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Xi Jing Ping is running scared. The stock market has fallen 25% this year. Yuan has fallen 10%. There's a 400 billion tariff coming his way, and because of 'sav

Xi Jing Ping is running scared. The stock market has fallen 25% this year. Yuan has fallen 10%. There's a 400 billion tariff coming his way, and because of 'saving face', there's no way he will back down. He has to also unwind China's 12-18T shadow banking, China's version of subprime loans similar to 2008 crisis (but way bigger). He has to figure out how to steal IP to move up the chain when US and the rest of the world has upped their defense, restricting Chinese tech investments and resisting hacking attempts. He also needs to deal with the tariffs encouraging manufacturers to leave China and go to southeast asia or back home via reshoring or automation. There is also the matter of a lack of consumer market in China, after it gets shut out of US and europe. Not much Chinese consumers can buy after $800/month income, after paying most of it to mortgage and inflated food prices. He also has to prop up the real estate bubble: "price rose 31 percent to nearly $202 per square foot. That's 38 percent higher than the median price per square foot in the U.S., where per-capita income is more than 700 percent higher than in China." https://www.bloomberg.com/view/articles/2018-06-24/why-china-can-t-fix-its-housing-bubble https://www.bloomberg.com/view/articles/2018-06-24/why-china...

fwdpropaganda 8y ago
> Yuan has fallen 10% Weak Yuan is good for Chinese trade, which has an enormous surplus.
- gotdangloch 8y ago
  China export will decline significantly after companies finish their move out of China due to the tariffs. no one is going to stay when tariff rates starts at 10% and may end up way higher (50%?) depending on how the trade war goes "the share of Nike shoes made in China fell off a cliff, going from 32 percent in 2012 to 19 percent in 2017." https://www.gq.com/story/nike-adidas-shifting-production-asia https://www.gq.com/story/nike-adidas-shifting-production-asi... In 2015, the U.S. reached parity between offshoring and returning jobs, and 2016 was the first time since 1970 that the United States reshored more jobs than were lost to offshoring. https://blog.thomasnet.com/manufacturing-reshoring-2018-update https://blog.thomasnet.com/manufacturing-reshoring-2018-upda... Why so Many Foreign Businesses are moving to Vietnam https://www.linkedin.com/pulse/why-so-many-foreign-businesses-moving-vietnam-alberto-vettoretti https://www.linkedin.com/pulse/why-so-many-foreign-businesse...
  - crdoconnor 8y ago
    Clothing/shoes are right at the bottom of the value chain. China was losing them already to Bangladesh and Vietnam and doesn't care. All you need for that is dirt cheap labor and a container port. It's not a strategic industry. The higher value stuff is not going to move though. If America severs the tech supply chain we're not going to see manufacturing suddenly move to the US, we're going to see skyrocketing inflation in hi tech goods. That is, until such time the US can build up a manufacturing ecosystem equivalent to the pearl river delta, which will take years.
    - gotdangloch 8y ago
      > The higher value stuff is not going to move though you mean like foxconn $10b display panel factory in wisconsin? groundbreaking this month? https://www.jsonline.com/story/money/real-estate/commercial/2018/05/11/foxconn-schedules-june-28-groundbreaking-ceremony-mount-pleasant/601626002/ https://www.jsonline.com/story/money/real-estate/commercial/... or apple's manufacturing investment in US https://www.apple.com/newsroom/2018/01/apple-accelerates-us-investment-and-job-creation/ https://www.apple.com/newsroom/2018/01/apple-accelerates-us-... or boeing/bmw automation in US? https://www.postandcourier.com/business/south-carolina-manufacturers-among-nation-s-leaders-in-using-robot/article_3023b708-8286-11e7-838a-bbd8288760e4.html https://www.postandcourier.com/business/south-carolina-manuf...
      - Bluestrike2 8y ago
        None of those are mutually exclusive. The US has a great deal of heavily-automated manufacturing facilities. That's not expected to change. But nor does anybody expect the US to try and recreate the electronics supply chain domestically. The parent comment's phrase "higher value stuff" is referring to higher-value Chinese exports. Focusing on electronics, for example, the majority of hard drives are produced in China and Thailand. And while Foxconn is building a $10bn display panel factory in Wisconsin, that's basically a drop in the bucket compared to electronics components manufactured in China and other Asian nations. More importantly, that display facility relies on a supply chain that's heavily dependent on Chinese (and Asian in general) components and raw materials. As are many of the components in the robots and hardware used by automated American factories. It'd take a truly mind-boggling level of investment to recreate the industry supporting that supply chain in the United States with very little hope of being competitive if that's what someone is hoping for. And while protectionist policy could be used to help shift that analysis, it'd need to be draconian enough that the Smoot-Hawley Tariff Act of 1930 would look positively minor. Because building new factories (and the factories to support those factories) can take years, you wind up with a multi-year transition period at best (more realistically, decades). That's a multi-year period where electronic component costs skyrocket and affect every single aspect of the American economy. All so that, in the end, we can pay significantly higher prices for those components. In terms of economic policy, it'd be less damaging to take the equivalent investment, printing it out as cash, and using it for the world's largest bonfire. As for the clothing industry, that's a transition that economists fully expected. The thing about developing countries is that--at first--you've got lots of cheap, unskilled labor. Clothing and textiles are two of the industries that are all but tailor-made for a comparative advantage in that scenario. You use that cheap labor and foreign investment to industrialize, build up infrastructure, and pour every dollar you can into education programs. Eventually, that means you're going to lose your comparative advantage in certain industries. This is a bit of a simplistic overview, but the point is that losing certain clothing exports isn't necessarily a bad thing in itself for China.
- nashashmi 8y ago
  Does the Yuan really fall? Price is set artificially. https://www.thestreet.com/markets/trump-trade-war-revives-fears-of-chinese-currency-plunge-14634564 https://www.thestreet.com/markets/trump-trade-war-revives-fe...
  - throwaway5752 8y ago
    Yes. The Chinese establishment is much more organized and organizationally intelligent than the US government right now. They peg the renmindbi, so the proper way to analyze this is while is to assume it has a goal and is intentional. The idea that Xi is "running scared" is too ridiculous to be funny. I'm not pro-China, but one has to have some frightening bias to say that. He's the most powerful person in the world right now.
api 8y ago
Maybe when the Chinese bubble crashes the present crop of neo-totalitarians and anti-democracy reactionaries will shut up. I am referring to those elements of both the alt-right and the totalitarian left who look to China (and similarly to Singapore) and pine for the miraculous efficiency of central planning and authoritarian rule by strong men. If only we had a king (or a one-party state or similar) we too could build infrastructure at breakneck speed and prop up the economy forever instead of dealing with the messy inefficiencies of democracy and consensus. People were just as psyched out by the USSR. It looked miraculous until the 1980s. The Nazis psyched people out too. We didn't get to see how that one would have turned out long term because they blew themselves off the map with an insane war on two fronts but my guess would be similar to the USSR: a little period of apparently miraculous progress followed by rapid stagnation, being eaten alive by cancerous corruption, and collapse transitioning to something like Russia's present-day mafia state. It's easier to go from zero to one than from one to N. Totalitarian regimes are very good at copying and rapidly implementing things they already know how to do, so they tend to go from zero to one with breathtaking speed. Then they hit a wall because their totalitarianism prohibits innovation (either cultural or technological) and is very fragile. The economic miracle ends when they run out of stuff to copy and usually their politics goes to hell when the Great Leader and/or revolutionary generation dies. Social democracy sucks at rapid execution on the known. I get frustrated with it just like the next person. But it's the only system with a demonstrated track record of continuously marching into the unknown and of defending itself for long periods of time against extreme corruption.
- deleted 8y ago
  [deleted]
- taherchhabra 8y ago
  Wow, I can use your comment during my debates on democracy Vs Dictatorship.
  - api 8y ago
    There is perhaps a pragmatic argument for being a dictatorship if your goal is to climb from backwater to "developed" nation very quickly and then to transition to a democracy, but the authoritarians in charge have a history of nixing the second part of that plan. We thought this was what China was going to do until their new emperor emerged and made himself president for life.
394549 8y ago
> The stock market has fallen 25% this year. If true, I'm not sure if that means anything. Isn't the Chinese stock market notoriously volatile? I'm also under the impression that there's a much greater proportion of speculative investing going on in it compared to the US market.
conanbatt 8y ago
Jesus. If china has a real out-ward facing crisis we are all toast.
- gigatexal 8y ago
  Yes because by buying and holding our debt they both keep our dollar strong and allow us to keep over spending. Without them (buying our debt) we are screwed.
  - jorts 8y ago
    I'd be interested in hearing how much of an impact that has on the US economy since most US debt isn't owned by China.
    - toomuchtodo 8y ago
      China is the second largest foreign holder of US debt ($1.17 trillion). That’s still a substantial amount of influence. https://www.fiscal.treasury.gov/fsreports/rpt/treasBulletin/current.htm https://www.fiscal.treasury.gov/fsreports/rpt/treasBulletin/...
  - indemnity 8y ago
    You know they only hold 4-6% of the US total debt, right? The vast majority is held by US institutions.
    - fosco 8y ago
      Can you help me find sources for this? Having a tough time.
      - Mindless2112 8y ago
        https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St... > "National Debt" of $21 trillion > Leading foreign holders > China $1,181.9 billion
mac01021 8y ago
Maybe I'm just stupid, but I'm not getting it: > Underlying all this is the simple fact that China can't allow real-estate prices to decline significantly. Politically, homeowners have come to expect their property values to rise continually in a one-way bet. [...] Rather than run those risks, China is simply ramping up development. Isn't ramping up development to increase housing supply exactly the way NOT to keep housing prices high?
- digitalzombie 8y ago
  Right but they need the increase development to sustain their growth iirc from my news reading.
throwaway5752 8y ago
This is a nice case study in misleading with statistics. The measured prices of Chinese real estate is based on something called a 100 cities index (based on your linked article) which is presumably specific to Chinese urban real estate. It goes on to compare that to the median US prices (instead of the mean US prices) and compounds that error by comparing with different populations (top urban population centers in China vs all real estate in US). Finally, it compares the 100 cities index price/sq ft rate to median US income - comparing a mean to a median - in a population with a long tailed income distribution. RE speculation in China and the debt used to finance it are a big problem with serious contagion risks, and deserve a much higher quality discussion that that. edit: if someone were to want to analyze this honestly, compare that real estate sq. footage figure to its US counterpart, then compare to it to mean urban income in both countries. for extra credit, see if the degree of leverage is appropriate by looking at respective debt levels, growth of debt levels, and income growth.
tmaly 8y ago
I just saw on the Financial Times front page that he is loosing reserve requirements of the banks. Globally, this trade battle might trigger something much worse than what is happening in China as you describe.

fwdpropaganda 8y ago

> Yuan has fallen 10% Weak Yuan is good for Chinese trade, which has an enormous surplus.

gotdangloch 8y ago
China export will decline significantly after companies finish their move out of China due to the tariffs. no one is going to stay when tariff rates starts at 10% and may end up way higher (50%?) depending on how the trade war goes "the share of Nike shoes made in China fell off a cliff, going from 32 percent in 2012 to 19 percent in 2017." https://www.gq.com/story/nike-adidas-shifting-production-asia https://www.gq.com/story/nike-adidas-shifting-production-asi... In 2015, the U.S. reached parity between offshoring and returning jobs, and 2016 was the first time since 1970 that the United States reshored more jobs than were lost to offshoring. https://blog.thomasnet.com/manufacturing-reshoring-2018-update https://blog.thomasnet.com/manufacturing-reshoring-2018-upda... Why so Many Foreign Businesses are moving to Vietnam https://www.linkedin.com/pulse/why-so-many-foreign-businesses-moving-vietnam-alberto-vettoretti https://www.linkedin.com/pulse/why-so-many-foreign-businesse...
- crdoconnor 8y ago
  Clothing/shoes are right at the bottom of the value chain. China was losing them already to Bangladesh and Vietnam and doesn't care. All you need for that is dirt cheap labor and a container port. It's not a strategic industry. The higher value stuff is not going to move though. If America severs the tech supply chain we're not going to see manufacturing suddenly move to the US, we're going to see skyrocketing inflation in hi tech goods. That is, until such time the US can build up a manufacturing ecosystem equivalent to the pearl river delta, which will take years.
  - gotdangloch 8y ago
    > The higher value stuff is not going to move though you mean like foxconn $10b display panel factory in wisconsin? groundbreaking this month? https://www.jsonline.com/story/money/real-estate/commercial/2018/05/11/foxconn-schedules-june-28-groundbreaking-ceremony-mount-pleasant/601626002/ https://www.jsonline.com/story/money/real-estate/commercial/... or apple's manufacturing investment in US https://www.apple.com/newsroom/2018/01/apple-accelerates-us-investment-and-job-creation/ https://www.apple.com/newsroom/2018/01/apple-accelerates-us-... or boeing/bmw automation in US? https://www.postandcourier.com/business/south-carolina-manufacturers-among-nation-s-leaders-in-using-robot/article_3023b708-8286-11e7-838a-bbd8288760e4.html https://www.postandcourier.com/business/south-carolina-manuf...
    - Bluestrike2 8y ago
      None of those are mutually exclusive. The US has a great deal of heavily-automated manufacturing facilities. That's not expected to change. But nor does anybody expect the US to try and recreate the electronics supply chain domestically. The parent comment's phrase "higher value stuff" is referring to higher-value Chinese exports. Focusing on electronics, for example, the majority of hard drives are produced in China and Thailand. And while Foxconn is building a $10bn display panel factory in Wisconsin, that's basically a drop in the bucket compared to electronics components manufactured in China and other Asian nations. More importantly, that display facility relies on a supply chain that's heavily dependent on Chinese (and Asian in general) components and raw materials. As are many of the components in the robots and hardware used by automated American factories. It'd take a truly mind-boggling level of investment to recreate the industry supporting that supply chain in the United States with very little hope of being competitive if that's what someone is hoping for. And while protectionist policy could be used to help shift that analysis, it'd need to be draconian enough that the Smoot-Hawley Tariff Act of 1930 would look positively minor. Because building new factories (and the factories to support those factories) can take years, you wind up with a multi-year transition period at best (more realistically, decades). That's a multi-year period where electronic component costs skyrocket and affect every single aspect of the American economy. All so that, in the end, we can pay significantly higher prices for those components. In terms of economic policy, it'd be less damaging to take the equivalent investment, printing it out as cash, and using it for the world's largest bonfire. As for the clothing industry, that's a transition that economists fully expected. The thing about developing countries is that--at first--you've got lots of cheap, unskilled labor. Clothing and textiles are two of the industries that are all but tailor-made for a comparative advantage in that scenario. You use that cheap labor and foreign investment to industrialize, build up infrastructure, and pour every dollar you can into education programs. Eventually, that means you're going to lose your comparative advantage in certain industries. This is a bit of a simplistic overview, but the point is that losing certain clothing exports isn't necessarily a bad thing in itself for China.
nashashmi 8y ago
Does the Yuan really fall? Price is set artificially. https://www.thestreet.com/markets/trump-trade-war-revives-fears-of-chinese-currency-plunge-14634564 https://www.thestreet.com/markets/trump-trade-war-revives-fe...
- throwaway5752 8y ago
  Yes. The Chinese establishment is much more organized and organizationally intelligent than the US government right now. They peg the renmindbi, so the proper way to analyze this is while is to assume it has a goal and is intentional. The idea that Xi is "running scared" is too ridiculous to be funny. I'm not pro-China, but one has to have some frightening bias to say that. He's the most powerful person in the world right now.

api 8y ago

Maybe when the Chinese bubble crashes the present crop of neo-totalitarians and anti-democracy reactionaries will shut up. I am referring to those elements of both the alt-right and the totalitarian left who look to China (and similarly to Singapore) and pine for the miraculous efficiency of central planning and authoritarian rule by strong men. If only we had a king (or a one-party state or similar) we too could build infrastructure at breakneck speed and prop up the economy forever instead of dealing with the messy inefficiencies of democracy and consensus. People were just as psyched out by the USSR. It looked miraculous until the 1980s. The Nazis psyched people out too. We didn't get to see how that one would have turned out long term because they blew themselves off the map with an insane war on two fronts but my guess would be similar to the USSR: a little period of apparently miraculous progress followed by rapid stagnation, being eaten alive by cancerous corruption, and collapse transitioning to something like Russia's present-day mafia state. It's easier to go from zero to one than from one to N. Totalitarian regimes are very good at copying and rapidly implementing things they already know how to do, so they tend to go from zero to one with breathtaking speed. Then they hit a wall because their totalitarianism prohibits innovation (either cultural or technological) and is very fragile. The economic miracle ends when they run out of stuff to copy and usually their politics goes to hell when the Great Leader and/or revolutionary generation dies. Social democracy sucks at rapid execution on the known. I get frustrated with it just like the next person. But it's the only system with a demonstrated track record of continuously marching into the unknown and of defending itself for long periods of time against extreme corruption.

deleted 8y ago
[deleted]
taherchhabra 8y ago
Wow, I can use your comment during my debates on democracy Vs Dictatorship.
- api 8y ago
  There is perhaps a pragmatic argument for being a dictatorship if your goal is to climb from backwater to "developed" nation very quickly and then to transition to a democracy, but the authoritarians in charge have a history of nixing the second part of that plan. We thought this was what China was going to do until their new emperor emerged and made himself president for life.

394549 8y ago

> The stock market has fallen 25% this year. If true, I'm not sure if that means anything. Isn't the Chinese stock market notoriously volatile? I'm also under the impression that there's a much greater proportion of speculative investing going on in it compared to the US market.

conanbatt 8y ago

Jesus. If china has a real out-ward facing crisis we are all toast.

gigatexal 8y ago
Yes because by buying and holding our debt they both keep our dollar strong and allow us to keep over spending. Without them (buying our debt) we are screwed.
- jorts 8y ago
  I'd be interested in hearing how much of an impact that has on the US economy since most US debt isn't owned by China.
  - toomuchtodo 8y ago
    China is the second largest foreign holder of US debt ($1.17 trillion). That’s still a substantial amount of influence. https://www.fiscal.treasury.gov/fsreports/rpt/treasBulletin/current.htm https://www.fiscal.treasury.gov/fsreports/rpt/treasBulletin/...
- indemnity 8y ago
  You know they only hold 4-6% of the US total debt, right? The vast majority is held by US institutions.
  - fosco 8y ago
    Can you help me find sources for this? Having a tough time.
    - Mindless2112 8y ago
      https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St... > "National Debt" of $21 trillion > Leading foreign holders > China $1,181.9 billion

mac01021 8y ago

Maybe I'm just stupid, but I'm not getting it: > Underlying all this is the simple fact that China can't allow real-estate prices to decline significantly. Politically, homeowners have come to expect their property values to rise continually in a one-way bet. [...] Rather than run those risks, China is simply ramping up development. Isn't ramping up development to increase housing supply exactly the way NOT to keep housing prices high?

digitalzombie 8y ago
Right but they need the increase development to sustain their growth iirc from my news reading.

throwaway5752 8y ago

This is a nice case study in misleading with statistics. The measured prices of Chinese real estate is based on something called a 100 cities index (based on your linked article) which is presumably specific to Chinese urban real estate. It goes on to compare that to the median US prices (instead of the mean US prices) and compounds that error by comparing with different populations (top urban population centers in China vs all real estate in US). Finally, it compares the 100 cities index price/sq ft rate to median US income - comparing a mean to a median - in a population with a long tailed income distribution. RE speculation in China and the debt used to finance it are a big problem with serious contagion risks, and deserve a much higher quality discussion that that. edit: if someone were to want to analyze this honestly, compare that real estate sq. footage figure to its US counterpart, then compare to it to mean urban income in both countries. for extra credit, see if the degree of leverage is appropriate by looking at respective debt levels, growth of debt levels, and income growth.

tmaly 8y ago

I just saw on the Financial Times front page that he is loosing reserve requirements of the banks. Globally, this trade battle might trigger something much worse than what is happening in China as you describe.