Chinese Economics Thread
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Funny you mentioned it, I just saw a interview with mearsheimer on Gita Wirjawan channel.
Mearsheimer is also under the impression that china domestic economic problems will keep them preoccupied at home instead of thinking about making moves in the south China sea or Taiwan.
So yeah it does seem that the China economic fud is having a hopium and copium effect on US thinkers.
I would say you are right on both counts.
However, both of those traits, not exactly connected. It could be the same person believing it, but there is no causal effect.
One, they are anti-China. Two, they know nothing about economics.
Those are two separate states of minds.
They are in the dark.
Good!
regardless of other factors, that push by China up value added chain in manufacturing and service industry will cause problems. Right now, China is at 35% in gross value, but just 29% in value added. What happens when value added also reach 35%?
It's one thing for the west and wall street to use China as cheap labor. Quite something else if China starts to take high value added industries also
It's one thing for the west and wall street to use China as cheap labor. Quite something else if China starts to take high value added industries also
the big problem for them is that in any industry China competes in, profit margins drop
That's about the level of Japan, which
But that is
Driving down profits via price war, taking market share, not buying IP...
Those numbers are from 2020 when the world went into lockdown and China was producing huge amount of goods to supply the rest of the world. So the data might be scewd and the 2021 and 2022 data is equally scewd for the same reason the pandemic. We need to wait for the 2023 data to get a more accurate picture.
Pretty much the window of low, mid and high tech is an ever forward sliding window.
Europe for example might be at the boundary of mid to high end but Europe is also stagnating in a lot of sector like for example Semi and software services(extremely profitable sector) sectors. As long as Europe stagnates other regions of the world will start to eat up their bottom line when they enter mid tech sector.
A big problem Europe and probably the US has to solve the coming decades, is how are you going to manage the transition of going from 10~20% average profits margin on products to 5~6% average profits margin? While still having the debt load that 10~20% profit margin allowed them to accumulate. Especially now that interests rate are going from close to 0~1% to 4~6% and above. Future interests rate will pretty much swallows up that 5~6% average profit margins.
It's worse than that.
Chinese companies work to a 5-6% profit margin on a Chinese cost base
Companies in the US/Europe could easily have a cost base that is 10% higher than in China.
In this scenario, US/European companies would be working to a -4% profit margin (losing money) whilst Chinese companies would be working on a +6% margin.
I agree one thing he said，that is China doesn't really need foreign investment，to the extend that many people including the Chinese gov doesn't realise. Investment account for 43% of GDP in China，far above global average. But consumption is too low compare to investment.
Investment will turn into production，so the problem is too much production relative to consumption.
Foreign investment is not needed for capital but more for new technology and techniques. It is to keep China connected to the world and provide competitive drivers for domestic companies.
China didn't need Tesla to invest in Shanghai financially but to provide competition and create standards in the supply chain that uplifted the whole industry.