If you want consumer spending to rise while simultaneously siphoning away the money people could spend, consumption won’t go up — it’ll shrink even further. When people feel financially insecure, they cut expenditures. That’s precisely why Alibaba bet wrong while Pinduoduo seized the moment: Alibaba gambled on a national consumption upgrade, while Pinduoduo gambled on a national consumption downgrade.
Many people are waiting for a money-printing story that drives housing prices back up. That story is not going to happen.
Local governments across the country are running out of funds. They need to issue 1 trillion yuan in national bonds just to keep basic operations running. This is domestic debt, not foreign debt. Domestic debt is simply a reshuffling of existing funds — not new money creation. I’ve addressed this in previous articles; if it’s unclear, go back and read.
No matter who buys this debt, it must be bought internally — whether by institutions, by individuals, or by institutions purchasing on behalf of individuals. It works through promised interest yields, drawing existing savings away to purchase the bonds. Once those savings go toward debt, they can no longer be used for consumption or other investments. So isn’t this just robbing Peter to pay Paul?
Exactly. And that’s the real reason behind Alibaba’s miscalculation and Pinduoduo’s rise.
Beyond this, there’s another problem. If this 1 trillion yuan in debt is allocated by force across major financial institutions, those institutions will need to freeze funds to absorb it. Once 1 trillion is frozen, that’s 1 trillion effectively withdrawn from overall market liquidity. Yes, rate cuts and reserve requirement reductions can release some liquidity — but compared to what’s being pulled out, it’s a drop in the ocean.
On top of that, to keep leading enterprises alive, protect employment, and preserve upstream and downstream supply chains, the government will inevitably allow these companies to raise capital through private placements. This is essentially corporate debt withdrawing more liquidity from the market.
All of these forces are converging simultaneously, creating a severe liquidity shortage.
Why not simply print more money to solve the problem? Because over the past ten years, no buffer was maintained. M2 has grown to a scale that already exceeds safe limits. The current priority is to suppress CPI, not drive it higher. If CPI spikes, this stops being purely an economic and employment problem — it becomes a social stability crisis. They’re already deploying relief-through-work programs. Does anyone think pouring more fuel on that fire is wise?
This is why there is extreme caution around large-scale money printing right now. Maneuvers can only happen within a limited range — playing a waiting game, watching for the Fed to stop raising rates and reverse course, which would ease the compounding drain effects.
There is also the pressure of America’s continued rate hikes, which have put enormous strain on the exchange rate. While it’s impossible to fully prevent the yuan from depreciating, something must be done to prevent it from falling too fast — because rapid depreciation causes further domestic asset devaluation. Defending the exchange rate, however, isn’t done with empty words. It takes money.
— Commander, November 13, 2023