In today’s world, anyone serious about anti-imperialism, global development, and monetary sovereignty needs to break through the well-funded US propaganda machine and develop a fact-based, nuanced understanding of China. 

To this end, Steve asked Yan Liang to come back to the podcast to look at China through the MMT lens, analyzing its economic management, global role, and response to Western villainization. They discuss China’s development ethos and describe China as a state that actively uses its monetary and fiscal sovereignty to guide development towards internal goals (poverty alleviation, technological self-reliance, common prosperity) and external partnership (Win-win cooperation, Belt and Road Initiative).  

Illustrating the difference between state steering and the so-called “free market,” the conversation goes into China’s mobilization of real resources through strategic state guidance, like Five-Year Plans and state-owned enterprises in key sectors.  

Yan talks about the use of capital controls and a managed exchange rate. She details lessons from 2015 and the application of MMT principles to insulate domestic policy from volatile external forces. 

Without romanticizing China, Yan also walks through its real challenges. But from an MMT-aware lens, these are seen as problems of policy design and resource use (issues a sovereign, planning-oriented state can address!) rather than proof of an impending collapse. 

Yan Liang is Peter C and Bonnie S Kremer Chair Professor of Economics at Willamette University. She is also a Research Associate at the Levy Economics Institute, a Non-Resident Senior Fellow at the Global Development Policy Center (Boston University), and a Research Scholar of the Global Institute for Sustainable Prosperity. 

Yan specializes in the Modern Monetary Theory (MMT), the Political Economy of China, Economic Development, and International Economics. Yan’s current research focuses on China’s development finance and industrial transformation, and China’s role in the global financial architecture. 

https://www.linkedin.com/in/yan-liang-1355b91a2/ 

@YanLian31677392 on X 

STEVE GRUMBINE:

All right, folks, this is Steve with Macro N Cheese. And today's guest

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is Yan Liang. We have had her on quite a few times and

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she is one of my favorite MMT economists, but she's also focused heavily

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on on China and because, you know, we're watching China do amazing things.

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Now, I'm not here to tell you China's perfect. Everything has got warts.

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Everything's got its own shortcomings. I don't know what they all are, and

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I'm not here to proclaim them. But what I am here to do

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is watch the absolute majesty of production that is going on in China,

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the real genuine progress that has been achieved for so many people in

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China. "Now, whether you want to complain and say, "oh, Steve, that's not

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real socialism or whatever, that they're really capitalist, Steve" and it's like, well,

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somebody come back and say "it's socialism with Chinese characteristics" is how they

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would claim it. And then the flip side is, as an MMT podcast,

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as an MMT organization, we also understand the way that currency works. We

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understand the way that nations that create their own currency or have their

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own currency, their own legal unit of account, that they do things in

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a way that seems mystifying to the average person. And we've tried to

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talk about this through the lens of BRICS. I think we've even talked

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a little bit about it through the lens of what we get wrong

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when we think of China. We've had several folks come on to discuss

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this, from Carl Zha to my guy [Vincent] Huang, and we've had several other guests

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that have really, really brought out other aspects of. But today I really

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want to focus on the convergence of MMT and socialism with Chinese characteristics.

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And that will be our discussion point today. So without further ado, my

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guest Yan Liang is Peter C. And Bonnie S. Kremer, Chair professor of Economics

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at Willamette University. She is also a research associate at Levy Economics Institute,

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a non-resident senior fellow at Global Development Policy Center, Boston University, and a

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research scholar for the Global Institute for Sustainable Prosperity where Fadhel Kaboub and

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Matt Forstater and others, you know. Yan specializes in MMT, the political economy

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of China, economic development and international economics, which fits well right into the

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conversation we have today. Yan, thank you once again. Thank you so much

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for joining me.

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YAN LIANG:

Yeah, thank you, Steve, for having me again. It's always a pleasure to talk to you and your community.

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STEVE GRUMBINE:

I appreciate that so much. This is challenging, right? I mean, a lot of people,

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they read the newspaper, they hear our politicians in the US they heard Joe Biden,

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they've heard Donald Trump. All they do is demonize China. Like somehow or another China

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is coming in and trying to hurt us. They're our enemy and so forth. And

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I didn't buy it when Biden said it at the State of the Union. I

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didn't buy it when Trump started ratcheting up the tariffs. And I still don't buy

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it. And I plan on never buying it until evidence creates some form of fact-based

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trail that leads me to that. But I don't see any of those things. In

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fact, my own very small, narrow window of view of a month journey into China

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and you know, I got to go to Beijing University, I got to talk with

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various individuals and different intermediaries and so forth. And I've been nothing but impressed. I

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know that there are problems, but I'm living in a country, we're living in a

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country, you're living in a country that is full of just downright austerity and economic

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ignorance. And quite frankly, I don't think of it as ignorance. I think of it

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as a weapon. I think of the economic violence being wrought on the citizens of

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the United States and really with our imperial strategy, ends up being violence against the

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rest of the world to maintain markets, to maintain access to real resources, to open

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markets for the oligarchy that Bernie Sanders is claiming to fight right now. All these

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things, you have to keep them, I think, together. I don't think you can Balkanize

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them and cordon them off. And we're going to look at this little teeny thing

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here because they all connect. And China is being labeled as an imperialist nation. And

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I don't see any of that. I don't see any of that. And if it

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is empire, it's a very soft empire because it seems to want win-win solutions for

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people. Help me understand, if you will, kind of what China's driving ethos is towards

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its economic development and its approach to international economics.

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YAN LIANG:

Right? So I think China to many people is a, some sort of a myth.

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YAN LIANG:

Right? And I think you're right. I think the you Know, sort of the mainstream

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YAN LIANG:

media really doesn't help to provide the clarity and the facts to allow us to

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really understand China most of the time. I think the Western narrative, it demonizes China

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for all kinds of reasons, right? Out of ignorance, out of a specific political agenda

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and so on, right? There are many people who have never set foot in China,

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and yet they seem to say, you know, China is this poor third world country

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and it's repressing its people. And, you know, there are a lot of these kind

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of spews on X. But then there is also people who understand, you know, China's

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rise, but they're really worried about China as a threat, right? China's steals our lunch

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and so on and so forth. And so they demonize China because they want to

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YAN LIANG:

shift expectations, you know, making China, quote, unquote, "un-investable" so it can in some ways

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YAN LIANG:

dampen its economic growth. So I think you have all these kinds of motivations, but

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YAN LIANG:

I think for me, China is a reality. China is a 1.4 billion people, you

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YAN LIANG:

know, country, right? And it's striving to achieve sustainable development and try to lift its

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people out of poverty and provide certain level of living standards for the people. It

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is right now the second largest economy in the world. And by some standards, it

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has been the largest economy for a while, right? If you use a PPP [purchasing

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power parity] measure, for instance, and it's undeniably a manufacturing superpower, it is now also

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really quickly climbing up the value chain, becoming a technological leader. It is also one

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of the major driver of the global renewable energy campaign, right, to achieve accelerated green

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YAN LIANG:

transition. But yes, China has very different political, economic, cultural value systems. And so I

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YAN LIANG:

think with the difference, this is also one of the reasons why there are people

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who either romanticize China or demonize China. But I think, you know, as a scholar

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and I think as activists, we really need to understand China as what it is,

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right? Learning from its strengths and in a way avoid some of the mistakes that

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it has made, right? In its own sort of development past. And also I think

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it's important to really engage with China. Like any other countries, China has its own

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interests, right? But China is also trying to gain, you use the word soft empire,

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right? Or it wants to really get the recognition from the global community. And China

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also increasingly trying to get into position where it doesn't always just follow the rules

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that are being imposed on it. It wants to be part of the rulemaking. So

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YAN LIANG:

all of this just to show that, you know, China has its own interests. It

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has its own agenda. So far, I think what China has done not only helped

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to benefit its own people, right? Lifting over 800 million people out of poverty, I

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mean, that is really unprecedented accomplishment in human history. So I think we need to

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acknowledge all of this and also understand yet China wants to have a role to

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play in the global landscape. And so far I think again, through BRI [Belt and Road

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Initiative], through its partnership with other countries at platforms like BRICS, SEO and with ASEAN

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countries and so on and so forth, it seemed to be benefiting, I think by

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and large the global community. And of course there are people who argue China can

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do more or China can work on some specific areas like for example debt relief

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for many of the African countries. And again China has been doing that. So I

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think we need to have a balanced and really fact-based understanding on China and I

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think that is to our own benefits. If you really think China is going to

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YAN LIANG:

collapse tomorrow, you'll be wrong and surprised again and again when China fights back.

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STEVE GRUMBINE:

Yes.

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YAN LIANG:

When for example, the United States think that they have all the cards, right, and China

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YAN LIANG:

goes, "well, I made those cards." So I think this is really problematic when we try

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YAN LIANG:

to downplay, right, China's power and the value that China brings to the world economy. And

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at the same time, again, I think we should also try to avoid the other extreme,

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right, which is to say that whatever China does is correct and whatever China does, we

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need to support. I think there are still a lot of agency for the rest of

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the world, right? And also I think for scholars within China to in a way sway

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China's policy. I believe, you know, China gets the right directions when it comes to sustainable

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YAN LIANG:

development, common prosperity and when it comes to the global economy, you know, China's strive for

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YAN LIANG:

renewable energies, for technological breakthroughs. I think all of these are the right directions. But still

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I think we could hold China accountable and we could see where China's strengths and weaknesses

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are. So then we'll be able to more productively and efficiently engage with China, knowing what

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China wants and knowing, you know, what China's trying to achieve, right? So then I think

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we would be able to engage with China better. So that's why I think genuine understanding

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of China is very important. And you ask some of the drivers and again, I think

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China so far has been really, you know, trying to better manage its economy, right? Socialist

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is to achieve the relatively middle high income level for its citizens and try to bring

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be more self-reliant on core technologies and upgrade its traditional sectors and so on and so

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forth. So a lot of these are internal development driven goals. And then externally, like I

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said, right, it wants to in a way partner with the Global South countries to develop,

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you know, these kinds of alternative development paths to be more sustainable, more inclusive and also

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YAN LIANG:

to really get some kind of say right at the international negotiation table when it comes

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to trade rules, investment technologies and so on. So I think that is what really drive

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China's moves, right? When it comes to its policies, when it comes to its plannings, and

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YAN LIANG:

also when it comes to its engagement with the rest of the world, be it with

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the United States, Europe or Global South countries.

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You know, we see in the United States that there's absolutely a weird

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kind of pushback against any kind of interference from government on capital controls

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or you know, people act like, "well if we sell these bonds and

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stuff like that, then they're just going to buy up the country." Failing

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to understand that the United States government could easily pass a law saying

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no foreign entity can do xyz, and voila, guess what? They can't do

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it anymore. Right? China does these things. It protects itself. It protects itself

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from billionaires, it protects itself from interests that don't serve China's interests. It

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puts China first. Can you talk a little bit about that?

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YAN LIANG:

Well, yeah, I mean, honestly, the United States does have very heavy dose of state

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YAN LIANG:

intervention, right? All this idea about free market, I think it's completely a myth, you

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YAN LIANG:

know, think from [James K] Galbraith, the sort of predator state, right. Or you know,

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YAN LIANG:

Dean Baker had this nanny state and I think, you know, for MMT, we also

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really understand the state holds a lot of power. It writes the rules, right, for

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the market. So I think for the United States it's not that there is no

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government interventions or management of the economy, but really is that they use the kinds

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of state tools to advance the interests of financial elites and to gain private profits.

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Right? It's whole idea of, you know, the US is a socialist economy in the

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sense it only socialize the costs of doing businesses or making profits and they privatize

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YAN LIANG:

all the gains. Right? The profits in that sense. So I think, you know, yes,

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YAN LIANG:

the United States actually has all these rules to scrutinize foreign investments within the United

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YAN LIANG:

States. Right? So, you know, at the state level there are many states that preclude

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YAN LIANG:

China's investments in any land ownership. And we also see starting early on from Biden

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administration, you also see the US basically prohibits China's investments in tech companies and, so

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on, so forth, right? And also our investment, there's also scrutinization where private equities or

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some companies are not allowed to invest in certain sectors in China. So there are

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a lot of these rules. It's not that the US is not doing it, it's

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just that they're doing it not for the interest for the great majority of the

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people. They're really trying to protect certain interests. They're trying to really privatize the gains

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and try to protect their businesses away from China's competition. Again, using all kinds of

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excuses, right? It could be this is the CPC's agenda, trying to take over the

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economy and so on and so forth. I can give you two specific examples, right?

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One is very recent. Trump's administration banned Nvidia to export the H20 chips, right? One

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YAN LIANG:

of the relatively high end, not the highest end, GPU chips, the AI related chips

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to China. And claiming this is for natural security reasons, right? But after certain negotiations

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from, you know, Jensen Huang and after certain considerations, the Trump administration then decided, "okay,

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yes, you can export to China these H20 chips, but you have to give me

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a 15% cut." I'm not joking. This is what a US government, right? This is

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YAN LIANG:

Trump's administration said, "oh, you can't sell because it's national security. Oh, never mind. If

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YAN LIANG:

you give me 15%, yes, go ahead and sell those H20 chips." [Payola, huh?], Yes,

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you have to scratch your head. What is going on right now, right? So this

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is one example that you can see the government does interfere, right? Or does in

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a way intervene in the economy, but not for the purpose that you would like

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it to be. And the other example is, again, with all these tariffs, right, back

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and forth, and Trump has been doing this now in the most recent days, right?

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YAN LIANG:

They started to exempt over 100 food products from tariff, right? Now again, when you

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think about this, this is quite interesting because the tariff, especially all these reciprocal tariff

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YAN LIANG:

that Trump imposed was largely based on the IEEPA, right, the International [Emergency Economic Powers]

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YAN LIANG:

Act that says all these imports create some kind of national economic emergency that allowed

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YAN LIANG:

Trump to impose all these blanket tariff on other countries. But then you also ask,

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YAN LIANG:

well, all of a sudden, now all these a hundred tariffs are gone, so what

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YAN LIANG:

happened to the national emergency now, right? Are these still emergency or not? So I

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YAN LIANG:

think what it shows is that this whole idea of national security or emergency that

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justify government's interventions and especially I'm talking about the executive branch, right, because none of

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YAN LIANG:

these tariffs are approved or sanctioned by the Congress, is Trump is the presidency that

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impose all these tariffs, right, in the name of emergencies or national security threats. But

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YAN LIANG:

then you can see how he easily take this on or off, right, based on

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again, various considerations. The most recent one I think again is this really outcry of

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affordability crises. And don't forget Trump used to call these the Democratic con jobs. He

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YAN LIANG:

does not believe the so-called affordability crises, right? Until I think really the kinds of

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protests, the kind of outcry is getting so sweeping that he cannot avoid and cannot

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YAN LIANG:

hide it anymore. Then he said, "well, this is Biden's fault" right? And so he's

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doing something which is basically exempt the tariffs that he himself imposed and said, "now,

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you know, I'm working on it, right? I'm helping the economy. I am reducing crisis

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YAN LIANG:

by 300%, 600% or 900%." So next time you go out to buy a drug

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YAN LIANG:

or a medical prescription, right, Steve, you're supposed to get money back because that's how

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the math is going to work. So I think all of this just shows that

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the US does have a active government. It's just not working in the interest of

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the general public. Now, I know your question is really asking about China and I'm

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sorry for going on much on the U.S. 

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STEVE GRUMBINE:

No. It's all related. 

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YAN LIANG:

Right? Because if you just see the kinds of glaring, you know, contradiction and irony

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YAN LIANG:

in terms of, you know, this idea that the US is a free market economy

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right now, China does not shy away from the so-called, you know, central planning, right?

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YAN LIANG:

That the government does play a very heavy role in the economy. For example, the

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15 five-year plans. So as you know, China had this five year plan since very,

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China, that the Chinese government has been doing this five year plan and that is

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also, I would say enveloped right within this much bigger also long term goal. Like

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have these very long term goals that they see themselves to sort of work towards.

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And then they break that down to five year plans. And then with every five

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year plan they again issue, every year they launch these kinds of policies at the

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National People's Congress. So then have the annual planning and then five year planning and

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then the much longer term planning. So for the very high level, right, the government

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is providing guidance to the economy in terms of the big directions. So the five

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year plan, you know, from the very beginning it has a lot of production quotas.

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much more qualitative planning. So set the big direction for the economy. And so the

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language actually changed in Chinese from the so called Wǔnián Jìhuà so five year plan to

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YAN LIANG:

really Wǔnián Guīhuà. Right? So one word difference, which means the five year guidance. So again, but

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YAN LIANG:

it does provide these long term, big brush kind of plan for the economy. So

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the most recent iteration is to emphasize again we wanted to upgrade the traditional sectors

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with these technologies and we wanted to achieve more technological breakthroughs and self reliance. We

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wanted to invest more in the people, to have the people-centered development and also high

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level opening, deepen reforms and opening. So these are really the sort of the big

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picture of how the government wants the economy to go in that five year period.

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So this is just one example, right that how the Chinese government steered economy toward

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a certain direction. And then we can talk about some of the specific, right, the

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measures. But yeah, I'll pause here.

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STEVE GRUMBINE:

No, I just remember years and years ago that the big knock on China was

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that they were currency manipulators. They had pegged their currency. I think it was like

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7 yuan to $1 or something like that. I think that was the peg. It

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was like nine or seven. I can't remember which it was when I was over

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there. I just remembering the exchange rate and there was all these complaints about they're

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manipulating their currency and saying now I'm looking back on it, I'm like what do

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they even mean by that? I think the point I'm making is that China has

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always protected itself. And I don't mean like as in with weapons and guns and

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tanks and planes and big huge, you know, aircraft carriers coming around Venezuela for no

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reason. I'm talking about like they just build their policy space and the actions they

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take appear to be protecting what are some of these protections that they're doing like

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internally to prevent the kinds of things that are happening in the US if you

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will? I mean it seems like such a radically different mindset of prosperity for real,

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not necessarily investor grade prosperity, but more like just quality of life investments. Am I

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missing something there? It feels radically different when we talk about Chinese protectionism or Chinese

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nationalism or what the value system is that drives what they're doing. Going back to

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the five-year and the 15-year plans and the kind of guidance and so forth. It

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really does seem like at least the purpose is to make life better. But what

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STEVE GRUMBINE:

are the barriers they're putting in to prevent bad actors from taking advantage and to

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STEVE GRUMBINE:

wrecking the kind of sauce, if you will? I mean, Elon Musk as an example,

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STEVE GRUMBINE:

just secured a $1 trillion payout from Tesla, I guess it was. Just ridiculous. I

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STEVE GRUMBINE:

mean, shameful. That's not really happening in China. People start trying to milk the system.

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STEVE GRUMBINE:

I mean, I'm hearing that they really don't deal with that very kindly.

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YAN LIANG:

Yeah, absolutely. I think that gets very good to the point about using

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YAN LIANG:

some specific examples, right? To see how the Chinese government plays a very

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YAN LIANG:

important and I would say beneficial role, right, in managing its economy. So

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YAN LIANG:

I think your prompt, I think, has two aspects. One is how China

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YAN LIANG:

protects itself from external risks. And then internally also how China, you know,

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YAN LIANG:

unlike in the U.S. right, giving this $1 trillion package, right, to CEO.

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YAN LIANG:

And again, a board of trustees approved this package, but of course with

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YAN LIANG:

certain conditions that I'm not sure Elon Musk is actually able to meet.

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YAN LIANG:

Well, we can talk about that later. But sort of internally, right, how

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YAN LIANG:

the Chinese government is in some ways using these capitalists or entrepreneurs, right?

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YAN LIANG:

But really, I think in a way both guide them and provide certain

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YAN LIANG:

guardrails to allow them both to thrive, but also really serve the purposes

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YAN LIANG:

of the party of the people. We can start with the sort of

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YAN LIANG:

the protecting itself against external sort of risks. And I think this is

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YAN LIANG:

very important because we do know the world that we live in, right?

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YAN LIANG:

This is still a very much dollar, you know, hegemon kind of a

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YAN LIANG:

monetary or financial architecture, right, at the global level. And so I think

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YAN LIANG:

the protection is inevitable. So as you probably know that China has the

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YAN LIANG:

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YAN LIANG:

its so-called current account, right? So in other words, if you want currency

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YAN LIANG:

conversion for trade purposes, then you are allowed to do that. So you're

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YAN LIANG:

allowed to have the assets for foreign currencies. If you are, you know,

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YAN LIANG:

paying your imports or when you receive your export revenues, you can convert

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YAN LIANG:

your foreign exchanges into, you know, the Chinese yuan, that is very much

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YAN LIANG:

sort of less regulated. But the capital account control, which is like you

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YAN LIANG:

said, the capital flows, right? So when foreigners want to invest in China's

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YAN LIANG:

stocks and bonds and other financial instruments, they're very much regulated, right? China

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YAN LIANG:

encouraged foreign direct investment, but it puts heavy controls on portfolio investment and

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YAN LIANG:

when it comes to exchange rates... So China never shied away from saying

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YAN LIANG:

that it has a managed exchange rate system. Right? And again, it's very

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YAN LIANG:

important that China remains this kind of control on exchange rate and capitals.

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YAN LIANG:

They really learned a lesson from, you know, both the Mexican and other

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YAN LIANG:

Latin Americans debt crises in the mid-90s and also '80s. They also learned

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YAN LIANG:

a hard lesson, I think from the Asian financial crisis in the late

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YAN LIANG:

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YAN LIANG:

remove the control on your exchange rates, you subject yourself to a lot

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YAN LIANG:

of volatilities, right, of these international capital inflows and outflows that could both

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YAN LIANG:

revalue your currency in a short period of time and hurt your exports.

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YAN LIANG:

But more importantly, it could cause devaluation of your currency in a short

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YAN LIANG:

period of time when you experience capital flight.

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YAN LIANG:

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YAN LIANG:

tried to lower their currency fixing by about 15%. So in other words, they

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YAN LIANG:

artificially devalued the currency by 15%. Well, guess what happened? Again, this is sort

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YAN LIANG:

of in the context where like you said, many countries or many government officials

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YAN LIANG:

and advisors in the U.S. right, that accuse China for being a currency manipulator,

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YAN LIANG:

keep its currency artificially undervalued. That was excuse, right? Some say that the currency

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YAN LIANG:

is undervalued by, you know, 40%. And you hear very recently, one of the

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YAN LIANG:

prominent economists in the center for [Council on] Foreign Relations, the CFR, also argued

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YAN LIANG:

that Chinese currency should revaluate by 20% to be able to, you know, adjust

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YAN LIANG:

the so called global imbalances. Okay, so the long story short, China does lower

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YAN LIANG:

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YAN LIANG:

happened is that there is a very, very large amount of capital outflow. Whereas

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YAN LIANG:

the currency seemed to on a free fall that year. The stock market tumbled.

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YAN LIANG:

There's a large amount of carrying again capital outflows to the extent that the

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YAN LIANG:

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YAN LIANG:

its foreign exchange reserves to sell these reserves to the market in order to

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YAN LIANG:

stem the capital outflows and to really prevent the free fall of its currency

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YAN LIANG:

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YAN LIANG:

sell around $500 billion of foreign exchange reserves to stabilize the currency value. Right?

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YAN LIANG:

Now just think about this. China was able to do it because it had

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YAN LIANG:

over $3 trillion worth of exchange reserves at that time. So China was able

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YAN LIANG:

to defend its currency value. Now think about if this happened to another country

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YAN LIANG:

that did not have this much of foreign currency accumulation. You could easily see

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YAN LIANG:

a free fall of the currency, right? A devaluation crisis, hyperinflation and collapse of

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YAN LIANG:

its a financial system and so on and so forth. So I think this

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YAN LIANG:

just again taught China a lesson that this whole idea of, you know, capital

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YAN LIANG:

liberalization is really, I would say a Western agenda, a Washington consensus kind of

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YAN LIANG:

agenda, right? And it could bring tremendous risks and uncertainty and harm to its

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YAN LIANG:

economy. So I think that's why China keeps trying to manage its exchange rate.

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YAN LIANG:

Now, I will counter the kinds of argument that China undervalue its currency by

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YAN LIANG:

20% or 40% and so on and so forth. Again and again, what we

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YAN LIANG:

saw was when China, you know, lifted control on its currency, it's not necessary.

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YAN LIANG:

The currency is going to appreciate. There's a very large chance that the currency

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YAN LIANG:

actually could devaluate. Right? Especially if you think about, like you said there, the

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YAN LIANG:

potential, you know, bad actors that try to speculate, right, on the Chinese currencies

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YAN LIANG:

and so on and so forth. So I think a managed currencies, a managed

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YAN LIANG:

capital account is to the interest of China, and I think it's in the

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YAN LIANG:

interest of many, many other countries as well. And I think, you know, even

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YAN LIANG:

in the United States, people like [Trump Council of Economic Advisors Chair] Steve Mirren

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YAN LIANG:

were saying that we might want it to control the capital flows because if

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YAN LIANG:

there are too much, you know, capital inflows, this could, you know, appreciate the

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YAN LIANG:

US Dollar and that could undercut the US export competitiveness. So I think, again,

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YAN LIANG:

all of this just to say that the government should play a role in

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YAN LIANG:

managing some of these very important economic, I want to say these kinds of

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YAN LIANG:

tools in order to protect this economy, to stabilize its financial order, to prevent

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YAN LIANG:

this external vulnerability. Now, internally, I also think the Chinese government is telling some

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YAN LIANG:

of its tech entrepreneurs that we would like for you to innovate. Innovation is

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YAN LIANG:

a good thing, and we encourage you to do this. Right? China just passed

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YAN LIANG:

the Private Enterprises Promotion Law, again, trying to protect the legitimate interests and rights

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YAN LIANG:

of these private entrepreneurs. But at the same time, the Chinese leadership makes it

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YAN LIANG:

very clear that, you know, your technological innovation should be aligned with the government's

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YAN LIANG:

strategic goals and interests. We don't want you to do too much of, you

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YAN LIANG:

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YAN LIANG:

that is very important. Yeah. So use technologies and encourage private entrepreneurs. But again,

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YAN LIANG:

make sure that your interests are aligned, right, with the national, you know, developmental

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YAN LIANG:

interests. Not to speculate and, you know, not to exploit people. For example, the

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YAN LIANG:

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YAN LIANG:

the government basically cracked down on some of the fintech, like the end financials

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YAN LIANG:

and some of the super apps. Right? The platforms where they do rideshare and

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YAN LIANG:

ask them to protect more labor's rights and so on and so forth. So

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YAN LIANG:

this is an indication that, yes, entrepreneurs are encouraged to do innovations, but, you

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YAN LIANG:

know, they need to make sure they contribute to the economy rather than simply

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YAN LIANG:

just for, you know, personal or financial gains.

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STEVE GRUMBINE:

Right on. So, Yan, when we're moving through this and folks are watching

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STEVE GRUMBINE:

the news and they're listening to their favorite podcast or their favorite mainstream

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STEVE GRUMBINE:

television station, or they're listening to their President of the United States, where

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STEVE GRUMBINE:

would people want to look to really, really get informed information about China?

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STEVE GRUMBINE:

Because what I'm seeing right now, it's almost lockstep. There is no deviation

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STEVE GRUMBINE:

in the narrative. It is a institutional arrangement. I believe it is part

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STEVE GRUMBINE:

of what Gramsci would call cultural hegemony, where this is just sort of

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STEVE GRUMBINE:

the common sense that they're preaching and it spreads like wildfire. Absent of

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STEVE GRUMBINE:

facts, absent of insights. Where would they want to go? Where would be

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STEVE GRUMBINE:

a good place for folks to learn more about China with less of

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STEVE GRUMBINE:

the propaganda? Obviously, we're trying to do a good job here on this

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STEVE GRUMBINE:

podcast, but on a larger level.

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YAN LIANG:

Yeah, I was just going to say, right, I think for the general public, the

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YAN LIANG:

platforms that you run here and others. Right? The more progressive thinkers, you know, for

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YAN LIANG:

example, they're trying to report. Some of these places are where you can find, I

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YAN LIANG:

think, more genuine understanding right, of China's economy and engage China in a much more

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YAN LIANG:

balanced way. Other podcasts, Sinica, for example, and Trivium Podcast, some of these are, I think, in

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YAN LIANG:

a way much, much more balanced right, than, you know, places like Fox or other

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YAN LIANG:

outlets. And I think for more sort of scholarly kind of work. Right? I think

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YAN LIANG:

looking into China's own scholarly work, I think that is the way I would go.

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YAN LIANG:

Right? And I think more and more the scholars in China, they don't just publish,

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YAN LIANG:

you know, in Chinese, and they actually also have a lot of English language kinds

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YAN LIANG:

of publications where people can learn about their work. So I think the main point

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YAN LIANG:

here is to, you know, get different takes, right? Get different sources and perspectives. If

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YAN LIANG:

you get mostly from the mainstream, even places like NPR, I think a lot of

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YAN LIANG:

times they don't seem to have much more in depth understanding these days. So I

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YAN LIANG:

would say, yes, you would have to explore different places where you get your information.

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YAN LIANG:

But also I think looking into even Chinese's own, you know, media sources or scholarly

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YAN LIANG:

community kinds of products. So in a way you can be more, you know, balanced,

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YAN LIANG:

right? There are people, of course, would say, you know, places like Global Times or

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YAN LIANG:

the China Global TV Network [CGTN], they are the Chinese propaganda. But what I would

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YAN LIANG:

say is, you know, if you keep getting stuff from US mainstream media, then getting

395

YAN LIANG:

a little bit other extreme right, wouldn't be a bad thing, right? Because then you

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YAN LIANG:

really kind of see how these kind of different perspectives could intersect or interact. So

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YAN LIANG:

you can get a little bit more sort of a balanced view in that regard.

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YAN LIANG:

So I think, again, I'm not blaming people for not getting the right source of

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YAN LIANG:

information because it is very difficult. The US Congress has authorized, I believe it's a

400

YAN LIANG:

$1.6 billion budget for anti-China propaganda, right? And so they literally, you know, giving out

401

YAN LIANG:

money to people to do videos or do podcasts. I think at one point I

402

YAN LIANG:

read some stats about the giving money to people from Africa, for example, the bloggers

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YAN LIANG:

or YouTubers to produce, you know, one anti-China  propaganda video for $7,000 and something like

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YAN LIANG:

that. So it is a big machine out there that try to spill, right, all

405

YAN LIANG:

these anti-China narratives and propaganda. So I think it's difficult for the general public that

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YAN LIANG:

you're not every day thinking about what is behind all these narratives or what is

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YAN LIANG:

behind all these rhetorics and what is behind all these propaganda to really get the

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YAN LIANG:

right source of information. So it is a difficult undertaking. But I again, would encourage

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YAN LIANG:

people to do that because again, day in and day out, when you get this

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YAN LIANG:

wrong information about China, you know, either you overplay China or you underplay and either

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YAN LIANG:

way, you know, it's going to be harmful to your own good. And I think

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YAN LIANG:

again, just looking at Trump's, you know, tariff and also export controls, right, the tech

413

YAN LIANG:

control trying to kind of dampen China's technological innovations or China's development, I think again,

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YAN LIANG:

they probably get a lot of misinformation from their own think tank, right? Thinking that

415

YAN LIANG:

because the U.S. has the largest consumer market, then they can play China. China does

416

YAN LIANG:

not have, you know, leverage. But I think they really underestimate China's important role in

417

YAN LIANG:

the global supply chain, right, especially in terms of the rare earth controls. And now

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YAN LIANG:

I think there's also some realization that China is also holding a lot of critical

419

YAN LIANG:

ingredients to the pharmaceutical industry. I think in the US there are 700 critical medicines

420

YAN LIANG:

that have at least one key ingredient that they source 100% from China. So that

421

YAN LIANG:

could have been another choke point, right, in the US's sort of vulnerability. And again,

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YAN LIANG:

I don't think the Biden administration to now Trump administration, right? They don't really understand

423

YAN LIANG:

completely China's sort of leverage and China's, you know, really pivotal role in the global

424

YAN LIANG:

supply chain. And so I think they really miscalculated. And again, one of the reasons

425

YAN LIANG:

is because of this kind of ignorance and hubris, right, to think that the US

426

YAN LIANG:

always have the upper hand and even in the AI race, right, this idea that people

427

YAN LIANG:

seem to get surprised and surprised again and again by China's breakthroughs. If you are

428

YAN LIANG:

a China watcher, right, for the past decades, you shouldn't be surprised at all. You

429

YAN LIANG:

really see that coming when China is putting up all these programs and investing so

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YAN LIANG:

heavily in the global supply chain from the very upstream to the very downstream and

431

YAN LIANG:

also beefing up its education, R and D and all these facilities, infrastructures. It shouldn't

432

YAN LIANG:

be a surprise at all. But I think the policymakers and their think tanks seem

433

YAN LIANG:

to keep getting surprised because again, they don't really understand China in a gradual level

434

YAN LIANG:

or at a big picture level. That is very unfortunate and that could lead to

435

YAN LIANG:

miscalculations again and again to the detriment of the US but also I think it's

436

YAN LIANG:

very disruptive to the global economy as well. One last interesting thing that I wanted

437

YAN LIANG:

to mention is you probably know this think tank called Rand Corporation, R-A-N-D. It's a very

438

YAN LIANG:

much Washington D.C. sort of... It's a high level think tank, has the ears of

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YAN LIANG:

many of the policymakers, especially in military and defense industries and so on and so

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YAN LIANG:

forth. Very recently they published a report and basically advocating for three major reasons for

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YAN LIANG:

peaceful coexistence with China. But after the report was published very quickly, I think within

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YAN LIANG:

weeks it was retracted. And now if you go to the website, it says, you

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YAN LIANG:

know, this report is retracted for further considerations. So it just shows that when you

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YAN LIANG:

put out a genuine understanding and somewhat different kinds of opinions or perspective, it was

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YAN LIANG:

pretty much cramped down. And so we kind of see going back to the same

446

YAN LIANG:

kind of path, right? Keep saying that, you know, China is weak. China's Collapsing or

447

YAN LIANG:

the other day would be, you know, China is eating our lunch. The kind of

448

YAN LIANG:

pendulum swim back and forth that really doesn't help to craft genuine, you know, both

449

YAN LIANG:

understanding but also response to China.

450

STEVE GRUMBINE:

I do have three more key questions to kind of guide us through the rest

451

STEVE GRUMBINE:

of this and I'll just jump on this. We've touched on pieces of this, but

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STEVE GRUMBINE:

this is an MMT podcast. Yes, it is a class-based podcast as well. We like

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STEVE GRUMBINE:

to understand the implications of all these grand ideas on the working class, but in

454

STEVE GRUMBINE:

particular through a geopolitical lens. Obviously, that includes the rest of the world. Right? And

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STEVE GRUMBINE:

we've talked a lot about empire in past. We've talked a little bit about China's

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STEVE GRUMBINE:

perspective. But I am curious because putting this together with MMT as well I think

457

STEVE GRUMBINE:

is really important for, you know, the work we're doing here. I'm sure for people

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STEVE GRUMBINE:

that listen to podcasts like this, they're like, "okay, Steve, you got MMT economist on.

459

STEVE GRUMBINE:

When are you going to talk about MMT?" And but to me, I want to

460

STEVE GRUMBINE:

just put this out there in a way and I'll let you respond to it.

461

STEVE GRUMBINE:

The US uses its dollar sovereignty to project power globally through military spending and sanctions.

462

STEVE GRUMBINE:

China's also expanding its global influence through initiatives like the Belt and Road, which we've

463

STEVE GRUMBINE:

talked about on prior podcasts. Folks, look in our backlog, we got lots of good

464

STEVE GRUMBINE:

stuff there, but we can touch on a little bit here. How does China's different

465

STEVE GRUMBINE:

monetary framework, and this is the key, I don't know enough. I mean, I understand

466

STEVE GRUMBINE:

a fiat currency, but we talked a little bit about currency controls and how they

467

STEVE GRUMBINE:

work with the exchange rate and so forth. But how do they use their vast

468

STEVE GRUMBINE:

foreign exchange reserves, et cetera, to shape the type of international influence they have compared

469

STEVE GRUMBINE:

to the US that uses things like the IMF [International Monetary Fund], World Bank, structural

470

STEVE GRUMBINE:

adjustments, privatization, just horrible, horrible approaches to everything. How does China do that?

471

YAN LIANG:

Yeah, I think that's a great question. And I think that now that you mentioned

472

YAN LIANG:

monetary sovereignty, I think I should also go back to earlier, right, that a lot

473

YAN LIANG:

of these management of exchange rates control capital flows, all these are really trying to

474

YAN LIANG:

preserve monetary sovereignty, right, to make sure that when you use active fiscal policy and

475

YAN LIANG:

monetary policy, you're not going to subject the kinds of exchange rate volatility and capital

476

YAN LIANG:

flight and so on and so forth, right, that could derail your monetary sovereignty, right,

477

YAN LIANG:

your fiscal and monetary policymaking autonomy. Now onto this idea that you know how China

478

YAN LIANG:

is using its monetary sovereignty, right, to advance its own interests both domestically and internationally.

479

YAN LIANG:

So just to say that. Well, first of all, I think the Chinese policy making

480

YAN LIANG:

circle, or if you look at their official policy, they do have these kinds of

481

YAN LIANG:

fiscal rules. They do say, well, we want the deficit to GDP ratio to be

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YAN LIANG:

483

YAN LIANG:

targets, right, that they don't want it to so-called, you know, overspend or they wanted

484

YAN LIANG:

to have the kind of fiscal discipline. But at the same time I think that

485

YAN LIANG:

the Chinese government is well aware of the power of these fiscal and financial, these

486

YAN LIANG:

resources, right? So as you probably know that in China, the state owned enterprises or

487

YAN LIANG:

state owned banks, they're still really strategic industries. So the state owned enterprises, they're in

488

YAN LIANG:

places like utility, energy, you know, telecom and financial sectors. The reason that I wanted

489

YAN LIANG:

to mention this is that these state owned enterprises and banks, they still control a

490

YAN LIANG:

very large amount of critical resources within the economy. And so they are able to

491

YAN LIANG:

use these resources to advance again the national strategic economic goals. And that is very

492

YAN LIANG:

important because for MMT, what is important is how much real resources you have and

493

YAN LIANG:

how do you expand the resources boundary. And so I think what China has been

494

YAN LIANG:

doing is they're using this physical resources and financial resources to be able to mobilize

495

YAN LIANG:

resources and expand resources domestically. So very briefly, you know, for example, there's been these

496

YAN LIANG:

findings that said that China's industrial policy spending is close to 4% of the GDP.

497

YAN LIANG:

Now I don't want to go into sort of whether or not that number is

498

YAN LIANG:

accurate or not, right, what it counts as industrial policy spending doesn't. But let's just

499

YAN LIANG:

say that 4% is correct. But then so what? Right. I don't think this is

500

YAN LIANG:

the way to say that China is misusing its spending because we clearly see how

501

YAN LIANG:

China has become a manufacturing superpower, right, accounting for 30% of the global manufacturing capacity.

502

YAN LIANG:

And it is making so much breakthroughs in, you know, many of these technologies. So

503

YAN LIANG:

I think what this shows is it attests to the fact that the Chinese government

504

YAN LIANG:

understands the power, right, of financial resources and use it in a way that would

505

YAN LIANG:

help China to industrialize, re-industrialize and improve its industrial structure. Now externally, I think is

506

YAN LIANG:

what you are sort of prompting in your question. I think what China has been

507

YAN LIANG:

508

YAN LIANG:

509

YAN LIANG:

has been really providing very important development finance to the tune of $1.3 trillion to

510

YAN LIANG:

the rest of the world. So to this day you can see a lot of

511

YAN LIANG:

these mega infrastructure projects in Africa, in Latin America, in Europe, in Southeast Asia, right,

512

YAN LIANG:

in Asia, in various places where I think China is really enabled many of these countries

513

YAN LIANG:

to build their own infrastructure, to build their industrial structure. I mean, when it comes

514

YAN LIANG:

to, for instance, renewable energies, right, China now is basically producing 80% of the global

515

YAN LIANG:

supply of solar panels. And China is accounting for, you know, two thirds of the

516

YAN LIANG:

global renewable energy. And China's exports of the so called low carb[on] technologies and products

517

YAN LIANG:

to the rest of the world have enabled them to really cut their own carbon

518

YAN LIANG:

emissions. I mean, my colleague at the center for Global Development Center, the GDP Center,

519

YAN LIANG:

have shown in academic papers that this is the fact. So in a way, I

520

YAN LIANG:

think China is providing very critical, you know, development finance and products and technologies, right?

521

YAN LIANG:

So these are three different things. Financial resources and also green products like EVs, like

522

YAN LIANG:

solar panels, like batteries, as well as, you know, green technologies to the rest of

523

YAN LIANG:

the world and I think that is really important, right, to enable and facilitate the

524

YAN LIANG:

kind of sustainable development in the rest of the world. And of course trying to

525

YAN LIANG:

benefit from this kinds of partnership that China is able to, you know, export more

526

YAN LIANG:

of their products to the rest of the world. Now we can again talk about

527

YAN LIANG:

whether or not that is in China's own interest, right, to keep giving real resources

528

YAN LIANG:

to the rest of the world and so on, or China is exporting too much.

529

YAN LIANG:

And again, we need to contextualize that. I think when it comes to the net

530

YAN LIANG:

export to China's GDP ratio, it's really small. It's much smaller than countries like Germany

531

YAN LIANG:

or Japan and so on and so forth. But because China is big, right? I

532

YAN LIANG:

mean, even if China just export net export, you know, to 2, 3% of its

533

YAN LIANG:

GDP, it could still be, quote unquote, "a shock" to many of the countries. Especially

534

YAN LIANG:

I would say the Western economies where you hear all these complaints about China's overcapacity

535

YAN LIANG:

is actually in these Western advanced economies. Why? Because China is eating their cake, right?

536

YAN LIANG:

You know, German car companies, US car companies, they're all sort of worried about China

537

YAN LIANG:

because China's EV is very competitive. And so they really worried about China climbing up

538

YAN LIANG:

the global supply chain or the value chain. This is exactly what J.D. Vance says,

539

YAN LIANG:

right? When China was a good player, was trying to basically stuck in the low-value

540

YAN LIANG:

chain. That was okay when China joined WTO [World Trade Organization], but now it's not

541

YAN LIANG:

okay. Because China somehow climbed up the global value chain, right? So it's not that

542

YAN LIANG:

China now all of a sudden become a bad actor because it violates the global

543

YAN LIANG:

rules, right, or trade rules or anything like that. But the mere fact that China

544

YAN LIANG:

is able to get more value added and climb up the value chain, no longer

545

YAN LIANG:

exporting 800 million T-shirts to import one Airbus plane, when now China is actually trying

546

YAN LIANG:

to make their own airplanes. I think that is what, you know, worries the, the

547

YAN LIANG:

Western world and therefore have all these overcapacity and sort of mandate China to, to

548

YAN LIANG:

fix the problem, right? I mean, why is that only China's problem? If China is

549

YAN LIANG:

running trade surplus, why not the US's problem when day in and day out they're

550

YAN LIANG:

running trade deficits and getting the real resources from the rest of the world, right,

551

YAN LIANG:

given its currency status? I mean, we can go on and on with this.

552

STEVE GRUMBINE:

Yes, please.

553

YAN LIANG:

Yeah. So I just think that, you know, China's development finance is helping the

554

YAN LIANG:

rest of the world, so is, you know, its supply of these critical green

555

YAN LIANG:

products and technologies. Now, I think the caveat here is of course we know

556

YAN LIANG:

that many of the developing countries, especially low-income countries, are now in the midst

557

YAN LIANG:

of, you know, debt crises, right? The UNCTAD, right, basically put out reports that shows

558

YAN LIANG:

3.3 billion people live in countries now that paid more for their foreign debt,

559

YAN LIANG:

right, when it comes to debt services than what they spend on healthcare and

560

YAN LIANG:

you know, education. So that is a problem. And I do think that China

561

YAN LIANG:

should and has the resources to do more to help to fix these kinds

562

YAN LIANG:

of debt crises in developing world. But I think, you know, China's hesitancy also

563

YAN LIANG:

comes with the fact that, you know, China only account for a much smaller

564

YAN LIANG:

proportion of the developing countries world debt compared to the bondholders, the private creditors.

565

YAN LIANG:

So China feels like, you know, if I give a lot of debt relief,

566

YAN LIANG:

right, then what about all these other private bondholders? They are not giving haircuts,

567

YAN LIANG:

they're not, you know, giving their own share of debt relief. And so whatever

568

YAN LIANG:

that I forgive then would simply be pocketed, right, by these private creditors. I

569

YAN LIANG:

mean, there's some kernel of truth to that concern. And so I think that

570

YAN LIANG:

really requires a lot more collective, I would say, right, a more multilateral system

571

YAN LIANG:

to resolve these kind of debt crises. I think the solvent debt roundtable is a

572

YAN LIANG:

step to the right direction, but it's too slow and too little at this

573

YAN LIANG:

point and much more needs to be done on that front. And by the

574

YAN LIANG:

way, I think there was a very recent report that was put out by

575

YAN LIANG:

the Center for Global Development that show in the past decade that China actually

576

YAN LIANG:

lend $200 billion to one country, which is the largest country that received China's

577

YAN LIANG:

loans. Now this is not direct investment. This is not, you know, contract and

578

YAN LIANG:

whatnot. This is just the lending, right? Guess which country that is, Steve.

579

STEVE GRUMBINE:

Dang, which one?

580

YAN LIANG:

Yeah, which one that received in the past decade is

581

YAN LIANG:

$200 billion of Chinese lending. One country: the United States!

582

STEVE GRUMBINE:

I was letting you go to the punchline. Of course,

583

STEVE GRUMBINE:

of course it is. I mean, that's ridiculous. It's hilarious.

584

YAN LIANG:

Right? I mean that just says a lot of things. That for one is why the United

585

YAN LIANG:

States wants to borrow from China. The US has the dollars. Why do they do that? Right?

586

YAN LIANG:

Why do they want to borrow from China, right? I mean, this is nothing really new. We

587

YAN LIANG:

know that China holds right now about $700 billion of treasuries, right? So China has already been

588

YAN LIANG:

a large creditor to the United States, but here we're talking about more of the private sort

589

YAN LIANG:

of sector of, of borrowing from China. So to me, you know, from a MMT perspective, there's

590

YAN LIANG:

so many kind of things going on in here, which is kind of really weird, right? For

591

YAN LIANG:

one is why does the US need to borrow from China dollars? For two is that the

592

YAN LIANG:

US keep telling other countries not to borrow from China, right? Calling this as a debt trap

593

YAN LIANG:

diplomacy. But the US end up being the largest borrower. And also, you know, to me there's

594

YAN LIANG:

also the question about why does China want to lend to the U.S. right? Maybe they want

595

YAN LIANG:

to diversify the portfolio. Maybe they just think that this somehow provide some gains, but not really.

596

YAN LIANG:

I mean, honestly, I'm really puzzled by this. But anyway, I think China could really do more

597

YAN LIANG:

to provide different financing to the rest of the world, especially giving now, you know, how cheap

598

YAN LIANG:

the Chinese lending is and how expensive the dollar lending is. And that's why I think countries

599

YAN LIANG:

like Kenya recently converted their dollar denominated 3.5 billion loans to China now to RMB [renminbi] and I

600

YAN LIANG:

think many other countries, you know, Ethiopia and Indonesia and many others are also considering doing this

601

YAN LIANG:

kind of currency conversion of their debt. Right? Because again, this is tremendous amount of savings on

602

YAN LIANG:

their interest payments because China's lending again is cheap, you know, 2%, 3% compared to the dollar

603

YAN LIANG:

loans that could go up, you know, 8% and even more so. Yeah.

604

STEVE GRUMBINE:

Is there any consideration of China using its dollar holdings to,

605

STEVE GRUMBINE:

in fact, free the rest of the world from US imperialism?

606

YAN LIANG:

Wow, that's a very intriguing question. I think we discussed a long time ago

607

YAN LIANG:

about this idea that maybe China can just use these dollar reserves to provide

608

YAN LIANG:

debt relief to the rest of the world. And again, China has its own

609

YAN LIANG:

hesitation. Right? For one is they do want to keep large amount of foreign

610

YAN LIANG:

exchange reserves to protect themselves, as we earlier mentioned, right?

611

STEVE GRUMBINE:

Sure.

612

YAN LIANG:

And for two is, I mean from China's perspective, they don't think this is in a

613

YAN LIANG:

way sort of fair. From China's perspective, they have been providing development finance to the rest

614

YAN LIANG:

of the world and again for very productive uses. China is not giving these financing to,

615

YAN LIANG:

let's say for corrupt governments to pay for, you know, their officials, I don't know, private

616

YAN LIANG:

mansion or whatever. Right? Or they're not giving this as aid that would hold the countries

617

YAN LIANG:

on and on to coming back for more aid. Right? China sees its development finance as

618

YAN LIANG:

capacity building. So they have very specific project height financing. So they're providing $3.5 billion loans

619

YAN LIANG:

to, you know, Kenya not to let them spend on anything they see fit. Right? But

620

YAN LIANG:

this is exclusively to finance the construction of their standard railway. Right? So what China consider

621

YAN LIANG:

is, you know, the lending that China has been doing or development financing that China has

622

YAN LIANG:

been doing is really for productive uses and that generates, you know, productive returns and help

623

YAN LIANG:

the countries to climb up their own industrial, you know, ladder.

624

STEVE GRUMBINE:

Yes.

625

YAN LIANG:

So China doesn't see that they're using the money in an unproductive or malicious way. And

626

YAN LIANG:

so to them it's legitimate for them to get a return, right, to at least get

627

YAN LIANG:

the loans back. And again, they've been providing really good terms when it comes to lendings.

628

YAN LIANG:

Right? So the standard gauge way loans, you know, the fixed portion is only about 2%

629

YAN LIANG:

interest. Right? We're talking about, you know, 15 year infrastructure loan. Part of it is only

630

YAN LIANG:

2%. Right? Part of it is Libor plus flexible range. But still overwhelmingly, I think the

631

YAN LIANG:

Chinese loans are much, much more affordable than compared to a country on the Eurobond market,

632

YAN LIANG:

right, that could easily pay up to 8, 9, 10% interest compared to China's, you know,

633

YAN LIANG:

2%, 3%, 4%, et cetera. So for China, it sees itself providing these kinds of development

634

YAN LIANG:

financing and affordable terms for productive uses. So it doesn't see the need to massively forgive

635

YAN LIANG:

these loans. And I think in some ways countries also try their best not to default

636

YAN LIANG:

on their loans and try to pay some of these, you know, debt services because they

637

YAN LIANG:

don't want it to cut the source. Right? Of course, you know, China will worry next

638

YAN LIANG:

time around. If these countries come back and ask for new loans, Right? China will consider

639

YAN LIANG:

whether or not they'll be able to recoup their loans. And so for this reason, I

640

YAN LIANG:

do like China to provide more debt relief to the rest of the world. But I

641

YAN LIANG:

think it's not very feasible, not very practical at this point to think about how China

642

YAN LIANG:

may use its large amount of foreign exchange reserves to free the rest of the world

643

YAN LIANG:

from dollar trap. Now, I will say though, you know, China has been trying to promote

644

YAN LIANG:

the RMB internationalization to encourage more international uses of RMB and that's why you're seeing that

645

YAN LIANG:

China now try to stabilize its exchange rate values. Not to appreciate, not to depreciate, really

646

YAN LIANG:

have a very stable fixing. And also, you know, given that the yuan [the basic unit

647

YAN LIANG:

of the renminbi system] interest has been low, that many more countries are more willing to

648

YAN LIANG:

seek for Chinese financing, right, issuing Panda bonds, dim sum bonds and things like that, which

649

YAN LIANG:

are RMB-denominated bonds. So I think I do see that kind of position that China is

650

YAN LIANG:

taking, which is to promote more uses of yuan, not necessarily to displace the dollar, but

651

YAN LIANG:

at least to create some optionality and provide some kind of counterweight to the really dollar-centered

652

YAN LIANG:

system. So I think that is a step towards the right direction because if we're talking

653

YAN LIANG:

about multipolar world, we need multipolar currencies.

654

STEVE GRUMBINE:

Yeah.

655

YAN LIANG:

And so I think China is working on this. Yes.

656

STEVE GRUMBINE:

 Very, very good. Well stated. The last question, and I do appreciate how patient and

657

STEVE GRUMBINE:

wonderful you've been.  So, this last question, in my opinion, I think is worth noting

658

STEVE GRUMBINE:

because so much of what we hear and you've already addressed some of this is

659

STEVE GRUMBINE:

the US talking heads and these kind of mainstream media talking heads talking about how

660

STEVE GRUMBINE:

China is set up for a fall. And you already laughed us through. It was

661

STEVE GRUMBINE:

great the way it was like keep waiting for it, but it never happens because

662

STEVE GRUMBINE:

it's not going to happen. However, what are some of the areas within China that

663

STEVE GRUMBINE:

are potential weaknesses, for them, that they have to address? And how might an MMT

664

STEVE GRUMBINE:

lens facilitate kind of correcting or fixing any of those errors? Or quite frankly, do

665

STEVE GRUMBINE:

they just already have plans for it and they are insulated from some of those

666

STEVE GRUMBINE:

major spikes and ebbs and flows that we see so characteristic of a Minsky moment

667

STEVE GRUMBINE:

in the United States? How does China avoid these kind of instabilities? I know you

668

STEVE GRUMBINE:

talked about managing the currency at some level, but it goes beyond that. What are

669

STEVE GRUMBINE:

some of the things that China has to guard itself against?

670

YAN LIANG:

Yeah, well, I really appreciate that, you know, you always have the more balanced view on

671

YAN LIANG:

China. So I think we have talked a lot about the positives of China, which I

672

YAN LIANG:

think again, these are fact-based, but they're definitely challenges that China is facing. So I think

673

YAN LIANG:

the Western narrative always talked about China's collapsing because of the four Ds, right? The demand

674

YAN LIANG:

is very weak. It faces deflationary pressure, the demographic time bomb, right, because China's aging very

675

YAN LIANG:

rapidly and the Chinese could get older before they get rich. And lastly, is this de-risking,

676

YAN LIANG:

you know, decoupling from the West that could again put China in a very vulnerable position.

677

YAN LIANG:

So I've written, you know, working papers to kind of debunk some of these narratives. But

678

YAN LIANG:

I think there are some questions or there are some challenges that China need to try

679

YAN LIANG:

to resolve, right? One is this idea of deflation, which we know that in China, yes,

680

YAN LIANG:

there, there's some kind of disinflationary pressure, right? So it's a CPI, for example, just barely,

681

YAN LIANG:

you know, 0.2% in October this year. And that is actually the first time in three

682

YAN LIANG:

months that the CPI finally turned from, you know, zero and negative to positive. But as

683

YAN LIANG:

you know, 0.2% is a very low rate in terms of inflation rate. Now I would

684

YAN LIANG:

say that one of the major reasons is because this disinflationary episode to me is looking

685

YAN LIANG:

686

YAN LIANG:

687

YAN LIANG:

rather than a negative shock to demand. That's not what's happening in China. Demand is still

688

YAN LIANG:

growing. Consumer spending, especially in services, is still growing tremendously. Right? The retail sales grew by

689

YAN LIANG:

4% this year so far, 4.3%. And you know, in terms of service consumption is over

690

YAN LIANG:

6%. I think if my memory serves me well, it's higher, right? It's a good pace

691

YAN LIANG:

of growth. But the problem is that, you know, there is tremendous amount of supply expansion

692

YAN LIANG:

when you go to China. When you look at all these robots adoptions and automation in

693

YAN LIANG:

factories, right? Xiaomi. Easy Company. They are able to make one car within I think 70 seconds

694

YAN LIANG:

or 90 seconds. It's just the tremendous amount of supply expansion that far plays the demand

695

YAN LIANG:

expansion. I think that. And on top of that, right, a lot of competitions among these

696

YAN LIANG:

private enterprises, EV brands, right? There are over 150 of them and they put out new

697

YAN LIANG:

car models, you know, every 16 months. This is how fast, right? Innovations and production capacity

698

YAN LIANG:

expand in China. So that's why it creates what Chinese call the involution. So like a

699

YAN LIANG:

very fierce internal competition and that drive down prices. And so I would say on the

700

YAN LIANG:

one hand, this is good because it helped to provide affordable abundance, right? This whole idea

701

YAN LIANG:

of abundance that Chinese actually doing, which, you know, in the US we know these two

702

YAN LIANG:

journalists who wrote this book about abundance and people think that this is still a dream,

703

YAN LIANG:

that in the near future, right, or in the hopefully not distant future. Now, China's already

704

YAN LIANG:

doing it, it is prizing people, right? Car used to be a luxury, no longer, right?

705

YAN LIANG:

So I think that to some degree is actually a good thing. It provide actual value

706

YAN LIANG:

to the consumers. But on the other hand, when you are not generating, you know, healthy

707

YAN LIANG:

profit margin for these companies and when you have this expectation that price is going to

708

YAN LIANG:

keep falling, we know this could wreak havoc on the economy or could at least do

709

YAN LIANG:

some damage, right, to the economy because then you are waiting to buy the next car

710

YAN LIANG:

or companies are just waiting to invest. They're not doing it right now because expecting the

711

YAN LIANG:

price will go down further. So that is not necessarily good, right, or healthy or sustainable for

712

YAN LIANG:

the economy. So I think China needs to strive a balance to rein in some of

713

YAN LIANG:

these involution. And you know, we don't have the time to talk about how exactly this

714

YAN LIANG:

should be done, but suffice to say that I think, you know, the government is well

715

YAN LIANG:

aware of this problem and even back in June this year, they already asked the companies

716

YAN LIANG:

to not to have the kinds of cutthroat price competition and compete more on your new

717

YAN LIANG:

features, on your new innovations and so on and so forth. And they're also warning the

718

YAN LIANG:

local governments not to unconditionally support your local champions to engage in this kind of price

719

YAN LIANG:

war. So that's number one. I think that disinflation could be a problem, but I think

720

YAN LIANG:

China's government is managing that.  Now, in terms of debt, I don't think this is a

721

YAN LIANG:

problem if the central government is willing and able to step in and help out a

722

YAN LIANG:

bit more on the local government debt. Again from an MMT perspective, right? I think what

723

YAN LIANG:

worries me or what concerns me, it's not the overall amount of public debt, but this

724

YAN LIANG:

inverting structure of debt, right? In the sense that the central government only holds about 20%

725

YAN LIANG:

of GDP sort of amount of public debt, whereas the local government is holding a lot

726

YAN LIANG:

more easily double, right, the amount. And so I think that is a problem because local

727

YAN LIANG:

governments don't have the currency sovereignty, right? They can't just issue the currencies or create the

728

YAN LIANG:

currencies. So I think the central government needs to take on more debt and relieve the

729

YAN LIANG:

debt burden of the local governments. Because the local governments, they are only accounting for about,

730

YAN LIANG:

you know, half of the total fiscal revenues, but they are accounting for over 85 or

731

YAN LIANG:

86% of the public spending. So you can see the mismatch, right, is going to create

732

YAN LIANG:

problems because once the local governments are too much in debt, they're not going to continue

733

YAN LIANG:

to spend, they're not going to continue to finance infrastructure. Right? They're not going to continue

734

YAN LIANG:

to provide public services and welfare to their localities. And so that could be a problem.

735

YAN LIANG:

So for me, it's not a debt crisis, but rather that constraints the fiscal spending at

736

YAN LIANG:

the local government level. And we can talk about others, but I don't think others are

737

YAN LIANG:

really the major problems. Right? The real estate sector is sort of a drag on the

738

YAN LIANG:

economy, and I was hoping that by the end of this year, you know, we're likely

739

YAN LIANG:

to see the real estate money hit the bottom. But I think the most recent data

740

YAN LIANG:

has shown that the real estate sector is still quite sort of in that slump, right,

741

YAN LIANG:

12.7% decline in the fixed asset investment in that sector. Now, again, I think the sort

742

YAN LIANG:

of readjustment away from the real estate sector, I think it's a good thing because there's

743

YAN LIANG:

too much investment in that sector, too much leverage. It's not good for a, you know,

744

YAN LIANG:

efficient allocation of real resources. But at the same time, because the real estate sector is

745

YAN LIANG:

still very important for the Chinese households. Right? The housing value is about 70% of household

746

YAN LIANG:

wealth. So when your real estate sector continue to see declining prices, this is going to

747

YAN LIANG:

create some kind of negative wealth effect on the households. So I do think the government

748

YAN LIANG:

should do a little bit more to stabilize the real estate market and also utilize the

749

YAN LIANG:

unsold properties, use them for social housing. [Yes] Right? We're building so many houses and China,

750

YAN LIANG:

by the way, has over 93% of home ownership. You know, compared to Western economies, exceeding

751

YAN LIANG:

50% is a great achievement.

752

STEVE GRUMBINE:

Yeah.

753

YAN LIANG:

So I don't want to say the real estate investment is complete a waste. It's

754

YAN LIANG:

not. But we definitely can do more to utilize the housing. You know, others talking

755

YAN LIANG:

about demographic crisis, I think it is a slow transition into a aging society. And

756

YAN LIANG:

I think with productivity growth, with educational attainment, you know, improvements, and also with automation

757

YAN LIANG:

and adoption of AI and all of these, I think it will help to relieve

758

YAN LIANG:

the labor supply-side constraint. I think it's actually important to create more jobs for young

759

YAN LIANG:

people in China right now. So when you hear people talking about demographic, you know,

760

YAN LIANG:

crises that China don't have enough labor supply, I think the reverse is more of

761

YAN LIANG:

an immediate task for the Chinese government to actually create better jobs for the young

762

YAN LIANG:

generations. So it's actually not the problem of too little labor supply is that now

763

YAN LIANG:

we have these college graduates that yet to be able to find a job that

764

YAN LIANG:

fit with their skill sets and so on and so forth. I think that is

765

YAN LIANG:

more of an immediate task on the part of the government. So I think those

766

YAN LIANG:

are the challenges, right? Job creations, disinflation, inverted debt structure and also the real estate

767

YAN LIANG:

sector stabilization to boost more consumption and domestic demand, find a way to create more

768

YAN LIANG:

investment opportunities, especially on the infrastructure, actually. I think those are the challenges right now.

769

STEVE GRUMBINE:

That's very well said. I have so many more questions, but we're out of time and I want to thank you

770

STEVE GRUMBINE:

for giving me the time you've given me today. Yan, tell people where they can find more of your work.

771

YAN LIANG:

Yeah, so now I am working a lot on China's role in the global financial

772

YAN LIANG:

architecture. So my work has been focusing on one working paper right now. Well actually

773

YAN LIANG:

yeah, one working paper about China's debt sustainability framework [DSF], right? China's own DSF framework.

774

YAN LIANG:

So that would be published very soon by the GDP Center, the Global Development Policy

775

YAN LIANG:

Center as a working paper. And then I have a co-author paper that hopefully will

776

YAN LIANG:

be accepted and published soon that is looking at, you know, China's lending to the

777

YAN LIANG:

rest of the world and again to debunk some myth that China extracts financing from

778

YAN LIANG:

the rest of the world instead of injecting to the rest of the world. That's

779

YAN LIANG:

another paper that I've been writing. And then I have a paper that is close

780

YAN LIANG:

to completion about R and B internationalization and then another one about reforming the special drawing

781

YAN LIANG:

rights at the IMF to provide more debt relief and development finance for the Global

782

YAN LIANG:

South. And then one last paper that I'm being working on is on the common

783

YAN LIANG:

payment system within the BRICS. So all of these are in different places, right? Some

784

YAN LIANG:

of them are with the GDP center as I mentioned and others, you know, would

785

YAN LIANG:

be book chapters and also would be working papers for the International Development Economics Associates.

786

YAN LIANG:

So I would probably post when these papers are published on my LinkedIn account and

787

YAN LIANG:

I'm also active, I mean not that active, but sometimes I will be on X

788

YAN LIANG:

mostly to show some of my media engagements and also when occasionally there are some

789

YAN LIANG:

posts on X that really get on my nerves, then I'll respond. So, yeah, so

790

YAN LIANG:

those are the places where you probably can find my work again, LinkedIn, X and

791

YAN LIANG:

also with some other affiliations, the Levy Institute and the GDP Center and IDEAS. Yeah,

792

YAN LIANG:

well, thank you again. I really appreciate that. I feel like I talk too much

793

YAN LIANG:

but...

794

STEVE GRUMBINE:

Not at all.

795

YAN LIANG:

You know, this is a fascinating topic and it's really, you know, dear to my heart. And I

796

YAN LIANG:

really would like to share with you and your learning community, your audience, and maybe at some point,

797

YAN LIANG:

you know, if there are any interest, we can, you know, decompose. Right? You know, the big topics

798

YAN LIANG:

and maybe focusing more either in China's internal economy or external, you know, engagement or what have you

799

YAN LIANG:

or the US China relations or anything along those lines. I'm more than happy to join you. Yeah.

800

STEVE GRUMBINE:

Count on it. Absolutely. All right, so I'm going to take us out

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here, folks. First off, thank you so much to my guest, Yan Liang.

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My name is Steve Grumbine. I am the host of Macro N Cheese.

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This podcast is part of Real Progressives, which is a 501c3 not for

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profit organization here in the United States. Your donations are tax deductible, folks.

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Don't assume someone else is donating. They're not, I promise you. I look,

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they're not. And we need your help. So at this time of the

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for a opportunity for a tax deduction. Please consider Real Progressives, which is

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a 501c3 as I stated. Also, we do a Tuesday night webinar called

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Macro N Chill where we discuss these episodes in detail in a community

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setting. 30 to 40 people show up ready to go ahead and talk

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about these things. And sometimes our guests join us, hint, hint. Other times

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they don't join us. But we would love to have them at all

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times because we have people that are voraciously looking to learn these things

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and we consider ourselves to be a source for that. Also consider becoming

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a monthly donor on our Patreon. Realprogressives patreon.com/realprogressives. You can also go to

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our Substack and become a monthly donor or a single time donor. We

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don't turn our nose up, folks. And you can go to our website,

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realprogressives.org and make a one time donation or whatever you'd like. We really

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need your support. And one final thing, and this is a note, I

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think, for all activists and all people that find this kind of information

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valuable. Folks, we don't have an advertising budget. You are our advertising budget.

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On social media, simply clicking like and share is a huge help to

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us. And it's free and it takes seconds. We would love to encourage

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you to consider doing that minor act of solidarity. I know a lot

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of people just assume someone else will do it. They're not. We could

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really use your help.  Please, if you're on X or you're on Facebook,

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you're on YouTube where we publish these things as well. Please consider sharing

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the content. Somebody will thank you, mainly me. So with that, Yan, thank

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you so much again and on behalf of the organization and Yan Liang

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and myself, Steve Grumbine, Macro N Cheese. We are out of here.