Chinese Economics Thread

[abenomics12345]

The central government has ample capacity to take on additional debt - funding the pension plan is a good example of such policy. Or increasing investments in healthcare. Better yet, buy discounted apartments off of developers for subsidized housing (turn it around and IPO it into the markets or put it into the pension plan for good income generation). Separate the good LGFV assets from the bad, and take out the bad ones from local governments so the local governments can ensure the remaining LGFVs are viable entities.

So many ways - but all roads lead back to the central government taking on additional debt. However, the point that I've made multiple times is that you need to ensure this doesn't happen again - otherwise there won't be policy room to move again, and I suspect this is why its taking so long (and why 3rd plenum is delayed). But they are racing against time for getting this right.

You don't need to immediately fund the cost through taxes *today*. The Ricardian Equivalence argument against fiscal policy has been refuted by empirical studies.

So long the actions you do leads to faster economic growth (especially faster than debt growth), taxation capacity of the government is higher in the future. Growing the cake and taking incrementally more for equalization/common prosperity is a lot easier for people to stomach, than to re-divide the cake while keeping it flat. This is specifically why a little inflation is helpful.

As I said, and more importantly, the CEWC stated, there is to be no contractionary policies (meaning taxes) in 2024. Ironically, CGBs (central government bonds) need to be a deeper market (more debt) for RMB to internationalize.

Keep in mind, no government in the entire world, has ever paid off a single cent of debt - it is refinanced and rolled over - the critical thing is that GDP grows in-line or faster than debt growth - deleveraging can come from paying off debt (no government has ever done this), or growing the earnings (GDP).


For more reference, this is the latest IMF Article IV Report:

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See my post re: 700mln mutual fund owners.

Policy Recommendations:

Li Daokui -

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Zhang Bin -

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(Have a follow of the CF40 WeChat Channel - lots of stuff there)

I've already answered to your previous question as to what I meant in terms of my reference to 'bazooka'. Let me refresh your memory. I had clarified specifically what I meant. Of the policy options I listed almost 2 years ago, they've already sorted out the LGFV debt issue with the 12 trillion debt swap. So do not put words in my mouth and insinuate that I'm playing dumb . It would appear that you're the one who have not read what I wrote, or failed to remember.

Where in my post above did I ever argue for buoying 1st tier consumers?

This is a debate about the relative priorities of the central government. I contend that increasing the spending of consumers in 1st tier cities is not a high priority and that their stimulus efforts thus far have not been aimed at doing so. To augment this I cite the fact that they have persistently refused to do the one thing that would pretty much instantly fix the confidence issue, and that they are doing this to pursue broader structural transformation of the economy.

When I said "no bazooka", I was referring to no big credit stimulus towards developers. Such massive stimulus in 2008 was the reason the term "bazooka" was even coined to describe it, something a financial worker like yourself definitely knows but it playing dumb about.

Of course the politburo would like the property sector to stabilize, eventually. They're not lying about this. But their revealed preference is that it is not as high of a priority as other objectives with which re-opening credit towards developers would conflict.

I cannot force you to engage with a point. If you want to feel proximate to power, I cannot force you to critically examine that perception.

 

[hereforsemithread]

I've already answered to your previous question as to what I meant in terms of my reference to 'bazooka'. Let me refresh your memory. I had clarified specifically what I meant. Of the policy options I listed almost 2 years ago, they've already sorted out the LGFV debt issue with the 12 trillion debt swap. So do not put words in my mouth and insinuate that I'm playing dumb . It would appear that you're the one who have not read what I wrote, or failed to remember.

Okay, so what is your point? What are you arguing, specifically?

Where in my post above did I ever argue for buoying 1st tier consumers?

These people also tend to be migrant workers working in bigger cities (your Didi drivers/massage therapists/delivery workers/manufacturing line workers etc) who are suffering a double whammy - having to work harder to earn the same (involution) as a result of reduced consumption by the upper middle class in top tier cities.

Dude come on. If you want to do the whole "I didn't claim anything" thing you have to actually be careful not to claim anything.

 

[abenomics12345]

Okay, so what is your point? What are you arguing, specifically?

When are you going to accept that the central government simply does not share your priorities?

That I've in fact been reading the central government priorities correctly - because they actually did one of the things I said they should do ("solve LGFV debt issue"). It is you who've misinterpreted what I meant wrt the term 'bazooka' despite me labeling out clearly what I meant a long time ago.

Okay, so what is your point? What are you arguing, specifically?


Dude come on.

I made a statement about how tier 1 consumers are struggling - is that not true? That has an economic impact to service workers having to work harder - is there anything wrong here? As I stated clearly, those impacted *the most* are those who *bought real estate in Tier 3-5 from 2017-onwards".

I never made the argument that they are a significant portion of the Tier 3-5 population and that they are macroeconomically significant for the consumer economy in Tier 3-5 cities - you were the one who wrongfully drew conclusions without reading what I wrote. I simply said that it is important to not brush aside the impact of the real estate downturn on these specific people.

When have I ever stated that policy goal was to buoy 1st tier consumers? "dude come on"

Exhibit A of Evidence free claim from you:

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So in your mind,

Sept 24 2024/Sept 26 2024 policy pivots did not happen.

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in Nov 2024 did not happen.
Fiscal deficit in 2025 was not significantly higher than in 2024.
The central government did not

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The

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, and

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.

What rock have you been living under?

still waiting on your responses to these points.

 

[hereforsemithread]

That I've in fact been reading the central government priorities correctly

What do you think their priorities are?

 

[abenomics12345]

What do you think their priorities are?

Study This:

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The General Secretary has said the importance raise consumption rate significantly and improve domestic demand. I suggest you align yourself and forget the trope that somehow "consumption is not a priority".

 

[hereforsemithread]

The General Secretary has said the importance raise consumption rate significantly and improve domestic demand. I suggest you align yourself and forget the trope that somehow "consumption is not a priority".

Cool so they're focusing on diversifying consumption away from 1st tier cities specifically to do that, and in places where diversification conflicts with increasing the consumption of already-wealthy residents their revealed preference is to prioritize the former in service of higher long-run consumption growth, even if leads to some short-term pain. This means they will not make any major intervention to put housing prices back on the pre-3RL trajectory or anywhere close to it, since this would impede the goal of broader manufacturing growth and technological upgrading. I am glad we're on the same page now.

 

[abenomics12345]

This means they will not make any major intervention to put housing prices back on the pre-3RL trajectory

There is nobody who's part of the policymaking process - experts/economists/think tanks (even those who are adamant we need more housing policy support) that believes in "putting housing prices back on the pre-3RL trajectory". The goal is to stabilize at 0% plus/minus 5% (-15% is not sustainable). It is important not to anchor on problems of 2020 ("Housing cannot grow like this") and focus on problems of 2025 ("How do we stop housing from falling further").

diversifying consumption away from 1st tier cities

I don't know where you got this conclusion, but this is also not entirely accurate. Here is why.

The goal is to grow consumption - it doesn't mean growing consumption in Tier 3-5 at the expense of Tier 1-2. They are quite neutral about where it comes from.

Some people on this forum (not you specifically) seem to think that consumption = tangible goods consumption but that is simply no longer the main problem in China. (Look at AC penetration rates).

If you've listened to Zhang Bin speak he often states the point that "The most entry level service worker in China making 4-6k RMB/month can afford to purchase all sorts of household electronics at a very reasonable price if they don't care about the brand, so our goods consumption is already very sufficient". (He's used this example every time that I've heard him speak)

What this means is that Service consumption will be the next phase of consumption growth - travel is a good example.

An aspect of services consumption is that they tend to aggregate around large urban clusters - you simply cannot host a concert with G.E.M (nor a good professional sports team) in a Tier 5 in the middle of nowhere. Therefore the more 'complex services' consumption will tend to aggregate around regions with more population or regions that are wealthier. It makes sense - people have more diversified demand once they are more wealthier. The Jiangsu Superleague is a separate issue because Jiangsu is not an average province.

Travel is a little different - it tends to aggregate around areas with good 'endowment of resources' - like...building a fake replica of the Great Wall or engineering a fake Hukou Waterfall (I was talking to David Fishman about his recent trip there, you should read his Substack if you haven't) doesn't bring travelers.

But for companies like KFC - they serve approximately half of the Chinese population, so more KFC consumption in China will be driven by lower tier cities.

This is why there is more focus on 因地制宜. As the country becomes more economically complex/sophisticated, governance mechanics/policies need to become more sophisticated as well. Naturally, commentary on the country needs to become more nuanced. Simple tropes like "they will sacrifice Tier 1-2 to benefit Tier 3-5" offers limited insights as to what might happen.

 

[hereforsemithread]

I don't know where you got this conclusion.

I got this conclusion because that is empirically what's happening. Consumption in BJ/SH has been flat or declining while consumption in 3rd and lower tier cities has been growing significantly faster than GDP. I cannot say with certainty whether this exact condition will continue; perhaps consumption in the biggest cities will return to slow growth in the 15th fyp period. But I can say with effective certainty that the disparity in consumption growth rates between the two groups will remain big for the foreseeable future, which necessarily entails that the share of 1st-tier cities in national consumption spending will enter into a secular decline.
Insofar as the weak consumption in wealthy cities is due to the negative wealth effects unleashed by the housing crash (because wealthy urbanites own multiple homes as investments), and the prosperity of smaller cities is dependent on the continued dominance of manufacturing and industry in receiving commercial credit (as opposed to developers), there is indeed a major antagonism between the consumption growth of big and small cities in China, at least for now.

 

[abenomics12345]

I cannot say with certainty whether this exact condition will continue; perhaps consumption in the biggest cities will return to slow growth in the 15th fyp period. But I can say with effective certainty that the disparity in consumption growth rates between the two groups will remain big for the foreseeable future, which necessarily entails that the share of 1st-tier cities in national consumption spending will enter into a secular decline.

My overarching point is that there is no policy preference for Tier 3-5 to grow faster than Tier 1-2. In fact Xi has been calling on

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. The call for stabilization of housing prices + boosting the equity markets as a viable investment vehicle is to stabilize and grow Tier 1-2 consumption (from removing the negative wealth effect of real estate).

(because wealthy urbanites own multiple homes as investments)

The people who own multiple homes (very small fragment of Tier 1) in Cuihu or Tangchen #1 in Shanghai are not cutting back any consumption - its the white collar workers who has a 5mln RMB mortgage and 2 kids thats cutting back.

 

[hereforsemithread]

My overarching point is that there is no policy preference for Tier 3-5 to grow faster than Tier 1-2.

In light of what has happened in the last five years I simply do not understand how you could possibly believe this, or at least believe that such a result is not a necessary consequence of the government's other policy goals.