The Fifth Plenary Session filters out officials who don't understand local affairs! Those who know how to resolve debt must have connections, and those with connections are untrustworthy! Itinerant officials only pray for no explosions in three years, sacrificing others to cover up and silence! Land grant revenue collapsed by 6 trillion, private investment is frozen, and the cost of monitoring is rising exponentially! Changing the locks without changing the house traps the bomb everywhere; the critical point is the day the caretakers' salaries can no longer be paid!

This video analyzes the fundamental shift in the official selection mechanism within the bureaucracy of the Chinese Communist Party (CCP) following the Fifth Plenary Session. By replacing positive incentives with "caretaker officials" who are parachuted in from other regions, lack local economic expertise, and have no local connections, local officials have generally chosen to "cover up" issues and "lie flat." The video points out that the sharp decline in land grant revenue and the freezing of private investment, combined with the exponential rise in the costs of stability maintenance (weiwen) and supervision, will eventually hit a structural tipping point where fiscal cash flow runs dry.

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Official affairs as they are, rejecting fragmented understanding. A couple of days ago, we discussed how the CCP's sieve for selecting officials has changed a generation after the Fifth Plenary Session. Today, we will talk about how this selection sieve is suffocating the Chinese economy. Come, today let's look at what kind of structural paradox a political system will hit when material incentives fail and fear is used as a substitute. The entire CCP bureaucratic system is essentially what? It's an agency chain. This thing is the same as what? It's the same as the model most familiar in the CCP's China, which is the essence of layer-by-layer outsourcing—letting others do things for you, but you can't see what they are doing. These provincial party secretaries are the agents, and the provincial party secretaries are the agents for mayors and county heads, layered down one by one. But for this chain to operate, there must be a premise. What premise? It is that at every level, you must be able to see what the next level is actually doing. And once you can't see, what happens? You can only rely on incentives or fear to drive them. Let's think about it: if we are looking for outsourcing, the logic is actually the same.

Positive incentives are like this: if you do a good job, I'll give you more money; and negative threats are what? If you do something that makes me dissatisfied, you can forget about your official position, right? In the Deng-Jiang-Hu era, no matter how garbage this system was, at least it relied on positive incentives—growth, tax revenue, and promotion were all tied together. The more you did, the more you got, and the faster you were promoted. Now, it relies entirely on fear. But the tool of fear has two inherent flaws. What are they? In a one-off game, fear can be used; after all, a one-off game is a one-shot deal. As long as you get the job done this one time, that's it. As for whether you are willing to work hard in the future or whether you are convinced in your heart, that doesn't matter at all, because the cost of scaring people is at most paid once. The person being scared doesn't even have time to figure out a countermeasure, so scaring them is naturally the most convenient way. But in a continuous game, the cost of this thing is too high. If fear is used as a driver in a continuous game, it inherently has two huge problems.

First is the problem of mutual exclusion between trust and ability, which is also the biggest difference from a one-off game. A one-off game does not require trust, while the fucking Emperor You Xi put forward two requirements for this current trend. First, one must be absolutely politically reliable and have no local roots; second, one must also be operationally capable of resolving debt. The problem is that these two requirements are two sides of the same coin in reality. Well, suppose you want to resolve the debt in Yunnan, you at least need to know what those hundreds of local government financing vehicles (LGFVs) in Yunnan are about, right? You also need the most solid information, such as which projects actually have real assets behind them, which are completely shell companies, which fiscal data are currently real, and which are just made up for you to see. There is also more solid information, such as which entrepreneurs have money in their hands to participate in this restructuring, and which are completely waiting for the government to bail them out. This kind of information cannot be found in any document. Where is it? It is in the minds of local officials, local bank presidents, and local entrepreneurs. If you want these people to tell you the truth in a society like China, what is the prerequisite?

It is that you must have a long-term relationship with these people. But what is a long-term relationship called in the discipline inspection commission's terminology now? It is called a lead. And what is it in the eyes of that fucking Emperor You Xi? It is forming cliques. So what does this result in? It means that people who understand the local economy and have deep-rooted local connections are simply the same thing. You cannot have the former without the latter; expecting that is fucking daydreaming. And the way the CCP currently screens officials is by completely filtering out the latter. Thus, the fucking idiots screened out are bound to be completely in the dark about local affairs. What is the name of that guy who is currently sent to Yunnan as the party secretary? Mo Gaoyi, right? Names with such pen names usually sound like, hey, sir of high righteousness, but this fucking guy is Mo Gaoyi, which just means being shameless while talking so lofty. From now on, the people of Yunnan have a shameless substitute term, hey, just call it Mo Gaoyi. You say, once this idiot Mo Gaoyi arrives in Yunnan, what information can he grasp? I bet the information he grasps about Yunnan is as much as any deputy minister of the Publicity Department, which is just those few things in the newspaper, isn't it? And that Liu Qifan, this fucking guy comes from a discipline inspection background, his ability is just to investigate people, he simply does not know how to restructure a negative cash flow asset into a positive cash flow one.

Even if you tie these two fucking idiots together, their technical understanding of Yunnan's debt is close to zero. This is not to belittle anyone, but the result of this sieve's design. What this sieve wants is someone who does not understand, because understanding implies having connections, and having connections implies being untrustworthy. What is another flaw of this set-up? First, speaking of the advantages for that fucking Xi Jinping, under this set-up, Xi Jinping's fucking prevention of deception can succeed, but the loss of control at the grassroots level will double. A three-year term plus cross-region parachuting plus the party secretary's growth means he is already combined with the Standing Committee, so what kind of monster do you think this combination can produce? You don't say, this combination can indeed achieve one thing: provincial top leaders can never again form long-term, organized deception against the central government. But once you concretize this scenario, the two fucking idiots completely do not understand the local economy, plus they are parachuted outsiders, these two guys sit in the provincial party committee and provincial government, and what do they face? They face mayors, county heads, and LGFV chairmen who have entrenched themselves in this city for more than ten years. These people do not change when administrations change; you, the secretary and governor, leave after three to five years, but these people basically serve for ten or twenty years.

The phenomenon of information asymmetry can be eliminated between the province and the center, but it will be magnified a hundred times between the province and the cities and counties. What can the parachuted secretary rely on? He can only rely on the numbers reported from below to make judgments. However, the person reporting the numbers also knows that this secretary will not stay long, also knows that this secretary dares not build any personal relationship with them, and at the same time knows what the secretary fears most: a debt explosion during their tenure. Therefore, they only need to do one thing: ensure that the bomb does not go off within three years. And how big is the bomb? Have these fucking people figured it out? They cannot figure it out. This thing was played out too clearly in Chinese history. Let's take the late Qing Dynasty, for example. The governor's offices in the Qing dynasty had a principle called the native-province avoidance principle, which meant that if you were a Guangdong person, you could not serve as a major official at the governor level in Guangdong. You had to hold office in another region, and your term generally lasted only two or three years, which is the same as today. Yes, these were mobile officials. The mobile officials faced local petty clerks and private secretaries who never moved from generation to generation. Gu Yanwu wrote a famous sentence in the late Ming Dynasty: “The officials have no feudal fiefs, but the clerks have feudal fiefs,” meaning that the officials come and go like flowing water, but the clerks who handle the affairs are

is hereditary and unmovable, resulting in officials being fooled by subordinates and government decrees failing to leave the yamen. The Ming dynasty used another combination of the embroidered uniform guard (jinyiwei) surveillance plus eunuch army supervisors. If the emperor did not trust civil officials, he would send this agency usually tied with the jinyiwei to watch the civil officials; if he did not trust military officers, he would send eunuchs to watch the generals. As a result, during the 17-year reign of Chongzhen, they changed cabinet ministers 50 times, and during the Chongzhen reign, seven viceroys and 11 governors were executed. The further along it got, the faster they were replaced, and the less anyone could accomplish anything. Today, the system of the Chinese Communist Party (CCP) has combined these two sets into one. At the provincial level, it retains regular officials to guard against the problem of regional warlords, while at the central level, it uses discipline inspection commissions and inspections to prevent officials from retaining power. Therefore, what can be prevented is the same as in the Ming and Qing dynasties, and what cannot be prevented is also the same as in the Ming and Qing dynasties. Also, it is said that after the screened people arrive locally, what do they do? Let us build a simplest decision-making model for a newly appointed provincial governor, suppose a three-year term, with no local foundation, and what is hanging overhead? It is a veto by a single vote from discipline inspection commission evaluations. Then before him are two paths, one is to act as a doctor, which means truly resolving debt and truly restructuring urban investment companies.

I do not look down on these members of the Standing Committee and these dogs, but would this group of people do this job? Moreover, every step of resolving debt requires touching money, touching land, and touching state-owned assets. If any single step goes wrong here, under this bureaucratic culture, this person's entire political future is completely wiped out to zero. The other path is to act as a caretaker, which means not touching money, not touching assets, and even less touching this restructuring. What is the goal? It is just for the debt bomb not to explode within three years. This path has no upside returns, but almost no downside risks. In other words, as long as it can be guaranteed that this bomb can hold on for three years and not go off, after three years, this bomb will belong to the next successor. Let us put the accounts of the two paths side by side and look at them. What is the expected return of acting as a doctor equal to? It equals the success rate multiplied by the merit belonging to the central authorities, minus the probability of failure multiplied by the loss of the political life being wiped out to zero. Calculated this way, what kind of incentive is even left? And what is the expected return of acting as a caretaker equal to? It equals zero minus the probability of the bomb going off within three years multiplied by the loss. As long as the loss is much greater than the return, then acting as a caretaker is strictly superior to acting as a doctor.

This conclusion does not depend on moral levels at all, but only on this return structure. There is also a sentence in the communique of the Fifth Plenary Session, which is to combine the leadership transition with grasping the political performance view training of new leadership team members, especially principal leaders. This is just to tell the newly appointed person, do not take growth as your political achievement anymore; your political achievement is simply not getting into trouble. That fucking idiot Xi Jinping has personally written the incentive conditions for being a caretaker into their evaluation manuals. Being a caretaker does not mean doing nothing; there are also standard operating procedures. For example, what to do if the accounts cannot be balanced? Then first assign the responsibility for the accounts to the predecessor. As long as the predecessor is investigated, the account changes from a problem that needs to be solved to an investigated case, and cases do not need to be repaid. Are there samples? Jiangxi is the sample. That provincial governor Yi Jianchun was investigated on August 27 this year. Two months later, who took over as the party group secretary of the provincial government? It is Chen Yongqi. What is his background? He comes from a political and legal affairs commission background. In other words, the person who investigates others took over the accounts left behind by the investigated person. This is settling accounts with the predecessor all at once. Then if the financial coffers run out of money next and someone causes trouble, what to do?

Let us look at this allocation. What is the provincial governor with a propaganda background responsible for doing? Responsible for covering it up so people do not know. And what is the person in charge of law and order responsible for? Making those who know shut up, and dealing with whoever leaks the matter. What kind of mindset is this? Isn't this the Hong Kong mindset? Finding a police baton like John Lee to be the fucking Chief Executive, isn't that just this mindset? It can be said that the current Chinese Communist Party treats localities like colonies. Anyway, since problems cannot be solved, they just solve the people who raise the problems. The combination of a Yunnan propaganda secretary paired with a discipline inspection provincial governor is precisely the personification of these two functions. Then in a province, no matter what, something will always go wrong inside it. When something goes wrong, someone must take responsibility, and those responsible must be the division-level and county-level cadres who have no background and no ability to resist. Now this group of grassroots cadres also knows that they are fucking reserve scapegoats, so their optimal strategy is to lie flat. This is why the county level is playing dead. Therefore, what do I call this setup? It is a combination of a mortician paired with a bouncer. The mortician is responsible for putting the dead economy into the coffin with dignity, and the bouncer is responsible for making the crying noise a bit quieter.

No matter who comes, as long as this sieve and foundation remain unchanged, their behavior will be exactly the same. And what are these other connections like? People like Zhao Chenxin, Guo Ningning, Xie Weijiang, and the like, they either come from the National Development and Reform Commission, banks, or state-owned enterprises. In other words, they know how to crunch some numbers. They will also come up with even more bizarre distorted operations, which is an operation of tightening two directions simultaneously. One direction is playing dead. These people know better than anyone where the accountability red line is, because the red line is likely something they participated in drawing when they were in ministries and commissions. Therefore, in daily approvals, these bastards will definitely take the lead in lying flat. Let me give you a specific scenario: for example, anything that requires signing and taking responsibility, such as new investments, new guarantees, and new reorganizations, all these matters are uniformly delayed, uniformly reported upward, and uniformly understood according to policies.

Look at the data: since the beginning of this year, national fixed-asset investment has fallen by 7.2%, infrastructure investment by 4.2%, and manufacturing investment by 2.1%. What is most baffling? It is that investment in electricity, heat, gas, and water conservancy facilities has also fallen by 6.8%. How did these numbers come about? I dare not say all of them, but at least half are because no one dares to sign off on them, right? And what about the other half? It's because they are fucking broke. Another direction is mechanical execution: the central government breaks down this bullshit concept of "new and old productive forces" into quotas. After negotiating them down, what is the reaction of these provincial governors who know how to crunch numbers? They just complete the quotas precisely. If you complete the quota, you don't have to bear responsibility; you only do if you don't. Consequently, provinces across the country are simultaneously launching photovoltaic, lithium battery, and computing power center projects—there is data for this too. Similarly, since the beginning of this year, against the backdrop of a 7.2% decline in total investment, investment in the information transmission industry has bucked the trend and grown by 30.8%. This is a manifestation of the whole country launching computing centers at the same time. Then, as soon as the central government sees overcapacity, it issues a directive to oppose it, and these provinces then slash capacity across the board. This is a typical fallacy of composition.

To put it bluntly, if you look at each province individually, they all did the right thing because the incentive conditions are right there—if you don't do it this way, what else can you do? But when you add them all together, it is completely wrong. For the Chinese economy, it is completely wrong, and not a single provincial governor has the motivation to ask other provinces if they are also launching similar projects. Even if you take a step back and say you asked, you still can't not do it; if you don't do it, it's a political characterization that you aren't listening to orders. When these two directions are combined, everyone understands: they are absolutely afraid to do what the market needs, but they have no choice but to do what the central government apportions. What does the former cause? It causes an investment vacuum, while the latter causes an accumulation of overcapacity. Then we see a very, very magical landscape: while fixed assets are experiencing continuous negative growth, local industries are crazily oversupplied. This is the current picture of the Chinese economy. So, how much money is needed to guard it, and where will the money come from?

The bureaucratic system of the Deng and Jiang eras had a self-driving engine: local governments sold land to build infrastructure, infrastructure drove GDP, GDP determined promotions, and those who were promoted continued to sell land. The fuel was land transfer revenue. Look, this money supported three things simultaneously: first, the governance costs of local finance; second, the corruption costs of the bureaucratic system; and third, economic growth itself. Now, the fuel is gone. I calculated it based on quarterly distributions, and the total land transfer revenue for the whole year will be between 2.9 trillion and 3 trillion yuan, which is about one-third of that in 2021. Taxes tied to land are also falling: in the first eight months of this year, deed tax fell by 14.2%, land value-added tax fell by 13.6%, and local government fund revenue fell by 22.9%. On the other hand, look again: since the beginning of this year, the national general public budget revenue has only grown by 5.7%, of which central revenue grew by 9.1%, while local-level revenue only grew by 3.1%. What does this mean? It means that the fiscal revenue that can still grow is concentrating toward the central government; it is not concentrating toward the local real economy. In other words, the local "blood-making" function is already gone. Land transfer fees have dropped from 8.7 trillion to 3 trillion; the gap is a solid 6 trillion, equivalent to more than half of the local general public budget revenue.

After the fuel was gone, what did the Fifth Plenary Session do? According to convention, the Fifth Plenary Session should review the Five-Year Plan. This session moved the 15th Five-Year Plan up to last year's Fourth Plenary Session and hurriedly pushed out a version. After it came out, I was shocked: the whole thing was fucking "security," which I have already discussed with you all. Then this year's Fifth Plenary Session was entirely handed over to a decision on strict party governance, and for the first time, it proposed some kind of Xi-something-something, this idiot's party-building thought or whatever it is. No, anyway, I'll say it again: this idiot has no fucking thoughts at all. Let's move on. Everyone look, the structure now has become: in the year the 15th Five-Year Plan starts, the entire agenda of this idiot's plenary session is all about fucking discipline, about a party spirit that lacks humanity, about supervision, and about accountability. It doesn't talk about growth, it doesn't talk about reform, and it doesn't talk about debt at all. So this is not an oversight; it is a showdown of the route, and it is also a substitute plan after material incentives have failed—that is, using organizational discipline, ideological indoctrination, inspections, surveillance, and political purges to replace the growth dividends that can no longer be paid out. The Deng and Jiang eras used money to buy loyalty; when the money is gone, they use fear to buy loyalty. This is the logic of the idiot brother. Still, I'll say it again: fear is not free either. Replacing a regime's production-oriented bureaucrats entirely with supervision and stability-maintenance bureaucrats comes with three bills, and these three bills are also trending upward.

To supervise a province, you need a team of inspectors, a discipline inspection commission, and a political and legal affairs committee. Moreover, the supervisors themselves must also be supervised—just like in the Ming Dynasty: having the Eastern Depot wasn't enough, so they added the Western Depot; when that wasn't enough, they created the Inner Depot. The whole thing is like a fucking set of nesting dolls. Look at the two consecutive directors of the Central Military Commission General Office, Zhong Shaojing and Fang Huxiang; they were both supervisors, yet they themselves were purged. So, what do you do? You have to add another layer of supervisors to supervise the new supervisors. And for every additional layer, the cost doesn't rise linearly; it rises exponentially with the number of layers, because each layer must cover all the layers below it. Another cost is the horizontal transaction cost between officials. Under this selection system, officials cannot have informal relationships, which means all coordination must be done through documents, all decisions must leave a paper trail, and all power must be centralized. Things that used to be handled with a single phone call now require three fucking requests and two meetings, and the processing time has shifted from days to months. And waiting itself is a cost, but this cost is borne by businesses and residents.

Another cost is the stability maintenance (weiwen) cost. Because the 'mortician' model is about suppressing problems rather than solving them, covering them up doesn't make them disappear. Isn't this just a variant of the pandemic response? It's using the 'blade' (the police) to manage the pressure of the entire society; the more people you suppress, the more guards you need. But the guards don't work for free; they want salaries. Where do the salaries come from? They have to come from an already depleted treasury. We have calculated this limit before; it's not a debt ratio, but an inequality of mandatory cash flow. The disposable cash flow of the year must cover the rigid expenditures that must be paid that year. The first among these rigid expenditures are the police, the military, and civil servants. Local finances today are entirely relying on transfer payments to survive. Look at the current central transfer payments; they are at the scale of 10 trillion, while the central government's own revenue in the first eight months of this year was only 7 trillion. This equation hasn't crossed the line yet, but its margin is thinning, and the rate of thinning depends on the slope of the deterioration of the CCP's finances.

Let's talk about private enterprises. China has never had the kind of independent judicial property rights protection seen in the West. Over the past forty years, the prosperity of the private economy was built on something else: repeated games between entrepreneurs and local officials who served long terms. In plain language, a repeated game means you know you have to deal with this person next year, so both sides choose to keep their promises. A municipal party secretary used to serve for at least five or eight years. At that time, entrepreneurs at least knew that the official's commitment was valid for at least five years, so they dared to build factories that would take five years to break even. That fucking secretary also knew that the entrepreneur would have to pay taxes next year, so he wouldn't dare to seize the factory that year. This tacit understanding wasn't written into any Chinese law, but it effectively replaced the law for over forty years. Now, both of these things have been pulled out simultaneously. Secretaries and governors have become 'floating officials' who change every two or three years. Entrepreneurs face someone who might not be there next year. In other words, any commitment exceeding three years has no counterparty. Furthermore, who would the newcomers fear? They fear the discipline inspection commission! They will likely deliberately avoid establishing any private relationships with local entrepreneurs; they might not even be able to eat together. At this point, the tacit political-business understanding has completely hit zero.

For entrepreneurs, this means informal property rights protection has also hit zero, which is equivalent to private entrepreneurs suddenly becoming investors in an economy without any property rights protection. What do investors do in the absence of property rights protection? They just don't invest, or they move their money away. This data is perfectly consistent. I don't know if you have seen the investment base today? Total investment in the East fell by 10.3%, in the Central region by 10.1%, in the West by 8.7%, and the Northeast is even worse, down by 26%. There isn't a single fucking region that is positive. If we combine this with the previous episode on the Fifth Plenary Session, it forms a complete chain of causality. The 'sieve' for selecting officials in the CCP has changed, and those selected are 'caretakers' who don't understand the local situation. Under this incentive structure, the caretaker's strategy is inevitably to cover up problems. Once they cover up, the scattered bad debts cannot be disposed of. Bad debts that cannot be disposed of accumulate in the equity, and after the pressure accumulates, more caretakers are needed, and more caretakers require more fiscal resources. The fiscal resources come from already depleted land and private investment that is freezing over. This is a closed loop, and in this loop, there is no link that is venting this pressure. So I call this the 'changing locks and the pressure cooker.' Changing locks means changing a batch of floating officials every three years, but they are only changing the lock, while the room remains the same, and the trash in the room is still the same trash—it might even breed more bedbugs. The pressure cooker means the entire system has adopted an attitude of giving up on treating the economic crisis, relying purely on sending people to suppress issues and cover them up. They don't fix anything—not business bankruptcies, fiscal insolvency, or unpaid wages—but what will happen? Whoever explodes, they arrest; whoever cries out in pain, they gag.

At the level of hundreds of counties, thousands of leading enterprises, and hundreds of thousands of businesses facing these past issues, it used to be about decentralized risk clearance—or in a normal market-driven country, these risks would detonate one by one and be eliminated. But what is the goal of this incoming group now? It is to ensure these risks do not detonate during their own terms in office. Consequently, what has transformed from a state of decentralized risk clearance? It has turned into a system-wide hoarding of ticking time bombs. Let's project forward to 2027, and things get even more interesting. You see, from the end of this year through the first half of next year, the leadership reshuffles in various provinces will basically be completed. What kind of year is the first year of a newly arrived floating official likely to be? It is a reckoning year! If you don't liquidate your predecessor, you cannot reset the ledgers, and you cannot frame the problems as official cases. As for private investment, nobody is even going to think about it; it is destined to continue its negative growth. By the time of the 21st Party Congress in the second half of next year, given the current pace of purging by the CCP, the number of Central Committee members able to attend will only be even fewer, the blacklist for eliminating hidden dangers will only grow longer, and whether the Military Commission can be filled depends on what? It depends on whether Emperor You Xi can still find someone who is both capable and trustworthy. As I have said before, these two attributes are currently mutually exclusive. After 2028, these floating officials will enter the second and third years of their terms, which are the cover-up years. By that time, problems will no longer be defined as cases; instead, they will be defined as non-existent. Because those who should bear political responsibility have already been arrested, playing the game of erasing debts with human lives.

However, by that time, the pressure on the other two sectors will be immense. The load on the propaganda sector and the political-legal sector will reach a peak, and fiscal funding to support these two sectors will become the fastest-growing item in mandatory expenditures. Furthermore, the critical tipping point for explosion is not some debt-to-GDP ratio, but rather the exact day when the forced cash flow inequality is broken. Once transfer payments fail to arrive, the wages of those bastards acting as guards cannot be paid, and these guards are the sole lid on the entire pressure cooker. Although I cannot provide an exact date, the direction is crystal clear: the land deficit is still collapsing at a rate of 20 to 30 percent annually, private investment is freezing at a rate of 10 percent, and the cost of maintaining the guards is rising exponentially. The intersection of these three lines is just a few years away. How did the communiqué of that fucking stupid fifth plenary session phrase it? It claimed to have eliminated the serious hidden dangers existing within the party, the state, and the military. My judgment is precisely the opposite. This plenary session and the reshuffling before it are not eliminating hidden dangers; they are transferring the hidden dangers from dozens of individuals who could be dealt with separately into a systemic structure that cannot be dealt with individually. Guarding can ensure that nobody conspires to scam their brothers, but it cannot guarantee that they can get things done for this fucking idiot. Moreover, under this personnel strategy, they are bound to fail. Therefore, when every position in a regime is merely guarding and not a single position is producing, the fiscal budget is left with only one question: how much longer can the wages of the guards be paid? So everyone should eat well, drink well, and exercise more in these next few years to keep your bodies healthy; we will all get to see that day. Alright, that is all for today's notes with everyone.