China is Not a Socialist Utopia.

On September 16th, 1989, this grocery  store in Webster, Texas — now an empty   lot across from Burger King — had an unusual  visitor: the soon-to-be president of Russia. Over the previous week, Boris Yeltsin  had toured the Statue of Liberty,   U. S. Capitol, and Houston Space Center. But none of that impressed him quite like this  unscheduled visit to a nondescript supermarket. What amazed Yeltsin, as he strolled past  fully-stocked aisles of frozen peas and   spaghetti, was just how normal it all was. None of the middle-class suburban shoppers  he chatted with seemed in awe of the store’s   abundant selection of thirty-some-thousand  items. For them, it was just another Saturday. He concluded that if his hungry,   choice-deprived Soviet comrades could see  what he saw, they’d start a revolution. Well… thirty years later, the  shoe is now on the other foot. The 21st-century equivalent to Yeltsin’s grocery   awakening might be an American’s first  encounter with Chinese high-speed rail. Close your eyes and throw two darts on a map of  China — a country almost exactly the same size   as the United States — and odds are you can travel  between them — in comfort! — at 200 miles an hour. There are now 31,000 miles of high-speed tracks —  more than the entire rest of the world combined;   enough to cross the continental United  States east-to-west nearly twelve times over. The trip between Beijing and Shanghai, for  instance, takes about four and a half hours   and you don’t have to worry about flight delays  or airport security. The equivalent journey in   America — New York to Chicago — takes 12 hours  by car or, for the truly patient, 20 by train. For decades, visitors to China have marvelled at  its built environment — the lightning-fast trains,   the futuristic skylines, and shiny,  colossal bridges. Just recently,   there’s been a high-profile wave of  these visits as the country attempts to   accelerate the very slow post-pandemic  recovery of its tourism industry. And as Yeltsin discovered, there’s something  powerful — even radicalizing — about seeing   others take for granted what you’ve been  told is impractical or even impossible;   watching your fellow passengers play  angry birds with complete indifference   as if they weren’t racing across the vast  Tibetan plateau at 200 miles an hour. Meanwhile, $15 billion has already  been spent connecting LA and San   Francisco. After 16 years  of lawsuits, false-starts,   and controversy, it’s still unclear whether  the project will ever see the light of day. China’s success here is undeniable. It clearly  deserves credit for delivering on such a massive   undertaking, particularly since the wealthiest  nation on earth so conspicuously has not. What’s less clear, however, is whether it offers  a lesson the rest of the world should emulate. Just as, for example, America’s incredibly  high per capita GDP fails, on its own,   to capture the trade-offs and weaknesses of its  economic model, so too does the speed and scale   of China’s dazzling infrastructure miss some  important context: the hidden costs absorbed   by those who actually live in the country and that  remain largely invisible to you and I as visitors. Sponsored by Nebula, the  exclusive home to my brand-new,   three-part series, “A Grand Theory of Xi Jinping. ” Here’s a puzzle: How do consumers in China — a  “developing country” — spend as   much on luxury goods as those in America  — the richest nation on the planet? Now consider that 85% of the Chinese population  has at most a high school education. 85%! Education, to be fair, is a very  crude proxy for wealth. Still,   it’s hard to believe the non-college-educated  workforce is buying all these luxury watches,   Cartier bracelets, or designer handbags. The only way to reconcile these two  divergent facts is extreme inequality. One segment of the population — 15% if we use  college as a benchmark — is living a life on   par with an upper-middle-class New Yorker or  Parisian. They buy overpriced lattes, live in   high-rise apartments with doormen, and work in  white-collar offices surrounded by bean bags. The rest of the country is lucky to  finish high school — which in China   isn’t free — and may never in their lives earn  even half the minimum wage in West Virginia. In the United States, public schools  are largely funded by local property

taxes — meaning wealthier areas have better  teachers, facilities, and opportunities. China has that same unequal system,  except it goes one step further:   virtually all public programs are paid for at  the local, not national, level — from pensions,   to unemployment, healthcare, and education  — meaning the entire social safety net   varies by region. Not even the poorest  province is subsidized by the richest. And you can’t just move. These geographic  disparities are enshrined in law. Fifty years ago, many Chinese workers — like their  Soviet counterparts — were guaranteed employment,   pensions, and benefits at state-run companies,  in a system known as the “Iron Rice Bowl. ” Both China and Russia suddenly  ended this practice in the 90s,   causing tremendous chaos. And both  worried these millions of angry,   unemployed workers could rise up  and threaten their grip on power. Russia’s solution, pioneered by Vladimir  Putin, involved striking a deal with elites:   they’d be allowed to buy all these newly  privatized, formerly state-owned companies   at rock-bottom prices — to steal from  the public treasury, to bribe officials,   and even assassinate their competition. There was  just one red line they couldn’t cross: layoffs.    A worker might be losing his company money,  while releasing asbestos into the environment,   for no discernable purpose, but  he should never, ever be fired. China took a different approach, opting  to rip the band-aid off immediately. Its thirty-million-plus laid-off workers were  left on their own. They had to pack their bags,   migrate to wherever there were jobs,  and (hopefully) figure something out. To stop this sudden migrant influx from  overwhelming the social safety net in   the cities they moved to, China  simply banned these workers — its   own citizens — from accessing the  public services their taxes paid for. This had the added benefit of  preventing them from putting   down roots, ensuring a permanent supply  of cheap labor — a permanent underclass. To this day, Chinese citizens are  registered to their place of birth   in a kind of state-enforced caste system. Changing   that registration — called “hukou” — is  nearly impossible for poor, rural workers. The professor and Chinese labor scholar Eli  Friedman calls this an “inverted welfare   state. ” Workers have to prove they’re rich enough  that they don’t need social services before they   can… access social services. The rich get these  things for free, while the poor pay out of pocket. Rural-born mothers and fathers working  in cities must choose, for example,   either to leave their child behind, to be raised  by their grandparents, or bring them and pay   tuition at one of the low-performing  private schools for migrant children. Meanwhile, not only do taxes fail to compensate  for this inequality, they actively make it worse. Because China imposes a minimum social security  contribution, the lowest earners are taxed at   the highest rate. Top 1% earners pay about  the same rate as those in the bottom 20. As a result, personal income taxes  make up just 1% of China’s GDP — a   drop in the bucket — compared to 10% in the U. S. And despite most household wealth  being tied up in real estate,   there’s no property or inheritance tax. China is one of the most unequal  countries on the planet. And this   is not merely a flaw or oversight, it’s an  essential component of its economic system. You do not get 31,000 miles of high-speed  rail without this labor exploitation that   makes it cost-effective to build — this is  all part of a single economic model that   prioritizes construction at the expense of  wages. Cheap, abundant labor, and massive,   labor-intensive infrastructure  are two sides of the same coin. And inequality is not the only cost.   Chinese citizens — of all incomes and   social strata — pay for their shiny bridges and  lighting-fast trains in many other ways too… Organizing, for instance, is effectively illegal.   The only legal “union,” if you can call it that,   is The All-China Federation of Trade  Unions, which answers to the government,   not labor. When workers at a Honda factory  in Guangdong began striking in 2010 in   response to low pay and dangerous conditions, for  example, the “union” sided with their employer. And where labor laws do exist,  they’re rarely enforced.

The average Chinese worker now clocks in 47  hours a week — about the same as in 2006,   more than every OECD nation except Turkey, and  nearly 80% more than a worker in the Netherlands. With such a weak safety net to fall back on,   Chinese families really have no  choice but to save for a rainy day. At every level of income, Chinese households  save more of their wages than others around   the world. But the gap is largest among the  poor — they know that if they lose their jobs,   suffer a health complication, or get hit by a car,   they’re truly on their own. This is money, in  other words, that they effectively can’t use. The economist Michael Pettis sums this  up nicely, quote, “The high-savings model   forces ordinary people to spend less so that  the government and businesses can spend more. ”   He calls the Chinese government’s  philosophy akin to “trickle-down” economics. Another way Beijing redistributes wealth from  households to corporations is with interest   rates. The return on money deposited  in banks is kept artificially low,   making it cheap for companies to borrow. Meanwhile, with so few places  to invest their savings,   families almost universally  park their wealth in property,   to the benefit of large developers and  the local governments that sell the land. Finally, there’s currency depreciation. To keep its exports competitive, Beijing has  artificially reduced the value of the Renminbi.    Since its currency is worth less, Americans and  Brits and Australians can buy more Chinese goods,   subsidizing its manufacturing industry. But  this also makes imports to China more expensive,   driving up the price of its consumer goods. The average worker, therefore,   experiences artificially low wages  and artificially high prices. In The Communist Manifesto, Marx warns of an  epidemic of over-production and under-consumption.    As workers become more exploited, their  wages go down — which leads to cheap,   abundant production. Yet as an increasing share  of this value is captured by their bosses,   they can’t afford to buy the  very products they’re producing. That’s where China finds itself today:  Between 1987 and 2023, the share of labor   compensation relative to economic inputs  in the real economy — in other words,   how much of their labor workers actually  get to keep — has decreased from 21 to 15%. If Chinese workers received the same share  of their labor as those in Canada, or India,   or France, they’d have billions more to spend  on healthcare, education, and consumer goods. Instead, and as a direct  result of its cheap labor,   low borrowing costs, and business-friendly  environment, they get high speed trains. Some may consider this a fair trade-off. But  it certainly comes at a steep cost — one that   falls almost entirely on those unlucky to  be born in the “wrong” part of the country. For years, China has been urged  to stop repressing wages and give   workers a more generous social safety  net, thereby increasing consumption. And this criticism has been levied  from both political directions. Leftist labor activists — both in and  outside of the country — call on China   to live up to its Socialist ideals,  to shift its economic model from   one focused on exploitation to one that  respects and honors the power of workers. Mainstream economists agree,  though for different reasons.    They argue China’s current low-wage model —  which is designed to maximize manufacturing   and exports — puts it at odds with countries like  the United States, which aren’t always willing   to absorb all these cheap imports at the expense  of their own workers. A healthier, more balanced   economic system would make Chinese consumers  able to buy more of the things they produce. So, why has China so stubbornly resisted,   even going so far as to arrest Marxist and  Maoist activists within its own borders? The answer to that question lies in the mind  of Xi Jinping, who in 2021, warned that, quote,   “We must resolutely guard against falling into the  trap of supporting lazy people through welfarism. ” Ironically, in other words,   his resistance to helping workers is not  in spite of ideology, but because of it. But where does that ideology come from? If Xi is   not a “Socialist” as we typically  define it, what does he believe in? Today, nearly fifteen years since his rise  to power, we know strikingly little about   Xi — one of, if not the most powerful men on the  planet. And that's why I’m releasing a brand-new,

three-part series titled “A Grand  Theory of Xi Jinping. ” In it, I read,   watch, and synthesize nearly everything  there is to know about him — from books   written by those who’ve met him,  to old, archival interviews from   before he became leader — to get to the  bottom of who he is and how he thinks. I just released part one today, and it’s  exclusively available on today’s sponsor, Nebula. And while you wait for Part 2, Nebula is  home to dozens of more exclusives, like… “Modern Conflicts,” in which RealLifeLore breaks  down some of the most important wars, battles,   and invasions of the 21-st century,  including Russia’s attack on Ukraine,   the Rise and Fall of ISIS,  and the Manhunt for El Chapo. And “Mad Kings,” mini-documentaries  about the lives of men like Kim Il-Sung,   Muammar Gaddafi, and Nicolae Ceausescu. In this fascinating exclusive, Brian  from Real Engineering CT-scanned a   Nokia 3310 to see what’s inside and how  it works. And in “History’s Most Daring   Raids,” Real Time History tells amazing  war stories with these cool diagrams. Nebula is ad-free and even gives  you “Guest Passes,” so you can   let your friends and family watch too for free. Normally, Nebula costs $6 a month. But  you can get it for less than half that   by signing up for a year with the link on  screen or in the description now. That’s just   $30 per year — effectively 2. 50 a month — to  watch my new exclusive series and much more. Plus, if you’re not a fan of subscriptions,   you can also get $200 off Nebula  Lifetime with the Lifetime link below.