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Taxation in China (at least by law) is quite comparable to Germany's (40+% when you reach ~$144k) but without all the social benefits. Unlike Germany, there are

Taxation in China (at least by law) is quite comparable to Germany's (40+% when you reach ~$144k) but without all the social benefits. Unlike Germany, there are gray areas in the Chinese system where people find ways to pay less tax. But there are also other cost-inducing things than tax. In lights of the evergrande crisis, I'm not sure how efficient China's hugely state-directed investment system is. And much won't be achieved had there not been Deng's economic reforms and the tax indulgence that followed. More than anything, high taxation stifles innovations in China. What you see in China is not real innovation (in the sense of inventing new things), but social-mobility [1] as a consequence of authoritarianism which can result in mass adoption of technologies, etc. Also, considering the recent Tang Ping (躺平) movement, I don't think China's social-economy is currently in a healthy state. [1] https://andrewbatson.com/2021/10/13/mobilization-and-modules-whats-changing-in-china/ https://andrewbatson.com/2021/10/13/mobilization-and-modules...

fabianhjr 5y ago
> recent Tang Ping (躺平) movement, I don't think China's social-economy is currently in a healthy state. Well, it is not like an antiwork movement has been forming on the US and is gaining mainstream traction. ( https://www.reddit.com/r/antiwork/ https://www.reddit.com/r/antiwork/ ) > In lights of the evergrande crisis, I'm not sure how efficient China's hugely state-directed investment system is. How is a private developer that overleveraged itself the fault of a state that is investing in _public infrastructure_ like high speed rail, nuclear reactors, and tech in general? Since anything vital is public property they can do what self-called capitalists in the US cannot: let evergrande fail. (No private company in China is "too big to fail")
- rsj_hn 5y ago
  > How is a private developer [...] > No private company in China is "too big to fail" The biggest companies in China are state owned enterprises with large ownership positions by communist party insiders. Not only are they not allowed to fail, their share price often isn't allowed to fall. They borrow money at interest rates below the rate of inflation and often never need to pay it back. This creates a zombie banking system that is periodically recapitalized by the government, and is also capitalized by households who receive interest rates below the rate of inflation on their deposits. This then creates a shadow banking system where households, not wanting to leave their money in official banks, search for yield, for example investing in real estate or really anything that will at least keep up with inflation and at best offer a positive return. You have pig farmers stockpiling copper. This was why the bitcoin craze took off so much in China. Households are looking for anything, anything to preserve their wealth. This explains the phenomena of Evergrande holdings -- it is not just a private developer that "overleveraged itself", it's the direct consequence of Chinese subsidies to State Owned Enterprises. These SOE's then burn money on everything from building exact replicas of small Swiss villages to creating electric buses and absolutely everything in between. When you are paid to lose money and are politically connected, a whole host of investment opportunities becomes available. These SOEs will not be wound down. Evergrande, however, will be wound down, but only to be replaced by the next big construction conglomerate because Chinese households aren't going to leave their money in the bank. However households, by lending to firms, cannot rid themselves of excess deposits - that requires a financial sector that faces market discipline on the liability side of its balance sheet, which Chinese banks do not. They do not face discipline on either the asset nor the liability side, as credit analysis is determined as much by political connections as any kind of business fundamental. You are going to have a hard time even getting proper books for these businesses, which is why we find out which ones fail only when they can't make a bond payment. Therefore as long as these financing, ownership, and regulatory arrangements are in place, you are going to have the current crazy investment market where the state firms never go bankrupt but the private firms or those firms not well connected with party insiders are regularly going bankrupt. This does not mean that capital is being allocated wisely, even if it does mean that your favorite infrastructure projects are more likely to get funded in China. But that's only because everyone's favorite infrastructure projects are more likely to get funded in China, from completely empty shopping malls, to empty apartment buildings, to empty airports, to bizarre tourist attractions, enormous 400 foot tall gold-covered statues of the buddha, it will all get funded in China, at taxpayer expense, and none of it will ever be marked to market. But from the bird's eye view, you see a nation where the private consumption share of GDP is now below 38%, the remaining 62% spent on enormous Buddhas, electric buses, vast shopping malls, and yes, empty apartment buildings constructed by Evergrande.
  - a9h74j 5y ago
    > These SOE's then burn money on everything ... devouring resources Not sure if this adds, but one observation I sometimes come across is this: Both Capitalism and Socialism as we know them are dependent upon resources (energy, concrete, steel, technology, etc) which cannot be taken for granted in either "finite planet" or "peak everything" terms.
dirtyid 5y ago
> I'm not sure how efficient China's hugely state-directed investment system is Every system misallocates resources, but some misallocation is more "beneficial" than others, i.e. arguably it's better to be overcapacity on infra than under. There's something to be said about the tangible byproduct of PRC misallocation. Versus something like US tendency to misallocate resources into intangibles like the stock market, currently with capitalization to GDP nearing 200% that makes PRC misallocation that generates stuff that can be useful seem preferable in comparison. It’s like how hosting the Olympics is notoriously corrupt but simultaneously the only way for some systems to build useful things that are long term beneficial. Ditto with inefficient “industrial policy” that the PRC adopted from the US and US is learning to re-adopt. Misallocating 100s of billions to get semiconductors and turbojets for PRC or reshoring semi for US is ultimately better than not realizing those goals at all. Fast, cheap, good - sometimes optimizing for only one thing is still better than nothing. It's not efficient, but IMO PRC state-directed investment is still largely useful. Question is of course sustainabilty.

fabianhjr 5y ago

> recent Tang Ping (躺平) movement, I don't think China's social-economy is currently in a healthy state. Well, it is not like an antiwork movement has been forming on the US and is gaining mainstream traction. ( https://www.reddit.com/r/antiwork/ https://www.reddit.com/r/antiwork/ ) > In lights of the evergrande crisis, I'm not sure how efficient China's hugely state-directed investment system is. How is a private developer that overleveraged itself the fault of a state that is investing in _public infrastructure_ like high speed rail, nuclear reactors, and tech in general? Since anything vital is public property they can do what self-called capitalists in the US cannot: let evergrande fail. (No private company in China is "too big to fail")

rsj_hn 5y ago
> How is a private developer [...] > No private company in China is "too big to fail" The biggest companies in China are state owned enterprises with large ownership positions by communist party insiders. Not only are they not allowed to fail, their share price often isn't allowed to fall. They borrow money at interest rates below the rate of inflation and often never need to pay it back. This creates a zombie banking system that is periodically recapitalized by the government, and is also capitalized by households who receive interest rates below the rate of inflation on their deposits. This then creates a shadow banking system where households, not wanting to leave their money in official banks, search for yield, for example investing in real estate or really anything that will at least keep up with inflation and at best offer a positive return. You have pig farmers stockpiling copper. This was why the bitcoin craze took off so much in China. Households are looking for anything, anything to preserve their wealth. This explains the phenomena of Evergrande holdings -- it is not just a private developer that "overleveraged itself", it's the direct consequence of Chinese subsidies to State Owned Enterprises. These SOE's then burn money on everything from building exact replicas of small Swiss villages to creating electric buses and absolutely everything in between. When you are paid to lose money and are politically connected, a whole host of investment opportunities becomes available. These SOEs will not be wound down. Evergrande, however, will be wound down, but only to be replaced by the next big construction conglomerate because Chinese households aren't going to leave their money in the bank. However households, by lending to firms, cannot rid themselves of excess deposits - that requires a financial sector that faces market discipline on the liability side of its balance sheet, which Chinese banks do not. They do not face discipline on either the asset nor the liability side, as credit analysis is determined as much by political connections as any kind of business fundamental. You are going to have a hard time even getting proper books for these businesses, which is why we find out which ones fail only when they can't make a bond payment. Therefore as long as these financing, ownership, and regulatory arrangements are in place, you are going to have the current crazy investment market where the state firms never go bankrupt but the private firms or those firms not well connected with party insiders are regularly going bankrupt. This does not mean that capital is being allocated wisely, even if it does mean that your favorite infrastructure projects are more likely to get funded in China. But that's only because everyone's favorite infrastructure projects are more likely to get funded in China, from completely empty shopping malls, to empty apartment buildings, to empty airports, to bizarre tourist attractions, enormous 400 foot tall gold-covered statues of the buddha, it will all get funded in China, at taxpayer expense, and none of it will ever be marked to market. But from the bird's eye view, you see a nation where the private consumption share of GDP is now below 38%, the remaining 62% spent on enormous Buddhas, electric buses, vast shopping malls, and yes, empty apartment buildings constructed by Evergrande.
- a9h74j 5y ago
  > These SOE's then burn money on everything ... devouring resources Not sure if this adds, but one observation I sometimes come across is this: Both Capitalism and Socialism as we know them are dependent upon resources (energy, concrete, steel, technology, etc) which cannot be taken for granted in either "finite planet" or "peak everything" terms.

dirtyid 5y ago

> I'm not sure how efficient China's hugely state-directed investment system is Every system misallocates resources, but some misallocation is more "beneficial" than others, i.e. arguably it's better to be overcapacity on infra than under. There's something to be said about the tangible byproduct of PRC misallocation. Versus something like US tendency to misallocate resources into intangibles like the stock market, currently with capitalization to GDP nearing 200% that makes PRC misallocation that generates stuff that can be useful seem preferable in comparison. It’s like how hosting the Olympics is notoriously corrupt but simultaneously the only way for some systems to build useful things that are long term beneficial. Ditto with inefficient “industrial policy” that the PRC adopted from the US and US is learning to re-adopt. Misallocating 100s of billions to get semiconductors and turbojets for PRC or reshoring semi for US is ultimately better than not realizing those goals at all. Fast, cheap, good - sometimes optimizing for only one thing is still better than nothing. It's not efficient, but IMO PRC state-directed investment is still largely useful. Question is of course sustainabilty.