I have an effort post that is way overdue and should be out before New Year detailing this (quite provocative and should be a good read even if you don’t agree with my premises), but the upshot is that China’s economy is so heavily geared towards export and entangled with the global supply chain that the decline of the US economy is extremely detrimental to a healthy economy in China and opens up China’s economy where it could be feasibly sabotaged.

The problem with China staying as a net exporter economy is multi fold. First, it drains significant resources, labor and investment from the internal consumption development towards the coastal exporter, which in turn makes it vulnerable to fluctuations of the global economy (China’s current property market crisis is a direct consequence of the 2008 US subprime mortgage crash and the ensuing financial recession in 2009) and financial warfares of the West.

Second, the growth of industrial productive capacity of the peripheral countries is inevitable - and many of which are aided by China’s Belt and Road investment and BRICS New Development Bank funding themselves. The massive export capacity of those countries that will emerge over the coming decades will become a direct competitor to China itself (remember, China is the massive industrial giant it is precisely because the US had destroyed the industrial capacity of the rest of the Global South and concentrated them in China, because they thought it would be easy to control the global supply chain through China, at least in the 1990s and early 2000s). So what is happening today is simply the reversal of the concentration of industrial productive capacity in China as the peripheral countries began to regain the opportunities to industrialize themselves.

The US is not going to re-shore or friend-shore anything. Its goal is to build an alternative logistics chain through India (IMEC) and allow it to absorb the massive export capacity of the newly industrialized countries, and transport them back to the US. Because the investment loans were made mostly in dollar (which is a crucial mistake here), those countries need to earn dollars to repay their creditors, whether it is China or BRICS. Meanwhile, the true advantage of the US as a global financial empire is that it can simply print an infinite amount of dollar to absorb them, very easy task. The only way to deny the US from taking advantage of this is if China is the one that absorbs these foreign export capacity if it can develop a strong consumer base in time, helped by a healthy internal consumption model that makes it more or less resilient to Western sanctions (like the USSR did).

If the US has its way, and China fails to transition into an internal consumption economy in time, and staying as a net exporter country, then China will just end up competing with the rest of the world as exporters. Once the US replaces China with the peripheral countries as their treats supplier, and get them addicted to the dollar (which is far more convenient a liquid asset than any other currency), then China is screwed.

Which brings us to the third point: the only way to deny the US imperial ambitions is de-dollarization. To help emancipate the Global South from the dollar addiction, China (and BRICS) either has to cancel or write down much of its dollar-denominated loans, and use its huge dollar reserve currency to pay back as much dollar debt as it can for the Global South. Right now, China is still making trade surplus in dollar and not knowing what to do with the dollar (they don’t want to buy US treasuries to finance the US economy), use those dollar profit to lend to other countries, but this is just kicking the can down the road: it pushes the borrowing countries into dollar debt and that means they need to export their commodities in dollar (win for the US) while in direct competition with China itself.

China staying as a net exporter country means it’s very hard to restructure those dollar loans into RMB-denominated loans, because China wants to export more than import (its trade/current account balance will always remain in the positive), that means it wants you to use yuan to purchase from them rather than storing them as a reserve currency. This means there will never be enough RMBs to circulate in the global economy that is liquid enough for the peripheral countries to adopt to pay back their loans, and so the dollar will continue to be the king in this regard. As long as rest of the world continues to rely on the dollar, they are vulnerable to the US financial threats and sanctions.

China has the ultimate advantage of that the PBOC remains a state bank rather than being run by private creditors. This means the Chinese government ultimately holds the card of being able to cancel both domestic and foreign debt, though this is a delicate matter because so much of Chinese wealth has been over-invested in real estate that a mistake could easily make matters worse for its consumption economy.

The problem for China is that it doesn’t have enough time. With the US running at 8% budget deficit this year, freshly printed dollars are going to flood the world soon. If China cannot stop this in time, the world will become addicted to the dollar again (contrast to the brief period of dollar liquidity hunger when the US raised interest rates in 2022). It needs to move fast if it wishes to come out on top of this.

Read this excellent primer from Michael Hudson based on his lecture for the China’s School of Marxist Studies in Beijing. It’s more than a decade old now but it’s all about Vol. 3 applied to the post-2009 financial crisis!

https://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/