Chinese Economics Thread

[jli88]

China will eventually have to give something up, either by importing more or by stimulating domestic production by partially shifting its production matrix abroad; in both situations, this affects the Chinese trade surplus. China's economic future will no longer involve such a favorable trade balance generating huge surpluses, but rather increasing its gross national product.

A simple appreciation of the RMB would do.

These trade surpluses will continue to create frictions. Even friendly countries like Indonesia, Malaysia are raising barriers.

Getting trade barriers up while retaining a weak RMB is the worst case scenario.

 

[abenomics12345]

China will eventually have to give something up, either by importing more or by stimulating domestic production by partially shifting its production matrix abroad; in both situations, this affects the Chinese trade surplus. China's economic future will no longer involve such a favorable trade balance generating huge surpluses, but rather increasing its gross national product.

Agreed. This is why I vehemently disagree with the points people made earlier about how "just let Europe do its thing and dare them to launch a trade war with China".

China is no longer at a point where it needs to be precious about 'maintaining a massive trade surplus' just like how the PLA no longer needs to be precious about 'having 10000 tanks'.

 

[tankphobia]

I mean isn't there still huge room to grow for domestic software industry? Something as fundamental as offering an alternative to windows based OS (Harmony os?) or SAP would go a long way towards stimulating domestic service spending, it would also hopefully divert some of the STEM talent from manufacturing to reduce involution within those industries.

 

[Sinnavuuty]

A simple appreciation of the RMB would do.

These trade surpluses will continue to create frictions. Even friendly countries like Indonesia, Malaysia are raising barriers.

Getting trade barriers up while retaining a weak RMB is the worst case scenario.

I'm not so sure about that.

You're assuming that Chinese competitiveness stems from the exchange rate, but not from other factors like low costs due to low taxation, very low labor costs, and a fairly deregulated economy that encourages entrepreneurship, employment, and production. The country is designed for production.

While China encourages entrepreneurs, the West encourages BUREAUCRACY and TAXATION. Not only that, but also regulation, environmental protection, labor laws, oversight, unionism, among others.

A small gesture of appreciating the renminbi exchange rate, I don't know if it would be enough to completely diminish the competitiveness of Chinese products, but of course it would help improve import relations with the world, but I think that would have a minimal effect.

To be clear, I have always been honest about the Chinese export model:

Chinese Economics Thread

Chinese Set to Spend Record $1 Trillion in Local Travel Boom https://archive.is/HcEE3

www.sinodefenceforum.com

I maintain the same position. For China, it makes sense to be an exporter, but this does not bring prosperity to all citizens who are far from the production and export chain. This should be a natural thing; I even believe that China would have a trade surplus, but US$1 trillion is totally exaggerated.

Can you imagine what US$1 trillion could do if it were reverted into more access to goods and services for all Chinese people? The Chinese standard of living would increase dramatically.

 

[Sinnavuuty]

I mean isn't there still huge room to grow for domestic software industry? Something as fundamental as offering an alternative to windows based OS (Harmony os?) or SAP would go a long way towards stimulating domestic service spending, it would also hopefully divert some of the STEM talent from manufacturing to reduce involution within those industries.

I don't think there would be much detriment to STEM graduates migrating to the service sector.

I watched a live stream of a professor who visited China and several universities. He explained that universities have numerous aptitude test rooms where evaluators predict performance in a specific role or field of study for each Chinese individual taking the test. The government practically forces them to pursue that role, even if reluctantly. Many end up accepting this career path because they truly excel in that area. These tests have been occurring since childhood.

 

[abenomics12345]

I mean isn't there still huge room to grow for domestic software industry? Something as fundamental as offering an alternative to windows based OS (Harmony os?) or SAP would go a long way towards stimulating domestic service spending, it would also hopefully divert some of the STEM talent from manufacturing to reduce involution within those industries.

Yes and no. Paying for software simply isn't a habit the way it is in the RoW. This is why AWS margins (with SaaS embedded) are significantly higher than AliCloud margins (IaaS and maybe some PaaS).

This brings up another point - as a thought exercise for those who still believe deflation is good - the most extreme form of 'deflation' is free - in the case of software, pirated copies. Would people argue that pirating software is good for the economy?

 

[ZeEa5KPul]

Yes and no. Paying for software simply isn't a habit the way it is in the RoW. This is why AWS margins (with SaaS embedded) are significantly higher than AliCloud margins (IaaS and maybe some PaaS).

This brings up another point - as a thought exercise for those who still believe deflation is good - the most extreme form of 'deflation' is free - in the case of software, pirated copies. Would people argue that pirating software is good for the economy?

Software is a bad example for you to pick to make your point. Open source software is competitive with (if not outright superior to) commercial software. You get developers working on projects they're knowledgeable and passionate about for far less overhead and higher quality than you get with private companies, and the code is auditable by everyone so that further boosts quality and recruitment. There isn't a single software company on the planet without some open source library deep in its codebase somewhere.

It's the closest to communism humanity has gotten in a serious economic activity.

 

[abenomics12345]

Software is a bad example for you to pick to make your point. Open source software is competitive with (if not outright superior to) commercial software. You get developers working on projects they're knowledgeable and passionate about for far less overhead and higher quality than you get with private companies, and the code is auditable by everyone so that further boosts quality and recruitment. There isn't a single software company on the planet without some open source library deep in its codebase somewhere.

It's the closest to communism humanity has gotten in a serious economic activity.

That there is an open source ecosystem doesn't mean there is no monetization.

I was very specific about the issues with piracy and not with people who work on projects out of passion.

Which is why domestic demand (especially services demand) has to be the next leg of the growth

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就当前我国需求结构而言，“三驾马车”中，消费的作用与地位愈发突出。现阶段，传统基建投资高峰已过，新基建规模暂难填补缺口，制造业投资也从扩规模转向提效益；同时在单边主义、保护主义抬头的国际背景下，外贸出口面临较大不确定性。消费已成拉动我国经济增长的主动力。从民生层面来讲，消费是人民对美好生活向往的直接体现，从“买得到”到“买得好”、从“商品消费”到“服务消费”的升级，不仅折射出居民生活品质的跃升，更倒逼供给侧转型升级，推动产业结构向高端化、智能化、绿色化迈进。

(not directed at you @ZeEa5KPul) But seriously its not that hard to read the room lol. Qiushi basically saying what I said.

 

[tankphobia]

I don't think there would be much detriment to STEM graduates migrating to the service sector.

I watched a live stream of a professor who visited China and several universities. He explained that universities have numerous aptitude test rooms where evaluators predict performance in a specific role or field of study for each Chinese individual taking the test. The government practically forces them to pursue that role, even if reluctantly. Many end up accepting this career path because they truly excel in that area. These tests have been occurring since childhood.

I think things would be different if the Chinese software industry was more mature. Not to the point of absurdity in the west where you get AI engineers getting pay package of millions, but a healthy software industry should afford higher salaries than manufacturering and hence attract more talent.

Even from the governmental side if software generates more revenue to the local government and requires less overhead, why would they not pressure college students one way?

 

[Phead128]

A significant portion of $1 trillion surplus is recycled to buy foreign financial assets (like bonds and companies) and fund overseas projects (i.e., BRI, AIIB, etc..), which are capital account transactions, not tracked in goods and services trade data.

In otherwords, China reinvests and recycles trade surplus back into trade partners. It's like Costco creating jobs in the local community by opening lines of credit for a small business supplier to build a new warehouse, which is tracked as an investment, not a Costco store sale. It ends up as win-win relationship, not merely a zero sum game.