What they need is a big war. They have enough nationalism in their public consciousness that the country would be ready to suffer losses in lives unlike western countries where the public is to demoralized or globalized. The war can provide them with enough flexibility for a wide range of options i.e. financial repression, massive inflation and bailing the banks through the depositors. Whatever public backlash will be negated through the rally around the flag effect. Yes millions will be unemployed but people will suffer through that for a temporary period until the war continues. The war can also give them an excuse to unload foreign reserves in usds. This obviously would hurt but atleast some fools would buy the excuse and not see the issue. The war cant be Taiwan invasion because it would be over in just a few days. Plus the losses in human and material costs would be too low to justify the kind of hurt it would put on the average chinese. The invasion can be done losing next to no one simply by blockading the island and dare the us navy to break the blockade any ship which attempts to do so can be finished by antiship missiles. Plus no idea why you think the chinese would ever lose military advantage over Taiwan except in the case of complete state collapse. Also how is the us going to overcome the rare earth leverage the chinese have? Also how is russia a liability? It is the biggest, most resource rich, soverign country with healthier financies than either us or china. Yhe war will be over in a few months. The war strategy I me tion above is what the us did after nixon abolished the gold standard permanently in 1971. They organized the Yom kippur war and the subsequent arab oil price hike inorder to coverup the inflation caused by nixons decision.
Great analysis on the #1 economic domestic issue in China. Your point about gold purchases in China (and if one includes Hong Kong, China has been the #1 importer of gold since 2020) is a great point that they probably more worried about storing their own wealth in a non-Chinese asset versus hedging from the U.S. dollar. Their fiscal constraints is probably one reason why they haven’t been as aggressive in the data center build out (even though they shouldn’t have the power capacity constraints).
1. Isn't financial repression literally "a set of government policies that channel funds from the private sector to the government to help reduce its debt burden. This is typically achieved by keeping interest rates artificially low, often below the rate of inflation, effectively creating a "stealth tax" on savers while benefiting borrowers and the government." (quoting gemini for impartiality here)...
2. Selling of public land is explicitly called out as part of the problem in the piece, no?
3. Not sure what entitlements you are talking about? I always suggested that they increase entitlements to give people more of a safety net, especially given the depressed economy, so a little unclear how cutting them would reduce backlash...
Wow, thank you. Knew they had problems in re, unemployment and elsewhere, but didn't know it was this bad. But makes sense. Can't patch a large hole forever when hole is growing. This should be mandatory reading on Twitter.
Great article! I’m confused tho, decoupling from US sounds like taking the medicine and making everything worse. It sounds like China should avoid confrontation, try to take any deal with the US (saving face ofc), and keep extending.
Thanks for your work. I am not arguing against your case, but there are two factual errors in your essay. First, the total equity of banks in China is around US$5.2 trillion , rather than US$3 trillion: http://www.pbc.gov.cn/diaochatongjisi/resource/cms/2025/07/2025073116053095085.htm.
Second, China M2 is just 212% of US M2, a far cry from 3 times you claim to be.
This is the best thing I’ve read this year.
Great information, along with references to Dr. Strangelove and The Big Lebowski? That's called a win-win.
What they need is a big war. They have enough nationalism in their public consciousness that the country would be ready to suffer losses in lives unlike western countries where the public is to demoralized or globalized. The war can provide them with enough flexibility for a wide range of options i.e. financial repression, massive inflation and bailing the banks through the depositors. Whatever public backlash will be negated through the rally around the flag effect. Yes millions will be unemployed but people will suffer through that for a temporary period until the war continues. The war can also give them an excuse to unload foreign reserves in usds. This obviously would hurt but atleast some fools would buy the excuse and not see the issue. The war cant be Taiwan invasion because it would be over in just a few days. Plus the losses in human and material costs would be too low to justify the kind of hurt it would put on the average chinese. The invasion can be done losing next to no one simply by blockading the island and dare the us navy to break the blockade any ship which attempts to do so can be finished by antiship missiles. Plus no idea why you think the chinese would ever lose military advantage over Taiwan except in the case of complete state collapse. Also how is the us going to overcome the rare earth leverage the chinese have? Also how is russia a liability? It is the biggest, most resource rich, soverign country with healthier financies than either us or china. Yhe war will be over in a few months. The war strategy I me tion above is what the us did after nixon abolished the gold standard permanently in 1971. They organized the Yom kippur war and the subsequent arab oil price hike inorder to coverup the inflation caused by nixons decision.
Excellent work!
Great analysis on the #1 economic domestic issue in China. Your point about gold purchases in China (and if one includes Hong Kong, China has been the #1 importer of gold since 2020) is a great point that they probably more worried about storing their own wealth in a non-Chinese asset versus hedging from the U.S. dollar. Their fiscal constraints is probably one reason why they haven’t been as aggressive in the data center build out (even though they shouldn’t have the power capacity constraints).
The essay touches on an important question. But it misses key aspects of the political economy.
First, strict capital and information control substantially lessens the risk of financial repression.
Second, assets in the form of SOE shares and urban land, which could be privatized to fund the government. It's a vast sum.
Third, the capacity to cut entitlements to recapitalize banks without voter backlash.
I would recommend reading the fundamental books on Chinese political economy first.
https://zixuanma.blog/p/the-six-foundational-books-to-read
1. Isn't financial repression literally "a set of government policies that channel funds from the private sector to the government to help reduce its debt burden. This is typically achieved by keeping interest rates artificially low, often below the rate of inflation, effectively creating a "stealth tax" on savers while benefiting borrowers and the government." (quoting gemini for impartiality here)...
2. Selling of public land is explicitly called out as part of the problem in the piece, no?
3. Not sure what entitlements you are talking about? I always suggested that they increase entitlements to give people more of a safety net, especially given the depressed economy, so a little unclear how cutting them would reduce backlash...
Why wouldn't China just print and devalue the Yuan? It would create a period of high inflation but it seems like a potentially easier way out.
Excellent
Wow, thank you. Knew they had problems in re, unemployment and elsewhere, but didn't know it was this bad. But makes sense. Can't patch a large hole forever when hole is growing. This should be mandatory reading on Twitter.
Great article! I’m confused tho, decoupling from US sounds like taking the medicine and making everything worse. It sounds like China should avoid confrontation, try to take any deal with the US (saving face ofc), and keep extending.
Wow, this is super interesting.