Embedded below are the video and transcript of the 36th episode of Geopolitical Economy Hour, in which Radhika Desai, Michael Hudson and Mick Dunford discuss the significance of the 75th anniversary of the Chinese revolution; the reasons for China’s continued economic successes; China’s role in the construction of a multipolar system of international relations; China’s people-centred development versus the West’s capital-centred development; the structure of the Chinese economy and land ownership; the likely impact on China of a new Trump presidency; and much more.
The video and transcript were first published on Geopolitical Economy, edited by Ben Norton.
Transcript
RADHIKA DESAI: Hello and welcome to the 36th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our world. I’m your host, Radhika Desai.
MICHAEL HUDSON: And I’m Michael Hudson.
RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host Ben Norton, our videographer Paul Graham, and our transcriber Zach Weisser.
Thanks to many conferences I’ve been to, our usually fortnightly show has become a monthly show, that is, it’s been a month since our last show. And what a month it’s been. The historic U.S. election results came in while I was at the Valdai Discussion Club conference.
Traditionally, it ends with a speech, usually a landmark speech, by President Putin. This time was no different. Two days after the U.S. election results had been declared, Putin reviewed the fundamental principles of Moscow’s foreign policy, giving a wide berth to the U.S. election results. However, he ended with two key sentences that laid bare Moscow’s stance towards them.
Putin said, “Everyone should be clear that putting pressure on us is useless, but we are always prepared to sit down and talk based on the consideration of mutual legitimate interests in their entirety.”
“In that case, there may be little doubt that 20 years from now, in the run-up to the 100th anniversary of the United Nations, future guests of a Valdai Club meeting will be discussing much more optimistic and life-affirming topics than the one we are compelled to discuss today.”
That was what Putin said at Valdai.
The U.S. election results were followed by the almost immediate collapse of the German government. A Western discursive shift from the illusion that Ukraine could defeat Russia to talk of a negotiated end to the conflict, even with territorial concessions. Announcements of layoffs in German industry, which picked up pace at a funereal drumbeat.
Trump’s cabinet appointments, the resumption of the Syrian conflict, the apparent ceasefire between Israel and Hezbollah, which has been immediately violated, a Georgian attempted color revolution, the Baku COP meeting, the Sri Lankan elections that brought a Marxist to power; the list is very long.
Indeed, in retrospect, the liminal period between the U.S. presidential election in early November and the U.S. presidential [inauguration] in late January was bound to be rocky, and so it is proving to be. Our conversation will likely touch on many of these topics.
However, for the leitmotif of the conversation today, we’ve chosen a topic we’ll be meaning to cover this year; the 75th anniversary of the Chinese Revolution, which most of you know took place in 1949.
For if the United State’s destructive and malevolent presence can be seen in each one of the events rocking the world today, so is China’s constructive and benign [presence].
An entire army of U.S. and Western commentators are busy trying to talk down the Chinese economy, the foundation of China’s international influence.
It is allegedly suffering from the prospect of deflation, faces Japanification, has a real estate crisis and is losing domestic legitimacy. Moreover, we are told, it will not be able to stand up to U.S. sanctions.
So clearly, to understand China’s role in countering the U.S., we need to understand the secrets of the longevity of the Chinese Revolution.
To do this with us today is a familiar guest, Professor Mick Dunford of Sussex University and of the Chinese Academy of Sciences. Mick, as you know, is a geographer and a scholar of China. And as we have seen in other shows, he also keeps a keen eye on events in Russia, in Europe, and the world in general. So welcome, Mick.
MICK DUNFORD: All right. Thank you very much, Radhika. And thank you, Michael. It’s a great pleasure to join you again.
RADHIKA DESAI: Yes, we’re really pleased to have you. And I want to start, Mick, with a very important article you wrote recently, in which you provided a framework for the understanding of the history of revolutionary China’s success along two parameters.
One was about how China’s development has been determined by the interaction of internal and external constraints, and these constraints caused regular crises, but China had to operate within them.
And the other parameter was exactly how the Communist Party of China experienced these crises and these constraints and responded to them. So perhaps you can start us off by laying out briefly how you understand China’s achievements.
MICK DUNFORD: OK. The article deals with the way China was transformed from what was virtually the poorest country in the world to an upper middle income country. Can you show that little slide, please?
RADHIKA DESAI: Absolutely.
MICK DUNFORD: The point I want to make is that in an era when China was embargoed by the United States, until the Nixon visit in 1972, as this chart shows, China actually grew on average at 6.3% per year, compared with 5.6% in the global South, excluding China, and of course, faster than the world grew at 4.7%.
So China in that period performed better than the overwhelming majority of global South countries. After 1980, the chart on the right shows that China actually grew at 9.3% per year.
It’s an average up until 2020, compared with 3.1% globally. But the rest of the global South excluding China grew just 2.9% per year. So in this case, there was an extraordinary difference.
What in a sense happened is that through this era, China first went through a process of “reform and opening-up” (改革开放, gǎigé kāifàng), establishing a household responsibility system, TVEs (Township and Village Enterprises) and so on, with the aim of letting some people and some places get rich first.
And then from 2010, you see the Obama pivot to the Pacific and the United States starting again to seek to constrain and restrict China’s development.
So in that period, one can say that 2012, in a sense, 2013 represents a turning point, the start of a new era, Xi Jinping coming to power in China.
And after that, China launched the Belt and Road Initiative (BRI), accelerated its internationalization and its engagement with the rest of the world.
And it designed what it calls a sort of new path of Chinese modernization, a path that is radically distinct from the path that Western civilization pursued.
And the aim is that at the end of this process, China will actually have reached the end of the primary stage of socialism and established a rejuvenation of Chinese civilization.
So one can identify these three broad phases.
And the point that I try to make is that on the path, on the way, it encountered very, very many problems and contradictions, internal and international problems.
And at each stage, what happened was that it actually engaged in processes of reform, like the establishment, if you like, of new modes of regulation that were basically designed to deal with these contradictions and enable China to move forward.
So, if I just give one, a couple of quick illustrations.
At the end of the 1950s, China was confronted with a situation where the relationship with the Soviet Union was deteriorating. They had to repay Soviet loans and the Russians withdrew prototypes and they withdrew designs and they withdrew their technical stuff.
So at that point, China’s response was to decentralize in the Great Leap Forward. And then in 1964, the United States entered the Vietnam War. And of course, the United States entry posed a serious threat to China’s security. At the same time, its relationship with the Soviet Union was very difficult.
So in 1964, China embarks on this third front strategy in which they spent a huge share of its investable resources, basically to establish infrastructures and to move all its strategic industries to the west and center of China, in deep valleys, in mountains and so on.
So in the late 1970, it had acquired loans and had to repay these loans. So this, in a sense, reduced the resources that were available to the central state for investment. So they adopted reform and opening up, which involved a very radical decentralization in order to address these difficulties.
And one can follow the story through the Asian financial crisis and the financial crises in 2007 and 2008.
But also you can follow it through into the present, because in a sense, what China is doing is embarking on a path now that is actually designed to deal with some of the constraints and limitations that were associated with the model of development up until about 2012 to 2013.
So, in a sense, the article deals with these issues, but in much, much more detail.
But that, in a sense, provides a sketch of the way in which China has this capacity to adapt and change in order to deal with the problems it encounters and to continue to move the country forward on the path to socialism and to the rejuvenation of Chinese civilization.
RADHIKA DESAI: Yeah. And, I wonder, Michael, did you want to say something or shall I continue?
MICHAEL HUDSON: No, go on.
RADHIKA DESAI: Yes. You know, that just makes me think that, one of the reasons why we are discussing China today, is because we are looking at China after 75 years of revolution, a landmark which the Soviet Union did not manage to cross. It was destroyed before its 75th anniversary. So this is quite an important landmark.
We talk about multipolarity and we talk about the BRICS and so on, but China is so far ahead of all the other BRICS that, as I’ve put it once, trying to tell the story of multipolarity, trying to tell the story of the challenge to Western power without giving a special place to China is like doing Hamlet without the Prince of Denmark. China is absolutely key to all this.
And in light of what you said, Mick, you can say that China always kept its eye on the ultimate goal of socialism. But if you were to put it more concretely, through all these crises, through all the different adaptations that the Communist Party of China had to make to its policies, what would you say is the overriding concrete goal [the Communist Party of China’s leadership] kept in mind?
MICK DUNFORD: I think at the most fundamental level, one can say that China has embarked on a process of people-centered development, as opposed to a path of capital-centered development.
So the point is that the overall goal is essentially improving the quality of the lives of all Chinese people. And in that sense, you can say that substantively, China is a very, very good example of a democratic country because what it is doing is trying to produce concrete improvements in the quality of life of all of its people.
I think it’s also quite interesting that if it is a country that can achieve substantive democratic outcomes, then one, in a sense, must also assume that it adopts democratic procedures as well, because it’s very hard to achieve democratic outcomes without democratic procedures.
But its democratic procedures are really quite distinctive, [being] related to the character of Chinese governance. I think that the governance system has played a very, very fundamental role in enabling China to undertake these processes of transformation every time it encounters a problem.
MICHAEL HUDSON: The irony in what you’re saying is that the only way to have this obviously democratic aim of helping raise living standards is to have a strong enough state to resist the special interests. And what China did was, from the very beginning, get rid of the landlord class. And, it never did have a financial class of special interests.
And because China kept money as a public utility, money and credit in the central bank, it didn’t have the special interests that have prevented real democracy in the United States.
So the irony is that when you have democratic elections that are controlled by the Democratic Party and the Republican Party, which are controlled by Wall Street and the special interests, you don’t have a democratic outcome. You need a strong enough state to prevent these special interests from preventing a democratic outcome. You know, I think that’s the irony.
MICK DUNFORD: I think you’re absolutely right.
I think there are a wide range of interest groups which emerge at different times. So, [for example,] with property development, a certain set of interests emerge. But in a sense, these interests were never in command. In a sense, politics is always in command.
And it’s that, in a sense, that enables China to address the risks that were associated with the property bubble that was occurring in China. So they introduced these three red lines in order to avoid the financial risks that were associated with.
This is absolutely critical. It’s the idea that a government that is acting in a way which is designed to improve the quality of the lives of all Chinese people is, in a sense, in command, but also has this capacity to change, to identify problems and then, through a process of negotiation, discussion, and experimentation, to start to find solutions and ways forward when they encounter these difficulties.
RADHIKA DESAI: You know, this is very interesting, because the question Michael raised, and the way you answered it may give rise to two distinct questions in my mind.
So the first question is, as Michael rightly said, during the Chinese Revolution, the Communist Party destroyed the most important obstacle that there would have been to implementing some kind of socialism. That was the landlord class. There wasn’t much of a bourgeoisie, there was not much of any other major interest.
But since that time, and since reform and opening up, partly given the nature of technology, what technology requires, which is the creation of very large productive infrastructures, there has inevitably arisen essentially a corporate capitalist class.
Such a class exists in China because very large corporations must exist in China.
And very often when I’m asked, what is the difference between China and a capitalist society, isn’t China capitalist, China has all these big capitalist companies in it —
And I always explain that yes, in China there are many capitalists companies, in China there are many really, really rich capitalists. Yes, they are very politically influential, they even belong to the Communist Party, but what’s the difference between China and the U.S.?
The difference is that in the United States, the corporate capitalist class controls the state, whereas in China, the state controls the corporate capitalist class.
But can you reflect a little bit on how this is managed? Then maybe after that I’ll come back with my second question.
MICK DUNFORD: Well, I think it’s essentially managed through regulation.
So I gave the example of the property bubble that occurred, the inflation in housing prices, the risks that were associated with the property market, and the kind of potential financial instability that was generated by the way in which these companies were financed.
So in this case, they basically just introduced these basically three red lines, which actually impeded the conduct of these capitalist oriented companies.
At the same time, they adopted a whole series of measures which were actually designed to try to reshape the housing market so that it is more oriented towards providing housing for people to live in rather than the kind of speculative gains that were to some extent, coming out of the way in which the housing system was working up until that point in time.
You think about Ant [Group]’s decision to try to establish a kind of financial arm. And what they wanted to do was to basically use leverage resources in order to provide loans at very high rates of interest to extremely vulnerable young people. Well, that flotation was effectively stopped.
So it’s this capacity to act, in order to cope with some of the risks that are posed by some of the transformations of which you spoke. And I think you saw this explosion of inequality. that’s a very good example.
Through the reform era, you saw very, very strong increases in social inequality moving in the direction of a very high Gini coefficient. You saw rural urban inequalities increased. You saw regional inequalities increase. After the Asian financial crisis, China introduced major programs for rural development.
The new socialist countryside and the provision of infrastructure into rural areas in order to enable rural communities to develop economic activities that could enable people to improve the quality of their lives.
They introduced programs for the development of western China, central China, northeastern China, which is an area that posed, in many ways, greater difficulties. But very quickly, if you then look at the trends in the relative performance of these different parts of China, you actually see a turning point.
So it’s astonishing. These measures are introduced and yet almost immediately, they start to have quite a significant effect.
That was pushed forward with the increased emphasis upon the notion of common prosperity. The idea that, in fact, Chinese development has to lift —
Well, in the past, it did largely lift all people; but it has to, if you like, move in the direction of greater equity, expand the size of middle-income groups, reduce rural urban gaps and so on.
So I think it’s basically through the fact that these whole processes of policy formation actually occur within the context of the institutional system of China, the governance system of China, and the political organization of China.
They’re always prepared to act against powerful interests and powerful lobbies. That’s a huge contrast with the Western world.
RADHIKA DESAI: If I may just press the point a tiny bit. What makes it possible for the Communist Party leadership to control big capitalists in the way that they do?
MICK DUNFORD: Well, they’ve got a large state sector to start with, all right, and the state sector plays a very critical role.
It accounts for something like 38% of total capital formation. Recently the private sector accounts for another 38, 39%. So that’s the first thing.
So this is a state-controlled sector, which is, in a sense, in control of the main strategic sectors of the Chinese economy. So I think that’s the first thing that’s very, very important.
Beyond that, I think you have had the development of a large private sector.
Many, many developing countries confront a problem, which is that, if you look at what happens, they develop, but then you start to see a decline in the profitability of private capital, as you’ve seen in China.
Basically a lot of the increase in investment recently has actually been driven to a significant extent by the state sector.
And the more liberal-oriented economists are talking about the idea that the state sector is expanding and squeezing out the private sector.
That is actually quite interesting, because what that means is that the private sector won’t invest if it’s not profitable.
But, you have a state sector where if there is insufficient investment, you can actually use the state sector in order to increase the rate of investment. So they have these sorts of measures.
But, once you get these investments, they actually create investment opportunities for others.
Many of the major investments in infrastructure and the way in which that has enabled people in rural areas and the countryside to start to commercialize local products, to actually sell them on the internet and so on.
So these things then spill over and generate lots of economic activity more generally through the economy. So I think it’s these instruments.
One other thing I would say is that there’s this notion of market versus state.
China is actually a planned rational, planned state which uses market instruments. So, you have basically the five-year planning system, but, you actually have all kinds of strategic planning, urban planning, regional planning, and you have much longer sorts of strategic plans.
So these plans, in a sense, are providing guidance. In order to achieve these objectives, a whole range of market instruments are used. So I think that’s also one of the significant ways in which the direction in which the Chinese economy is guided can be put into effect.
RADHIKA DESAI: Thinking along the lines that you have opened up, I would also add a couple of other points. One is that I think the Chinese, the Communist Party state is also able to shift the balance between big capital and medium and small capital as and when necessary. As you say, it opened up opportunities for other capital.
So that would be an additional point.
And then a further point would be that, of course, in China, the bulk of the financial sector is state-owned. And they are able to control credit and essentially direct— whereas in the United States, it is not state-owned.
And then finally, politically, I think the political point that needs to be made is that in China, the Communist Party does not need— the operation of the democratic procedures that you mentioned, in China, does not require funding by big corporations in the way in which it is required in the United States.
This will allow us to segue into discussing the transition in the United States in a few minutes.
I would add those points, but I would also say that, of course, the party state remains in a certain sense reliant on its legitimacy among the common people. I think that is also what gives it a greater autonomy than it would otherwise have.
Whereas in the United States and in most Western countries, essentially, the winning of elections is now more or less a function of a lot of money and media manipulation and the broad legitimacy among the people does not matter.
MICK DUNFORD: I think it’s important to understand that China is a very different kind of society from Western society, profoundly different. You cannot understand China through Western lenses.
You cannot understand China through the lenses of Western theory. And I think that that leads to a situation in which many people in the Western world sort of misunderstand China.
They actually also misunderstand Russia, as you’ve seen, as a result of their inability to understand that Russia could cope, for example, with sanctions. So, I wanted to illustrate that.
It’s quite important to emphasize the way in which you need to look at China in a different way, almost from, within Chinese civilization. It would be the same with other civilizations.
So just to give an example, in February, 2021, Anthony Blinken gave a series of speeches in which he repeated the same line.
He said, “the world doesn’t organize itself. When we are not engaged, when we don’t lead, then one of two things happens. Either some other country takes our place, but probably not in a way that advances our interests and values, or no one does, and then you get chaos.”
Now, it’s clear that the existence of a hegemon is incompatible with the sovereignty and equality of nations.
But the important point is that it is not the case that chaos prevailed in the absence of a hegemonic power. If, for example, you look at East Asia. East Asia was largely at peace for 300 years until 1894. China was at peace. This was with neighboring countries for 500 years.
So in that era, in East Asia, there was a polycentric gongsheng (共生, gòngshēng), symbiosis, interstate system that was characterized by a set of principles and codes of conduct relating to interstate relations that basically delivered very, very long periods of peace and of trade and of tribute-trade among these countries.
So, the important point is, you know, this experience is basically related to a central Chinese concept of harmony. So in discussing international relations, China thinks in terms of this concept of harmony, not in terms of anarchy or in terms of chaos.
So this concept is embodied in a whole series of Chinese concepts, like guanxi (关系, guānxi), right; tianxia (天下, tiānxià), “all under heaven”; and so on.
So, to give you an example, if you say, what does guanxi mean? It basically is reflected in something that Confucius said. He said,” if you want to establish yourself, help others establish themselves. If you want to be successful, help others be successful.”
Symbiosis means the existence of the self in relation to others. So the point is, that they have a completely different starting point in thinking about the way in which the relations between states can organize themselves.
And they think that chaos is not inevitable, that countries can seek to work cooperatively together. So you’re dealing with a profoundly different worldview. And basically, people in the Western world simply cannot seem to understand this. It’s very, very striking.
So you need to understand these ideas in order to understand China, in order to understand what Xi Jinping says. It is imbued with these principles and these notions every time he speaks, imbued with them. So in that sense, they’re central. So if you cannot understand them and cannot engage with them, you’re not going to understand China.
RADHIKA DESAI: Absolutely. And I want to say, come back to that, but I think, Michael, you wanted to say something.
MICHAEL HUDSON: Well, that was earlier when we’re discussing the market. So I’ll return to that when we discuss real estate. We’ve gone beyond that.
RADHIKA DESAI: OK well, let me make this limited point and then we can go to real estate, because that is something we should discuss, because there’s so much misunderstanding about it in Western countries.
But the point, what you’re reminding me of, Mick, is funnily enough, at this conference I’m at in São Paulo, from where I’m joining you, the paper I’m going to give is precisely why we need to completely revamp the international relations curriculum.
Because the dominant schools of international relations are allegedly the liberal and the realist. And so the liberal one simply says, essentially, it’s the hegemonic free trade argument that the dominant country wants the entire world to be open to penetration by its capital and commodities. And that’s what it wants to see.
And of course, the reality has always been that there has been absolutely no development among countries that have opened themselves up to dominant countries.
There has only been development where countries have at least partially “de-linked,” as Samir Amin would say, and then engaged in their state-directed development with managed capital flows, managed trade, and so on. So that’s the liberal wing.
And then the realist wing, essentially, is to say that, we can do whatever we want, because every country that has the power and the might to do what it wants would do so if it could. So, realism is all about anarchy and chaos and so on that you were talking about.
But the fact is that it is not all countries that behave like this. It is the core capitalist countries that have historically behaved like this. And the entire field of international relations is distorted in order to make their actions look natural and every other action look either unnatural or impossible.
Michael, sorry, you want to get in. Please go ahead.
MICHAEL HUDSON: I want to point out the similarities between China and the United States and Germany in the 19th century. The United States and Germany set their whole development plan to counter Britain’s domination. They were protectionists.
They were not free traders until they replaced Britain and dominated the economy and said, once we’re dominating, we don’t want other countries to get rich the way we do. You will have free trade so that we can come in and crush your infant industry.
But the way that America and Germany got rich was two ways.
That was called, accused of being socialism. They wanted high wage labor, unlike England, that was pretty much anti-labor. But most of all, they said, how are we going to make our labor competitive with other countries? We want high wages, living standards, because well-fed and well-housed and well-educated labor is more productive. But we want our industrial employers to be able to out-compete with others. How do we solve this problem?
Well, the [solution] was simple. They said, let the government bear most of the costs of basic needs for labor. Let the government provide education and health care freely.
Let the government, instead of letting communications and other public utilities be privatized for monopoly rent, let’s have the state produce them and supply them as low-price services.
That’s exactly what China’s doing. You could say that China has picked up the same line that, in many ways, that American and German industrial capitalism took off in protecting itself against the rest of the world.
And the other way was to prevent special interests.
And that’s when I want to go back to what Mick said about markets. It’s true that China prevents special, we’ll call them rent-seeking interests, special monopolies, special power centers outside of the government.
But what it has not prevented, that classical economics was all about preventing, was not special interests of individuals or companies, but the market dynamics.
The one thing that China has not done that was the focus of classical economics in the West
was to cope with rising land prices by taxing it away.
The aim of Britain’s free markets was to be free of a landlord class. You wanted to get rid of the landlord class. You wanted to tax the economic rent, and that would prevent an idle rich nobility from collecting it. But by taxing the increase in land rent, you would also keep down prices.
Well, China has not focused on taxing the land prices that began to lead the population to do, as President Xi said, to look at housing as an investment vehicle instead of a place to live. It hasn’t figured out the Western 19th century solution as well.
If you tax away the rise of the rental value, then it will not be paid to the banks as loans to buy rising housing prices, and you will not create the free lunch of land rent.
China became a kind of free lunch economy of land rent that the owners didn’t do anything to increase the rise of prosperity, the rise in social infrastructure, all of the things that increased the rent of location for particular cities. That’s really the problem that it has to, that it’s trying to cope with now.
And I think you’ll get into that later when you’re talking about your charts.
MICK DUNFORD: Well, I think it’s important to say, that, land is either owned by the state or by collectives in the countryside. Yeah. Essentially land is leased to users.
What China did over the increase in land values was that that actually became one of the main sources of funding of local government. So local governments would actually auction land and then the increments in value were, in a sense, a significant component of local government revenue, and then that revenue was used to fund infrastructure investment that would also to fund other local government services.
MICHAEL HUDSON: Are you saying they taxed the land value as it went up, that their tax revenue would go up as the land prices increased?
MICK DUNFORD: They basically, the value for which the land was, leased went up.
But the income, they bought it, they bought it, they assembled land, they put in infrastructure. And then if it’s around the edge of the city, if you’re allowed to build housing on it, then its value is going to increase.
They sought to capture that value when they sold the leases to developers, giving them the right to develop property on that land. And that was a major source of local government revenue. But the possibility of continuing to do that has to some extent diminished.
So, China is having to think about new ways of generating revenue in order to fund local government.
RADHIKA DESAI: And what new ways do you think it will find or what are the possibilities at this point?
MICK DUNFORD: I’m not sure. There’s discussion of a property tax, but that property tax would be, would obviously be quite unpopular.
You know, people say that when we bought our property, we didn’t know it was going to be taxed. But that’s one obvious source.
But so far, I think there have been some experiments, but this is one of the difficulties, they’ve had in terms of funding, funding, funding local government, because this land revenue, as they call it, which funded local government to a significant extent in the past, especially, when there was very rapid urbanization, very rapid urban development, rapid expansion of urban areas, played a major source in funding local government.
And it’s, quite difficult, actually finding effective alternative, alternative sources of local government revenue.
MICHAEL HUDSON: The owners get the benefit of the rising land value, and that makes it more expensive for new buyers. And that’s one of the problems in China now.
How do people who are just entering the labor force, making families, how do they obtain a house that has been increasing, just because of the land price that has been taken, have a split between homeowners and developers on the one hand, and the rest of the population on the other.
This was what the whole 19th century discussion about land rent was all about.
RADHIKA DESAI: Exactly. Taxing away all rentier incomes, which would be partly, which would be this kind of income or this kind of capital gain is certainly central, I should say central to any fair society, socialist society, etc.
And I think that you could probably justify a property tax initially in at least two ways.
Number one, if revenue was generated largely by selling this land to developers, then the realization of the value, insofar as revenue was raised in this way, the burden of the revenue falls disproportionately on one section of the population and not on the other.
So a property tax, which is broader, would be fairer, and it could be introduced in a very light way, like, we are only going to tax you to the extent of 0.01% of the value of your property and so on. And you introduce it in that way, and then gradually the population gets used to it, something like that.
it could be possible anyway.
MICHAEL HUDSON: Well, if you don’t do that, then the increase in the property price will be, for a new buyer, will be paid to the bank, the banks, and you’ll have an increase in debt. And that’s exactly what the problem is happening now, the increase in indebtedness. That’s what you want to prevent.
And in terms of the domestic local finance, you could have America solve that problem by having revenue sharing.
Beijing, now that the ability to sell local land to privatize to developers has pretty much reached a watershed.
And the government can now simply create the money, like other countries do, and use that to finance local budgets instead of forcing the governments to sell off the land to have this whole developer land price rise that’s been occurring.
MICK DUNFORD: Ok. They lease the land. They didn’t sell it. They sell a lease. That’s right.
They retain ownership, but they sell a lease. And by selling the lease, they did appropriate a large share of the increase in value that was associated with changes of use. A large share was appropriated by the government.
I can give you an example, these interesting experiments, in the city of Chongqing, they introduced a scheme whereby, rural people who moved to a city and acquired an urban hukou (户口, hùkǒu), they still had property in the countryside.
So they said to them, well, if you convert your residential plot and so on to arable land, we will give you a certificate. Around that city, they then created a situation in which anybody, and this included state-owned companies who wanted to develop land, had to purchase one of these certificates.
The revenue from the certificate largely went to the rural household that moved to the city to provide them with a sum of money to enable them to establish themselves in urban life.
So 20% was given to the collective, in the countryside from which they came to.
There are quite interesting experiments in trying to think about ways of enabling the kind of increase in value of land that is associated with urban development, to actually be spread relatively widely.
But these are, these are obviously very complicated issues and, they’re not issues in which I have, of which I have any really specialized knowledge.
But I, I think this, this issue, this issue of appropriating the increments in value is something to which, they have paid attention, as I said, first by using it in order to fund local government activity.
But also, in this case that I just mentioned, providing people who move from the city, to acquire a sum of money with which they can establish themselves in the city.
I met someone [in Guangxi] who just told me that they had a property in the countryside, they were six in the family. They, they, they were asked if they would destroy their rural property, but they agreed and they got, there are six people. They got 60, they got 60 square meters, a property of 60 square meters each in the city, free of charge.
MICHAEL HUDSON: Two questions about the leasing.
MICK DUNFORD: There’s interesting things done here, very interesting measures introduced here, but you have to be an expert who studies these things in detail, to understand exactly what’s happening.
MICHAEL HUDSON: Well, two comments.
One, in the United States, most of the real estate fortunes have been caused by re-zoning the land. That’s where the big capital gain is, and that’s how the key in America to real estate fortunes.
But against the lease, suppose that as a town leases the land to a developer. Suppose in five years, the value, the housing and the value of this land site doubles. Does the revenue to the city that’s leased it also double, or who gets that value?
MICK DUNFORD: The local government got a one-off payment, but then the developer develops the land and then, then basically, then basically sells the property, to someone who lives in the property. So then any increase in value, in a sense is appropriated by the property owner.
So that would be the justification for introducing a property tax.
MICHAEL HUDSON: That’s exactly, yeah, of course. And that’s what Adam Smith and John Stuart Mill and Ricardo and Marx were all about in the 19th century. And that’s the problem that I haven’t seen China cope with.
RADHIKA DESAI: But I think I also agree with Mick.
I take your point, Michael, and I agree with you. And I think Mick agrees with you as well on the general point. But I think what Mick is also saying is that you can’t understand China without looking at cases in detail and at the local level.
Because if there’s one thing that the Communist Party leadership is always very mindful of is the distributional consequences of its decisions, particularly after having seen inequality rise to a very great extent and since 2010 being engaged in an effort to try to address it. So I would agree with that.
But I think we should probably end this discussion in about 15 odd minutes. But while we’re on the discussion, and I want to raise the question of the U.S. elections and its impact on China in a minute.
But while we’re still on the subject of the issue of land and rent and housing and so on, Mick, could you please reflect?
I have my own ideas about this, but I want to hear you say, exactly how would you put the differences between the way in which the housing crisis or the real estate crisis in China has been addressed by the government and how it was addressed in the U.S. in 2008?
What are some of the main differences that you see?
MICK DUNFORD: Oh, I don’t know a great deal about the way in which the United States addressed the problem.
China has basically sought to stabilize house prices. There were some measures, but the stabilization of house prices saw a situation in which house sales in many cities were relatively limited, you know.
So, obviously, there was concern about the dynamics of the housing market, because, the housing market in the past played a major role in driving, economic development, because someone acquires a house and then they have it, they have it renovated and then they purchase furniture and all these sorts of things.
So, they’ve tried to alter the rules relating to the provision of loans. They’ve also altered the rules about who is able to purchase housing in particular cities and so on. But, I haven’t followed the details of these steps.
They had problems with a large amount of unsold housing, which, in some places, local authorities took this housing over and then transferred it into basically subsidized housing, to make this housing accessible and available to relatively low income people.
So, I think, you need someone who’s essentially a housing expert to provide a proper answer to that question, you know. But, it needs quite a detailed study of the way in which the housing market functions and all the recent batch of reforms that they’ve introduced.
Some of these measures did lead to significant increases in sales.
RADHIKA DESAI: Well, my understanding is simply that in China, every effort is made to bail out the actual owners of houses, like the ordinary people who happen to own houses. they’re being supported in a variety of ways. That’s one difference.
The second difference is that, of course, the housing crisis was caused not by an increase in mortgages, in mortgage lending, because most people bought houses with their savings, not by taking mortgages.
So, the loans were not to individual buyers, the loans were to the developers, and the developers were the ones who kind of overextended themselves and got into trouble.
And, naturally, they are being dealt with, and it’s not like, and I think they’re being dealt with in a way as to ensure the building of enough housing, social housing, et cetera. So, to me, there are a lot of differences
Did you want to add anything, Michael, before I go on to our final question? OK.
MICHAEL HUDSON: We stated what the issue is.
RADHIKA DESAI: Yeah, OK.
So, really, I think we should probably wrap up soon, but maybe in wrapping up, we should, or, Mick, maybe you can start us off by discussing, how do you think the new president, the election of Trump is going to affect U.S.-China relations, and more generally, going back to the original theme that we came up with, “America first” versus, or American hegemony versus the shared future of humanity.
How do you think all this is going to unfold, particularly given that Trump is just really making all these threats about tariffs and what have you?
MICK DUNFORD: I think we, I honestly think one has to wait to see what he does, quite honestly. There’s all sorts of rumors about what he will do.
Today, someone, some people were saying that he plans to stop Iranian oil supplies to China, for example, people have talked about this notion that he will apply 100% tariffs to anyone who uses currencies other than the U.S. dollar to settle transactions.
He’s talked about placing large tariffs on imports, from China, but also from other countries. To me, to me, some of these things just don’t make sense.
The United States has an economy that’s been hollowed out.
Basically, many things that are made in the United States are made from intermediate goods materials that are actually imported from China. So if you impose high tariffs on these imports, then in a sense, you’re going to have a dramatic effect on the cost competitiveness of the U.S. companies that use these components and these intermediate goods in order to produce goods for the domestic market. So, I find so many of these things very, very strange.
I could give other examples, but that’s one classic example of a sort of strategy that in many senses seems quite ill thought out.
MICHAEL HUDSON: Already, you’ve just had the Biden administration in the last few days employ all sorts of sanctions against China.
And they say that they’ve sanctioned, I think, 100 Chinese companies for exporting goods that Russia can use for the army. And these 100 companies include—
If you’re a Chinese company and you deal with Huawei, then you’re sanctioned because Huawei is helping Russia develop. And you just had Angela Baerbock go to China. And it was just wonderful.
They have the photographs of her coming down the red carpet airplane. Nobody there to meet her, just that way to the entrance. And then she gave a speech and gave a talk and the Chinese said that way to the door.
And Baerbock was saying, look, we really want you, we don’t want you to help Russia fight because we really want to destroy Russia, carve it up so that it can’t help you when we come to China and try to carve you up. Don’t you understand you have to do that? Well, you can imagine how the Chinese must have laughed at all that.
And what they’re doing, their response was very quick in the last few days. They said, OK, you’re sanctioning all sorts of our exports, preventing it. Well, we can turn the tables and sanction you. So we’re not going to sell you the following products and made a whole list of products that already are interrupting U.S. supply chains.
And they’ve said we’re closing the market to American goods. You already had general auto companies that are closing the markets to, they’re closing the markets to, I think, Apple and computer companies.
And basically, two days ago, you had Intel, the former information, computer chip information technology that was soaring above all the other markets in the dot-com bubble. Intel just said we’re near bankruptcy. The head of Intel stepped aside because he said one third of our exports were to China.
The China market is what enabled us to make profits, which have been increasing our stock price. But now that the Biden administration said we can’t sell computer chips to China because they may use it to make arms, help Russia make arms, we’ve lost the market. We’re broke now.
And China, needless to say, is reading the newspapers and says, well, OK, if we can cut back gallium exports and aluminum exports and rare earth exports that they’ve just done, they’ve stopped it because they said all these exports we’ve been doing to America helps America wage war against us and against China.
They’ve turned the tables on America. And because America, as you just pointed out, is deindustrialized, when China stops exporting to the U.S., the impact is much stronger than the U.S. saying, we’re not going to send you essential goods, because we don’t make any. They don’t make that many, a wider range of essential goods anymore.
So this is what we’re happening now. The Chinese are just doing a mirror image of the United States, and it’s backfiring. And long before President Trump comes in and imposes the tariffs on China, the sanctions are already creating this trade war. And I think a Chinese official said it’s much easier to start a trade war than to win one.
And that basically is the model they’re operating on.
MICK DUNFORD: Yes, I think the Ministry of Commerce is interesting. You know, it’s a ban on the export of dual-use items. So of items that, probably in the overwhelming majority of cases have civil applications, but might potentially have military applications.
So, these things are really self-defeating. But it’s clearly not the relationship that China wants. But, it’s the choice of United States. That is absolutely clear. You know, it’s the United States that is making these choices.
And, it puts the countries that are subject, suffer the consequences in a situation where they either have to absorb the consequences or find ways of managing them, in a way that’s acceptable to themselves.
RADHIKA DESAI: Yeah, no, maybe we should just wrap up, but I’ll just say, and please feel free to add anything in conclusion if you want, but I’ll just say a couple of things.
Number one, I entirely agree with you, Mick, that it is impossible to say at the present time whether Trump is going to carry out all the threats he’s making, whether it’s about tariffs or deportation, because both will lead directly to a massive increase in inflation.
So it is quite possible that having made these promises in order to get elected, and of course, you know that he’s made these promises to get elected, partly because the whole discourse of, his whole electoral discourse was premised on directing people’s attention away from the real cause of their misery, which is the implementation of neoliberal policies, and directing it against China and against immigrants and so on.
So, of course, increasing these tariffs or deporting anybody is not going to help anyone, certainly not going to help the American economy or Trump’s CEO friends. So it’s an open question whether he’s going to do it.
But the other thing I wanted to say is also, Michael, I also noted this, that the fact that Angela Baerbock, of all people, is rushing to China is very significant. And it’s significant in the following sense.
And just as the United States, essentially by imposing sanctions on Russia, pushed China and Russia together, because, this was precisely the scenario, in fact, which U.S. foreign policy has been aimed at avoiding since at least the early 1970s, this has been remarkable.
And now, and we know, of course, that throughout even the last two plus years, during which the Ukraine conflict has heated up in the way that it has, that Europe, while it has kind of been dragooned into cooperating with the United States on Russia, has always been far more reluctant to follow the American lead on China.
So I think that if the U.S. declares a trade war, then that is only going to bring the Germans and generally the Europeans and the Chinese closer together. And if the Germans and the Chinese come closer together, then who is to say that Russia will not be brought along as well? So again, we could see a whole range of things happening.
And I think Trump’s real trademark is his unpredictability. So in that sense, of course, we don’t know what’s going to happen. So it’s really a question of wait and watch. But yeah, I think I just wanted to say those two things.
MICK DUNFORD: You know, I’m not, I wonder why Baerbock went to Beijing.
What I’ve seen reported is that she went to lecture China, alleging that Russia is achieving extraordinary success in the Ukraine conflict as a result of Chinese support. It itself is a consequence of something I said earlier.
You know, it’s the completely unrealistic assessment that is so common in Europe of the capabilities of other countries, Russia and also China. But, she repeated Zelensky’s notion of a just settlement.
I think they are very worried, and they’re worried amongst other reasons, because basically Europe is confronted with a potential default on 20 billion of Ukrainian bonds. And they’re also guarantees of Ukrainian IMF debt, you know.
So, in this situation, they seem to want, having to face up to the reality, that Ukraine is confronted with defeat.
You know, they’re trying to, if you like, put pressure on Russia to achieve a solution that will enable them to, I’m not sure, acquire a large share of Ukrainian resources, establish a long-term relationship with Ukraine other than the four oblasts and Crimea and so on.
So, I saw all that as partly linked to this kind of desperation over what is happening, what is happening in Ukraine. And, I don’t think it was well-received, because these accusations against China, they’re simply not justified.
You know, the reasons Ukraine is being defeated is because of the capabilities of Russia itself.
MICHAEL HUDSON: Yeah.
RADHIKA DESAI: Absolutely, Michael.
MICHAEL HUDSON: Well, the wonderful thing about the U.S. is creating a whole model for the United States is going to do to you, whether you’re Taiwan or whether you’re any other country.
So, we’re seeing a whole model for what kind of a future do you want? Just look at the U.S. in Ukraine and what the U.S. sanctions have done to Germany and the rest of Europe.
Do you want this, do you, BRICS countries, want this to be to you? So, China is providing, literally, back to what you began with, an entirely different model, which model is the world going to follow.
MICK DUNFORD: Absolutely, absolutely. It’s a completely different vision of the way in which this world could live in peace, and in a way in which every country cooperates with every other country.
As Confucius said, if you want to be successful, help others to be successful.
It’s a completely different understanding of the relationship, which is profoundly different from the ideas that emerged about individualism and so on out of the Western Enlightenment as opposed to collectivism.
Human beings are social animals, you know. So, collectivism is central to the solution of the common problems of our world.
So, I think this is what is so interesting, because the West has for so long sought to impose, they say, our values on the whole world, their system of governance on the whole world.
Now you find that some of the most effective systems of governance, the systems of governance that you find, for example, in China, for them is a very hard lesson. But, they don’t seem to try to draw the obvious conclusions from it, you know.
So, this, this is a profound reshaping, not just of the world in a sort of political and economic sense, but also, hopefully, in terms of the kind of values and, the way in which people try to understand other civilizations instead of imposing your value on your order on other civilizations, let them make their own choices, let it refer their own traditions, their own values, and so on.
So, this is something that I find very interesting about the present, and that’s one of the things, which holds out hope, that we might move towards a better world in spite of the appalling things that are at present going on in different parts of it.
MICHAEL HUDSON: Well, the American value is we win, you lose.
RADHIKA DESAI: And I think what Mick is pointing out and emphasizing is that China is saying we can all win together, and that we can all have a positive game, you know.
MICK DUNFORD: Yeah, absolutely.
RADHIKA DESAI: And, so really the sum of the kind of the gist of the conversation we’ve been having, we can say that in the coming months and maybe years, what we will see from the United States is a lot of unpredictability, a lot of erratic behavior, and so on. And what we will see from China is the type of steadiness that will probably be necessary to realize the more hopeful possibilities of the current moment. So, maybe we can agree to end there.
But thank you so much, Mick. That was really great. Hope to have you back very soon again, because there are lots of other things that are part of your expertise that I’m sure we will want to discuss. And so, thanks again. Thanks, Michael. And we will say goodbye here. Bye, everyone.
MICK DUNFORD: OK, bye, ciao.
RADHIKA DESAI: Bye-bye.
