A recording of unknown origin is making the rounds in Chinese-language media. In the recording, the speaker discusses how the Chinese government plans to solve the mounting crisis it faces from the trade war with the United States.
Judging from the content, this unnamed speaker is suspected to be a senior Chinese official, and the conversation was likely recorded around May of this year, just before the Trump administration announced its 25% tariff on $325 billion of Chinese imports.
He states that the trade war has threatened the Chinese Communist Party’s (CCP) rule; three factions within the CCP are engaged in a battle for supremacy. To deal with a likely hard landing of the Chinese economy, China is headed back toward a centrally planned economy; all private enterprises would cease to exist. Therefore, he urged the listener to get out of China while the getting-out was still good.
The source and credibility of the recording cannot be verified. However, events over the last few months have corroborated the recording’s content.
Here's the link to the recording
Following is the translation of the transcript:
With regard to the tariff, this is how I see it. The United States can raise tariff on the left hand; we can compensate on the right hand by increasing liquidity, print money, and give tax refunds to make up the difference. There are many ways to do this; the problem is not too big.
But the biggest problem is that if the United States raises tariffs, foreign enterprises in China can't stand it. Why would they pay this 25% tariff? They have to make money, so they have to move the company, to Vietnam. to Thailand, because they need to maximize profits, right?
With the withdrawal of foreign capital, we have about 45 million people employed by these companies; they will lose their jobs. State-owned enterprises can't absorb such a large number of people. Then there are tens of millions of people employed by China's manufacturing and export sectors; they’ll be finished as well. So maybe more than 80 million people will lose their jobs. These people all have to pay their mortgages.
What kind of problem do you think this creates for China?
Employment issues will, in fact, trigger a financial crisis and a real estate crisis. These two crises will threaten the ruling class - a crisis of governance. Therefore, a hard economic landing will bring about tremendous changes in China, that’s the crucial point.
The man who used to oversee China Securities Regulatory Commission, Liu Shiyu, he is now the president of the Supply and Distribution Administration. He has established supply and distribution cooperatives in every province. These legacy supply and distribution cooperatives have basically disappeared after the economic reform, but are now being re-established. What’s the key intent? To centralize all purchasing and sales.
In fact, the top echelon has already made this preparation. Using centralized purchasing and sales of a planned economy, a rationed economy to manage the weakening Chinese economy headed for a hard landing. Would you say that the economic structure is going to change? It will completely change back to a planned economy. You want to start private enterprises? No way.
Another thing, as an absolutely last resort, a new currency may be issued. Banks will recall the old currency, forcing people to turn over the money they hide under the bed, otherwise they will be voided. This way, a lot of underground, hidden funds will be flushed out to solve the problem of insufficient money. These methods will be employed, so everyone should be prepared.
Many people are desperately trying to make money. In fact, they have not figured out what money is. Money is simply a note given by the government to the people. This thing, if the government recognizes it, it has value; if the government does not recognize it, and changes to a different note, it becomes useless. So you have made a lot of money. In fact, as soon as the government rescinds its recognition and moves to new banknotes, all bets are off.
Therefore, money is not real wealth. If you turn money into other commodities, foreign exchange or gold, then that is wealth.
In fact, the wealth of ordinary people is the government's debt. If the government wants to reduce its own liabilities, it can solve it by tanking the stock market, or it can tank the real estate market.
So these are two concepts I’m explaining to you all. One, banknotes, the RMB, these are all notes, not wealth; two, the wealth of the people is in fact debt owed by the government. Don’t think for a minute that things belong to you. If the government wants to take it from you, it won’t take a minute. So those myopic noveau riche don’t understand it. Look at Wang Jianlin, you will be finished in a blink of an eye.
Once you understand this essential truth, you will know what wealth is. True wealth is what you control in your own hands, and that it can store value and appreciate, and have liquidity. A lot of people haven't figured this out after all this time.
I told a lot of friends three years ago that you have to prepare for hard times, because we’re going back to planned economy. When that really happens, all private enterprises, private assets will be destroyed.
Planned economy won’t allow you to mess around outside the plan. The Communist Party will seize all means of money making. It will be impossible for you to make money again. So it’s important to think early about how you’re to live.
Another thing, if you can go out (of the country) then go. Don’t go to the United States. They’re going to be the enemy. If you go there, your assets will be confiscated. Look for a neutral place. After you take your assets out, might as well cancel your household registration. If you hold onto your Chinese huko (household registration), you still have to pay taxes for assets outside the country. So real wealth is stuff the government doesn’t know about, that’s your wealth.
Also, it’s too late to think about wealth; the next step is to think about our survival.
I figure the RMB will begin to depreciate in the second half of the year. Using currency depreciation to deal with the United States, this is the first issue. Second, since last year we have African swine flu in so many provinces, it will only get worse in the second half of this year. Imported pork will face difficulties as well. Pork will be very expensive; pork will drive up the entire CPI (China consumer price index), everyone will feel the inflationary pressure. Money will be no good; food will be short; it is leading to a reckoning.
One more thing is that everything we do now is unlikely to change China’s current fundamental situation, because the (Chinese Communist Party) top echelon struggle is still fierce, the struggle will become more and more fierce. Who will win out, and take over this mess, it’s all unknown. Therefore, no one is looking after the people, the whole macro view is shrouded.
I estimate that even the US stock market may fall next week, because the impending change is so huge.
The United States is considering another 25% tariff on $325 billion. If China (the CCP) introduces more tough counter-measures, the United States will declare China as a currency manipulator, then we’re not just talking 25% tariffs. It may rise to 40% to 45%; diplomatic relations will be severed, then we will return to the Mao era.
Now there are three factions fighting. Of course, there is an anti-planned economy faction. But it’s hard to tell if they will win. It is very dangerous for us to discuss which faction will win, so we will not discuss this matter.
Currently many open measures (taken by the CCP authorities) are for show to the Americans, to comply with Sino-US trade negotiations. If the negotiations are successful, these measures will not necessarily be followed. Since when do Chinese people have integrity? You still think that the government will do something because it issued a document? There is no such thing..."
Link to original Chinese article