A disagreeable blog about Finance

Of Chinese pipe Dreams, and other distressed matters – Part 5

Coming from part 4 of this series, where we look briefly at the mismanagement of the Henan banking crisis. In it we read the tea leaves and try to evaluate the medium-term prospects for the banking sector in China. Oh, and bank runs are trendy again. 

Moving on, it’s now time to gauge what the people’s response is going to be to the whole debacle: to the lockdowns, the real estate crash, everything. 

Because there is a certain risk that the dynamic of the events did poke a hole in the Chinese Dream.

The social pact of the Liberated People with the CCP

The living conditions of mainland Chinese people, albeit they have been improving steadily in financial terms, started to lack in other areas as the control grip of the CCP tightened over the years.

After having achieved a distorted form of financial empowerment for most of the people, lifting the country out of poverty, now realistically there is nothing more the CCP can give to the citizens, other than a brutal and pervasive form of information and thought control.

From the perspective of a regular, totally average Chinese citizen:

“Go to the pool” they said.
“It’ll be fun” they said.
  • You can’t rely on your investments, or housing. 
  • You just have to stay invested balls-deep and take a leap of faith for the rest of your life. 
  • You are unbelievably limited in the pursuit of personal ambitions, interests or hobbies. Urban landscapes simply can’t accommodate any activity besides moving around, being at work, shop around, or some leisure that you pay for.
  • You can’t accomplish any major goal of personal actualization and realization, if they fall outside your job.
  • No freedom of word or thought. Opinions that go against the CCP rule or interests put you at risk of really bad consequences
  • You can’t realistically expect to be supported in your elderly years since the social pyramid has inverted due to the One-child policy.
  • You have the option to migrate to one of the major cities, and basically be entombed in a concrete jail, or face restraints and hardships in increasingly damaged rural areas. There’s nothing left. The Chinese rural landscape has disappeared, and its many local, millenary traditions and folklore are gone with it. 

Oh, and by the way if you are male living in a more rural area, good luck getting married. Thanks to the immense wisdom behind the One-child policy and the consequent practice of selective abortions, more than 40 millions women were thrown out of the party. So there is that too.

This turns the Chinese Dream into a fading mirage. Which is going to be a problem for the CCP.

The unwritten pact between the CCP and the People of China was that the ruling elite, after having exiled the previous ruler, stays on top of the pyramid, and is granted immunity, unlimited wealth and powers. In exchange they start to do something good for the people too.

In these terms, lifting the county out of poverty was a pretty sweet deal. People in general terms think of the CCP as a good entity because of this. (And of course Chinese people lifted China out of poverty themselves, while the ruling elite can be credited for nothing but bringing about a famine that killed almost 50 millions, for the childlike consolidation of power and for making corruption a sustainable reality even for the 21th century).

So what is happening in Henan, to the banking system, to the real estate bubble, can’t be seen out of context. It’s important to understand the landscape. The moving parts. 

  • There is no financial freedom of sorts. Surplus from wages is drained by mortgages at all times in life.
  • Families are facing the potential disappearance of their hard earned wealth.
  • Living conditions, overall, started to suck. And COVID brought in a whole new level of sucking.
  • Life prospects, better not think about it.
  • The crooks that took everyone’s money get to enjoy bailout after bailout.
  • Attempts to restore some justice are met with violence.

“So what about it? It’s China after all. Autocracy and dictatorship. Suck it up.”

Okay, but here is the problem. This sends a message:

This is what happens if you try to pursue the Chinese Dream. 

If you comply, 
and bend your life to do all we have commanded you to do, 
and give up all the fruits of your labour,

then you are rewarded with a slap in the face
and violence. 

Criminals are going to show up, 
steal your money, 
and beat you. 

Yet somehow you have now become the enemy.

These who are affected by all this, are also the people that have the utmost trust in the Chinese Government, who can’t access any media outlet other than the ones provided and censored by the CCP.
People who really have no means to look at reality other than from the platform provided for them, in which the CCP is portrayed as benevolent, and wonderful, and single-handedly responsible for the manufacturing of the well-being of Chinese people.


These same people have now become the enemy, and treated as such, by the elite. They are now being forced to face the immediate consequences of actions which don’t align with CCP’s rhetoric, worsening life prospects against blatant open-air corruption, and further repression. These people are forced into reframing their reality almost entirely. This is a shock that ripples through society, and will have consequences.

摆烂 (Bailan)

All things considered, it is incredible that the powder keg that it is China hasn’t blown up yet. But this is just me talking, as someone who hasn’t experienced a twisted form of enforced pluralism, lifelong indoctrination, dictatorships, and general lack of global reference levels.

But so much confined pressure must find a way out in some form, and it’s the newer generations that provided it with one. It’s the Chinese youth that are starting to tackle the accruing societal problems.

They of course have no prospect to magically fix the economy, or the real estate market. And let’s be honest, that is actually not their fight; it wouldn’t be fair. But they might have a chance to turn things around at a systemic level.

With a bottom-up approach.

With the same means that, historically, younger generations have used to capsize their rulers. By starving the beast.

In April 2021 a nice fellow by the name of Luo Huazhong posted something on Baidu Tieba:

I can just sleep in my barrel enjoying a sunbath like Diogenes, or live in a cave-like Heraclitus and think about ‘Logos’. 
Since there has never really been a trend of thought that exalts human subjectivity in this land, I can create it for myself. 
Lying flat is my wise movement, only by lying down can humans become the measure of all things.

Luo Huazhong, Apr 2021

One must praise the efforts that these people put down in order to allow a simple idea to pass through the filters of online censorship. To disguise dissent using philosophical robes. And this guy went on to be a messiah at that. 

躺平 (tang ping), the Lying flat movement was born.

It is the big change that came along with the clusterfuck of problems that 2021 brought about. It encourages people to give up on intense demands of a system in which they don’t belong, and that fails to provide any favourable prospect for them. 

Chinese youths began to opt out of a system where additional effort no longer tracked additional rewards. In fact, the system was so overheated, rewards often decreased with added effort. 

Change Che (source)

Tang ping can be seen as a resistance movement. A viral counterculture that spreads contagion at the most basic, almost animal level. It stems from the psychological anguish of the people who, having reached a breaking point, simply give up on a rigged system.

They cease ignoring biological imperatives and start prioritizing psychological health, giving up on the prospects of wealth materialism (which is perceived as fading, and increasingly unattainable anyway).

It’s a movement that doesn’t even need a body, or a structure, but if you really want to provide one for it, let’s just say that it implies spending little effort and adopting a laid back attitude.

This implies the rejection of overworking conditions or of all impositions that seem unfair, which are what makes the bigger part of China’s growth engine run with competitive prices on the global market. Whoopsieee.

The CCP went on rage mode on this, and immediately online censorship eradicated all mentions of tang ping from the network. Government media, on full-blast, addressed the idea of a tang ping movement as shameful. And this, obviously, backfired spectacularly by functioning as the best marketing campaign anyone ever wished for.

Quick question. If this is the sentiment of a large group of people. If this is what has been taking roots, then how strong is the support that China’s younger generation will willingly lend to the ruling elite, in the near future? I suspect it’s very limited.

And as we already know in 2021 China saw things turn for the worse.

摆烂 (Bailan), the Let it rot movement was as a natural progression. And this is tang ping on steroids. It definitely adds a cynical twist to the ideology of the Lie flat movement.

Bailan means not caring whatsoever. About anything. Because there’s nothing to be done. 
It confronts being locked in a competition that you ultimately know is meaningless.

Bailan is a manifestation of existential despair.

Bailan means to actively embrace a bad situation rather than to try and flip it into a good one. 
A similar Chinese idiom is 破罐破摔 referring to dropping a pot that’s already cracked.

Bailan is more cynical [than Tang ping] 
It’s to let go of the wheel, and watch things crumble. 
To lean into one’s self-sabotage.

Housing prices too high?
Just forget it.
You’ll never catch up.
Just rent and embrace the rising rent costs.

Dating too exhausting?
Then stop.
Embrace being single and getting lonelier each year.

Marriage too expensive?
Then forget it.
Why put yourself through the work of buying a car,
owning a house,
having good savings,
and a high income?

No room for career advancement?
Just take extra holidays
and laze around,
let people down.

Change Che (source)

See? Give it time, and incremental adjustments. It is completely possible to shape the society that lives on the premises that any change of the ruling elite is not an option worth hoping for.

But the end result doesn’t really change. One way or another, the reaction of the people ultimately contributes to the undoing of the power structure that allows that elite to exist. In some form or another.

Oh, by the way…

The west can say what it wants, but the truth is that we are seeing a similar theme here: This existential anguish, it’s not a dictatorship thing. Many western countries are breeding right now the exact same sentiments within the younger demographics.

What it’s like to be almost anyone, right now.

We already shook hands with the great resignation, which is a trigger event. And then the work from home movement came. And this is a tide that has just started.
When things will get worse (because they will) then I’m sure new, and far less compliant forms of resistance will spread like wildfire. It’s going to be a fun ride.

Macro outlook and potential outcomes

It’s difficult to rate the current status of China’s economy as something that can recover promptly and restart. There are really no realistic avenues toward this. 

This undoing is entirely domestic. No outside players can have any say in this. 

The country has become an autocracy: It is aggressive toward western countries, and has adopted a childlike diplomatic stance.  The whole debacle has always been in their hands, and their hands only.

And I might have withheld a few other important details so far. Apologies.

This might not be the best time to mention that:

And despite the real estate market outclassing any other domestic economic segment, the majority of TOP-10 companies in China are actually financial institutions. So there you go: the domino tiles are neatly in place.

But it would be a rookie mistake to evaluate China assuming it is a free market. Because it isn’t. It isn’t free to crash, to consolidate, or to perform price discovery. At the moment its financial framework can’t do any of that. It is being inhibited by the CCP. 

China’s ruling party does not only hold all financial levers, they also make the policies and enforce them. That is how dictatorships act; their competitive advantage. If the CCP says that a problem doesn’t exist, then it just keeps existing but it’s never mentioned, and its effects are pushed further into the future. Or morphed into something else.

If things really turn for the worse in an unrecoverable way, one possible mitigation strategy would probably be simply repealing laws that allow private property to exist, rewinding the clock back 80 years, give or take. 

It wouldn’t be ideal, because good luck having business with the rest of the world after a move like that, but it would work. The government could simply nationalize the whole real estate sector, that’s it. Problem solved.

Another option could be going all-in in the U.S.A. way. Subsidizing the market with untold amounts of newly minted currency, until its problems are diluted enough.
China’s central bank right now is showing signs of wanting to go this route however there are many potential reasons behind this, and a political turnaround can happen anytime.

This would mean embracing not only capitalism to the extreme, but its worst, corrupted, greedy manifestations. It can be done. Financial institutions love it! But it comes at the expense of obliterating the economic power of the people, and poses massive long-term threats to the economy once the markets start to come off of the cocaine high.

Either way, then the next problem becomes retaining sufficient support and approval from the people. 

So the question becomes: is the CCP at the end of the rope? 

In 1989 they managed to renew their lease by using tanks to crush protesters in their sleep. It is possible today that they are irking to pull the same trick again.
But it’s two generations later now. A large portion of the younger generations have had a chance to gauge their reality against that of other nations. They might have had a whiff of what slightly less fake democracies actually look like.

Would that same trick work? And what if it doesn’t? 

Right now the government already backpedalled on its quest to squish away all capitalism and greed, by announcing a one trillion injection in support of property developers. 

This signals a 180° on the rhetoric from 2021, an absolute first in Chinese politics. 

This is a bailout with no strings attached, and shows people how their leaders give a big fat reward to the crooks at the epicentre of the problem.

It means that the CPP feels the threat, it feels outpowered. To the point of being forced into losing face in front of its law abiding citizens.

And CCP also managed to alienate their nationalist supporters too, after the recent US-Taiwan diplomatic fiasco and the utterly idiotic Operation Fishkill that followed. But that’s another story.

CCP softened the blow in 2021. 
And again in 2022. 
They are now in “damage control”. 

Developers aren’t building the units they are responsible for, instead they are employing the tight liquidity from new sales in order to service their debt. Oh, and to hire “construction actors”, apparently. To fool the buyers. Because that’ll fix the problem.

All this while dissent is taking hold.

China’s most effective superpower, even more than its industry, its military or its demographics, is actually the predisposition to shy away from transparency. It is unmatched, and almost admirable. Its ability to, with the straightest face, lie and fudge numbers until the very last second before the bomb drops. 

If you did read the introduction to unsustainable systems in part 2, I hope you don’t develop anxiety issues now. It’s precisely what I did.