The problem goes way deeper than a simple “Chinese is socialist or not” and we can write entire essays about that.

But here are some points to consider:

First, the Chinese governance after Mao is highly decentralized, and this has been especially the case since the 1994 Tax Sharing Reform that gave the local governments the authority of land financing. The central government controls the behavior of the local/provincial governments by setting the criteria for their promotion (e.g. the most important KPI is GDP growth, which is why you see so much obsession with the GDP growth numbers in China).

Second, the entire leadership believes in the IMF doctrine. This means export-led growth, and keeping wages low to maintain export competitiveness. China has the natural advantage of a huge labor pool, and was able to exploit it to destroy the competitiveness of its competitors after joining the WTO in 2001.

Third, after the 2008 global financial crisis, the local governments found a “cheat code” to keep GDP growth up - land leasing. This came at the right time as the central government promoted the 4 trillion yuan stimulus to boost the economy through infrastructure building. By forming a pact with property developers and local banking institutions (through shadow banks before 2015), local governments took out huge loans for infrastructure building to bid up the land price.

The problem here is that such massive infrastructure building phase was not centrally planned, or at least they weren’t planned well. Every local government competed with one another to entice the property developers and financial institutions, and eventually this turned into a proliferation of thousands of “ghost cities” - a massive oversupply of housing - that will never be occupied. It’s raising GDP for the sake of raising GDP. Many local officials received the career promotion of their lifetime simply by managing to jack up the GDP numbers.

We now end up with very nice looking villages and provincial towns, good infrastructure, but no jobs. Young people leaving for the big cities to look for employment and participate in the competition to the already intense neijuan (extreme competition) environment.

The recklessness of the local governments precipitated in the inevitable collapse of the property sector. However, at this point, it is too deeply intertwined land financing. Nearly 35% of local government revenues still come from land leasing, and you can imagine what a huge loss of the income (and hence the operating budget) with the fall in property prices.

So now they are betting on EV and solar panels (where green tech has been listed as a priority in the 13th Five Year Plan) and more recently, robotics and AI. Huge amount of investment have been poured into it by the local governments, making bets to recover their losses from the plunging land price. It’s one gamble after the other.

As the manufacturers receive massive subsidies from the local governments (because of competition, where each government wants the manufacturer to open their plants in their province), they become industries that are “too big to fail”. This is why even though the entire solar panel sector has been making heavy losses, you still don’t see bankruptcies coming out of the supply chain (yet). An inordinate amount of wealth continues to be poured into these industries to keep them from failing, because otherwise the local governments will take on even heavier losses as their investments go burst.

Add to the fact that the most important tax revenue is the value-added tax, they have to keep these industries alive by whatever means necessary. Now imagine where all these wealth come from to prop up these sectors? All those wealth could have gone into investing into giving welfare to the people.

Paradoxically, this means the wealth inequality grows, and the consumption (purchasing power) of the working people is reduced at the expense of even more investment to the manufacturing sector. As a result, domestic consumption falls, and the reliance on export grows so they can actually sell the goods are now in over-supply. If not, then the production will have to scale back, unemployment grows, and we get recession. Interesting, isn’t it? It’s one big circle back to relying on export-led growth once again.

We can keep going and this is really just a stream of consciousness of writing, but I hope you can see that the inability of the central government to rein in the recklessness of the local governments, the central leadership’s own belief in the IMF neoliberal framework, and the over-investment in sectors that are so deeply intertwined with the local government debt and the financial sector that it is now a very complex web of problems to disentangle.