1949 :

Land Revolution and ‘Three Supplies-based Vehicles’ to Alleviate Protracted Inflation

The land revolution of “equal distribution” agrarian system embodied the fundamental demand of traditional peasants for the past several millennia. The war spurred the mobilization of the largest peasant population in the world to participate in the state-building. The hyperinflation that had started in 1937 during the Republic of China era was still a major problem. Yet with the revival of traditional peasant communities, not only were the peasants that accounted for 88% of the total population able to ‘de-link’ from the urban capital economy, it also enabled the state to establish an independent, autonomous financial system by anchoring the sovereign currency to those agricultural commodities that livelihoods depended on. That in essence rectified the error of the former regime, which gave up the monetary sovereignty and pegged the Gold Yuan against U.S. Dollar, thereby ushering in hyperinflation.

What it meant in practice was that, the new government, through measures such as “supplies-based savings”, “supplies-based wages” and “supplies-based public bonds”, pegged the Renminbi to essential agricultural commodities like grain and cotton, and thus finally alleviated the two main predicaments that China had faced for over a century—hunger and inflation. However, the problem that the ‘equal distribution’ land reform had left behind was that the hundreds of millions of scattered and multi-occupational peasants became contradictory with the primitive accumulation of capital needed for urban industrialization.

In December 1949, Mao Zedong visited the U.S.S.R. by train to negotiate with Stalin over the return of Lushun harbor and the Changchun-Dalian Railway, as well as loans and aids from the U.S.S.R. In February the following year an agreement was signed.

1950 :

Korean War Broke Out; China Received Soviet Aids and Investments in Military Industries; The “Sanfan” and “Wufan” Movements

North Korea had completed land reform yet the South was against it, giving rise to domestic confrontations that turned into war on the Korean Peninsula. China participated in the war by sending “voluntary combatants”, and therefore became included in the Soviet geo-political strategic regime. It also led China’s urban industries out of the crisis and entered into wartime economy. The first wave of “state industrialization” was brought on, with the focus on the military sector, driven by foreign capital from the Soviet Union. The “sanfan” (“Three-Antis”) and “wufan” (“Five-Antis”) movements were launched nationwide to put a curb on the capitalism’s primal drive of primitive accumulation. Back then the Chinese had not realized that foreign capital would inevitably transform into sovereign debts and lead to budget deficit crises. Because of that it was inevitable that as a rule emerging countries in general would fall into the development trap.

The most significant change that happened in the West after the WWII was that the previous situation of multi-polar powers contesting one another turned into a confrontational duopoly. MaCarthyism was prevalent in the USA. Since then, the world entered into the Cold War in which the U.S.A. and the Soviet Union competed for geo-political domination. It gave rise to the “wild goose formation” model of outward industrial capital transfer by the two superpowers—the USSR giving aids to industrial projects in China and Eastern Europe while the U.S. launching post-war aids and recovery plans to Western Europe and Japan. The manoeuvres of the superpowers were almost identical in form.

1951 :

The Chinese State Appealed to Twenty Million Peasants to Support Urban Industrialization; First PRC Five-Year Plan Drawn; Japan Started Nuclear Power Technology

The state industrialization model formed mainly on the basis of the imported facilities from the USSR had innately concentrated around military and heavy industries, capital-intensive while excluding labor. Although over ten of millions of young peasants had been mobilized by the state to go to cities in support of industrialization, what they were engaged in were labor intensive urban infrastructure projects—drainage, power lines, roads and land levelling that required “simple labor work”. As a result, the demand for food grain in cities suddenly surged.

The first five-year plan was under preparation.

Due to strict geopolitical control by the U.S. over oil supply channels on the one hand, and the industrial revival because of the Korean War on the other, Japan was able to initiate the development of nuclear power and related technology. Yet it also foreshadowed the Fukushima nuclear crisis sixty years later.

1952 :

The State Planning Committee Officially Established; Land Reform Completed

The first five-year plan was launched under the guidance of Soviet experts. The small planning commission originally established in the Northeast Bureau to facilitate war-time investments from the Soviet military was brought to Beijing and became the “State Planning Committee”.

The land reform was completed countrywide. A rudimentary form of cooperatives emerged in many rural areas with peasant households forming mutual-aid teams, sharing plowing equipment, cattle and even labor.

1953 :

The “General Line” Proposed; Korean War Truce; Stalin Passed Away

With the large-scale increase of Soviet foreign capital as well as the change in loan arrangements—from ten year loans to bartering trade, the ‘Stalin model’ remained prevalent in China and manifested as the ‘path dependence’ of state industrialization constrained by geo-politics—the ‘General Line of the Socialist Transition Period’ completely replaced the ‘New Democracy’. In essence, it was the transformation of private capital to state capital which held total control over important resources in the entire society.

1954 :

The Cooperativization Movement and De-monetization

The state had difficulty in implementing the policy of ‘unified purchase and distribution’ of agricultural produce due to the geographically and economically scattered conditions of the four hundred million peasants. Mao Zedong’s solution was to launch cooperativization. The four hundred million peasants were organized into four million elementary cooperatives in support of unified purchase and distribution by the State commercial capital. However, during this period the premise for increased deployment of industrial goods to the countryside had been a shrinkage of the industrial and agricultural ‘price scissors’.

In East Asian region, in which the equal distribution of arable land was likewise completed and the peasant economy revived, rural co-op movements including unified purchase and distribution were promoted under different labels in different political institutions. Following that, the Japanese Liberal Democratic Party (LDP) came on stage. The Japan Agricultural Co-operatives (JA), similar in form to the Advanced Cooperatives in China yet completely opposite in terms of right entitlements, became the long-term strong supporter for the LDP.

1955 :

Two Important Meetings and Two Important Events

Two historic meetings took place this year:

  • First was the 20th Congress of the Soviet Communist Party during which Khrushchev denounced Stalin in a secret report. It meant that the Soviet Union entered into the phase of industrial capital expansion and exchange with the outside, having to articulate its economy with the markets in the west.

  • Second was the Bandung Conference in Indonesia during which China strategically joined the ‘non-aligned movement’ as its first endeavor to break the stranglehold of post-WWII geo-political control by the two world’s superpowers, the U.S.A. and the USSR.

Two major events happened this year relevant to China’s transformation: first, on 25 May the Soviet Union, on the basis of strategic interest, withdrew the troops stationed in Lushun Harbor. China thenceforth realized the hundred-year long dream of resuming an intact sovereignty; second, on 21 June, the U.S. State Department published the full content of Khrushchev’s secret report, including Khrushchev’s censure against the Chinese Communist Party. It foreshadowed the divergence between the two communist parties as well as the USSR’s subsequent withdrawal of investments from China.

In December, Mao Zedong convened and presided over a meeting with the 34 heads of all ministries and commissions to discuss China’s inclination towards ‘across-the-board Sovietization’.

1956 :

‘Agriculture Modernization’ and Private Capital Reform in Service of the State Capital

The central government, in answer to the pressing request from the urban industrial sectors of selling heavy industrial products to rural regions, put forward the policy of ‘agriculture modernization’. Its essence was to move forward the ‘collectivization and mechanization’ simultaneously. The advanced cooperatives with county as the unit were established to realize unified land operation scale of over a thousand hectares. Tractor stations and factories for repairing farming equipment were built to facilitate agricultural mechanization. In doing so, it realized the exchange between two major sectors, the industry and the agriculture, with price scissors embedded.

During the same period, the state capital completed the transformation of private capital. The high growth in state industrialization demonstrated the achievement of primitive accumulation of capital over a short period. Yet the concentration of industrial capital in urban sector also meant an intensification of risks. The potential for crisis was also being incubated as a rule during the process.

1957 :

“Second Five-Year Plan” Ended Half Way; “Anti-Right Movement”

By having the sovereign state take on an ‘unlimited liability’ of foreign debts, China was able to amass large scale foreign investment to drive a high-speed growth of state industrialization. Yet because of that an ‘institution inertia’ was quickly formed in the super-structure (ideology) constructed by the completely Sovietized sectors of the party, the government and the army. It was also the root cause of the incessant political movements in China.

The contradiction between China and the USSR with respect to sovereignty and ideology led to the cessation of the Soviet investments. The entire investment in the form of external aids that was previously anticipated in the second five-year plan abruptly ended. The central government’s fiscal capacity dropped rapidly relative to that of the local governments. The situation was ominous of crises as opinions varied. Many people were denounced as “rightists”. However, many of their words and actions were in fact to oppose the exploitation of peasants and workers, the bureaucratism and dogmatism of the ‘completely Sovietized’ cadres.

1958 :

The ‘Great Leap Forward’ to Muster Regional Initiative; Rural Communes were Set Up to Serve the State Industrialization

In the Zhengzhou meeting in January, the central government put forward the policy to muster “local initiative”. On one side local investments were mobilized to continue with the state industrialization, filling the on-going demand of investment by industrial capital. A large number of industrial projects were completed and put into production. On the other side, multi-functional and integrated People’s Communes were set up to utilize labor as a substitute for capital, transforming the development mode that had relied on foreign capital. The main reason for this had been the cessation of Soviet aids to the second five-year plan period, making it impossible for the central government’s fiscal capacity to sustain the state industrialization. Yet in less than one year, in the third Zhengzhou meeting in November, the central government had to rectify the “local industrialization” process wherein various radical errors were committed due to inexperience, such as the “Great Leap Forward”, the “Great Steelmaking ”, as well as the “People’s Communes Great Canteens”. The essence of the problem was that the regional governments, suddenly gaining the opportunity of primitive accumulation of capital, forced the limited resources into crude and extensive ‘capitalization’ within a short span of time.

1959 :

High Economic Growth Turned into Deficit Crisis

The USSR reduced its financial aids and experts to China. The two major communist parties diverged. For a ‘continental power’ like the USSR, it meant losing one flank of the ‘flying goose formation’ strategy. The USSR failed to realize a successful geopolitical strategic control on two wings unlike the way the United States had made successful industrial and capital transfer to Western Europe and Japan, thereby securing its geo-strategic stronghold. It foreshadowed the USSR’s defeat by the U.S. thirty years later. With regard to China, an economy in the process of primitive accumulation of industrial capital, it implied crisis—the first round of industrialization driven by foreign capital after 1949 was all of a sudden confronted with the situation of capital scarcity. The state’s fiscal capacity dried up and it had to use up every last resource in the country to sustain the investments into the capital-intensive industrialization. The cost for this in the form of a deficit crisis began to emerge.

1960 :

The Cost of Urban Capital Crisis Transferred to the “Sannong”

The cost of primitive accumulation in the 1950s, first by the national capital and later the state capital, resulted in a major crisis—the various tiers of local and regional governments, in order to push ahead with the industrialization, had accumulated an enormous fiscal deficit which made it impossible for the state industrialization in large cities to continue. As a result, the central government launched the first “go up to mountains and go down to villages” movement to mobilize the urban unemployed youths, relying on the collectivized rural sector to take up more than 10 million of surplus urban laborers.

The government began to repay the debts to the USSR. Even though during the same period successive natural disasters resulted in a shortage of agricultural produce, the debt repayments were still being made, mostly with agricultural produces, safeguarding the fruits of China’s industrial establishment.

1961 :

Policy Adjustments during the Economic Depression

The enormous costs of primitive accumulation of capital during the industrialization in the 1950s fully unfolded in this year. Although the key leaders did not yet transcend ideologies to have reflections on the crisis and depression, they already had policy adjustment in response to the crisis. An array of measures dealing with the difficulties brought on by natural disasters in the past 3 years, including household self-use plots, limited free market, self-finance and household contract, were debated at the “assembly of seven thousand” [over seven thousand participants from central and regional governments at various levels, as well as the leaders of key enterprises] convened by the Central Committee. In addition, the central government took back part of the fiscal power previously conceded to the regional governments, a move obliged by the urgent need of coordinating relief efforts around the country.

1962 :

Domestic Economy Recovered; Surrounding Geo-political Situations Worsened

The policy adjustments—the central government taking back part of the fiscal power and the revival of the peasant community system—took effect and the economy started to recover. Yet during this time China came under a complete blockade by both of the two superpowers through their geo-political control. The surrounding situations worsened in a “ring form”. For example, the disagreements between China and the Soviet Union led to an across the board hostility between the two countries—military conflicts broke out along the borders between China and India; the West intervened into the regional wars in South East Asia; the Chiang Kai-Shek regime in Taiwan took actions on the ‘counterattacks to the Mainland’; U.S. war planes and battleships intruded into China’s territorial air space and territorial water for hundreds of times.

1963 :

The “Third Five-year Plan” Aborted; The “Four Modernizations” Proposed

Although the third five-year plan was ready, a plan that aimed at adjusting the weights between agriculture, light industry and heavy industry in accordance with the framework of a planned economy, it had to be aborted at the cradle due to the total blockade and the surrounding military threats. The focus was turned towards military construction instead. The State Planning Committee was therefore replaced by the ‘small’ planning committee that targeted on military infrastructure. At the same time, during the National People’s Congress and the National Political Consultative Conference the central leadership announced the grand mission of “four modernizations” [the modernization of industry, agriculture, defense and science-technology].

1964 :

Three Lines Construction Launched; The State Industrialization Costs Abruptly Surged

Given the extreme tension in the geo-political situation, the national industries were forced to undertake a ‘spatial translocation’ from coastal regions and urban centers to inland mountainous regions, geographically scattered for more effective defense. However, not only was it unable to create added-value, the costs of state industrialization greatly increased. Adding to the debt repayments, both domestic and external, the military expenditure foreshadowed the second fiscal deficit crisis in China.

1966 :

The “Cultural Revolution” Broke Out; Decline of Urban Industries

Li Xiannian announced that China would no longer have foreign debts—in a matter of five years all the debts owed to the USSR were fully repaid, including the military expenses for the Korean War.

The Soviet superstructure by nature did not suit China’s approach of mobilizing the masses to rebuild the economic foundations. That intrinsic contradiction which had been protracted—in ideological terminology of the party it was frequently referred to as the ‘line struggles’—finally resulted in an eruption, in the form of the “Cultural Revolution” in cities. Because of that the urban industries controlled by the state monopoly capital came to a halt.

1967 :

Fiscal Deficit Mounting; Urban Industrial Crisis being Incubated

The ‘three lines construction’ as well as the military industry (including the research and development of nuclear weapons) had taken up a large amount of resources. The investments in urban industrialization declined and led to serious under-employment. When cities became engaged in the ‘Cultural Revolution’ the government turned its investments towards rural infrastructure such as irrigation, mobilizing the peasants to contribute their labor force at a large scale as a substitute to the capital in scarcity. That was the background of the campaign the ‘Emulating Daizhai on Agriculture’. [Daizhai was a production brigade under Daizhai Commune in Shanxi Province.] After that, given the expansion of arable land, the grain production also increased.

For the first time China had industrial exports in the form of aids—the government signed agreements with Tanzania and Zambia to build a railway that would connect the two countries.

1968 :

Economic Crisis Broke out in China, Costs Again Transferred to the Sannong

Foreign debts repayment, three lines construction investments and military expenditure exhausted available finances. The remaining fiscal capacity was insufficient to develop the production of consumable goods in response to the needs of the people. The outcome was an accumulated deficit crisis. The second wave of ‘go up to the mountains and down to the villages’ movement was initiated to relieve the cities of millions of surplus labor. The urban crisis again ended with ‘soft landing’.

1969 :

Zhou Enlai Announced the Pay-off of Domestic and External Debts; China Became a Model of ‘De-linking’ for the Third World

Military regimes appeared in the emerging countries supported by the U.S., in accordance with the latter’s geo-political strategy. Struggles erupted one after another in the third world countries in defense of national sovereignty. Mao Zedong thought which transcended geo-political controls of the two superpowers became prevalent. Certain European countries which did not side with either of the two superpowers began to establish diplomatic relations with China. France was an example.

In light of the border conflicts between China and the USSR, the latter contemplated and proposed a limited nuclear attack on China but it was rejected by the U.S.A. Zhou Enlai arranged an analysis of the international situation by four veteran generals Chen Yi, Ye Jianying, Nie Rongzhen and Xu Xiangqian. Their conclusion was that China would not face a major war in the next twenty years. That conclusion differed from that of the military mainstream, and greatly impacted Mao Zedong’s decision to relieve the tension in the relationship with U.S.A. and to readjust the domestic economic structure.

1971 :

A Year of Major Significance to China and the World: Disintegration of the Bretton Woods System and China’s Ping Pong Diplomacy

The Bretton Woods System that was established in 1944, with U.S. Dollar pegged to gold and thereby facilitating the dominance of the Dollar as the major reserve currency in the world, was unilaterally repealed by the United States. Taking the advantage of acting as the de facto “Central Bank of the Western World”, the USA was able to appropriate profits from its monetization and became the first to enter the financial capitalism phase. The new era of western geo-monetary strategy dominated by “political finance” began.

After many preparations and efforts, Mao Zedong met with Henry Kissinger. The United States lifted the blockade against China six months before Richard Nixon visited China.

1972 :

Zhou Enlai Proposed the “43” Plan to Bring in Foreign Investment; Mao Zedong Assented to it

The alleviation of the tension between China and the West led to enormous changes in the international situation. Mao Zedong assented to the “43 plan” [US$ 4.3 Billion] proposed by Zhou Enlai to import industrial facilities from the West. The plan was to make use of western capital to reconstruct the existing industrial structure that had been built with the Soviet investments and weighted toward the heavy industry and the military sector. That inevitably led to changes in the superstructure, including the management system. Subsequently, the leadership followed in that direction and turned ‘from Sovietization to Westernization’. In the same year, the United States started to record constant trade deficits.

1973 :

The Fourth Middle East War Broke Out, Leading to Global Energy Crisis

With the fourth Middle East War, the oil price surged, cumulating in a global energy crisis. The U.S.A. led the signing of the “Jamaica Agreement”. Oil exporting countries amassed a large amount of USD with the oil price surge. The value of the Dollar became in effect backed up by oil. No longer pegged to gold, the dollar entered the ‘oil standard’ era.

1974 :

Fiscal Deficit Crisis in China; The Costs Still Transferred to the Sannong

With the increasingly ambitious effort to import western equipments and invest in domestic ancillary facilities, China’s fiscal deficit sharply rose and soon exceeded 10 billion yuan. The central government was obliged to rectify the process. The decision of launching another “go up to the mountains and down to the villages” campaign was made. That was the last attempt of this kind of campaign, with over 10 million of surplus urban labor being sent to the rural collectives.

The abnormal weather in two successive years resulted in worldwide grain production shortage. Along with the USSR’s moves to buy up a large quantity of cereals, a global food crisis emerged. Furthermore, the oil crisis had caused a serious economic crisis among western countries given their reliance on energy consumption for their physical economy. Consequently, the western countries intensified thier industrial transfer outward.

The United States cut its loan aids to Latin America.

1975 :

Fiscal Deficit Crisis Continued; Budget Deficits Exceeded 10 Billion Yuan Consecutively

What happened during 1972–74 was similar to the case of introducing industrial facilites on a large scale from the USSR during 1950–1960, which gave rise to heavy debts, the budget deficit crisis, as well as consequently a series of ‘political struggles’ in the superstructure, whereas the economic contradictions were expressed in ideological terms. Now, foreign industrial facilities were again introduced on a large scale, but this time from the West. The results were once again high indebtedness and a deficit crisis. It also led to political movements—the ‘denouncement of Lin Biao and Confucius’ [Confucianism was regarded as reactionary and Lin Biao was accused of advocating it] and the denouncement of Deng Xiaoping, as a response to the so-called “wave of rightist attempt to reverse the historical verdict”.

1976 :

Earthquake in Tangshan; Zhou Enlai and Mao Zedong Passed Away

The arrest of Political Bureau members like Jiang Qing after the death of Mao Zedong became the focal point of politics. Since then, major leaders Deng Xiaoping, Hua Guofeng, Li Xiannian and others followed Mao Zedong’s policy of “using foreign capital to reconstruct domestic industrial structure”. A more ambitious plan (the “82” plan) was put forward to bring in US$ 8.2 billion of foreign capital. At one point, Deng had even proposed a scale of US$ 50 billion. The National Planning Committee members discussed the management system reform in Jiangsu province, which had earned the largest amount of foreign exchange among other regions. In view of the need for debt repayments, the state consented to piloting Jiangsu piloting the fiscal system reform, whereby a fixed proportion of fiscal revenue would be retained by the province, to be spent on the provincial needs on an autonomous and self-financing basis, similar to the concession in 1958. Following that, the local industrialization including the ‘commune brigade’ industries was re-vitalized.

1977 :

The ‘82’ Plan and the ‘Foreign Leap Forward’ Facilitated High Growth; Fiscal Deficit Exceeded 10 Billion Yuan Again

The central collective leadership proposed the ‘82’ plan to bring in USD 8.2 billion of western industrial facilities. The oil sector was requested to strive towards building a dozen or more oilfields like Daqing oilfield. These over-ambitious practices were later denounced as the ‘foreign leap forward’. Large scale of investments through foreign loans as well as supplementary domestic investments drove a high growth. Yet the mounting deficits were also incubating another crisis.

1978 :

China on the Brink of Economic Collapse; “Educated Youths Returning to the Cities”

A large scale of foreign capital was brought in through loans towards the end of 1978. Contracts worth more than US$ 2 billion were signed within the last 20 days of the year alone. Along with the expansion of imported western production facilities over a short span, the foreign exchange reserve recorded a severe deficit. Therefore, the export sector was prioritized in order to bring in more foreign exchange. At the end of the year, Hu Yaobang already foresaw in a conference that China was in face of a crisis. The Chinese economy was on the brink of collapse while the conduct issues of the party members reached a critical moment. However, the root of the problem was blamed on the Cultural Revolution instigated by the former leader.

1979 :

Another Fiscal Deficit Crisis Broke out; The Budget Deficit of the Year Equaled the Total of the 1950s

During the 1970s, China’s industrial structure was in a process of adjustment. The “growth through debts” approach became a “path dependence”. In addition with the military expenditures, the total budget deficit for this year amounted to almost 20 billion yuan. The crisis led to further changes in the export trading system. China committed itself to uplifting all the constraints over the inflow of foreign capital. Any projects that were beneficial to foreign debt repayments would be approved. Any practices commonly adopted around the world would be adopted by China. At the same time, the dual-price system reform was initiated—allowing both monopolistic pricing and market pricing on the same commodities.

1980 :

Rural Collectivization Approached Disintegration; Macro-economic Adjustments to deal with the ‘Hard Landing’ of Urban Crisis Labelled as the “Reform ”

Rural China had contributed too much surplus to the national industrialization over the past 30 years. In addition, the budget deficits forced the central government to cut financial support to the rural sector, implying the government’s withdrawal from the agricultural sector which was the least profitable. The reform which in essence was the state offloading fiscal part of its fiscal burden started with agriculture.

Nevertheless, because of the disintegration of rural collectivization, the state lost the vehicles to readily transfer the institutional costs of this crisis—the most severe urban economic crisis in thirty years—to the rural sector. That was precisely the reason the peasants could finally have the breathing room to recuperate.

1981 :

“Youths Waiting for Employment” and “Two Crack-downs” amidst the Depression

The urban economic crisis had a hard landing in the cities. Many state-owned enterprises were closing down or merged. Some production lines stopped operation. The situation led to large scale unemployment—about 40 million surplus labor, referred to as the “youths waiting for employment”, stayed idle in the cities. Crimes and delinquency became serious in the society. The government then launched strict ‘crack-down’ movements on criminal offences and economic crimes.

The China-U.S. relationship entered a honeymoon period. The UK and the United States worked hand in hand to foster financial deregulation and liberalization. The traditional geo-political strategy associated with the industrial capitalism in the West transformed towards a new phase of the ‘geo-monetary-political’ strategy of financial capitalism.

1982 :

Reform in China: “Offloading Fiscal Burden” and the Rural “Household Contracts”

Under the pressure of serious budget deficit, the central government put forward an array of reform policies that embodied the off-loading part of its fiscal obligation. On another front, the first State Council “Document Number One” was issued to permit the rural household contracts, an approach that allocated land to rural households by headcount, similar to the land reform of 1950. Since then, the “Documents Number One” issued in five consecutive years were packed with wordings of “approval” and “permission”, expressing the state capital’s concession to the peasant economy reverting to its traditional form. The essential agricultural production factors were effectively returned to the peasant households and the rural communities. A small number of production brigades and communes remained unchanged, not adopting the policy of household contract or giving up the practice after a brief attempt.

1983 :

The Government Alleviated the Urban Crisis by the “Workplace Unit” System

Obliged by the need to maintain stability, the government requested the state-owned enterprises to provide employment—“ten people sharing the pay of five”—and to establish other business units to employ more people, including the cadres’ children. The outcome was the emergence of the early ‘bureaucratic profiteering’ companies making use of the dual-pricing mechanism to reap abnormal profits. However, it also disrupted from the inside the market order since the price reform.

1984 :

Three Major Fiscal System Reforms; Rural Regions Setting up New Superstructure; Local Re-industrialization Emerged as an Unexpected Force of Introvert Primitive Accumulation

After the collapse of the People’s Commune system, there was no financial capability in rural regions to maintain the superstructure. Therefore, the government had to retreat further from the agricultural sector. Various rural official institutions were almost entirely closed down. The financial units such as the credit cooperatives, the supply/distribution cooperatives, the Grain Bureau and so on all recorded financial losses, which directly became bad loans in the agricultural finance sector. During the same period, the policy of dividing fiscal authority between the central and local governments was put in place. That led to the re-industrialization of rural regions as well as a surge of business enterprises in counties and towns, under the condition of a lack of relevant rural institutional regulations. That in turn resulted in the first wave of large scale land enclosure. The super land rent directly became the income of rural enterprises.

The State Council decided to open fourteen coastal cities. China had just emerged from the previous foreign debt crisis and almost immediately went into a new one due to the competition among local governments to bring in foreign investments. Hence the focus of the Opening Up shifted—now “the key was to promote exports in order to earn foreign exchange”.

1985 :

Plaza Accord Driving Up Yen; China Affirmed the Strategy of Prioritizing the Prosperity and Development in Certain Regions

The western countries had joined forces in pushing Japan to accept the Plaza Accord—the exchange rate of Yen against the Dollar was doubled. As a result, Japan’s low-end, labor-intensive manufacturing lost competitiveness and were transferred out at an accelerated pace. At the same time, a conference was convened in Lanzhou, referred to as the ‘Western Conference’ stressing the ‘gradient theory’, which was to allow the coastal regions and certain regions to have priority for development and prosperity. The coastal regions were to be the first to start the opening up process. The processing industry and trading brought in production lines by foreign capital. The domestic up-stream equipment manufacturing was therefore squeezed out of the market.

1986 :

China Accelerated the Reform and Opening Up to Promote Coastal Economic Growth; Rampant Profiteering, Hoarding and Corruption by Bureaucrat-related Businesses

High economic growth rate led to economic and social tension—inflation was met with ineffective regulation. The on-going high inflation gave rise to negative interest rates and the state-owned banks generally became engaged in rent-seeking. Furthermore, the hoarding by the profiteering corporations that were associated with government officials disrupted the market pricing system even more. Corruption was rampant and public resentment was seething. Nevertheless during that same time the rural enterprises were booming. The differential between rural and urban incomes was reduced to a historic low.

1987 :

Media Attributed High Growth to Reform which was Built upon High Foreign Debt

The “mega plan” regarding price and tax reforms was far more comprehensive and radical than the “500 Days Privatization Program” later adopted in Russia. However, it was not approved by the senior leaders in China. During this time, the priority of marketization versus securitization was also debated within the economists. The central government, partly in response to the demand by the state industrial capital for monopolistic interests to avoid competition, put forward the strategy of ‘large volume import and export’ promoting the import of raw materials as well as equipments and the export of finished product. In other words, China engaged only in processing manufacturing, further opening up the coastal regions.

1988 :

China’s Institutional Change Crisis: Failure of Price Reform Resulting in Panic Shopping, Bank Run and High Inflation

The high inflation with an annual CPI over 18% was not so much an indication of the failure of the price reform. The causes for the crisis were as follows: first, the bureaucratic profiteering companies born out of the reform and reaping their first bucket of gold exacerbated the crisis with hoarding in large quantities, while off-loading the institutional costs of the primitive accumulation to the society as much as possible; second: with the Reform becoming an ideological object and even a fetish, the government did not have a plan B in preparation for possible failure, hence the delay in putting forth measures to deal with the crisis. Furthermore, to put a curb on the bank runs, the government simplistically and abruptly raised the deposit interest rate by a significant amount. The outcome was an enormous budget deficit of 50 billion yuan, arising from the losses taken by the state-owned banks.

1989 :

“Triangle Debt” and Production Stagnation

After raising the deposit interest rate to a high level for several months, the government was forced to also raise the loan interest rates due to heavy losses by the banks. The entire society was suddenly faced with an “official usury”, giving rise to the so-called “triangle debts” [due but unpaid receivables among enterprises] countrywide. Hyper-inflation arose in company with production stagnation, a typical stagflation crisis. During the depression that followed, the crisis of stagflation led to waves of mass protests against bureaucratic profiteering and corruptions, which was known as the “political storm” [the official term assigned to the June Fourth Tiananmen Square incident]. It then resulted in a total economic sanction against China by the West.

1990 :

The Costs of Urban Capital Crisis Transferred, Impacting Rural Regions

Chinese economy was in a state of depression after the stagflation crisis and the sanctions by the West. The sales of agricultural produce and rural enterprise products were mostly sluggish. As a result the growth of peasants’ income in the next three years declined at an accelerated rate. Yet the superstructures established locally after the central government ‘off-loaded its fiscal burden’ in 1984 had inelastic expenditures. The peasants had to pay more fees and charges in cash for public services. The urban-rural income disparity that had been once notably narrowed started to widen again.

1991 :

The Soviet Union and Eastern Europe Bloc Disintegrated; Their National Finance Systems Simultaneously Collapsed

The Soviet monopoly capital blocs had remained in the industrial capital phase in a protracted manner, refusing to monetize its economy. Subjected to western ideological propaganda, Russia and other East European countries prioritized the political reform. The outcome was a total collapse of their national financial systems, due to their complete reliance on national sovereignty to create monetary credit. Their industrial capital that was complete in structure was privatized and divided into separate entities. Added to that was the hyperinflation, and the outcome was an explosive surge in transaction costs within their industrial chains. The costs of institutional transition in the superstructure were directly transferred to the economic base. The reaction gave rise to the disintegration of their industries and general bankruptcy.

North Korea had realized a 70% urbanization rate much earlier than China. Yet the modernization of agriculture had to rely on tractors and oil. The disintegration of the USSR meant the disruption of these supplies to North Korea. Since then, under the sanctions by the West, the country found itself in constant crises of food and energy and turned towards the “Songun” [military first] policy.

1992 :

Deng Xiaoping’s Southern Talk; The Year of the “Inauguration of Monetization”

China analyzed the disintegration of the USSR and East European bloc. In the 14th National Congress the CPC put forward the target of building a new socialist market economy. In the process, the government had to repeal almost all coupons, including those for food, due to fiscal deficit pressure. Chinese people began to have money in the true sense—the universal equivalence of commodities. It then led to the initiation of the “monetization of the economy”, a change out of the Soviet model of goods bartering. Because of the repealing of consumption coupons, peasants were no longer constrained in their mobility. The wave of migrant workers moving about the country in large numbers seeking employment appeared.

Going along the monetization, three investment markets with speculative nature were kick-started—securities, futures and real estate. The economy then went into a frenzy. Yet paradoxically China did not yet have commercial banks in a real sense. The increase in fiscal deficits would still be covered by the overdrafts from the state-owned banks. After exhausting the banks’ capital fund it started to eat into the deposits.

1993 :

The Sixth Occasion of Budget Deficit Crisis: Deficits in Three Sectors at the Same Time

Even though the central government emphasized macro-regulation, it failed to put a curb on the economic frenzy driven by the monetization as well as the three speculative markets. What followed were serious deficits in government’s fiscal budget, balance of payments and financial sector. The total public debts exceeded 200% of the GDP. The inflation pushed up grain price. The central government requested the provinces and municipalities to subsidize grain and other produce. People protested against over-levying. The Premier Zhu Rongji, put forth an array of strict measures to put a curb on the overheating economy.

The U.S. lifted some of the sanctions against China after Japan and Europe had done so earlier. China accelerated its integration into globalization.

1994 :

A Very Important Year for the World; China initiated Three Major Reforms

The World Trade Organization (WTO), having included the liberalization of strategic sectors such as agriculture and finance, took the place of General Agreement on Tariffs and Trade (GAAT), signifying the age of globalization. Yet the North America Free Trade Agreement (NAFTA) and the European Union (EU) that had come into being on 1 January was an indication that the world also actually entered into regionalization dominated by hegemonic countries! On that very day, the indigenous Zapatista guerrilla in Mexico waged an armed struggle against NAFTA and globalization.

In Beijing, Mayor Chen Xitong was detained and interrogated. The state’s macro-regulation was then effectively implemented. Yet a serious crisis had already emerged—the CPI up to 24%. The hyper-inflation was even worse than the case in 1988 due to the price reform. Under the pressure of debts, the volume of which was more than the GDP, the urban capital crisis had a hard landing, leading to three major reforms:

First: a onetime devaluation of the RMB by 57%, merging the nominal official exchange rate and the adjusted exchange rate for foreign investors. At the same time, public debts and money supply as the ways of the government’s credit creation were expanded.

Second: the previous separation of fiscal obligation between the central and local governments was further institutionalized as the ‘tax-division system’. It drove the local governments to a second wave of land enclosure in order to convert land into cash, leading to significant increase in the cases of mass protest incidents.

Third: the “workplace unit” system was completely repealed. The state-owned enterprises were required to cut the number of employees to improve efficiency. Forty million workers became unemployed.

In the financial sector, policy-oriented banks were set up as distinct from commercial banks. State-owned commercial banks were then given free rein to profit-seeking and become alienated from industrial capital.

1996 :

China’s Fiscal Revenue/GDP Ratio Declined to Historic Low; Public Services such as Education and Health Became Commodified

Macro-regulation measures by the central government to suppress inflation were strengthened. Both the investments and domestic demands declined while the economy became increasingly dependent on export. At the same time, local government’s budget deficits and public debts increased substantially. Officials and cadres at the community level turned to the peasants with more taxes and levies as the way to cover the deficits. Mass protest incidents increased rapidly in number in both rural and urban regions.

1997 :

First Deflation Crisis in China: “Imported Deflation” due to the Asian Financial Crisis

No sooner had the government announced a “soft landing” of the economy than the Asian Financial Crisis broke out. What followed was a deflation lasting for four years.

Thanks to good harvest, food prices declined. The grain production in China reached a historic high. In addition, with the majority of the rural enterprises privatized, the rule of “the expulsion of labor by capital” resulted in a decline in the peasants’ income over four years in a row.

In the report of the 15th Congress, the notion of “capital” was openly used in an affirmative manner, for the first time in the history of the CPC. Then, under the pressure of mounting bad loans, the marketization reform was proposed so that state-owned banks would articulate with the financial capital system.

1998 :

China Initiated Infrastucture Ivestment through Public Debts in Response to Crisis, Striving to Keep the GDP Growth at a Level between 7 to 8%

The Yangtze basin suffered severe flooding. The central government deployed armies from around the country to deal with the emergency. It was a demonstration that the political authority was passed from one generation to the next. After most of the senior political leaders of the revolutionary generation had passed away, the centralized collective system was successfully inherited by the new generation and put into practice effectively.

China for the first time effectively deal with an exogenous crisis by adopting an expansionary fiscal policy by the central government. Facing a contraction in export, a proactive fiscal policy was urgently adopted involving the expansion of public debts to boost domestic demand. The goal was to maintain the GDP growth at least at 7% so as to keep a sufficient creation of new employment. Higher education institutes were requested to expand enrollment, so as to function as labor reservoirs. The result was the commercialization of education and over-borrowing by education institutes.

Other measures included: the monetization of housing; the dynamic integration of the unified purchase of grain with Agricultural Bank’s funds into a closed circulation; the extension of the rural household contracts system; accelerating the WTO negotiations.

1999 :

The Euro Came into Existence along with the Balkan Crisis; Bombing of the Chinese Embassy

The Euro was officially put into circulation in 11 Euro zone countries on 1 January. Soon after that, the NATO intervened in the Kosovo War and the Balkan conflicts with air strikes against Serbia. The military expenditures were added to the fiscal budgets of the NATO members, including those in the Euro zone. The result was a ‘lose-lose’ situation for Europe: the collapse of the Milosevic government in Serbia and the damage done to the Euro. The exchange rate of Euro against the Dollar declined by more than 30%, from 1 Euro for 1.07 USD down to 1 Euro for 0.82 USD. Regardless of whether it was a conspiracy, the Balkan conflict in effect resulted in the failure of the Euro zone countries to meet the Maastricht criteria as dictated by the Maastrich Treaty—under 3% of GDP for the government deficit.

Yeltsin resigned and Putin came on the scene. Russia rose again as a power. The bombing of the Chinese embassy in Belgrade, Yugoslavia shocked the Chinese people. The post-cold war situation was steering towards a new trend.

2000 :

China Bidding Farewell to a Hundred Years of Shortage, Entering “Over-Capacity”

In the previous year, Ma Hong and Justin, Lin Yifu had raised the issue that China was entering the phase of industrial overcapacity. At the same time, China was faced with deflation amid depression and a general oversupply of consumer goods. In view of this, the government decided to increase the infrastructure investments financed by public debts by over 2 trillion yuan. That was on top of many existing large scale projects, for example the Great Western Development, forestry protection, and so on. The target was to drive GDP growth on one hand and re-balance regional disparity on the other.

2001 :

China Joined WTO; U.S. IT Bubble Collapse and the Outflow of Capital; Regional Wars in the Name of Anti-Terrorism Waged after 9/11

China’s accession to the WTO coincided with the burst of the IT bubble in the U.S. which drove a large amount of foreign capital into China. The state managed to secure its currency sovereignty by absorbing these capital inflow with an expansion of domestic money supply as well as to keep the domestic capital market in the driving seat over foreign capital.

In the same year, the top leadership accepted the assessment that the sannong was in a dire situation.

The Asian financial crisis spread to other regions. Some countries such as Argentina encountered financial crisis.

The 9/11 Attacks happened. On 7 October the U.S.A. waged the war in Afghanistan in reprisal. China joined the international anti-terrorist movement yet was immediately faced with “double-standards”. China’s anti-terrorism moves were regarded as a form of ethnic suppression.

2002 :

China Proposed the Target of a ‘Moderately Well-off’ Society; Independent State-owned Commercial Banks were Born

The 16th CPC Congress put forth the development target of building an overall moderately well-off society as a new mission for the first two decades of the twenty-first century.

The government initiated the project to revive former industrial cities in the Northeast regions by investing over 1 trillion yuan through public debts, attempting to improve their infrastructure and economic conditions.

The commercialization reform of four major state-owned banks was completed. Ten years after having a money independent from the coupons mechanism, China finally had commercial banks that were relatively independent of the fiscal sector. Furthermore, there was not separation between commercial and investment banks right from the beginning.

2003 :

China Gave Top Priority to the Sannong Issue; The U.S.A. Invaded Iraq

In the Rural Region Working Meeting, the central leaders proposed for the first time to prioritize the “sannong” issues in party work.

The government launched the project to give impetus to growth in the central regions. The economy became over-heated by the infrastructure construction investments.

A large amount of foreign direct investments flowed into China under a worldwide overcapacity. As a result, foreign ownership accounted for a major share in China’s heavy and chemical industries.

Following the completion of commercialization reform, the banking sector gradually became alienated from the real economy which was relatively having less liquidity. What came after that was the regional governments’ pre-occupation with selling land to cash in and competing for credit support from commercial banks. The third round of land enclosure surged to a peak. The number of mass protest incidents relating to land appropriation in the rural regions notably increased.

The U.S.A invaded Iraq based on the fabricated “evidences” about weapons of mass destruction, which turned out to be non-existent. It successfully demonstrated to the world its unilateral military might capable of “winning two simultaneous wars”.

2004 :

China Put Forth the Idea of Building a “Harmonious Society”; The Agricultural Tax Repealed

Towards the end of the year, the Fourth Plenary Session was convened in which the Central Bureau put forth the notion of ‘harmonious society’.

Macro regulation were strengthened yet the economic over-heating still prevailed. The central government launched a strict investigation on the Jiangsu Province Tie Ben Company project, which had been initiated without the assessment and approval by the central. The project had appropriated 6000 mu of rural land illegally, forcing the relocation of more than 4000 peasants. It signified an alarm against regional government’s third round of land enclosure.

2005 :

China Put Forward the National Strategy of Constructing the New Countryside

The central government affirmed the Construction of the New Countryside urban-rural rebalance strategy. However, the previous pro-people’s livelihood strategies such as the Scientific Development Outlook and the Harmonious Society, as well as various macro-regulation measures proposed by the State Council, had difficulties in their execution. The local pursuit for high GDP growth with the resulting high number of mass protest incidents was still prevalent. It was only after the Central increased the exertion of political pressure by purging major corruption cases in regions such as Heilongjiang and Shanghai that its macro-regulation could be effectively implemented.

China began to build its strategic oil reserve system. The exchange rate mechanism for RMB was reformed with the adoption of a managed floating rate system.

2006 :

China Launched Strategic Investments to Re-balance the Urban-Rural

The eight major strategies established in the eleventh five-year plan were officially launched. Among these, the investments into ‘sannong’ based on the use of public debts were expanded by a large extent, mostly put into infrastructure construction. Simultaneous to the abolition of the agricultural tax, the issue of public debts accumulated in rural grassroots-level was exposed, giving rise to a deterioration of governance. The serious drought in Chongqing exposed the shortcomings in privatizing the irrigation system.

2007 :

China Put Forth the Idea of Ecological Civilization Development; Sub-prime Crisis Broke Out in the U.S.A.

The market crash wiped out a total of 700 billion of net worth. Some foreign capital got trapped in China due to the stock market trough. The decline in the U.S. property market had led to the sub-prime crisis, which in turned burst the virtual capital bubble.

In the 17th Congress of the CPC the idea of Ecological Civilization was put forward. The goal was to develop an industrial structure with a growth and consumption model that was energy-efficient and eco-friendly.

The “Law of Specialized Farmers Cooperatives” and the “Labor Law of the People’s Republic of China” were introduced after much anticipation.

2008 :

The Wall Street Financial Crisis; China Encountered “Imported Inflation”

The U.S. adopted an expansionary policy in response to the financial crisis. The cost of the bailout became rapidly transferred to the real economy—the prices of food commodities, energy, raw materials and precious metal all surged sharply, giving rise to hunger and famine in 37 countries. In China, two major state-owned oil companies incurred huge losses due to violent fluctuations in oil prices.

During the same period, the “China Threat” discourse was spread. The “3.14” incident in Tibet broke out. The Olympic torch relay encountered disruptions in the West but the Olympic Games were nevertheless conducted successfully in Beijing.

A major earthquake erupted in Sichuan, and the Central deployed the army from all regions around the country to engage in rescue effort. Court hearing on the case of Chen Liangyu, member of the Shanghai Political Bureau, ended.

The third plenary of the CPC 17th Congress affirmed the target of developing an ecologically conserving and environment-friendly agriculture by 2020. Yet the incident of melamine-tainted milk powder occurred at that time, arousing an unprecedented attention on the issue of food safety.

2009 :

Global Economic Crisis; Chinese Government Bailout with 4 Trillion

Tens of thousands of enterprises along the coast closed down under the global crisis, with 25 million workers laid off. China was faced with an exogenous crisis. Taking the experience from in response to the Asian financial crisis ten years ago, China turned this crisis into an opportunity through the adjustments made to the economic growth structure. The infrastructure investments in central and western regions as well as in rural areas continued to expand, giving unemployed migrant workers the opportunity to return to their home villages to set up businesses or find employment. Furthermore, the 13% tax rebate for promoting export was converted to subsidize peasants to purchase electrical appliances and cars as a way to stimulate domestic consumption.

A department director in the Ministry of Commerce was arrested on charges of bribery and abusing authority. The media’s opinion was that it had to do with giving exceptionally favorable terms to foreign enterprises as compared to domestic ones. In the following year, China adjusted and tightened the conditions for bringing in foreign investments.

The “July Fifth” Incident broke out in Urumqi, Xinjiang. Three different forces, domestic and foreign, instigated Xinjiang separatism. The European sovereignty debt crisis began to unfold starting with Greece.

2010 :

The Global Crisis Deepened into an Across the Board Crisis of Western Modernization; China Maintained High Growth Rate; Then It Began to Decline

The World Expo was held in Shanghai. China’s foreign currency reserve exceeded US$ 3 trillion and became the top holder of U.S. government bonds. The domestic money supply expanded in accordance with the proportion of foreign exchange reserve, which became the mother of inflation in China. Relying on China’s stable, long-term investments in U.S. bonds, the U.S. adopted a “quantitative easing” policy, effectively transferring the costs of its crisis outward. Essentially it gave rise to persistent surge in global energy and grain commodity prices. Countries over-relying on food import were faced with imported inflation crises, which then transformed into street politics, and with a variety of background such as social, ethnic or tribal.

The European sovereignty debt crisis worsened among the EU countries due to their lack of a unified fiscal system. The contradictions between the global North and South were exacerbated.

2011 :

China Effectively Realized the Macro-regulation Target of Controlling Inflation yet the Real Economy Slumped into Depression due to Tight Monetary Policy; The Costs of U.S. Financial Crisis Transferred outward Creating Chaos around the World

Street politics that first started in New York took place in a large number of cities around the world. Pan-Mediterranean countries experienced street confrontations one after another. What it demonstrated was that there were two types of countries in the world that could not resolve the costs transferred outward by the US financial capital—the late-developing countries with a mono-product economy that were previously controlled by their colonizers, for example, Tunisia, Egypt and Libya, wherein either the governments were overthrown or the countries crumbled into chaos; then the veteran colonial suzerains such as Spain, Portugal and Italy where street confrontations broke out successively. These two types of countries generally formed a “Mediterranean Crisis Ring”.

2012 :

Although its Debt Crisis Far from being Resolved, the U.S.A. Undertook its High Profile Asia-Pacific Rebalance Strategy, Relying on its Military Might

Japan announced the “nationalization” of Diaoyu Island and Sino-Japanese relations became mired in tension. The “10 + 3” alliance of the ASEAN and Northeast Asia at its embryonic form was aborted. That alliance should have had the potential to integrate the economies in the region into a unified trade and clearing system based on Asian currencies, similar to the EU. With the abortion of this potential alliance, the U.S. was able to secure the subordination of the West Pacific as a “Dollar Lake” in support of its financial hegemony.

2013 :

U.S. Federal Reserve Made a Plan to End QE; Imported Deflation Emerged in China; Chinese Government Proposed the Notion of “New Normal” for Economic Development; GDP Totaled 59.5 Trillion Yuan, 44.6 Trillion of which Came from Fixed Asset Investments in the Society

In June a temporary squeeze in money supply appeared in China’s banking system. With immediate intervention by the financial authorities, China did not experience financial crisis in capital markets and sharp currency devaluation, as was the case in other “BRIC” countries. Towards the end of the year, the guiding principles of deepening the market reform were put forward, which did not learn the lessons from global financial crisis and caused heated discussions from all sides.

In August the State Council decided to set up the Shanghai Free Trade Zone, the first of its kind in China.

The wars in Ukraine and Syria broke out one after the other. Russia annexed Crimea resulting in sanctions by the West.

On 31 October, six major central banks, the U.S.A., Japan, U.K., EU, Canada, Switzerland, formed a long-term currency swap agreement, with the U.S. Federal Reserve at its core. It constituted a dynamic swapping network among the core countries, a vital institutional adjustment for financial capitalism.

2014 :

The Correlation between China’s Real Estate Bubble and Local Governments ’ Effort in Appropriating Land to Support Debt is Gradually Exposed

The ratio of non-performing loans in the banking sector increased as a result of high leveraging, and economic growth slowed. The global demand declined and the crisis of overcapacity again surfaced. The fiscal and financial sectors made use of various policies such as the Shanghai Free Trade Zone, the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, to push ahead with the deepening of financialization. International financial capital joined force to sell-short Chinese stock market.

China put forward the Belt and Road Initiative. The U.S. intervened in a high profile manner into the controversy over China’s island and reef constructions in the South China Sea. At the same time the TPP negotiations accelerated.

From 2002 to 2014, with an accumulation of international balance of payment surplus, the Renminbi appreciated step by step, at one point reaching the peak of 1 USD to 6.05 Yuan.

On 31 October, one year after the six-party currency alliance came into operation, the U.S. formally announced the phasing out of the QE.

2015 :

New Form of Financial Capital Oversupply Crisis was in Incubation; Major Powers Made Adjustment in their Relationship

The capital funds released gradually out of the physical economy and real estate market were flowing into the stock market. The authorities liberated the futures markets on stocks and indices and permitted over the counter financing. The stock market was driven into a frenzy. In June, the stock market crashed and wiped out a net worth of tens of trillions Renminbi.

The Renminbi exchange rate reform on 11 August was regarded as the start of a devaluation cycle. Since then China had to engage repeatedly in the foreign exchange and financial markets to deal with the attempts to sell short the Renminbi by international investment funds.

In November the Leading Group for Financial and Economic Affairs’ meeting report put forward the “supply side reform”, along the line of pro-cyclical measures.

In December the U.S. Federal Reserve raised the interest rate for the first time in 10 years, which was generally regarded as the beginning of a new interest rate hike cycle.

Along with its military intervention into the South China Sea the U.S. completed the TPP negotiations with other countries. China accelerated the constructions of islands and reefs in the South China Sea. The Asia Investment Bank Agreement led by China came into effect in December. China’s overseas investments as a proportion of the total volume in the world expanded rapidly. The number of incidents it therefore induced increased as well.

Russia intervened in the Syrian conflict with military actions. Europe faced the refugee crisis.

By the end of December, China’s M2 supply reached 139 trillion yuan, with an annual growth of 13.3% while M1 grew by 15.2%. The total aggregate non-government financing plus the increment in local governments debt replacement reached 18.5 trillion. The total value of creditor’s rights was 23 trillion yuan, with a year over year growth of almost 90%.

The Ministry of Finance began to implement ‘local debt replacement’, commonly called the ‘revolving door’. The first batch being replaced in the year amounted to 1 trillion yuan.

2016 :

China Continued to Maintain Stable Economic Growth Using Policy-oriented Investments; Internal and External Pressure was Mounting up

The fixed asset investments reached 59.7 trillion yuan. The stock market circuit breaker mechanism was introduced in this year. The market continued to go down. The real estate prices in major cities kept skyrocketing. In August seven new free trade zones were set up, now a total of 11. In October the Renminbi was included in the IMF’s Special Drawing Right (SDR). The pressure on the Renminbi to devalue persisted. The foreign exchange reserve continued to decrease while China’s overseas investments kept expanding. The money supply continued to expand and so did the debts. The total debt to GDP ratio exceeded 340%. In December, the Central Economic Work Conference put forth the stance that ‘houses are for people’s accommodation, not for speculation’.

It had been 15 years since China’s accession to the WTO. The U.S.A., the EU and Japan all refused to recognize China as a market economy, and maintained the anti-dumping “analogue country method” on China.

Food grain production decreased by 5.2 billion kilograms, the first decline in twelve years.

In November the central government initiated the reform to ‘separate the three entitlements’ on rural land—ownership, contractual right and management right.

2017 :

The New President Donald Trump Announced the United States’ Withdrawal from the TPP; China Switched from Pro-cyclical to Counter-cyclical Measures with Direct Government Intervention; US Government Redefined China as Strategic Competitor.

The US President Trump, taking an anti-free trade stance, withdrew from the TPP as promised in his election. A U.S. naval carrier entered the South China Sea island reef China claimed to have sovereignty.

In January to February the Renminbi continued to devalue. The central bank changed the mechanism for the intermediate price of Renminbi, reducing the computing time span for the basket of currencies. Strict measures were taken to control capital flights. The regulation over the offshore Renminbi market position was also strengthened. At the same time the notion of a “stable and neutral monetary policy” was introduced. In January the foreign exchange reserve balance was US$ 2.998 trillion, dropping below the 3 trillion level. Economic growth continued to rely on government investments. Among 23 provinces/cities/regions that disclosed fixed asset investments, the total volume already exceeded 40 trillion yuan.

2018 :

The Trump Administration Launched Trade War Against China.

In March the RMB Crude Oil Futures was listed on Shanghai International Energy Exchange.

2019 :

The US Attempted to Rip the Global Supply Chain.

US government launched a campaign to block Huawei, the leading Chinese IT enterprise, from access into the US and allies markets. The USA withdrew from several treaties and international organizations, seeking to reshape international order at a greater service to US interests.

2020 :

COVID-19 Plagued the World. The US Fed Initiated Unlimited QE. The US Government Forced through Reverse Globalization. Global Economy was at its Worst since the Great Depression. China Adopted the New strategy of Dual Circulation: Developing Domestic Economic Circulation Complemented by International Circulation.

In January, China and the US signed the phase one trade deal. COVID-19 epidemic broke out in China and the world with over 10.3 million infested and 506 thousand cases of death as of June. While the epidemic was successfully contained in China, the USA became the most seriously infected country in the world with a death toll of nearly 600 thousand as of May 2021. In May, China started its Digital Currency Electronic Payment pilot test. In June, the Beidou Global Satellite System was completed.