6 ms·

China's slow-moving economic disaster

43 points by pg_1234 3y ago

jszymborski 3y ago
I've seen so many articles on the front page of many major news outlets, but I haven't been able to twig what is prompting it (maybe I'm dumb, I generally skim). They all speak to the overall trend. Was a particular report released recently?
- coffeebeqn 3y ago
  The long term trend is that Xi is fizzling Deng’s economic miracle with terrible policies. Plus the rest of the world is catching up in manufacturing as the Chinese workforce becomes smaller and more expensive. Said bad policies mean that there is nothing to take the place of manufacturing as the party seeks to control all businesses - especially tech. Belt and road seems to have turned into an expensive incomplete project with no great returns except now they have a bunch of broke countries indebted to them which I guess has some value
  - satvikpendem 3y ago
    Which policies? I thought the primary cause was the demographics changes which is creating knock on effects, rather than the party's policies specifically.
    - gloryjulio 3y ago
      Tldr is that Deng is more on working with the US side. Xi is trying to build his own empire and working against the US and its allies. This triggered a series of events of the US sanctions and the investments which are currently leaving china. During covid they found out that it's actually viable to slowly moving the manufacturing out of China. It's a slow bleed but the downward trend of China's economy is visible
      - satvikpendem 3y ago
        It's likely that that would've happened even without the empire building, because the purchasing power of their citizenry has increased through modernizing their industrialization. So companies would still want to look for alternate sources of free labor.
        chii 3y ago
        it would've been fine, had china been more cooperative in opening up their internal markets for investments and move up the value chain - i cite japan as an example of what could happen if they cooperate and relinquish their absolute authoritarian views, and their geopolitical ambitions of empire building.
        hakfoo 3y ago
        It's not reasonable to ask a country like China to suppress their "geopolitical ambitions". When you're that big, politically, militarily, economically, you need to be able to "clear your orbit" of other territories that could smash into you. It might be direct military involvement, or aggressive economic intervention (Belt and Road) Was this where Japan stumbled? They were militarily neutered after WWII and largely subject to US political whims-- did that restrict their ability to prevent Taiwan and Korea from stealing their economic thunder?
        chii 3y ago
        > did that restrict their ability to prevent Taiwan and Korea from stealing their economic thunder? which is a question framed from a zero-sum game. The world isn't zero sum. The idea is that the "stolen" economic opportunities would've been there for the japanese had it not been "stolen" is wrong. It's like saying that a pirated piece of music is a stolen sale. The fact is, japan's output didn't drop - the new asian tiger economy of south korea and taiwan caught up. The world is richer because of it, even if the japanese didn't get to own a share of that wealth directly, they can benefit indirectly. I suppose china learnt the wrong lesson from this perspective observing japan. They do wish to prevent anyone else from stealing their thunder, and they are taking action right now for this purpose. And it is this very action that's causing the tension in asian pacific. Imagine if in an alternative world, the US did not invite china into the WTO, and worked to integrate them into global trade? If the US had held such a belief that the world was zero sum, china would not have had the opportunity to get foreign investment and become the manufacturing powerhouse it currently is today. And yet china cannot see how folly their current behaviour is, and insist on pursuing a geopolitical agenda that involve expansionism and coercion of their neighbours, rather than tight economic cooperation and integration.
    - twelve40 3y ago
      Yeah this is funny. "Deng’s economic miracle" included many things, like the one-child policy, which came back to bite them now. So this simplistic "Deng miracle Xi dumb" theory doesn't seem to hold up.
    - sdm 3y ago
      > I thought the primary cause was the demographics changes which is creating knock on effects Not really. Yes, China is starting to experience demographic decline but it will be a long long time before it affects them economically. They could still absorb every North American job and still have people left over. That's just how big China's population is. Demographic decline will eventually bite them but they have a very long runway. China is very different from Japan's case. As for policies, again, not really. It's more that about 10 years ago most low cost manufacturing shifted out of China because cheaper regions caught up and were able to provide better value. China has been been talking about this trend since before Xi and a big focus has be shifting to a service economy built on internal demand. This is the part where policies come into play. The shift has not gone as well as they hoped. And again, it's not really about Xi messing up Deng's work. The world, and China, is different from Deng's world. Deng's approach would not work in a world where low cost manufacturing has moved overseas. If anything, it's more of an issue that Xi has stuck to closely to Deng's approach and not adapted to the changing world.
      - chii 3y ago
        > Deng's approach would not work in a world where low cost manufacturing has moved overseas. no, but the next step, which is to mimick what japan did post lost-decade, is to move into higher value manufacturing, increase automation and increase domestic service industry. However, the required tech, research cooperation and transfers that would've been needed is going to need deep trust and cooperation between the west and china - that entails giving up the full authoritarian control of the economy. This isn't something the CCP can entertain, unlike japan. China still has ambitions of becoming a superpower that can dictate terms on the world stage. I think this is the difference between Xi and Deng. Xi cannot move past being second fiddle. And i think this is the real cause for china's downfall (if it were to happen).
      - hakfoo 3y ago
        I was under the impression that manufacturing moved to China for the bottom price first, but higher value manufacturing remained there because there's infrastructure symbiosis now. If you're a absolute lowest-value-add manufacturer (think cereal box toys), yeah, you could put that anywhere plastic stock could be delivered. But as you start to make more sophisticated products, supply chains get way more relevant. If your cereal box toy acquires a blinking LED, a coin cell battery, and a screw to hold the battery box closed, it becomes compelling to manufacture the main casting in China because all the other parts are already made there and the logistics will be cheaper and more responsive. This seems like the same play as early Silicon Valley, and Taiwan in the era of early PC clones.
  - bettercallsalad 3y ago
    > Chinese workforce becomes smaller A question on workforce reduction due to decline in birthrate. In west, we seemed to have solved the problem with immigration. Is it possible China can also adopt the same policies? Essentially bringing in migrant labour class workforce from South East Asian countries with much less per capita income such as Laos, Cambodia, Myanmar etc.
    - fnordpiglet 3y ago
      21% unemployment among recent graduates is a reduction in the workforce because there isn’t any jobs. There are plenty of young people to take employment if it were available.
      - chii 3y ago
        the issue is that they are graduates, and want a white collar, high paid job, rather than a manufacturing job.
        fnordpiglet 3y ago
        Still not attributable to low birth rate.
    - hsfzxjy 3y ago
      As a Chinese I would say a lot of people around won't expect this to happen due to a strong sense of nationalism. Most poeple are afraid that these immigrants will create severe security problems as what's happening in the west. And most importantly, people regard it a shame to share with immigrants the already limited job opportunity.
- dirtyid 3y ago
  US bond yield collapsing due to deficit spending, PRC bond outperforming US treasuries. Which is huge and not reported in western media. Queue western media pretending PRC economy bad to drive treasury purchase in US. Reality, PRC growing at target 4-5% while PROACTIVELY deleveraging / unwinding bad economic sectors like real estate - PRC economy is doing fine, it has enough head room to do difficult economic rebalancing and maintain reasonable growth - it's not responding to exogenous economic calamity like GFC or SVB bank collapses. It's deliberately managing the economy. This is the difference between a household that decided to pay off loans and tightening belt while finances are fine vs one taking out more loans to plug bad household finances. The latter wants people to think the former is collapse, when fundamentals in former is better.
  - refurb 3y ago
    > US bond yield collapsing due to deficit spending That makes no sense, yields go up with higher supply of bonds (i.e. more borrowing). > PRC economy is doing fine, it has enough head room to do difficult economic rebalancing and maintain reasonable growth PRC economy is seeing deflation right now which is typically a death knell for an economy. China is still a middle-income country. It's trying to avoid the middle income trap. People expect it to grow 7-10% annually, but now it's dropping closer to the growth rates of developed countries - which if sustained, means it won't ever escape the middle income trap. Add on top the demographic challenges and it's a very serious problem for China.
    - dirtyid 3y ago
      Bond yield collapsing as in returns. China 10-15 index is making positive 5% returns, vs US long dated treasuries collapsing by -15%. PRC outperforming US treasuries by 20%, which does not happen to a system in catastrophic trouble. This isn't so much as PRC doing spectacularly as PRC doing alright but US bond doing very poorly. Hence incentive for media deflection trying to paint PRC economic collapse to drive more investment into US bonds. There's good and bad deflation. PRC deflating is largely due to domestic oversupply due to excess inventory due to global demand contraction. More broadly it's reflection of strength PRC industrial/manufacturing. Consumption indicators like car sales and others are fine. It's not great, but it's fine. Re middle income: PRC is potentially high income this year if not already (IMF April 2023 per capita estimate for PRC was 13,720 vs WB 2023 high income classification @13,205), they'll get there in a few years of moderate growth regardless. If the central bank strengthened rmb by ~1% vs USD they would be high income right away. But they'd rather deal with weakened rmb (5% this year) to hold on to exports. The incentive for the PRC is to stay statistically middle income for as long as possible due to WTO perks and rhetoric with the global south. People should ask themselves why PRC has managed RMB in the last few years to be just slightly below high income. Or if PRC is overreporting population then they've been high income for years. Note IMF's PRC per capita estimate in 2022 was 12810 vs WB 12720. IMF 2024 prediction range is 13970-14800 vs WB 2024 high income @13,854. We're reaching a point where trying to STAY middle income for PRC is unsustainable. PRC reaching high income is basically a done deal. Finally, escaping "trap" with respect to the original middle income paper is broader discussion than per capita GDP - it's really about not stalling in industrial development which in result stalls income potential, in which case PRC is basically the 2nd least trapped country (after US) in terms of having complete industrial chains. Essentially everyone except the US is more trapped than the PRC. The issue middle income trap argument vs PRC (or India) is stupid large population can still be stuck in per capita high middle/low high income even if they have escaped the actual "trap" of inability to continue industrializing/developing because you can only put so many bodies in high end sectors, and base effect of large popluation denominator simply drags down per capita indicators even if in aggregate a massive countries comprehensive power is significantly above small (like NL) / medium (like SKR) /even large (like JP) advanced economies.
- refurb 3y ago
  China had a multi-deacde long run of very strong growth (7-9%) which is ending. That's big news.
- Leary 3y ago
  It's because of bad July figures[1] and a healthy dose of wishful thinking. [1]https://www.cnbc.com/2023/08/15/china-economy-july-industrial-output-fixed-asset-retail-data.html https://www.cnbc.com/2023/08/15/china-economy-july-industria...
  - NicoJuicy 3y ago
    Not wishful thinking. China is hiding bad economic data and everyone should be aware why it is to protect their investments. Additionally, it's about 1,4 billion people and China is acting very aggressively against the West for decades under Xi. There is more to come. If something happens, most people had an indication of it.
- rhaway84773 3y ago
  Here’s a small sample of reasons. Take your pick: 1. Evergrande declaring bankruptcy in New York. 2. Evergrande shares opening for trading in Hong Kong after a year and a half and plummeting by nearly 90%. 3. Country Garden posting massive losses and indicating worries about meeting their debt obligations. 4. The post Zero COVID boom not happening. Instead of seeing expected massive growth, China is seeing Western levels of growth. Heck, Japan, the poster child of a stagnant economy, has been growing more than China during the post Zero COVID expected boom. 5. Xi Jinping telling college graduates to go back to their villages and work on their parents’s farms. 6. China entering deflation. Edit: 7. I completely missed this one. It’s in the article. After record high youth unemployment China has now suspended reporting those numbers. Yeah, stopping reporting numbers thst are not going in a positive direction is a clear sign of a functional positive economy.

43 points by pg_1234 3y ago

I've seen so many articles on the front page of many major news outlets, but I haven't been able to twig what is prompting it (maybe I'm dumb, I generally skim). They all speak to the overall trend. Was a particular report released recently?

coffeebeqn 3y ago
The long term trend is that Xi is fizzling Deng’s economic miracle with terrible policies. Plus the rest of the world is catching up in manufacturing as the Chinese workforce becomes smaller and more expensive. Said bad policies mean that there is nothing to take the place of manufacturing as the party seeks to control all businesses - especially tech. Belt and road seems to have turned into an expensive incomplete project with no great returns except now they have a bunch of broke countries indebted to them which I guess has some value
- satvikpendem 3y ago
  Which policies? I thought the primary cause was the demographics changes which is creating knock on effects, rather than the party's policies specifically.
  - gloryjulio 3y ago
    Tldr is that Deng is more on working with the US side. Xi is trying to build his own empire and working against the US and its allies. This triggered a series of events of the US sanctions and the investments which are currently leaving china. During covid they found out that it's actually viable to slowly moving the manufacturing out of China. It's a slow bleed but the downward trend of China's economy is visible
    - satvikpendem 3y ago
      It's likely that that would've happened even without the empire building, because the purchasing power of their citizenry has increased through modernizing their industrialization. So companies would still want to look for alternate sources of free labor.
      - chii 3y ago
        it would've been fine, had china been more cooperative in opening up their internal markets for investments and move up the value chain - i cite japan as an example of what could happen if they cooperate and relinquish their absolute authoritarian views, and their geopolitical ambitions of empire building.
        hakfoo 3y ago
        It's not reasonable to ask a country like China to suppress their "geopolitical ambitions". When you're that big, politically, militarily, economically, you need to be able to "clear your orbit" of other territories that could smash into you. It might be direct military involvement, or aggressive economic intervention (Belt and Road) Was this where Japan stumbled? They were militarily neutered after WWII and largely subject to US political whims-- did that restrict their ability to prevent Taiwan and Korea from stealing their economic thunder?
        chii 3y ago
        > did that restrict their ability to prevent Taiwan and Korea from stealing their economic thunder? which is a question framed from a zero-sum game. The world isn't zero sum. The idea is that the "stolen" economic opportunities would've been there for the japanese had it not been "stolen" is wrong. It's like saying that a pirated piece of music is a stolen sale. The fact is, japan's output didn't drop - the new asian tiger economy of south korea and taiwan caught up. The world is richer because of it, even if the japanese didn't get to own a share of that wealth directly, they can benefit indirectly. I suppose china learnt the wrong lesson from this perspective observing japan. They do wish to prevent anyone else from stealing their thunder, and they are taking action right now for this purpose. And it is this very action that's causing the tension in asian pacific. Imagine if in an alternative world, the US did not invite china into the WTO, and worked to integrate them into global trade? If the US had held such a belief that the world was zero sum, china would not have had the opportunity to get foreign investment and become the manufacturing powerhouse it currently is today. And yet china cannot see how folly their current behaviour is, and insist on pursuing a geopolitical agenda that involve expansionism and coercion of their neighbours, rather than tight economic cooperation and integration.
  - twelve40 3y ago
    Yeah this is funny. "Deng’s economic miracle" included many things, like the one-child policy, which came back to bite them now. So this simplistic "Deng miracle Xi dumb" theory doesn't seem to hold up.
  - sdm 3y ago
    > I thought the primary cause was the demographics changes which is creating knock on effects Not really. Yes, China is starting to experience demographic decline but it will be a long long time before it affects them economically. They could still absorb every North American job and still have people left over. That's just how big China's population is. Demographic decline will eventually bite them but they have a very long runway. China is very different from Japan's case. As for policies, again, not really. It's more that about 10 years ago most low cost manufacturing shifted out of China because cheaper regions caught up and were able to provide better value. China has been been talking about this trend since before Xi and a big focus has be shifting to a service economy built on internal demand. This is the part where policies come into play. The shift has not gone as well as they hoped. And again, it's not really about Xi messing up Deng's work. The world, and China, is different from Deng's world. Deng's approach would not work in a world where low cost manufacturing has moved overseas. If anything, it's more of an issue that Xi has stuck to closely to Deng's approach and not adapted to the changing world.
    - chii 3y ago
      > Deng's approach would not work in a world where low cost manufacturing has moved overseas. no, but the next step, which is to mimick what japan did post lost-decade, is to move into higher value manufacturing, increase automation and increase domestic service industry. However, the required tech, research cooperation and transfers that would've been needed is going to need deep trust and cooperation between the west and china - that entails giving up the full authoritarian control of the economy. This isn't something the CCP can entertain, unlike japan. China still has ambitions of becoming a superpower that can dictate terms on the world stage. I think this is the difference between Xi and Deng. Xi cannot move past being second fiddle. And i think this is the real cause for china's downfall (if it were to happen).
    - hakfoo 3y ago
      I was under the impression that manufacturing moved to China for the bottom price first, but higher value manufacturing remained there because there's infrastructure symbiosis now. If you're a absolute lowest-value-add manufacturer (think cereal box toys), yeah, you could put that anywhere plastic stock could be delivered. But as you start to make more sophisticated products, supply chains get way more relevant. If your cereal box toy acquires a blinking LED, a coin cell battery, and a screw to hold the battery box closed, it becomes compelling to manufacture the main casting in China because all the other parts are already made there and the logistics will be cheaper and more responsive. This seems like the same play as early Silicon Valley, and Taiwan in the era of early PC clones.
- bettercallsalad 3y ago
  > Chinese workforce becomes smaller A question on workforce reduction due to decline in birthrate. In west, we seemed to have solved the problem with immigration. Is it possible China can also adopt the same policies? Essentially bringing in migrant labour class workforce from South East Asian countries with much less per capita income such as Laos, Cambodia, Myanmar etc.
  - fnordpiglet 3y ago
    21% unemployment among recent graduates is a reduction in the workforce because there isn’t any jobs. There are plenty of young people to take employment if it were available.
    - chii 3y ago
      the issue is that they are graduates, and want a white collar, high paid job, rather than a manufacturing job.
      - fnordpiglet 3y ago
        Still not attributable to low birth rate.
  - hsfzxjy 3y ago
    As a Chinese I would say a lot of people around won't expect this to happen due to a strong sense of nationalism. Most poeple are afraid that these immigrants will create severe security problems as what's happening in the west. And most importantly, people regard it a shame to share with immigrants the already limited job opportunity.
dirtyid 3y ago
US bond yield collapsing due to deficit spending, PRC bond outperforming US treasuries. Which is huge and not reported in western media. Queue western media pretending PRC economy bad to drive treasury purchase in US. Reality, PRC growing at target 4-5% while PROACTIVELY deleveraging / unwinding bad economic sectors like real estate - PRC economy is doing fine, it has enough head room to do difficult economic rebalancing and maintain reasonable growth - it's not responding to exogenous economic calamity like GFC or SVB bank collapses. It's deliberately managing the economy. This is the difference between a household that decided to pay off loans and tightening belt while finances are fine vs one taking out more loans to plug bad household finances. The latter wants people to think the former is collapse, when fundamentals in former is better.
- refurb 3y ago
  > US bond yield collapsing due to deficit spending That makes no sense, yields go up with higher supply of bonds (i.e. more borrowing). > PRC economy is doing fine, it has enough head room to do difficult economic rebalancing and maintain reasonable growth PRC economy is seeing deflation right now which is typically a death knell for an economy. China is still a middle-income country. It's trying to avoid the middle income trap. People expect it to grow 7-10% annually, but now it's dropping closer to the growth rates of developed countries - which if sustained, means it won't ever escape the middle income trap. Add on top the demographic challenges and it's a very serious problem for China.
  - dirtyid 3y ago
    Bond yield collapsing as in returns. China 10-15 index is making positive 5% returns, vs US long dated treasuries collapsing by -15%. PRC outperforming US treasuries by 20%, which does not happen to a system in catastrophic trouble. This isn't so much as PRC doing spectacularly as PRC doing alright but US bond doing very poorly. Hence incentive for media deflection trying to paint PRC economic collapse to drive more investment into US bonds. There's good and bad deflation. PRC deflating is largely due to domestic oversupply due to excess inventory due to global demand contraction. More broadly it's reflection of strength PRC industrial/manufacturing. Consumption indicators like car sales and others are fine. It's not great, but it's fine. Re middle income: PRC is potentially high income this year if not already (IMF April 2023 per capita estimate for PRC was 13,720 vs WB 2023 high income classification @13,205), they'll get there in a few years of moderate growth regardless. If the central bank strengthened rmb by ~1% vs USD they would be high income right away. But they'd rather deal with weakened rmb (5% this year) to hold on to exports. The incentive for the PRC is to stay statistically middle income for as long as possible due to WTO perks and rhetoric with the global south. People should ask themselves why PRC has managed RMB in the last few years to be just slightly below high income. Or if PRC is overreporting population then they've been high income for years. Note IMF's PRC per capita estimate in 2022 was 12810 vs WB 12720. IMF 2024 prediction range is 13970-14800 vs WB 2024 high income @13,854. We're reaching a point where trying to STAY middle income for PRC is unsustainable. PRC reaching high income is basically a done deal. Finally, escaping "trap" with respect to the original middle income paper is broader discussion than per capita GDP - it's really about not stalling in industrial development which in result stalls income potential, in which case PRC is basically the 2nd least trapped country (after US) in terms of having complete industrial chains. Essentially everyone except the US is more trapped than the PRC. The issue middle income trap argument vs PRC (or India) is stupid large population can still be stuck in per capita high middle/low high income even if they have escaped the actual "trap" of inability to continue industrializing/developing because you can only put so many bodies in high end sectors, and base effect of large popluation denominator simply drags down per capita indicators even if in aggregate a massive countries comprehensive power is significantly above small (like NL) / medium (like SKR) /even large (like JP) advanced economies.
refurb 3y ago
China had a multi-deacde long run of very strong growth (7-9%) which is ending. That's big news.
Leary 3y ago
It's because of bad July figures[1] and a healthy dose of wishful thinking. [1]https://www.cnbc.com/2023/08/15/china-economy-july-industrial-output-fixed-asset-retail-data.html https://www.cnbc.com/2023/08/15/china-economy-july-industria...
- NicoJuicy 3y ago
  Not wishful thinking. China is hiding bad economic data and everyone should be aware why it is to protect their investments. Additionally, it's about 1,4 billion people and China is acting very aggressively against the West for decades under Xi. There is more to come. If something happens, most people had an indication of it.
rhaway84773 3y ago
Here’s a small sample of reasons. Take your pick: 1. Evergrande declaring bankruptcy in New York. 2. Evergrande shares opening for trading in Hong Kong after a year and a half and plummeting by nearly 90%. 3. Country Garden posting massive losses and indicating worries about meeting their debt obligations. 4. The post Zero COVID boom not happening. Instead of seeing expected massive growth, China is seeing Western levels of growth. Heck, Japan, the poster child of a stagnant economy, has been growing more than China during the post Zero COVID expected boom. 5. Xi Jinping telling college graduates to go back to their villages and work on their parents’s farms. 6. China entering deflation. Edit: 7. I completely missed this one. It’s in the article. After record high youth unemployment China has now suspended reporting those numbers. Yeah, stopping reporting numbers thst are not going in a positive direction is a clear sign of a functional positive economy.