4 ms·

I've seen the complaints about juan eating into domestic demand, esp among existing domestic firms. There's definitely the "wasteful effort" aspect of this but

by dluan 1y ago

I've seen the complaints about juan eating into domestic demand, esp among existing domestic firms. There's definitely the "wasteful effort" aspect of this but that would be solved by any normal market conditions. The thing that I'm interested in is the cultural aspect though - because how do you stamp out extreme competition while the take home profits and margins keep falling? This was a trend that started before trade war, and was definitely exacerbated by it. But it feels like (to my outsider uneducated view) that there will need to be some central regulation of this, beyond just hoping for a correction to rebalance the economy.

maxglute 1y ago
>eating into domestic demand Eating into domestic profit, if anything domestic demand would be up due to price wars, and we see in data domestic demand for price war sectors are crazy or higher than per capita consumption would demand, i.e. all the renewables. Auto domestic consumption is ~20 per 1000 people, about double Mexicos who according to GDP and other measures should consume comparable/more than PRC. >how do you stamp out extreme competition Look at much memed PRC bike sharing bubble which lasted ~5 years... graveyards of bikes from losers. IIRC ~8B spent, overcapacity -> consolidation cycle. Bubble burst mid 2010s. I think 1-1.5B / year industry, probably a few 100m profit / year for entire sector for 7B and growing rides per year. Lazy chatgpt numbers and PRC doing 5 rides per capita, western countries averaging 1. So it's... a very high utility sector... with marginal profits... i.e. affordable. which is what theoretically one wants, economic profits trend to zero over time under perfect competition. Zero does not mean negative, and zero does not mean so little sector becomes globally uncompetitive. Ideally PRC industrial policy is to generate very competitive companies who are not wildly profitable after pouring resources into stuff like infra/r&d to keep competitive edge (i.e. fuck share buy backs). IMO why mantra/focus is "high-quality development" not "high-profit development". Low margins/profits is the goal of abundance, especially if big share of domestic market is 600m that's still low income, or the 50% of the world that is developing. > just hoping for a correction to rebalance the economy I think that's why QS is reporting. Bike sharing had market correction... because market correction typically inevitable. Cars on other hand is particularly strategic industry with very motivated backers, it's one of those market can stay irrational longer than you can stay solvent sectors because everyone (province/countries) wants auto industry. So this is one of those cases central gov will probably have to step in to correct, hence QS warning telling players central gov will do something if they don't.
- dluan 1y ago
  One example I heard of is Innotron/ChangXin producing DRAM chips, majorly backed by Anhui local government $2.4B investment. Fujian Jinhua and YMTC were other projects funded by Fujian and Wuhan local government as their horses in the race, but it seems there's one winner now, especially because of the sanction mess up of Fujian Jinhua. Housing and bike share bubbles also seem like successful examples but I don't know the details of how exactly government stepped in. Feels like this could become CCP's method of doing quantitative easing, depending on how much of an appetite there is to be picking 'winners'. Prevent full blown panic, but keep investor capital flowing. But what happens after there is only one BYD left, one Huawei, one SMIC, one DJI, etc.? Just keep finding new industries to juice? Do all of these companies have the same destiny of offshoring production to Vietnam or some place else? And what happens with all the existing debt, who's expected to pick up that tab?
  - maxglute 1y ago
    Bike bubble really just market forces at work, FOMO opportunity, money poured in, bubble burst, winners decided, life goes on until business case to disrupt. TLDR timeline of speculative RE: Regulators caught on since early 2010s, they were just soft/iterate through gradual solutions because hard messing with wealth and local gov land finance. 2010s policies led to domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Developers + local gov game RE land finance game via shadowbanking + presales to keep the taps going, queue ~2017 crack down on shadow banking (with some backtracking). Then hard 3RL in 2020. Also important to note 3RL happened AFTER 12TH & 13th 5YR PLAN that build out PRC renewable manufacturing. Reason why 3RL - hammer hard tier policy - was feasible was it became possible to shift construction to renewable rollout to keep building industrial chain jobs and gdp. Other consideration is how culturally signifiant RE is to PRC wealth culture... IMO had to slowball process over 10+ years for cultural shift - getting people to understand RE doesn't go brrrt forever and houses are for "living in" not speculation. On DRAM and other strategic industries, I think goal is managed oligopoly, to have amount of competitors where sector + industrial chain remains healthy, i.e. not involution dynamic. IMO involution exist because investors knows this is the end state of PRC industrial policy... hence everyone going HAM on being few of last man / champion standing because that's how you not lose shirt and get license to print money. As for the debt, what happens in US during tech bubbles, people lose their shirts. Local gov and central gov do debt math to move it off books for strategic sectors with long term ROI / existential need. I don't think any strategic sector is getting offshored, i.e. look at rare earth, it makes peanuts but PRC doing everything to hold on. High tech strategic industries that hire millions of tertiary with well paying jobs PRC will do everything they can to keep just like US. PRC scale and complete industrial chain also puts it in position to be durably dominant as encumbants. PRC long term competitive advantage (for at least decades) is having such a large and integrated domestic chain that smaller countries, i.e. even those with 100s of millions simply don't have population to replicate and exploit comparable economies of scale.

by dluan 1y ago

maxglute 1y ago

>eating into domestic demand Eating into domestic profit, if anything domestic demand would be up due to price wars, and we see in data domestic demand for price war sectors are crazy or higher than per capita consumption would demand, i.e. all the renewables. Auto domestic consumption is ~20 per 1000 people, about double Mexicos who according to GDP and other measures should consume comparable/more than PRC. >how do you stamp out extreme competition Look at much memed PRC bike sharing bubble which lasted ~5 years... graveyards of bikes from losers. IIRC ~8B spent, overcapacity -> consolidation cycle. Bubble burst mid 2010s. I think 1-1.5B / year industry, probably a few 100m profit / year for entire sector for 7B and growing rides per year. Lazy chatgpt numbers and PRC doing 5 rides per capita, western countries averaging 1. So it's... a very high utility sector... with marginal profits... i.e. affordable. which is what theoretically one wants, economic profits trend to zero over time under perfect competition. Zero does not mean negative, and zero does not mean so little sector becomes globally uncompetitive. Ideally PRC industrial policy is to generate very competitive companies who are not wildly profitable after pouring resources into stuff like infra/r&d to keep competitive edge (i.e. fuck share buy backs). IMO why mantra/focus is "high-quality development" not "high-profit development". Low margins/profits is the goal of abundance, especially if big share of domestic market is 600m that's still low income, or the 50% of the world that is developing. > just hoping for a correction to rebalance the economy I think that's why QS is reporting. Bike sharing had market correction... because market correction typically inevitable. Cars on other hand is particularly strategic industry with very motivated backers, it's one of those market can stay irrational longer than you can stay solvent sectors because everyone (province/countries) wants auto industry. So this is one of those cases central gov will probably have to step in to correct, hence QS warning telling players central gov will do something if they don't.

dluan 1y ago
One example I heard of is Innotron/ChangXin producing DRAM chips, majorly backed by Anhui local government $2.4B investment. Fujian Jinhua and YMTC were other projects funded by Fujian and Wuhan local government as their horses in the race, but it seems there's one winner now, especially because of the sanction mess up of Fujian Jinhua. Housing and bike share bubbles also seem like successful examples but I don't know the details of how exactly government stepped in. Feels like this could become CCP's method of doing quantitative easing, depending on how much of an appetite there is to be picking 'winners'. Prevent full blown panic, but keep investor capital flowing. But what happens after there is only one BYD left, one Huawei, one SMIC, one DJI, etc.? Just keep finding new industries to juice? Do all of these companies have the same destiny of offshoring production to Vietnam or some place else? And what happens with all the existing debt, who's expected to pick up that tab?
- maxglute 1y ago
  Bike bubble really just market forces at work, FOMO opportunity, money poured in, bubble burst, winners decided, life goes on until business case to disrupt. TLDR timeline of speculative RE: Regulators caught on since early 2010s, they were just soft/iterate through gradual solutions because hard messing with wealth and local gov land finance. 2010s policies led to domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Developers + local gov game RE land finance game via shadowbanking + presales to keep the taps going, queue ~2017 crack down on shadow banking (with some backtracking). Then hard 3RL in 2020. Also important to note 3RL happened AFTER 12TH & 13th 5YR PLAN that build out PRC renewable manufacturing. Reason why 3RL - hammer hard tier policy - was feasible was it became possible to shift construction to renewable rollout to keep building industrial chain jobs and gdp. Other consideration is how culturally signifiant RE is to PRC wealth culture... IMO had to slowball process over 10+ years for cultural shift - getting people to understand RE doesn't go brrrt forever and houses are for "living in" not speculation. On DRAM and other strategic industries, I think goal is managed oligopoly, to have amount of competitors where sector + industrial chain remains healthy, i.e. not involution dynamic. IMO involution exist because investors knows this is the end state of PRC industrial policy... hence everyone going HAM on being few of last man / champion standing because that's how you not lose shirt and get license to print money. As for the debt, what happens in US during tech bubbles, people lose their shirts. Local gov and central gov do debt math to move it off books for strategic sectors with long term ROI / existential need. I don't think any strategic sector is getting offshored, i.e. look at rare earth, it makes peanuts but PRC doing everything to hold on. High tech strategic industries that hire millions of tertiary with well paying jobs PRC will do everything they can to keep just like US. PRC scale and complete industrial chain also puts it in position to be durably dominant as encumbants. PRC long term competitive advantage (for at least decades) is having such a large and integrated domestic chain that smaller countries, i.e. even those with 100s of millions simply don't have population to replicate and exploit comparable economies of scale.