I went to was a drab business park. Two decades later Japan is still mired in debt. Japanese nation debt is 234% of GDP. China's is 270% of GDP. The USA has 100% of GDP.
As long as China's growth rate offers a chance of growing out of that debt hole all looks rosy. If growth slows significantly, or if debt keep pace with growth until that happens, they could find themselves in deep trouble for a very long time.
What you're describing applies to any country, not just China, and not to mention your numbers are off anyways (see sibling comment).
I don't know why people keep comparing China to Japan, the only real similarity is that they're both in east Asia. China has an order of magnitude more people, isn't a small island, has a larger military, different form of government, different economic system, etc. etc.
Much of China's debt is in the form of housing and infrastructure - it's debt nonetheless, but is also an asset. Not all debt is strictly a "liability." Not to mention Chinese citizens save far more than American's, so a simple comparison of the total debt load isn't entirely fair to either nation.
China's main issue is not making sure their (debt) investments are fueling more growth and not going into the ether, like other countries' debt. Of course, this challenge is hardly unique to China. Fortunately for them, they have a large domestic population to use to fuel growth. They'll just need to make sure they can properly incentivize more population growth to keep the positive feedback loop humming along.
The United States thought the same thing and when through a housing crisis during 2008 and has been paying for it ever since with a frail economy and anemic growth. What China is doing now with Evergrande is exactly the approach the US took in 2008. Simply put, bad debt must be written off if you don't want to zomibify parts of your economy. Pretending that you can grow your way out of debt is fantasy as clearly evidenced by Japan and the US over the past 30 years. The fact that China has chosen to sweep this problem under the rug by rescuing Evergrande will be a drag on future growth and encourages future moral hazards. I don't predict doom and gloom for China, only that this will be a millstone around it's economic growth with additional systemic risk.
If an asset depreciates or isn't worth what you paid for it, refusing to write down the asset and take your medicine sooner rather than later just drags out the pain. Better to take your medicine and get the pain over with so your economy can quickly reallocate and quickly bounce back. The losers must lose. This approach does not go down well with politicians, but is the best medicine for a sick patient.
The reason it doesn't go well with politicians is because, in a massively complex modern economy, the "losers" in an unexpected default are nearly always a wide swath of average citizens and public institutions. Why? Because they are the ones who dump all their savings into "safe" mass market investments like blue chip stocks and corporate debt ETFs.
Yeah, I said "fuck it" when they started buying corp bonds… DeFi only now, and just finished getting an audit for a decentralized derivatives protocol that was seeded funded with a decentralized incubator.
We're planning on the protocol being able to lend liquidity into existence out of thin air (well more accurately, taking advantage of collateral dynamics and protocol stablecoin flows) and packaging that debt into decentralized stablecoins denominated in $…
Thanks to the moral hazards, they've have motivated me and others to pursue alternatives that in their eyes have systemic risk, and I'd agree, very risk to their bailoutistan system :D
"I don't know why people keep comparing China to Japan"
Because they both went through hyper-growth periods after economic shock (war for Japan, and for China war then Mao).
During that period of hubris they took on a lot of debt.
They both had declining GDP growth and bad demographics.
The negative momentum overwhelms the positive moment at some point.
Your comment misses the bit were Real Estate is not a productive asset. Building new buildings on land is productive, but like Canada's housing bubble, when homes double in value quickly, it's just inflation.
" They'll just need to make sure they can properly incentivize more population growth to keep the positive feedback loop humming along."
I hope you realize the folly of this statement.
Imagine if we all just did the 'body count for GDP strategy'.
I disagree - tales of the decaying infrastructure in China is greatly exaggerated (though, like the USA there is decaying and unrenovated housing). The majority of China lives in rural areas, until this is no longer the case, urban housing will always be a large asset in China due to their attempts to urbanize the entire country.
So what? USA has more empty homes per capita (17 million for 330 million citizens, vs. 60 million in China for over 1.3 billion). If you compare it by density it looks even worse for the USA.
In any case, it's not really a useful, or meaningful metric anyway.
the grandparent poster was mistaken (the 90 million represented the amount of people the empty housing could house, not the amount of empty homes itself) so I found real number and included the link.
Yeah but out of that USA total, how many vacant properties are from foreign investors, let alone Chinese investors trying to stash their wealth out of reach of the CCP.
A Chinese friend once explained to me that local governments in China have very little ability to tax. Taxes all get sent to the central government and the central government never sends enough back to the local government. The most efficient way for a local government to raise revenue is to turn farmland into developable land and sell it to developers. Many of these empty homes come from such schemes. Obviously some of these developments turn into vibrant communities, but there are some that remain mostly empty and are held by individuals who are speculating that the prices of these empty condos will go up.
> ..can properly incentivize more population growth ..
did the one child policy mess that up? What i understand is China is short on women and the population situation is going to get worse before it gets better.
yup - that's China's #1 problem IMHO. This is exactly why literally less than 6 months ago they implemented a three-child policy in order to incentivize more population growth with family planning, the elimination of private tutoring, etc. in an effort to drastically reduce the cost to raise a child.
China has a lot of issues, one being a questionable government for those who are not Han, but China's existential issue is making sure the population of (young) people remains high and growing steadily.
Anecdote: I've talked to many people from China, and they all say almost no one wants kids. And for similar reasons to what people say in America (cost, stress, the environment). So I don't think the policy change is going to help them, too little too late.
The end of the one-child policy brought just about zero improvement in birthrates or the demographic trajectory of the country.
I would not be very confident that any of what you are talking about is going to fix China's massive demographic problems, and such policies have generally had limited success elsewhere.
Additionally, with the new entrants to the workforce in 15-20 years already having been born, even if improvement was seen, you're talking many decades before you're going to have that said improvement in births be sufficient to stop the workforce from shrinking, dependency ratios getting worse, etc.
China loosened it's policies about 20 years too late.
The presumption that you can compare US financial/economic norms to Chinese is Epic Fail as an assumption. You have to take your head out of the clouds and challenge you ideals assumptions that underlie your understanding of the world!
I can post videos of decaying buildings in the USA too - not really super relevant.
The fact is that China is urbanizing at an unprecedented rate. You don't really have to believe the government - just go visit basically anywhere in China.
The point you’re missing is many of those home were bought as investments. No property tax makes them good stores of wealth, no carrying costs and my god a less risky investment than Chinese company equities.
Problem is that despite the urbanization potential that doesn’t mean the properties are correctly priced or that they’ll continue to go up.
I spent some time in another Asian country that has a per capita GDP 1/10th of the US, yet housing prices are comparable to the mid-west US and most are empty. Most are owned by the ultra rich and used to launder money. And I’m not talking prime location, these are basic apartments on the edge of the city going for $100,000USD or 30-40x average annual salaries. Unless GDP goes 3x no way those prices will hold.
It’s a massive bet on continued income growth and demand for real estate which is not a given, which Japan showed with its massive property bubble.
Most of the apartments I lived in in china have been absolute garbage. In shenzhen - most were probably not more than 10 years old. I even had to go the hospital once because my hand went through the glass of the bathroom door, when I tried to push it open.
Meanwhile my current home outside china is almost 100 years old and not garbage.
Lots of videos of the new apartments in China where the walls crumble or are hollow. I remember reading that developers get huge subsidies from the government to build these buildings and either cut corners to pocket the money or never complete the buildings. I donno if that’s true or not. But seeing the tofu houses is makes me feel like it’s true.
The buildings in question are new though, not old decaying buildings. They are just very shoddy constructed with corner cutting everywhere. How prevalent? It’s hard to say. Guess we will find out in a few decades.
Your numbers are off. You are comparing China's total debt, public and private, to just the US federal government's debt. For total debt China and the US actually have very similar numbers. http://fingfx.thomsonreuters.com/gfx/rngs/CHINA-DEBT-HOUSEHO...
I would reply that your numbers are way off, since in an economy where by far the biggest borrowers are state owned enteprises, then you must count the debt of these enterprises as government debt even though according to NIPA data as cited it is considered private debt.
Here we are talking about all the largest borrowers in China being government owned: China Mobile, ICBC, China Railway, China National Petroleum, SAIC Motor, Sinopec Group, etc.
Given the great difficulty truly privately owned businesses face in obtaining credit, and how most of them need to go to the shadow financial system, the bulk of private debt doesn't even show up in these measures, and the bulk of what is officially considered private debt should be counted as public debt.
This creates all sorts of problems for China because if there is a banking crisis, then the banks, which are government owned, are lending money to state owned enterprises that are not allowed to fail. This is why you get the zombie bank problem in China - it's different than the situation in Japan. In Japan, the problem was real estate zombie loans, but in China the problem is zombie loans to politically connected state monopolies as well as individual real estate. China can perhaps say "screw the households" but it can't say "screw Sinopec".
> I would reply that your numbers are way off, since in an economy where by far the biggest borrowers are state owned enteprises, then you must count the debt of these enterprises as government debt even though according to NIPA data as cited it is considered private debt.
It would seem to me that the amount of additional debt you could consider the government as having taken on by virtue of these being SOEs would however be compensated by the fact that they're SOEs... i.e. the government also has equity ownership in them. The asset would somewhat or entirely cancel out the liability as it where.
The equivalent enterprises in the US aren't owned by the governemnt. Less debt, for sure, but less equity too.
At this point you’d be looking at a house of cards in a dark room. It’s impossible to fairly evaluate an SOE in the case the SOE both has a pseudo monopoly and the government controls the currency.
The only bound on these SOEs raising prices would be civil unrest, so the question is whether the government is keeping prices low because of policy or because they cannot politically raise prices. The government can also choose to devalue the currency to reduce outstanding liabilities.
"The asset would somewhat or entirely cancel out the liability as it where." > no, at least not for the purposes of the risk of bad debt; because if that debt is bad, then the equity asset is worthless as well.
> i.e. the government also has equity ownership in them.
So there are two points to make here.
1. How to measure the debt burden
There is a reason debt sustainability is measured in terms of debt service to revenue metrics as opposed to things like debt to book value, as it's much harder to sell off your company to retire the debt.
I mean, yes, China could decide to privatize all these companies and then wash their hands of the debt. But I think it is a matter of strategic importance for the CCP to control these companies. I could be wrong.
2. How to determine whether a given burden is sustainable
The larger point, though, is that it's never a problem for the Chinese government to run out of money, anymore than it's a problem for the US government. Both governments print their own money. The issue is one of economic management, e.g. is the current policy one that promotes the growth of the chinese economy in a sustainable way? This has nothing to do with running out of money as you can print money. Money is just paper used to get people to be productive. It's a just prop. The real economy is what matters. When people worry about debt, you have to translate their worries into something to do with the real economy. A debt crisis means that the pie of real resources is smaller than people thought it was. You thought you had $100 in the bank, but you only have $50. That's a big deal. The revelation that the pie is smaller is a real economy thing, and it is true even if the banking crisis is averted. E.g. you can tax people and give the money to the banks and the banks will be made whole. That's still recognizing that the pie is smaller. So when we talk about the banking crisis, we do not mean that the government will run out of money, what we mean is that the chinese people will have to bear the cost of reduced real consumption than what they had planned when they were given bonds with a promised interest rate which they thought would pay off.
And there is a structural problem to bailing out failing businesses in terms of misallocation of real resources, as politically connected bureacracies get money but innovative companies do not. That means more real resources are wasted in China. As more real resources are wasted, the economy becomes less efficient and the chinese standard of living either declines or grows more slowly than it should. That is what is at stake here. It is also a problem in the west, where we keep subsidizing politically popular companies at the expense of making the economy more inefficient. This is the main temptation of letting government control the financial system and print its own money.
Balance sheets and sustainability metrics are just bookkeeping to track how many real resources are being wasted. China (and the US) have an enormous amount of real resources to waste, so we are not going to run out of things to screw up any time soon. But if the standard of living does not increase fast enough for people's expectations, it could cause political unrest for those who enjoy spending other people's money on their favorite causes.
The rate of change seems to be significantly higher for China Compared to the US, maybe this has to with growth rate of their GDP, but if they can't keep up with GDP growth, they will be in trouble
No one knows, but I think it means we're going to see a massive deleveraging event in both China and the US. But maybe we can all keep kicking the can indefinitely. Who knows?
If Chinese are looking for alternatives to collapsing domestic investment, I don't see how they do that at the scale they need to without leaning further into US bonds, whether directly or via Chinese government using it to back up domestic offerings.
Do you think this would put us (the US) in a stronger strategic position going forward?
It seems like the music has to stop eventually for Chinese growth, especially since the differential between "real" GDP and reported GDP is likely larger than even this seems.
If they lean into US bonds, wouldn't that weaken their strategic position? I'm not sure they'd be willing to do so.
Japanese economy was getting too big for the US's tastes.
The housing crisis and stagnation followed a tradewar after which the US forced it to do technology transfers, limit exports to the US, take a minimum amount of american imports in industries, etc and forced it to pick up a shitty monetary policy.
The thing is. Japan kind of had to roll with it.
Exporting to the USSR was a nono, other markets like china were not nearly as developed yet and western Europe being another export market was joining the US in it's efforts.
Additionally they weren't allowed a standing army but did have the US military around.
I'm kinda watching China now for this. If they take a hit to their numbers, but use this as an opportunity to cut the deadwood and zombie companies, then they are going to be outshining the rest of the world in relatively short order, because nobody else in the world is willing to take the pain in the short term for the long-term advantage of forcing their economy to be productive.
If they, like everyone else in the world, paper over the problem, bail out their financial industry, and kick the can down the road, well, they may still become #1 but it will be much less threatening to anyone else, and it will be much less certain, and depending on how deep they go, yeah, seeing the sort of stagnation Japan did is on the table.
Which way will they go? I have no idea. They seem to lie as big as any other country in the world about their economic progress, which would suggest covering over the problems and propping up zombies just like the West is doing. But they might have leadership that can see the advantages in the long term of letting the economy actually experience the pain it needs to align itself properly.
Eventually you end up in a place like we are in America, where we've kicked the can down the road so many times that the requisite short-term pain to fix the economy would be almost terminal, if not outright terminal.
>I'm kinda watching China now for this. If they take a hit to their numbers, but use this as an opportunity to cut the deadwood and zombie companies, then they are going to be outshining the rest of the world in relatively short order, because nobody else in the world is willing to take the pain in the short term for the long-term advantage of forcing their economy to be productive.
This makes no sense. If there is a magical investment that would pay 10% interest then companies would jump all over it and borrow money leading to the usual inflation boom which is followed by interest rate increases. Considering the total lack of negotiating power of labor and the fact that workers are competing for jobs rather than companies competing for workers it doesn't appear that the problem is a lack of productivity. To be blunt, there is too much productivity, too many people are working and saving too much instead of actually spending their money. In fact, most people want to work less but they do so by saving money for an early retirement.
>Eventually you end up in a place like we are in America, where we've kicked the can down the road so many times that the requisite short-term pain to fix the economy would be almost terminal, if not outright terminal.
There is no such thing as a "requisite short-term pain to fix the economy". Is it really that hard to understand that an economy is reaching saturation and has no need for further exponential investments?
"There is no such thing as a "requisite short-term pain to fix the economy". "
It's a pity HN doesn't permit direct messages, because I suspect you'd be hearing from me in less than a year about this bold prediction.
Our economy is an absolute clusterfuck held together only by the absurd productivity modern technology has enabled. We've got zombie companies barely paying their debt load, a economy that is increasingly unable to employ people, supply chains breaking down as the result of decades of very stupid decisions and misallocations, an insane amount of parasitism in our financial services sector which has long since abandoned its proper role as servant of the economy and become its master. We're entering the final phase here where the Fed must raise interest rates to control the inflation that is the result of their already-ill-advised "stimulus" policies to paper over the other failings of the financial sector, and they must not raise interest rates because it will render the government's debt load unsustainable, to say nothing of the private sector's debt load.
We're not merely "not merely growing exponentially", we're contracting quickly and hard. The only reason you don't realize this is that there's this one indicator going up, which is the stock market. On every other indicator the economy is flashing red lights, but the stock market goes up and the Pravda keeps banging the drum about how wonderful the economy is (ignore the increasing shortages, shrinkflation, and unemployment numbers citizen, don't trust your eyes and personal experience trust us) so people who aren't paying attention don't notice.
There's a very, very good reason my post wasn't a triumphalist one about how inevitable it is that China will in fact just go like Japan and the US/West will remain dominant. The truth is the entire world economy is being held together by duct tape and lies. China may be a bit bolder than us in its lies... then again I can't discount the possibility that I'm just underestimating the success with which my own culture is able to lie to me as well. Because lies coevolve with the ones being lied to, the lies in other cultural meme ecosystems are often much easier to discern than the lies told to you in the one you live in.
The fix to this situation requires that a lot of debt that exists now is not going to be serviced, which is to say, defaulted on. Since we've been fixing the problem of "X can't service the debt" by loaning them more money and increasing the debt even more, we've been digging in deeper and deeper and increasing the pain necessary to fix things. We seem to be reaching the point where the situation is going to fix itself regardless of what we do, pushed on by the pandemic response.
Indeed, it could be pivotal depending on how they handle it. I'm no fan of the CCP's authoritarianism, but part of me is hoping they do the hard right thing, write off the bad debt, resolve the zombie banks and companies, take the short-term hit, and then quickly recover.
It seems that a peer competitor benefiting from doing the hard right thing seems like the only thing that could force the US govt back on track at this point.
Yep, I'm just pointing out that the imagined future of a technologically advanced and ascendant Japan portrayed in Cyberpunk literature, and epitomised by William Gibson's vision of Chiba City in Neuromancer never happened. As a Gibson fan seeing the reality of Chiba and pondering Japan's failing fortunes at the time was sobering.
I did visit Akihabara and it was a lot of fun browsing he gadget shops, but most of the actual devices were under powered little toys like tiny laptops running Windows CE.
This does not seem like much of a risk. Japan remains wealthy, innovative, and peaceful. If China has these attributes in the future, but is "mired" in debt and slow growth, while the most dynamic catch up growth and attendant industry focus bazaars have moved elsewhere, that's a big win for China and the world.
You're right imo. The UK seems to have went through something similar.
The thing is, the factories, farms, power plants, equipment, knowhow don't go away.
If you have the people and can feed them, a developed country will do fine even if it defaults on its debts and the world hates them.
Contrast that with more conservative/isolationist countries that took the dumb advice not to take debt and build fast - they'll be stuck being poor or at best mediocre for a long time.
> Cyberpunk novels were set in the high tech Chiba City, a district of Tokyo famous for it's gadget shops
Neuromancer is the only novel set in Chiba. Chiba is not famous for any gadget shops, it's an industrial and port town, which is most likely why it's the setting of the opening of Neuromancer - the protagonist is an outsider, down on his luck, living in a pretty shitty place.
> The massive real estate collapse in the 90s ended all that, and when I visited Chiba around 2000 for work the bit I went to was a drab business park.
I went to the famed Akihabra back in 2012. I'd been expecting, I guess, some super high tech futuristic place. Instead I wandered through rows and rows of street vendors selling what looked like bits of 1980s arcade games.
Japan also had to sign the Plaza Accord which inflated the yen against the dollar. Pretty sure china is continuing to do the opposite and shows no signs of stopping.
In terms of population growth, India and Nigeria are currently predicted to have the worlds largest population by the end of this century. Both China and India would shrink in population. China by quite a lot.
I can attest that the people there are very hard working, I think most US citizens have no idea. At least this is true for people who are lucky enough to end up as professionals at the many factories that are there. Of course there are still many poor.
One interesting theory I heard about the entire Latin world (explaining why it tends to be poor) is that the old Spanish empire was deliberately modeled to be an extension of aristocratic Roman empire. The problem that this causes is too much power in the hands of aristocrats, with not enough space left for risk-taking entrepreneurs. To the degree that this is true (I'm not sure..), longstanding contact with the US may moderate it in Mexico in particular. Here is a video about it:
There's something to that, in that even among successful Mexican immigrants, there seems to be a (relative) lack of leveraging that success into establishing businesses, or other investments that require long-term commitment.
Whether it's because of proximity, that so many come without family and/or plan on eventually returning home, or the related effect of so much of earnings getting sent back to Mexico every month, but there is definitely a cultural difference of some sort at play.
That is impossible to believe considering you can go to almost every corner of the US and see Mexicans and other people of Hispanic or Latin American origin working in hard, manual labor roles.
Maybe they are hard working as they have no choice. Majority of Mexicans work odd jobs. The auto factories there have huge training centers because of extremely high turn over.
Mexico isn't poor enough, it is at the same level as current China. The main driver is that a country is way poorer than it ought to be based on other factors such as government efficiency and worker skill. In that scenario companies will flock to the countryin order to leverage the low wages, creating an economic boom which will last until the country is no longer a good deal for those companies.
Even without cartels, the corruption problems are huge. I wish them the best of luck, but the fact that an average family spends an integer percentage of their income on bureaucratic bribery doesn't give me warm happy thoughts.
If sea level rise predictions are accurate then much of Bangladesh is going to have frequent flooding problems. Can they engineer their way around the problem while still growing the rest of the economy?
I think labor will move to wherever it is cheapest. If China continues with economic irregularities, then Vietnam, Bangladesh, and other SE Asian nations may see enormous investment.
What IF manufacturing pivoted outside of China? What would that do to the global balance of power?
Vietnam will continue to see investment and has a bright future, but when thinking about China, it's a mistake to place too much emphasis on labor cost. Yes, the cost of labor is important, but it's not the only factor.
Just a few examples of why China will be tough to dethrone:
- China has a much larger pool of labor. It has literally hundreds of millions of potential migrants who can move from rural areas to urban areas to work in factories. This is multiples of Vietnam's entire population.
- Vietnam is not yet anywhere near competitive with China in terms of skilled labor.
- It was comparatively easy for China to develop the Pearl River Delta, which was once primarily agricultural, and turn it into one of the world's most powerful industrial regions because it can produce food in other parts of the country. Vietnam, which is much smaller, doesn't have that luxury with the Mekong Delta. So there's a land limitation in Vietnam.
- The supply chains in China are far more robust and often highly integrated. For example, it's common to find factories located in super close proximity to the suppliers of the raw inputs they need. Sometimes the manufacturers are vertically integrated or have overlapping ownership with suppliers.
- Although Vietnam has invested heavily in improving its infrastructure, China is still many years ahead in terms of roads, rail, deep water ports, etc.
- Foreign companies that manufacture in China have also invested in Chinese manufacturing because it helps them open the door to China's domestic consumer market. The Vietnamese domestic consumer market is much much smaller.
> - China has a much larger pool of labor. It has literally hundreds of millions of potential migrants who can move from rural areas to urban areas to work in factories. This is multiples of Vietnam's entire population.
Believe me, you don't want to hire the people left there in villages, even if they are young, and moderately educated. But in its majority, the labour that still drips from inland China is of lower quality kind. Anguished, tired, middle-aged men who didn't manage to move to the coastal cities during the heydays.
> - It was comparatively easy for China to develop the Pearl River Delta, which was once primarily agricultural, and turn it into one of the world's most powerful industrial regions because it can produce food in other parts of the country. Vietnam, which is much smaller, doesn't have that luxury with the Mekong Delta. So there's a land limitation in Vietnam.
Vietnam makes quite a lot of food, more than China by acreage by far. China is surprisingly agriculturally unproductive country. Take a look on Bangladesh, it has turned a food exporter, despite the truly microscopic size of arable land.
> Believe me, you don't want to hire the people left there in villages, even if they are young, and moderately educated. But in its majority, the labour that still drips from inland China is of lower quality kind.
To knock China off, a country needs quantity, not quality. But even then, once again, Vietnam doesn't have an advantage here. Skilled labor is still very much in short supply in Vietnam.
> Vietnam makes quite a lot of food, more than China by acreage by far. China is surprisingly agriculturally unproductive country.
But that's the point. Vietnam is agriculturally rich and farming is part of the fabric of the Vietnamese culture. The country will not give the Mekong Delta to industry in anywhere near the same way China was able to sacrifice large swaths of historically agricultural land to industry. See again the Pearl River Delta.
I'd personally love to see China replaced but post-COVID, spend some time in Vietnam or Bangladesh and it won't take you long to see that these countries are nowhere near close to mounting a serious challenge. Like I said, Vietnam has a very bright future and will gain, but it's not going to supplant China.
Vietnam is tiny, it's entire industries are said to be less than a single district of Dongguan... but
The lion share of China's light industry sits in the Guandong, and Shenzhen once famously had 50%+ of world's electronics output singlehandedly.
Everything else up north was economically inconsequential until GD became too expensive.
Guandong's population at the time was <100M. So it's well doable for both countries. A giant, giant influence here is where the winds of global capital will blow.
As it's said, Samsung is now 1/3 of Vietnam's GDP, and singlehandedly runs the whole supply chain for all what it makes there, and that is without Samsung group giving any special commitment to Vietnam. Imagine what will it be if Samsung decides to up the states, and move it's heavy industry, and Semi there.
If Foxconn, will decide on moving the "Foxconn city" into Vietnam, and other OEMs of the same size too, just every opportunity opens.
There are more factors to it than just cost of labour.
Skilled assembly line workforce now comes at CNY10000-CNY15000 per month, more than the labour cost in cheaper US states, not to say that employers in USA pay close to nothing besides the salary itself (social security, pension fund, other welfare payments are minimal)
Yet, nobody runs to open factories in USA. Some Chinese companies tried, and everybody seen how it went.
In short: biggest manufacturing MNCs want nothing, but very skilled, educated, and young workforce coming at near no cost, and they bet everything on an all in investment in the country where have it.
Samsung chose Vietnam. Now it is 1/3 of Vietnam's GDP.
For Vietnam there is the risk of the authoritarian single party rule. It works as long as the decisions are wise, but nothing can be done if they are not. I kind of think this is what's happening in China now.
Saying India... Have anybody here ever tried not operating, but just registering a company in India? If so, tell people here how many months it took...
The biggest exhibit of what's wrong with India, is to compare it to Bangladesh.
Despite stating of with pretty much nothing in 1971, 2 decades surviving off humanitarian aid, and effectively 2 more decades of civil war, BD has now higher GDP per capita than India, better projections for coming years, and beating India on many, many more economic stats.
And Bangladesh is by no means an example of good governance, or brilliant leadership.
> Saying India... Have anybody here ever tried not operating, but just registering a company in India? If so, tell people here how many months it took...
Is it even harder than registering a company in China?
Because China is not a democracy and probably it's size and culture all but prevents effective democratic transition (they are wise to not start it, do it and what happened in Russia will look like a joke), it's bound to get stuck rather quickly. Are there any rich non-democratic countries, apart from petrostates, out there anyway? They will have to either reform (and go bust), or resort to becoming a hermit state, before they reach East European level.
And due to the size of their debt, getting stuck means going bust - in their case, just quitting capitalism, calling it a mistake and returning to the good old days.
At the height of its influence, the British Empire was not meaningfully democratic in the modern sense. Sure, England was democratic (kind of), but all their colonies were just authoritarian governments.
What matters is the absolute GDP level. As soon as you go post-industrial (demand for manufactured goods tapers off because there are enough of them for everyone), authoritarianism works worse and worse.
I'm generally a China hawk. But Evergrande strikes me as a show of the Beijing system working.
China finds itself in a situation analogous to America pre-Lehman: comically over-indebted property speculators facing a cash crunch. In both cases, short-term financing is the straw breaking the camel's back. In America, banks refused to "extend and pretend," i.e. continue financing a bad debt. Ceteris paribus, this is good. But when banks realized everyone else would do this, they panicked (who, among their peers, was over-exposed to Lehman?), and refused to extend credit to each other or, for that matter, anyone else. This sparked a systemic credit crisis.
China, on the other hand, is a command economy. It owns the banks. If Evergrande collapses, it can order its banks to continue financing other competitors. Not only do the banks know this, everyone externally knows it. The end result will thus be the same: deleveraging in the property sector. But the violence of it is different.
Keep in mind, too, that the proximate cause of this crisis was Beijing putting leverage limits on developers like Evergrande. Evergrande didn't stop borrowing because nobody would lend to them. It stopped because Beijing said it couldn't.
It's best not to have a leverage problem. But once you have one, this seems like a decent way to exit. Property buyers and small-time depositors look likely to get their money back. Executives and foreign investors will get hosed; the former, perhaps worse.
The federal reserve was able to intervene in much the same way in the US post lehman by being a lender of last resort and getting credit flowing again. The bigger problem with the 2009 crash was the massive recession that followed as the economic sectors built up around the housing bubble struggled to recover. If China's housing bubble collapses, it could still cause a big recession there with high unemployment while the economy adapts/adjusts.
> federal reserve was able to intervene in much the same way in the US post lehman by being a lender of last resort and getting credit flowing again
But ex ante there wasn't assurance it would do so. In that interval, between the collapse and the aide, there was a lot of economic damage done. Far more than simply pivoting away from construction-fueled growth would explain. (The lesson was learned: our response in Covid is a recognition that moral hazard must take a back seat to systemic risk.)
This is unsupported by the literature. Moral hazard creates risk. It has no special power to create systemic risk.
Systemic risk is created by risk interconnects (the more opaque the better), predominantly, and crises of faith, less dominantly. (The latter is more of a classic case. If the government is collapsing, yes, you have systemic financial risk, but, one, that's obvious, and two, that's not the most pressing problem.)
Once you're done mopping up the systemic risk, nothing stops you from curing the moral hazard. If China bails out Evergrande, I don't think the executives will have a fun time. In America, post-crisis regulation was sharpened to limit the chance of future bailouts. (Though, in my opinion, not enough.)
> the Govt tries to avoid Lehman moment by preemptively starving liquidity to Evergrande
This reverses cause and effect. The government could afford to starve Evergrande of liquidity because it has control of the banks. The risk of systemic contagion was thus limited.
The American solution rhymes, but is different. The U.S. can't force banks to lend. But it does, post crisis, regulate systemic risk. The downside of this approach is in underscoping. If Coinbase or Tether cause a financial crisis tomorrow, China would be able to respond while the U.S. would need to devise something new. (The upside is it limits moral hazard and preserves the rule of law with respect to foreign investors.)
So basically: The Chinese are popping their bubbles on purpose. I wonder if their timing is correct (or there would have been more growth in just letting things run for another few years). And I wonder if we in a Western democracy would ever be able to the same (i.e. pop a residential real estate bubble on purpose).
The US has a reverse issue when it comes to real estate. After 2008 we stopped building and now prices are rapidly spiraling upwards as we realize that we're playing musical chairs without places for over four million people[1] to sit.
In China it's the opposite where people have been selling houses before they are ever built, or building before anyone ever arrives, leading to very unbalanced debt issues.
So if anything the current US housing "bubble" is actually very sustainable right now because there's tons of demand for houses, so people who miss their mortgage payments are still sitting on a nice asset which the bank can repossess. In China they can't repossess many of the houses because they haven't been finished yet.[2]
A big part of China's boom is the cultural requirement for Chinese men to own a house before they get married, but the one-child-policy has meant slow Chinese population growth and there is no reason for the real estate market to be this frothy outside a handful of big cities.
Yeah, while there is a definite chance for some form of crash in real estate in the US, I think an equally or more likely scenario is that incomes catch up with pricing via inflation rather than an out right pricing crash.
Changing the regulatory regime to drive companies bankrupt would present a lot of legal problems in the developed world, even if you did it unintentionally.
> And I wonder if we in a Western democracy would ever be able to the same (i.e. pop a residential real estate bubble on purpose).
We do it all the time. It's called raising the interest rate. When we want to create bubbles, we lower the interest rate. Pretty much all bubbles are created and popped by banks and governments. Doesn't matter if it is a 'western democracy' or not.
Having the method available doesn't mean having the ability to use it! There may be systemic reasons why the interest rate doesn't get proactively raised enough to pop a bubble, such as maligned incentives.
As I understand it, lowering the interest rate is one of the few tools the Fed has at its disposal. Their goal is to always be raising the rate as long as it does not cause disruptions, so they have something to lower in the future.
This is a cynical take, but it's an honest good faith effort on my part. I post a thorough comment in hopes that people can build on top of or destruct where it's wrong.
> The Federal Reserve has two mandates: maintaining maximum employment and maintaining stable prices and moderate long-term interest rates.
This seems fine at first glance, until you see that maximum employment does not mean maximum employment, and in fact you can have more than maximum employment. Last decade we had more than maximum employment and the Fed was expecting inflation that did not come. "Struggling to reach 2%".
Why was the Fed expecting inflation? Because when you have more than full employment, it converts the labor market from a buyer's market to a seller's market. This ties in with the other side of it's mandate: stable prices. Why would prices rise? If you read my water analogy comment[0], you could see that there are only two real ways. The rivers are higher, or the reservoirs are leaking. We have not seen any signs of reservoirs leaking.
So then the rivers are higher. What is the CPI really tracking? What is the Fed trying to keep under control? The ability for labor to negotiate. Why did we not get inflation even though we had above maximum employment? Wealth inequality. Monopolies. The business owners have all but shut down a perfect competition in the economy and can without discussing openly, act like a cabal.
Until CO-VID, until unemployment checks, until stimulus going out to people. Suddenly labor has an opportunity to negotiate. People are leaving their jobs and moving to higher paying ones. Work from Home is having companies compete from all over the nation, now you are not limited by your building size, you can employ as much as you can handle. Wages are being negotiated. Suddenly it's a seller's market.
So the rivers are rising. The Fed has to react according to their mandate. What will they do? The same thing they have done the last 8 times since the 70's, they rise rates. It's a proven strategy that when the Fed funds rate rises above the 30 year treasury rate[1], it de-stabalizes the economy. As a result within short order we get a recession. Recessions mean job losses, which means the market moves back to a buyer's market. Labor is happy to have any job at all. The rivers fall. Inflation is back off the table. Once the goal has been reached and the market has switched, they go ahead and drop the interest rates back down to 0. Let the free money be free once again.
So long as it does not cause disruptions? Disruptions for whom? To me it looks like the system is working exactly as it was designed.
> It's a proven strategy that when the Fed funds rate rises above the 30 year treasury rate, it de-stabalizes the economy.
No, its proven that when investors are skittish about the private markets, which is both a predictor and contributor to recession, their seeking the shelter of Treasuries causes the usual coupling between general interest rates and Treasury rates to break in the direction of lower Treasury rates.
You have reversed cause and effect. It is not that inverted yield curve causes economic instability. Economic instability, and the market response to it, causes an inverted yield curve, and tends to do so before the point at which a “recession” is labelled.
The market doesn't set the Fed Funds Rate, the Fed does. If we were simply talking about the other yield curves I would be on board with this argument. But the Fed is in total control. Why, if the Fed was seeing a recession coming, would they raise rates? How does that make sense?
It sets the Treasury yield, though, and it usually follows the direction of Fed Funds rate changes, because higher general interest rates means loaning money to the government at low rates makes less sense unless you really don't trust the private market to pay off.
> But the Fed is in total control
No, the Fed does not set Treasury yields.
> Why, if the Fed was seeing a recession coming, would they raise rates?
Yield inversion don't tend to follow Fed rate increases, but drops in the Treasury yields which the Fed does not set. Because, again, it has nothing to do with Fed policy, it is a product of breakdown in confidence in the private market which leads to a sharp increase in the risk premium charged to private market investments by investors.
The Fed is in complete control of the Fed Funds rate. Whenever they set for the target, they hit it. Can we at least agree on that?
Look at the chart I posted above. 1969, 1973, 1979, 1989, 2000, 2006. All of these are a case of the Fed Funds rate being raised above the 30 year.
Only in 2019 do we see a Treasury yield falling into the rate, but they did snuggle up to allow that to happen.
I think you are confused because normally when people talk about the yield curve, they are looking at the 3mo-10yr treasuries. I'm not here. I'm comparing between the Fed Funds Rate and the 30 year. This is another form of a yield curve. The shortest duration to the longest duration. This curve, if the Fed wishes, never has to invert. They can always step in and react and get it to not invert. And yet, 6 months before every recession in the past 50 years, it inverted.
> Look at the chart I posted above. 1969, 1973, 1979, 1989, 2000, 2006. All of these are a case of the Fed Funds rate being raised above the 30 year.
If you chart the Fed Funds target rate (or the upper and lower limit of the target range; the data available is different at different times, because the former series was discontinued in favor of the upper/lower limit series) and zoom in, you’ll see several things:
First, the Fed did not raise target rates above the 30yr yield, it raised it near the 30yr yield, then the yield fell through.
Second, there are lots of other cases (both distant from and just prior to inversions) where the Fed raised target rates close to the 30yr yield, and (as expected) the interest rate hike just drove the 30yr yield higher. This is consistent with what I said: yield inversions happen when the market loses faith in private sector investments, increasing the risk premium relative to government debt and dropping yield on Treasuries relative to general interest rates.
The Fed Funds Rate (barring unusual perception of private market risk) and Treasury yields are both perceived as near risk free rates available to overlapping sets of investors; the law of one price suggests that as long as that unusual risk perception is absent, they should track close, and they do.
> I think you are confused because normally when people talk about the yield curve, they are looking at the 3mo-10yr treasuries. I'm not here. I'm comparing between the Fed Funds Rate and the 30 year
I think you are confused because you are looking at the effective Federal Funds rate (set by the market, but responding to changes to the target rate) instead of the target rate, and zoomed out to far. The story doesn't change much if you look at the 10yr yield (its a little different with shorter terms).
> They can always step in and react and get it to not invert.
But why would they?
There's no decent explanatory theory for any of the yield curve inversions causing a recession. There are very good theories for why they tend to be produced on the way into recessions. So they are decent recession signals, but not things you can stop a recession by preventing. (And, yes, there's a feedback argument that any known signal can be a cause, but the Fed can't visibly intervene to short-circuit that, because that intervention sends the same market signal, earlier, as the thing it seeks to prevent.)
Let's zoom in on this most recent case[0] where it was the treasury came down. We can see that there is a point where the 30 year was not only below the upper bound of the target rate, not only below the effective rate, but below the lower bound. We can see that the effective rate almost always stays within the bounds, and only moves outside of the bounds right before the Fed is about to move rates. As they give dot plots signalling that they are about to move rates, this makes sense. The market is simply smoothening out the transition.
Let's look at more yields[1]. You want to get a feel for how they work with each other. An easy way to understand it is through a dog-leash analogy. The Fed funds rate has no leash. When they move it, it moves. When they move it the 30 year does what it wants, it's a very long leash. The 3 month? It's got a short leash and therefore mostly tracks against the Fed funds rate. The 10 year is, as you can see, mostly in between those two extremes.
> There's no decent explanatory theory for any of the yield curve inversions causing a recession.
I agree with you here, that there is no economics research papers directly showing A -> B. But there was also no science showing that smoking causes cancer until decades later, and still very little science that proves that sugar causes weight gain. I'm not saying we can't trust research, but we should look at what research is being funded and by whom. Is the sugar studies funded by Kellog's and Nestle? At the very least this is a large enough topic that there should be significant negative papers being released, but I have not seen any. If you could link them, I would appreciate it.
We know what happens when the Fed brings rates up too high. We know that by not reacting during the Great Depression they made it worse. I don't think it's an unbelievable stretch to question that Fed funds above 30 year treasury causes recessions.
I'm a programmer and spend a great deal of my time trying to understand systems. I have a feel of how chaos occurs when one fundamental thing is wrong, it causes many small issues that is often very tricky to point it back to that one thing. My intuition is tingling. To me it's obvious that the Fed caused the 2008 recession by raising rates in 2006 causing the adjustable rate mortgages to default, and the housing market was simply the biggest naked swimmers, just as the S&L crisis was the biggest naked swimmers in 87. We've got naked swimmers today, and they'll be blamed once again, but it was always the Fed.
The "clearing" interest rate balances supply and demand for labor. That's unfortunately not the same thing as full employment.
When supply shocks reduce the availability of energy it can also result in a reduction in the supply of labor because people cannot work. Setting the interest rate correctly means that everyone who can work and wants to work gets to work.
>and the Fed was expecting inflation that did not come. "Struggling to reach 2%".
>The ability for labor to negotiate. Why did we not get inflation even though we had above maximum employment? Wealth inequality. Monopolies. The business owners have all but shut down a perfect competition in the economy and can without discussing openly, act like a cabal.
Inequality is driving the demand for labor down, i.e. rich people are saving money at a faster rate than the rest of the economy can spend it. This forces inflation and interest rates down. When the economy is controlled by increasingly fewer people who already have everything they could possibly want then your economy will slowly reach saturation because these individuals are already saturated and have a growing share of the economy.
>Until CO-VID, until unemployment checks, until stimulus going out to people. Suddenly labor has an opportunity to negotiate. People are leaving their jobs and moving to higher paying ones.
Fiscal spending does the obvious. Keynes would say the government is increasing aggregate demand. Well, more importantly it's increasing the demand for labor faster than the supply of labor, giving workers the upper hand.
>So the rivers are rising. The Fed has to react according to their mandate. What will they do? The same thing they have done the last 8 times since the 70's, they rise rates.
Well, the fed was created to spread risk among banks via central bank reserves and to kill inflation. The Fed can't actually create inflation. QE doesn't create inflation. It's only the government that can increase inflation via fiscal policy and it should use it for long term investments. Things that are still there in 30 years.
As the OP correctly points out, for the past three decades, domestic and foreign banks, bond funds, and other lenders and investors have lent money to Chinese companies on the assumption that they would always be bailed out by the Chinese government.
As a result (quoting from the OP), "loan and bond portfolios have been built around political perceptions and pressures rather than around credit risk and the portfolio needs of creditors, and there has been very little discrimination in credit pricing." I couldn't agree more.
If the Chinese government does not bail out Evergrande creditors, the OP believes -- and I agree -- that the country's credit markets would see a "major repricing of credit and a corresponding reallocation of credit risk portfolios." That's a polite and elegant way of saying that if Evergrande is allowed to fail, things could get frakked up in China for a good while.
Interesting. So the biggest effect of a default isn't the default itself, but a previously unknown fact: that the government does not bail out (all or some) holders of debt.
While a competent computer geek, I usually feel like an imbecile when I read financial stuff. But is this simplification true?
If a government can be expected to bail out "must not fail" companies, doesn't that basically amount to printing extra money, i.e. diluting the money supply?
If the money supply is diluted, that means inflation, which means the indebted hurt less, but those who have positive assets, the savers, hurt more. In the hyperinflation case, everything in the end is reset, everything is "paid off" but the economy also suffers a complete reset.
Oversimplification? This of course kills the savings of any "savers" like me, but if, in the picture this article paints, everyone is in debt anyway (to whom?) who loses?
It depends somewhat on the productivity of the firm bailed out. If we imagine that this firm contributes nothing to GDP, and bailing it out amounts to handing the principals money to spend on consumer goods, this would be net inflationary. But if the bailout preserves or expands productive capacity for goods for which there is effective demand, my intuition is that there need not be inflation.
This is the sort of thing that's very hard to discuss without a formalization of production functions, elasticities of demand, etc.
My understanding is that if you are a saver and own assets, hopefully assets that grow with inflation, you actually "benefit".
For example, the incredible rise in stock market prices isn't necessarily related to increased wealth generation but is instead a result of inflation.
So if you are a saver and have some tangible assets, such as stocks, real estate, or even crypto, then you're "safe". Those who really suffer are those who don't have assets since salaries and wages don't rise as quickly with inflation.
The meltdown means reality has returned to China and they are just another country again. This event, among others, will have an enormous downstream effect on the morale of Chinese people, their finances, and the future of their government. Combined with the US's more active response to China's territorial expansion, their leaders are scared. Scared of being kicked out by the next generation of politicobeaurocrats.
I agree, this does feel like a sea change. Not to mention that it's coinciding with the end of the CCP being a more or less reasonable ruling body (video game bans, corruption purges, increased propaganda, etc.)
The parent was talking about the increase in authoritarianism on the part of the CCP (which would presumably also affect the Han population) -- at least that's how I understood the comment.
Are you trying to say that the CCP is _not_ becoming _more_ authoritarian?
People who say housing is an asset and therefore it's not a problem are ignoring one key phrase there:
between one-fifth and one-quarter of the total housing stock, especially in more desirable cities—owned by speculative buyers who have no interest in either moving in or renting out.
So it's just an NFT that happens to have construction materials in it.
Real properties in China are licensed to holders by the Communist Party for a limited time, typically 70 years or so. NFTs don't have that kind of built in time out, but maybe they should.
So Evergrande has started to default on payments, some people who were owed coupons today haven't received them.
The headlines early today was that the government told each province to send in accountants to evergrande offices in their local territories to get a better understanding of what they own/owe and to start taking over properties.
They have a net debt to equity ratio of 99.9%, the Chinese requirement is 100%, which seems alot like a student passing with a 50% grade:)
Furthermore, they've started to offer properties to employees at 50 cents on the dollar to pay off debts, which gives you a pretty good idea of how they've overvalued their current assets and their current net debt to equity is probably even more offside than imagined. The good news for employees is that the CCP has already said that they would force Evergrande to prioritize payments to employees and suppliers over creditors to help keep social order in the country.
Equity holders will almost certainly face a zero, though the Hong Kong version of the stock is up 40 cents today, so never take advice from me I guess:)
The problem now for the Chinese government is that the easiest way for evergrande to raise capital is to sell assets, but the easiest assets to sell are its good cash flowing assets, which helps pay short term coupons but will just kick the can down the road a few months to a year.
it also doesn't help that any selling will lower residential housing prices in China, which has been a main driver of their GDP, and the main driver of Evergrande's growth so the assets they dont' sell will be worth even less and there will be fewer residential buyers out there, leverage unwinding really sucks!!
A bigger issue is spill over to other property developers as there never seems to be one that isn't fully loaded up on debt. If evergrande goes on a fire sale of assets to raise cash then it by default pushes down the value of other developers properties and changes their net debt levels which wil almost certainly force them to become forced sellers as well and the feed back loop continues down as there isn't really a buyer of last resort other than the government.
To give you an idea of the problem the 4 largest property developers in China have outstanding liabilities of about $1Trillion, that's not a typo....
What the west is waiting for is to see if China selectively allows Evergande to default on their debt by forcing them to pay local holders first and foreigners second, or not at all as their current cash flow situation dictates.
As best I can tell Evergrande has about $20B in debt off shore from China, with the vast majority of it held in Europe and North America.
There is some talk that this could force China to pull back its capital from the west like Japan did in the 90's causing some drag on western economies, most likely in the property market, man Canada could use this right about now, but this seems really unlikely as I'd assume a real crash in China may force the wealthy in China to seek to put even more assets outside of the country.
No matter the outcome, evergrande is probably done as a company, due tot he fact that property developers live on debt and no one is going to lend to them anymore, well unless the CCP forces them to.
Edits
- PBOC(CCP) just put in $17B of liquidity into their credit markets between 7 and 14 day repo agreements, the most in a year. Everyone is waiting to see if they pay the $88M on a 5 year note that is due today, normally the coupon would have been paid already if due today.
- next Thursday they have a payment due on a $2B offshore bond and a $48M payment due.
All these bonds have a 30 day grace period to pay the coupon before they are considered to be in default.
I read in the FT yesterday that China has enough empty homes to house 90m people. I would think even for a place with 1.4B people, that's a lot. It's hard to imagine so many empty homes that all of Germany could live in it. There was an aerial photo of one of these developments that reminded me of SimCity, when you try to cram as many people in as possible.
Does it snowball, though? The credit/asset spiral (well described by Soros in his books) seems very real. With the economy exploding over the last decades it would seem that NOT loading up on debt was a dumb move, so it makes sense that all the housing developers and everyone else has done so.
I suspect that there were armies of crooked managers that acted in their narrow self interest to simply grab the cash that was borrowed, as much as they could. They then exported this cash, often by buying good to export as naked cash was watched more closely than paid exports good. At the destination or anywhere, these goods could be sold -often at a loss - the object is to gain liquidity outside of China. This cash then bought assets, property, shares on foreign exchanges, and the thieves and heirs now have an out-of-China estate. Often some fall guy stayed in China on whom the axe may fall in time. The entire Chinese economy may now have this huge mass of uncollectible debts(Evergrande = tip of an iceberg) and over the next few years we will watch Evergrande and the rest of them spiral down the drain. This is, in many ways, reminiscent of the breakup of the USSR as the body of the people see how their glorious leaders have royally screwed them.
One thing that stood out to me is Xi's "Genuine Growth" vs "Fictional Growth". I wonder how this impacts the recent shutdown of WeChat and Alibaba and the splitting of those large software companies.
I don't think China will let the default occur. It would look terrible for them and IMO the government will do anything to save face. I would even go so far as to say that there are many within the politburo who cannot conceive of a scenario in which China is ever in a negative light.
As things are looking right now, China is going to let them default. I don't know why you focus so much on "saving face" or even think that they can't conceive a bad scenario. They aren't dumb cartoon villains.
They've worried about the property market for years now and they talked multiple times in the past about countermeasures. Bailing out big companies is against socialism, and their new wave of policies lately have shown that they're still very much in support of socialism. They don't want to let big companies get away with bad behavior, because that will signal to other companies that as long as they get big enough, they can take unreasonable risks and someone else will clean up the mess for them. There's a reason why since 2012, they've put a lid on debt-fulled growth: because they're transitioning the economy to healthier growth, not just more growth. This is why China is now at ~6% growth instead of 8%.
I think it's likely that they'll save suppliers, as well as normal citizen who as disadvantaged by the Evergrande default. In return, they'll screw over Evergrande's shareholders and investors. To the government, only the people matter.
You're omitting the actual socialist solution here which is to nationalize Evergrande. That does mean that shareholders take the maximum haircut, but the stock has already crashed and that is already baked in. The executives of Evergrande will also take the maximum haircut, so there's no moral hazard there.
And Evergrande's balance sheet is massive and there's real value there, it isn't like its all worthless speculation and by nationalizing it the government likely stands to make a massive profit long-term by continuing operations.
This won't be done under the American model where the government makes massive bailout loans to private corporations to keep them going and executives still survive.
The question of what to do about Evergrande's debts is where it gets stick, but wiping the debt out via nationalization and maximal refusal of China to honor those debts is pretty unlikely. Because China is concerned about the "normal citizen" they can easily do the math and see how the contagion effect of that would destroy the financial system and land hardest on the "normal citizen", so they won't do that. They also don't want to make a decision with geopolitical implications and detonate the global financial system through cascading defaults. That isn't good for anyone and China would be blamed for it (and right after the pandemic that started in China this is one they'll certainly want to avoid).
Due to moral hazard concerns they'll probably enforce some kind of haircut so everyone feels a bit of pain, but it won't look like a complete default.
When I see the Sacklers laughing all the way to the bank despite having probably caused more American deaths than Hitler, Tojo and Bin Laden combined, there is something to be said about the Chinese method.
letting a somewhat private company fail may end up making the central authorities look good. They can then start the "look what capitalism did to you, we're in charge of your life now." propaganda machine.
If they don't want to be seen in a negative light, they can start by freeing Tibet, the Uighurs, and Hong Kong, or at least take the jackboot a little bit off of their necks.
Also stopping the expansionism in the South China Sea and ridiculous claims to own Taiwan....
IOW, if they can't conceive of it, they are pretty far removed from reality
>>I fail to imagine how any of the things you mentioned could be seen in a positive light by Chinese people.
(not sure if you reversed the meaning here, assuming you intended to say that these things are seen in a positive light by the ppl)
Since the Chinese people are kept in the dark on such things, and not trusted with knowledge of even recent history (e.g., Tienanmen massacre, Great Firewall, constant censorship), they cannot be said to have any view at all of the reality. That is different from having an actual positive view.
>>Why would the care about opinions of the people/states that already hate China and want it to fail?
This is a completely bogus and strawman argument.
I, and everyone I know wants the Chinese, and all people, to succeed, and enjoy prosperous self-determination. Even if it is out of self-interest, e.g., avoiding the disastrous knock-on effects of China failing, no one wants China to fail.
What people DO want is for the CCP to stop behaving as a herd of authoritarian despots at home and abroad. Wanting authoritarian despotism to stop is NOT the same thing as wanting failure.
What is sad is the the CCP is so detached from reality that they cannot see that they could be very successful by stopping these behaviors. It is like they can't stop making the same mistakes as the 1958 Smash Sparrows/Four Pests campaign, thinking that they are improving things, but actually creating a disaster (famine in this case). Let's hope these disasters don't also kill 20 million people.
They aren't demands, but suggestions if the CCP wants to be viewed positively. But yes, for an expansionist authoritarian regime, stopping being so expansionist and dialing back the authoritarianism might be seen as big demands
>>Do you have any leverage? Many people wanted Russia to stop pestering their neighbors and the world.
Personally, none but the ability to speak out. At the business and government level, plenty. Especially about the Russia regime, they are a classic authoritarian state, who pushes until they get pushback. The problem is that western countries always want "good relations" so they let a lot of things slide in the interest of "good relations", so the authoritarian goes further. Pretty soon, the authoritarian is using chemical weapons to murder people on your soil in broad daylight, or putting armies on the soil of neighboring countries to annex them and shooting down commercial airliners, while you are basically waving a finger back at them. Pushback hard and early, and it seems excessive and "bad relations" politically, but if it goes on for too long, and the choice becomes capitulation to the authoritarians or a big war.
So yes, individually, we are unimportant, but we must do what we can to promote self-determination and hope we can convince our governments to follow through.
> Since the Chinese people are kept in the dark on such things, and not trusted with knowledge of even recent history (e.g., Tienanmen massacre, Great Firewall, constant censorship), they cannot be said to have any view at all of the reality. That is different from having an actual positive view.
Tiananmen is pretty well known. Hop on any Cab in big city, and ask the driver, and they'll acknowledge overtly or covertly that they know it. And some might even boast stories they know about that.
Great Firewall is also well known. GFW as a name is an invention of the netizens. As the thing was never publically shared.
constant censorship... Dont get me start on this! Deleting posts on Chinese online spaces are a Norm. Not only everyone knows that, they joke it daily or even every hour... The culture of "heihua 黑话" (speaking something in a different form that correlates through background cultural/semantic linkages like sleepy joe is nicknamed the sleeping emperor 睡王） is not only popular on public forums, they are regularly practiced in private chat.
Chinese citizens, on a relative scale, are much better informed about their society and the world, than US citizens. I haven't lived in EU, so cannot comment on that.
As a Chinese myself, with many connections to actual Chinese living in and outside of China, I can assure you, the Chinese people aren't "kept in the dark" on such things. Many are quite well-informed about what's going on. Yes there is censorship, but that works quite differently from how many on Hacker News imagine it.
> I, and everyone I know wants the Chinese, and all people, to succeed, and enjoy prosperous self-determination.
You can't believe how many times I've encountered a phrase similar to this one. But 9 out of 10 times, upon closer examination, they're just empty words at best, blatant lies at worst.
If you're shocked by what I said above (i.e. you're thinking "wtf is he blabbering about?"), allow me to explain.
Chinese have different primary values. The things they value most are unity and collectivism. "Freedom" as the ultimate virtue is a western ideology. The Chinese have the concept of "too much freedom", i.e. a lack of social responsibility. "$WESTERN_COUNTRY is too free" is a literal phrase that I've heard from Chinese students in Europe several times. I've witnessed with my own eyes early 2020 how people in China largely voluntarily (without coercion) followed government advice on social distancing and wearing masks. Chinese now watch with amazement how people in the west refuse to social distance and refuse to wear masks under the guise of "freedom".
You should read this essay by a Chinese national: "How [Chinese] liberals lost of a generation of young Chinese" — https://mp.weixin.qq.com/s/erCJHZVLEtnZ4wWbkgij3g
Google Translate does a decent enough job (note: phrases like "year 18" mean 2018)
This essay says that for a long time time, the CCP was unpopular in China. So much that CCP members don't care mentioning their membership because that might raise eyebrows. There has always been propaganda and censorship, but censorship can merely silence, not change, what people feel in their hearts. The mainstream opinion was that western liberal democracy is better.
However there's been a remarkable change the past 10 years or so. Party popularity has been soaring, and people are now increasingly confident that China's own system is better. Why? Because people found out the government actually does a pretty good job. Many people visited foreign countries and found out that western democracies aren't as good as they thought. They've witnessed the anti-corruption campaigns that have been going on since the early 2010s, are bearing fruit. Life in many Chinese cities is becoming increasingly better.
A major change occurred in 2020. People thought China would collapse because of COVID, and they thought western democracies would be able to control the virus, because of freedom of information. That's the narrative that Chinese liberals sold. But then they witnessed the opposite: western countries failed to control the virus and the Chinese government did a great job. This completely discredited Chinese liberals. Now, Chinese are more proud of their own government than ever.
This increase in satisfaction isn't merely opinion. A 15-year study by Harvard has shown this trend of increasing satisfaction as well. In the last year of the study, 2016, Harvard measure 92% satisfaction rate with the central government. Another study in 2020 by York University measured 98%, and the study concluded that this major bump was caused by China's good handling of COVID.
Kishore Mahbubani is an ex-Singapore diplomat, ex-UN Security Council head. He says the following about China: the past 30 years are literally the best out of 3000 years. Chinese have got more freedom and more prosperity than they have ever had in their history. Why wouldn't they be happy about this?
Back to your "I support the Chinese people [and only hate their government]". The Chinese people support their government. So where does that leave you?
Most people that I tell this story to, will immediately label me a "propagandist", "CCP shill", etc. I hope you're not one of them, because those people are the very embodiment of how they're blatantly lying about "supporting the Chinese people": they only support Chinese people until Chinese people disagree with them.
We definitely agree about China's handling of the virus compared to western countries and especially the USA. As far as I can tell, the initial CCP reaction was to suppress information about the virus, but when that became impossible, they did (and are still doing as necessary) real proper lockdowns, vaccinations, etc., and they have a much better handle on it.
What you observe in the west related to the virus is true disfunction both at a societal and political level. Politically, you have one party that can no longer win and is attempting to implement autocracy, and so is weaponizing disinformation and populism. And you have the usual herd of people who detest any kind of control, think of public health measures as a personal affront, and are happy to spread any bad information that supports their biases. A truly toxic combination.
I'm not surprised to find that the 2016 election and subsequent events has soured many on the benefits of western democracy. We have yet to see if that becomes a historical fluke, or if this democracy falls.
On censorship, I'm not surprised that it is common knowledge that everyone is being censored - it would probably be hard to go very long without seeing evidence of manipulation, and then wondering about it. So the real question is, how successful is the censorship - do the people commonly know everything that the CCP tries to keep from them, or do they just know that their feed is incomplete, but have no good way of completing it?
E.g., do they know the real story of Tibet being overrun, or do they just accept the fragmentary stories about some historical period when a previous dynasty had some authority over that area? Do they know the whole story about the Uhigur concentration camps, or just that there is some reeducation? Do they know how many people died by bulldozers in Tianmen, or just that something bad happened?
If they know the whole story and still support the CCP, I'd certainly need to reevaluate. If not, then the support is built upon a very weak basis.
And yes, I almost always find it necessary to make a distinction between a people and their government. This is necessary in all but the highest-functioning democracies (and the USA is not one right now - I can tell you very directly that 60% of the USA were extremely distraught at how their govt did not represent them in the 2017-21 administration, and I'm sure that 30% will tell you the same today.)
Thank you for being open-minded. Not many are like that today so I applaud that.
I agree with a lot of what you say. There are some things that I think deserve a different perspective. What I'm going to say may sound shocking or ridiculous. That's because mainstream reporting on China is so distorted and negative nowadays that anything that deviates from the mainstream narrative sounds ridiculous. Please hear me out.
The "information supression" narrative is greatly distorted. I assert that it's not so much "deliberate information suppression", but rather "nobody had any idea what's going on, so it was chaotic and nobody knew what the best course of actions were".
You're probably thinking about Li Wenliang, the eye doctor who later died from COVID. The first doctor that discovered that something was wrong, is Zhang Jixian, not Li Wenliang. A few days before Li noticed anything, Zhang started an investigation and escalation process which on December 31 led to escalation to WHO.
Li Wenliang heard about Zhang's investigation and also felt that something was wrong, and so he warned friends in a private social media group about "there being SARS in the hospital". Li Wenliang is in fact not a whistleblower: he never intended to tell the public, nor did he (or anyone else for that matter) know what exactly it was. His social media messages then somehow leaked out to the public. Li Wenliang was never arrested or jailed, as the mainstream media claims. The police reprimanded him for "spreading rumors" and he had to sign an NDA. That's it, nothing else happened. He could go back to work immediately after.
What happened to Li was not even that consequential in the bigger scheme of things. Because Zhang was never censored or suppressed. Unlike Li, Zhang followed official procedure from the beginning, he kept working, and his work resulted in escalation to the national CDC as well as to the WHO within days. The timeline is very telling:
- Li's post leaked around the same day, when Zhang already escalated and when the media already reported
- Police reprimanded Li on January 1
Is the police's treatment of Li right? I make no big judgement on this, but I'll add some perspective. Back then not much was known about COVID (transmission rate, fatality, etc). But Li said that it was SARS — a much more deadly disease than COVID. His messages could have caused widespread panic. If panic in itself isn't bad enough, consider this: if people started moving out of Wuhan en masse, then it would have spread COVID to the entire country, making lockdown impossible.
Anyway, my opinion on whether the police's treatment of Li is right, isn't that important. Because Li took the case to the judge, and the judge ruled in Li's favor, saying that the police's treatment was inappropriate. The police then apologized.
Think about how weird the previous paragraph is, from the perspective of mainstream reporting about China. Isn't China totalitarian state where everything is tightly controlled, where citizen have no freedoms and are at the mercy of the government? How could a judge possibly judge in favor of a citizen and against the police??? This is already proof that China is very different from what many westerners think. But I digress.
It's a tragedy that Li later died from COVID, and many Chinese are angry about this fact. The Wuhan government screwed up big time initially, no doubt about it. They were hesitant because they had no idea whether it was really bad, and they'd rather err on the side of believing that everything was fine until there was enough evidence to the contrary. We now know that that was a mistake.
But Chinese are also angry about how the situation is misrepresented in western mainstream media. None of the above important facts are reported by western mainstream media — they all go with the simple "Li was jailed and censored" story. I'm among one of those angry people. Many Chinese climb over the firewall, and become shocked at all the bullshit stories that western mainstream media writes about China. Many are then shocked into becoming very pro-China.
This is perhaps the biggest irony. Many westerners believe that Chinese become "enlightened" if only they can escape censorship and read the "free flow of information". In fact, for many Chinese, the effect is opposite. Western mainstream media misinformation about China is very big, so big that most westerners don't even know that they're being propagandized themselves. Bad western mainstream media reporting on China is better pro-China propaganda than any actual Chinese propaganda (which is usually pretty bad; you should watch them).
FYI, there are also US intelligence reports that corroborate that no Chinese government official had good knowledge about COVID back then.
>>>...but rather "nobody had any idea what's going on, so it was chaotic and nobody knew what the best course of actions were".
Yes, THIS is very plausible, along with an instinct to downplay it.
The misrepresentation by the western media is a big problem for me, and as you describe it, it makes sense that it is better pro-CCP propaganda than anything CCP can brew at home. When others depict you as being universally bad, anyone would get angry or dismissive .
So, when you describe it, I totally understand how someone punching through the firewall and seeing that would be offended - I would be too. What a horrible second-order effect on people that are not even thought to be the audience.
So, yes as far as the COVID-19 issues go, I've got healthy respect for the CCP internal response (excluding the apparent stonewalling questions related to the origins, again, I've only got limited info here).
And yes, I understand that the CCP's task of trying to control every bit of info is virtually impossible, even with scaleable AIs searching for trends, etc. Hard to catch the rubber ducks and Winnie The Pooh memes at the beginning.
And there is no doubt that when an autocracy makes good decisions, it is far faster and more effective than democratic decisions. The recent announcement about not building any more coal plants abroad is such a good decision, and they can just do it immediately, and if the coal plant constructors are screwed, or compensated, they can deal with it as they wish. Such a decision here would drag on for years.
That said, power, corrupts, absolute power corrupts absolutely, and major concentrations of power lead to bad things. There is still the issues of suppression of internal information about bad actions on occupied peoples (Tibet, Uhigurs, HK), and expansionism (Taiwan, 9-dashed line, island mil bases in international waters, etc.). Are these actively and openly discussed in the press and parlors in China?
In the US, it is really ugly right now. We have many problems in our past from the near-genocide of the Native Americans to slavery, dating back to before our founding and continuing. These are openly argued everywhere, and a major party has now devolved to the point of all but fully open White Supremacists who are trying to implement minority authoritarian rule. This will be hammered out, and will either result in a better society, or we will fall from democracy into autocracy.
It is messy as hell, but at least all the info is out there for anyone to pickup (actually, there's too much noise, a major part of our problem is deliberate desinformation spread by RUS and local political operatives as well as the usual crackpots). But, unless we have a constitutional crisis coup d'etat where the electoral process is subverted, there is no doubt that, because all the opposition is know, the government is legitimately supported by the people.
I still question whether, even with apparent support, the CCP can say the same thing. They took their ruling position by force, and then maintain it by both force and shall we say information management. You describe definite situations where the information management is very flawed or nonexistent at best, but how widespread is that failure? Can the Chinese people really be said to know the full extent of the CCP's activities, and have an option to not support them?
(& BTW, thank you very much for your detailed discussion, I'm learning a lot, and I hope providing good questions and some info)
The existence of censorship is pretty well-known among Chinese. You saw it as much in that Weixin article that I sent you.
But I believe the role of censorship is mischaracterized because westerners reason from their own history, experience and values, not from the Chinese perspective. Whereas from the western perspective censorship and information control are mortal sins, from the Chinese perspective it's a lot more complicated, considered both good and bad.
There are 3 aspects of Chinese culture that tie into this view:
1. Talk is considered cheap, what you do is more important
2. Respect for authority
3. Outcome legitimacy vs procedural legitimacy
Aspect 1: You see this by the fact that Chinese tend to be much more humble than e.g. Americans — Chinese don't talk about how great they are, they put down their heads and do the job. This characteristic reflects all the way back to the government: in general, the Chinese government is bad at explaining and marketing themselves, and they tend to focus on execution. Hence why Chinese propaganda is so horrendously bad, especially from the western perspective.
Aspect 2: One does not talk bad about one's parents and boss. Not talking bad about the government is an extension of that. Chinese view the relationship between employee-boss and citizen-government as analogous to child-parent. Not exactly the same, but similar enough as far as respect for authority goes. It's not just a matter of "CCP punishes dissent" (a statement which by itself is also mischaracterized).
Aspect 3: We in the west focus on the process of government selection as a measure of legitimacy. To Chinese, whether the government actually delivers good results that benefit the people, is considered the right measure of legitimacy. A voted-in government that does not deliver is considered illegitimate. A dictator that took power by force, but works for the interest of the people, is considered legitimate.
When combining all 3 aspects, censorship and information control are not considered a sin. They are tools. The outcome of using these tools matters much more.
The mainstream western view is that Chinese censorship is meant to suppress dissent and to glorify the party. But research by Harvard shows that this is not true: "How Censorship in China Allows Government Criticism but Silences Collective Expression"
https://gking.harvard.edu/publications/how-censorship-china-...
This paper states that censorship's main role is to cool down controversies and to suppress collective action, no matter whether those controversies/collective actions are pro- or anti-government. In fact, the paper is very clear about the fact that anti-government messages are not censored as long as they don't cause a stir, while pro-government messages are censored if they become too popular and run the risk of getting a life of its own.
Why does censorship behave like this? Consider that as little as 30 years ago, the past 150 years or so have been absolutely horrendous. Foreign imperial powers walked all over China, looting the country (gunboat diplomacy), literally putting people on drugs (Opium Wars), stealing territory, and in case of the Japanese during WW2, even mass killing and raping. There was poverty, famine and political instability which lasted well until the late 60s. This chaos has raged on for so long, it has become collective memory. Some of it is still in living memory: my grandma (who is still alive) told me tales of fleeing from the Japanese.
Thus to Chinese, social stability and freedom from poverty matter more than anything else. When you are poor, you are not free, no matter how much you can vote. After the Cultural Revolution, people became tired of revolution.
By and large, the Chinese people view unity as an important goal to pursue. On the one hand, it's part of people's identity as Chinese: Chinese history has always tended towards unity. On a more practical level, both ancient and modern Chinese history has shown that times of disunity are chaotic and are correlated with all manners of bad outcomes: wars, famines, corruption. More recently they've learned that being disunited means weakness: the inability to resist foreign imperial powers who are out to exploit China. People are tired of all those bad outcomes that have plagued China for so long.
The government views censorship as a tool to aid in unity and social stability. There are positive outcomes of censorship that are never mentioned in the west:
- Censorship is used to suppress incitement of ethnic hatred. In the US after 9/11, racist attacks against Muslims or anyone Middle-Eastern-looking spiked. In China, there have been many major terrorist attacks by ETIM. Terrorists set off bombs, walked around with machetes, drove cars into crowds — killing innocent Han and Uyghurs alike. This information was censored in order to prevent Han from hating on innocent Uyghurs. Only recently has censorship on this information been lifted.
- Censorship is also used in the context of China's foreign policy of non-interference. Here's a concrete example. One of the prominent pushers of the Uyghur genocide narrative, is Adrien Zenz. There are many critics of Adrien Zenz's work. One such critic is Jerry Grey, an Australian who has been living in China for over a decade and who has visited Xinjiang many times. He published an article in Chinese media, criticizing Zenz's research methodology as being unsound, and inviting Zenz to come over to Xinjiang to take a look for himself (Zenz has never visited Xinjiang). His article was censored because according to China's foreign policy, it's not China's place to encourage others to change their minds. https://twitter.com/Jerry_grey2002/status/131872917977329664...
Whether censorship succeeds in this goal is a whole different discussion. I personally think that the people who head the censorship department are too old, too conservative/careful and too out-of-touch with modern society.
In the context of western mainstream media misinformation about China, there are Chinese who, after climbing the firewall, have gained an appreciation for censorship and the firewall. They hypothesize that one of the reasons why the firewall exists, is because the Chinese government knows it cannot compete with foreign propaganda, which is much more sophisticated. The Chinese government is neither good at explaining themselves nor good at selling themselves with pretty rhetoric. Which means that the firewall is a defensive measure, rather than an offensive measure meant to punish/attack the citizen.
>>censorship's main role is to cool down controversies and to suppress collective action, no matter whether those controversies/collective actions are pro- or anti-government. ... while pro-government messages are censored if they become too popular and run the risk of getting a life of its own.
This really strikes me as a key element. I've noticed anti-govt sentiments expressed within/from China, and the apparent paradox of them being allowed to exist, and also noted that the main thrust of CCP action was against movements, not comments. It makes sense, both as a practical need to focus the work of managing society, and strategically, that they see that they cannot allow any other movement to grow, hence suppression/management starting at organized religion, and anything else that gets viral or organized. In this sense, it is easily seen as a defensive measure, both internally and externally, trying to prevent anything from growing to another concentration of power.
Interesting perspective on the collective motivating trauma. It almost seems that for the Chinese, it was poverty and being overrun by outside forces, for the westerners, especially Americans, it was excessive govt -- the US was literally founded by those escaping govt persecution. So the core motivating fears are at the opposite end of the spectrum.
I like your distinction on the process/results legitimacy/illegitimacy views; it certainly shows how Chinese can see their govt as legitimate. and the CCP has largely delivered increasing prosperity for the last decades. However, when the govt fails to deliver, how does that get fixed? In (functioning) democracies, a govt that fails to deliver even a little bit gets voted out. In China, it seems the only choice would be to endure a non-delivering govt, or a new revolution...
Churchill's comment comes to mind: "Democracy is the worst form of govt, except for all others.". The best, while it lasts, is a benign dictatorship where the leader is successfully working for the people. The problem is that nothing guarantees the success or motivation.
How do they plan to ensure succession and that the party works for the people, successfully? It seems that the anti-corruption push might be a good thing, but from here, I have no idea if that was genuinely rooting out corruption, or consolidating power, or both. (They certainly seem to have little control of shadow banking, etc., which could be an existential threat).
Also interesting and a bit funny that the Party sees that it can't compete with western media. Not surprising, but not evident from here either until you mentioned it (I'd be pretty intimidated too). Considering that the firewall is generally known and accepted, how easy and common is it to evade it? Can everyone do it trivially, or does it take a lot of effort? What are typical penalties and how, and how often, are they enforced? What is the result - is discussion of yesterday's Financial Times, New York Times, Washington Post, etc. common, occasional, or all underground, or does no one care about them?
(part 2) So, back to your question of how to ensure that the system keeps working for the people. The answer is two-fold:
1. Meritocracy. Many believe that proving yourself for 30 years is a better way to select for a good leader (and prevent the selection of a bad leader) than voting through popularity.
2. Active solicitation and being responsive to protests (!)
This latter probably sounds very surprising. Consider this: freedom is expression is not necessarily correlated with results. In many western countries, we talk about all sorts of things, but politicians don't deliver.
The inverse is also true: censorship does not necessarily correlate with not delivery results. China censors from time to time, but at the same time they actively listen to (and address) grievances. In the past 15 years or so, they've developed a robust monitoring & feedback system to find social issues and address grievances. They make extensive use of polls. They monitor social media. There are official channels for sending feedback. Both the feedback and the replies by government officials are published for the public for read. There are 16000 (!) protests in China each year — not to protest against the government, but to ask the government to address their grievances. Censorship happens in parallel to all of this. See also:
- Expat Cyrus Janssen, who has lived in China for many years: speaks about how the government listens to protests and is very active in addressing grievances. He gives concrete examples of recent social issues that have been addressed as a result of widespread protests. https://www.youtube.com/watch?v=YqcScSCTgbM
Another concrete example: there were large-scale protests in Guangdong in 2019 over the a crematorium plans. This raged on for days. In the end, the government gave in to the demands of the protesters. Very few people were arrested, and of the arrested people a few were quickly released. https://mothership.sg/2019/12/news-china-protests-wenlou-hua...
What happens if a bad president does get elected? It'll certainly be harder to oust him than in western democracies, but it's not impossible. The president is not elected by the NPC, but it's elected by the Central Committee. This is one of the highest political bodies, consisting of other high officials that climbed their way up through the meritocracy ladder. The president can be voted out by this body, just not directly by the people. Furthermore the president doesn't make decisions by himself, but together with other top officials, so it's not accurate to say that the president is a dictator.
Neither the western system nor the Chinese system are perfect. Each one has its own merits and problems. Many western countries are suffering from decreased trust nowadays. Despite the fact that the government can be replaced, many social issues are never solved. In China one can say that the opposite is true: you can't replace the president but social issues are solved all the time.
With regards to your comment on power & corruption: there is the issue of regulatory capture and state capture by entrenched interests. These interests can't be voted out, but they are a big reason why government changes so often yet few things get resolved. It doesn't appear that democracy have a good answer to this yet.
The Chinese government is also worried about capture by entrenched interests. Xi Jingping's anti-corruption campaign is both a real campaign to root out corruption (with great results), as well as a power-consolidation move. This latter does not have to be a bad if you consider that it's necessary in order to defeat entrenched interests which hold the country back. Chinese leadership believes that entrenched interests which do not work for the benfit of the people is one of the reasons why the Soviet Union failed. See this analysis by Kevin Tellier, expert on China matters: https://twitter.com/kevtellier/status/1441774309652025346
The Chinese system is also constantly evolving. The CCP, and the system from 30 years ago, is very different from how they are today. There are constantly new reforms. For example the whole meritocracy thing is relatively new: it was introduced in the 90s. The monitoring & feedback system only really took off in the past 15 years or so. These are key aspects that are often overlooked by China watchers.
I'd say the Chinese system and western systems can learn a lot from each other. And China is learning from the west all the time. Unfortunately it seems the other way around doesn't happen that much because many people don't see China for what it is, but only for what they think it is.
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Regarding VPNs: yes it's easy. Every time I visit China I buy a VPN subscription before I enter the country. It works fine even though connectivity can be flaky. On my last visit in early 2020 I even setup my own Wireguard server.
I haven't figured out how to get a VPN working after you enter China, but it's evidently pretty easy if I look at how many people from China are on Twitter, Youtube and Quora. There are various vloggers in China that publish to Youtube.
Here's what I understand about the legality of VPN. The Dutch have a "gedoogbeleid" against soft drugs, which means that soft drugs are officially illegal, but the government chooses not to enforce punishment against owning soft drugs. I believe China's position regarding VPN is similar. From time to time they close down VPN providers but by and large they don't go after VPN users.
I've heard of a story where a police officer notices that a citizen has a VPN installed on his phone. The police officer then confiscated his phone. Later on, that officer's superior apologized to the citizen and gave back his phone, saying that his junior is new and doesn't understand China's laws very well yet.
If someone is arrested for VPN'ing then it's usually tied to something else, such as high-level political dissent. From what I understand, you don't get arrested just for dissent: you'll have to be on the level of Julian Assange in order to really get in trouble.
Businesses can apply for a VPN license if they need to avoid the firewall in order to do business with foreign countries.
(Part 1) Okay this is complicated to explain to a western perspective so I have to split my answer in multiple parts.
First, about China's political system. China is often described as totalitarian or a dictatorship. And certainly there is less political freedom than in many western countries. But "totalitarian/dictatorship" doesn't accurately describe it: it's better described as a political meritocracy. China's system has:
- representation
- voting (in a hierarchical manner)
- consultation of the people (this one has become very big nowadays)
- multiple parties (though CCP leads the pack, the other parties aren't empty zombies either)
This interview with professor Daniel A. Bell, dean at School of Political Science and Public Administration of Shandong University, explains how the system works: https://www.youtube.com/watch?v=D_ZzlPoapB4 (full disclosure: interview by CGTN, Chinese state media)
At 13:30 he explains why it makes no sense to lump China together with the likes of North Korea and Saudi Arabia.
An important distinction between the Chinese system and western systems, is that there is no separation of powers ala Trias Politica, in which different bodies and parties limit each others' power. Instead, the Chinese system is much more about collaboration, while at the same time the CCP stays firmly in power. A forced unity, if you will.
China's voting system is hierarchical. People vote for a representative at the village level. Those representatives vote for even higher levels. Here is a first-hand account by David Fishman, who is an expert on China's energy sector. https://twitter.com/pretentiouswhat/status/14283977611420180... During his holidays he met a village leader who has 90% election approval rating because he works hard for the benefit of his village. This thread describes how that village leader works, and how this village leader's attitude differs from higher-level governors that tend to be careerists. Fishman also says that in the next village, local democracy has unfortunately not resulted in a good representative.
Voting bubbles up to the top legislative body, the National People's Congress (NPC). This body makes national laws. Here is a good explanation video by Einar Tangen, political commentator who advised US, South Korean and Chinese governments (again full disclosure: he's hosted by CGTN): https://www.youtube.com/watch?v=5CpiLcLOTSg
The NPC actively consults lower levels, all the way down to the village level. For example, all new proposals are published through newspapers and people are solicted for opinions.
See also this thread: https://twitter.com/thinking_panda/status/120804266113685094...
There are 8 parties in China. But their relationship is not antagonistic, i.e. they don't fight for which party gets in power. The voting system selects representatives (people), not parties. The NPC consists of people from multiple parties, though in practice the CCP is the biggest party.
Government officials (including the president) are not selected through voting, but through meritocracy. They are promoted to a higher level (e.g. city -> provincial) based on how well they perform against KPIs. Promotion comes with relocation so that you get to experience (and must prove yourself in) different contexts: governing Shanghai is very different from governing the province of Guangdong.
This ties in with the "talk is cheap" concept: rather than selecting based on popularity, people would rather see that you prove yourself for 30 years and that you're not full of shit. Xi Jingping began as a village official, he literally had to work in poop (installing a methane tank in a village) early in his multi-decade career. Here are two interesting threads which describe the promotion process: https://twitter.com/thinking_panda/status/130578464126202675... (a general description) and https://twitter.com/thinking_panda/status/130699111582069555... (a case study of Hu Chunhua's career, who's the vice premier)
This is why Fishman talks about "careerists". Sometimes the interests of the province-level governor's career conflict with the interests of the local village.
So the NPC is similar to a parliament. Unlike western parliaments, the NPC's role is not to keep the power of the executive body in check, i.e. they can't oust the president (formally they can but there are technicalities why in practice they can't). Instead, the executive body and the legislative body collaborate more closely than in western systems. In western systems, politicians make proposals as an expression of ideology, and politicians do not have to be qualified in terms of skill or experience. It's the bureaucrats' jobs to implement new ideas. In the Chinese system, politicians consult bureaucrats a lot more, and decisions are made in collaboration rather than "thrown over the wall".
As I said, the CCP is the largest party and the NPC can't oust the CCP president. But that doesn't mean the CCP deprives non-CCP members from having a say. They have a body called the CPPCC (Political Consultative Conference) through which they actively consult non-CCP members (so people who either belong to other parties, or don't have an affiliation with any party) for political advice. Even though it "merely" has an advisory role and does not have binding powers, the CCP actively makes use of this body for advice on major political and social issues.
This is a lot of good information you provided and makes a good case for the CCP perhaps being legitimate, or perhaps least-illegitimate govt available given Chinese realities. I'll read up on the references you provided. Like anything, it is not universally bad, and there are many good things it does, and the meritocracy sounds great as you describe it. And the cooperation between the bureaucracy and politicians also sounds way more effective than things are often done in the west.
Yet the 8 parties with a non-adversarial relationship sounds like standard authoritarian controlled opposition.
Plus, there remain many problems both internally and on the international stage.
Internally, you make clear that the goal isn't 100% censorship, but only suppressing anything that might become a movement of it's own, even if apparently favorable to the CCP. And suppressing news that might turn to racist acts against Uyghurs is not a bad thing to do. Yet we still have 'forced reeducation' of a million of them. We still have the 6 year-old Panchin Lama and his family being disappeared 3 days after being recognized by Buddhist religious authorities, and a new CCP-appointed person announced, along with many actions to dilute Tibetean Buddhism. This is straight-up cultural genocide, designed to wipe out a culture in a generation.
We also have many wholly unjustified claims of sovereignity in international waters, islands, and Taiwan, for example. They blatantly violate the Hong Kong transfer agreements only a few years after they start.
You need only skim the Human Rights Watch reports [1] to see a litany of problems, all systematic, and not one-offs. Not to mention efforts to silence people abroad [2].
They say "don't interfere in our internal affairs" which sounds fine, except that they are actively attempting to annex and eliminate their neighbors.
And sure, if they've done so many good works, maybe they could win an election. But since they never put it to the test, I'm still not sure I could call it legitimate.
If they didn't have the systematic internal human rights oppression, and systematic international expansionism, I could see it as a legit alternative... but there are these core systematic problems underlying all the good stuff.
(Part 2) Man, I wish I could edit comments older than a few hours. I don't think I've explained the second half of my previous comment (about Tiananmen) in the best way.
I believe Tiananmen is better characterized as follows:
- The economic reforms in the late 1970s towards more privatization and more market economy, resulted in economic disruptions. Food prices and unemployment surged. People were unhappy.
- Young people (students) bought into the idea that the problems are caused by a lack of western liberal democracy. They started protesting, but they didn't understand how governance worked so their demands were very messy.
- The leadership still remembered the 1960s Cultural Revolution, during which the government was effectively overthrown and there was anarchy everywhere. As the protests raged on without clear demands and without clear conclusion, and also becoming increasingly chaotic, the leadership feared a new Cultural Revolution.
- The leadership all had military backgrounds (out of necessity, because of WW2, Vietnam War, Korean War). They didn't know how to properly deal with civilian protests. China also had no organization to deal with civilian unrest (no riot police) and no riot gear (like rubber bullets).
- Later on the protests became increasingly violent. Civilians attacked and killed soldiers and set tanks on fire. Having no riot police, the government sent in the military.
- Rather than "tanks rolling over people" and "soldiers firing into crowds", I believe the militarily primary tried to disperse the crowds rather than attacking them. But in some places fights still broke out and people (from both sides) were killed.
The documentary shows that some of the protest leaders were pretty disingenuous, undemocratic even (despite calling for democracy).
The person that Daniel Dumbrill interviewed corroborates the naitivity of many protesters back then.
Glad to see that you're genuinely interested in this topic! I'll also take a look at your articles.
I think "least-illegitimate" is key here. There is a philosophy that states that only the actually available options matter, not the theoretically ideal options that never were available in the first place.
This ties in with what you said about the CCP taking their ruling position by force. Historically speaking, how the CCP got into power (and how they are composed) is as close to democracy as you get, especially considering the available options.
The CCP got into power after the Chinese civil war of 1927-1949. After the fall of the Qing dynasty in the early 20th century, the KMT (Nationalist Party) got into power. But they were both corrupt and incompetent, and their loyalists consisted mostly of the tiny elite, so people revolted. The vast majority of the (poor and rural) population supported the communists. So it's not so much that the CCP took their position by force: they got into their position because they had the overwhelming support of the populace.
There were no further options other than Qing (weak, corrupt, incompetent), KMT (slightly less weak, still corrupt & incompetent), the various warlords because China fractured into pieces (each one corrupt and brutal) and the CCP (weak but got support of the majority). The CCP was regarded as the least corrupt because it was the most grass-roots movement. It was a peasant army.
My father-in-law explained it to me like this: 200 years ago, people were at the mercy of an emperor, who ruled by hereditary monarchy. 150 years ago, people were at the mercy of foreign imperialists, who exploited China for their own benefit. Today, the CCP rules, but the CCP consists of normal people and not a dynasty or foreigners, and therefore we have democracy.
That last sentence deserves more explanation. The CCP has 95 million members. That's about 5% of the population. This scale means that — even outside the NPC framework — there is a certain amount of people's representation just through party membership. Most party members are normal people who have a normal job outside party membership. For example teacher, factory worker, doctor. Pretty much everybody has a relative that's a party member. Party members are expected to work for the greater good. During the COVID epidemic in 2020, many frontline workers were party members. Not few of them either got sick or died.
The CCP just can't be compared to parties in western systems, it's conceptually very different. I think the name "party" is a misnomer: it's more like the fabric of the entire society. You say that it's necessary to make a distinction between people and government. But in the Chinese case, just by the sheer size of party membership, this distinction is truly very difficult to determine.
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Regarding your question about whether people know about Tiananmen and what they think: I have a radical statement to make.
The 1989 Tiananmen protests succeeded.
Not in the sense of overthrowing the government, but in the sense that the government realized that something big was going on and that people were unhappy. In response, they accelerated economic reforms and got more serious about improving people's lives. That succeeded.
This ties in a bit with what I previously said about "censorship doesn't mean that the government won't deliver". I've heard somebody explain censorship of 1989 as follows: the government is ashamed of themselves and that's why they'd rather not talk about it. But they'd still quietly do their job and address the grievances.
The Tiananmen event isn't talked about much in Chinese society. That's because, in contrast to the west, it's not known as a big scandal. A lot of the protesters have moved on, exactly because it succeeded per my above definition. Some of them regretted taking part and thought they were too naive. Nowadays, the location of Tiananmen is a popular tourist spot. People don't primarily associate the location with the 1989 event.
And the reason why it's not a big scandal is because it wasn't a massacre. There were fights yes, there were people that got injured or died yes, but it wasn't "tanks rolling over people" and "soldiers firing into crowds".
You know the famous Tank Man photo, right? Western mainstream media usually only shows that photo, or a short clip, with the implication that the man died because he was ran over. Well here's the full video: https://www.youtube.com/watch?v=qq8zFLIftGk
The man was never run over! The tank was trying to avoid him. The man even climbed on the tank, had a conversation with the soldier, and then the man left. Nothing happened to him. Imagine doing the same thing in a western country: you'd be shot before you even approach the tank.
This is such a huge contrast with how western mainstream media characterizes 1989, that I question their entire narrative. Leaked cables confirm that there was no massacre in the sense of the mainstream characterization of the event: https://www.telegraph.co.uk/news/worldnews/wikileaks/8555142...
There were still people killed outside the square. But it looked more like a riot that got out of hand, rather than "government one-sidedly massacres innocent people". For example, prior to the crackdown, people attacked and lynched soldiers. There are photos of burned tanks and burned soldiers.
This documentary analyzes the mainstream reporting of the event and critizes how it's characterized. The interesting thing is that his critique is based solely on western sources. https://www.youtube.com/watch?v=idv8Ne0xeTo
When I look at this documentary, I see that there was a lot of disingenuity in the protests — many protesters didn't know what they were doing and what they were asking, and blindly followed idealistic talking points with no regard for practical concerns, which is why from time to time I hear stories about former protesters being ashamed of how naive they were. It also looked like that the government exercised restraint as much as they could and knew how to, back at the time. The protests raged on for many days but got increasingly tense. The government tried multiple times to cool down the protesters.
I don’t take him seriously other than being a mouthpiece for the big banks in America. There’s a reason why he defended those banks in 2008, he’s connected. There’s a reason why he’s talking about them again here, which is weird because this whole thing about China.
China doesn't have boom bust cycles because:
1. It has little foreign debt.
2. It has a trade surplus.
3. It prints money to bailout any internal bad loans. It does this politically by picking and choosing winners and who gets bailed out, usually with foreigners getting stiffed.
4. Its bank bailouts do not require issuance of new debt or taxpayer austerity.
5. Banks do not all collapse at the same time because they get fresh new printed money to lend.
6. Anyone at the bank who takes advantage of that moral hazard to lend outside of guidelines gets executed.
7. The banks have very detailed guidelines for how they are to lend such that they are more or less partially privatized central planning.
8. The government regularly issues guidelines to preemptively crush bubbles on purpose by restricting lending to overheated sectors instead of across the entire economy via raised interest rates.
I am not a big fan of the CCP, but their financial system is impressive. That system, by design, has conquered the boom/bust cycle, but western observers refuse to believe this because they are so throughly bought into the architecture of the western financial system and the many billions of words written on the topic of the operation of that system which is based on very different rules that they cannot imagine it could work any other way.