The Real Reason China Won’t Boost Consumption (It’s Not What You Think) | Digging into China

Hi, I'm Dong. Welcome to Digging into China, where we take a deep dive into what's really happening in China and share some unique insights. I often watch how Western media reports on China's economy and society. And one thing that really stands out to me is this. Both the media and the academic world in the West have a really big problem when they look at the China's economic structure. They keep falling into a basic misunderstanding. They treat China like it's just a normal market economy that's going through some temporary ups and downs. And then they give advice based on that, like using standard macro tools to stimulate consumption, boost imports or let the market work more freely. They think if the Chinese government just follows their suggestions, it can fix these deep structural imbalances. But there is a huge blind spot here. Western institutions don't really get the core principle that drives the entire CCP system. That principle is simple. Every economic activity has to be under control. From the scale of trade to the rules of transactions and even who gets to interpret those rules, everything has to be controllable. The CCP has always aimed for an unequal position in the market. Once they build that unequal position, what do they do after that? They want a super market status that lets them distort the prices and dodge outside constraints. That's what absolute control really means in their world. This political drive for total control had led to a complete rigidification of the Chinese economy from the macro level all the way down to the smallest units. How do they achieve that rigidification? It's through state advances, private retreats, and the blanket securitization of everything. turning every issue into a national security matter. The micro foundation of the national economy is private businesses and individual people. Right now you can say those individuals have completely lost their vitality. Even the bureaucratic class is mostly just lying flat under Xiinping's framework of stateowned dominance. Things like expanding imports or boosting consumption aren't just empty talk. They are actually a paradox that clashes with his political logic. Because consumption, exports, and imports are all products of market forces. They can't be controlled by central planning and orders. What's China's current situation? Over capacity, balance sheet recession, and unfair distribution. These crisis aren't just mistakes in economic management. They are the necessary costs the CCP pays to pursue political security and absolute control. In other words, China's private enterprises and ordinary people are just the costs to the CCP. What do they get in exchange? The so-called absolute control power of the CCP. All these problems feed into each other. They are locked in a knot that no single economic policy can untie. Western economic analysis and policy advice always use a neocclassical economic framework to read CCP signals. They conclude that China just needs rebalancing. But this view completely misses the core logic of CCP political economy. In their eyes, especially in the eyes of Xi Jingping, economic efficiency has to bow to political security and market mechanism have to bow to CCP control. This creates a total mismatch between the CCP's control logic and the West's market illusions. A couple of days ago, Leo Shuing, a former member of People's Bank of China Monetary Policy Committee, made a suggestion. China should pursue a balanced import export strategy, massively increase imports and settle them in R&B to push R&B internal internationalization. Now even people inside the system are starting to sound this naive. The R&B has no foundation for massive import expansion. The reason is straightforward. If you want to export capital abroad, your financial markets have to be open. Otherwise, if deficit countries pile up a bunch of R&B but can't do anything with it, what are they going to do with that money? And the underlying logic of finance clashes with the CCP's underlying logic of control because finance has to be built on rules and the rule of law. while the CCP wants power that doesn't follow rules. That's a direct contradiction. To do largecale R&B import settlements, you would have to substantively open the capital account. That means the CCP would have to give up control over exchange rates and monetary policy. But giving up control over crossborder capital flows is completely impossible for them. Is capital control tighter now or loser? This year's examples are more than enough. No need to list them again. The CCP's goal is super market status. Once you understand that pursuit of that, you instantly get why they have to keep huge trade surplus. They use those surpluses to build up foreign reserves then leverage the belt and the road to exit geopolitical influence. The CCP will spend money to buy the political power and influence they need, but they will absolutely not spend money on goods that would improve ordinary people's lives. And what does the CCP play best in the economy? Price dual track system. That's the most basic tool for bureaucratic arbitrage. How does it work? It's perfectly in line with the CCP's low-level thinking that only sees one layer of cause and effect. They distort prices at administrative level then make money from the price gaps in the market. This model is lazy, doesn't require much brain power, and it demands low cognition. That's exactly why the CCP chases power so relentlessly because power makes arbitrage infinitely easy for them. In the first 11 months of 2025, China's trade surplus broke through $1 trillion. I've already talked about how fake that number is on the show. But the fact is there is a trade surplus. It's just nowhere near 1 trillion. Western media often reads this as a proof of China's export competitiveness. What they miss is how the CCP does it. They use administrative pricing to distort market pricing. The CCP suppresses the prices of key inputs through administrative means, then grabs pricing power over finished goods. Things like a rare earth, lithium batteries, solar panels, they are all played this way. Why does the CCP love power? Because power lets them distort market prices and create the arbitrage space. It's that simple. Bloomberg reported that the CCP leaders showed a clear unease about the trade environment while drafting the 2026 economic blueprint. Unease is understandable, but what Western media doesn't get is that this unease isn't about a trade dropping. It's about the Western countries starting to push back with tariffs and derisking measures against the CCP's supermarket behavior. In the political bureau meeting readout, how do they counter it? They say coordinate domestic economic work with the international economic and trade struggle. That makes it crystal clear the CCP sees trade as a zero someum fight. That's completely different from the West's rule-based competition. Their response isn't to follow market rules. It's to tighten controls. We've seen this clearly with rare earth. And now they are building sanction evasion trade networks like rerouting through Spain or Mexico. It's confrontation. So under these two totally different perspectives, the CCP is basically going against the market logic in everything they do. Under this extreme generalization of national security and state advances, private retreats, the whole economy from businesses to individuals is losing vitality. This rigidification isn't just a cyclical lack of confidence anymore. It's causing the entire economic body to wither and die. We can see from the data how obvious the efficiency regression is once resource allocation becomes politicized. The numbers show state-owned enterprises have overwhelming advantages in credit access, market entry, and policy support. While private firms face unprecedented squeeze. According to Rodium Group Research, the share of stateowned enterprises in the market cap of China's top 100 listed companies jumped from 31% in 2021 to 54% in 2024. And in 2025, after central Hing locked up a bank stocks, the number has surely broken 65%. State-owned enterprises also take 85% of a bond issuance, meaning financial resources are funneled massively to low efficiency state sectors. This distortion is resource allocation isn't market failure, it's political choice. She says he supports reform and opening up. That's just a lie. The data proves he's lying. The private sector is shrinking dramatically under this political high pressure. Talk of increasing imports, trade rebalancing or boosting consumption is nonsense. The reason is simple. Imports and consumption ultimately point to the end consumer and the individual market participants. The CCP can plan and command the production, but it can't plan demand or consumption. Look at China's CPI data now. The CCP says November CPI rebounded to 7/10en of percent because food prices rose. But check the biggest weight in food pork. In futures, live hog prices have tanked. At the December political bureau meeting, they put expanding domestic demand as the number one economic task for 2026. But from the CCP's political perspective, this is a mission impossible. It sounds more like a self consolation. Why? Exports might store the West is decoupling. They need a slogan. But consumption doesn't work by shouting slogans. Consumption is a market ecosystem. Not the CCP's great force produces miracles style. Subsidies do stimulate output. Don't work on the consumption side. If you subsidize, people consume a bit. If you stop, they stop. Subsidizing consumption is like discounting future demand into today. But total demand in the ecosystem doesn't rise. The only way to grow total demand is a rising incomes. Nothing else works. But the CCP is used to apply infrastructure thinking to consumption. That's fundamental past dependence error. The essence of consumption is residents free choice based on future income expectations and the current wealth. It needs support from safety, wealth effects, and income growth. Planning, on the other hand, is control. You can order state-owned enterprises to build a high-speed rail, but you can't order residents to buy a refrigerator. You can control residents not to have kids, but you can't order them to have even one. When the environment is this bad, high unemployment, social security squeezing money, housing prices keep falling, any slogan style stimulus is just a hot air. Subsidizing consumption is the same logic as discounting bills. Both consume existing wealth at a discount. The root of China's weak consumption is the severe distortion in national income distribution. It's a result of the CCP's political system, not the cause of the current slump. We can't reverse cause and effect. Look at what the treatment Chinese residents get on the consumption side. Their disposable income is only 40% of GDP. And that's after blatant extraction. And even at this outrageously low level, there are basically no public welfare benefits. This 40% is way below the global average of 60% just across the street in Taiwan. Residents income is a 63% of GDP with all kinds of welfare. So those Taiwan people who keep shouting for unification first drop your income level by a tenth and voluntarily cancel all your health insurance benefits. Only then can you prove you really yearn for the wonderful life on the men. Now let's talk about the CCP's hidden extraction. What I just described was overt through the distribution system. The hidden means are state monopolies in energy, telecom, finance, etc. These get a super profits but don't give them back to the people on a large scale. The costs of transport, energy, telecom, water, and electricity take up about 15% of per capita disposable income this year and it's higher because prices are rising across the board. In Taiwan, it's only 9%, Japan is a bit higher at 11%. What does this mean? It's the share of disposable income you spend every year on these basic services. China is definitely above 15% this year. That's hidden extraction. So, Chinese residents are paying at least 5 percentage points more than in Taiwan or Japan. The conclusion is obvious. Stateowned enterprise extract another 5% of disposable income and then they encourage consumption. How? Buying American soybeans is like it's killing them. In the CCP's eyes, imports aren't to meet diverse consumer needs. They political chips to balance trade surpluses and appease deficit countries. So whether buying US soybeans or US plans, it's decided by diplomatic needs, not market demand. This creates another vicious cycle. Since domestic consumption can't take off, huge overcapacity can only be digested through involution. Have you ever wondered why China has why China has such stubborn overcapacity? One big reason is a fear of geopolitical conflict and real decoupling. Out of that fear, the CCP demands complete redundant supply chains in every industrial sector. This backup mentality leads to cost blind duplication. Have you thought about a CPI falling for nearly 40 months straight while capacity keeps surging? In a normal market economy, that would be impossible. its political task forcing companies to produce despite the weak demand leading to inventory powerups, price wars and eventually exporting deflation to the world. Look at the China's capacity investment now is the pressure to export the deflation to the world bigger this year or the pressure to boost consumption and imports. So the western media's hope for a rational return in China's economy can basically be pronounced dead in advance. In the CCP's logic, the need for control far outweighs market efficiency. This creates an impossible trinity. How can the CCP simultaneously achieve political control, sustain economic prosperity, and equal acceptance in international markets? Logically, it's impossible. Facing unsolvable internal contradictions, the CCP's choice isn't a sustained opening to release vitality. It's tightening control further. We've seen this path clearly. Internal high pressure and external toughness to distract attention. That means China's economy will inevitably head toward a long-term stagnation and a closure. And I'll say it straight. The CCP's conflict with the free world markets has only just begun. So right now, the CCP can't solve any problems. Whoever can take down the CCP would fix everything because the CCP is the problem itself. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. It really helps YouTube suggest my video to others. I'll be back with more content soon. Until then, be well.