Commander · July 24, 2023 · 21:54
China’s PMI has dropped below 50. Germany’s PMI has dropped below 40. Global demand is insufficient — smaller players will blow up first.
People always perceive happiness through the contrast of pain. Nothing generates a greater sense of well-being for the general public than a booming, growing economy. When the economy turns downward, every stratum of society feels suppressed and suffering. That pain makes people more extreme and more angry.
For the ruling class tasked with maintaining social order: if they can no longer rely on the happiness generated by economic growth to win public support, they have only one other option — manufacturing harder circumstances and more dangerous conditions for survival, driving people to seek security from them. This is precisely why societies with the most intractable economic situations adopt the most aggressive foreign policies from their ruling classes. It is like a person who cannot face their own condition, cannot calmly accept a self riddled with failures — they can only keep provoking external conflicts to release the pressure built up by internal structural imbalance. The more a society depends on votes to legitimize power, the harder it becomes to act rationally under these conditions — and the more prone it is to losing control.
As I have written before: when the gods go to war, it is the mortals who die first. This is true of industries, and it is true of nations. When an industry reaches the third phase of its cycle, all competition ultimately becomes a contest of who has more resources. The battle between the #1 and #2 players is what knocks out #3 and #4.
In a society where capital dominates and the overall scale is insufficient, the internal distribution of resources will inevitably follow an 80/20 pattern — and the more advanced the tools deployed, the faster that pattern consolidates. Samsung in South Korea: a single corporation accounts for over 30% of a nation’s entire GDP. This is why Korean conglomerates can do as they please at home, yet willingly act as subordinates on the international stage.
The Wall Street titan J.P. Morgan famously said: “I care not what puppet is placed on the throne — the man who controls the money supply controls the empire.” The second-ranked figure within the second-generation leadership core was a great admirer of this saying — which is why his descendants have maintained dominant positions in that particular domain ever since. Unremarkable to outsiders, but to those playing the inside game, it is the key to all keys. This is why a certain former princeling (referring to Bo Xilai), before harboring his hidden ambitions, first attempted to forge a marriage alliance with that family.
Once a society’s internal resource distribution locks into an 80/20 pattern — and if that society lacks the capacity to expand outward — it will inevitably become something resembling a semi-colonial, semi-feudal society. A “colony,” in this sense, means its domestic and foreign policies serve outside interests, with the 20% who control 80% of internal resources acting as proxies. These few do not simply monopolize economic lifelines — they also monopolize ideas, media, and the definition of right and wrong. In other words, this small group controls not only the means of production and livelihood, but also shapes ideology and determines moral judgment.
The “semi-feudal” aspect means these proxies enjoy a transcendent status internally — not unlike lords granted fiefdoms by an external sovereign. While they do fight among themselves, that struggle is a contest for power and profit between lords, having nothing to do with ordinary people. As vassals enfeoffed by an outside power, their interests lie inward but their security and protection lie outward. This determines their orientation: externally dependent, internally extractive. Even the wealth extracted internally will eventually flow outward. In the current push for de-dollarization, the internal proxies are legally propping up dollar appreciation — dressing it up as “generating returns for the nation through investment.”
In the process of industrial and technological transfer, Southeast Asian nations and South Asian major powers received Western industrial capital and technology inflows before China did. So why didn’t they develop? Because once that capital and technology moved in, it rapidly peeled off the discontented factions within existing power structures, elevating them as new elites who rode the Western wind upward. Yet although their interests were rooted domestically, the domestic environment offered no security for those interests. So rather than reinvesting the wealth extracted from society into long-cycle structural upgrades, they channeled it through external financial mechanisms — letting locally-generated wealth flow to Wall Street. This is visible in IMF statistics: over the past 40 years, with the exception of China, the main flow of capital has not been from the West to less-developed regions. The reverse has been true — enormous sums from emerging markets have flowed into the United States.
It was precisely this data pattern that, five or six years ago, led me to explain to some academically-trained friends that America’s current model of globalization was creating structural imbalances at home — which would inevitably lead it to take non-economic confrontational stances toward its major trading partners. Their instinctive response was: “That doesn’t add up. Capital from emerging regions is flowing into America, not out of it. The existing globalization framework is helping America harvest these economies — so why would it want to end that process?” They were professionals, to be sure — sharp on the data, fluent in the mechanisms. The one thing they overlooked was the internal structural problem: yes, American globalization does send capital and industrial technology into emerging regions first — but then it shatters local social and industrial structures, accelerating the formation of an 80/20 society.
A small group seizes the overwhelming majority of social wealth and productive resources. These people must control internal power and monopolize domestic ideology — otherwise they are not safe. And even then, they will accelerate the outward transfer of internal wealth through open financial policies — to America, or more precisely, to Wall Street. The result: societies that absorbed industrial and capital inflows, after having their original social equilibrium shattered, ended up with less capital, not more. Their existing social wealth was extracted and drained at an accelerated pace. Asset density did not rise — it fell. Without sufficient density, a society can neither complete a structural upgrade nor retreat to its prior state. All it can do is generate more chaos and contradiction.
At that point, massive external debt must be imported to fill the gap. Who handles these operations? That is right — the proxy elite class. Will they profit from handling such operations? Obviously. And if profiting is the arrangement, then doing it bigger only serves their interests more — and if things go wrong, they simply walk away. The 80% who remain are the ones who bear the consequences.
When the people who hold power, resources, and the right to define the narrative in a society have their interests and security anchored outside that society — their relationship with their fellow citizens becomes that of parasite and host. Not only do they drain you; they despise you. They will never invest for the long-term benefit of the internal population.
This is human nature. No argument will change it.
We have accumulated a pile of debt. But at least the overwhelming majority of that debt has been deployed in long-term investment in upgrading society’s basic infrastructure — not deposited into Wall Street. And society’s wealth density has increased, not decreased. Structural problems do exist: in certain underdeveloped rural areas, the original social fabric has collapsed and density of all kinds has thinned. These thinning conditions ultimately manifest in the lives and destinies of individual people.
This demands internal redistribution — which is why the poverty alleviation policy exists. Its core mechanism is to increase the density of collapsed social structures through industrial reallocation, using combined internal and external force to improve the living conditions of those trapped in these hollowed-out environments. At its essence, it is a comprehensive reallocation of social resources.
On another front: our anti-corruption campaign keeps exposing cases that make jaws drop. At least there is still corruption to fight. Sounds unremarkable? Consider the alternative: corruption, by definition, is the acquisition of social resources through illegitimate means — and it is subject to legal punishment. That means the social order has not completely lost control.
In many societies, once a proxy has seized enormous resources through illegal means, they can, with the help of external forces, simultaneously acquire social power and ultimately become the representative of the legal system. When a corrupt figure can easily become president or governor, you have reached a society where there is no corruption left to fight — because corruption is the system.
Wanda recently began selling equity stakes in some of its quality assets at discounted prices to raise cash for repaying its dollar-denominated debt. This is likely part of a unified policy directive aimed at de-risking. The biggest landmine in our society is real estate — and it has already gone off. The West’s landmines have not yet detonated. Smaller players will blow up first. Nobody is comfortable right now. The question is who can outlast whom.
Although both imports and exports declined year-on-year in the first half of the year, year-on-year comparisons alone are not enough — you also need to look at sequential trends. Everyone is struggling; many societies are in worse shape than we are.
Looking at the June export data: labor-intensive industries posted only 1.67% growth, while electromechanical and industrial products posted 6.7%. In terms of export structure, things are actually improving. But the sharp decline in labor-intensive exports carries one lethal consequence: the disappearance of enormous amounts of bottom-tier employment. The single greatest challenge our society has faced over these past 40 years has always been the employment of surplus labor — a massive population of low-skilled workers with limited labor capacity. That can only be addressed slowly through time; there is no quick fix for changing these people’s circumstances. Because the population base is too large and their way of living cannot be readily altered, the sharp contraction of labor-intensive industries is not merely an economic issue or an industrial restructuring issue — it becomes a social governance issue. This is why, at this stage, we are simultaneously competing for high-end industries from developed countries and low-end orders from underdeveloped ones — leaving both developed and developing nations resentful of us.