THE TWO KEY PRINCIPLES UPON WHICH CHINA IS REBOOTING ITS ECONOMY (AND THAT THE WEST DOESN’T UNDERSTAND)

I’ve spent over a decade living in Hong Kong, regularly traveling through Mainland China—except during the Covid-19 period, for obvious reasons. While many foreigners left, I stayed, immersing myself in the region’s culture and economy. This unique vantage point gives me direct access to life in China, unfiltered, while staying connected to Western social networks and media. Drawing on these experiences, I’ve written extensively about China’s evolving role on the global stage:

• 25 July – China Has Been the First to Abandon the QE Aberration, Who Is Going to Be Next?
• 13 May – China’s Economic Restructuring Recipe: Capitalistic Communism
• 8 April – Janet’s Toothless Yelling in China
• 27 March – A Lesson from China’s Middle Class: Pay Your Debts Until You Can Afford to Do So. The Alternative? Debt Slavery
• 25 March – Is China About to Hit the US Where It Will Hurt the Most?
• 19 February – China Stocks – Is the Bottom In?
• 8 February – A Message from China: Debt Detoxing Is Going to Be Long, Painful, and Necessary to Prevent the Economy from Overdosing
• 6 February – Why China’s Margin Lending Nightmare Is a Big Warning to the US and Europe
• 24 January – China Wants Investors and Their Money Back – Will It Succeed This Time?

Today, I’m focusing on the two key principles that are often misunderstood and misrepresented about the latest Chinese economic policy by Western MSM and social media, leading to widespread misconceptions among the public.

1. The Evolution of Consumerism in China: Needs Over Status, and the “Buy China” Movement

Western media love to paint a bleak picture of consumer spending in China, suggesting it’s in freefall. They argue that Chinese people have stopped spending money. However, when you travel across the country—from the prosperous East to the rural West—the reality is strikingly different. Shopping malls are bustling, not with window shoppers but with people actively making purchases. Restaurants are packed every night of the week, not just on weekends. Even the farmers’ markets are thriving.

What’s really happening is a shift in consumer priorities. Chinese people are buying what they need, not just what boosts their status. This is a critical detail that Western media and social platforms often overlook.

Take Apple products as an example. A few years ago, the iPhone was such a status symbol that some individuals went to extreme lengths to acquire one, like selling a kidney (“Chinese teenager ‘sells kidney to buy iPad and iPhone”). Owning an iPhone or other Western luxury items was seen as a mark of superiority. The driving force behind this consumerism wasn’t traditional banks but the shadow banking system, represented by companies like Ant Financial. They extended consumer credit in a predatory manner, leading millions into debt they couldn’t manage, with the profits ultimately benefiting Western economies.

Here’s how it worked:

• Chinese consumers went into debt to buy high-priced items.
• These items, though made in China, were produced by Western companies, so the profits flowed back to the West.
• China’s shadow banking system used citizens’ savings to fund these loans, effectively sending Chinese money overseas.
• Western companies then exchanged their Chinese Yuan (CNY) profits for foreign currencies, mainly USD, putting pressure on China’s currency reserves.
• This outflow created pressure on the CNY to depreciate against other currencies.

China recognized the need to break this vicious cycle. It did so by restricting consumer credit and introducing a social credit system (“China just announced a new social credit law. Here’s what it means”). This encouraged consumers to look for more affordable alternatives from local companies, which had significantly closed the quality gap with their Western counterparts. The “Buy China” movement is now pervasive, with local brands dominating markets once flooded by foreign goods.

Yes, Chinese consumers may be spending less, but they’re not buying less. In fact, the value for money in China is far better than in many other places.

2. Money Must Support the Economy, Not Fuel Speculation

When I moved to Hong Kong in 2014, I witnessed firsthand the incredible frenzy for Chinese stocks. Between 2014 and 2016, retail investors drove the Shanghai Composite Index from around 2,000 points to 5,000 in less than a year. This was a time of speculative mania, with many companies of questionable value launching IPOs. Retail brokers soon began offering leverage, and predatory hedge funds, like Xu Xiang’s, manipulated prices, drawing in even more buyers driven by FOMO (“Hedge fund manager Xu Xiang and CITIC Securities boss Cheng Boming arrested for insider trading”). When the bubble burst, it caused ripples across global markets, triggering another round of central bank quantitative easing (QE) in the West.

China’s regulators and government agencies stepped in to contain the damage and prevent another speculative bubble of this magnitude. Yet, speculation soon shifted to the real estate sector, leading to another massive bubble that burst in 2019 (yes, before Covid). The government is still managing the fallout from these two bubbles but has learned valuable lessons. Now, every penny printed by the central bank is closely monitored to prevent it from fueling speculative behavior.

This approach confounds Western media and investors, who equate “money printing” with liquidity flowing into speculative assets. But in China, there’s no “free lunch” for the stock market and speculators in general anymore. A recent example is “China considers allowing refinancing on US$5.4 trillion in mortgages.” While China is injecting liquidity into banks, it won’t allow them to exploit the situation. Instead, banks are being pressured to renegotiate mortgages at lower rates, with investors and bondholders bearing the losses while the population benefits. Unsurprisingly, bank stocks took a hit as soon as this news broke last Friday contrary to what speculative investors piling into these stocks (because of all the “free money” they were supposedly handed over by the government) expected.

Conclusion

By prioritizing sustainable growth over unchecked consumerism and speculation, China is safeguarding its socio-economic stability, which is ultimately what should matter the most to any country. As the West struggles with its challenges, China is not just stabilizing its own economy way ahead of others, but positioning itself to capitalize on the future economic vulnerabilities of Western nations.