Is the CCP Deliberately Undermining China's Economy?

A lot of people now believe that China's economy is entering — or has entered — a depression. However, would anyone believe it if someone proposed a theory that the Chinese Communist Party (CCP) was creating this situation intentionally?

If this is the case, what will happen in China's economy, politics, and society in the future?

The History of Mankind

There are two main reasons to believe that the CCP may be intentionally driving the Chinese economy into ruin. First, we know from the history of mankind that industrial civilization is the natural enemy of totalitarian regimes. The two cannot coexist for long. 

The essence of industrial civilization is trading commodities. Trade must be based on freedom and fairness to be maintained in the long run. Therefore, no dictatorship can long maintain a free and fair market environment. A dictatorship must prioritize the interests of a small group of people. This will surely infringe upon the interests of the majority of the people, thereby destroying the market. In turn, this will destroy industrial civilization.

Consider Germany before World War II, the former Soviet Union, and Argentina under the postwar dictatorship of Juan Perón. The history of these countries shows that the totalitarian model and industrial civilization can coexist for one generation at most. After that, there will come a moment when only one of the two can survive.

Probabilistic Point of View

Second, let us look at the path that China has taken in the past decade. During that time, almost all of the CCP's major policies related to the Chinese economy have been wrong. There was the "one-size-fits-all" environmental policy, the three-year zero-COVID lockdowns, the destruction of the education and training industries, the drive to grow rice on mountains, and many more.

From a probabilistic perspective, if a person does not know the right answer, the probability of making a mistake in a choice is 50%. 

Conversely, the probability of making eight consecutive mistakes is 50% to the eighth power, which is only 0.0039, close to zero. 

This means that the CCP cannot be unaware of the right answer. It is precisely because they know the right answer that they are able to choose the wrong answer every time.

The Road to Intentional Depression

1. Presenting False Goals and False Slogans

If the CCP really did want to sandbag China's economy, what exactly has it done?

First, the CCP has done a good job "packaging," or making things seem other than they are. It pretends to develop the economy, pretends to be trying to catch up with Europe and the United States. Additionally, it has fabricated grandiose industrial development plans that will never be implemented.

However, what the CCP really wanted was to empty the pockets of the people. It wanted to turn all the net wealth that the Chinese people had accumulated in the past 30 years of hard work into net debt. By doing so, it would deprive the Chinese people of their ability to invest or start new businesses. Reduced to such penury and slavery, the Chinese people would then be debt-ridden cowards. They would be toiling and never daring to complain in the slightest.

2. Blowing Up the Real Estate Bubble and Emptying People's Pockets

How could the CCP reduce the Chinese people to poverty and debt? The answer is just as we have witnessed. The CCP has inflated a real estate market bubble and stimulated people to buy houses. 

In 2014, the Chinese real estate market showed signs of decline. At that moment, the CCP introduced the so-called "real estate destocking" policy. This involved introducing a unified national destocking policy to reduce real estate inventory. Banks, trusts, and funds lent money to real estate companies frantically. The banks tried their best to encourage people to buy homes on a mortgage, the more expensive the better.

As a result, the bubble was quickly inflated. The annual sales of housing rose from ¥7.6 trillion RMB ($1.06 trillion USD) in 2014 to ¥18.2 trillion CNY ($2.53 trillion USD) in 2021.

At this point, people's wallets had been emptied, and they had no more power to support the market. The bubble burst and the market shrank.

Sales of properties fell to a level of ¥13.3 trillion ($1.85 trillion) in 2022, while in 2023 it shrank further to ¥11.66 trillion ($1.62 trillion). This was already roughly back to the 2016 level.

And one can easily predict that the market will continue to shrink significantly this year.

A Planned Demise

It is also important to note that when real estate was de-stocked in 2015, the CCP poured out real money to keep the bubble growing. Annual real estate loans rose rapidly from ¥5 trillion ($700 billion) in 2015 to ¥7 trillion ($970 billion) in 2016, and then peaked at ¥9 trillion ($1.25 trillion) in 2020.

However, in 2023, the real estate bubble burst. Although the CCP shouted out numerous slogans to save the real estate market, it did not invest any real money in it.

So the reality is that the CCP paid real money to blow up the real estate bubble, let it burst at a high level, and is now waiting for the whole market to die of its own accord.

3. Driving out Foreign Enterprises

The third thing that the CCP had to do to destroy the Chinese economy was to quietly drive away foreign-funded enterprises. Foreign capital was originally the driving force behind China's industrialization process. Allowing foreign enterprises to stay would leave behind the seeds of industrialization. Therefore, foreign enterprises must go.

That's why, after 2014, the operating environment for foreign enterprises began to deteriorate. The number of employees in foreign-funded enterprises peaked at 29.63 million in 2013 and then turned downward. 

By 2022, the number had already dropped to 22.78 million.  

But that was not enough. In 2023, the operating environment for foreign enterprises further deteriorated. 

The CCP rolled out a series of measures, such as the anti-espionage law, tax investigations, information security checks, and more. These accelerated the pace of foreign enterprises fleeing. Financial foreign enterprises in Shanghai, for instance, have basically disappeared. 

By the third quarter of 2023, foreign direct equity investment in China has turned negative, at minus ¥11.8 billion ($1.64 billion).

4. Getting Rid of the Dependence on Foreign Exchange for the Issuance of the RMB

The fourth thing to do was to get rid of the dependence on foreign exchange for the issuance of the renminbi (RMB), China's currency.

For a long time, the main way to issue RMB was to exchange foreign currency, which led to the formation of the so-called "funds outstanding for foreign exchange" in the central bank's assets. This refers to the amount of domestic currency that a central bank issues in exchange for foreign exchange assets. 

In 2000, the proportion of foreign exchange reserves in the central bank's assets was only 37.6%. It peaked at 83.3% in 2013. This meant that in 2013, the central bank's assets were basically derived from foreign exchange.

Cutting the RMB's Moorings

The situation then took a turn in the opposite direction. The ratio of foreign exchange reserves fell rapidly, to 51.5% in 2022 and 49.9% in November 2023, ie, finally dropping below half.

At the same time, the ratio of central bank lending to commercial banks has risen sharply, from 4.1% in 2013 to 38.6% in November 2023.

Where Did the Massive Trade Surplus Go?

Devaluing the RMB is not easy because China's manufacturing sector is very strong in earning foreign exchange surpluses. For example, in 2020, China's trade surplus in goods was $535.1 billion. In 2021 it was $676.5 billion, and in 2022 it was as high as $877.6 billion. In 2023, the trade surplus dropped to $823.22 billion.

However, such a large trade surplus of more than $3 trillion in the past four years has somehow completely disappeared from China's financial data. That is, one can't find out where these dollars have gone in China's various financial data.

In 2023, a Chinese writer revealed that this huge amount of foreign exchange was put into a special fund called the "Rejuvenation Fund." The CCP authorities plan to use this fund to finance future wars. I talked about it in one of my shows.

Whether this information is true or not, the money has disappeared from the figures of China's financial system. 

5. The Great Social Suppression

The fifth major event on the CCP's road to intentional depression is the control of society.

In 2020, when COVID-19 spread globally, the CCP imposed the tightest controls over society. People were imprisoned in their own homes. This kind of strict measure was not so much to prevent the virus from spreading. Instead, it was a social test by the CCP to see how well the public would tolerate its toughest controls.

The results of the test have been very satisfactory to the CCP. From an internationalized metropolis like Shanghai to the most remote small villages, the CCP has controlled the people while meeting hardly any resistance. Many people died, and still, there was no mass rebellion.

A Billion People Imprisoned with a Rope and a Phone Call

The CCP did not even use much or any force to achieve this nationwide incarceration of more than a billion people. A single phone call from the residents' committee's office, or just a rope across the street, was enough to keep everyone at home. Almost no one dared to defy the command.

In the end, the lockdowns were suddenly lifted. It was not because of the so-called "White Paper Revolution," but because the tests had been enough and yielded results.

6. Strong Top-Down Policies

It is also important to note that all policies in China in the last decade have been driven from the top down. This is completely different from the beginning of China's period of reform and opening-up.

For example, the reform of rural land contracting and management rights in 1979, and the reform of collective construction land transfer in 2013, were both bottom-up. Reform proposals were put forward at the local level. These were then summarized by the central government for nationwide implementation after sufficient experience was accumulated.

But after 2014, the entire decision-making mechanism suddenly changed. Policies were suddenly sent down from the top to the lowest level. Local authorities were required to follow them without asking any questions.

The Way Forward

1. Closing Down the Country

If all of China's top-level policies in the last decade have been aimed at "de-industrialization," then it is not difficult to predict what direction China's economy and society will take in 2024 and beyond.

First, the CCP will close its doors and further disassociate itself from the world. Its relations with Europe, America, Japan, and South Korea will deteriorate further.

2. Stirring Up More International Conflicts

Second, the CCP will provoke more international conflicts, and stand firmly against Europe, the US, and Japan in these conflicts.

For example, the CCP will provoke conflicts between North and South Korea. It will find ways to make the situation in the Middle East deteriorate further. The CCP will disrupt the political order in South America. It will block and disrupt navigation of several major canals and straits, such as the Panama Canal to the Suez Canal.

The more chaotic the global economic order becomes, the more quickly China's de-industrialization can move forward.

3. Declaring a State of War

Third, the CCP will antagonize neighboring countries and regions, so that the shadow of war will always hang over China. Using war as an excuse to blockade the country is of course the best way for authorities to exert totalitarian control.

But bear in mind that the goal of the CCP is to blockade China. War is just a pretext. The CCP does not need to win any wars. It does not matter if it loses — it just needs to control the narrative inside China. The key is to keep the cloud of war around for a long time. That is enough.

The South China Sea territory issue is a very good way to propagandize ordinary Chinese people, who are especially sentimental about China's territory. 

Therefore, the territorial conflicts in the South China Sea between the CCP and the Philippines, Malaysia, and Vietnam could become more and more violent. The level of conflict could become higher and higher, from using water cannons to engaging in hand-to-hand combat. Things could escalate further, to bloodshed and deaths, until there is a limited armed conflict.

At this point, it will be about right. There will be no need for a formal declaration of war or a national war.

The CCP Is at War with China

The goal of creating chaos and keeping the Chinese people in check will be achieved if a formal armed confrontation between warships breaks out in the South China Sea. Then, the CCP will seek to completely disrupt the South China Sea shipping routes and the order of maritime transportation.

Of course, the best excuse is Taiwan. In the CCP's eyes, the conflict between the CCP and Taiwan can be defined as an "internal conflict." Even if a war were to occur, the CCP believes that it could be defined as a civil war, not a war of aggression against an independent country.

Since the goal of the CCP is to blockade China and de-industrialize it, a war with Taiwan is not an end in itself. It would even be very problematic to actually take Taiwan.

Creating Tension, Solidifying Rule

The CCP may gradually escalate the Taiwan situation. It could start by taking Taiwan's outlying islands and occupying Kinmen and Matsu. It could then take the Penghu Islands and Dongsha Islands. In this way, the CCP can take de facto control of the Taiwan Strait, blocking sea transportation.

This would be enough to create a permanent armed confrontation with Taiwan. To heighten tensions, the CCP might send in unmanned aircraft to bomb strategic points in Taiwan. But it is not necessary to actually destroy these targets but rather to create the appearance of a constant state of war.

In a state of war, all judicial and legal proceedings must cease and give way to war. The CCP officials will have the power to decide the life and death of ordinary Chinese people with a single word. Thus, this will really be a war by the CCP against China.

From what I have observed, the CCP has been indeed proactively preparing for war in the past few years. 

4. Restoration of Full Control over Purchase and Sale of Goods

If China is closed, then the existing commodity market will collapse. This would of course create major problems in the entire supply, logistics, and pricing system.

But the CCP was well prepared for this. It devised the "supply and marketing cooperative system" before the reform and opening up of China. This system, in which the government monopolizes the purchase and sale of all goods, was practiced in China until the 1980s. It was only after the reform and opening up that the market was slowly opened to allow private participation in the distribution of goods.

However, the supply and marketing cooperative system has been restored throughout China since 2017. After six years, the system is now fully organized at the township level. In the event of a war or emergency, the system can be used to replace the current commodity supply system.

5. Introducing Digital RMB to Fully Control People's Wallets and Material Supply

Fifth, in terms of payment tools, the CCP is preparing full control of the economy by means of the digital RMB.

Digital RMB has been tested since 2019 and is now fully mature technologically. The CCP can easily make the CCP-controlled "supply and marketing cooperative system" a cash-only zone. It can then just as easily accept only digital RMB if people want to pay electronically.

This can completely prevent all possible hoarding and failure to implement price controls. It can also minimize the potential impact of blockading the country.

6. Restructuring Government Organizations and Strengthening Grassroots Controls

The sixth thing the CCP could do is to change the organizational structure of the government. After deindustrialization, the upper levels of government do not need so many specialized departments, and the grassroots are severely understaffed. Therefore, the central ministries and commissions, as well as provincial and municipal government departments, will inevitably see major staff reductions.

At the same time, the control authority and strength of districts, counties, towns, and streets will be greatly enhanced. The goal will be to match the great suppression model and to build a truly community-based grid management system that tightly controls everything.

The grid management system (wanggehua guanli 网格化管理) involves subdividing cities into a lot of smaller zones, called "grids." Each grid is assigned a grid manager to monitor and report all activities inside the grid to the CCP on a regular basis. A lot of cities have already established such a system.

7. Restoration of the Health Code and Travel History System for Accurate Control of Each Person

Seventh, the health code and travel history system that was established during the COVID lockdowns is still functioning effectively today. This system can accurately and quickly record each person's travel history. It can be used to monitor and control everyone at any time.

We now have a good idea of what is in the CCP's future.

International conflicts will increase. Tensions in the South China Sea and the Taiwan Strait will also increase, with the possibility of armed confrontation by 2024 or 2025.

China's doors to the outside world will begin to close. The supply and marketing cooperative system will be greatly strengthened and tied to digital currency.

There will be a mass reorganization of the government and a strengthening of the grassroots level of power and control.

These grim scenarios could be the Chinese people's inescapable future.

Are There Other Possibilities?

The above analysis was presented by Chinese economist Lao Man. It may sound alarming, but it offers us a good explanation for the incredible behavior of the CCP in the past decade. In particular, the analysis helps explain recent years, during which Xi Jinping sometimes destroyed one industry each day. This was regarded as foolishness and was criticized as stupidity by many people both inside and outside of China.

However, perhaps we are all wrong. We take it for granted that governments want to improve their economies to win the hearts and minds of their people. Rarely do we think of someone who would purposely try to bring down an economy to stay in power.

Of course, there are those who disagree with this theory and argue that the CCP needs money to maintain its rule. It costs money to maintain a large police force and monitor the public with high technology. 

Also, people who have enjoyed a certain degree of economic development will not want to go back to poverty. When they lose their wealth, they may rise in rebellion and overthrow the CCP regime.

Therefore, the economic downturn could be very dangerous to the rule of the CCP.

Time Could Be Up for the Chinese Communist Party

Another loophole I found with the intentional depression theory is this. It fails to explain why the CCP would bother to introduce industrial civilization in the first place if it only planned to destroy it later.

If I were to offer an explanation, it could be that the CCP had no choice back then. The Chinese economy was going to collapse completely if the party didn't reform and open up. But after gaining enough time, power, and wealth, the CCP's priority again was its totalitarian regime. 

Or it could also be that different leaders had different thoughts. While Jiang Zemin was keen to make money without making any noise, Xi Jinping was more enthusiastic about keeping his power. That's why the CCP's policies have been changing all the time. 

Another possibility is that the CCP has just lost the mandate of heaven. Its time is up. Heaven has withdrawn its sanction and the party is living on borrowed time.

If this is true, whatever the CCP does, no matter how hard it tries, the result will always be the same, which is inevitable self-destruction.

RELATED:

• Shocking Yet Normal? China's 2023 GDP Growth Is -4.9% or -9.5%
• Predictions 2024: In the Year of the Dragon Will China See a Slow Decay or Sudden Collapse?
• The Billion-Dollar Question: When Will China's Local Debt Explode?
• China Watch: Deja Vu All Over Again as a New Year Under Xi Jinping Begins
  

Author: Jennifer Zeng

Find articles by Jennifer Zeng on JAPAN Forward. Follow her on X (formerly Twitter) and on her blog page, Jennifer's World.