Quote of the Day

The CCP is “a conservative reactionary party bent on preserving the power of state capitalist elites and advancing a distinctly 19th century form of ethno-nationalist imperialism”


This is a great quote. Ethno-nationalism doesn’t get talked about enough outside of China.


ZeroHedge is China Illiterate

I was recently forwarded this article from ZeroHedge regarding the Biden administration’s infrastructure proposal. In short, the author contends that the infrastructure proposal is focused on ivory-tower, green new deal politics that will “destroy the productive industrial powers and living standards of the nation” while China and Russia have built an “OPEN” system that embraces green tech and fossil fuels. The author doesn’t much support his arguments outside of using caps lock and bold print, however we can still examine the merits – or lack thereof – of the article. The article seems to have a few major contentions:

  • “Biden’s Green New Deal is shaped by Central Bankers’ Climate Compacts”
  • America is abandoning fossil fuel technology which will bankrupt the country
  • “China…has simultaneously committed to building green energy systems without deluding itself into thinking that fossil fuels, nuclear or hydro could be taken out of their energy baskets.”

Is it true that “Biden’s Green New Deal is shaped by Central Bankers’ Climate Compacts” as the author contends? It isn’t clear what the author means by ‘Green New Deal.’ In some examples ‘Green New Deal’ refers to the infrastructure proposal and in others it refers to climate change related financing. It is worth noting that there are no Central Bank climate compacts in the administration’s infrastructure proposal. It is true that in December, the Fed joined the Central Banks and Supervisors Network for Greening the Financial System. Is this group nefarious? Is it a coalition of “ivory tower technocrats” set out to destroy financing to the fossil fuel industry? No. It is a group of 90 member central banks and 14 observer central banks. Look who was already a member:

The Russian economy is dependent on its energy sector. Its not like China, who is exporting carbon abroad, would have any interest in joining this ivory tower technocrat club as well. Wait…

China and Russia were both already members. The Fed joining a large body of international central banks doesn’t constitute a policy change; it simply means the United States has a seat at the table for international discussion that is occurring and will occur whether the United States is there or not. Total investment in renewable-energy projects, electric vehicles and other green efforts exceeded $520 billion last year, a record, according to Bloomberg New Energy Finance, which tracks green investments. Spending was up 12% from a year earlier and nearly 60% from 2015, Bloomberg data show. I, for one, am glad America is showing up.

The author also jeers, “Many people couldn’t help but laugh when Biden told the Boris Johnson on March 26 that the USA and it’s NATO allies should create ‘an infrastructure plan to rival the Belt and Road Initiative’ post haste. What would such a program look like? How would it be funded when the USA is so embarrassingly bankrupt?”

The United States doesn’t have large telecommunications companies that develop and build 5g infrastructure, so how can the US counter Chinese infrastructure investment? The US is coordinating loans and financing (something the US is good at) for emerging markets to not use Huawei and ZTE (Chinese companies) products in their infrastructure. The US and UK recently teamed up to secure a contract in Ethiopia. In the past two decades, Ethiopia has developed commercial bonds with Beijing, signing loan agreements with Chinese lenders that total $13.7 billion between 2000 and 2018, according to the China Africa Research Initiative at Johns Hopkins University. Ethiopia, meanwhile, is also an important U.S. strategic ally because of its location near the Red Sea, on the Horn of Africa. The U.S. has tried to neutralize terrorist groups, including al Qaeda and Islamic State, in the region. There is also an ongoing conflict in Tigray. It seems like there, indeed, is a market for NATO allies to rival the Belt and Road Initiative. Someone should tell ZeroHedge that this is how the program looks, it is funded through USAID, and it is advantageous for the region.

China Illiteracy

The crux of my disappointment is the wrongheaded writing about China. The author writes, “The irony about all of this is that China and Russia are increasingly adopting a system of political economy which is fundamentally OPEN and driven by scientific and technological progress without any supposed limits on its potential for improvement.” No.

First, China isn’t content exporting emissions abroad. During debt negotiations between Bangladesh and China in February 2021, China informed Bangladesh’s Ministry of Finance that it will “no longer consider projects with high pollution and high energy consumption, such as coal mining [and] coal fired power stations.” Also, in 2020 more than half of Belt and Road initiatives went to green projects.

Second, while Chinese institutions have driven the financing of coal projects, four American banks—JPMorgan Chase, Wells Fargo, Citi, and Bank of America—remain the largest financiers of fossil fuels projects overall, having collectively financed more than $800 billion in such projects worldwide since 2016.

Third, for all the writing about how “USA is so embarrassingly bankrupt,” you would think the author would know that China has extreme debt problems stemming from a closed political economy. Exporting fossil fuel technology abroad isn’t a sign of strength; it is a sign of China’s local government state owned enterprise’s inability to recalibrate. Chinese debt is over 300% of GDP. Most of China’s local government debt, one of the most regular issuers of domestic debt, is held by state-owned or state-controlled financial institutions. For decades, China’s local governments have relied on off balance sheet borrowing through local government financing vehicles (LGFVs). Many of these borrowings are not recorded and transparency is opaque when it comes to how the funds are used. Such hidden debts are estimated to be between 30 trillion yuan (US$4.2 trillion) to 40 trillion yuan by Standard & Poor’s. China issued 4.55 trillion yuan (US$703 billion) in new local government bonds in 2020, data from the Ministry of Finance showed. Most of these borrowings are held by domestic investors such as commercial banks, followed by policy banks, which are state-owned banks whose investment and lending practices support government policies, such as issuing bonds to raise funds for infrastructure investment and insurance companies.

Why are Chinese state owned energy enterprises trying to export their products abroad? BRI’s focus on coal is driven by local excess Chinese capacity. China is the world’s largest coal producer, accounting for 46 percent of global output in 2019. China’s BRI investments in coal-fired plants help create new markets for Chinese coal. They also allow Chinese firms, squeezed by environmental regulations at home, to recoup some losses abroad. In one notable case, an unprofitable Chinese coal plant was entirely disassembled and then shipped and reassembled in Cambodia.

It is factually wrong to say China is open. It is a country dominated by provincial state owned institutions. It is communist. I was in China during the winter of 2017 when, in a bid to stop North China’s air pollution, Beijing banned coal and tried to move to gas resulting in millions of people being left without heat. China is not balancing new and old technology; China is a communist country struggling to change from old growth models, doing everything it can to kick the can down the road to save its state owned enterprises- even if that means boxing facilities up and shipping them to Cambodia.

Smog in Beijing

Dishonest Intentions

Environmental degradation isn’t a joke in China. Energy and climate indicators are included under “new progress of ecological civilization”, which is one of the six overarching economic and social development goals of China’s 14th five year plan (formally adopted on March 11th of this year). Chairman Xi is staking his name next to improving China’s air, water, and land. Chairman Xi has become the most powerful Chairman since Mao, because he must be. He must effectively transfer wealth from provincial state owned enterprises to Chinese people. State owned enterprises will not relinquish power easily; they will attach themselves to national policy like the BRI to export excess capacity abroad. Xi will have to break that.

America, and the Biden administration broadly, isn’t failing in energy policy; democracy functions differently than communist five year plans. Take this example of how we get to a sustainable world from the Wall Street Journal. Do you agree? Disagree? Great! Talk about it. Write a senator. Take up your civic duty. Vote.

Note that Nuclear and Hydro are very much, despite the rambling of ZeroHedge, present in the discussion on a transition to green energy.

I don’t pretend to know what ZeroHedge’s intentions were when writing their piece. I only know that there is very little veracity to the piece. ZeroHedge makes a living instilling fear. “America is falling apart! Make sure you tune in tomorrow for the latest scoop!” Being cynical and selling recession pornography is not a substitute for good-faith, informed discussion.

Chinese GDP Obsession

EDIT 1/24/2021

I was right. So far, 7 provinces representing a third of Chinese GDP have released GDP targets for 2021. Link.

On December 28th, Macropolo’s Damien Ma and Houze Song wrote – link – that China is “closing the curtain on the GDP obsession era.” Damien, the co-founder and director of Macropolo, runs an excellent think tank, but it is incredibly presumptuous to say that China’s GDP obsession is over.

In 2020, China published its 14th Five Year Plan. In this plan there was no mention of GDP targets. Instead, China was to focus on “getting one’s own house in order (办好自己的事). ” Macropolo’s point is that by not explicitly giving the country GDP targets, Chairman Xi is signaling “changing political incentives.”

[Not publishing GDP targets] is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.

-Damien Ma, Nov 2020

Macropolo is right to signal that this is great change in Chinese policy. For years, Beijing has told provinces what level of GDP to achieve, causing local governments to direct that amount of money into infrastructure. By not giving a growth target, “the Central Committee decided that importance should be placed on structural adjustment, quality, and efficiency. ”

However, changing language regarding growth should not be mistaken for actual, structural change. From the World Bank’s most recent China Economic Update (emphasis mine):

Even as GDP returns to its pre-pandemic level by 2021, the COVID-19 shock has accentuated pre-existing imbalances and highlighted structural challenges. The pandemic and ensuing recovery have caused imbalances in the structure of aggregate demand to relapse, as households increased savings, government support stressed investment, and external imbalances widened. Public and private debt stocks—already high before the pandemic—have increased further. The vulnerabilities in fiscal, corporate, and banking sector balance sheets together with rising debt service costs will weigh on China’s growth, following next year’s strong cyclical rebound.

-World Bank December 2020 China Economic Update

The World Bank goes on to say they expect China to grow at roughly 8% next year. How is it that China could grow so much while focusing on quality and efficiency? The Chinese government is still effectively directing GDP. There might not be a national, explicit target, but funds are being directed through state owned enterprises, provincial govnermnets, local governments, and Local Government Financing Vehicles (LGFVs):

  • Chinese fixed asset investment in transportation will be an eye popping 2.4 trillion RMB in 2021.
  • China has long said – and continues to say – that domestic consumption is top priority, but China has yet to signal any policy to redistribute wealth.
  • Chinese local governments are actively evading restrictions on debt limits. According to public records, the total assets of 960 large LGFVs that regularly disclose financial results rose 40 per cent over the past four years. Their revenues and net income, however, increased just 6 per cent and 4 per cent respectively.

I don’t disagree with Macropolo’s take that China is changing its political incentives. I do find it presumptuous to say that China is abandoning GDP targets when more than 2% of GDP is being directed into transportation infrastructure and no policy to redistribute wealth has been verbalized. In general, I take little stock in the wording of five year plans; the 13th Five Year Plan said almost the same thing, and implementation of economic re-balancing policy completely failed. Why should this time be different? Personally, I’ll believe it when Chinese GDP rises less than 5%, Chinese households increase their share of GDP (wealth redistribution from the state to households), fixed asset investment plummets, and LGFV debt is under control.

In China, nothing is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy. Its been tried for decades. For a good read on this, I highly recommend this Caixin article. In short, don’t take Chairman Xi’s word for it; seek truth in actions.

US-China, A Low Point

The US-China relationship has reached its lowest point since the Mao era. US hope for a moderate and economically reformed China has faded while China, as it has since the CCP took power, remains ideologically entrenched in communist authoritarianism.

Communist China continues to do what it has done since its founding: obfuscate, threaten, and place the party’s perseverance above all. America, however, is charting into new waters while sailing rudderless with no mission, sense of history, or clear directive.

Chinese consistency

It is important to know that communists do not believe in truth. Truth is a fabrication of the ruling class. In China, truth, regardless of fact, is dictated by the state. Note the following four scenarios where China says one thing and does the opposite.

1.) China is sending aid to Italy while also waging a disinformation campaign.

2.) China’s Foreign Ministry Spokesman Hua Chunying said (source) the following during a press conference on March 31st (my emphasis added):



Now so many days have passed, and some in the US still claim China should be held responsible for the COVID-19 in the US. Don’t they feel guilty or ashamed? They are trying to shift the biggest blame of the century to China and make it the biggest scapegoat….

The pandemic is in some way like a magical mirror that exposes a person’s morality and character to the fullest extent. The virus knows no ideology, border or race. The destinies of all countries are closely intertwined. No one can make up for lost time by slandering others or shifting the blame. The only way to defeat the virus is through solidarity and cooperation.

This messaging from the CCP flies in the face of doctors who were silenced and jailed for raising Covid-19 concerns.

3.) China is still moving backwards economically towards more state control. From Rhodium Group and The Asia Society’s China Dashboard detailing Winter 2019 economic reform:

 The approach to policy…reveals Chinese leadership looking for modest, piecemeal ways to make some progress, not bold moves. The virus emergency stymies even that minimal activism. In the financial system, the emergency measures rolled out to avoid defaults are making the debt problems worse, and this is true in other areas

Chinese media, however, drones about China creating a fair system for the world.

China End Trade War

4.) China, after expelling American journalists, is lamenting about the treatment of Chinese ‘journalists’ (Source):


The political suppression of the Chinese media in the United States by the United States Government has become a stumbling block for the positive interaction between China and the United States. Pride and prejudice are not justice, and bullying will never succeed.


America Asleep at the Wheel

The JCPOA, the Iran Nuclear Deal, was largely criticized for not addressing Iran’s nefarious behavior in the Middle East.  The United States under the leadership of Donald Trump was supposed to renegotiate the deal or embrace a ‘no-deal’ that better aligned with American values.

The Phase One Trade Deal with China mimics the JCPOA. Not only does the deal not address China’s nefarious behavior, it represents no American values. It is wishful manufactured trade.

phase one deal

During the ‘trade war’ China didn’t reduce imports of US manufactured goods excluding autos and planes because China has already squeezed out all other American industrial imports. China’s revealed capacity to manage its commodity imports over the course of the trade war suggests that it could meet its 2020 agriculture and energy commitments.

But, as anyone who has spent time in China will tell you, what the China’s state gives, China’s state takes away.

Chinese US imports

It is important to remember that the Obama administration obtained a cyber security deal and promises to not militarize artificial islands in the South China Sea, and the CCP broke both agreements. Our current agenda with China doesn’t mention human rights (the detention of more than one million Uighurs), violence in the region (militarizing the South China Sea), or the mercantilist trade policies that put the US and China here in the first place. America moved the goal posts from human rights to managed trade in nutslobsterchicken feet, and soybeans.

Instead of raising issues that define the country, America’s objectives flow with the current news cycle.

Does America now have wet market conditions to trade? Does this only apply to China?

Why does the President of the United States language on Chairman Xi change when Weibo censors  language supporting America? Does this only apply to China?

America, and I can’t stress this enough, through its foreign policy doesn’t stand for anything. There is no such thing as ‘country X policy.’ Policy must fit into a framework that is applicable to a region. Good China policy derives from a good Asia policy. Good Asia policy is derived from American values. ‘America First’ isn’t a value, an ethic applicable to how you treat people you don’t know. It is narcissist and erodes the moral fabric of the USA.

It was the former president of the European Commission who announced in the spring of 2011: “When it becomes serious, you have to lie.” Jean-Claude Junker indicated there was a posttruth approach to public discourse. He was wrong. China has not only murdered Tibetans, Mongolians, Falun Gong practitioners, students in Tienanmen Square, land holders, intelligentsia, and Uighurs, China has erased them from history. China is as China has been since 1949. The United States has retreated from economic fairness, the South China Sea, human rights, and Asia. Instead of exhibiting leadership at the World Economic Forum in Davos this year, Trump broke his tweet record. If communists have a disposition towards lying and self-preservation, America is currently disposed to abdicating leadership in Asia.

The United States needs a rudder and backbone.

China Economic Update: Further State Control

An apt quote describing Chinese economic reform (my emphasis added):

The analytical community will pore over the entrails [of the reform agenda] to analyse whether the spirit of market-based reforms continues to flourish for the future. Or whether it has begun to fade amidst a more general Chinese political and ideological redirection to the left. Or just as problematically, for economic reform to die at the implementation level because of confusing political and policy signals from the centre, meaning that it is much safer to just keep your head down. Or because there are limited local incentives, either personal or institutional, to actively prosecute reform which inevitably generates local conflict with deeply entrenched vested interests. Or, more likely, an unholy cocktail of the above, collectively reinforcing a natural predisposition towards bureaucratic inertia.

-Kevin Rudd

President of the Asia Society Policy Institute and Former Australian Prime Minister

As this blog has stated many times before, Chinese economic reform is dead. China, for the past decade, has seen a systemic rise in debt as state influenced asset allocation becomes increasingly inefficient. Three years ago Chinese credit growth was 16.6% . With over $40 trillion in bank assets, it will not likely return to previous growth levels. Even so, the current  pace of credit growth, 10%, once again exceeds nominal GDP growth, meaning that China is adding to economy-wide leverage rather than moderating the debt load.

Xi in Davos

In 2017, General Secretary of the Chinese Communist Party Xi went to Davos to promise to defend globalization and reform the Chinese economy.

The SOE share of listed company revenue in “normal” industries–those that Beijing identified as non-strategic and commercial–increased significantly, to 15.6% in 1Q2019 from 14.8% in 4Q2018. This increase is the first since 1Q2016, and it shows that the state is advancing even in industries where Beijing set out to withdraw influence in the 2013 Third Plenum Decisions. Industrial SOE assets grew by 4% year-on-year in 1Q2019, faster than private asset growth of 1.4%. SOE profitability flattened in 1Q2019, suggesting that past policies framed as reform (e.g., capacity cuts, deleveraging) have failed to improve SOE efficiency. Returns on SOE assets peaked at 4.5% in 3Q2018 and then declined to 4.0% in 1Q2019.

In 1Q2019, the State Administration for Market Regulation (SAMR) reviewed 28% of foreign-involved mergers but only 9% of domestic mergers. At the same time, China’s poor judicial transparency has deteriorated further. Courts publish less than 5% of the competition and intellectual property disputes they handle each year, with significant delay. In 1Q2019, the courts even removed previously published cases (400–600 cases a year) from their websites.

Communism Guides the Economy

I recently read through the 国务院关于深化国有企业改革的指导意见 (Guiding Opinions of the Central Committee of the Chinese Communist Party and the State Council on Deepening the Reform of State-owned Enterprises) which was published in 2015. Here are two interesting quotes with translations following:

1.) 坚持党对国有企业的领导。这是深化国有企业改革必须坚守的政治方向、政治原则.  The Party’s leadership over SOEs shall be upheld. This is the political direction and principle that must be held fast to in deepening SOE reform.

2.) 企业党的建设全面加强…工作体系更加完善,国有企业党组织在公司治理中的法定地位更加巩固,政治核心作用充分发挥.  The Party building of enterprises shall be comprehensively strengthened… In addition, the Party organizations of SOEs shall enjoy a more solid statutory position in corporate governance, and fully display their core political role.

Chinese reform has regressed towards China’s bureaucratic mean- communism and state control. As China releases GDP numbers, quarterly updates, and policy guidelines, readers should put those documents into a clear framework: China is slowing, debt is growing, and the state is consolidating.

Lastly, here is a quote from the EU Chamber of Commerce’s report “18 Months After Davos:”

One of the largest concerns for European players in the healthcare equipment sector is the CM2025 initiative. The China Manufacturing 2025 Key Area Technology Roadmap, which was drafted under the guidance of the China Academy of Engineering, sets domestic market share targets for Chinese players in the healthcare equipment sector. International players are concerned that any available support will only be extended to domestic companies. So far, there has been no obvious effect on the healthcare market, and the European Chamber has been assured by the Chinese authorities that this implementation strategy is not to be taken seriously.

Thanks for reading.


On Chinese Zoos

Short thoughts on Chinese zoos today. Do not, under any circumstances, go to a zoo in China. I like China. I love zoos. Chinese zoos are beyond atrocious.

In 2017 I visited Chongqing. Famous for its fiery cuisine and large rivers (the Jialing joins the Yangtze here), Chongqing is a comfortable visit for tourists- particularly food tourism.



Eating all day is something I recommend in Chongqing. Going to the Chongqing zoo is not something I recommend. In fact, going to any zoo or aquarium in China is not something I recommend. The animals are treated extremely inhumanely.


Appropriate living conditions for lions


These metal cages look empty!


No, those cages house the monkeys!


Engaging and stimulating environment for birds of all types


It is surprisingly normal to see tanks in China with more dead fish than living fish

If you’re into monkeys housed in empty, small metal cages, zoos in China are the place for you. There is always one exhibit that is nice- the panda exhibit. Make of that what you will.

Thanks for reading.



Trade War Short Thoughts

Short thoughts regarding the trade war’s big ticket news items and completely under-the-radar news items. Thanks for reading.

The Trump administration’s August 5th decision to designate China a currency manipulator is largely meaningless.  Officially, labeling China a currency manipulator is the first step in logging a complaint with the IMF, an organization that will continue to do nothing of substance regarding China.

China’s devaluing currency makes a lot of sense in that it better spreads the cost of America’s tariffs to the world. I also doubt China’s corporate $501bn in outstanding dollar debt is much of a liability- although with Chinese debt, it is hard to say. All in all, there isn’t a lot of meaningful news in this; its all symbolism.

The biggest takeaway regarding America’s China policy is how congress is stepping up. Yes, you read that correctly. Congress, touting a whopping 17% approval rating, has taken a lead when it comes to China policy. First the 2019 NDAA (National Defense Authorization Act) requires the Trump administration to provide a whole of government strategy for competition with China and allocates funds for boosting capacity in the South China Sea. Second, there are now bills being proposed to tax foreign funds coming into the United States.

Congressional aproval

According to an earlier memo:

The Competitive Dollar for Jobs and Prosperity Act would task the Federal Reserve with achieving and maintaining a current account balancing price for the dollar within five years. It would create an exchange rate management tool in the form of a Market Access Charge (MAC)—a variable fee on incoming foreign capital flows used to purchase dollar assets. The Fed would set and adjust the MAC rate. The Treasury Department would collect the MAC revenue. The result would be a gradual move for the dollar toward a trade-balancing exchange rate. The legislation would also authorize the Federal Reserve to engage in countervailing currency intervention when other nations manipulate their currencies to gain an unfair trade advantage.

America would no longer be the free market for non-free markets to sterilize their surpluses. Even if it doesn’t pass, this is huge.

Maybe in the future, being labeled a currency manipulator will have bite.

Chinese Government Policy is Not Top-Down

I highly recommend China watchers read this paper by political scientist Lee Jones and Zeng Jinhan. It provides a great look into how Chinese policy is implemented:

Foreign-policy steering happens through several important mechanisms. The first is top leaders’ major speeches, which are usually kept vague to accommodate diverse interests and agendas. Rather than ‘carefully-worked out grand strategies’, they are typically ‘platitudes, slogans, catchphrases, and generalities’, offering ‘atmospheric guidance’ that others must then interpret and implement. Examples include: Deng’s tao guang yang hui, whose meaning is ‘debateable’; Hu’s ‘harmonious world’ – ‘more of a narrative than a grand strategy’; and Xi’s ‘new type of great power relations.’ As discussed below, Xi’s vague 2013 remarks on the ‘silk road economic belt’ (SREB) and ‘maritime silk road’ (MSR) exemplify this tendency. [2]

Xi Jinping thought and Xi Jinping thought-study for communist cadre revolves around applying platitudes to local practice, matching national talking points to local policy initiatives. \Xi Jinping’s Speeches are completely devoid of any significant meaning, but local governments go to great lengths to mirror Xi’s  lexicon. Take the Belt and Road initiative for example.

Xi Book

Disturbing quote from Mark Zuckerberg

The Belt and Road initiative is not driven by Beijing. Provincial governments and local governments have been tasked to create their own BRI projects.

From Lee and Zeng:

In 2013, Guangxi and affiliated business interests agreed  with  Malaysia’s Pahang state  government  to  upgrade  Kuantan  port,  including  by  developing a cross-country railway, road links and a US$3.4 billion industrial park. Guangxi subsequently leveraged  BRI  to  expand  its  involvement.  However,  in  September  2015, Guangdong province  signed  a  rival  agreement  with  Malaysia’s  Malacca  state,  including  a  US$4.6 billion industrial park and a US$10 billion port upgrade.

There is little economic rationale for developing two world-class ports on the Malay Peninsula. These projects reflect not a coherent master plan but  rather competitive, sub-national  dynamics in both countries.  Moreover, these micro-level dynamics clearly do not–indeed, cannot–add up to a coherent, macro-level network of infrastructure. Unsurprisingly, statistical analysis reveals no correlation between Vision and Actions [the official policy document guiding the BRI] six ‘corridors’ and projects on the ground, suggesting that the plan is failing even to guide investment activity in a broad sense.

Foreign policy has an excellent article which, among other things, quotes how the World Bank lauded Turkey’s Marmaray rail tunnel as an example of BRI investment, ” even though it is funded by a Turkey-EU-Japan consortium and appears to have no Chinese involvement.” BRI is less of a national strategy and more of an expansion of a specific part of China’s domestic political economy: local governments borrowing endlessly to fund infrastructure projects.

The thing is, local provinces are agile in aligning to federal programs to push their own initiatives. Again citing Lee and Zeng:

Only 14 provinces were invited to the NDRC’s initial OBOR symposium in December 2013, indicating a relatively tight circle of beneficiaries. Excluded provinces, however, quickly lobbied for inclusion, through  forums  like the NPC. Provincial  universities  and  think  tanks  were  encouraged to demonstrate locales’ historical links to the ancient silk road – generating the aforementioned publications boom. Local media were also enlisted, leading to a profusion of stories mentioning OBOR, from 543 in 2014 to 5935 in 2015, with coverage in virtually every provincial outlet. For example, Shaanxi and Henan provinces waged an intense public battle over which of them contained the start of the historical silk road Competition over the MSR’s ‘starting point’ was even fiercer, with rival claims from Fujian, Jiangsu, Guangdong and Guangxi. Provinces with weaker claims invented ‘starting points’ linked to geographical locations or commodities, like porcelain or tea, then even squabbled over these. Shandong and Hebei, for example, both claimed that their cities, Qingdao and Huanghua, were the ‘northern starting point.’

China is built from the bottom up, from province to federal government. Local media, local SOEs, and local projects are cooked to align to federal buzzwords. Even SOE structure is province-up. Look at CRRC’s subsidiaries pictured below.

CRRC subsidiaries

CRRC is an active holding company comprised of many local companies. These local companies are unique in leadership, future plans, and corporate action. They shape the national SOE, CRRC.

In April of 2015, Xi Jinping declared that China will have a ‘toilet revolution’ (厕所革命). Much of the commentary and media coverage have struck a bemused tone and offered little analysis. China’s toilet revolution is a prism through which to examine how the central government takes account of popular opinion, how bureaucratic interests are championed by China’s top leaders, and how agencies can effectively implement national policy campaigns. The architect of China’s toilet revolution is Li Jinzao, former head of the National Tourism Agency. From 1998 to 2002 he served as mayor of Guilin, where he launched a local ‘toilet revolution’ to increase tourism. In 2000, his city built more than 849 new ‘tourism toilets.’

This is serious business. As head of the NTA in 2014, he designated April 1st as China Toilet Revolution Advancement Day and instituted an annual National Toilet Revolution Meeting on the first workday after the Spring Festival holiday. After catching the eye of Xi, the program went viral.

According to state media, between 2015 and 2017 the NTA was able to get the Ministry of Finance to allocate almost 1.8 billion yuan ($264 million) to subsidize toilet construction, funding which helped spur localities to invest a further 20 billion yuan ($2.9 billion) of their own budgets into toilets over the same period. In November 2017, the NTA declared that 68,000 toilets had already been constructed or upgraded, exceeding its original target by nearly 20%. Consequently, the NTA announced a “New Three-Year Action Plan” that raised its original target of 57,000 to 64,000 new or upgraded toilets by 2020.

The take away here is that localities were quick to jump on a national project with serious merit and invested more than ten times what the ministry of finance allocated.


My photo taken at Tsinghua University. 向前一小步, 文明一大步 (advance one small step, culture/society advances one big step). It is a sign near a urinal telling men to urinate cleanly for the “rejuvenation of the nation.”Really: link

Chinese grand-strategy, from One Belt One Road and SOE structure to the massive amount of money spent on the toilet revolution, is almost always a post-hoc narrative that provinces use to justify their idiosyncratic tendencies and desires. Xi and China aren’t as centralized as commonly thought of.

China’s Debt Problem is Evolving

Short thoughts on China’s debt.


1.) Recently, a lot of attention has been given to the financial health of SMEs (small and medium enterprises). These smaller companies have historically had access to less financial support, and Beijing has been explicitly concerned about lack of cheap credit available since the crackdown on shadow banking.

This is why Reuters publishes articles like this.

China’s central bank said on Monday that more loans have been extended to small firms in the first five months of 2019, heeding Beijing’s call to support the economy.

The number of outstanding loans to small and micro enterprises rose to 10.3 trillion yuan ($1.50 trillion) at the end of May, up by 21% year on year…

Truthfully however, access to finance isn’t the problem, local government debt is.

Later payments

State firms under pressure to deleverage are finding cash by paying private companies later. The crackdown on shadow banking limited government access to credit, hindering government ability to pay the private sector.

2.) The Chinese government knows the extent of the debt burden. Premier Li Keqiang recently said, “抓紧解决政府部门和国有企业拖欠民营企业账款问题” (link) or “[Government must] grasp and resolve the problem of arrears owed by government and state firms to private enterprise.”

3.) China’s economic model is not sustainable. I highly recommend Macro Polo’s Debt Hangover Map to see Chinese LGFV return on asset.

LGFV debt map

While China is attempting to deleverage, I am not sure how government’s can continue to finance large infrastructure projects. I, fundamentally, dont see any indication that capital allocation mechanisms have become more efficient or changed in any meaningful way.

4.) I am pessimistic about China’s debt servicing capability in the long term, but in the short to medium term, China can do a lot to kick the can down the road. Not paying private companies and hindering SME cash-flow is just the latest in China’s debt evolution.


Blue sky today.

Sights Of Beijing Pt2

Some of the photos I am going to post today are politically incorrect, but China is, by Western standards, not at all politically correct. In fact, I was inspired to post these in confidence after reading the following news story (emphasis mine):

“We got a 50-minute non-stop lecture, pausing only for translation, about this being a clash of civilisations,” said Adam Posen, the group’s president, who declined to say which member of the Politburo they met with. “And some of it was a bit extreme.”

Peterson Institute scholars said this lecture by their Chinese host focused on how the US was a “Mediterranean culture” based around belligerence and internal division, which explains why it has such an oppressive foreign policy… 

I hope these seemingly random photos give you a unique, genuine perspective on what it’s like living in China’s capital.


In 2015 my company hosted a team building activity in an escape room type setting. The Chinese characters on the rug read, 超级密室 or Super Escape Room. The theme of this escape room was Jews escaping from Nazis.


As a tall white man, I got these type of invitations regularly. I once was paid about two hundred dollars to attend the opening of a new dental hospital in Taiyuan.


Security forces in Beijing really beefed up starting in 2016. Now, every bus I ride on has some uniformed security aboard. The above picture was taken in a hurry, because I was nervous to be caught filming security in Beijing.  I was promptly caught taking this photo. The security man was nice and pleasant. He was floored to talk to a foreigner in Chinese. There are many different types of security services in Beijing. Their descriptions can be found here.


During Chinese New Year you could find these vans parked throughout Beijing.  Inside the van sleeping were two to three men from the Chinese countryside. They sell fireworks. The blue jug is full of water, but if there was a fire, it would be useless in extinguishing the flames.


We woke-up the men around 3am. Pictured above is inside the shed adjacent to their van; it is packed with commercial fireworks. Now fireworks in the city are strictly limited and lighting of fireworks near the city center is somewhat controlled.


Pictured above are statues in the subway of Beijing. The theme of the pieces were race and class. The series revolved around overweight foreign races and sickly Chinese people. The black woman’s statue was common to take photos with, as the man pictured above is now doing.


Chinese crawfish are to die for. Sichuan cuisine, known for a spicy and numbing (麻辣) flavor profile, has mastered boiled crawfish. Served with a thick sauce, this type of dish alone is worth visiting China for. During crawfish season it is common for these restaurants to have very long waits.

Thanks for reading.