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Just a note. US is ~3% of FDI in China… in good years, FDI is ~4% total investment in China, <2% of GDP for a decade now. (Some of the FDI from HK SAR is also partly from the US, taking a detour to the mainland over HK but still) Im sure China is dismantling one of the pillars of its monetary and economic policy in capital controls in defeat as we speak to get that life saving American FDI. All the signs are there, after all the CPC has announced that "they welcome and urge foreign investment and US cooperation and will try to make the enviroment easier for it" for the 5000th time since reform and opening up

@[email protected] is a lot more partial about the a certain aspect of this but you should be careful that their approach is not the only one that criticizes the current 180 CPC turnaround in 2023/24.

On a rhetorical level the FDI is only a very coincidental part of the narrative. You are correct China is on this course for a long time however it is silly to pretend the conditions of today are the same as even 25 years ago or even when Xi first took power.

By all metrics China should not depend on US external influence, the fact US financial media(and the Fed) got any influence at all is an indictment not an excuse. To recap the FDI is circumstantially important because it perfectly aligns with the financial media attack, if you remember how Yellen and Blinken went to China and everyone started complaining about the insane "overproduction"/"overcapacity" narrative.

Immediately following that the Fed lowered interest rates and China started not only begging for better "investor sentiment" but also they have taken a few notable steps like signaling for more consumption incentives and liberalization of industrial investment(for foreigners).

I say this often it doesn't matter what we observe and think, only how the party is behaving and what they believe and we have more than enough evidence the party cares a lot about the mainstream economic rethoric, they use the same terms and they're starting to use some of the same policies(or at least signaling it).

Ultimately what happened IMO is they gaslit themselves into believing the overproduction narrative by the west. Its obviously nonsense. China shouldn't stimulate "consumption" just because the US doesn't want to import cheap renewables. Worst still is that the diagnosis of this perceived slowdown is entirely withing the neoliberal economic consensus.

If you notice where Chinese FDI drops below the 2020 level at the beginning of this year, it coincides perfectly with both Blinken/Yellen's visits and when the overcapacity narrative gains traction on western media, e.g:

Atlantic Council December 11, 2023 China’s manufacturing overcapacity threatens global green goods trade

FT February 1 2024 China’s overcapacity a challenge that is ‘here to stay’, says US chamber

FT February 4 2024China’s cull of EV overcapacity will bring little relief to Europe

Yellen and Blinken both visited China in April '24.

Likewise MR wrote about this as it happened and he linked this source Part I of Xu Gao: corporate gains fail to boost household income, leading to over-investment & excessive savings in China

On March 13, 2024, the National School of Development (NSD), Peking University, in collaboration with Baidu Economic & Financial News, held the 68th session of the China Economic Observation Report event and launched the 30th-anniversary celebration of the NSD.

Today's The East is Read will feature Xu Gao, the Chief Economist and Assistant President of Bank of China International Co. Ltd., leading the research department and sales and trading department of the company. He is also an adjunct professor of the NSD at Peking University.

Xu argues that the significantly lower consumption-to-GDP ratio in China, compared to the global average, is the fundamental cause of the country's lackluster domestic demand and economic slowdown. He attributes this low consumption level to unusually high savings rates, with both enterprise and household savings rates remaining notably elevated. This is in stark contrast to other economies where the two rates typically exhibit a negative correlation.

That entire article explains what the current mainstream Chinese analysis of the problem was/is and MR's argument in his blog post

Zu explains that “weak domestic demand, compounded by lackluster external demand or export volumes, results in insufficient total demand, thereby stifling economic growth. In that sense, the long-term growth constraints on the Chinese economy lie not in the supply but in demand.” Really? China’s relative growth slowdown in the past decade has been due to slowing expansion of its labour force with economic growth then depending primarily on raising the productivity of labour. And that depends on investment in productivity-boosting technology, not consumption, which is a deduction from resources for investment. Moreover, which countries have achieved faster growth in the last few years: the consumer-led West or low consumption China?

Zu follows up his classic crude Keynesian theory, by saying that “the objective of economic growth is to fulfill the people’s expectation for a better life, which is primarily manifested through their expectation for enhanced consumption—better quality food, clothing, and leisure activities. When a country’s consumption constitutes a small fraction of its GDP, it indicates a misalignment between the aggregate economic growth (as depicted by GDP) and the lived experiences of its people.”

But this is just not true. A low consumption to GDP ratio does not necessarily mean low consumption growth. And China’s consumption growth has been way faster than the consumer-led economies of the West.

So what to do? “Of course, SOEs in China are technically owned by the people, yet their equity is predominantly held by the state. Consequently, the dividends from SOEs primarily flow to the state rather than the households; the profits retained post-dividend distribution from SOEs are not directly connected to the balance sheet of households, making it difficult to contribute to household wealth. So says Xu, “we need to distribute all SOE stocks to citizens” ie privatise the state-owned companies.

"A Chinese academic working in the financial sector spewing neoliberal economic shit? No way!" Yes its obviously not news, but the point is he repeats mainstream nonsense about efficient markets and copying western narratives.

The real worry here is if the CPC follows these advices and realy believes investment in production and technology are no longer necessary or consumption incentives should become the priority.

China would lose one of their main advantage against the west and current signs is they actualy do believe some of it.

They've arrived at the logical conclusion, we can do whatever we want because only China matters, so if the economy is slowing just boost consumption. This is the most mainstream of the mainstream western modern economic theory. Everyone ignores the state of the global economy, the EU crash, the global south debt crisis etc. For both western media and mainstream econ, if China is not meeting growth expectations, its their fault for not being liberal enough. Do you realize how dangerous this path is?

Of course everyone can be wrong and this time next year China is celebrating, FDI is up, Xi is smiling next to Trump etc. Nobody is predicting China will crash in 30 days(probably not even 30 months) because of a few charts and random theories, but alas who is expecting communism "soon" when the party is seemingly embracing mainstream neoliberalism at the first sign of trouble?

For me that is the compelling takeaway. More Dengism with some neolib shit along the way no matter how dangerous it is while paying no attention to the climate abyss right ahead or the global south collectively getting murdered or worse.

With respect, you don’t understand how China’s economy works. That small % of FDI in proportion to GDP is responsible for 16% of China’s tax revenues and nearly 30% (!!) of China’s export value!

It plays a disproportionate role in the economy because a lot of foreign investment now targets high tech/high value added chain. The lower value chain industries like textile have been completely dominated by Chinese manufacturers (e.g. Shien, Temu) that have squeezed the foreign investors out of the competition.

The US hasn’t been playing a lot with FDI because it didn’t have to - it has been able to get whatever it wants by running a huge trade deficit for the past 30 years! Now that it is being forced to confront the inevitable contradictions of running persistent trade deficit (de-industrialization), it is shifting to direct investment to retain the primacy of the dollar while cutting back on trade deficit.