Between 1996-2000 was the transitory period where critical decisions had to be made to solve the economic crisis: either to transition out of the capitalist mode of production, or join the WTO and entrench the Chinese economy into the global market. The leadership chose the latter to save the economy. This was the first Hinge Point.

(For additional context, understand that China, who was much weaker at the time, was under severe threat from the US. Between the Chinese embassy bombing by NATO in Belgrade in 1999, and the Hainan Island incident in April 2001, tension between US and China was at its height - I’d argue it was worse than today’s US-China relations. War was nearly imminent and it was only because of 9/11 that the US geopolitical focus abruptly shifted to the Middle East. I can see why some people thought it’d be a good idea to hug the US economy tightly - but this will come with consequences)

And so 2001-2013 was essentially a neoliberal period punctuated by the 2009 GFC. This was when our labor protection and intellectual property rights were stripped off in exchange for the integration into the global market (our WTO deal was worse than India’s, as a comparison). Wages were depressed, foreign capital came in, took over parts of the Chinese economy in particularly the agricultural/food processing sector, and at a low exchange rate, China became the global hub for manufacturing cheap goods that would then be exported to serve Western consumers.

The second Hinge Point came when 2009 GFC erupted from the US. Unemployment in the Imperial Core caused consumption to dwindle, and with it the loss of export revenues all across the Global South. Furthermore, the US interest rate abruptly went down to 0% under Obama’s ZIRP (Zero Interest Rate Policy) which consequently drove up the global commodity prices, which hit export economies particularly hard because these countries rely on importing raw materials to turn them into consumer goods.

Again, around 2009, China had a chance to transition out of the export-oriented economy into a domestic consumption led one, but instead chose to go down the infrastructure building route to save the economy. This would precipitate in the economic problems that China is facing today (property market bubble, local government debt crisis etc).

To offset the reduced consumption from Western countries, China would pour in 4 trillion yuan to stimulate the economy. A good part of them went into building infrastructure that was actually useful, but because the real economy was not targeted, much of them would go into fueling the property market bubble, a sector that did not exist before 2008. Because of the slumping real sector, many investors bet on the property market, which eventually caused the cropping up of new cities all over the countries. Some of the “ghost cities” would eventually be filled, but many more will never be filled because of improper planning (lack of nearby infrastructure, economic opportunities etc. - in some areas, it’s not unusual to drive 40-50 minutes to the nearly school/hospital). This would lay the groundwork to the property bubble that we’re seeing in China today.

Meanwhile, local government began to run into deficits due to the loss of real sector, and were unable to obtain new loans from the financial institutions without paying off their outstanding debt. In turn, the local government began selling land to property developers to earn the cashflow needed to pay off their debt, and to take out new rounds of loans to finance the functioning of those local governments. The financial institutions became the middle men that mediated the land selling from local governments and the property developers, and earned a huge profit out of it by investing in the real estate sector.

This tight relationship between local government, financial institutions and property developers that emerged out of the property market frenzy following the 2009 GFC would precipitate into a complex crisis that has no easy solution today. Too much money (including households and corporations that have nothing to do with real estate) has been tied up to the real estate sector - if the housing price crash, many households and companies will lose their money, and that means the slump in domestic consumption - a very real problem we see in China today.

The third Hinge Point happened when Trump launched his trade war against China in 2018.

The first phase of US-China trade war officially began on March 23rd, 2018 when Trump signed the memorandum on the Section 301 Investigation, which ordered that tariffs to be imposed en masse on Chinese goods and the restrictions of the purchase of US assets by Chinese corporations. On April 16th, ZTE was banned from purchasing sensitive items from US corporations for the next 7 years. On May 15th, WSJ revealed that the exchange condition for lifting the ZTE ban was for Qualcomm to purchase NXP Semiconductors (Qualcomm would eventually terminate the bid in July 2018 after Chinese regulators did not approve of the transaction). On June 7th, Trump stepped in and instead of total ban that would have doomed the company, allowed ZTE to pay $1 billion in fine and for US regulators to monitor its operations in exchange, and ended the ZTE incident.

The second phase followed the ZTE incident and began on July 6th 2018, when the US imposed 25% tariff on $34 billion of Chinese products, and another 25% tariff on $16 billion products on August 23rd ($50 billion total). China reciprocated by imposing a similar 25% tariff on $50 billion US products to China.

On September 24th, the US ramped up the scale by imposing 10% tariff on $200 billion Chinese goods, and would increase the rate to 25% starting January 1st, 2019. If China were to retaliate, the US vowed to impose tariffs on another $267 billion products. However, China could no longer retaliate in kind because according to China’s customs statistics, it only imported $130.4 billion US goods in 2017.

The trade war would eventually enter its stalemate when both sides agreed on December 1st, 2018 that they would stop imposing new tariffs on the other side. Biden would later reignite the trade war after 2021.

And throughout this trade war, even when the intentions of the US had been made clear, China continued to prioritize its export economy and facilitate US-China trade.

China’s problem is not building productive capacity, unless you take that to mean that China’s economy and its development can only be dependent on Western consumerism. China is already the world’s largest economy and has the most industrial capacity in the world. It is absurd to think that China can only finance its own development by selling more and more cheap goods to Western countries.

Instead, a big problem in today’s economy is the local government debt crisis together with a property market bubble that is on the verge of crashing as I mentioned above.

The fundamental solution to this is how to transition from an export-oriented economy into a domestic consumption led economy. That requires China to take control of its monetary sovereignty, and start raising the wages of the Chinese people so they can afford to stimulate the domestic consumption, and at the same time absorb the consumption demand from the rest of the world. This would mean exporting China’s industrial capacity to the other countries, but it would bring the world back towards a more balanced trade while denying the US from running a persistent trade deficit to get free lunches all over the world. Depressing wages forever is not the solution to China’s problem.

And to do that, the biggest hurdle is to abandon the ideological indoctrination of Western neoclassical economics - that China has to balance its budget, cannot run more than 3% deficit, the need to earn from foreign trade and investments in order to pay for its own internal development. All the usual advice given to Global South countries. This is why you should not be surprised to see that the Chinese libs will lean on foreign investment to save its economy.

Socialism with Chinese characteristics is not capitalist, nor is it socialist in the traditional sense. It is Socialism that must adhere to the market principles - one that must defend the sanctity of the Western neoclassical market principles.