Economic Crisis 101: Why Beijing's "Solution" Is a Recipe for Disaster | Digging into China

Hi, I'm Dong Sean. Welcome to Digging into China, where we explore China in depths to reveal unique perspectives. You might think this sound totally off the wall when I say it, but here is the thing. Overall, from the top levels right down to the bottom, Chinese people have zero real understanding of what an economic crisis actually is. Let me start with this document that came out on November 25th from six government departments including the Ministry of Industry and Information Technology and the National Development and Reform Commission. It's a plan to boost consumption and its full name is implementation plan for enhancing the fit between supply and the demand of consumer goods to further boost consumption. This document stands out as the only one this year from the Chinese Communist Party that's been jointly issued by multiple departments to fight back against the deepening slump that's cracking everything apart. The six departments involved the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Commerce, the Central Bank. They are all pretty influential players in society. So this file naturally grabbed a ton of attention in the financial world. China's financial elites were all applauding wildly and singing its praises, collectively proclaiming that with this lofty document as their guide, China's consumer market is sure to explode in growth, zoom past the competition, and leave America and Europe way back in the dust, not even able to catch a glimpse of our tail lights. As for the main points in this documents, I've pulled out all the core stuff here so you can take a quick look. The first big item calls for building three trillion UN level consumption sectors and 10 billion UN level hotspots. Sounds like a really bright vision, doesn't it? The file lays out the six major categories with a total of 19 measures. So, it's got real planning steps and actions laid out. To a lot of Chinese folks, this looks like the most actionable document since the real estate bubble burst in 2021 and the economy slid into this slump era. Let's take a peek at what these measures actually say. The second item is about ramping up innovation, which boils down to expanding production capacity. The government wants all sorts of so-called innovative factories to get upgrades, bring in artificial intelligence, and push production as far as they can. The third item is expanding supply, which points the second item's capacity growth in six directions. Green products, rural consumer goods, leisure and sports products, health products, classical historical brands, and diverse hobbybased consumer items. In these six areas, they can just go wild expanding production. The fourth item is precisely matching the needs of different groups of people. They want to target four kinds of folks to turn into buyers for these products. Those fours are infants and toddlers, students, trendy types, and the elderly. The fifth item, cultivating new consumption scenes and business models. The sixth, creating a good environment for growth. These are all just empty talk and a boilerplate. So I won't bother going into them. To sum it up, the big idea from these six core departments for their ultimate weapon to boost the consumption is to further expand the production capacity in six directions at once. Endlessly expanding it, bringing in AI to expand it even more. then selling it all to infants and the toddlers, the students, the trendy types and the elderly. Pay attention here. The key words are expanding capacity and increasing supply. That means in the eyes of these six departments, the reason China's economy has been sliding into a slump step by step is because there's not enough supply. So they figured they just need to give regular people more supply, more consumer goods, endless consumer goods, and then folks will be thrilled to go on a buying spree and boom, the economy will suddenly be booming again. China's clueless economists are raving about this kind of logic, saying it nails the pain point of the Chinese economy in one shot. Like the saying goes, get one thing right and everything falls into place. Laid one punch and you dodge a hund more. With this, in the next round of the US China trade war, China will surely cut America down and stomp on it 10,000 times, sending the US straight to hell, never to rise again. Folks, by now, I bet you've got the full picture. The Chinese government's answer to fixing the economic slump and boosting consumption is to expand the production capacity even further. And since this is a document from six major departments working together, it shows this kind of governing logic has sunk deep into every corner of the government into their brains, their hearts, their souls. So expanding capacity is definitely going to be China's go-to strategy from here on out. Keep in mind that up to now, besides this one document, the Chinese government hasn't put out any other executable plans for dealing with economic slump. That means expanding capacity is pretty much the CCP's one and only plan. And so this world historical spectacle, tackling an economic crisis by expanding production capacity, something that's never happened before in human history, is about to unfold right in China. To really get how absurd this maneuver from the Chinese government is, I have to explain the true nature of an economic crisis. Under industrial civilization, the heart of an economic crisis is over production. Consumption power just can't keep up with all the production capacity. Those excess goods pile up without being absorbed which snaps the cash flow across society and triggers a brutal economic crisis. To fight back against the crisis, human societies have gone through round after round of trial and error. At first, European governments had no clue about the crisis and just let ordinary people starve to death. Later on, European government started realizing they had to boost consumption power to soak up the excess capacity. So, they kicked off non-stop colonial expansion. At its core, so-called colonization was just about expanding markets to dump your products, basically grabbing more consumption power. Pretty soon, America and Japan jumped into the fight for that consumption power, too. By the early 20th century, every country had a crystal clear grasp. Lose that boost from external consumption power and the industrial capacity you've built up turns into a ticking time bomb in your hands. One you can't even diffuse. Without a steadily growing industrial capacity to back up your military strength, you would end up as someone else's colony. But having industrial capacity also means every 20 or 30 years the economic crisis hit like a full-blown explosion leaving the whole country in agony and there is no real way to dodge it. Dumping goods into colonies couldn't cure the crisis but it was the only way to ease the pain. None of the European American or Japanese powers wanted to let go of their colonies and they all eyed each others hungrily. So, World War I and World War II blew up one after the other, and the world slipped into non-stop chaos. After World War II wrapped up, all sorts of regional wars kept going, like the Korean War and the Vietnam War. They were all aftershots from World War II. It wasn't until the Vietnam War ended in 1973 that the world finally settled into something like a general peace. Note though this piece was built on a really shaky foundation. America used the Bretonwood system to pump out buying power to the whole world. First they leveraged the gold as a way to export that buying power outward. Once America's gold reserves ran dry, they switched to using government debt as the lever to keep exporting buying power. And that China just happened to ride this wave of peace right into a sweet spot. In 2001, China joined the World Trade Organization and the European and American countries rushed to shift their basic manufacturing over to China. At the same time, they pushed the wave of de-industrialization at home, which led to their own version of rust belts. Looking back now, it seems like the leaders in those western countries were always scared stiff of their own manufacturing capacity. So they couldn't wait to offload it. Sure, they loved the perks of industrial civilization, but they wanted to break free from the curse of economic crisis. Back then the perfect setup they came up with was Europe and America handled the R&D and the design, China does the production and America handles exporting the buying power to snap up the goods China turns out. Under that model, European and American countries didn't have to carry the nightmare of excess capacity anymore. Capitalists could keep raking in fat profits while hardworking Chinese workers put in 12-hour days to supply affordable quality goods to everyday folks in the West. What a winwin. As long as America could keep exporting buying power and buying up 40% of China's exports, everything would run like clockwork and economic crisis would stay a thing of the past. But that model has chugged along until now and it's hit its absolute limit. The US national debt has ballooned past $ 38 trillion. Even as the world's top power, America can't show that kind of government debt forever. The fragile world peace held together by America's exported buying power has to shatter now. The whole globe has to slide back into crisis and conflict mode. That's the big trend. No fighting it. So Trump's top job was rebuilding the global trade order. He launched the trade wars against the world, then hammered out the fresh trade deals with every country, forcing them all to open their markets wide to America, ramp up investments there, slash tariffs on US goods, and scrap all those non-tariff barriers against America. Of course, his biggest foe had to be China. There is no way America keeps exporting buying power to China. That's a given. And for China, the huge headache coming up is where to find that buying power to fill the massive gap left by America's pull out. But here's where things get hilarious as they play out this far. Chinese people couldn't care less about the buying power gap. You've got the two million top elites, 8 million government workers, thousands of clueless economists, and China's 1.3 billion everyday folks at the bottom. Everyone stays laser focused on just one thing, expanding capacity, filling all sorts of capacity gaps, like filling the gap in advanced chips, in big passenger planes, in luxury electric cars. To Chinese eyes, as long as you keep producing, cranking it out like a mad, make enough stuff to lost every Chinese person three lifetimes, the economic crisis just won't show up. Right up to this moment, these six departments have rolled out their manifesto for expanding capacity. The new document points to six directions for that expansion, and it's cranked this frenzy of overp production to an all-time peak. At this point, everyone's production fervor has been lit up. They've all going nuts. To be honest, this absurd mindset among Chinese people, I can only put it this way. This is what you get after 5,000 years of hardship capped off by the last 75 years under Communist Party rule. Ever since Chinese people started recording their history in writing, these two words supply shortage have been etched into every line. As the world's oldest farming powerhouse, the core trait of agriculture civilization is a low production efficiency. relying on backbreaking manual labor that could never meet the needs of the masses. It could only satisfy the lavish excesses of a tiny elite by leaving most people in hunger and cold. And if a drought or flood hit or invaders broke the rhythm of farming, the whole country would plunge into widespread famine overnight. A quarter of the population starving to death was no big deal. The terror of material shortages got carved into Chinese genes and it's got top priority in their mental programming. Anytime there is the slightest ripple, this shortage phobia fares up hard and the Chinese people flat out don't realize they've stepped into the industrial age. Material shortages aren't even something industrial civilization needs to worry about. The fatal flaw there is the exact opposite. Machine-driven mass production that is so efficient it always leads to overp production which shows up as not enough consumption power. Bringing in consumption power from outside is a skill industrial civilization has to master. But that genetic stamp on Chinese people runs way too deep. The nightmare of material shortage that's haunted them for over 5,000 years still has its claws in. And in this century so far, the world hasn't had a full-blown economic crisis either. Chinese people have never witnessed one, never lived through one. Everyone's missing the whole concept of a crisis. They have no grasp of overp production, let alone how to supplement buying power. So the classic moves from 20th century Europe and America for handling crisis like building out the full social welfare systems while slashing taxes big time to pump more buying power straight to the bottom. China's government doesn't even glance at them. And ordinary Chinese people have zero demands for that stuff. They even flip it around and blast the public intellectuals who bring it up saying, "Why are you pushing this trash from the west?" With that kind of a broad public backing, every move from the Chinese government to this day is about squeezing the buying power out of ordinary people even more. hiking consumption taxes, value added taxes, income taxes, social security contributions, pushing back retirement ages, and clinging tight to the real estate bubble to drain every last drop of blood from the people. As for dealing with the crisis, just keep expanding capacity. Of course, the six departments have laid out the six directions for capacity expansion. I figured each department probably claimed the one and they are all beaming with a pride and a confidence full of hope for what's ahead. A government this ridiculous is not far from getting tossed out. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. It really helps YouTube suggest my video to others. I'll be back with more content soon. Until then, be well.