xiaohongshu

China is a superpower. Get used to it.

Because in 5 years, these will become factual information when unravelled by archaeologists.

AI search engine - which will have become the mainstay tool for the masses to get informed - will point to these sources as truths and any question beyond that will be labeled as deranged conspiracy theory not worth entertaining, if not downright a danger to the society.

The behavioral control aspect of AI will ensure that the public consciousness, fully plugged into the mass surveillance and LLM technocracy by then, is finely controlled to perceive information exactly as intended by the ruling class.

It’s an entire cottage industry of “alt media” these days of which Berletic is among them, and these people are more interested in promoting a narrative that “the US empire is going to collapse anytime soon” to a gullible audience instead of providing objective assessments of the situation on the ground.

While some of the analyses are grounded, unfortunately they are far too often embellished with fantastical interpretations, while selectively omitting key facts of the so-called “anti-imperialist bloc” they are talking about to support a particular narrative.

The analyses are quite good, but as always, the problem for the Chinese leadership is how are you going to convince the local governments into getting onboard with these policies?

To understand why is this such a big issue, we need to briefly go through the Chinese economic history after Mao:

During the early days of reform and opening up, local governments were given a lot of autonomy to promote growth as centralized bureaucratic inefficiency had stifled the national economy.

Under this new central-local relationship, the local governments only had to pay a fixed amount of fiscal tax to the central government and were allowed to keep the rest of the revenues for themselves. This wasn’t so much of a problem in the early days when most provinces were still poor. However, soon the Southeastern coastal provinces were able to take advantage of their exporting capacities and grew very lucrative light manufacturing industries.

Their GDP growth would far surpass those of the other regions, and because the fiscal tax amount was fixed, these coastal provinces would soon accumulate large quantities of wealth, so much so that they began to exempt corporate taxes and initiated a wealth-sharing scheme with the corporations themselves. This only served to exacerbate the wealth disparity between the provinces as corporations would rather invest in those regions where they are allowed to enjoy tremendous benefits and wealth-sharing with the state governments.

By the early 1990s, due to the existing arrangement, the central government received only ~20% of the tax revenues while the rest of the 80% were left for the local governments to do as they please.

To remedy this, the Tax-Sharing Reform was implemented in 1994 that would have profound and unexpected consequences to the Chinese economy.

First, under this new tax reform, local governments would have to pay a much higher tax rate to the central government, and the central government would then re-distribute the wealth back to the local provinces as needed. 75% of value-added tax goes to the central government, while the local governments only get to pocket the remaining 25%.

Second, and more important, local governments are now responsible for their own finances and operating expenditures. This new policy relieved the central government from having to finance for large scale investments as well as the operating expenditures of the SOEs spread across the country. The local governments would now have to find their own means of financing these budgets.

Almost immediately, the Northeastern Three Provinces (Heilongjiang, Jilin and Liaoning) - the fortress of China’s heavy industries - began to panick. These provinces were where most of the heavy industry SOEs were located and heavy industries typically require huge amount of investment and budgets to finance their operations, especially when compared to the light manufacturing sector. Previously, they were able to rely on the central government financing and enjoyed relatively prosperous living standards, but now under the new tax-sharing scheme, they would be the ones to lose the most.

And so, lacking the means to finance themselves, the Northeastern Three Provinces did something so radical that would have a far-reaching consequence to this day - privatization.

Private capital did what private capital does best with their “reforms” of these SOEs and laid off millions of workers. To emphasize on how radical this meant: this would be the first time since the founding of the PRC that a Chinese worker would experience unemployment!

Between 1996-2002, nearly 60 million Chinese workers would lose their jobs. Economic recession fueled sky high rate of inflation, corruption was abundant as local officials would sell off state assets worth billions of yuan for cheap to private capitalists. It would take China joining the WTO in 2001 and turned itself into the world’s factory (while stripping off labor rights) to reverse the economic downturn.

However, this would not be the only consequence. The new tax-sharing policy has made the local governments realize that they can no longer rely on central government financing, and would begin to seek other non-tax revenues to replenish their coffers. And where could the local governments go to find another source of lucrative revenue? That’s right - selling and leasing land.

The seeds for a speculative property bubble had been sown since the late 1990s, and now all it needed was to wait for a new national policy to come into effect for it to blow up.

As the subprime mortgage crisis in the US led to a global financial crisis around 2008, the loss of export revenues would led the central government to carry out a new national policy - a 4 trillion yuan stimulus for infrastructure building.

The time has finally arrived. Local governments would take advantage of their land financing ability, and formed a local government-shadow banks/financial institutions-property developer triad. First, they borrow heavily from the financial institutions through shadow banks to invest in infrastructure building and new housing projects, hoping to drive up land prices that they can then sell off for lucrative sums of income. A speculative housing bubble was being fueled.

By 2015, the amount of hidden debt (i.e. debt borrowed through shadow banks) racked up by the local governments was so massive that the central government had enough of it. And the infamous 谁家孩子谁抱 (if this is your child, then you fetch them yourself) policy aka “we’re tired of bailing you out anymore and you’re now going to be responsible for your own debt problem” was implemented.

Before this, local governments were not allowed to borrow from banks, hence it had to go through shadow banks and ended up as “hidden debt”, but now the central government has conferred the local governments the ability to issue their own debt in public. As expected, the borrowing became even more reckless after this, as peer competition forced each municipal and provincial governments to invest even more in housing and infrastructure to drive up land prices. Truly surprisingly, the housing bubble imploded. Nobody could have seen this coming.

As you can see, a lot of the problems in China today stem from the conflicting and contradictory relationship between the central and the local governments, and the inability of the former to curb the recklessness of the latter.

lowering taxes on the poor

Only 60-70M people pay income taxes in China, because you need to make at least 5000 yuan/month (~$700 USD) in order to be eligible for paying personal income tax.

That’s ~5% of China’s total population, or ~9% of its total workforce. The rest of the 90% don’t even make 5000 yuan/month. How are you going to lower the tax more on the poor?

creating new SOEs and expanding the current ones

The local governments are running on a tight budget right now because of the overhanging debt and there are even SOEs that have delayed wage payments to their employees for months now. This is why Xi has recently doubled down to unswerving support for both the public and the non-public sector to reaffirm the party support for private capital.

The era of public sector driven growth is over. China’s economic model that adheres to neoclassical rules dictates that private (and foreign) capital has to come and save the economy.

more working benefits e.g vacation time, less working hours

Full agreement here. But this is going to cut into the corporate profits and many key sectors including EV and solar panels have been embroiled in price wars that have been driving down their profit to razor-thin margins.

This means the corporations have to exploit the workers even harder to squeeze out more surplus value just to survive. Of course, the government is well aware of this and has been calling to stop the price wars drive by cutthroat competition.

However, the main tax revenue of both China’s central and local governments is the value-added tax and followed by corporate income tax, which presents a dilemma for the government. They need the tax revenue from the corporations to maintain their operating expenditures (somebody has to run the city subway, rails, public utilities and infrastructure, you know), and so exploitative practices will continue until we have a system where the government finances do not rely on these sources of income.

(Not so) fun fact: the EV price war in China was started by Elon Musk’s Tesla in 2023 and has since driven the EV prices in China down so much that we’re looking at ~4-5 surviving companies at the end of this as profits are being cut to non-existent for most of the ~50 EV companies that are still hanging by the thread. In 2018, there were over 500 EV companies in China. The vast majority of them have and will eventually implode, causing more unemployment and job losses down the road.

more worker ownership culture e.g Huawei's bonuses etc

You realize that Huawei employees get ZERO day of annual leave? Yes, zero.

Workers do not own Huawei. They have access to own “virtual shares” if they sign what’s called the “Striver’s Pledge”, which demands that you forgo many common benefits including annual leave in exchange for better overtime pay, virtual share ownership, and promotion opportunities.

Honestly I think your position is too cynical. It is entirely possible to be anti-imperialist/America while still being an adherent of neoliberal economics. Russia and China as you mentioned are the two prime examples of this.

Both of their policies aren’t necessarily that they want to become “friendly” with the US, and it would be ludicrous to suggest that either of the leaderships isn’t aware of the danger of making deals with the empire.

However, when you only have the neoliberal toolbox, your solutions are going to be constrained by what’s available in the box.

For Russia, if you’ve seen my past comments, it’s becoming clear that the prolonged period of high rate (20%) from Russia’s central bank (Nabiullina-Siluanov-Kudrin neoliberal faction) has finally impeded the Russian government’s effort to drive domestic investment (Mishustin-Belousov nationalist faction). Without the high interest rate, Russia would have been in a far better shape today since the war started. It’s not that they are not trying to do anything, but they are ideologically constrained by what’s available in their neoliberal toolbox.

And for China, again, I’ve said many times that they have fully bought into the IMF “balance the budget” indoctrination and believe that they have to rely on export-led growth to drive domestic investment (so as to keep government deficit low). As such, when the economy is slowing down, they only have the neoliberal toolbox to rely on due to ideological indoctrination by the IMF/Western neoliberal economics. In fact, the CPC is very adamantly against welfare state and has publicly stated this many times, and Xi Jinping has said before that Latin American-style “welfare state” will only encourage the people to turn lazy. This is also a major reason why they keep missing the obvious solution to alleviate the domestic consumption problem. These people aren’t stupid, you know.

I’m gonna start calling it Trump’s musical chair.

Trump is expanding the American casino capitalism and force the whole world to participate in it. And because you cannot predict when the music is going to stop, the competition and backstabbing becomes even more intense among the countries hit by tariffs because nobody wants to be the loser during every round of reshuffle.

Somebody help me here, despite the denial from the Iranian side, is this not compatible with Lavrov’s speech at the BRICS summit last week?

As for Russia, we are not talking about mediation. President Vladimir Putin recalled that, when the Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear programme was agreed, Russia’s possible role was considered, particularly in depleting the enriched uranium stockpiles accumulated by Iran prior to the agreement, rendering them suitable for peaceful energy use in nuclear power plants. In the years since the US unilaterally withdrew from the JCPOA, Iran has not been bound by its earlier enrichment limitations, but now that is the subject of renewed discussions. You have just reminded us that we have the necessary technological solutions. We are ready to provide them, including processing Iran’s surplus highly enriched uranium in Russia and returning it to Iran in a form suitable for energy purposes.

Of course, this would happen if both parties are comfortable with Russia helping to bridge the gap. At present, the US is showing an interest in resuming dialogue with Iran, with support from Oman and several other Gulf states.

It is worth noting that the JCPOA was the result of multilateral diplomacy involving not only the US, but also European partners, Russia, and China, and it was widely welcomed by the international community before its collapse. Should Tehran – its central party – express a desire to move forward, Russia would have no objections to contributing to the mediation effort.

Russia is saying that they are willing to be the one to perform the enrichment/depletion and supply the “suitably” enriched products to Iran as a potential solution.

Reading between the lines, this solution implies that Iran would no longer need to have the enrichment capacity if Russia is going to be the supplier of enriched uranium.

What sort of evidence are you looking for?

All the major Southeast Asian exporters e.g. Thailand, Indonesia, Malaysia are talking about hoping to reach a deal with Trump by the August deadline. These are all over the news. We even have reports from Vietnamese officials saying they felt they were screwed by Trump with the 20% tariff when they thought they had negotiated a lower rate.

If the US trade is really dispensable, these countries could simply not sell to the US and they won’t have to deal with Trump’s tariffs. However, they couldn’t. Why?

This goes to the most fundamental question that I raised above: where else are they going to sell to? If they can’t sell their surplus goods, then the workers will lose their jobs and those countries will enter a recession, and likely have to take IMF loans to bail themselves out of an economic crisis.

So for them, it’s between taking a painful and humiliating deal now, or the humiliation of letting IMF/foreign capital strip off your national assets later when your economy enters a recession. Peer competition makes this pressure even more intense, because your neighbors might get a better deal from Trump and you would turn out to be a loser in this reshuffle. Nobody wants to be the ultimate loser in this race, so they all try to cut a deal with Trump. The goal isn’t even to get the best deal, it’s to not get the worst deal among your peers.

To render Trump’s coercion toothless, somebody else would have to step up to buy the export goods from these countries. There are only three major economies outside of the US that can absorb these surplus goods: China, the EU and Japan.

The EU would have been a good choice ~5 years ago since the euro is a commonly accepted currency that many countries would be happy to save in, but this is no longer possible after the Nord Stream bombing and the EU economies are now entering austerity - i.e. they can no longer play the consumer role to replace the loss US consumption demand. (There is a reason why Trump didn’t start a global trade war back during his first term and only limited to China. The US realized that the EU could pick up the slack. And so Biden’s Ukraine War had to happen so Trump can launch his global tariffs.)

Japan is slowly crawling out of its decades-long zero growth economy but it is still far from having the capacity to absorb the global export surplus.

This really only leaves us with China, with a far larger consumer market that can easily absorb these export goods. I’ve explained the reasons above why China is reluctant to do so so I won’t be repeating them here.

The end of an era. The fracture of the axis.

“Victory of the Axis (of Resistance)” (cover of Maraya Magazine, October 2018 issue)

China allied with the US to fight against the USSR - the country that kickstarted its industrial, scientific and technological base - not even 20 years after the US killed half a million People’s Volunteer Army during the Korean War.

Vietnam was carpet-bombed to hell by the US with millions and millions of casualties, and yet they are just as keen to serve the US empire today, and has been so since the end of the USSR.

This is just socialist countries using their understanding the material reality to do what they have to do to get ahead in the world, because they very consciously do not want to end up like the DPRK. To pretend otherwise is to assume that the leaders of these socialist countries are stupid.

It’s not the “importance” in trade, it’s how you want to build a new future economic doctrine that can make these developing countries become independent from US imperialism.

I have said this many times, the current trajectory with Trump’s tariffs is just going to intensify the competition of all these countries with China as they have to sell their surplus goods elsewhere. They cannot compete with China - this is a fact. I’m not going to sugarcoat it, but these countries do not have the capacity nor the technology to compete with the Chinese export industries.

This is why many countries are desperately trying to make deals with Trump, because there is nowhere else for their surplus goods to go, and this makes them vulnerable to financial warfare from the US.

More investments from China simply means China helping to build the supply chain for the US, for the US finance capital will take over these assets when businesses begin to fail and countries go into recession.

Ironically this was exactly what happened after the 1997 Asian Financial Crisis with mass IMF bailouts that killed the rise of ASEAN as a regional economic power. And guess who’s in charge of Trump’s trade negotiations these days? That’s right - it’s Scott Bessent. Read my comment here about Bessent and the Asian Financial Crisis.