Meanwhile, I don't think economy should be driven primarily by consumption in the first place. Thinking that consumption has to be at the core of the economy is just capitalist brain rot.

A state produces to consume. If there is no demand for consumption, there is no production. This has nothing to do with consumerism or capitalism, it simply is how an economy works. People want to eat, live and enjoy life - these are all consumption and in order for the people to have that, you have to produce.

What gets twisted is the IMF promoting an export-led growth strategy that practically forces countries to run trade surpluses (accumulating foreign currencies) to put on their asset side of the balance sheet to keep their deficit low, without which the increase in domestic spending (liability side of the balance sheet) would drive up the deficit number.

As a result, this distorts what trade is actually for - exchange of real goods and services that you otherwise wouldn’t be able to produce in your own country. Instead, countries re-orient their allocation of capital, labor and resources to produce export goods to accumulate foreign currencies - in the case of US dollar, which has a free floating exchange rate, simply something that the Fed types into existence with keystrokes. This allowed the US to extract surplus values from the rest of the exporter countries by simply adding a number to the exporter’s bank accounts instead of providing something real in return.

So, export became the primary means of a developing country to “upgrade” their economy, and this strategy isn’t anything new. Before China, there was Germany and Japan. Then Taiwan and South Korea. Then the Southeast Asia before they were wrecked by the Asian Financial Crisis in 1997 (because SEA was where Japan exported its investment, which means they needed to be taken out). Only then did China came to the scene when joining the WTO in 2001.

Finally, this whole talk of debt is not really meaningful. China has sovereign currency and can issue as much of it as it wants the same way the US does. Money supply should be seen as an allocating mechanism and nothing more.

The state bank aka the People’s Bank of China has sovereign currency, NOT the local governments. This was why the local governments borrowed so much with the shadow banks aka LGFVs (before 2015) and from direct municipal bond issuance (after 2015) to invest in the massive infrastructure building.

And the reason why the PBoC isn’t directly financing these investments is because China has listened to the IMF and wanted to keep its deficit low (for the most part, stayed below 3% of its GDP and only after Covid and last year that this was increased to 4%). To keep its deficit low, China needs to accumulate foreign currencies before it is allowed to spend domestically. This is why China has been frantically trying to dump its export goods to the other parts of the world (especially the EU) after Trump launched the global tariffs, because it needed that trade surplus (foreign currencies) to add to its asset side to spend domestically.

The only thing this achieves is that China’s deficit number looks low to satisfy the IMF requirement. There is no empirical evidence that says high deficit will lead to uncontrollable inflation and unemployment. In fact, there is no theoretical foundation for that unless you believe in neoclassical economics. But the Harvard-trained economists in China all seem to take IMF’s words as sacred.

What this means is that even though the Chinese government has sovereign currency, it is not using it to its full advantage, and still relied on accumulating foreign currencies as assets for domestic currency emission.