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China's manufactures finding the winners. This is the system working as intended - create many producers in xyz sector via subsidies, hardcore (involution) comp

China's manufactures finding the winners. This is the system working as intended - create many producers in xyz sector via subsidies, hardcore (involution) competition from 1000s in different provinces innovate manufacturing to bare margins, losers go out of business/ get bought up by better competitors and consolidate like _intended_ outcome of other PRC industrial policy. TLDR Set up competitive environment to force producers speed run to a $250 model-T while everyone else could only make cars for $1000. Have so much competition to force manufactures to improve processes/drive down prices/affordability in short time and then settle with a few large but sustainable survivors that are globally competitive / can (out)compete with western incumbents.

alephnerd 2y ago
> China's manufactures finding the winners But what happens to the failures, especially since they are overwhelmingly subsidized by local governments? Shanghai (SAIC), Jiangxi (BAIC), Guangxi (GAG), Guangdong (GAC), Hebei (Dongfeng), Beijing (BAIC), and other prefectures are putting tens of millions of dollars in SoEs that cannot compete with BYD domestically, and face preemptive hurdles entering foreign markets. If these were private players, it wouldn't matter as much because they could be safely shut down, but these are mixed public-private, and this means a lot of misallocated capital due to political considerations. Ideally, all these prefectures could better utilize that equivalent amount of money building domestic consumption instead - like I pointed to you before, the median household income in China is still around $350-400/mo in 2024, so even with a loan, a cheap class-A vehicle like a Wuling Hongguang Mini is still pricy. Instead, these players are forced to export abroad leading to unnecessary trade wars and causing other countries to either limit ToTs with Chinese companies, or force Chinese companies to ToT to domestic players abroad. This is the same story in PV Cells, Analog Chips, Mobile Phones, etc.
- maxglute 2y ago
  Some local jurisdictions, especially wealthier ones will continue to misallocate because they can. For sectors like ev/pv/chips, they pay back in reducing imports/dependencies, some level of even stupid pork barrel waste should be expected/endured, i.e. US fine with 700B fossil subsidies because strategic. 700-800/m couple income fine for 4000-5000 budget EV (new). Realistically in a few years when EV enter secondary market, they'll be 2-3k used. E: (apology for edits, out and about) 6m / 50% of annual household 8500-9500. Vs US median household income of 75k (round up to 80k to be generous) and average new vehical price of 50k. Of course they're not equivalent quality goods, but the point of driving costs down is to make 4k-5k tier cars possible. >Instead, these players are forced to export abroad leading to unnecessary trade wars This is very necessary, no reason not to take share from incumbent car makers, especially in RoW markets. ToT domestic players fine (E: as in fine to jurisdictions that, especially ASEAN / more integration), especially with current sanctions/potential, PRC FDI via recirculating USDs, better use now than risk lose later. E2: Let's not pretend PRC trade wars are any less strategic than US trade wars (like semi). PRC EVs sells -> EV piles -> energy infra -> sensors/fusion -> telco.
  - alephnerd 2y ago
    > apology for edits, out and about No worries. We all have lives. > Some local jurisdictions It's not some - it's a lot. And a number of these are not wealthy prefectures - Guangxi, Jiangxi, Jillin, Anhui, and Hebei underperform compared to the Chinese average on social indicators and economic health. The amount of money spent to subsidize EV cars made by GAG, FAW, Dongfeng, Changan, Chery, JAC, etc that most Chinese buyers just don't think about for EVs when they can buy a BYD is staggering, and could be better used by the prefectures I listed to better living standards or further increase consumer spending via DBTs or a better welfare system (which itself has been devolved to prefectures since the 90s). > This [export] is very necessary Absolutely, and this is why every major automotive market (US, EU, TR, MX, BR, SK, JP, VN, ID, IN, ZA) has already or is in the process of closing their markets to direct "Made in China" automotive exports (as well as other sectors like renewables, consumer electronics, pharmaceuticals, etc). Why should these countries lose their domestic champions at the expense of Chinese players? What large greenfield market can Chinese manufacturers directly sell to? And you can't say "Africa" - it's not a uniform market, and Chinese companies face competition from (depending on the region) Turkish, Japanese, Korean, Brazilian, Vietnamese, Indian, Emirati, European, South African, and American competitors. This is the crux of the problem - the very low median household income forcing players to export. Either the collective billions in subsidizes are deployed to push Chinese median household incomes to at least Malaysian or Mexican levels (~$10,000/yr) or even Thai levels (~$6,500/yr) in order to consume this excess capacity, or keep burning money subsidizing laggards while alienating foreign markets and partners. > Let's not pretend PRC trade wars are any less strategic than US trade wars At a high level it is, but the governance is atrocious. Just look at the First and Second Big Fund for example. And anyhow, Chinese manufacturers in these sectors then face similar tariffs like EVs in the markets I listed above under NatSec or Dumping grounds, which in turn drives neighbors further into the US camp (eg. VN after the 2011 standoff and the Techo Canal, JP after Senkaku Diaoyu, TW after the 2014 trade war, SK after the 2017 trade war, India after the 2019-20 Galwan crisis, PH after the PoGo scandal, ID and the US CSP, etc). This in turn means you guys will escalate under the fear of being encircled, which pushes those countries to further up the ante. The same fear Chinese nationalists have about the US is the fear those countries have about China. Either way, this means China both loses potential economic partners/markets AND exacerbates an arms race. It didn't have to be this way, but the MFA's and CMC's tone change since 2014 has drastically deteriorated China's relations with it's neighbors.
aquamar2 2y ago
Still doesn't work. 1.) Internal consumer demand for China has collapsed, due to real estate debt overhang, local government debt overhang, increasing job loss, and incoming and increasing college graduates. It's estimated that 80% of this year's current graduates are jobless. 2.) External demand for China has been decreasing, 3.5T total export in 2022, only 3.3T in 2023. probably below 3T this year. Due to geopolitical factors such as China allying with Russia, and increasing tariffs from every other country due to overproduction/overexport from China. 3.) EV (at 36B in 2023) is only 1% of value of all Chinese export (3.7T). Not going to rescue the Chinese economy at all. On top of that, only BYD is capable/making some profit, while every other Chinese EV is going to shut down in the next 5 years.
- maxglute 2y ago
  Work what? I think Ctrl+F China + collapse arguments still doesn't work. 1) Consumption is "sluggish", i.e. it's small positive growth instead of large precovid positive growth. It's not negative decline let alone collapse. Get off the FLG. Employment rate steady, including new grads at 20% accounting for those in school and not looking for work (i.e. the Chinese tertiary way), 40%-50% for graduate cohorts who takes time job hunting / not ready to settle. Which they will, given broad unemployments is steady, i.e. new grads get job after 1+ year and roll into genpop employment stats. There's 1% drop in new salaries in some industries, people are staying in jobs longer. "New productive" industry jobs, i.e. the high value ones set to drive PRC economy including energy, semi etc experience continuous growth. In aggregate positive, not fantastic, but also opposite of collapse. 2) Exports stabilizing after record covid highs, still only ~20% of gdp, i.e. PRC hasn't been (barely) export dependant for 10+ years at high of ~35%. If you follow brad setser, he'll note PRC exports probably being massively/deliberately hidden/under reported because two way data suggest much higher. BTW export dependant countries regularly over 50-100% export to gdp. Entire overproduction/overexport narrative is retarded considering how little PRC exports as share of GDP. 3) Who said EV was suppose to rescue PRC economy? PRC too big for 1 sector/industry to make difference. Collection of New productive industry jobs doing their part, sure. But generally when you remove RE drama, which they deliberately crippled, you get current modest 5% growth instead of previous 7-8%. Settling to modest growth is expected sooner or later. Modest growth (~5%) is enough to increase GDP PPP gap vs US. Most of projections on PRC passing US GDP assumes eventual modest growth + FX movements i.e strength RMB. Which they strategically don't want to because right now it's all about pricing out incumbant competitors in new export categories. Like CCP can get easy propaganda win by moving RMB band 5-10% to entier per capita $14000 USD high income range, but they don't because modest growth works fine.

alephnerd 2y ago

> China's manufactures finding the winners But what happens to the failures, especially since they are overwhelmingly subsidized by local governments? Shanghai (SAIC), Jiangxi (BAIC), Guangxi (GAG), Guangdong (GAC), Hebei (Dongfeng), Beijing (BAIC), and other prefectures are putting tens of millions of dollars in SoEs that cannot compete with BYD domestically, and face preemptive hurdles entering foreign markets. If these were private players, it wouldn't matter as much because they could be safely shut down, but these are mixed public-private, and this means a lot of misallocated capital due to political considerations. Ideally, all these prefectures could better utilize that equivalent amount of money building domestic consumption instead - like I pointed to you before, the median household income in China is still around $350-400/mo in 2024, so even with a loan, a cheap class-A vehicle like a Wuling Hongguang Mini is still pricy. Instead, these players are forced to export abroad leading to unnecessary trade wars and causing other countries to either limit ToTs with Chinese companies, or force Chinese companies to ToT to domestic players abroad. This is the same story in PV Cells, Analog Chips, Mobile Phones, etc.

maxglute 2y ago
Some local jurisdictions, especially wealthier ones will continue to misallocate because they can. For sectors like ev/pv/chips, they pay back in reducing imports/dependencies, some level of even stupid pork barrel waste should be expected/endured, i.e. US fine with 700B fossil subsidies because strategic. 700-800/m couple income fine for 4000-5000 budget EV (new). Realistically in a few years when EV enter secondary market, they'll be 2-3k used. E: (apology for edits, out and about) 6m / 50% of annual household 8500-9500. Vs US median household income of 75k (round up to 80k to be generous) and average new vehical price of 50k. Of course they're not equivalent quality goods, but the point of driving costs down is to make 4k-5k tier cars possible. >Instead, these players are forced to export abroad leading to unnecessary trade wars This is very necessary, no reason not to take share from incumbent car makers, especially in RoW markets. ToT domestic players fine (E: as in fine to jurisdictions that, especially ASEAN / more integration), especially with current sanctions/potential, PRC FDI via recirculating USDs, better use now than risk lose later. E2: Let's not pretend PRC trade wars are any less strategic than US trade wars (like semi). PRC EVs sells -> EV piles -> energy infra -> sensors/fusion -> telco.
- alephnerd 2y ago
  > apology for edits, out and about No worries. We all have lives. > Some local jurisdictions It's not some - it's a lot. And a number of these are not wealthy prefectures - Guangxi, Jiangxi, Jillin, Anhui, and Hebei underperform compared to the Chinese average on social indicators and economic health. The amount of money spent to subsidize EV cars made by GAG, FAW, Dongfeng, Changan, Chery, JAC, etc that most Chinese buyers just don't think about for EVs when they can buy a BYD is staggering, and could be better used by the prefectures I listed to better living standards or further increase consumer spending via DBTs or a better welfare system (which itself has been devolved to prefectures since the 90s). > This [export] is very necessary Absolutely, and this is why every major automotive market (US, EU, TR, MX, BR, SK, JP, VN, ID, IN, ZA) has already or is in the process of closing their markets to direct "Made in China" automotive exports (as well as other sectors like renewables, consumer electronics, pharmaceuticals, etc). Why should these countries lose their domestic champions at the expense of Chinese players? What large greenfield market can Chinese manufacturers directly sell to? And you can't say "Africa" - it's not a uniform market, and Chinese companies face competition from (depending on the region) Turkish, Japanese, Korean, Brazilian, Vietnamese, Indian, Emirati, European, South African, and American competitors. This is the crux of the problem - the very low median household income forcing players to export. Either the collective billions in subsidizes are deployed to push Chinese median household incomes to at least Malaysian or Mexican levels (~$10,000/yr) or even Thai levels (~$6,500/yr) in order to consume this excess capacity, or keep burning money subsidizing laggards while alienating foreign markets and partners. > Let's not pretend PRC trade wars are any less strategic than US trade wars At a high level it is, but the governance is atrocious. Just look at the First and Second Big Fund for example. And anyhow, Chinese manufacturers in these sectors then face similar tariffs like EVs in the markets I listed above under NatSec or Dumping grounds, which in turn drives neighbors further into the US camp (eg. VN after the 2011 standoff and the Techo Canal, JP after Senkaku Diaoyu, TW after the 2014 trade war, SK after the 2017 trade war, India after the 2019-20 Galwan crisis, PH after the PoGo scandal, ID and the US CSP, etc). This in turn means you guys will escalate under the fear of being encircled, which pushes those countries to further up the ante. The same fear Chinese nationalists have about the US is the fear those countries have about China. Either way, this means China both loses potential economic partners/markets AND exacerbates an arms race. It didn't have to be this way, but the MFA's and CMC's tone change since 2014 has drastically deteriorated China's relations with it's neighbors.

aquamar2 2y ago

Still doesn't work. 1.) Internal consumer demand for China has collapsed, due to real estate debt overhang, local government debt overhang, increasing job loss, and incoming and increasing college graduates. It's estimated that 80% of this year's current graduates are jobless. 2.) External demand for China has been decreasing, 3.5T total export in 2022, only 3.3T in 2023. probably below 3T this year. Due to geopolitical factors such as China allying with Russia, and increasing tariffs from every other country due to overproduction/overexport from China. 3.) EV (at 36B in 2023) is only 1% of value of all Chinese export (3.7T). Not going to rescue the Chinese economy at all. On top of that, only BYD is capable/making some profit, while every other Chinese EV is going to shut down in the next 5 years.

maxglute 2y ago
Work what? I think Ctrl+F China + collapse arguments still doesn't work. 1) Consumption is "sluggish", i.e. it's small positive growth instead of large precovid positive growth. It's not negative decline let alone collapse. Get off the FLG. Employment rate steady, including new grads at 20% accounting for those in school and not looking for work (i.e. the Chinese tertiary way), 40%-50% for graduate cohorts who takes time job hunting / not ready to settle. Which they will, given broad unemployments is steady, i.e. new grads get job after 1+ year and roll into genpop employment stats. There's 1% drop in new salaries in some industries, people are staying in jobs longer. "New productive" industry jobs, i.e. the high value ones set to drive PRC economy including energy, semi etc experience continuous growth. In aggregate positive, not fantastic, but also opposite of collapse. 2) Exports stabilizing after record covid highs, still only ~20% of gdp, i.e. PRC hasn't been (barely) export dependant for 10+ years at high of ~35%. If you follow brad setser, he'll note PRC exports probably being massively/deliberately hidden/under reported because two way data suggest much higher. BTW export dependant countries regularly over 50-100% export to gdp. Entire overproduction/overexport narrative is retarded considering how little PRC exports as share of GDP. 3) Who said EV was suppose to rescue PRC economy? PRC too big for 1 sector/industry to make difference. Collection of New productive industry jobs doing their part, sure. But generally when you remove RE drama, which they deliberately crippled, you get current modest 5% growth instead of previous 7-8%. Settling to modest growth is expected sooner or later. Modest growth (~5%) is enough to increase GDP PPP gap vs US. Most of projections on PRC passing US GDP assumes eventual modest growth + FX movements i.e strength RMB. Which they strategically don't want to because right now it's all about pricing out incumbant competitors in new export categories. Like CCP can get easy propaganda win by moving RMB band 5-10% to entier per capita $14000 USD high income range, but they don't because modest growth works fine.