Chinese Economics Thread

[KYli]

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[luminary]

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[sinophilia]

Either:

1) Things are really bad and they are really trying to make sure the real estate industry doesn't completely have the bottom fall out ("we went too far with bubble deflation we need you guys to not all go bankrupt")

or

2) Things aren't bad and they are trying to get the bubble going again in complete 180 to what they've done in the past 2.5 years...("sorry guys we are complete idiots we are going back to housing speculation days")

Which one is more likely?

Both sound really bad, no? So if you believe they are the only two possibilities then why are you so optimistic on China?

 

[Stierlitz]

Wang Jianmin, who specialises in Taiwan issues at Minnan Normal University in Fujian province, said the negotiations were an important part of efforts from both sides to reduce economic reliance on Beijing.

The core of the initiative is to counter the mainland and establish a US-Taiwan economic cooperation system, and to include Taiwan in the US supply and industrial systems,” Wang said.
According to Wang, Beijing should be wary of closer economic links between Taiwan and the United States.
“The US will pressure Taiwan not to work [closely] with the mainland … and it is obvious that excluding the mainland and reducing [the island’s] reliance on the mainland will be part of the agreements,” he said.
Wang noted that Taiwan’s exports to the mainland fell last year. According to data from the mainland’s Taiwan Affairs Office, imports from Taiwan amounted to US$219.07 billion from January to November – down 2.9 per cent from the same period a year earlier.

“[Beijing] needs to pay close attention to the impact [of the initiative] on future economic and trade relations between the two sides of the strait,” Wang said.
He added that it was likely to drive more Taiwanese investment to the US, citing Taiwan Semiconductor Manufacturing Company as an example. The chip giant last increased its investment in a US plant to US$40 billion. Wang said Beijing should try to compete with Washington by boosting cross-strait cooperation, especially given that China is engaged in trade and tech wars with the US. “Cross-strait cooperation is of greater importance to us since we need [Taiwan’s] products, like hi-tech goods.”

But Tang Yonghong, a Taiwan affairs professor at Xiamen University in Fujian, was less worried about the negotiations, saying they were more focused on issues like trade facilitation and would have little impact on US-Taiwan trade or cross-strait economic ties.
But he said the negotiations could drive other countries to follow suit by seeking similar deals with Taiwan, undermining Beijing’s efforts to promote its one-China message in the international community.
Tang suggested Beijing could take countermeasures including cancelling the reduced tariffs it offers on a list of Taiwanese goods under the Economic Cooperation Framework Agreement signed by the two sides in 2010.
In addition, he said mainland China could reduce imports from the island and switch to domestic and other suppliers.

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[TK3600]

Both sound really bad, no? So if you believe they are the only two possibilities then why are you so optimistic on China?

And why bet on 8% when he think 5.5% is the most likely outcome? There are a lot of things I am trying to make sense of.

Furthermore both of the options highlight influence of central government.

1. Implies the bubble deflation AKA government policy is the primary cause of drastic fall in price.

2. Implies government is responsible for greatly lowered price and can make it go back up at will.

I am failing to see how either his scenario support his argument of "this is no longer 2013 real estate is not at mercy of government".

Speaking personally for the area I was investing much of the restriction are still in place. If one day the government say "we are dropping all these restrictions for the forseeable future" house price will resurge fairly quickly. That is what I meant by central policy dictates real estate price. Right now China is giving some signals of relaxing the restrictions but they did not fully commit to it. It is natural market did not respond with increased pricing. Much of the commercial real estate is also failing due to low customer from past covid restriction. Once again a central government decision.

My last point is much of the Chinese economy do not behave on market force alone. It is futile to use western economic to predict China because much of the uderlying assumption do not match. I will not insist people to agree with me on this point. I am trying to explain where I came from and why I am saying what I said. Feel free to ignore me otherwise.

 

[AndrewS]

Can you walk through the math on electricity demand doubling? Norway has not seen its electricity demand grow significantly despite having the highest EV penetration in the world.

Also residential rooftop is suspect - the math breaks down quickly unless everyone can go fully off the grid. Majority of the cost of electricity is in grid maintenance. The natural answer is storage but I don't think there is enough space to put batteries in to allow buildings to go off grid. Whatever costs you get at a residential level, things are cheaper at an utility scale; which necessitates the maintenance of the grid and makes it tough public policy to allow people to go off grid.

Cars have a typical lifespan of 10-15 years. So even if all new car sales are electric, it still takes that time for all that EV electricity demand to fully appear.

There are 32 million cars in the UK.
If all of these cars become electric and consume an average of 8 KWh per day, that doubles electricity consumption.
However, the UK is on the upper end of demand increases. In most other countries, it's less extreme.

Assuming you're in Japan, I'm not surprised electric car investments haven't come up in conversation.

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True, but look at the cost structure of a typical electricity bill. You have the grid maintenance component which is a fixed cost. But then you have the variable cost of how much electricity is consumed. So people will mostly pay to still have access to the grid for emergencies and the comfort of knowing that it is available. But in terms of actual electricity consumption, it would make sense to generate your own cheaper electricity which can be used immediately or fed into a vehicle.

The key thing is the LCOE, which is dependent on the upfront capital costs and the borrowing rate.

Plus if you look at China, it's predominantly apartment buildings. So rooftop solar can provide some or much of the electricity demand, but will still need a grid connection. The larger scale of installation also helps drive down the per-unit cost.

For the average house/apartment (even country?), they're probably going to need 4 hours of storage given the likely energy generation mix, which could easily be provided from a vehicle battery

 

[Overbom]

We should examine GDP truthfulness for every major economy, as it is very rare that a major economy claims unprecedented growth while simultaneously experiencing a collapse in average lifespan, birth rate and labor participation.

No need for cooking the GDP data by the West when they already use the lawyer, insurance fees, pron and drug industry into their GDP figures lol

They are doing it openly

 

[Overbom]

I'm confident against extreme outcomes. Your point on "real estate at the mercy of the central government" is a valid point....if this was 2013 as opposed to 2023.

I can tell you that the central government has been relaxing housing policy since middle of 2022, relaxing 2nd house purchase restrictions, allowing local governments to reduce down payment restrictions, *and* cutting LPR/RRR at the same time via PBoC. Meanwhile Liu He is at Davos telling everyone how important it is for housing to develop in a healthy manner.

Yet.....the sales data trend has not improved in aggregate. Based on what I see for the first 3 weeks of 2023 the YoY comparisons are still deteriorating in Tier 2/3 cities (like...-20% down YoY) and only turned positive in Tier 1 in the third week.

Soooo......

Either:

1) Things are really bad and they are really trying to make sure the real estate industry doesn't completely have the bottom fall out ("we went too far with bubble deflation we need you guys to not all go bankrupt")

or

2) Things aren't bad and they are trying to get the bubble going again in complete 180 to what they've done in the past 2.5 years...("sorry guys we are complete idiots we are going back to housing speculation days")

Which one is more likely?

Its the 1).

The real estate has declined too much. Previous year's decline is good for the long term but it shouldn't be overdone, otherwise a fiscal crisis and severe GDP slowdown could happen.

So the aim is imo to stop the decline and stabilise the prices. After this has been achieved, they can resume with deflating the bubble by decreasing prices by 5 or 10%

 

[sunnymaxi]

China’s Foreign Capital Inflows Hit New High as Country Transforms Into Global Tech Hub.



High-tech industries are becoming the main engines attracting foreign capital. The actual use of foreign investment by Chinese high-tech companies jumped 31.1 percent, with that of high-tech manufacturing sectors soaring 58.8 percent and that of high-tech services sectors jumping 23.5 percent, according to the latest data from the Ministry of Commerce..

Investment from the EU jumped 92.2% in the period.

South Korean investment in the country more than doubled year on year,

while that from Germany soared 52.6 percent, that from the UK surged 33.1 percent and that from Japan jumped 26.6 percent.

 

[AndrewS]

@abenomics12345

The other thing is the grid connectivity upgrades in China

My guestimate is that wind/solar projects in Western China end up with a LCOE of 3-4c/KWh

But then you have to add a dedicated HVDC transmission line to coastal demand centres, that would add about 2c/KWh, which would match coal.

However, that assumes the transmission line is fully used, which it won't be if solar/wind are the generation sources.

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That is what I meant by residential solar installations bypassing grid costs

---

Also, you see instances of Chinese cities charging negative electricity costs during daytime peak solar generation.
Obviously this is great for consumers, but not sustainable for the generators.

But this will spur adoption of electric vehicles to soak up this excess solar generation and get electricity prices positive again.