Chinese Economics Thread

[ENTED64]

I think at this stage China should be the worlds biggest consumer market globally. Afterall, its surprising that despite having almost 4 times US population China consumes less than the US?

Yeah there's a lot of shall we say creative interpretation of the numbers going on. If you look at actual consumption numbers of goods China is #1 in basically everything. More cars, more appliances, more clothing, more more electronics, more everything in general. So why is it that USA still in theory has the biggest consumer market? Well creative interpretation of the numbers, exchange rate effects, services being kind of up in the air, etc.

Han Feizi has done a lot of work on this, see:

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He also did a podcast with TP Huang where this is also discussed:

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As one of my college professors once said, "If the data doesn't show what you want it to show, it's time to massage the data."

 

[Eventine]

Agreed, deflation is not necessarily the problem. The problem is low income and consumption growth which is running at~3% currently. In fact the nominal gdp growth rate is around 3% and is getting a push from deflation which adds to get the real growths at 5%.

There would be no issue if the wages were growing, consumption increasing, and employment rising. But that is not the case, the economy is growing at around 3-4% nominal rates, which is too low for this stage of development.

Ultimately, nominal GDP (in USD) has been stagnant since 2021. This is somewhat like Japan, whose nominal GDP (USD) has been stagnant, or even declined, for the past 3 decades.

The currency appreciating is the solution, it's in fact required. A 20% appreciation in yuan, will increase GDP by 25%, bringing it to around 25 trillion USD.

The issue is China wants to maintain its manufacturing industries and not have them move overseas like happened in the US and even Japan & South Korea. That’s what normally happens as wages rise and currencies appreciate - countries switch to higher margin services from lower margin manufacturing and the factories move to cheaper countries. But China is artificially delaying this transition for geopolitical purposes - e.g. slowing the rise of India, maintaining military industrial superiority over the West, etc.

Ultimately the robotics transition will obviate the need for cheap labor inputs and favor infrastructural superiority. As this transition deepens, China will be more willing to appreciate its currency. But I don’t think it’ll ever be like the US. The simple fact is that appreciating your currency without dominating the global financial markets is a recipe for disaster. The US could get away with it because it can play games with finance & banking to get everybody else to subsidize the dollar. China can’t & so currency appreciation could easily lead to a situation where you neither have the benefits of full scale financialization nor the benefits of manufacturing price competitiveness- the so called “middle income trap.”

 

[abenomics12345]

I'm missing @abenomics12345 comments about Chinese deflation. Where is he?

@jli88 below answered your question:

The problem is low income and consumption growth which is running at~3% currently. In fact the nominal gdp growth rate is around 3% and is getting a push from deflation which adds to get the real growths at 5%.

There would be no issue if the wages were growing, consumption increasing, and employment rising. But that is not the case, the economy is growing at around 3-4% nominal rates, which is too low for this stage of development.

Study this.

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Study This:

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Which part of "insufficient demand" or "raise consumption significantly" is too difficult to understand?

Jiang Xiaojuan and Zhang Bin recently at conferences were precisely stating these issues. In fact I watched Zhang Bin debate Guo Kai and had a discussion with Zichen about it afterwards.

Anyone who wants to opine on these issues should study that document in depth.

The issue is China wants to maintain its manufacturing industries and not have them move overseas like happened in the US and even Japan & South Korea. That’s what normally happens as wages rise and currencies appreciate - countries switch to higher margin services from lower margin manufacturing and the factories move to cheaper countries. But China is artificially delaying this transition for geopolitical purposes - e.g. slowing the rise of India, maintaining military industrial superiority over the West, etc.

Ultimately the robotics transition will obviate the need for cheap labor inputs and favor infrastructural superiority. As this transition deepens, China will be more willing to appreciate its currency. But I don’t think it’ll ever be like the US. The simple fact is that appreciating your currency without dominating the global financial markets is a recipe for disaster. The US could get away with it because it can play games with finance & banking to get everybody else to subsidize the dollar. China can’t & so currency appreciation could easily lead to a situation where you neither have the benefits of full scale financialization nor the benefits of manufacturing price competitiveness- the so called “middle income trap.”

The way to do it is not to replace the USD led system but create a viable alternative financial system - for which you need CNY denominated assets that attract foreign capital. In other words, assets that generate returns attractive enough for foreigners to want to store their surplus in CNY as opposed to the USD. Note it is not an 'either or' choice with respect to manufacturing competitiveness and financialization - the idea is to do both. That is what the US did well in the 1950s-onward.

As a small example of why this is important, there's probably hundreds of billions of USD left overseas by exporters who sold products on Temu who didn't convert it back into CNY because the CNY has been weakening. That is cash sitting in US treasuries (or NVDA stock who knows) instead of being invested in Chinese factories.

Its cute some people on this forum don't realize that the real economy and the financial markets are deeply intertwined.

 

[hereforsemithread]

Chinese macro deflation is almost entirely a function of the continued contraction of the RE industry. But RE needs to continue contracting for a while before it gets to an appropriate size for stabilization, and Chinese policymakers view that structural adjustment as being worth potential deflationary issues. So I wouldn't expect the situation to change all that much for years.

 

[HighGround]

Chinese macro deflation is almost entirely a function of the continued contraction of the RE industry. But RE needs to continue contracting for a while before it gets to an appropriate size for stabilization, and Chinese policymakers view that structural adjustment as being worth potential deflationary issues. So I wouldn't expect the situation to change all that much for years.

The thing you folks need to understand is that two things can be true at once.

A. There are economies of scale driving down costs.
B. There are structural factors depressing demand.

The issue with "anti-China" Western economists is that they use political terms like "overcapacity" and at USD denominated "demand". They are not concerned with the actual economic data and are unwiling to dig through it, or listen to someobody who has.

This thread is also obsessive with trying to counter Western narratives about the Chinese economy, instead of having an insular discussion, like the actual Party, about the strengths and weaknesses of the economy.