Wind Rises in North America 1625

Chapter 528 Economic Adjustment (Part Two)

Deng Zhichen pondered for a moment, then said seriously, "I have met with Mr. Lü (formerly Lü Zhenzhong, the commissioner of the Xinhua Bay Colonization Area) of the Ministry of Industry and Trade several times in the past few days to discuss and formulate some countermeasures. However, I feel that they are not yet mature. I might as well tell you about them here first, listen to your opinions and suggestions, and then submit them to the Supreme Decision Committee for discussion and review after improvement."

"Okay, go ahead." Li Liang immediately sat up straight, looking like he was listening attentively.

Zheng Lihui also stopped smiling and his expression became serious.

Deng Zhichen cleared his throat and began to speak slowly and deliberately: "We have initially proposed a five-pronged approach to address this issue: expanding external markets, nurturing domestic consumption, optimizing fiscal policy, implementing precise monetary policy, and adjusting the economic structure. These five aspects must be promoted in a coordinated manner; none can be neglected."

"First, we need to expand into new markets. The core objective is to alleviate the immediate crisis caused by the severance of the Spanish American market. We need to find several new buyers to replace them. As Lao Zheng just mentioned, we need to attack North Korea and make it a new dumping market. Strategically speaking, this is indeed a long-term direction worth considering. However, this is a long-term solution that cannot address the immediate problem. Taking military action against North Korea will probably have to wait until the war with the Spanish is over before it can be put on the agenda. At present, it cannot solve our immediate predicament of market shortage."

"So, should we turn our attention to Southeast Asia, such as Annam, Champa, Siam, and Cambodia? Although the Dutch East India Company competes with us in this region, they are essentially just a trade monopoly. They don't have much capacity to produce manufactured goods themselves. They simply buy and sell some local specialties from the Ming Dynasty, India, Japan, and Southeast Asia, earning profits from trade differences and monopoly profits."

"Therefore, we can try to expand the Luzon colony and the Guangdong trading post, and strive to get our Xinhua products into these countries and regions. Of course, we must not ignore the behemoth that is so close to us, the Ming Dynasty. Even though it has a strong internal circulation and a self-sufficient economic model, its huge population base can still absorb some of the goods we produce, such as clear mirrors, brightly colored chemical dyes, cleaning soaps and detergents, refined white sugar, and military weapons."

“In the past, we always felt that crossing the vast Pacific Ocean and the long sea route would add an extra layer of high transportation costs to our goods, significantly increasing the final selling price and thus causing us to lose our price competitiveness in the Ming and Southeast Asian markets. However, we overlooked a fact: every year we need to organize a huge fleet to travel back and forth across the Pacific Ocean to the coastal areas of the Ming Dynasty to receive immigrants. On the way there, most of the ships’ cabins are empty, which is a huge waste and loss of transportation capacity.”

"Then why don't we make full use of these empty cargo spaces on the outbound journey? When calculating the cost of goods we ship to the Ming Dynasty, can we significantly reduce or even ignore the outbound freight rate, mainly calculating the cost of raw materials and production, adding a reasonable expected profit, and then selling them in the Ming Dynasty and Southeast Asian markets at a very aggressive price?"

"In this way, our Xinhua industrial products may be able to quickly gain a foothold and win a valuable market space by virtue of their excellent quality and irresistible low prices. Even if this market is small, it will be enough for our small size to make a living. As long as our products can be sold and we can get funds back, then domestic factories can start operating again, workers can get their wages, and the domestic consumer market can also indirectly benefit and be boosted to a certain extent."

"Yes, this is a very clever idea, turning a disadvantage into an advantage!" Li Liang nodded in approval, his eyes flashing with admiration. "Our annual immigration activities already receive substantial government subsidies, essentially a national strategic investment. Using empty ships to transport goods is practically free transportation capacity. Those empty immigration ships can indeed reduce or eliminate the cost of transporting goods. The Ministry of Industry and Trade and the Shipping Bureau should be immediately tasked with conducting a feasibility study and developing a plan as soon as possible."

"The second step is to cultivate domestic consumption..." Deng Zhichen was quite excited after receiving the affirmation, and his speech became faster: "We must work hard to stimulate domestic consumption, and how can we do that? We need to make sure that immigrants have money in their hands and can actively buy the daily necessities they need in the market."

"For example, for the large number of immigrants who are in the colonization service period, could we slightly change the previous strict control and egalitarian model? We could consider implementing a 'performance deduction' system: appropriately shorten the service period of some immigrants with outstanding labor performance and quick skill acquisition, and grant them their own land and houses six months or a year in advance, so that they can quickly transform into self-cultivating farmers with private property and full consumption capacity."

"Or, after they exceed the established quotas for land reclamation, road construction, and canal repair, in addition to recording them in their files and using them as a basis for future resource allocation assessments, they can be directly given a certain amount of cash reward, so that this advanced group can be the first to have a certain cash payment ability, thus forming the initial source of the consumer market."

Li Liang immediately agreed: "This is a good idea! It solves the problems of immigrants' enthusiasm and sense of belonging, revitalizes the consumption power of a certain group, and can also serve as a demonstration effect to encourage those who follow. It can be said to achieve multiple benefits. We can first select one or two settlements with suitable conditions for pilot projects. If the results are significant, we can quickly promote it to the whole territory."

"It's not enough to just give people money; we also need to make them 'willing to spend' without any worries," Deng Zhichen continued. "Our country is small and has a weak foundation, so we may not be able to establish a comprehensive welfare and social security system. But we can consider starting with the most basic survival security."

"For example, local governments and non-governmental organizations could take the lead in establishing 'public relief warehouses' in major cities and towns to store basic food, oil, cloth, and salt. In the event that people in the country are hit by natural disasters, man-made calamities, diseases, or injuries and are unable to guarantee their basic survival, they can apply to the 'public warehouses' for the most basic living supplies after verification, to help them overcome difficulties. This can greatly enhance the overall sense of security and stability in society."

"For example, we should consider gradually increasing the years and coverage of compulsory education, raising the subsidy standards for families with multiple children, and during wartime, we could consider appropriately reducing or slowing down the amount and frequency of agricultural taxes and fees to truly alleviate the burden on the people, especially farmers."

"These measures may seem like government concessions or increased spending, but in the long run, they are all about 'cultivating effective demand,' laying a solid foundation for the growth of social consumption capacity, and allowing the wheel of domestic consumption to slowly start turning and take off."

As they were talking, the carriage drove into the square in front of the State Council building, which had been built less than a year ago.

This is a magnificent three-story brick and cement building that blends traditional and modern styles. A tall flagpole stands in front of the building, with Xinhua's red flag fluttering in the wind.

The three of them got out of the car together and entered Deng Zhichen's office on the second floor of the State Council building.

The room was spacious and bright, with a large Xinhua map of the country and various economic data charts hanging on the walls. A large mahogany desk was piled high with documents, and several tall bookshelves stood next to it, filled with account books and documents.

Deng Zhichen invited Li Liang and Zheng Lihui to sit on the leather sofa by the window, personally brewed a pot of fine Longjing tea in a white porcelain cup, then picked up a piece of chalk and walked to a small blackboard hanging in the corner.

"Premier, Li Hui, let's continue what we were talking about on the way here." Deng Zhichen pushed up his glasses, his expression regaining the calm and meticulousness characteristic of a finance ministry official.

"Third, we need to optimize public finances. This is not just about simply cutting spending, but about changing the structure and efficiency of government expenditures." He wrote the four words "optimize public finances" forcefully on the blackboard.

"The current fiscal predicament is structural. Revenue has plummeted due to the disruption of trade, while military spending has rigidly increased due to the needs of war. We cannot, like the Spanish in the past, rely solely on gold and silver to fill the gap; that would be tantamount to drinking poison to quench thirst, leading to endless troubles." "The solution lies in resolutely transforming some 'consumption expenditures' into 'investment expenditures.' We must decisively cut those purely administrative expenses and general subsidies that do not generate long-term returns. However, for strategic projects that can generate significant economic benefits in the future or save greater social costs, we must not only not cut them, but instead increase investment in them by all means."

"For example, we should increase investment in the colonies of Northern Japan and Luzon. This money may seem to be spent in distant overseas countries, but it is not a waste. Instead, it is a bridgehead for us to open up new markets and an early investment in 'opening up new sources of revenue'. This money may bring ten times or even a hundred times the trade revenue and strategic returns in the future."

"For example, investing in domestic infrastructure construction. What Lao Zheng just mentioned about large-scale government investment is in the right direction, but it must be precise and effective to avoid waste. We are not building some luxurious official residences or garden squares that are flashy but impractical to show off our political achievements. Instead, we should concentrate our limited human and material resources on projects that can significantly reduce logistics costs and improve production efficiency."

"For example, we will build the Mara Railway from Shixing Port to Fenzhou, and reserve space for future upgrades to a standard railway. We will also vigorously build a solid, paved road network between the major settlements and upgrade some existing ports and wharves. This will immediately revitalize domestic resources, reduce the cost of raw material procurement and product transportation for factories, and thus enhance the price competitiveness of our goods in the future market. This expenditure, which may seem like government spending, is actually 'repairing the blood vessels' of the entire economy, and its long-term benefits far outweigh the investment."

"In addition, I strongly suggest that the government consider issuing 'war bonds' or 'construction bonds' to the public, rather than relying solely on the single means of increasing the money supply. We can issue special bonds to domestic merchants, workshop owners, and even ordinary citizens with some savings who have idle funds, clearly specifying the interest and term, and promising to use future national tax revenue, concession trade revenue, or state-owned mine profits as repayment guarantees."

"This has three major advantages. First, it concentrates idle funds in the private sector for the most urgent needs of the country, avoiding inflation caused by simply increasing the money supply. Second, it enhances the public's sense of participation and cohesion in the war effort, making them feel that they are investing in their own future and sharing the responsibilities and benefits. Finally, it tests and cultivates our domestic financial market, accumulating valuable experience for the future establishment of a more mature national debt system and even a securities market."

Li Liang listened and nodded thoughtfully: "In other words, the government's spending should be used wisely and more 'cost-effectively' to achieve the greatest multiplier effect, so that one yuan can leverage the benefits of ten yuan."

“That’s exactly what I mean,” Deng Zhichen affirmed, then wrote the second title on the blackboard, “Precision Currency,” before turning to Zheng Lihui with a smile. “The key to the success or failure of the quantitative easing policy that Lao Zheng mentioned on the way lies in the word ‘precision.’ When injecting currency into the market, we cannot engage in ‘flooding’ but must carry out precise ‘drip irrigation’ to ensure that factories and enterprises that need ‘water’ can receive ‘irrigation’ in a timely manner.”

"How exactly does 'precise drip irrigation' work?" Zheng Lihui asked.

"First, implement targeted credit support. Official financial institutions under the Ministry of Finance, such as Xinzhou Bank and Xinzhou Agricultural Credit Bank, will allocate a special fund of low-interest credit to provide low-interest or even short-term interest-free loans to key factories that are vital to the national economy and people's livelihood and are temporarily in a liquidity crisis due to the interruption of external markets, such as textile factories, glass factories, ceramic factories, hardware tool factories, and leather factories."

"These loans are not given away for free. Instead, they require factories to maintain a stable workforce, guarantee workers' basic income, or carry out technological upgrades and process improvements to increase production efficiency, reduce production costs, and reserve technological advantages and production capacity potential for future market expansion. This avoids 'monetary transmission failure' and allows valuable funds to flow directly to key economic nodes that can maintain employment, ensure production, and enhance the future."

"Secondly, initiate strategic material procurement. The government can directly intervene, using a portion of newly minted currency or proceeds from bond issuance, to purchase large-scale, planned procurement of specific inventory goods stockpiled by factories, such as woolen fabrics, cloth, iron farm implements, glassware, and leather products. What will these procured materials be used for? In addition to directly supplementing military supplies and providing for the consumption of frontline troops, they can also be used as part of the 'settlement package' for future new immigrants, which will both efficiently digest the huge inventory and effectively reduce the cash expenditure costs for settling new immigrants in the future."

"Another point is to establish a price stabilization department to closely monitor price fluctuations of basic necessities such as grain, cloth, salt, sugar, and tea, and to strictly control them when necessary to protect the purchasing power of ordinary people from inflation."

Li Liang praised, "What a fine 'precision currency'! It's not just about throwing money away, but about giving every silver dollar a clear destination and mission: either to preserve employment, support strategy, or directly convert into combat power or market share."

"The Premier's summary is insightful." Deng Zhichen smiled and finally wrote the four characters "adjusting the structure" on the blackboard.

"Finally, and most fundamentally and strategically significant, is to proactively adjust our economic and industrial structure. This war has undoubtedly exposed the fragility of our current economic structure—over-reliance on a single external market. We must seize this opportunity to turn crisis into opportunity, make a firm decision, and proactively adjust and optimize our industrial layout and focus."

"Prioritizing the development of the military industry is undoubtedly essential during wartime. We should encourage and even subsidize military factories, shipyards, and gunpowder factories to expand their production capacity and conduct technological iteration and research. This is not only to meet the current needs of war, but also to ensure that some advanced military technologies can be transformed into civilian applications in peacetime, becoming another engine for our industrial development."

"Furthermore, we need to support import substitution industries. In the past, we may have relied heavily on importing primary products and raw materials from Spanish America, such as wool, cotton, cocoa, raw sugar, tobacco, mercury, indigo, and vanilla. Now that trade has been cut off, it has given us a window of opportunity for independent development. We need to invest fiscal funds, provide technical guidance, or introduce incentive policies to encourage the development of the production of these cash crops (raw materials) in suitable areas, while ensuring food security. This will provide a stable supply of raw materials for our textile mills, sugar mills, and chemical plants, reduce our dependence on primary product imports, and extend the domestic industrial chain. This will also increase farmers' income, thereby stimulating consumption in the rural market."

"In short..." Deng Zhichen looked at his two colleagues listening intently on the sofa and summarized: "'Optimizing public finance' ensures that we have money to spend and know how to spend it; 'precise currency' ensures that money flows to where it should go and does not have any side effects; 'structural adjustment' is to create an economic system that is more resilient, more resistant to risks, and has more endogenous growth momentum."

"These three, together with the previously discussed 'expanding external markets' and 'cultivating domestic consumption,' can be implemented in a coordinated manner to help us not only successfully alleviate the enormous economic difficulties we faced during the war, but also lay a solid and healthy economic foundation for the rise and prosperity of the country after the war."

There was a brief silence in the office.

Li Liang and Zheng Lihui sat silently, their faces grave, seemingly both fully digesting and pondering the economic countermeasures he had mentioned.

After a long pause, Li Liang broke the silence with a high-five: "Great! Old Deng, you truly deserve to be our God of Wealth! Not only did you analyze the existing problems thoroughly, but you also came up with such a systematic, in-depth, and actionable solution! Your clarity of thought, appropriate measures, and long-term vision are truly admirable!"

He stood up, walked over to Deng Zhichen, and affectionately punched him on the shoulder. "After you come down, immediately work with other relevant departments to further refine these ideas and form a detailed strategic report for submission to the Supreme Decision-Making Committee for review. This economic adjustment and reform is no less important than the battle on the front lines, and we must go all out to ensure victory!"
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(End of this chapter)