Chinese Economics Thread

[Nobino]

The US managed to do World War 2 with its economy intact

I think the reason why US economy was "intact" is because of their Geo-location.

 

[getready]

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Buffet is thinking US is tanking?

 

[Gatekeeper]

You do not understand what I have just stated.
The government requires to trade a certain amount of the standard commodity item in exchange for a certain amount of currency.
That means the government cannot issue total amount of currency that exceeds the amount of commodity reserve unless it devalues the currency against the commodity resulting to constant currency manipulation by the government. On the other hand, all governments wants an evergrowing economy not tied directly to their commodity reserve so they will want to issue more to expand the economy.
Other nations will at that point will evaluate the words of that government and not the currency. That in essence is fiat currency.

I thought I quickly chime in here before I go off to work. You are either delusional or illiterate on economic matter.

The government is not obliged to require anything. Also when you write government 'manipulate'. A word straight out of Trump and Ron Navarro. I know then you don't understand economics!

 

[Gatekeeper]

The effects on inflation are more nuanced.

For necessities, prices have gone up because of the demand/supply imbalance. But there's only so much you can consume in terms of food and daily living requirements.

But for luxuries, prices have decreased because wages, confidence (and overall demand) has collapsed.

So the overall effect will likely be deflationary.

Look at the Japanese example over the past decades.
The Japanese government printed so much money. But no matter how hard the government tried to create more inflation, they failed.

You do realise that goods are weighted in the consumer price index to arrived at inflation rate. Right? So luxury goods you mentioned are weighted accordingly with bias towards every day goods like groceries.

 

[Gatekeeper]

You don't understand. They already did printed more than a certain amount and exceeded the total amount of currency by far in exchange for the commodity reserve in the market that has dwindled. Even the freaking meat packing plants can't process the meat because of covid so that is a good example of reduced productivity and supply that causes meat prices to go up, which is inflation.

Fiat currency only seems to work when you have a stable government at the helm. Things go to hell when you don't have a stable and rational government and when you are facing an external crisis.

Fiat currencies work when there is a proportion to the extra money being printed and to the rise of the productivity within that country. The problem is growing that productivity, and when that productivity isn't maintained, you will get higher inflation.

The US managed to do World War 2 with its economy intact and greatly growing despite being in the gold standard and that's already after coming out of the Great Depression, so I am not exactly sure why a gold standard doesn't work.

Fiat money only works when there are CONFIDENCE in the economy! So it is basically a CON trick!

The gold standard works fine, but not fine enough for Nixon. There are plenty of books on why Nixon abandon the gold standards. The reasons are many, but the main one is the gold standard restrict money supply and growth. Nixon wanted to increase growth rate.

 

[AndrewS]

You do realise that goods are weighted in the consumer price index to arrived at inflation rate. Right? So luxury goods you mentioned are weighted accordingly with bias towards every day goods like groceries.

Yes, I understand that completely. I'm saying that when you look at the constituent parts of the inflation weighting, you end up with the conclusion that there will be an overall deflationary effect because the medium-term demand collapse is more than the supply shock.

Have a look at the weighting for the UK for example, which should be representative of the developed world.

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---

In a situation where there is a pandemic and an economic depression, lots of spending becomes a luxury instead of a necessity.

Things that come to mind include restaurants, cafes, bars, weekend breaks, new cars, house purchases, new clothing, leisure spending, services like dog walking etc etc

---

But of course, there is China where the Coronavirus has been completely eliminated and life is back to normal now.
Yes, there are a few occasional outbreaks, but they don't affect many people as they are contained locally.
That breeds confidence in the economy.

 

[horse]

Funny things happen to currency pegs during an economic crisis.

But the currency peg is irrelevant to the original point, which is whether Saudi Arabia is accepting RMB for its oil sales to China.

Sure, OPEC requires countries to use the USD.
But OPEC countries regularly ignore the rules and the agreed production quotas anyway.

Yeah, I do not see how it makes a difference.

The Hong Kong Dollar is pegged the the US Dollar.

The Hong Kong government welcomed the Security Law, it only took 23 years before everyone got tired of all the bellyaching.

To say the peg means something, when history has shown the peg can always change, that is kind of like invoking "white privilege" to ensure/demand things never change.

 

[horse]

You do not understand what I have just stated.
The government requires to trade a certain amount of the standard commodity item in exchange for a certain amount of currency.
That means the government cannot issue total amount of currency that exceeds the amount of commodity reserve unless it devalues the currency against the commodity resulting to constant currency manipulation by the government. On the other hand, all governments wants an evergrowing economy not tied directly to their commodity reserve so they will want to issue more to expand the economy.
Other nations will at that point will evaluate the words of that government and not the currency. That in essence is fiat currency.

If you want to destroy a fiat currency, this is the way to do it.

Therefore, I agree with what you are saying.

Oddly enough, in today's world, since everyone is doing it in the west, their currencies will not devalue relative to each other. But that does not mean the Zimbabwe currency or India currency will rise, because they still economic backwaters.

Against gold, that should rise in price, because paper money becoming less valuable with so much of it coming off the printing presses.

 

[weig2000]

This report tries to paint a picture of the relative recovery strength of the Chinese economy vs the US and other large economies. The comparison is stark and China is either closing the gap with the US or increasing the lead significantly over others. The readability of the report can be improved if the author can simply leave out a lot of the boilerplate negative statements about Chinese economy.

"China's inflation-adjusted economic output will likely hit $11.9 trillion this year, said Nicholas Lardy, an economist and China expert at the Peterson Institute for International Economics in Washington. That is roughly 70% of the U.S.'s expected output -- a seven-percentage-point increase from last year, and the largest advance China has made on the U.S. in a single year."

This quote is very confusing and obfuscating. I've never seen any report anywhere using the so-called "inflation-adjusted economic output of $11.9 trillion this year." According to IMF or World Bank,

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($14+ trillion vs. $21+ trillion). If China grows 2.5% while the US drops 8% this year, as predicted in the report, then China's GDP will improve to nearly 75% of that of the US, not 70%.

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Success in containing Covid-19 is bringing life back to normal and helping close the economic gap with a rival

By Jonathan Cheng Updated Aug. 24, 2020 3:04 pm ET

BEIJING -- As the rest of the world struggles to contain the coronavirus, China's recovery is gaining momentum, positioning it to further close its gap with the U.S. economy.

Across China, restaurants and gyms are busy again. Subway cars and airport departure lounges are packed. Children are preparing to return to classrooms with few of the restrictions U.S. officials say will be hallmarks of post-coronavirus life. In some schools, children are being asked to bring masks -- but they don't have to wear them.

With the coronavirus smothered for now, thanks to draconian control measures, J.P. Morgan recently boosted its 2020 China growth forecast to 2.5% from 1.3% in April. Economists at the World Bank and elsewhere have also upgraded their forecasts for China, the only major economy expected to grow this year.

That bounceback, while far from China's heady expansions of past years, should nonetheless help the world's No. 2 economy move faster in catching up with the U.S., which could shrink by as much as 8.0% in 2020.

It is also buttressing Beijing's belief that China's state-led model, which helped the country navigate the 2008-09 financial crisis with minimal pain, is better than the U.S.'s market system, emboldening Chinese leaders at a time of rising geopolitical competition with the U.S.

China's inflation-adjusted economic output will likely hit $11.9 trillion this year, said Nicholas Lardy, an economist and China expert at the Peterson Institute for International Economics in Washington. That is roughly 70% of the U.S.'s expected output -- a seven-percentage-point increase from last year, and the largest advance China has made on the U.S. in a single year.

Homi Kharas, a senior global economics and development fellow at the Brookings Institution, said the coronavirus puts China's economy on track to reach parity with the U.S. in 2028 in absolute terms, using current dollars -- two years faster than his pre-coronavirus estimate.

The pandemic will also help magnify China's economic power compared with other developing countries such as Russia and Brazil, said Mr. Kharas, a former World Bank chief Asia economist. India will now likely lose so much ground that its economy will be less than one-fifth the size of China's by the end of next year.

"China will emerge even stronger as the largest economy in the developing world," said Mr. Kharas. He added that China will likely come out of the pandemic even more firmly entrenched as Japan -- the world's No. 3 economy, which the International Monetary Fund expects to shrink by 5.8% this year -- falls further behind.

China's recovery remains fragile and warning signs abound, from the threat of double-dip recessions among its trading partners to geopolitical concerns. Many experts remain dubious of China's economic numbers. Others say its rebound, even if real, is unsustainable.

Daniel Rosen, founding partner of New York-based research firm Rhodium Group, warns of mounting debt in China, uneven growth across the country and festering problems in the banking system. Much of the activity in recent months has been producing things that people aren't buying, he said, temporarily goosing economic numbers but creating an inventory glut that will weigh on growth later this year.

Mr. Rosen, comparing China to a speed skater that appears poised to pass the U.S. in the inside lane, said that despite the gains, China faces deeper problems: "The skates are cutting into China's feet, there is bleeding and all they have eaten this year is sugar."

Even so, the recovery under way is enough to make daily life in China feel significantly better than in much of the West.

Ren Jianmin, a 57-year-old Beijing ride-share driver, said his earnings fell by two-thirds in February and March, when parts of China went into lockdown. He relied on savings to support his family.

Things began turning in April. Mr. Ren said he is now logging 12 hours of steady work each day. That is enough to earn 5,000 yuan ($725) each month to supplement his wife's income as a nurse. His biggest complaint is that Beijing's notorious traffic jams have returned.

Mr. Ren credits the government's forceful response to the coronavirus for the turnaround in public confidence, particularly compared with the rest of the world. "The ability of foreign countries to deal with the pandemic is really not good," he said.

Even in Wuhan, the pandemic's original epicenter, life is returning to normal, with many residents no longer wearing masks in streets and restaurants filling up again. Images of a DJ hosting a water-park rave party with hundreds of people packed together earlier this month garnered global attention.

Wuhan hasn't registered any local coronavirus transmissions in three months. Zhao Lijian, a spokesman for China's Foreign Ministry, said the pool party "reflects a strategic victory achieved by Wuhan and the Chinese government in fighting the virus."

In the U.S., authorities have warned that a full recovery to pre-Covid ways of life may not be possible, envisioning classrooms, restaurants, concerts and plane flights altered by social-distancing requirements.

But China's control measures -- which include mass testing and widespread surveillance -- have made public gatherings and other activities relatively worry-free, as the state inserts itself into citizens' lives to an extent that would make many Americans recoil.

China's economic gains are easily explained, said Mr. Lardy of the Peterson Institute: "They did a much more effective job of bringing the coronavirus under control."

China's factories were among the world's first to reopen in April, which helped China grab market share in global trade.

To be continued ...

 

[weig2000]

... Continued

Now, with China's daily tally of new local coronavirus infections in the single digits, services and retail are climbing back to pre-Covid-19 levels. July retail sales were off just 1.1% from a year earlier.

Companies from Marriott International Inc. and LVMH Moët Hennessy Louis Vuitton SE to Tesla Inc. and Starbucks Corp. reported strong second-quarter growth in China, as the rest of the world pulled back.

Marriott said its occupancy levels in the region reached 60% in the second quarter, not far off last year's 70% rate.

"The recovery of travel in Greater China demonstrates the resiliency of demand once there is a sense that the virus is better under control," Marriott chief executive Arne Sorenson told investors this month.

In the southwestern city of Chengdu, Doris Chen said business at the high-end hotel restaurant where she works has been even better than last year, which she attributed to pent-up demand and increased domestic tourism.

Business first began to recover in May as coronavirus measures were lifted, she said. Before that, authorities only allowed half the number of patrons, and the restaurant's private rooms were closed because of social-distancing regulations. That is no longer a concern, with the restaurant allowed to operate at full capacity.

Before the coronavirus, Deutsche Bank estimated China's economy would grow by roughly 26% between 2019 and 2023, versus 8.5% for the U.S. over the same period.

Now, taking into account the impact of the pandemic, the bank expects China's economic expansion to moderate slightly to 24% between 2019 and 2023, while the U.S. over that stretch will have grown by 3.9% -- less than half the original projection.

China's growth was originally projected to outperform the eurozone's by 5.1 percentage points this year, Deutsche Bank said. Now, China is projected to beat the eurozone by twice that margin.

An effective and widely available vaccine could help Western economies get back to their previous growth trajectories faster than expected, said Michael Spencer, Deutsche Bank's head of Asia-Pacific research. Until then, though, China's economic gains versus the U.S. could fuel more concerns about Beijing's emerging clout, he said.

China still faces headwinds. It counts on exports for roughly one-fifth of its economic output, making it reliant on customers in the U.S. and Europe overcoming the virus. It must also prevent its own resurgence in Covid-19 cases.

China's per capita gross domestic product of $10,800 a year is far lower than in the West. China came into the coronavirus ranked 71st by this metric, according to the IMF, below Mexico and Thailand.

In the export-oriented southern province of Guangdong, Jason Zhi, a sales manager at a television assembler, said raw materials are becoming more expensive as household appliance demand rebounds, and the yuan is strengthening, which could make Chinese products less competitive overseas.

Mr. Zhi said that while export orders for his 80-employee company, Guangzhou Fuguo Electronics Co., began topping last year's sales in June, it is still struggling to turn a profit after months of lost sales. "It will be harder for us in the second half of the year," he said.

Others are more optimistic.

Liu Kaiyan, who runs a 30-room guesthouse near a rafting site in the southwestern province of Guizhou, began seeing business improve in August as families chose destinations where there have been no new coronavirus cases for months.

Reservations have only returned by 50% compared with last year, she said, and that was after slashing rates to attract customers. Still, she didn't lay off any of her three employees, with the prospect of better times ahead.

"Losses are unrecoverable, but luckily we are all safe as the coronavirus is put under control," said Ms. Liu, who hopes more tourists will come before summer ends.

In Beijing, where gyms closed for several months, a yoga studio operated by Wang Juanli was packed on a recent August day.

She said the business struggled to pay rent and salaries during lockdown, while two nearby gyms went out of business.

Her yoga studio was allowed to resume one-on-one personal training in April. A fresh wave of coronavirus cases in Beijing in June proved temporary, after authorities brought it under control.

New regulations require that she clean and disinfect her classroom before and after every class, and she has to reduce slots for members, given social-distancing orders. Ms. Wang had offered discounts to bring in new customers. Still, she thinks she is on a firmer footing.

"After the pandemic, people have a higher health awareness and realize the importance of keeping fit," she said.

--Jon Hilsenrath, Grace Zhu and Bingyan Wang contributed to this article