[late]

@late If anyone cares, then they will find that the sources of these so-called "evidences" are not reliable.

I watch a lot of Youtube videos, and have an interest in Asia. Btw, I play Go, an Asian game that is harder than chess.

I've been watching the videos for years, before things got ugly..

https://www.youtube.com/@serpentza

Zeihan does exaggerate at times, but the empty cities are real. They are the product of what may be the biggest real estate bubble in history.

[Puffer Fish]

@Puffer Fish Where does too much investment in infrastructure reflect? Investment in infrastructure improves the quality of life for citizens. Does dismantling these investments constitute a disregard for human rights?

I don't think you understood my post, or put much thought into the original first post that my post was responding to.

The issue is the resource cost of building that infrastructure. That can accumulate debt. And in the case of China, this housing infrastructure assumed people would live there. But people are not living there.

In many cases the housing projects have gone uncompleted, so they are not even fit for people to live there, despite the cost.
And it's created a huge bubble in China's economy, because people only paid for these housing projects to be built assuming that there would be a profit and other people would pay for it.
When buyers are not appearing, all those investors (which include ordinary common middle class Chinese people) are left with a loss. What they thought was their savings has suddenly disappeared.

In a way, you could say this represents misallocation of resources. Because the construction of that infrastructure has not been worth the cost.

[Loe Diben]

I don't think you understood my post, or put much thought into the original first post that my post was responding to.

The issue is the resource cost of building that infrastructure. That can accumulate debt. And in the case of China, this housing infrastructure assumed people would live there. But people are not living there.

In many cases the housing projects have gone uncompleted, so they are not even fit for people to live there, despite the cost.
And it's created a huge bubble in China's economy, because people only paid for these housing projects to be built assuming that there would be a profit and other people would pay for it.
When buyers are not appearing, all those investors (which include ordinary common middle class Chinese people) are left with a loss. What they thought was their savings has suddenly disappeared.

@Puffer Fish Infrastructure and housing are two different things. Housing is just a business practice of real estate developers and has nothing to do with municipally managed infrastructure. Real estate requires the purchase of land development rights, and the subsequent development process has nothing to do with the government.

It will be much cheaper to buy a house before it is built than after it is built, that is, buy off-plan. Buying off-plan is essentially an investment as the value of the home will increase after it is built. It is only in a few cases that the capital chain breaks during the development process, leading to the suspension of development. Individuals who purchase off-plan properties have to face this investment failure. This situation is just like stock trading, you have to admit your losses. Because since the money you make will not be returned to the developer, why should you ask the developer to compensate you when you lose money? And there are no relevant clauses in the contract.

“In a way, you could say this represents misallocation of resources. Because the construction of that infrastructure has not been worth the cost.” This seems to be what you want to say, but real estate development is not government funded, just the business of real estate developers. Behavior. I don’t know from which country’s similar experience you came to the conclusion that housing is built at state expense. But that's not the case in China.

[Fasces]

I watch a lot of Youtube videos, and have an interest in Asia. Btw, I play Go, an Asian game that is harder than chess.

I've been watching the videos for years, before things got ugly..

https://www.youtube.com/@serpentza

Zeihan does exaggerate at times, but the empty cities are real. They are the product of what may be the biggest real estate bubble in history.

That video claims to be about ORDO NEW TOWN, which has a population of more than 600k as of 2022, but shows footage from a famous development near Shanghai - which yes, failed, but not because Shanghai lacks people. Sometimes developments fail.

The Channel itself has an AI voice and 10 videos made with stock footage.

You're selecting sources based on what you want to hear, not truth.

[JohnRawls]

@Puffer Fish Infrastructure and housing are two different things. Housing is just a business practice of real estate developers and has nothing to do with municipally managed infrastructure. Real estate requires the purchase of land development rights, and the subsequent development process has nothing to do with the government.

It will be much cheaper to buy a house before it is built than after it is built, that is, buy off-plan. Buying off-plan is essentially an investment as the value of the home will increase after it is built. It is only in a few cases that the capital chain breaks during the development process, leading to the suspension of development. Individuals who purchase off-plan properties have to face this investment failure. This situation is just like stock trading, you have to admit your losses. Because since the money you make will not be returned to the developer, why should you ask the developer to compensate you when you lose money? And there are no relevant clauses in the contract.

“In a way, you could say this represents misallocation of resources. Because the construction of that infrastructure has not been worth the cost.” This seems to be what you want to say, but real estate development is not government funded, just the business of real estate developers. Behavior. I don’t know from which country’s similar experience you came to the conclusion that housing is built at state expense. But that's not the case in China.

In a way, you could say this represents misallocation of resources. Because the construction of that infrastructure has not been worth the cost.

There is no real difference economy wise if your building houses or infrastructure. To the contrary belief that there can't be too much housing or infrastructure, there certainly can be and it has happened many times in human history before even capitalism was invented.

The basic idea is that everything costs money to build or debt or financing or assets. If your return on investment is below 1-1 then you shouldn't be building it unless it is a common good. Actually even 1-1 ratio is bad because there are always at a given time investment that will produce more than 1-1 ratio meaning that they should be prioritized first. It goes down to the whole efficiency of economy argument and those who have inefficient economies will basically lag severely behind the rest and become poor while the ones that do those investment properly will prosper.

Going below 1-1 is basically becoming a zombie company/economy. There are plenty of them around even in the West. Usually these companies have to go in to bankruptcy and to the common belief that bankruptcy is bad, it is not. It is a tool to free up assets to be used in more productive ways in a fast manor in other sectors or places. And if you do not declare bankrupcy then you are just building up losses for the company and economy.

Now you can argue that infrastructure or housing is a common good but that is not something that you or me can decide. This is a societal decision of a country taking in to account the downsides of that decision that it will be a drain on the society if you decide it. But if you consider just the pure economic aspect of housing and infrastructure then China has crossed the road of no-return on its investment back in like 2010 for infrastructure and housing if not earlier. Not everywhere once again since Geography matters but in a lot of places. They will never get enough users of infrastructure and housing especially with declining population as of right now.

[JohnRawls]

That video claims to be about ORDO NEW TOWN, which has a population of more than 600k as of 2022, but shows footage from a famous development near Shanghai - which yes, failed, but not because Shanghai lacks people. Sometimes developments fail.

The Channel itself has an AI voice and 10 videos made with stock footage.

You're selecting sources based on what you want to hear, not truth.

Why are you guys even discussing the symptoms. Sure it might be a propaganda video but nobody disputes that overall China did a lot of investment in to infrastructure and housing that will never be returned monetarily anymore.

The main problem is China is kinda continuing like a Zombie doing the same wishing for a different result.

[Potemkin]

There is no real difference economy wise if your building houses or infrastructure. To the contrary belief that there can't be too much housing or infrastructure, there certainly can be and it has happened many times in human history before even capitalism was invented.

The basic idea is that everything costs money to build or debt or financing or assets. If your return on investment is below 1-1 then you shouldn't be building it unless it is a common good. Actually even 1-1 ratio is bad because there are always at a given time investment that will produce more than 1-1 ratio meaning that they should be prioritized first. It goes down to the whole efficiency of economy argument and those who have inefficient economies will basically lag severely behind the rest and become poor while the ones that do those investment properly will prosper.

Going below 1-1 is basically becoming a zombie company/economy. There are plenty of them around even in the West. Usually these companies have to go in to bankruptcy and to the common belief that bankruptcy is bad, it is not. It is a tool to free up assets to be used in more productive ways in a fast manor in other sectors or places. And if you do not declare bankrupcy then you are just building up losses for the company and economy.

Now you can argue that infrastructure or housing is a common good but that is not something that you or me can decide. This is a societal decision of a country taking in to account the downsides of that decision that it will be a drain on the society if you decide it. But if you consider just the pure economic aspect of housing and infrastructure then China has crossed the road of no-return on its investment back in like 2010 for infrastructure and housing if not earlier. Not everywhere once again since Geography matters but in a lot of places. They will never get enough users of infrastructure and housing especially with declining population as of right now.

At last! Someone who actually has an understanding of how capitalism works. Production is for profit, since this is how capitalism allocates resources. Unprofitable enterprises go bankrupt and those resources are reallocated to more profitable ventures. It’s sort of like natural selection, but with money, goods and services. You’re not well-adapted to your environment? Sorry, you go extinct. And every so often, there’s a mass-extinction event….

Is China facing a mass-extinction event? No, there’s no real evidence for this. Wastage happens in any human economy, whether socialist or capitalist. I could show you photos of Detroit and claim that the USA is about to collapse. And production for profit rather than for need can lead to widespread human misery without government intervention. Just sayin’.

[JohnRawls]

At last! Someone who actually has an understanding of how capitalism works. Production is for profit, since this is how capitalism allocates resources. Unprofitable enterprises go bankrupt and those resources are reallocated to more profitable ventures. It’s sort of like natural selection, but with money, goods and services. You’re not well-adapted to your environment? Sorry, you go extinct. And every so often, there’s a mass-extinction event….

Is China facing a mass-extinction event? No, there’s no real evidence for this. Wastage happens in any human economy, whether socialist or capitalist. I could show you photos of Detroit and claim that the USA is about to collapse. And production for profit rather than for need can lead to widespread human misery without government intervention. Just sayin’.

And? What is your point? To allocate resources inefficiently? Soviet Union tried that and they had shortages and they were even worse in the environmental department since they didn't regulate it at all. They also didn't invent anything really useful to the common people and based their science on the "commanding heights" ideas which is blatantly vomiting to me. My point is that if you have a better alternative then propose it instead of laughing at the best we got for now.

This argument that capitalism doesn't care about anything besides profit is correct but capitalism plays within the legal framework that it relies on to actually exist. If you accept property rights as a strong pre-requisite then capitalism has no other choice but to accept all the other regulations that also exist. Soviet Union did 10 times more ecological damage than what capitalist enterprise does to Earth and the only reason you don't talk about it is because it is localized in Russia or cleaned up in the European states now. And the reason for it was simple, Soviets didn't really care about the environment. They could have but there was no reason to since they didn't have a rule of law based system nor did the people have a real say in the decision since they were autocratic/dictatorial.

[Wellsy]

I do wonder if some of the thought risk is seen as the difference of national priorities to attract capital and prioritize the functions of capital over human needs. My impression is that china has markets on top of their state control so that they allow pricing and surplus in their economy but ultimately want final day like with the real estate bubble which is a problem economically but companies were not primarily shielded but there was an effort to mitigate impacts against homeowners. It was decried for it’s economic impact but all I could think in comparison is how many American lost their homes in the global financial crisis around 2008-2010 and how the focus was on bailing out banks and stuff to try and slow the roll on banks.

Markets can be very unstable and even companies do not like it's instability and so many institutions of varying types set rules and regulations to maintain a basis for trust and consistency. Even the stockmsrket gets frozen kf things drop too fast and there are requirements for companies to enter the stock market so that itsnlt a free for all. Some of the wealthiest countries have welfare because the general population cannot significantly tolerate the uncertainty of markets destroying the basis of their lives and meeting their needs.

China does seem to have big challenges but it seems many are similar to many developed nations. Much of the panic in any country are commodities like land, housing and other things that are necessary to live and it's a struggle of meeting human needs and stability of a society and the needs of capital to expand and invest and they impose on one another as markets being for profit can too heavily cost a human population.
This I think is why we see criticism of a USSR central planning and free market and social democrats and liberals where the debate isn’t about capitalist production as much as its about how does the state intervene upon markets and institutions which underpin them? Capitalism undoubtedly has rapidly expanded human production to an incredible degree but markets instability can wreck havoc and are an inevitability. But how much does one want markets dictating the meeting of human needs. Free markets are often proposed for everything, sometimes with the logical conclusion of letting the poor starve and die. Many who oppose as much don’t always have a solid idea how to but are motivated against such outcomes and invite intervention against free markets.

The USSR itself is an exam
Ple of a country of extremes moving from central planning with some successes in fact to a free market without social welfare. But it is excused as crony capitalism and an exception to the institutional norma of many western societies.

Personally I am concerned with how workers in the west will pull through should imperialist extraction of wealth and the retardation of economic development of countries beyond raw resource providers plays into the austerity that is coming back as capitalists struggle to extract profit at the margins of the globe and move domestically. China may end up in a similar position but isn't there yet.

[Fasces]

Why are you guys even discussing the symptoms. Sure it might be a propaganda video but nobody disputes that overall China did a lot of investment in to infrastructure and housing that will never be returned monetarily anymore.

You're begging the question of whether infrastructure needs to have a direct monetary return.

Many infrastructure programs in the West also don't have monetary returns but are done anyway - especially in isolated and rural regions. Most roads don't collect tolls - are they failures because they don't directly pay for themselves?

The great success of China's high speed rail isn't in whether it sells enough tickets to cover costs of operation, but whether the indirect benefits of connecting vast pools of labor and capital in all sorts of cities is more beneficial than not. Despite increases in cost of labor, foreign and industrial investment in China is still growing and Chinese products see still cheap - which suggests that yes, the infrastructure is doing it's job.

The main problem is China is kinda continuing like a Zombie doing the same wishing for a different result.

China today isn't following the same fiscal and economic policies it was since before precovid and has been weaning off its reliance on infrastructure development since the late 2010s precisely because these issues were foreseen.

You guys' understanding of China is consistently behind. You're making the same arguments that were being made in 2020 and 2021 (which I can go ahead and find the threads) and ignoring the significant efforts currently being made to solve the issues. (10% reduction in real estate investment in Q1, as per my post above, which is already well below pre-pandemic levels).

[Fasces]

The Ordos City "ghost city" nonsense was also already debunked in 2017: https://www.forbes.com/sites/wadeshepar ... 017/06/30/

Why is it being brought up yet again in this thread as evidence of Chinese stupidity? At some point we must be introspective and realize why we click on these links.

[late]

https://en.wikipedia.org/wiki/Under-occupied_developments_in_China

[JohnRawls]

You're begging the question of whether infrastructure needs to have a direct monetary return.

Many infrastructure programs in the West also don't have monetary returns but are done anyway - especially in isolated and rural regions. Most roads don't collect tolls - are they failures because they don't directly pay for themselves?

The great success of China's high speed rail isn't in whether it sells enough tickets to cover costs of operation, but whether the indirect benefits of connecting vast pools of labor and capital in all sorts of cities is more beneficial than not. Despite increases in cost of labor, foreign and industrial investment in China is still growing and Chinese products see still cheap - which suggests that yes, the infrastructure is doing it's job.



China today isn't following the same fiscal and economic policies it was since before precovid and has been weaning off its reliance on infrastructure development since the late 2010s precisely because these issues were foreseen.

You guys' understanding of China is consistently behind. You're making the same arguments that were being made in 2020 and 2021 (which I can go ahead and find the threads) and ignoring the significant efforts currently being made to solve the issues. (10% reduction in real estate investment in Q1, as per my post above, which is already well below pre-pandemic levels).

Sadly the infrastructure also has to still produce return even if it might not be all monetary. A bridge is as useful as it is used for example. A shiny train or bridge can be just a shiny train or bridge and nothing more if people don't use it as much as it cost suggests.

China talks as if it doesn't follow the same model but what we see is basically the same. If you look at companies like Evergrand or Country Garden or actually 25 out of the top 50 housing developers then you see that they are clearly in a very rough shape. But they can't declare bankrupcy for example since the procedure for bankrupcy in China is super complicated and requires actually local government approval. And this applies not just housing developers for example but many other fields. As I mentioned before, bankrupcy is not something inherently bad. Not doing bankrupcy and just surviving for the sake of surviving with no future ahead basically just bloats the debt to endless numbers (The banks are gonna collapse since government tells them to lend eventually) and prevents any resources being shifted to more productive places/sectors.

As much as we see it from Europe and US, China can't decide what to do. Local government funding is still heavily dependent on land sales which are dropping in value and development volume decreasing while the central government centralises income and is already using it for bailouts of local governments. The whole reason why the local governments even go in to default because Central government sets GDP targets which they fulfill by investment at the start of the year and since everyone in CHina counts GDP as input instead of output everyone inside the country are okay with it. This is a problematic cycle right now. As time goes on, China will have to bailout more local governments but the proverbial shit will hit the fan if China will need to start bailing out local financing vehicles and banks since all those banks are mostly state banks or state controlled banks.

[Fasces]

Sadly the infrastructure also has to still produce return even if it might not be all monetary. A bridge is as useful as it is used for example. A shiny train or bridge can be just a shiny train or bridge and nothing more if people don't use it as much as it cost suggests.

Are you honestly suggesting that rail, port, road, and other infrastructure in China is underused?

If you look at companies like Evergrand or Country Garden or actually 25 out of the top 50 housing developers then you see that they are clearly in a very rough shape.

Oh, you're conflating 'housing' with 'infrastructure'.

requires actually local government approval.

Bankruptcy requires government approval in literally every developed country. Where can you just unilaterally declare that debts no longer apply without a legal judgement?

Local government funding is still heavily dependent on land sales which are dropping in value and development volume decreasing while the central government centralises income and is already using it for bailouts of local governments.

This is the solution to the crisis in action.

The crisis is rooted in that, since the 90s, China hasn't really enforced its tax codes. Income and corporate tax isn't regularly paid. Sales tax is low due to cost of living also being low. The biggest source of reliable income was land sales.

Securing and expanding other forms of government income and using it to bridge the budgetary shortfall in the shortterm while reducing municipal reliance on land sales is the playbook here. The PIGS did it in 2008, even if they still have large underground employment markets. I don't see why you're trying to present the textbook solution as a criticism or claiming that this is 'indecision'... unless you're the type of neoliberal that would go 'privatize it all, and get rid of anything that private investors can't directly monetize' which is certainly a take.

since everyone in CHina counts GDP as input instead of output

Old tropes die hard.

China will have to bailout more local governments but the proverbial shit will hit the fan if China will need to start bailing out local financing vehicles and banks since all those banks are mostly state banks or state controlled banks.

They won't bail them out.

Individuals with accounts and mortgages will get bailed out. Private investors eat the loss, as they should in a market. More stable banks take what's left of the market*. This has been the playbook - in Zhengzhou, in Rizhao, and across Guandong.

*Part of your misunderstanding is that you're continually applying Soviet communism to Chinese socialism. Chinese society is much less centralized that Soviet society was, and has been deliberately since the 1990s when the USSR fell apart. Each city has a dozen 'SEO/Partnered' banks, in addition to larger national and provincial ones. Each municipality is its own legal authority that can declare bankruptcy. The Chinese state provides 'targets' and financial incentives for those 'targets', but it is doing it through a diverse and competitive market of smaller firms and actors. This is in fact why municipalities have fallen into such debt - they're competing with one another.

[late]

Are you honestly suggesting that rail, port, road, and other infrastructure in China is underused?

Some of it is.

High speed rail is very expensive, but China has built it in rural areas where it will be a money pit.

Which is part of a pattern, too much of some things, not enough of other things.

[Fasces]

High speed rail is very expensive, but China has built it in rural areas where it will be a money pit.

If you had your way, entire swathes of rural American country-side would be without internet, roads, trash collection, fire service, etc.

[late]

If you had your way, entire swathes of rural American country-side would be without internet, roads, trash collection, fire service, etc.

I am a Democrat. It was FDR, a fellow Democrat that filled the countryside with roads, schools, electrification, etc...

One can have too much of a good thing.

[JohnRawls]

Are you honestly suggesting that rail, port, road, and other infrastructure in China is underused?

Yes that is exactly the case. Too much was build for too few people in the wrong places. I don't think that there is any sane economist inside or outside China that will dispute this nowadays.

Oh, you're conflating 'housing' with 'infrastructure'.

No, I specifically mentioned that housing and infrastructure are just a symptom of one and the same thing. They are not the same thing. But the reason on why they are built is the same. Re-read my post.

Bankruptcy requires government approval in literally every developed country. Where can you just unilaterally declare that debts no longer apply without a legal judgement?

In China you need local GOVERNMENT approval for bankrupcy. In most Western countries you start a legal proceeding and then the court judges how the assets will be distributed and the debts paid. That is a massive difference.

This is the solution to the crisis in action.

The crisis is rooted in that, since the 90s, China hasn't really enforced its tax codes. Income and corporate tax isn't regularly paid. Sales tax is low due to cost of living also being low. The biggest source of reliable income was land sales.

Securing and expanding other forms of government income and using it to bridge the budgetary shortfall in the shortterm while reducing municipal reliance on land sales is the playbook here. The PIGS did it in 2008, even if they still have large underground employment markets. I don't see why you're trying to present the textbook solution as a criticism or claiming that this is 'indecision'... unless you're the type of neoliberal that would go 'privatize it all, and get rid of anything that private investors can't directly monetize' which is certainly a take.

Doesn't matter on why. Doesn't matter that PIGS also did it. It only matters how is China going to get out of the problematic cycle. PIGS got out of it. Some did it worse, some did it better.

They won't bail them out.

Individuals with accounts and mortgages will get bailed out. Private investors eat the loss, as they should in a market. More stable banks take what's left of the market*. This has been the playbook - in Zhengzhou, in Rizhao, and across Guandong.

*Part of your misunderstanding is that you're continually applying Soviet communism to Chinese socialism. Chinese society is much less centralized that Soviet society was, and has been deliberately since the 1990s when the USSR fell apart. Each city has a dozen 'SEO/Partnered' banks, in addition to larger national and provincial ones. Each municipality is its own legal authority that can declare bankruptcy. The Chinese state provides 'targets' and financial incentives for those 'targets', but it is doing it through a diverse and competitive market of smaller firms and actors. This is in fact why municipalities have fallen into such debt - they're competing with one another.

Good question actually.

Realistically my opinion on this is that China can not not bailout local governments because otherwise economic growth will go in severe decline since Chinese inner investment will stop. Chinese government investment is still needed in the future and the whole idea to kill it is insane but it needs efficiency. The economy is dependent on that and the manufacturers are dependent on the demand that that investment produces. So I don't think that China has an option here.

On the other hand, I am not sure how to deal with the whole developers-local financing vehicles-construction sector-banks problem. At the end of the day, somebody has to eat up the loss. You can concentrate it or you can spread it out. You also need to prevent further loss so a solution that one way or the other will involve bankrupcies and people loosing jobs and somebody loosing a lot of money. I would summarise it like this:

1) The hole is growing with the debt issue. This whole "problem" started with the 3 red lines(well earlier but everyone noticed it then) because China understood the problem but then they backtracked because it caused severe damage to the economy. Sort of like be damned if you do and be damned if you dont't. The problem is just getting worse.

2) Is it even possible to bailout. When bailout happened in US circa 2007-2008 then it was done through liquidity that multiplied the bailout amount. Basically depending on the number provided it was multiplied that saved the system overall. Can China do something similar? What are the numbers?

3) What is the plan in moving forward? Any solution to this right now will blow up GDP and decrease it. Right now the GDP numbers sort of look okay because the enterprises are still digging holes and filling them in at a smaller scale. If they are gone then something needs to replace them. What is the plan? Deflating the Yuan? That is rather uncreative and will destroy nominal gdp and consumption ability of the population while giving manufacturers an edge. But that still leads China to the same problem it is facing now without an answer.

[Fasces]

Yes that is exactly the case. Too much was build for too few people in the wrong places.

Beyond white elephants designed to promote national unity in Tibet and Xinjiang, can you name a specific project you have issue with?

I don't think that there is any sane economist inside or outside China that will dispute this nowadays.

A preemptory true sane economist.

In China you need local GOVERNMENT approval for bankrupcy. In most Western countries you start a legal proceeding and then the court judges how the assets will be distributed and the debts paid. That is a massive difference.

My brother, what is the court if not a government institution?

Which 'local government institution' in China handles bankruptcy for the majority of enterprises? (hint, it rhymes with fort - 2007 Enterprise Bankruptcy Law)

If we want to complain about bankruptcy in China, I'd start with the fact that outside of two or three cities personal bankruptcy is not a thing and family debt is.

What is the plan in moving forward? Any solution to this right now will blow up GDP and decrease it. Right now the GDP numbers sort of look okay because the enterprises are still digging holes and filling them in at a smaller scale. If they are gone then something needs to replace them. What is the plan? Deflating the Yuan? That is rather uncreative and will destroy nominal gdp and consumption ability of the population while giving manufacturers an edge. But that still leads China to the same problem it is facing now without an answer.

Clamping down on foreign capital loopholes, coupled with slow onboarding of enforcement of existing tax regimes. I have personal experience with this, through my business registered in Weifang and my personal income tax from working full time in China.

Basically, over the past four years (starting in 2019), China has been offering generous tax reimbursement packages to get people to register their income through the Tax Agency. This has created a large dataset to draw from, to corroborate the number of firms and workers in a country and diminish the gray market. In conjunction with this, there have been much more stringent reporting requirements made of companies that are required to be done each year - even we have to have an accountant on hand to handle the audit these days. China is a position that the other PIGS were not - because it has so much centralized control over 'big data' in the country, it is very easy to track/trace when a firm receives payment, when they pay out their workers, what their workers spend the payment on, etc, and thus very easy to corroborate whether taxes are being filed correctly.

ATM, China is using a stick to get people on board. I paid 22% income tax as a base for 2023, but with rebates, ended up paying around 12%. One interesting anecdote is that when I applied for my rebate, my employer, who had not actually been paying taxes, got called up by the PSB and there was a whole small thing where I had to withdraw my rebate request and wait for them to catch up on the paper. Now they'll probably be flagged for intensive review for a couple years, but this is how China is basically getting its books in order.

Once this process is done, it will have a viable revenue stream to replace the money lost by development taxes. The problem then becomes one of what investment vehicles can China offer to its citizens outside real estate, as folks don't particularly trust the stock market and capital controls prevent investment abroad. They're obviously expecting that without an alternative of real estate investment, they'll essentially have no choice but to jumpstart domestic investment in its financial sector, and markets - which they likely will. People won't just stop investing, in the long term.

[JohnRawls]

@Fasces

Out of 33 Chinese administrative divisions/provinces(34?35? Not sure how many disputed territories China has but we are not here to argue about this), there are 5 divisions/provinces that are more or less in bankruptcy I think if I remember correctly. The easiest way to find a list would be to start with those 5 provinces/divisions in the last 5-10 years. I can obviously google the basics but then you will just say propaganda bla bla. If you are interested then because you know Chinese it won't be hard for you to dig the info up and the compare to what they already have in the same regard. The ones that come to mind are obviously the high speed rail that everyone talks about that is in massive debt right now. Building it in major cities is okay but building it outside is a questionable venture. That is why Europe and US doesn't really do it or at least does it in a very limited way. There has to be a business argument for it.

As for bankrupcy. I am not sure if you are intentionally playing here but one process involves GOVERNMENT APPROVAL to go in to bankrupcy while in the West it is a legal procedure that starts and ends. There is no approval involved just a decision. In Western countries we have seperation of power also so legal branch is not the same thing and has different interests compared to the executive/governing branch. And in China you basically get approval from the executive branch and then the proceedings start. I am not sure how it is one and the same thing. The point of bankrupcy is that it is easy to start and it has an end in a reasonable timeframe as a mechanism. In China, since laws are a bit different it is both not easy and not fast by the looks of it. This sometimes gets brought up on the whole subject of debt. It is not an argument that you often hear but I believe it is sort of very relevant to the current situation. For example Evergrande went in to Bankrupcy in Hong Kong but it doesn't mean that mainland will accept that for the mainland. So its a weird situation when Evergrand is bankrupt and Hong Kong but still not in the mainland by the looks of it.

As for taxes situation. Well, if taxes are not paid now then if they start getting paid at a later date then this doesn't solve the question of economic development model. It is just taxes at the end of the day, they still need to be put to good use in a efficient manner. The local financing vehicle thing is not bad by itself. It is bad when it leads to economic problems which it does now. Lets say China gets the optimal tax system or whatever and gets an okay tax rate and there is no corruption etc etc etc that they manage to cover the losses from the financing vehicles basically get the same revenue just without the financing vehicles but then what. Even debt magically disappears that has pilled on, I don't know the world bails out China and all its debt for free. The ideal situation.

More taxes is still a burden on the economy compared to them not paying it. Taxes are centralized to central government and then central government decides what to do with it so local governments are still out of the loop and I doubt China will reform this part with the CCP still around. China is not Europe or US after all. Strong central control is the whole point of such a system. And then there is a question of what to invest that money in to not to create another bubble again that will realistically replace the losses from the above.