[Text/Observer Network Columnist Luo Siyi]
Promoting consumption is crucial for China and the rest of the world, as it is the material basis for improving people's quality of life. Since the people are the fundamental force that determines China's future and destiny, this means that consumption also affects many issues, including China's national rejuvenation. A steady improvement in the quality of life and a continuous increase in consumption levels are essential to social stability.
However, under the guise of "promoting consumption", some Chinese media are advocating policies that will lead to a sharp decline in consumption growth, thereby significantly slowing down the growth rate of Chinese people's living standards, which is extremely harmful.
This damaging policy calls for a significant increase in China's consumption as a share of GDP. There are a variety of arguments to achieve this – some calling for higher wage growth than GDP, others for "consumption vouchers" to be distributed to the population – but the result is the same: a sharp rise in consumption as a share of GDP. It is said that this is a way to "promote consumption" and thus improve the standard of living. These claims echo the "vulgar" economics of the West and the rounds of public opinion propaganda by the anti-China media in the West.
But such a statement is completely inconsistent with economic facts. On the contrary, such a policy will greatly slow down the growth rate of China's consumption and living standards, and delay the process of the great rejuvenation of the Chinese nation. Therefore, it is necessary to understand the errors and harmfulness of these claims.
Two diametrically opposed concepts that are deliberately confused
To talk about consumption, we must first mention the overall goal of China's economic policy, to be precise, that is, the "two centenary goals" - to basically achieve socialist modernization by 2035 and to build a prosperous, strong, democratic, civilized, harmonious and beautiful modern socialist country by 2049. Within this general framework, the expansion of direct household consumption of the population and overall social consumption (health care, education, etc.) is a decisive goal. In addition, the issue of consumption has a huge impact on the overall macroeconomy.
However, some Chinese media outlets have a very harmful misinterpretation of consumption, and what they call "promoting consumption" actually confuses two completely different concepts:
One is to achieve sustainable consumption growth as quickly as possible;
The other is to increase consumption as a share of GDP.
These are two very different goals – not only not different from a theoretical point of view, but also directly opposed in practice.
To be precise, the higher the share of consumption in GDP, the slower the growth rate of consumption. Conversely, the higher the rate of consumption growth, the lower the share of consumption in GDP. Thus, those who call for "pro-consumption" (increasing consumption as a share of GDP) are in fact advocating policies that reduce the rate of growth of consumption, and thus the growth rate of living standards in China, as well as the growth rate of China's economy.
As mentioned at the end of this article, the difference between the two concepts of consumption growth rate and consumption as a share of GDP is directly supported by economic theory, so the following article will first discuss these two very different concepts in the spirit of seeking truth from facts.
International Comparison and Chinese Trends
As usual, we start with an international comparison. A key point in analysing China's economic policy is that it is important to always bear in mind that China is an extremely large economy – the second largest in the world at the current dollar exchange rate and the world's largest in purchasing power parity terms. This is crucial to understand because many secondary factors can affect economic growth and consumption in small economies, including the international impact of large economies on small economies. On the contrary, it turns out that the development of large economies is mainly determined by the most important economic factors. Therefore, any policy proposed by China based on comparisons with small economies is seriously misleading. China's comparisons are objective only when compared with other large economies.
In addition, it should be noted that the world economy is highly concentrated. At the current dollar exchange rate, the four economies of the United States, China, Germany and Japan together account for the majority of the world's GDP, and the top 10 economies (the G7 plus China, India and Russia) together account for two-thirds of the world's GDP, or 67%.
Figure 1 therefore shows the correlation between the share of consumption in GDP and the average annual growth rate of consumption in the world's top 10 economies since the 2008 international financial crisis. The results are clear. As summarized in the introduction to this article, the higher the share of consumption in GDP, the slower the growth rate of consumption. The negative correlation between the two is extremely high at -0.81 and the R-squared relationship is 0.61.
In terms of individual countries, China has the lowest consumption as a percentage of GDP at 52.8 percent, and the highest average annual growth rate at 7.9 percent. In contrast, G7 countries such as the United States and the United Kingdom have higher consumption as a share of GDP, at 83.0% and 83.9%, respectively, but consumption growth rates are very low at 1.8% and 1.2%, respectively.
Figure 1
Figure 2 shows that there is also a strong negative correlation between the share of consumption in GDP and the growth rate of consumption. Using the five-year moving average, which can eliminate the effects of short-term economic cycle fluctuations, the negative correlation between the share of consumption in China's GDP and China's consumption growth rate is extremely high, at -0.84, and the R-squared relationship is 0.71.
Figure 2
Figure 3 shows China's consumption as a share of GDP and the average annual growth rate of consumption from 2008 to 2022. From 2008 to 2022, the proportion of consumption in China's GDP rose from 52.6% to 54.7%, but the average annual growth rate of consumption fell from 10.3% to 4.9%, a drop of more than half. Therefore, the negative correlation between the share of consumption in GDP and the growth rate of consumption is also obvious.
Figure 3
The above facts show that the higher the proportion of consumption in China's GDP, the slower the growth rate of China's consumption. This also proves why the phrase "promoting consumption" would be confusing if it was not specified whether it meant to increase the growth rate of consumption or to increase the share of consumption in GDP, because the two were actually opposites.
This also explains why the claim that China's consumption levels are "low" is extremely misleading. In fact, China's consumption growth rate is the highest of any major economy. This is just that China's consumption as a percentage of GDP is relatively low in international comparisons. But this is inevitable because there is a strong negative correlation between consumption as a share of GDP and the growth rate of consumption. If China's consumption is higher as a share of GDP, then based on this negative correlation, China's consumption growth will be much slower, and consequently, the growth of living standards will be much slower.
This strong negative correlation also means that those calling for a higher share of consumption in GDP are in fact calling for policies that will inevitably slow down China's consumption and living standard growth.
The relationship between GDP growth and consumption growth
There is a strong negative correlation between the share of consumption in GDP and the growth rate of consumption, which is related to the very close positive correlation between GDP growth and consumption growth. A second international comparison shows that there is a correlation between GDP growth and consumption growth in the world's top 10 economies of 0.997 and an R-squared relationship of 0.994 (see Figure 4). In other words, there is a near-perfect correlation between the two.
This means that it is impossible for a large economy to achieve a high rate of consumption growth without a high GDP growth rate.
Figure 4
As Figure 5 shows, there is a strong correlation between GDP growth and consumption growth – a correlation of 0.94 and an R-squared relationship of 0.88. This extremely close correlation again means that it is impossible for China to achieve a high consumption growth rate without a high GDP growth rate, which is in line with international experience.
Figure 5
The concrete consequence of this is that the decline in China's GDP growth will inevitably translate into a decline in consumption growth. As Figure 6 shows, from 2008 to 2022, China's GDP growth slowed from 11.9% to 5.7%, while consumption growth slowed from 10.6% to 5.4% – our two-year moving average can be used to neutralize the extreme up-and-down fluctuations in GDP triggered during the lockdown.
Figure 6
These factual relationships are directly related to the discussion of economic development goals.
It is said that the GDP growth rate is not the most important goal, on the contrary, it is important for China to improve the living standards of the people, that is, the level of consumption, and to achieve the great rejuvenation of the Chinese nation. This statement is entirely true – GDP growth is just a means to these other ends. Here it is important to understand the impact of the strong correlation between China's GDP growth and consumption growth. As mentioned earlier, the correlation for international comparisons is 0.997, while China's own correlation is 0.88, which means that if China's (or other large economies') GDP does not grow at a high rate, its consumption cannot grow at a high rate. In addition, other aspects of China's national rejuvenation, such as military spending and R&D spending capacity, are closely related to GDP.
Therefore, the goal pursued by China is, of course, to improve the living standards of the people as much as possible and to realize the great rejuvenation of the Chinese nation. GDP growth is a means, not an end. Therefore, policies that run counter to these objectives, even if they are likely to increase GDP growth temporarily, should be rejected. For example, the adoption of environmentally damaging forms of growth, including those with high carbon emissions, has been wisely rejected by China. The means must always be determined by the end.
Given the strong correlation between consumption growth and GDP growth, this means that the only way to achieve high consumption growth in the medium to long term is relatively fast GDP growth. Conversely, sluggish GDP growth means sluggish consumption growth in the medium to long term.
In addition, it is clear that it is the level and growth rate of consumption that is crucial, not the share of consumption in GDP. According to the latest international data, the countries with a high proportion of consumption in GDP in the world are Syria, Somalia, Lesotho, Afghanistan, Sierra Leone and Haiti. These countries are also among the poorest in the world. In short, a high consumption share of GDP is not an ideal goal in itself, but the level and growth rate of consumption are important.
It is also clear that, domestically, redistributing GDP (adjusting for the share of investment and consumption in the aggregate of GDP) will not bring its consumption to the level of a high-income economy – it is a mistake to think that socialism is about sharing poverty equally, rather than aiming for a higher standard of living. At the current U.S. dollar exchange rate, China's per capita consumption expenditure is only 17% of the average for high-income economies and 10% for the United States, and at purchasing power parity, it is 26% of the average for high-income economies and 16% for the United States. Only a high growth in consumption, rather than redistributing GDP per capita that is still lower than that of advanced economies, will allow China to catch up with the consumption levels of high-income economies.
The relationship between fixed investment and GDP growth
So what are the key factors influencing GDP growth? Empirical data show that the level of net fixed asset investment plays a decisive role in this.
Let's start with the analysis again with international comparisons. From the 2008 international financial crisis to 2021, there was a strong correlation between the share of net fixed investment in GDP and the average annual GDP growth rate in large economies, at 0.94 and an R-squared relationship of 0.88 (see Figure 7).
Figure 7
Figure 8 shows that the same is true for China. There is a strong correlation between China's net fixed asset investment as a percentage of GDP and GDP growth rate, which is 0.91 and R-squared is 0.84.
This relationship means that China's GDP cannot grow rapidly without a high level of net fixed investment. It also suggests that an increase in net fixed investment as a share of GDP will be accompanied by an increase in GDP growth, and vice versa.
FIGURE 8
When it comes to the relationship between consumption and investment, it is important to remember that consumption and investment together must account for 100% of China's domestic economy. Thus, an increase in consumption as a share of GDP means a decline in investment as a share of GDP, and thus, all else being equal, a decline in fixed investment in GDP. A decline in net fixed investment as a share of GDP will lead to a decline in GDP growth. Since there is a strong negative correlation between GDP growth and consumption growth, a decline in net fixed investment as a share of GDP will also lead to a decline in consumption growth.
Therefore, the flip side of the strong negative correlation between consumption as a share of GDP and consumption growth is that there is a strong positive correlation between net fixed investment as a share of GDP and consumption growth. In other words, the higher the share of consumption in GDP, the slower the GDP growth rate and consumption growth rate. Conversely, the higher the share of net fixed asset investment in GDP, the higher the rate of GDP growth and consumption growth.
Figure 9 illustrates these relationships from an international comparative perspective. As shown in Figure 9, the negative correlation between consumption as a share of GDP and GDP growth is 0.78 and the R-squared relationship is 0.60. In other words, the higher the share of consumption in GDP, the slower the GDP growth rate.
Figure 9
The same is true for China. The negative correlation between consumption as a share of China's GDP and GDP growth rate is 0.79 and R-squared is 0.62 (see Figure 10).
FIGURE 10
There is a negative correlation between consumption as a share of GDP and GDP growth, which means that GDP growth is sensitive to any change in consumption as a share of GDP. As Figure 11 shows, even if consumption rises slightly as a share of GDP, China's GDP growth rate will fall sharply.
As shown in Figure 11, from 2008 to 2022, China's consumption as a percentage of GDP rose from 50.4% to 53.5%, an increase of only 3.1%, but GDP growth fell from 11.9% to 5.7%.
In short, increasing the share of consumption in GDP has had a serious negative impact on GDP growth. The conclusion is clear: there is a strong correlation between net fixed asset investment and consumption growth. The higher the share of consumption in China's GDP, the slower China's GDP growth will be, which is in line with international experience. Conversely, since there is a very close positive correlation between GDP growth and consumption growth, the higher the share of consumption in China's GDP, the slower the growth rate of China's consumption.
FIGURE 11
Finally, this has led to confusion between the concepts of consumption as a share of GDP and consumption growth rate. The facts clearly show that if the goal is to increase the rate of growth of consumption, that is, the rate of living up, then what is needed is to do the exact opposite of what is needed to increase the share of consumption in GDP! Increasing the rate of growth in consumption requires increasing the share of net fixed asset investment in GDP – the higher the share of net fixed investment in GDP, the faster consumption and living standards will grow, but the lower the share of consumption in GDP.
As Figure 12 shows, there is a positive correlation between net fixed investment as a share of GDP and the average annual growth rate of consumption in the world's top 10 economies. The correlation between the two is extremely high at 0.92 and the R-squared relationship is 0.84.
FIGURE 12
The same is true for China. There is a strong positive correlation between the share of net fixed investment in China's GDP and the average annual growth rate of China's consumption, which is 0.94 and the R-squared relationship is 0.88 (see Figure 13).
Therefore, we can summarize the following points:
There is a negative correlation between consumption as a share of GDP and the growth rate of consumption, that is, the higher the share of consumption in GDP, the slower the growth rate of consumption and therefore the slower the growth rate of living standards (see Figures 2 and 3).
There is a positive correlation between net fixed investment as a share of GDP and consumption growth rate. In other words, the higher the share of net fixed investment in GDP, the faster consumption will grow (see Figure 13).
In other words, in order to increase the growth rate of consumption, it is necessary to increase the share of net fixed asset investment in GDP and reduce the share of consumption in GDP.
FIGURE 13
Figure 3 above shows that there is a negative correlation between consumption as a share of GDP and consumption growth. As a result, the decline in the share of consumption in GDP will lead to a faster growth rate of consumption. In contrast, Figure 14 illustrates a positive correlation between net fixed investment as a share of GDP and consumption growth rates. From this positive correlation, it can be seen that the increase in net fixed investment as a share of GDP will lead to an increase in consumption. Unfortunately, net fixed asset investment fell from 23.6% to 17.1% of China's GDP from 2008 to 2021 (the most recent data available) using a five-year moving average that eliminates the effects of fluctuations in the short-term economic cycle. As the high correlation described above was inevitable, consumption growth slowed from 10.3% to 6.0% over the same period.
FIGURE 14
Finally, going back to the analysis above, the correlation between China's net fixed investment as a share of GDP and the annual GDP growth rate is extremely high, at 0.91, with an R-squared relationship of 0.84. However, the correlation between China's total fixed investment (i.e., before depreciation) as a share of GDP and GDP growth and consumption growth is much lower than that between net fixed investment and GDP growth. The former has a correlation of -0.57 and an R-squared relationship of only 0.32 (see Figure 15).
FIGURE 15
It is clear that China's net fixed investment is much more closely linked to GDP growth and consumption growth than aggregate fixed investment. Depreciation as a share of GDP is higher in all major economies as they develop and acquire a larger capital stock. This simply reflects the increasing capital intensity of production, or in Marx's terminology, "an upward trend in the organic composition of capital". But only net fixed investment can increase a country's capital stock – depreciation as a share of GDP will only replace capital consumed, but not increase it.
This fact confirms Marx's analysis of the upward trend in the organic composition of capital, or in Western economic terms, "the increasing capital intensity of production with economic development", which is of great significance. According to the latest internationally comparable data, total fixed investment as a share of China's GDP edged up from 39.1% in 2008 to 42.0% in 2021 (see Figure 16). This is sometimes misinterpreted as a fairly stable share of GDP in China. But this is wrong.
In fact, China's net investment as a share of GDP has been declining sharply due to the sharp rise in depreciation levels – depreciation as a share of GDP soared by 9.6% from 2008 to 2021, from 17.0% to 26.6%. China's net fixed investment as a share of GDP plummeted by 6.2%, from 22.1%, to 15.9%, due to a modest rise in the share of total fixed investment and a sharp rise in the share of depreciation. As Figure 15 illustrates, this situation in the wake of the international financial crisis broke the pattern of 30 years since the reform and opening up in 1978, during which China's net fixed asset investment as a share of GDP has been steadily rising.
Given the relevance of the above analysis, a decline in net fixed investment as a share of GDP will inevitably lead to a sharp decline in GDP growth and consumption growth. Precisely, since the international financial crisis:
1. China's consumption-to-GDP ratio rose from 49.8% in 2008 to 53% in 2022, an increase of 3.2%. This in itself will slow down China's consumption growth, as there is a negative correlation between consumption as a share of GDP and consumption growth rate.
2. China's net fixed asset investment fell by 6.2% to 15.9% of GDP from 22.1%. This would also slow consumption growth sharply, given the strong positive correlation between net fixed investment as a share of GDP and consumption growth.
In the light of these two negative trends, it is easy to explain why China's consumption growth rate is bound to fall sharply.
FIGURE 16
The facts stated above can now be succinctly summarized as follows:
China has shown a development model in line with that of other large economies. In other words, there is a strong negative correlation between the share of consumption in GDP and the growth rate of consumption. The higher the share of consumption in GDP, the slower the growth rate of consumption, and the higher the proportion of investment in GDP, the faster the growth rate of consumption.
The reason for this is that there is a strong correlation between GDP growth and consumption growth in large economies. In other words, if GDP cannot grow at a high rate, then consumption and living standards cannot grow at a high rate.
The decisive factor for rapid GDP growth, and thus consumption, is the level of net fixed investment in GDP – the higher the share of net fixed investment in GDP, the faster GDP will grow, and the faster consumption will grow.
If the share of consumption in GDP increases, the share of fixed investment in GDP will inevitably decrease, and the growth rate of consumption will slow down. Thus, those calling for higher consumption as a share of GDP are actually calling for policies that slow consumption growth.
Increasing the growth rate of consumption does not require an increase in the share of consumption in GDP, but rather slows down the growth of consumption and living standards, so it is necessary to increase the share of net fixed investment in GDP. In other words, there is a positive correlation between the share of net fixed investment in GDP and the growth rate of consumption.
There is a positive correlation between the share of net fixed investment in GDP and the growth rate of consumption, not only in China, but also in all large economies. Therefore, China's economy, like all large economies, is unlikely to go against such laws.
Marxist economics vs. rigorous Western economics VS Western vulgar economics
So far, the facts have been discussed in this article. Given the strong correlation between the above-mentioned components of GDP, these facts alone are sufficient to determine the economic consequences of different policies. They suggest that increasing the share of consumption in GDP will slow GDP growth and lead to a decline in consumption growth. Conversely, if the goal is to achieve the fastest growth in consumption, then this needs to be achieved by increasing the share of investment in GDP. This is fully in line with the predictions of Marxist economic theory or rigorous Western economic theories such as growth accounting. However, they are in direct contradiction with Western "vulgar" economic theories.
Marx pointed out that productive inputs, investment and labor, are not conceptually separate – investment is the product of labor carried out in previous production cycles. He also points out that this kind of labor cannot be measured simply in terms of working hours, but in terms of socially necessary labor time required to produce something – this socially necessary labor time varies with the development of technology, productivity, etc. Consumption is a part of the economy, it is not an input to expand future production, but is consumed by the population in a single production cycle.
Thus, Marxist economics argues that consumption plays no role in the future expansion of production in the economy. In Marxist terms, production inputs are labor and fixed capital from the current production cycle, and fixed capital is unconsumed labor from previous production cycles. Thus, the prediction of economic growth in Marxist economics is exactly what the above facts show – all else being equal, an increase in investment will increase economic growth, and therefore an increase in consumption and a decrease in investment will lead to a decrease in economic growth – as the facts present.
Rigorous Western economics, such as growth accounting, is less consistent than Marxist economics in that it treats capital as something conceptually separate from labor, rather than understanding that capital investment is the product of labor in previous production cycles. However, this is a serious field of study, and in recent times it has been forced to move closer to Marxism in order to measure economic growth more accurately – for a detailed analysis, see the article "Abandoning the Wrong Growth Calculation, It Took 150 Years for the West to Turn to Marx's Position". For such rigorous Western economics, production inputs, that is, the supply side of the economy, are labor, capital, and total factor productivity. Under this framework, consumption does not play a role in production, and therefore also on the supply side of the economy – this is because, by definition, consumption is not an input to production.
Therefore, the factual projections of rigorous Western economics are also in line with the facts discussed at the beginning of this article. In other words, all other things being equal, a decline in investment as a share of GDP will lead to a decline in the rate of economic growth. Moreover, since there is a strong correlation between consumption growth and GDP growth, a decline in GDP growth rate will in turn lead to a decline in consumption growth rate.
Both Marxist economics and rigorous Western economics are very clear that consumption is not an input of production. As a result, both predict that if investment is reduced by increasing the share of consumption in GDP, GDP growth will decline. Because of the close correlation between GDP growth and consumption, both predict that as consumption rises as a share of GDP, investment levels will inevitably decline, and GDP growth will also decline.
There are other reasons why Marxist economics is even better than rigorous Western economics, such as the understanding of capital, but both Marxism and rigorous Western economics predict the fact discussed at the beginning of this article that increasing the share of consumption in GDP will lead to a decline in the rate of growth of consumption.
So, again, both Marxist economics and rigorous Western economics make it clear that since consumption is not an input of production, the contribution of consumption to GDP growth is always zero. Therefore, statements such as "consumption contributes 70% to GDP growth" are completely false and confusing. Perhaps 70% of GDP growth is spent on consumption, but the contribution of consumption to production growth is always zero. This is the case with both Marxist economics and serious Western economics – in the economic terms of both, consumption is not a functional input of production.
However, some Chinese media outlets, which hold Western "vulgar" economics as the truth, have sometimes offered random advice that has led to a series of confusions, even though these facts and rigorous economic theory suggest that these policies will slow down the growth of China's consumption and, in turn, the growth of Chinese's living standards.
Western vulgar economics confuses the demand side of the economy with the supply side. Some Chinese media outlets have repeatedly mentioned that the economy is made up of consumption, investment and exports. But this is only on the demand side of the economy, not the supply side. Investment is part of the supply side of the economy, but consumption and exports are not.
While other arguments do not mistakenly include consumption on the supply side of the economy, "vulgar Keynesianism" does. They argue that if demand is increased through consumption, this will inevitably translate into economic growth. This view has nothing to do with Keynes's own analysis, which argued that in a market economy, production is controlled by profits. Therefore, if an increase in demand does not lead to an increase in profits, then the increase in production will not occur. Whether or not an increase in demand leads to an increase in profits depends on many other variables in the economy, not just demand – for example, if material costs, interest rates, wages, or other factors increase, profits may actually decline at the same time as demand increases. As a result, an increase in demand does not automatically lead to production growth – whether it will lead to production growth depends on other factors that can affect profitability.
Rigorous Western economics is not as consistent as Marxist economics, but its understanding of the role of consumption does not contradict Marxist economics. However, Western vulgar economics is directly anti-Marxist, echoing the views put forward by some Chinese media. For example, a recent article argues that "consumption is both the end point of the previous round of economic activity and the beginning of a new one." This directly contradicts Marx's analysis of the decisive role of production:
"The conclusion we have come to is not that production, distribution, exchange, and consumption are the same thing, but that they constitute the links of a whole, and that there are differences within the whole. Production plays a decisive role in this, and it dominates both production itself and other factors. The process always starts from a new point of production...... Exchange and consumption are things that cannot be dominated...... Production (mode) determines a certain consumption, distribution, and exchange (mode). ”3
As a result of these erroneous economic theories, Western "vulgar" economics has caused a great deal of confusion in the analysis at the beginning of this article – it fails to recognize that the goals of increasing the growth rate of consumption and increasing the share of consumption in GDP are completely contradictory. Therefore, increasing the share of consumption in GDP will slow down the growth rate of consumption, which in turn will slow the growth rate of living standards. If the goal is to increase the rate of growth of consumption, that is, the rate of living up, then it is necessary to increase the share of investment in GDP, not the share of consumption in GDP.
This article begins with an analysis of the erroneous theories of Western vulgar economics because they have repeatedly appeared in some Chinese media. In fact, the author has already made an analysis of this, see the article "It Successfully "Murdered" Germany, Japan, and the Four Little Tigers, and Now Wants to Persuade China to Commit Suicide". But, at all times, theories must be subordinated to facts – theories must conform to facts, not the other way around.
The facts are obvious. There is a direct contradiction between the goal of increasing the share of consumption in GDP and the goal of increasing the growth rate of consumption. To increase the growth rate of consumption, it is necessary to increase the proportion of net fixed asset investment in GDP and reduce the proportion of consumption in GDP. Increasing the share of consumption in GDP will slow down GDP growth and consumption growth.
Therefore, in order to clarify the erroneous theory described at the beginning of this article, the goal of consumption should be set as the highest sustainable growth rate of consumption – that is, the purpose of consumption is to achieve the highest rate of living for the people within the framework of the overall goal of China's national rejuvenation.
epilogue
Clarifying such erroneous theories is of great significance to China, because it is directly related to whether the quality of life of the Chinese people can be further improved, which in turn affects the great rejuvenation of the Chinese nation and social stability. The humble article "Behind the Collective Decline of China's Economy, What Is the West's Most Dangerous Weapon?" also has a detailed analysis of this.
Of course, the United States wants to overthrow socialism with Chinese characteristics outright – because if this goal can be achieved, it will bring disaster to the entire Chinese country, as happened when the Soviet/Russian restored capitalism. But the United States understands that it cannot carry out such a direct political attack on China as it did with the Soviet Union. The collapse of the Soviet Union was the result of Baigorbachev's anti-socialist policy, who mistakenly believed that the United States wanted to aid Russia, not weaken it, and therefore brought a disaster to the USSR and Russia - After the collapse of the Soviet Union, the United States pushed NATO eastward to Russia's borders, a series of armed conflicts broke out on the territory of the former Soviet Union, and finally triggered the largest conventional war in Europe since World War II in Ukraine, and after the restoration of capitalism in Russia, Gorbachevian fantasies proved wrong, causing Russia to suffer the worst peacetime economic collapse since the Industrial Revolution. That is, the United States first defeated Gorbachev and the CPSU in the political sphere, thereby destroying the USSR, and then the Russian economy. In short, for the USSR, the order of the American offensive was first political, then economic.
Image source: Internet
But the U.S. understands that the policies of the Chinese Communist Party and Xi Jinping make it impossible to use such tactics against China, because these forces promote China's national rejuvenation and socialist construction, and have a clear understanding of the U.S. government's anti-China policies. Therefore, the US government understands that such a direct political attack on China will not succeed. In view of this, the United States was forced to change the order of its offensive. Since the United States cannot succeed in the political field first, it is forced to attack China's economy first – hoping that the Chinese economy will be damaged, then this will weaken China's comprehensive national power and cause social problems, which in turn will lead to a political crisis. That is, the order of US attacks on China was first economic, and then political - contrary to the tactics of the United States against the USSR.
The first part of the attack on China's economy is external – such as the tariff, technology and chip wars waged by Trump and Biden against China. While these pose some short-term problems for China, they are not enough to stop China from growing – the rapid expansion of China's foreign trade, the success of Huawei's launch of the Huawei Mate 60 Pro, and the country's rapidly growing position in green energy technology and electric vehicles. Similarly, any American idea of seriously harming the Chinese economy through indirect military pressure to force China to divert resources from production activities to military spending is unrealistic – the US economy grew faster than the Soviet Union in the 80s of the 20th century, and now China's economy is growing more than twice as fast as the United States.
China's new energy vehicles waiting for export at Taicang International Container Terminal (Image source: ICphoto)
If the United States wants to deal with China in the same way that it does Japan, Germany, and the Asian Tigers, it needs to significantly slow down China's economic growth, and China needs to significantly reduce its investment-to-GDP ratio -- the methods used by the United States to damage the economies of Japan, Germany, and the Asian Tigers are analyzed in detail in the humble article "It Successfully "Murdered" Germany, Japan, and the Four Tigers, and Now Wants to Persuade China to "Economic Suicide"".
But the United States has no way of forcing China to adopt a self-defeating economic policy, as it has done with Japan, Germany, or the Asian Tigers. That is, the United States cannot "murder" China. Instead, the United States has to rely on persuading China to adopt the wrong policy. In other words, since the United States is incapable of murdering China, it has to try to convince China to commit economic suicide. The dissemination of erroneous economic theories, including misreadings of consumption, is part of this.
As I have discussed in detail in the previous article, in this theoretical struggle, the United States has no chance of defeating Marxist economics, and American vulgar economics, with its conceptual confusion and theoretical errors, has no chance of defeating rigorous Western economics.
As a result, the United States is forced to rely on vulgar economics, which has every opportunity to exploit conceptual confusion and theoretical errors, to exploit the partial misreading of consumption in part of the Chinese media in an attempt to promote its goals. Similarly, the United States can try to exploit the confusion created by the difference between responding to short-term problems and dealing with strategic ones. For example, due to the impact of the new crown epidemic, China's consumption in 2022 will be severely sluggish. In order to solve this problem, it is necessary to play a "combination punch" to boost consumption, and the author strongly supports this, and the humble article "To improve China's economy, it must bypass the "pit" that the United States has stepped on" has a detailed analysis of this. But this short-term stimulus to consumption, which was necessary to deal with a sharp recession, was then suggested for a completely different policy – increasing consumption as a share of China's GDP and translating it into a long-term mechanism.
For the reasons mentioned above, the latter policy would not only significantly slow China's overall economic growth, but also lead to a sharp slowdown in consumption growth. If China were to adopt such an economic structure, it would undoubtedly cause enormous damage to the Chinese economy, repeating the mistakes of Japan, Germany, and the Asian Tigers – the indirect economic consequences of tariffs, technological boycotts, and military pressure are nothing compared to them.
To be precise, American vulgar economics poses a far greater danger to China than American aircraft carriers.
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