Transcript [EN]: EP-230 李厚辰：习近平为何不着急救中国经济？中国经济｜政治局会议｜习近平｜政绩观｜从严治党｜经济逆周期｜六张网｜地方驱动型｜居民收入｜世界苦茶｜李厚辰

Hello everyone, welcome to the Bumingbai podcast. I'm your host, Yuan Li. In the second quarter of this year, China's economic growth slowed to 4.3%. The market had been anticipating a large-scale fiscal stimulus from the Chinese government, but the Politburo meeting held on July 30th did not. The meeting acknowledged the economic difficulties and challenges and called for accelerated fiscal spending. However, it did not address the issues of income distribution, social security, and the growth model that contribute to insufficient domestic demand. The meeting proposed promoting balanced trade development, indicating that the Chinese government knows the huge trade surplus is causing international backlash, but it also seems unwilling to abandon its path of relying on advanced manufacturing and exports to maintain growth. More intriguingly, the meeting first discussed comprehensively strengthening Party discipline and then demanded that cadres establish a correct view of performance. The annual growth target, repeatedly emphasized in the past, also disappeared this time. After the bursting of the real estate bubble, the Chinese government did not choose to boost consumer spending as economists generally expected, but instead opted for six networks including water, electricity, and computing power. Does Xi Jinping believe the economy has not yet reached the point of needing rescue, or does he acknowledge economic difficulties but cannot find suitable stimulus tools? Or perhaps, what he truly wants to solve is not the issues of household income, consumption, and real estate, but rather the problems of local governments The cadre ranks and the operation of the entire Party-state economic machine? In other words, is Xi Jinping genuinely not in a hurry, or are the things he's anxious about different from what ordinary Chinese people and economists are anxious about? Today, our guest is Li Houchen, host of the YouTube channel "World Bitter Tea." We'll start by discussing this rather dull Politburo meeting, exploring why Xi Jinping isn't in a rush to stimulate the economy, and whether China is undergoing a more profound power restructuring than economic stimulus. Houchen, hello Hello. It's great that you've noticed the significant changes in the assessment of the economic situation and policy focus of the seven Politburo meetings from 2022 to 2026. Could you first help us trace this line of thought? Looking back at these seven meetings, what changes have occurred in Xi Jinping's understanding of the economic downturn? This is particularly interesting because, in our impression, many foreigners say that the Chinese government, like many others, has many flaws in its system, but one advantage is that it doesn't have many short-term goals; it plans very carefully for the long term. This country is able to make very long-term plans; when they think of it, they immediately think of "Made in China 2025," and how impressive China's new industries are. However, if we look at the seven Politburo meetings held in July from 2020 to the present— since these July Politburo meetings are for planning the economic work for the second half of the year, they are adjustments made in response to the economic challenges of the first half—we see that all seven meetings are very different and point in completely different directions. This year it points east, next year it points west; the long-termism that has been shrouding China's economic decision-making may be about to be shattered. Let me help you summarize, and let's recall these seven turbulent years together. First, there was 2020. At the beginning of 2020, there was the pandemic, and before that, there was the trade war with the United States. So in 2020, they felt a strong sense of long-termism, saying that the Chinese economy would have to fight a protracted war and couldn't recover quickly from external pressures. So in 2020, the "dual circulation" strategy was introduced, meaning we would focus on the domestic circulation as the mainstay, driven by the international circulation. In 2020, it was explicitly stated that the policy would shift from short-term economic growth to industrial chain security and domestic technological self-sufficiency. It was emphasized that the difficulties would be long-term, so preparations needed to be made. Then, in 2021, as you might recall, China's early economic stimulus in 2020 wasn't as pronounced, and the pandemic control was relatively effective, leading to a surge in exports. Also, 2021 marked the peak of housing prices and land sales revenue in China . Suddenly, it seemed like everything was fine. In my previous book, I mentioned that 2021 was the peak of Chinese national strength and public opinion; everyone felt China was incredibly powerful. So, suddenly, the focus shifted away from the economic challenges of long-term sustainability and the emphasis on cross-cycle adjustments, warning against excessive local implementation. This cross-cycle adjustment means counter-cyclical adjustment. Currently, the cycle is at a relatively low point, so we need to stimulate cross-cycle adjustment. That is, we shouldn't be overly concerned about the current low cycle, but rather consider the possibility of an excessive cycle when it reaches a higher point later. Suddenly, in 2021, things were fine; the main focus was on correcting the campaign-style carbon reduction, avoiding sudden policy changes, and so on. But 2022 was a different story. Suddenly, due to pandemic control policies, the economy experienced significant fluctuations . 2022 was relatively straightforward, focusing on stabilizing people's livelihoods, ensuring the construction of schools, and striving to achieve annual targets, etc. Okay, that was 2022. In 2023, the problems suddenly became more serious. In 2023, it was suddenly realized that demand was insufficient, businesses were facing difficulties, external risks were severe, and 2023 marked the first time China acknowledged a major shift in the supply and demand relationship in the real estate market. So first, I want to emphasize that many important policy shifts were proposed at the July Politburo meeting, such as the dual circulation strategy and changes in real estate supply and demand. I think this meeting was even more significant than the one in December. The 2023 meeting contained some substantial content, with policies immediately shifting towards easing real estate restrictions and a comprehensive debt relief package. These were all proposed around this time of year, leading to a rapid easing of real estate policies, with various cities lifting purchase restrictions in the second half of 2023. The relaxation of first-home mortgage rates and down payment ratios, etc., were also implemented. 2023 acknowledged the structural problems arising from the old growth model, including the halving of stamp duty in August to stimulate the stock market. 2024 will have some continuity with 2023, with insufficient effective demand, economic divergence, and the painful transition between old and new growth drivers. Moreover, 2024 will be a very special year. Not satisfied with the July meeting, an additional economic conference was held on September 26th— a historically rare occurrence. This led to the immediate implementation of the "two new" policies we remember today: trade-ins of old consumer goods and old production materials/equipment. While these policies didn't directly provide cash to residents, they effectively subsidized their consumption. This was a consumption stimulus policy, and the July and September 2024 economic work conferences also addressed these issues. The shift in policy decisions and implementation began in 2025. In 2024, we believed domestic demand was insufficient and needed to be stimulated. However, the policy focus shifted in 2025 to address disorderly competition among enterprises and problems with attracting investment in key industries and regions. This foreshadowed this year's situation. So in 2025, the central government felt that the issue wasn't insufficient demand. I think the reason was the trade war with the US in the first half of 2025, with Trump taking office and imposing global tariffs in early April. At that time, it seemed like the trade war was going well. Domestic confidence improved and started to increase again. Moreover, Xi Jinping's sense of insecurity regarding political purges and the political system increased. So in 2025, the problem wasn't insufficient demand anymore; the root cause shifted to enterprises. Without competition, anti-involution became a major issue. And in 2026, it was even more pronounced. The problem of insufficient effective demand was completely gone. Suddenly, China's problem wasn't insufficient effective demand anymore; China's problem further shifted to the comprehensive and strict governance of the Party. It seems the essence of the economic problem is the problem of local implementation, and the cadres' performance evaluation system is flawed. So this year, from beginning to end, besides the release of the "2026 Consumption Revitalization Plan," there were no concrete measures. Even stimulating consumer demand wasn't particularly emphasized this year. So, starting in 2020, it was believed that the Chinese economy was facing long-term, persistent difficulties. Then, in 2021, the problem suddenly disappeared. In 2023, it was finally realized that the transition from old to new growth drivers was problematic. In 2024 , the issue of domestic demand began to emerge, requiring stimulus. Then, in 2025, the problem suddenly shifted from domestic demand to the Party's problems. And by 2026, it had completely become a problem with the Party's system and institutions. So, from 2020 to now, it feels like the central government's diagnosis and policies regarding the economy have undergone several sharp turns. Was 2024 the year everyone could understand the most? Insufficient domestic demand, hence the need to stimulate it. Then this year, it became the most incomprehensible situation: how could the problem with the Chinese economy be this— a problem with the Party's governance system? Why? It seems that with this correct view of political achievements, the Chinese economy will improve. What are you talking about? This is how it's become such a situation . These are roughly the major shifts. As you just mentioned, he acknowledged the economic difficulties and challenges, and proposed increasing counter-cyclical adjustments, but he didn't release any signals of large-scale stimulus. There weren't even any signals, let alone measures. How should we interpret this? Is it that the leadership isn't in a hurry, or is it that the leadership is somewhat anxious but hasn't found the right tools? Also, is this meeting itself an important policy message? I think it's because the leadership has the tools. We don't need to talk about Western economic tools; we can use tools from the perspective of the Chinese system. Can they expand the central deficit and issue special treasury bonds to launch more projects? Can they increase transfer payments to various provinces to further supplement pensions and medical insurance? Can they continue to subsidize household consumption, like in the past, subsidizing automobiles, sports consumption, and tourism? And even if real estate isn't feasible now, the central government can buy up existing housing stock and convert it into affordable housing and public rental housing, right? Sure, lowering the reserve requirement ratio and interest rates are normal policies, including allowing local governments to leverage infrastructure again, delegating the authority for special-purpose bonds to local governments, and letting them engage in some ineffective infrastructure projects, right? Even from their internal perspective, I think all of the above tools are feasible; there's nothing they can't do. But why aren't they doing it? I think it's precisely because these tools, according to the General Secretary, are the source of past economic problems. It was these tools that led to a distorted view of performance evaluation among local governments, and local governments not fully following the central government's will, resulting in problems. For example, the problem with China's economy is the misallocation of resources. But when we say resource misallocation, it's because of a lack of market mechanisms and price signals. However, from the General Secretary's perspective, it's because you didn't listen to the central government, you engaged in redundant construction, you created local hidden debt, and you messed around in the real estate market, leading to resource misallocation. So I think the central government now believes that continuing along the past path will lead to further resource misallocation. Therefore, we must first address the issue of cadres not being of one mind with the central government, and their inability to consider and follow the central government's plans from the central perspective. Otherwise, continuing such stimulus measures will only lead to more serious resource misallocation. This is my understanding of their thinking—you're standing at Xi Jinping's level, right? That's how they think, considering things from Xi Jinping's perspective. That's why they mentioned counter-cyclical measures this year, right? They want to continue addressing this counter-cyclical issue and increase the intensity of counter-cyclical adjustments. And this year, can you first tell us what you think about counter-cyclical measures? It's so strange; I don't even know how to translate this Chinese into English . So, this program we're doing is a Chinese-to-Chinese translation program. The reason they mention cycles is because China has consistently refused to acknowledge that the Chinese economy has structural problems. So, the term "cycle" is used to counteract structural problems. The reason the Chinese economy is not doing well is not because of structural problems, but because the economy has cycles—low cycles and high cycles. The current problem is only in the low cycle, so it's not a structural problem. So, constantly mentioning cycles is a way of rejecting structural predicaments. There are two terms that need to be translated: counter-cyclical and cross-cycle. Counter-cyclical means that we are currently in a low cycle, so in a low cycle, we need to cut interest rates to stimulate the economy; in a high cycle, we need to raise interest rates to curb overheating, right? That's their thinking. What is cross-cycle? It means that our country is a country with strategic resolve. We are considering what the next high cycle will look like. Therefore, our current policies are not just for stimulating this low cycle , but for planning for the next high cycle. Either we are accumulating momentum for the high cycle, or we are preventing current actions from being too impulsive and causing the high cycle to overheat. So we have a very long-term vision. Therefore, when the Chinese economy is doing very well, they talk about both counter-cyclical and cross-cycle; when the economy is not doing well, they don't talk about cross-cycle. They want to warn leaders not to have the wrong understanding—don't think about cross-cycle, just think about counter-cyclical matters. So this year, cross-cycle wasn't mentioned, but... There's a major contradiction. This year's rhetoric didn't mention cross-cycle measures, but rather counter-cyclical measures. All the tools used are cross-cycle measures, like the "six-network" approach. This isn't a solution to classic problems. No matter how much money you invest this year, none of the subsidies that can solve this year's problems are there, right? Logically, counter-cyclical methods should involve increasing transfer payments, subsidizing consumer spending, lowering reserve requirements and interest rates— the central government should use policy tools. That's counter-cyclical. But this year's tools are all cross-cycle tools. So the rhetoric is counter-cyclical, but the actions are all cross-cycle. This is the somber point. It's like saying, "I'm farsighted, you must listen to me," and then implementing it. Is that how it should be understood? Is that how it should be understood? If I were a local official, a mayor, how would I think after reading this report? I think the most important point here is that local governments will continue their increasingly serious sense of helplessness from the past few years— "You won't let me lie low, right? You need to rectify lying low." To address bureaucratic laziness, those who engage in it must be caught. However, it seems that any action I take is impulsive. Any idea I have—like whether our city should develop a cultural tourism economy? —is rejected because officials have already been dismissed. Similarly, if we want to boost political productivity, officials have already been dismissed. It seems the only thought of local officials now is, "Okay, then I'll wait for your orders, and I'll wait for very clear orders. Whatever you tell me to do, I'll do it." Or, "I'll govern according to the requirements of the Central Supervisory Group, based on past inspections. If they investigate a project, I'll have to prepare the necessary documents." So, I'm currently in a situation where I can neither control the government nor know what I can do. I don't even have the tools from the central government to cooperate with me anymore. In the past, I had things like "two centers, two priorities ," but now those are gone. So what can I do? Anything else would be impulsive, a flawed view of performance. So what should I do now? I think everyone is very confused right now, and this confusion is already reflected in the economic data. This correct view of performance has been strongly promoted since the end of March. Fixed asset investment, especially government investment, saw double-digit declines in April and May this year. This sense of uncertainty is already reflected in the economic data, which is a significant reason for the poor economic performance in the second quarter . Let's take a step back and discuss why economic problems are increasingly being understood as political and organizational issues. This meeting, from the very beginning—I watched it the other day and was stunned—devoted so much time to discussing comprehensively strengthening Party discipline before even addressing the economy . Why, given the poor economic situation, did Xi Jinping first think of rectifying the Party? I don't know. Was it simply because the meeting needed to decide the agenda for the Fifth Plenary Session, or did he genuinely attribute the economic difficulties to problems with the Party-state's execution machinery ? Many might think that the Fifth Plenary Session led to the emphasis on comprehensively strengthening Party discipline, which makes some sense. However, I found another document that suggests otherwise. Usually, after such a meeting, the central bank issues a document outlining its study of the meeting. The central bank is a typical economic technocratic department. I find some intriguing points in its documents. When summarizing its work in the first half of the year, the central bank listed monetary policy first, and strict Party governance seventh. Normally, these documents are divided into two parts: the first half and the second half. However, when listing the work for the second half, the central bank prioritized consistently advancing comprehensive and strict Party governance first, and moderately loose monetary policy second. So, if you consider the Fifth Plenary Session as the political issue, then listing the first half and the second half as the top priorities is just empty talk. But clearly, the order of prioritizing strict Party governance in the first half and the second half is very telling. Secondly, what does "strict Party governance" mean? It's clearly stated as the central bank's top priority: warning reports, inspections and audits, rectification, cadre selection, and anti-corruption requirements. In other words, comprehensive and strict Party governance is not just empty political rhetoric; it involves reports, inspections and audits, and influences cadre selection. This year is the year before the 21st National Congress of the Communist Party of China, hence the concentrated government reshuffles at the provincial, municipal, and ministerial levels. Therefore, this year's comprehensive and strict governance of the Party has become connected with the realization of the ambitions of various leaders. So I think, judging from the central bank's document, it's not just because of the Fifth Plenary Session that it had to be written in the first paragraph, or because it's influencing this year's economic work. In the central bank's work for the second half of the year, this is already work prior to monetary policy. The primary task is to comprehensively advance the governance of the Party and ensure its stability . The primary agenda items are reporting to higher authorities, rectification of issues identified in inspections and audits, cadre selection, and anti-corruption requirements. Therefore, within specific economic departments, this has become a substantial and not merely symbolic task; it's not just a ceremonial agenda. Because the Fifth Plenary Session is approaching, we have to bring this up, making it a substantive task. Returning to your question about why they believe the economic problem stems from poor implementation , for example, they believe China is experiencing deflation. They believe China's deflation is due to insufficient effective demand. Insufficient domestic demand leads to deflation, and they argue it's not because businesses are engaging in price wars. Why do businesses engage in price wars? Because of redundant investment. Therefore, deflation isn't caused by insufficient domestic demand in China, but by redundant investment in various provinces and cities. For instance, deflation isn't because ordinary people lack money or are unwilling to spend it, but because businesses are engaging in price wars, forcing them to sell to the public at low prices. So you see, their solution to this problem, the anti-involution effort, isn't about giving money to ordinary people to stimulate investment; it's about the National Development and Reform Commission (NDRC) holding talks with these companies, saying, "You can't keep engaging in price wars , right?" So, why is there so much local government debt in China? It's because the entire incentive system is unbalanced— there's no capacity to release resources to private enterprises and the market. All resources and capacity are in the hands of the government. They see it as an investment impulse, a flawed performance evaluation system for local officials. If you have evidence of a flawed performance evaluation system , and you're not just doing a bunch of projects for promotion and wealth, China wouldn't be like this. What do they want officials to do? It's what we're talking about today: the "six networks"—tailored to local conditions, developing and upgrading productivity, solving the debt problem, the high-quality development approach—not about development speed, but a series of confusing and contradictory economic goals. They hope local governments will achieve these. What I want to talk about today is the strangest thing. They believe their thinking is the most contradictory to ours. For example, regarding insufficient domestic demand and consumption, residents see it as a lack of money. Frankly, firstly, they have no money; secondly, the welfare system is inadequate. How can they consume? This seems reasonable to them. But from their perspective, it's because of an imbalance in supply— the supply isn't effective or precise. They believe residents have money because the supply of elderly care services, consumption, tourism, and education is insufficient. They think that once the supply is adequate, residents will consume. This document mentions that people have so much savings, and it's growing every year. Yes, that's definitely their thinking . If you don't spend money, what will you do? Look at the high annual growth rate of savings; it must be due to a supply imbalance. We think this is a crazy idea, but they might have some merit. We know that Xi Jinping, the famous supply-side reform economist, only knows about supply. He doesn't understand demand. And in the past, China's supply-side reforms— have they been effective or not? Regardless of e-commerce or the internet, the development of goods has indeed led to increased consumer spending in China during periods of economic growth . Therefore, the prevailing view is that with such high savings rates, residents have money, so why aren't they spending it? The problem lies in the imprecise supply. The solution is precise supply-side reforms, such as AI-powered elderly care, tourism, services, consumption, education, and childcare. The idea is that once these are implemented effectively, residents will open their wallets. This isn't just empty talk, it's wishful thinking. But anyway, this isn't my opinion, it's exactly what the document says. So you see, this system, in their view, isn't about market forces solving the problem; it's about local government action. These things might not contribute to high GDP, but in the right performance evaluation system, they represent the right achievement. So, if you're a local leader, you need to expand this effective and precise supply to achieve this. If you can't expand the supply, then what should you do? If you meet the national requirements and build up the infrastructure for these supplies—information networks, AI data networks, computing power networks—and under the top-level strategy of AI, then it might work. However, Xi Jinping's understanding of demand differs from our general understanding of demand in economics. What is the real, direct connection between building AI networks and demand? I think this is an excellent question. There is indeed demand. In other countries, domestic demand largely equates to household consumption. But in China, it's not just about household consumption; consumption and investment are also demand. For example, government investment is also demand for the Chinese government, right? Building a dam or a highway—isn't that demand? So, firstly, I think China's demand has two parts: the household component and the government-stimulated component. Therefore, it's not necessarily about expanding demand; it's about serving the residents. That's the first part. The second part concerns the so-called supply-side reform. They have a strange idea: supply creates demand. We usually think of income creating demand, right? Or disposable income creating demand. But for Xi Jinping's supply-side reform thinking, he believes that supply creates demand by how it's created. He believes that our idea of ​​resource misallocation lacks sufficient price signals to guide demand and resources to match. They believe this resource misallocation idea lacks sufficient, or is more of a command economy mentality, lacking a sufficiently precise means of supply. For example, they look at the West; they see high housing prices and distorted land policies leading to insufficient land supply and extremely high housing prices. This is the West's insufficient supply leading to insufficient demand, right? Therefore, the US's abundance agenda also incorporates some aspects of learning from China's supply-side reform. So the idea that supply creates demand isn't entirely without merit, but in China, it's been pushed to an extreme. In China, the prevailing view is that everything is driven by supply. That is, as long as supply is sufficient—and I think the Chinese government can defend this in terms of market economics— prices will come down, and lower prices will stimulate demand, right? For example, many countries can't afford housing or other consumer electronics. The slow pace of smartphone adoption in the past was due to a lack of understanding of supply. If supply were increased, demand could multiply by two or three hundred billion units, creating demand. Therefore, sufficient supply can stimulate price reductions, which in turn stimulate demand expansion, which in turn supports business growth. China has always focused on this. So this is their system of thinking: actual demand must be provided by supply. For example, they might argue that the reason for insufficient elderly care consumption is because not enough people are doing it. If more people participate, prices can be lowered to a level that residents can afford. Although I don't know how low wages are in China, how high they need to be for people to afford to consume. Yes, so that's their thinking. Middle-aged people are unemployed and have to use their savings. How can they think about retirement? They just need to get by for now. For two or three years, they felt they needed to provide some consumer stimulus to encourage residents to spend. But starting in two or five years, they realized it wasn't a long-term solution. A large party like ours with strategic resolve needs to address this issue across cycles and take a long-term view to solve it. I'm guessing that part of the reason they're trying to get residents to consume is because it's too difficult to manage, so they've decided to manage the businesses instead. That way, businesses are a little easier to manage. I think this is just speculation. I think it's a very interesting question: first, why are they so resistant to stimulating residents? It's a very strange phenomenon, isn't it? This is something the whole world doesn't object to, but China really does. I think there are reasons for this objection, and one of the most important reasons is that Xi Jinping has a very peculiar view of welfare. This view is similar to the foreign view of welfare, which is simply about secondary distribution . It's about how much money is in the account. So if the account runs out of money, you give them money in various ways, whether it's childcare subsidies or direct cash payments. But Xi Jinping has a special view of welfare, or rather, China has a special view of welfare— not just him, but the Chinese Communist Party as a socialist party with a unique welfare perspective, which is related to socialism. I think his view of welfare is productiveist. It's about welfare, not just giving money. Welfare is about helping people work and find employment. However, I think the welfare concept you're talking about is one that doesn't support laziness. He himself doesn't support laziness, nor does he support lazy people. But he has a logic; he doesn't say he hates lazy people, but he believes that giving money is useless. A productiveist welfare concept is that if you can receive vocational training, it helps people learn how to fish, and that's how development solves the problem, not just pure social security. So you see, in the last two years they've started using the term "investing in people." What does "investing in people" mean? You say you're investing in people, but the proportion of education expenditure in the base is decreasing every year, so what kind of investment in people are you talking about? But their "investing in people" roughly means labor participation rate, population quality, long-term fertility rate, and these things. I think you should write a Xi Jinping dictionary, right? Because of some of the things you often say, which I've certainly read, but I... I usually just glance at things and move on, but you've suddenly thrown out so many terms today, I'm a little overwhelmed. Okay, this is important. Actually, I think this is very helpful for research. I remember a think tank had a database with a lot of Chinese terminology, these kinds of terms and terms. Some of them were particularly well-done; they analyzed which documents they came from, what they thought they meant. It was done by a foreigner , but it was a Western English term. I hope you can write one for Chinese people. I think you are the most suitable person to do this, which is very motivating for me. Yes, let's go back to why he has suddenly elevated this economic issue to a political and organizational issue. Yes, you can tell us specifically what, in his view, is wrong with the execution of his economic machinery . Is it that local governments are too focused on GDP, blindly investing and engaging in redundant construction, or are officials just lying around, not doing their jobs? You can give us, from Xi Jinping's perspective, what he thinks is wrong. I think both problems exist, but the emphasis is more on the problem of rash and impulsive actions. It's about wanting to do something, but going overboard or acting recklessly. Let's divide it into inaction and reckless action; both exist. But I think the so-called "correct view of performance" —because the "correct view of performance" is the closing statement of this meeting's document, which begins with "comprehensively strengthening Party discipline" and ends with "correct view of performance"—is biased towards this. This "correct view of performance" refers to the past reliance on land acquisition, financing, industrial investment, and continuous investment attraction. Let me give a concrete example, otherwise this is too abstract. There was a cadre in China who was considered very capable, the one who ran the Zibo barbecue business—Jiang Duntao, the Zibo Municipal Party Secretary. His Zibo barbecue business was very successful, right? But this person was removed from office this year. His removal was announced at the end of March, after the "correct view of performance" was introduced. His removal was announced on April 24th. What was his problem? It's not just corruption, it's family corruption, power-money transactions, a severely distorted view of political achievements, short-sightedness, and reckless actions. In pursuit of quick, impressive results, he forcefully pushed forward financial investment attraction, skipping professional assessments and bypassing collective decision-making processes. He illegally introduced private enterprises, arbitrarily arranged large-scale financing for state-owned enterprises, established government-guided funds, and allowed private enterprises to use them at will, with long-term neglect of supervision, directly burying a huge risk of loss of state-owned assets. So, I think local governments, upon reading this, might as well do nothing, right? Then you turn to inaction. So I think the current problem is very interesting; it's caught in a cycle of erratic action and inaction. Because what this person just did—financial investment attraction , rapidly introducing private investment, arranging financing for state-owned enterprises, and establishing guidance funds— isn't that the government's basic means of stimulating the economy? Isn't that what the government has relied on in the past? But if all these are problems, if these lead to your downfall, that's called a distorted view of performance, short-sightedness, and reckless action. Then local governments won't know what to do. If they don't know what to do, they'll just give up. And what does giving up mean? This year's Politburo meeting also said that cadres should create achievements with high spirits and enthusiasm. We should actively develop the enthusiasm, initiative, and creativity of the whole Party. This is what we discussed before, right? If you were to write a book about Xi Jinping, its title would definitely be "Both Want and Want," so this is an explanation of " both want and want," but also "both want and want," meaning both not to act recklessly and not to be inactive. But this is a huge contradiction. I think these two opposing tasks will actually have a ratchet effect. This ratchet effect, although it leans towards rash and reckless action, will ultimately mainly lead to inaction or superficial action. Because now it seems that doing more leads to more mistakes, especially after emphasizing this correct view of performance, I think it might influence cadres to be inactive. So I think this is why he considers economic issues to be political issues. If we delve deeper into this, I think the economic problem actually stems from the power imbalance between the central and local governments. Yes, that's the question I wanted to ask you . From his perspective, all the decisions that local governments can make independently could lead to short-sightedness and reckless actions. Therefore, local governments should only act according to the rules and plans allocated by the central government. So, overall, his level of trust in local governments is very low. But this isn't news; his low level of trust in the cadre system, whether military or political and administrative, is perfectly normal. This low level of trust involves a significant contradiction, and I think we can discuss the underlying systemic contradictions. Firstly, since Zhu Rongji's tax reform, there has been a serious mismatch between local authority and financial power. In the first half of this year, another statistic showed that China has eliminated, cleared out, all provinces with fiscal autonomy, including Shanghai and Zhejiang. After this, the Ministry of Finance said, "This is a normal phenomenon; don't over-interpret it ." But that's hardly normal! In China today, land revenue used to be the government's most important source of income. Now, after accounting for more than a quarter of that revenue, all tax revenue goes to the central government. However, as everyone knows, local governments ' responsibilities for social security, basic medical insurance, and employment protection are all local government affairs. Therefore, local governments are currently in a situation where they have little money, yet all the responsibilities are on their shoulders. This mismatch between responsibilities and financial power leaves local governments with almost no room for maneuver. Previously, it was said that China has a strange NGO-like administrative system. Local governments want to receive transfer payments, but these payments aren't allocated all at once. Transfer payments are made up of numerous projects, so local governments act like NGOs, with the central government writing grant letters. We're talking about letters, right? Yes, the central government has two thousand projects, and I have to apply to receive them, but the central government's goals are contradictory. I apply for a batch of debt-financed funds, but these funds can only be used for debt-financed purposes—it's just economic speculation. It can't solve my other problems, but this money might be a lot, while I can't get funding for other projects. So local governments will inevitably resort to selling to pay off other debts; it's practically a given. The more you do this, the more unreliable the central government becomes . I want to ask you this: China's economic decision-making power is becoming increasingly centralized, right? But the central government's trust in local governments and officials is decreasing. Why is that? Why is it that with such centralized power, and all the money in the central government, why are you worried that local governments won't follow your orders, or even deceive you? What kind of mentality is this? If you think about it from a higher perspective, I think the first reason is because, as we just mentioned, financial and administrative power are not centralized. There's a reality to this: because China is so large, and the central government is in the central government, it inevitably needs local governments to implement policies. It can't rely on automation to fully implement policies. It might want to do that in the future, but it's not possible now. Local governments having to implement policies is a certainty. Secondly, as we just mentioned, there is an inherent conflict between the central government's goals, the so-called high-quality development goals. You want to stabilize growth, reduce debt, stabilize employment, curb involution, develop new industries, and implement new productivity development tailored to local conditions, while simultaneously depriving local governments of their right to attract investment. Therefore, the contradictions within the central government lead to internal and external constraints on local implementation. This is a fundamental contradiction that leads to a lack of trust because the goals you set are contradictory, so whatever the local authorities do seems wrong. Another point is the severe accountability system since 2016, right? This severe accountability, I think, is inevitable. The more severe the accountability, the more opaque the local administration becomes. With such severe accountability, local authorities will inevitably have the incentive to delay reporting and fabricate results. The harder you pressure them, the more they fabricate; the more they fabricate, the less you trust them, and the more you feel the need to send inspection teams to investigate, right? I think the last point is that China is a country where the central government absolutely cannot make mistakes. So, Japan's own policies are absolutely correct; failure is obviously a problem of execution. If failure is a problem of execution, then I certainly cannot trust you. I think this is a multi-layered deadlock: highly centralized power, but increasingly low trust, right? That's actually what it used to be. The basic framework is like this, but there's still some room for maneuver. Now that space is dwindling, there's no way to change things. All we can do is wait for the central government to tell us what to do, and then when they pressure us, we'll do a little something, package it up, and that's it. Yes, so I think that since last year, they've stopped acknowledging that there are problems with China's economy, or rather, with the central government's economic policies. They've tried to correct some deviations, but now it's completely different. Last year it was about industries, right? Your businesses are all so focused on avoiding involution. This year it's about cadres. If this continues, will China's economy need more fundamental corrections, shifts, or adjustments? Will it? I think in the long run, I'm optimistic, and it definitely will. As I've said before, China is a modern fiscal credit-based country. No matter how feudal its political system is, its economic system is that of a modern fiscal credit-based country. The operation of such a country has clear fiscal and economic boundaries. When it reaches those boundaries, it has to change. In the short term, however, there is nothing, especially considering this year and this Politburo meeting; there are no signs whatsoever. This Politburo meeting is a self-perpetuating cycle, reinforcing the central government's absolute correctness. The negative consequence is local governance, and the solution is to further strengthen the central government. Because you have problems, the solution is to strengthen the central government again. But the more the central government is strengthened, the more it weakens the actual capabilities and genuine feedback from local areas. Simultaneously, the more people perceive the problem as local, and the solution becomes to further strengthen the central government. Of course, this hasn't been the case for the last two years; it's been the Chinese model since 2016. From the perspective of the central decision-making level, it seems they haven't yet reached the limits they can perceive. Although I feel that society is gradually reaching the edge of its tolerance , I think there might still be some remaining resistance . Yes, let me ask you again, does this format have anything to do with the 21st Party Congress ? Do you think it does? I'm worried this is very speculative, but I feel it's because they value politics so much, and they value loyalty so much, right? The fact that they want to control everything reminds me of the period before the 20th National Congress of the Communist Party of China. And I think we can bring up another issue: the strict governance of the Party. This is the first time in the history of our Party that the same theme has been repeated at the Sixth Plenary Session. The Fifth Plenary Session was about the 15th Five-Year Plan, while the Sixth Plenary Session focused on Party building. However, because the Fourth Plenary Session had already addressed the 15th Five-Year Plan ahead of schedule, the Fifth Plenary Session focused on Party building. So, compared to the previous Sixth Plenary Session, this one is quite important. It issued a resolution on several historical issues since the founding of the People's Republic of China— the 1981 resolution was a huge event—and also addressed the construction of socialist spiritual civilization. Before that, they had already addressed the issue of comprehensively and strictly governing the Party once before, at the Sixth Plenary Session of the 18th CPC Central Committee in 2016, before the 19th National Congress. At that time, the comprehensive and strict governance of the Party was very evident, because the constitutional amendment was imminent, making it a very significant moment for him. Therefore, the comprehensive and strict governance of the Party was necessary at that time. However, generally speaking, the theme of the Sixth Plenary Session has never been repeated; even if it's the same theme, it's usually renamed. But the re-emphasis on strict Party governance, returning to 2016, is a first. Therefore, this year's re-emphasis on strict Party governance is also the first time since the reform and opening up that the Sixth Plenary Session has used a single theme repeatedly. I think the implications are very clear, right? That is to say, the strict Party governance of the past was closely related to the constitutional amendment; it was because he needed to consolidate all power to push forward such a fundamental matter. Now, he is reorganizing power, indicating that his sense of crisis and urgency has reached that level again. Therefore, I think this year's shaping of the cadre system has two reasons: firstly, he genuinely believes that the poor economy is a problem with the cadres; secondly, from his personal motivation, he has once again reached a point where he has sufficient motivation to rectify the cadre ranks. So from this perspective, I think the fact that the 21st National Congress of the Communist Party of China (CPC) reiterated the importance of comprehensively strengthening Party discipline for the first time is quite significant. However, some listeners might be thinking, "Isn't this 'strengthening Party discipline' mentioned every day? It's almost a daily topic!" I think it's another matter of our Party both wanting and wanting to normalize all its work. Any urgent task must ultimately be implemented with normalized governance, right? Strengthening Party discipline is a campaign. And then there's the normalization of strengthening Party discipline. The anti-gang campaign was a campaign, and then it became normalized. But normalization and a campaign are two different things. Like the Political and Legal Affairs Commission just reiterated a year-long special campaign against gang-related activities. This is unprecedented in its intensity; it's definitely being strengthened. Although strengthening Party discipline is mentioned every year, and anti-corruption has certainly become normalized long ago, the fact that it was brought up as a special topic at the Fifth Plenary Session of the 18th CPC Central Committee shows it still has specific significance. Now, I want to say something else... The Sixth Plenary Session of the 18th CPC Central Committee in 2016 focused on strengthening the Party's governance, and the focus will remain on strengthening the Party's governance in 2026. Caught in the middle, what is this session doing? This is another matter. What did they do in 2021? This is another matter. I think they didn't really have a long-term plan. This is based on my observations of 2021, because it was so glorious, so at the time, people felt that China was truly invincible. So, the Sixth Plenary Session of 2021—let me remind everyone, how glorious was 2021? It was amazing! My country was the year you all came to learn from and copy its achievements. Everyone remembers, right? That was the year. And that year, foreign exchange was really strong, and domestically, as I've mentioned, the real estate market was particularly good. So, the Sixth Plenary Session of 2021 was a resolution on the major achievements and historical experiences of the Party's century-long struggle. I remember the Sixth Plenary Session of 2021 mentioned something particularly amazing, something about the inevitable experience of success— why our Party is bound to succeed is because it has reached this point. So you see , at the time, people felt that everything was settled, the final verdict was reached. But now, five years later, things aren't so good anymore. So this is quite ironic. Now we have to ask again, let's go back to the point that the power struggle between the central and local governments can no longer be described as a struggle, right? There's no struggle anymore. But in the past, China had a mechanism of competition among local governments , which the West has been keen to discuss in recent years — the mayoral economy. There was a system of mayoral competition , where local governments had considerable autonomy in economic development because their performance was linked to various factors. Will this have any impact on China's economic development? How significant will the impact be? Or is China's economy, no matter how much it's been manipulated, just going to stay this way? I think it will have a significant impact. The market economy isn't wrong; perhaps the most familiar example is the "tournament," the local tournament. Many people say that this was indeed the case in China. From the most extreme example of reform and opening up with the tax-farming system, that was truly an era of complete local fiscal and administrative power. Although Zhu Rongji changed the relationship between the central and local governments, the promotion of local officials still relied on this economic competition. Not to mention the later four trillion yuan economic stimulus and the monetization of shantytown redevelopment. Local governments have many methods at their disposal, such as large-scale infrastructure projects and real estate development, and then using the money collected from land sales for haphazard spending. Like the Hefei model, they invest in some enterprises, and local governments have done a lot of things. First of all, let's not talk about the macro level; let's focus on the details. Indeed, many local governments have reclaimed power. For example, since the pandemic, they have reclaimed special-purpose bonds. Special-purpose bonds are not included in the deficit, and most importantly, they are the primary tool for local government bond issuance, specifically for issuing bonds to establish projects. In the past, local governments cooperated with this tool; the provincial government issued the bonds, and the local governments could build whatever they wanted. But, to give you an example, what exactly has been built with these special-purpose bonds? The primary project funded by special-purpose bonds was the construction of local industrial parks. For example, building a chemical industrial park or a semiconductor industrial park was the largest project. Other projects included airports, highways, and urban development. However, starting about two or three years ago, the authority over special-purpose bonds was centralized at the central government. This means local governments no longer had the right to decide what to build; they had to report to the National Development and Reform Commission (NDRC), and only projects approved by the NDRC could be built. Fiscal projects required approval from the Ministry of Finance, the NDRC, and the Ministry of Finance for filing. Therefore, local governments lost the right to build whatever they wanted. Secondly, starting last year, the focus shifted to developing new intelligent production capacity according to local conditions. So, from then on, not every province could formulate its own new intelligent production project plan. If a province lacked the necessary resources, it couldn't even consider it. Xi Jinping specifically stated that not every city could have a data center or develop new energy vehicles. Therefore , although new intelligent production capacity is the most politically correct economic field, not every province can undertake it. Third, the cleanup of local subsidies that started this year addresses the issue of subsidies used by local governments to attract investment. These subsidies, including land and tax subsidies, were crucial tools; otherwise, why would anyone go to a province with insufficient subsidies? This year's cleanup targets illegal subsidies, even those that will be withdrawn . This removes the rights and means local governments have to attract investment. Now, the cleanup of local financing rights is underway, with the establishment of a national financing platform. The local city commercial banks that frequently defaulted in the past, like Baoshang Bank and Bohai Bank, were essentially local slush funds. Local governments used to deposit land into these banks to obtain funds, etc. Now that's gone, so local governments' ability to raise funds through this method is also gone. Now, there's this so-called unified national market. Previously, local governments had market access and regulation, right? For example, there was a list of cement companies in my region; only companies from other provinces could participate. Or, if I'm buying electricity from Inner Mongolia's wind power, I won't buy from them; I'll buy from local coal-fired power. Now, with this so-called unified national market, local governments no longer have the right to access resources. In other words, essentially, all the tools that local governments used to compete in the economic arena after the reform and opening up have disappeared. So, do you think this means China's economic system needs to change? Of course, it does. But from Xi Jinping's perspective, while you seem to have generated a lot of GDP in recent years —high-speed rail, highways, all those industrial parks— you've also incurred a lot of debt. Local government debt is a huge problem, and you often hide it from me, right? From Xi Jinping's perspective, he feels that you're always doing things you don't want me to know about, and he can't trust you. Do you think this makes sense? There is indeed a problem, but this solution is wrong, right? We believe the solution is to release power and resources to society, letting society use the price mechanism. Xi Jinping, however, went against the grain. He argued that China had historically been a locally driven developmental nation, and should be moving towards a market-driven model. But Xi Jinping wanted to transform it into a centrally-funded, project-based system. He reasoned that the previous locally-driven development model had failed, so he opted for a centrally-funded approach, where the central government initiates large projects, which are then implemented locally. Previously, resources were distributed from the provincial level. The goal should have been market-based distribution across society, but now it's centralized distribution from a single central tap. This, I believe, represents a shift in China's economic system. The problem with this shift is real: the locally-driven development model is flawed. Resource distribution at the provincial level is problematic, but the solution isn't simply to centralize resources at the central level because the provinces are ineffective. He suggested bringing the money back and deciding how to spend it. And there's another crucial aspect to this, another angle from Xi Jinping's perspective. He's specifically pushing for this large-scale centralization because, since Zhu Rongji's era, there have been many state-owned enterprise (SOE) splits. For example, China Telecom was split into China Telecom, China Mobile, and China Unicom; State Grid was split into two power grids; and the five major power generation companies were split. The aim then was to introduce competition into SOEs—it was a kind of competition . But recently, all we've been doing is centralization: the merger of CNR and CSR, the merger of CSI 360 and CSI 460, and mergers in various sectors. Xi Jinping believes that the past SOE splits, especially the central SOEs, were like cutting off our own limbs. So, in the past, we did this to break administrative monopolies and introduce market competition, but now we think, forget it, let the monopolies be, it's better to concentrate our efforts. So now we're doing this large-scale centralization again. From this perspective, I think there's a significant change in the economic system. Finally, let's talk about what this significant change in the economic system is all about . Now, tell us about the "six networks "—why the Chinese government has chosen to implement them again. First, explain what they are, and then tell us if the "six networks" can really replace real estate as the new economic engine . Let me explain: water networks, new power grids, computing power networks, communication networks, urban underground pipe networks, and logistics networks. I was totally confused when I saw them. So let's talk about these six networks. What's the purpose this time? It's placed in the section on expanding domestic demand, specifically expanding high-quality supply. This is completely different from our thinking, right? This is what they consider high-quality supply. What is low-quality supply? Of course, it's redundant construction—investment in new energy vehicles, high-speed rail, highways, and so on. So these six networks represent high-quality supply, but I think there's an interesting point here. One advantage of these networks is that highways are homogeneous, right? Although they form a national road network, each section of highway is the same; each province builds its own. But these networks themselves actually have a matching effect, for example, the computing power network. The computing power network needs to establish computing power for inference, training, and storage in various locations nationwide. For example, if Guizhou has implemented a large-scale storage plan, then other places might not need to build storage nodes; they could just build computing power nodes, etc. Therefore, this network-like construction of the six networks is more suitable for central government coordination. For instance, high-speed rail and highways are difficult to coordinate, but water networks can. For example, if we want to build canals, they certainly won't be spread all over the country, right? The canals will start from, say, Guangxi. Because we need to solve the maritime transport problem, we need to open up land transport from Guangxi to the Indochina Peninsula, so Guangxi needs to build canals—this is a national policy. So I think the network has several advantages. First, it still relies on path dependence; this is the infrastructure-driven economy that the country is most familiar with. Although it claims to be high-quality supply, it's essentially infrastructure. But second, it's different from traditional infrastructure. It can't be led by local governments. For example, if I tell a local government to build a water network, the local government doesn't know how to build it. There must be a top-level national plan to know what the network should look like. It becomes a national project-based network, rather than the decentralized network of the past. Thirdly, these networks are also related to industrial upgrading, right? Whether it's the logistics network or the computing power network, they are also related to the future industrial internet, digital governance, and artificial intelligence. So this is not traditional redundant construction. Although it is infrastructure, this infrastructure will help future industrial upgrading, which is part of Xi Jinping's "both want and want" policy. Fourthly, the current problem is that the economic system is flawed, and the manufacturing industry is not doing well. At least it can solve the cash flow problems of state-owned enterprises, manufacturing, and the financial system in the short term . So I think this replaces the traditional real estate investment engine and the traditional infrastructure investment engine to create the so -called "six networks," and the purpose of the six networks is to expand domestic demand and expand high-quality supply. That's his idea in this paragraph. And why is this idea good? Because it is a more centralized thing. Of course, I think this is a very absurd thing . Why is it absurd? Tell me, can it really replace real estate? Can it truly become a new economic engine? It might be a short-term engine. With this amount of money, you could build computing centers, but let me give you some data: the utilization rate of computing centers in China is extremely low. Even the computing centers owned by individual enterprises in China, due to AI development, have extremely high utilization rates. The utilization rate of computing centers in various provinces is less than 30%. So, while the national plan appears to be a very macro-level, precisely allocated plan, in reality, at the local level, it's still over-construction and resource misallocation. I think the most fundamental problem is that the central government believes it can formulate a precise plan from such a distant perspective, but in reality, China is too vast; you don't have that capability, you can't predict future industrial development, and you can't predict where the real demand lies. Therefore, the inevitable inefficiency of a planned economy still exists here. You think these things are useful, but the actual result is that the utilization rate of state-owned computing centers nationwide is less than 31%. Firstly, the basic infrastructure is too weak; the quality of those cards is too low, and they're useless today. Secondly, the computing power isn't being deployed where it's truly needed. It's not organized properly now , so it still comes down to this problem. I think if building the Great Wall were still useful, he might have built it anyway; it would be a network, right? This meeting's proposal to promote balanced trade development shows he's aware that the huge trade surplus is causing international backlash. However, without increasing consumer spending and changing the reliance on manufacturing investment and exports, how can trade truly achieve balance? I'm saying, does Xi Jinping believe he can alleviate external pressure without changing the growth model, or does he see this trade conflict as an inevitable cost of industrial upgrading? Or what? I don't quite understand. Don't they care? You see, this is a double-edged sword. I think for the country, it will definitely be seen as a short-term problem, not a serious one; otherwise, it wouldn't be ranked so low, because trade is already quite low in the economic hierarchy. And this is being forced by foreign countries, especially with the recent fierce trade war between China and Europe . How can he not think this is a big deal? The whole world is now treating China's exports like a major threat, okay? But there's one thing about China, and I'm not exaggerating, that's true. But you know, China has a fighting spirit. The more you bring it up, the less I see it as a problem. For example, recently the Ministry of Commerce came out again saying this might be a false issue, even though they've already been working on it for four or five years to address domestic overcapacity. Now the US has introduced Section 301 on overcapacity, and they're saying overcapacity is a false issue, right? I think that's their thinking— it's all about struggle. If you don't say anything, I might think the trade balance is a problem. But if you bring up the trade balance as a problem, then I'll say the trade balance isn't a problem. The Chinese government's foreign policy isn't childish; yes, it's rebellious, isn't it? It's rebellious, it's rebellious, but they still want to do something. Most people think the fundamental problem of China's trade imbalance is insufficient domestic demand. Expanding domestic demand means imports, and imports solve the problem, right? Give people some money, provide unemployment benefits, and then think about creating jobs. But Xi Jinping thinks, even if we want to balance foreign trade, we don't need to use this method. What method do they use? The approach remains government-led and planned, a two-way flow. Since you feel we're giving you more than you need, right? Then why don't our companies invest in your countries? So, if our companies set up factories in Europe, Southeast Asia, and Latin America, wouldn't that alleviate the statistical pressure of restricting exports to China? Moreover, this can promote our expansion. For example, if a Chinese chip company builds a data center in Malaysia, it can directly export 300-500 billion yuan worth of goods, solving the problem. It can also promote the expansion of Chinese technology, right? So, for Xi Jinping, there's no need to give money to the people; the state-led China Development Bank provides funds, and you can build factories overseas, solving the problem. But this is a double-edged sword. In the first half of this year, another overseas investment rule was introduced, regulating both individual and corporate overseas investments. All overseas investments require review. Why? Actually, these investments involve asset transfers, foreign exchange outflows, and a reduction in domestic tax revenue and job opportunities. So even if they wanted to do this—what about expanding two-way flows and encouraging Chinese companies to go overseas— they couldn't do it openly. They felt that doing too much would damage domestic tax revenue and employment. What if assets were transferred out? So anyway, his mindset is incredibly conflicted , extremely contradictory, not just conflicted, but contradictory in a very accurate way, extremely contradictory in every way. Let's go back to what you just said about forming a new economic model. You also told me you had a judgment that liberal economics is completely dead in China. When I heard that, I wanted to ask, what exactly do you mean by liberal economics? Has China ever really had this kind of economy in the past? And in what ways is this complete death manifested? Let me tell you something. Your statement is very interesting. Of course, what I'm saying is also alarmist, but not entirely. China definitely had a period of liberalism. For example, as we just mentioned, in the late 1990s and early 2000s, China broke up administrative monopolies and dismantled state-owned enterprises. This injected a part of the liberal market into the system. The so-called liberal market is very simple: competition, competition, competition, competition. So why do other countries implement anti-freezing laws? They want to break Google into several companies, right? We all think, "Are the Americans stupid? Isn't this cutting off their own limbs?" They have such a powerful company, why break it into three parts? They have this deep-rooted obsession that reducing competition, although it may seem powerful in the short term, is not good in the long run, right? So liberalism is competition, competition, competition, full competition. China used to have full competition. First of all, China did have a period of liberalism that gave private enterprises some space. Otherwise, how could Jack Ma and Pony Ma have become successful? Right? Now, I think there's a comprehensive resurgence from three angles, which is why I call it the death of liberal economics. The first is the resurgence of central- local government competition, as we just discussed. Local governments have regained the space to compete with each other, creating an economic tournament. As I mentioned earlier, six practical economic tools that local governments used to have are now gone, so this is a regression. Second, there's the regression in competition among state-owned enterprises (SOEs). From the differentiation of SOEs to the era of large-scale mergers, competition among SOEs has disappeared. Now, it's like... what they call it... there's another term... something like "overnight, an entire industry, a single enterprise," is that true? Yes, there seems to be such a term, I might not be the exact word, but a similar one—an entire industry, a single enterprise—is all that's happening now. SOEs are gone today. The third is the allocation of resources between the market and the state system. In the past, could we still have private banks? Like Minsheng Bank, providing loans to central SOEs, and so on. Now, the entire resource system and financial resource allocation is a significant shift from state-owned to private. From the time they confidently promoted the expansion and strengthening of the state-owned economy until now, the money available to private capital has been decreasing. Therefore, the competitive incentive for private capital is diminishing, and this is also true for foreign capital. Recently, FDI has been negative year after year, and many foreign companies have sold off their Chinese operations— Starbucks, McDonald's, and now Elon Musk may even sell his Tesla factory to China, etc. All of these factors are causing competition from three angles to disappear: competition between local enterprises, competition between private and foreign-invested enterprises, and competition within the state-owned enterprise system. All three are converging towards central regulation. This is what I mean by the complete death of China's liberal economic elements. Looking at each angle , you mentioned "one night, one night," which was proposed by the State-owned Assets Supervision and Administration Commission on September 3, 2022, to create a new economic landscape and address the problems of small, scattered, and weak enterprises. In short, it aimed to massively expand mergers and acquisitions. The name is quite straightforward: it's about eliminating competition. What's the point of competition if it's all happening at once? So they believe the only competition is international competition; once domestic competition is eliminated, it becomes easier to compete internationally. Yes, that's roughly the idea. But for the domestic market, this represents a complete resurgence, a total resurgence. So this is what I mean by the era of the complete demise of liberalism. Yes, but let's look ahead and give you some food for thought. I'm sure many listeners will say there's no large-scale stimulus. Then, the policy focus shifted to restructuring the Party-state's economic machinery. What will China's economic order look like in the future? Can you tell us? What are the driving forces behind this growth model? Who will ultimately benefit, and who will bear the cost? The last question is the easiest to answer: we will definitely be the cost. But as I've gradually deduced from the beginning, I believe there won't be a good outcome. This isn't to say I'm deliberately pessimistic; there are several points. The current development of these six networks—computing power, power grid, water conservancy, advanced manufacturing, etc.—involves huge investments. However, compared to the past focus on domestic demand, real estate, infrastructure, retail, and general services, its job creation capacity is very low. So, in the short term, we might see a recovery in fixed asset investment and GDP, but residents' income and employment won't recover. The employment multiplier will be extremely low. These are all highly capital-intensive sectors. Therefore, if the country continues to develop in this direction, it won't solve the employment and income problems; in fact, it might further worsen them. Because in the past two years, I don't think anyone in China has had any doubts about this issue. China fundamentally lacks the market capacity to guide private sector production, create new jobs, and promote distribution to the household sector . Therefore, the recent "six networks" and their capital-intensive investments will only exacerbate this problem. This is the first indirect consequence: employment in cities will decrease. Employment and income issues will worsen. Second, this new supply-side expansion will not improve domestic final demand. Their hope to increase so-called effective demand through the "six networks" for retirement and tourism will not translate into CPI and PPI growth. The good data from the first half of this year shows that money is not reaching ordinary people's hands. How can they possibly spend it on tourism and retirement? Therefore, domestic demand is insufficient. Similarly, because of the "two-pronged approach" mentioned earlier, the trade surplus will continue to expand, and they cannot readily encourage enterprises to invest abroad to solve this problem. Therefore, the trade issue cannot be resolved, and domestic demand will remain severely insufficient. This is the problem. Third, I think local initiative will decline. They will likely quickly shift from a new performance evaluation system focused on governance to a passive approach to governance. It seems that local officials worldwide, besides passively waiting for central government projects, orders, documents, and funding, can't do much else. They need very clear orders; otherwise, they won't act, and they dare not. That 's all they can do, right? Therefore, I think local initiative will decline in the future. This decline in local initiative will present a problem, and it's not just a problem with officials. Local governments are responsible for various aspects of governance, including local order, local administration, elderly care, and medical insurance. A decline in local initiative means a decline in local governance capacity. Ordinary citizens will feel the impact on emergency management, disaster relief , and frequent safety production problems. Insufficient disaster response will also emerge. Secondly, financial risks will further escalate, as debt relief in recent years has clearly not yielded particularly good results. Then, this new thing, although the government doesn't want it to create new debt, it's impossible to build these six networks without creating new local debt. So, in reality, new local debt will continue to expand uncontrollably under these six networks, and I don't think the new water conservancy network or logistics network will generate the same profits as before. So, in reality, the old problems they want to solve still can't be solved. It seems that China's economy has changed, meaning they want to improve efficiency and reduce risk, but I think the risks are the same, and efficiency has been reduced. That's the situation, so these are some intermediate stages. Therefore, I think this new approach of politicizing economic issues will not succeed. Okay, so who will bear the burden? Right, let's first talk about who benefits. Does anyone benefit? No one. His own self-esteem probably benefited. I don't know about others, but realistically speaking, related industries definitely benefit. If you're a Chinese manufacturer of server rack power supplies, you benefit. If you buy Chinese server rack power supply stocks, you might benefit. If you buy long-term storage stocks, you benefit. Long-term storage benefits. These are the points of benefit. From this perspective, it's about developing new productive forces according to local conditions. If Xi Jinping believes your area is qualified to develop new productive forces, you'll benefit, right? So go for it. Other cities won't benefit. So these are the beneficiaries. Who doesn't benefit? Because now banks are further absorbing local government debt and further absorbing the risks of real estate and small and medium-sized enterprises. Who will suffer? Ordinary people's savings and financial consumption. Because China has essentially entered an era of almost zero interest rates. But everyone must look at this issue. You can't think that zero interest rates are insignificant. Why can't the US convert its money into dollars to buy US Treasury bonds when the interest rate is 3.25%? The Japanese can. Japan has zero interest rates, so everyone converts their money into dollars to buy US Treasury bonds and the US stock market. Why should Chinese people only be able to allocate their assets to zero-interest deposits? This is opportunity cost, and opportunity cost is cost. So ordinary people are bearing the cost of the inefficiency of the financial system. Banks are even withholding interest rates in exchange for giving them some leeway to engage in other unethical practices. So, firstly, the bloated and inefficient Chinese financial system is borne by ordinary people and financial consumers. Secondly, private enterprises bear the burden. Involution, right? To combat involution, administrative centralization is needed. Administrative industrial governance combats involution, and bank credit is directed to government-selected enterprises. If you're not a leading enterprise, a state-owned enterprise, or a policy-approved enterprise, you won't get credit. Ordinary private enterprises will face financing difficulties, and insufficient demand from the overall society will negatively impact them. Mid-range food companies in China, like Haidilao, are struggling, with double-digit profit declines every year. What can they do? Private small and medium-sized enterprises. They have to bear the costs because, under this economic system, they are the ones who cannot access resources. Of course, household wealth continues to bear the costs. Because in this economic work conference, real estate has become a very small part of the agenda, so a continued decline in housing prices in second- and third-tier cities is almost inevitable. This continued decline will weaken residents' wealth. Furthermore, pension funds and medical insurance haven't seen a corresponding increase in cash transfers, so households still need to save to cover the risks of retirement, medical care, housing, and employment. Therefore, these residents will bear future economic risks and the risk of asset shrinkage, resulting in losses. Local governments will also suffer. For example, if you are the Party Secretary of Gansu or Sichuan, it's very difficult. There's no land, no financing, no subsidies, no investment attraction tools, and no way to issue bonds, but employment , public services, debt relief, the "three guarantees" (basic living needs, basic medical care, and basic education), and stability maintenance must be guaranteed. If you want further promotion, and finally reach that position, you'll be subject to anti-corruption campaigns and frequent investigations by the supervisory commission. So I think these people also have to bear the consequences, because it's probably these people who will bear the costs. These people, if you add them all up, are probably seven or eight hundred million, maybe I don't know, maybe even more than seven or eight hundred million. Think about it, there are ordinary people too. Who doesn't have savings? Right? I wrote an article a while ago about this "red map" ( referring to a specific type of investment scheme), about cracking down on these schemes. I looked into it, and the Chinese people are really pitiful. They have so much savings, 70% of which are in fixed-amount investments, and the interest rate on those investments is only around 1%. And then they just won't let you withdraw it. It's like they've put everyone's savings in one pot and covered it with a lid, so you can't get it out. Now, exchanging $50,000 is becoming increasingly difficult . Yes, exchanging $50,000... yes, you have to provide all sorts of documents to prove you really want to go abroad, it's so troublesome. Yes, I've actually been thinking about this a lot lately. What you're saying is that power is becoming increasingly centralized in the central government, and even local governments are losing power. This means ordinary people have less and less control over their money. I'm getting a bit off-topic, but I think it's related to what you're saying. Of course, it is. When major economic policies ultimately reach ordinary people, what happens? This is something everyone is particularly concerned about. I think the most obvious manifestation of this is that ordinary people feel their choices are becoming fewer and fewer . I think this reduction in choices stems from two aspects. First, although there's talk of market supply, with the elimination of market competition, the choices you have are becoming increasingly fewer. For example, many foreign companies have withdrawn from China. Many small businesses in various regions have disappeared. Let me give you a simple example that you can probably feel. I think there's a polarization in Chinese consumption right now. First, in the past, many local food and dairy companies were concentrated in one place, now it's basically dominated by Yili and Mengniu. While some local dairy companies in Beijing and Shanghai might still be able to survive, many smaller ones have long been acquired by Yili and Mengniu. So you either buy from national chain super-mega companies or from OEM manufacturers like Pinduoduo. The once thriving local businesses and brands in the middle segment are no longer viable. This lack of choice isn't just about the loss of options; it represents a loss of entrepreneurs, jobs, and profit-generating capacity, right? So this also means a loss of consumers—no jobs. What residents can truly feel is the loss of their primary employment options. I don't need to give any examples; people have already voted with their feet. So many people are taking civil service exams, even under these circumstances. You can feel the actual choices society can offer. People believe there are very few good options. Third, investment choices are also decreasing. In the past, investing in US stocks and other trusts and beneficial financial products were available. The reason why deposit rates in China have risen to this level is because Chinese deposit rates have already reached this point; people are still saving. Frankly, there are no other investment channels. Look at the US and Japan; they have various foreign exchange, stocks, and other investment channels, and their deposit rates aren't this high. China isn't stupid. If there were truly reasonable channels, who would want to deposit their money and sit in an account with almost zero interest? Your choices in this regard are very limited. So, what my residents feel most directly is that they have no choice. There are no choices in consumption, employment, or investment. A life without choices is a life with limited hope. We asked each guest to recommend three books or films. What recommendations do you have? You probably can't recommend three. Because reading and information intake have recently become largely AI-driven, this is a problem. We can't let it continue like this. No, it is a problem, but it has indeed led to a significant increase in efficiency. However, with increasing AI integration, it's really difficult for me to come up with books and movies that aren't recent. But I'm being honest with myself. Since I'm frantically recommending AI usage methods, there are some recent trends in AI. The cutting-edge models are quite expensive, and their capabilities are too highly differentiated. For the small tasks that ordinary people use, if you use a cutting-edge model, it's like using a cannon to kill a mosquito; it's just frantically calculating and trying to solve your problem in completely unnecessary ways. If you completely modify it to be extremely verbose, but if you completely modify it to the smallest possible model, you're firstly uneasy, and then you think, "Why should I use such a low-quality model?" You feel the quality isn't good enough, so I think we need to gradually adapt to a method. This method will definitely be developed into a dedicated product for you in the future, but not yet. Everyone should work on it themselves first. Use the most advanced Fable Five for subcontracting, letting it act as a command center. It determines what to use for your task, manipulating the various GPT models, or manipulating GPT itself, using Sol to complete it. So you can use it as a project manager and quality inspector. For example, I make sure it does everything, and it checks GPT every 15 minutes to see if there's any overthinking. If so, it stops and fixes it. And after doing this, I even have a method before bed now, because there's a lot of work I need to check. Before bed, I tell it to think of something not so important, but something you can do for six hours straight, do it yourself first, and then I'll talk to it when I wake up. Then I go to sleep, and it finds a side project that it can do for six hours to complete. For example, what is it? I didn't even know that. Yes, he was working on one of my big projects, and he found a project that could run autonomously for six hours to complete. Wow, after FableFive was put in charge of outsourcing and quality control, I felt the whole experience improved dramatically. It's like hiring a human. AI is amazing! I've always said Hou Chen should give us a lecture, no problem, but explain how to use AI. Let me recommend a podcast. I'm sorry, this podcast is in English. I really enjoy reading novels. The New Yorker has a podcast called *Fiction, The New Yorker*. Every January 1st, they find an author to read a novel published in *The New Yorker*, and then the author and the editor of *The New Yorker* discuss the novel. So, every month, he reads it completely before discussing it. Yes, he reads it completely, usually for about an hour. This episode is about Haruki Murakami, which was quite interesting, and I really enjoyed it. My most anticipated podcast of the month is this one about novels. I apologize for recommending it to everyone, but it's in English. Those of you who like English and novels can give it a listen. Okay, I'll give it a try. Okay, thank you, thank you Houchen, and thank you everyone for listening and watching. See you next time. Hello everyone, welcome to the Bumingbai Podcast. I'm your host, Yuan Li. Thank you for your continued support of the BuMingBai Podcast Here, I hope everyone will take more action to support the podcast. 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