Chinese Economics Thread

[Maikeru]

I wonder if PRC is not doing much stimulus so far because it's keeping its powder dry for when the West goes into recession (soon) and exports plummet?

A couple of interesting tweets (or "Xs" as I suppose we must now call them):

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[abenomics12345]

China's GDP is about 1/3 of Japan's, why would its GDP growth stagnates now? China has 300-400 million middle class, and its domestic market is potentially 10x bigger than Japans. With more than 1.4 billion people, I doubt some emigration would really change the trajectory of China's development. Further more, unlike Japan, China's economy is being integrated with the Global South, which pretty much solves China's demographic problem.

To start I hope when you say "China's GDP is about 1/3 of Japan's", you are referring to per capita GDP. Because China eclipsed Japan in total GDP in the early 2010s.

All I will say here is, do not confuse potential with inevitability - those are two different things. Had you read my entire post you would notice that "risks of mismanagement" is what I refer to as the *risk* that may cause China not to realize the more optimistic scenario. If Chinese policymaking was never flawed, real estate would've never been this big of a problem to begin with; Covid policy in 2022 would've been relaxed earlier; we wouldn't have this much angst among the populace, and we wouldn't atrocious sentiment today.

Understanding the trajectory of Chinese economy requires that one understands the positives, as well as recognizing policy mistakes.

 

[Moonscape]

This likely is a function of the lack of understanding by domestic 'elites' in terms of the problems facing the RoW - but it doesn't change the fact that this is highly problematic for future of economic development in China if those with money want to leave and do not instead invest domestically. Obviously this is a lot of the '高知' types who thinks WSJ and NYT still are 'better' - and they're idiots for that - but it doesn't change that their behaviour impacts facts on the ground, and disproportionately so given their wealth/'status' and social influence.

This why capital controls are important and why the Chinese government will keep the $50,000/year/person foreign transfer limit in place for the foreseeable future, even though those restrictions hamper the globalization of the RMB.

Here's the dirty secret: most of the "elite" in China got their wealth by luck, not skill. Their own value to China's economic development isn't much more than anyone else's. They can go ahead and leave, and China will be fine. China just needs to make sure those right-wing Chinese "liberals" can't take the country's resources with them.

 

[abenomics12345]

This why capital controls are important and why the Chinese government will keep the $50,000/year/person foreign transfer limit in place for the foreseeable future, even though those restrictions hamper the globalization of the RMB.

Here's the dirty secret: most of the "elite" in China got their wealth by luck, not skill. Their own value to China's economic development isn't much more than anyone else's. They can go ahead and leave, and China will be fine. China just needs to make sure those right-wing Chinese "liberals" can't take the country's resources with them.

Largely agree with this - but the problem is when these idiots command discourse power that is not befitting of their social value, it influences the vast majority of Chinese people to make the wrong decisions.

Which goes onto another broader point I didn't quite flesh out in my initial post earlier - and that is that despite all of its manufacturing prowess, China possesses extremely limited capabilities in manufacturing discourse power in the global elite class (the West). As much as it pains us here (given we are all likely pro-China to a certain degree) to admit, the West commands a significant capability in shaping the discourse for vast majority of subject matters. Off topic, but we are starting to see this crack at the edges after Palestine/Israel - but its quite early days. This is especially unacceptable to China given its a largely controlled media ecosystem domestically.

This problem is adeptly summarized by my experience of 1) explaining to a friend in China the vicissitudes of life in the RoW and 2) him responding with a: "so you are saying that what CCTV1 is saying is the truth?" (imagine an ORLY owl face).

 

[Moonscape]

Largely agree with this - but the problem is when these idiots command discourse power that is not befitting of their social value, it influences the vast majority of Chinese people to make the wrong decisions.

The CCP will not let a right-wing urban elite that makes up 5% of the population (at most) dictate the future of the country. If their lies and rumors actually threaten to make a material difference, the Chinese government can direct the discourse and shut out fake news on the communication platforms used by the overwhelming majority of Chinese people. The Chinese liberals will whine on Twitter where only other Chinese liberals will read it.

Also, fundamentally your analysis is anecdotal:

Having spent 5 months in China and met with over 200 publicly listed companies and engaged with people of all aspects of society ranging from Didi drivers and barbers to those who have had relatives attending the 20th party congress, I believe I am in a position to summarize the takeaways in a way that clearly and accurately reflects the Zeitgeist.

The people you met with are far, far, far more likely than the average Chinese population to be right-wing, anti-CCP, pro-US types (i.e. rich people who hate the idea of socialism and love the idea of neoliberalism where the rich owns the politicians) because they're the most likely to meet with people from outside the country. You're vastly overestimating their prevalence and their influence because you're using an extremely skewed sample set.

 

[Moonscape]

Which goes onto another broader point I didn't quite flesh out in my initial post earlier - and that is that despite all of its manufacturing prowess, China possesses extremely limited capabilities in manufacturing discourse power in the global elite class (the West). As much as it pains us here (given we are all likely pro-China to a certain degree) to admit, the West commands a significant capability in shaping the discourse for vast majority of subject matters. Off topic, but we are starting to see this crack at the edges after Palestine/Israel - but its quite early days. This is especially unacceptable to China given its a largely controlled media ecosystem domestically.

China will never be able to counter Western propaganda for global elites because Western anti-China discourse is fundamentally a racist, White supremacist narrative, and China will never be white.

China needs to go around the west and focus on the rest of the non-white world, which it is doing.

The Chinese government simply needs to ensure that the few people (10% at most) in China who are still stupid enough to be pro-US and anti-CCP do not have any political influence, and only minor economic influence.

 

[tamsen_ikard]

Seeing as we are near the end of 2023, I am here to revisit my initial expectations from earlier this year. I believe my expectations have largely stood the test of reality and time. In fact, retail sales growth is on trend below my initial expectations and by all means my initial estimates of 5.5% GDP growth was likely an overly optimistic estimate, especially in context of the additional stimulus that the central government unleashed (1trln disaster relief infrastructure spend, 1 trln of refinancing for imminent LGFV debt due, as well as various real estate policy changes etc.).

Having spent 5 months in China and met with over 200 publicly listed companies and engaged with people of all aspects of society ranging from Didi drivers and barbers to those who have had relatives attending the 20th party congress, I believe I am in a position to summarize the takeaways in a way that clearly and accurately reflects the Zeitgeist.

To start, all of the positive things that everyone loves to talk about here - and I will categorize them as 'industrial upgrade' - EVs, medical equipment, aerospace, semiconductor, renewable energy - are largely progressing quite rapidly, and in many places they are ahead of schedule/expectations (as we saw from the HiSilicon Kirin 9000S chip). I won't preach to the converted here and elaborate more other than to say the vast majority of the people outside of China have zero clue there will be a wave of high quality + reasonably priced Chinese manufacture that will compete extremely hard in the RoW.

However, this is about where the good news end.

Confidence/sentiment is Atrocious... While everyone here are gungho about the outlook of the economy, such is not true domestically among vast swaths of the population. In terms of the upper middle income class - real estate/internet/afterschool tutoring/finance/public workers - making up a significant proportion of the 100mln or so global middle class population (I believe the 'passport' class is a good way to describe them) have gotten screwed royally. So they're not interested in spending their money. This is where I was extremely accurate earlier on in the year when I made a bet with @tphuang re: retail sales growth in 2023. Before someone cites how travel is strong, yes I know, but keep in mind its not sufficient to move the needle on retail sales. Just have a look at JD/Alibaba's results vs. Pinduoduo's results and you should have a good sense of how consumers are downgrading. Another good indicator is the performance of subprime lenders like Qifu360 - these are the people on short term contracts/gig jobs - and they're not doing well. So the upper middle class is quite reticent from spending is leading to underemployment by the lower income folks. Consumption as % of disposable income has fallen significantly in 2022 vs. pre-pandemic.

As such, the majority of the population do not share the overall positive sentiments espoused by those on this forum. Take it for what its worth - you may disagree and think they are all idiots or they are wrong, but you better make sure you understand that this is the feeling of majority of the population.

...and is at risk of turning into a vicious cycle. As a result, the overall negative sentiment is turning into a societal consensus and this is the biggest risk for Japanification at a much lower disposable income level - if the population at large do not share confidence in the future of the State, then you have situations where all the 'elites' want to run. Yes, I've seen the 2021 data showing significant repatriation of technical talent in the West into China - but the clear facts on the ground in China is that 'in Shanghai the best performing businesses in 2023 are those who help with immigration and those who help with kids' overseas education'. This likely is a function of the lack of understanding by domestic 'elites' in terms of the problems facing the RoW - but it doesn't change the fact that this is highly problematic for future of economic development in China if those with money want to leave and do not instead invest domestically. Obviously this is a lot of the '高知' types who thinks WSJ and NYT still are 'better' - and they're idiots for that - but it doesn't change that their behaviour impacts facts on the ground, and disproportionately so given their wealth/'status' and social influence.

Obviously there are substantial capacity by the central government to enact reforms and stimulate the economy to get people to be more confident again, but thus far we've seen small 'dribble' of stimulus that hasn't changed the narrative from the population at large.

Additionally there are risks of mis-management/policy mis-execution (Covid lockdowns in 2022 being the biggest) that lingers in the mind of many entrepreneurs in China.

We are at a point where, if everyone in China was confident, there would be no issues; but if everyone remains negative Nancy, then there will be issues.



My 'tunes' happen to be accurate. Where are these house renovations that you speak of?

I think you are right about the crisis of confidence in the so called educated middle-class, upper class. But we have to understand this is the class that has always been the biggest western worshippers in China. They are the most willing to get rid of CCP and replace it with a democracy. These are the same that also participated in the Tiananmen protest. These are also the same people who leave China to live in western countries the moment they get enough money to do so.

In terms loyalty, China's lower class poorer people are much more loyal, pro-CCP and patriotic compared to the Educated middle-class. On the other hand, the educated middle-class are pro-western, pro privatisation, pro-liberalization. They are also the class CCP distrusts the most and keeps the strongest survelience for this class. You often see China's govt talking about Color revolutions or slow-evolution and talk about it as the biggest threat against CCP rule.

So, these classes of people are very quick to Criticize any kind of policy coming from CCP. They criticized China's lockdowns during Covid. But they also blew up conspiracy theories about how CCP is incompetent and millions will die to due to Covid. So, China had no choice but to keep locking down in order avoid being accused of being Killers/incompetent and so on. Only when this same group did the "White Paper protest" and shown themselves to be wanting the end of lockdowns, then they opened up right way. So, then they could not criticize the opening up and whatever deaths occured during the process. Cause then CCP could blame these groups as the ones who wanted the opening up.

We need to understand there is an internal war going on between the pro-western forces in China and the Patriotic forces. These pro-Western forces are extremely negative about China's future and blow up any weaknesses. So, this so called crisis of confidence is inevitable coming from them.


But China's govt is prudent enough not to stimulate too much just to placate to this group. They know the most important priority now is to deflate the housing bubble in a managed way, which will also cause deflation, low growth and other issues. But it will make China's long term growth prospects better.

 

[abenomics12345]

The CCP will not let a right-wing urban elite that makes up 5% of the population (at most) dictate the future of the country. If their lies and rumors actually threaten to make a material difference, the Chinese government can direct the discourse and shut out fake news on the communication platforms used by the overwhelming majority of Chinese people. The Chinese liberals will whine on Twitter where only other Chinese liberals will read it.

Also, fundamentally your analysis is anecdotal:

The people you met with are far, far, far more likely than the average Chinese population to be right-wing, anti-CCP, pro-US types (e.g. rich people who hate the idea of communism and love the idea of neoliberalism where the rich owns the politicians) because they're the most likely to meet with people from outside the country. You're vastly overestimating their prevalence and their influence because you're using an extremely skewed sample set.

If your only argument is "You are wrong because your sample size is flawed" then you are really not going to convince anyone here. Feel free to show some evidence that prove your 'less-than-anecdotal' and thus far fact-free argument.

Ironically, the 200 companies I met are actually quite positive on the outlook (nArRaTiVe ViOlAtIoN much?) of the companies given globalization of their businesses.

Last I checked Didi drivers (I probably engaged with 50) and barbers aren't exactly the types who are "rich people who hate the idea of communism and love the idea of neoliberalism".

 

[azn_cyniq]

China's GDP is about 1/3 of Japan's, why would its GDP growth stagnate now? China has 300-400 million middle class, and its domestic market is potentially 10x bigger than Japans. With more than 1.4 billion people, I doubt some emigration would really change the trajectory of China's growth. Think about it, proportionally, probably more Chinese elites emigrated in the past than currently. Yet China has developed to today's level. Further more, unlike Japan, China's economy is being integrated with the Global South, which pretty much solves China's demographic problem.

https://twitter.com/i/web/status/1726622684233273616

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Consumption-wise, big ticket items such as car sales are doing well.

https://twitter.com/i/web/status/1726425480880935338

Since China's current home ownership (combined urban and rural) is about 90%, this has to be a long term policy that mainly benefits the next generations. BTW, China has started to deflate the property sector as early as the onset of COVID-19.

https://twitter.com/i/web/status/1726466375307419736

There is no real decoupling between China and the US.

https://twitter.com/i/web/status/1726263919222694095

In my opinion, this kind of sentiment is dangerous. Nothing is guaranteed. I've heard Indians claim that India will definitely be a $10 trillion economy in 2030 because "GDP doubles every 5 years, that's just what it does." I think we all know how ridiculous that is.

abenomics12345's arguments seem to be grounded in fact and even if they don't turn out to be true, it doesn't hurt to err on the side of caution. I am just a little surprised that the sentiment on the ground is so bad given that China's GDP is expected to grow by around 5% this year.

 

[abenomics12345]

I think you are right about the crisis of confidence in the so called educated middle-class, upper class. But we have to understand this is the class that has always been the biggest western worshippers in China. They are the most willing to get rid of CCP and replace it with a democracy. These are the same that also participated in the Tiananmen protest. These are also the same people who leave China to live in western countries the moment they get enough money to do so.

In terms loyalty, China's lower class poorer people are much more loyal, pro-CCP and patriotic compared to the Educated middle-class. On the other hand, the educated middle-class are pro-western, pro privatisation, pro-liberalization. They are also the class CCP distrusts the most and keeps the strongest survelience for this class. You often see China's govt talking about Color revolutions or slow-evolution and talk about it as the biggest threat against CCP rule.

So, these classes of people are very quick to Criticize any kind of policy coming from CCP. They criticized China's lockdowns during Covid. But they also blew up conspiracy theories about how CCP is incompetent and millions will die to due to Covid. So, China had no choice but to keep locking down in order avoid being accused of being Killers/incompetent and so on. Only when this same group did the "White Paper protest" and shown themselves to be wanting the end of lockdowns, then they opened up right way. So, then they could not criticize the opening up and whatever deaths occured during the process. Cause then CCP could blame these groups as the ones who wanted the opening up.

We need to understand there is an internal war going on between the pro-western forces in China and the Patriotic forces. These pro-Western forces are extremely negative about China's future and blow up any weaknesses. So, this so called crisis of confidence is inevitable coming from them.


But China's govt is prudent enough not to stimulate too much just to placate to this group. They know the most important priority now is to deflate the housing bubble in a managed way, which will also cause deflation, low growth and other issues. But it will make China's long term growth prospects better.

So what's the solution, not educate people? Lol.

As for COVID, remember the Foxconn factory walkout in Henan last year? Those factory workers are not exactly fitting your "pro-west/pro-liberalization" description.

Also, my point re: QFin 360's consumer loan data deteriorating - keep in mind they service 10s of millions of extremely low income types who do odd jobs here and there - I can guarantee you they are not happy and doing well.

The final point here is that, the economic data speaks for itself. Those who were bulled up on a rapid snapback in early 2023 (namely those who tried to chew me out because I was not 'pro-china' enough) clearly did not have the right expectations and were wrong.

I am just a little surprised that the sentiment on the ground is so bad given that China's GDP is expected to grow by around 5% this year.

Likewise, as I said at the beginning, I was overly optimistic (despite being called pessimistic by most here). This is why I repeated my point earlier, that sentiment/narratives matter - even if they're false, because they influence behaviour. Ultimately, the way I interpret this is that, those who don't feel good about the economy outnumber those who feel good.