Chinese Economics Thread

[tokenanalyst]

Deflation is not just prices of things going down, but rather the *expectation* of future prices. When you believe things are going to get cheaper in the future, you defer consumption - why pay more now when you can get things for cheaper and better in the future? The fact that the country has been experiencing deflation in the longest period since 1998 (and soo to be longer), that changes the expectations/mentality of the average population. And this is where the Japan experience comes into play - wages in Japan started shrinking, hiring fell, etc.

For example, current housing starts/sales are already below the expected replacement + household formation + urbanization rates - meaning that people are deferring purchases. I.E this is already happening in housing.

Well things are still in the softer site BUT housing prices already leveling up, consumer price are heating, especially food and fast and from my experience industrial machinery prices is going up and I think is going to up faster in the coming years.

White-label-ization is also happening in all the product categories:

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(You may very well believe that Wuliangye is a waste and that people shouldn't ever waste money on that, but newsflash, Yibin Government would go bankrupt if Wuliangye collapsed. This is before the obvious question of who died and made *your* values the be all end all *societal* values?)

So the entire policy mechanism needs to focus on preventing that from ever happening.

Whatever reforms they announced at the 3rd plenum needs to be accelerated and the central government needs to announce a 3-5 year fiscal package dedicated towards completing those reforms, with people actually feeling they are getting the benefits. Additionally, policy sequencing has to be improved - The narrative needs to shift towards how 'things are tough now but they will get better'.

As I've pointed countless times, the reason that Western propaganda is working is because reality on the ground is deteriorating. There is a reason why the Michael Pettis bullshit about the HSR being bad isn't sticking - its because people ride the damn trains and see how good they are. But guess what, this current economic pain is playing into the Western media messaging.

Nobody is saying that China economy is "perfect", it has cycles of ups and downs all year around, it has been like that since the 80s in every single administration. The problem with Western Garbage Media is that they tend to take every single thing that happen, magnify the problem by 10 and tell a garbage story without any single context.

Like VC story from FT, do they tell you that company in the story is bound by a 2021 Chinese law about what information they can collect and disclosure <especially to foreigners>? Of course not because doesn't fit the agenda. Do they tell you that China Baking system is layered by the level of risk? No. Do they tell the stock market and the real economy are two different things? No.

I been there, when the 2007 stock bubble <biggest in China history>, China deepest housing bubble crash ever in the world in 2014-2015 and 5 trillion dollar losses in the 2015 bubble.

For all you people who are all busy harping on the future strength of the Chinese economy here, in the mother of all echo chambers, your efforts will be much better served on Chinese social media in Chinese.

You are the one who lives in echo chamber and your efforts are better served in the twitter echo chamber.

 

[HighGround]

No one is attacking your "point".

What people are wondering is why there is this one specific area of economic performance that you focus on in context of the overall economy, and why you seem to be insinuating that this specific domain of economic performance is of disproportionate concern in context of overall medium and long term Chinese economic and geopolitical goals.

On the other hand, if you are not saying or claiming that current performance in this specific economic domain is necessarily of consequence for the broader economy or geopolitical objectives in the medium and long term, then that's fine as well and I think everyone would thank you for that as it lets everyone properly frame your contributions.


As it stands, I think broadly speaking most people in this thread are aware that there are aspects of the economy which are performing less well than others, particularly those which are most exposed to industries that are being curtailed and deliberately reformed (property in particular), and that while there is recognition these efforts will cause negative sentiments, in the medium to long term the reforms and curtailment will be better for overall economic and geopolitical goals, and in the short term the overall economy and overall geopolitical goals can be met with the advancement of other industries and economic areas which also happen to be more conducive to long term geopolitical objectives.

I don't think this is a fair summary to be honest.

I think abe correctly points out the weak point of the Chinese economy and how it puts the rest of the economy at risk. Which it does, that's generally how systems collapse. A gaping weakness in one section can bring down the whole.

I also think the antagonism and hostility with which Abe's points have been approached is reasonable. I don't think Abe disputes the strong indicators of China's economy. Furthermore, rather than tackling Abe's points with relevant data, most of the debate seems to be talking past them. Yes, I've seen electricity consumption graphs... 5 pages in a row now, but they don't address the effect of deflation on nominal debt. Nobody has acknowledged how falling price levels affect firm profitability, and therefore job numbers (one of the first things to get cut).

=======================================================

I.E. There are plenty of positive points to be made about China, but sometimes there's too many of those points. This thread does end up being a bit echo-chambery. I also think Abe pointed out something very true.

GlennLuk does do a very good job of offering explanations and analysis that repudiate many detractors like Michael Pettis. On the other hand, there needs to be a more pessimistic analysis as well. The issue of consumer confidence and stagnant consumption is real, and the stubborness of this issue should get greater attention and scrutiny in this thread.

 

[Michaelsinodef]

Yea let's just pretend the part where domestic small players are likely -20 to -30% doesn't exist.

@GiantPanda

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Japan also consumed more electricity in the 1990s, but see disposable income growth:

View attachment 135447

Yi Gang, Former People's Bank of China Governor:

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You: Nah no worries bro deflation is good.

Yea.

That data on startups doesn't pass the smell test lol.

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[Blitzo]

I don't think this is a fair summary to be honest.

I think abe correctly points out the weak point of the Chinese economy and how it puts the rest of the economy at risk. Which it does, that's generally how systems collapse. A gaping weakness in one section can bring down the whole.

I also think the antagonism and hostility with which Abe's points have been approached is reasonable. I don't think Abe disputes the strong indicators of China's economy. Furthermore, rather than tackling Abe's points with relevant data, most of the debate seems to be talking past them. Yes, I've seen electricity consumption graphs... 5 pages in a row now, but they don't address the effect of deflation on nominal debt. Nobody has acknowledged how falling price levels affect firm profitability, and therefore job numbers (one of the first things to get cut).

=======================================================

I.E. There are plenty of positive points to be made about China, but sometimes there's too many of those points. This thread does end up being a bit echo-chambery. I also think Abe pointed out something very true.

GlennLuk does do a very good job of offering explanations and analysis that repudiate many detractors like Michael Pettis. On the other hand, there needs to be a more pessimistic analysis as well. The issue of consumer confidence and stagnant consumption is real, and the stubborness of this issue should get greater attention and scrutiny in this thread.

I think my summary of it is pretty fair in context of the fact that he hasn't particularly outlined what his overall projections are.



Reporting on the domains of the economy that he is interested in is very reasonable, and it's not wrong to also state that they have the potential to drag overall economic goals and geopolitical goals down if left uncontrolled -- but that in turn requires an analysis of how the other domains of economy are doing, the medium to long term trends in all of the domains mentioned (the ones he is focused on as well as the broader economy at large), and consideration of what people believe medium and long term Chinese economic and geopolitical goals are.

Edit:
If his argument is the equivalent of "a gaping weakness in one section can bring down the whole" then that's fine as well, but let's hear it said explicitly.

What I dislike is this beating around the bush. If people want to argue that there are truly credible or likely concerns of long term economic stagnation then just come out and say it, and at least the interested parties can start weighing up each other's arguments.

 

[tokenanalyst]

I don't think this is a fair summary to be honest.

I think abe correctly points out the weak point of the Chinese economy and how it puts the rest of the economy at risk. Which it does, that's generally how systems collapse. A gaping weakness in one section can bring down the whole.

More like creating a narrative. I would say their economy is in the softer side like the rest of the global economy, it has its challenges, like always has do, as i pointed out there has been real apocalypses events in the Chinese economy in the past. China is trying to break the cycle of depending of stimulus cannons to prop up the economy rather using smart stimulus and believe or not, market forces. Do they have made mistakes? yes, they are not perfect. They have overregulated some sectors for example but is not what the Garbage Western media says.

Is the same as the US economy, incredible has managed to stay in the softer side like the rest of the global economy, ups and downs since the end of the pandemic but is not going to crash, my real worry about the US economy is housing prices and inflation, is worrying that they and other central banks are going to cut rates with such high prices, they are going to literally price out the global middle class from owning assets in the next 5 years.

 

[abenomics12345]

You are arguing that one domain of overall economic performance is doing poorly, which is not unreasonable on its surface.
However it is implied that you are worried about that domain of performance in context of at least medium and long term overall economic and geopolitical goals, and to substantiate those concerns it would be necessary to look at the other domains of economic performance (or argue why you believe your domain of interest is of disproportionately greater importance), as well as argue that there will be medium or long term consequences outside of the short term.

If your interest in this specific economic domain does not have medium or long term overall economic or overall geopolitical meanings or insinuations, then that is fine and just write so and everyone can recalibrate the meaning of what you're actually conveying.

I appreciate you trying to frame the points here. But I absolutely see elevated risks with respect to the long term outcomes - given this current weakness in the results but more importantly confidence.

1) There is zero disagreement on the reforms necessary from the real estate market, just like there is zero disagreement that a person with a broken bone needs treatment (Given you are a doctor by trade, let me frame my perspectives in a way that you would understand). However, the disagreement I have is this notion that one needs to be like a Guanyu and have bone surgery performed on him without anesthesia even when it's available today just to prove how tough he is. (Like okay good for him that he's strong, but why?)

The rationale here is based upon the fact that people generally like to live more comfortably - and as I've referenced a couple of times - Chinese people work the longest hours in the world already. But the entire policy set up (as supported by the 'deflation enthusiasts) right now is asking people to work incrementally harder while getting paid incrementally less than they've ever gotten. ("再苦苦老百姓", as referenced in Ming Dynasty 1566). As @gelgoog aptly stated, "its a shakedown of the entire economy".

And I mean that literally - as the only line item growing in the government income statement is fines that all levels of government levied upon companies. Good luck with corporate confidence in that context.

What people are wondering is why there is this one specific area of economic performance that you focus on in context of the overall economy, and why you seem to be insinuating that this specific domain of economic performance is of disproportionate concern in context of overall medium and long term Chinese economic and geopolitical goals.

On the other hand, if you are not saying or claiming that current performance in this specific economic domain is necessarily of consequence for the broader economy or geopolitical objectives in the medium and long term, then that's fine as well and I think everyone would thank you for that as it lets everyone properly frame your contributions.

As it stands, I think broadly speaking most people in this thread are aware that there are aspects of the economy which are performing less well than others, particularly those which are most exposed to industries that are being curtailed and deliberately reformed (property in particular), and that while there is recognition these efforts will cause negative sentiments, in the medium to long term the reforms and curtailment will be better for overall economic and geopolitical goals, and in the short term the overall economy and overall geopolitical goals can be met with the advancement of other industries and economic areas which also happen to be more conducive to long term geopolitical objectives.

For the long term to be good, there needs to be a fundamental expectation that the future "is likely to be better" - and that needs to come with hope. About 9 months ago I made the comment that confidence/sentiment is atrocious and you took issue to that framing - but almost every numerical indicator in the Chinese economy has deteriorated.

Put simply, deflation is good if wages are growing despite prices coming down - but when deflation results in slowing (and more extremely, shrinking) wages, that is how this gets into a negative spiral. And I've also said this before, debt and interest is nominal - the debt situation for households/local governments get worse (you need companies to grow nominally and people to make higher nominal wages for governments to collect more taxes to pay for things).

In the past 3 months, all the high frequency data has taken a *sharp* turn for the worse - from hiring market/consumption markets. For example, the beloved solar industry by many here on the forum - Inovance, the biggest supplier, saw its sales to the solar industry shrink by 20% in June/July (I haven't checked august yet).

Put in another way, for those who are sanguine about the future of the Chinese economy - let me frame my question to you all - how long will this current downturn last? What would you tell the average Chinese person you meet who's complaining to you - how long do they have to wait?

If his argument is the equivalent of "a gaping weakness in one section can bring down the whole" then that's fine as well, but let's hear it said explicitly.

This is exactly the argument I am making, if not clear. That has always been the risk of deflating the housing bubble and that was why Xi had to wait til 2020 to start this, and that Hu-Wen did not do anything to address it.

Had it not been for the 2022 covid lockdowns, I would argue that this strategy was going to work perfectly - a beautiful deleveraging as Ray Dalio said it.

But given the covid lockdowns and the overarching confidence deflation (see consumer confidence), the elevated risk of the bottom falling out before the long term rosy plan (how China will dominate aerospace/semiconductors) happens.

Well things are still in the softer site BUT housing prices already leveling up, consumer price are heating, especially food and fast and from my experience industrial machinery prices is going up and I think is going to up faster in the coming years.

Where in the world are you getting data that suggests housing prices are going up?

You are the one who lives in echo chamber and your efforts are better served in the twitter echo chamber.

I am one of the only person on this thread that has posted both positive *and* negative points. Whereas you simply cannot accept the fact that there are significant problems.

China deepest housing bubble crash ever in the world in 2014-2015

"DeEpEsT HoUsInG BuBbLe cRaSh eVeR in the world in 2014/2015"



Stop embarrassing yourself.

Only a non-capitalist would think that is a bad thing.

Are you suggesting China is not socialist with Chinese characteristics?

 

[tokenanalyst]

I appreciate you trying to frame the points here. But I absolutely see elevated risks with respect to the long term outcomes - given this current weakness in the results but more importantly confidence.

1) There is zero disagreement on the reforms necessary from the real estate market, just like there is zero disagreement that a person with a broken bone needs treatment (Given you are a doctor by trade, let me frame my perspectives in a way that you would understand). However, the disagreement I have is this notion that one needs to be like a Guanyu and have bone surgery performed on him without anesthesia even when it's available today just to prove how tough he is. (Like okay good for him that he's strong, but why?)

The rationale here is based upon the fact that people generally like to live more comfortably - and as I've referenced a couple of times - Chinese people work the longest hours in the world already. But the entire policy set up (as supported by the 'deflation enthusiasts) right now is asking people to work incrementally harder while getting paid incrementally less than they've ever gotten. ("再苦苦老百姓", as referenced in Ming Dynasty 1566). As @gelgoog aptly stated, "its a shakedown of the entire economy".

And I mean that literally - as the only line item growing in the government income statement is fines that all levels of government levied upon companies. Good luck with corporate confidence in that context.



For the long term to be good, there needs to be a fundamental expectation that the future "is likely to be better" - and that needs to come with hope. About 9 months ago I made the comment that confidence/sentiment is atrocious and you took issue to that framing - but almost every numerical indicator in the Chinese economy has deteriorated.

Put simply, deflation is good if wages are growing despite prices coming down - but when deflation results in slowing (and more extremely, shrinking) wages, that is how this gets into a negative spiral. And I've also said this before, debt and interest is nominal - the debt situation for households/local governments get worse (you need companies to grow nominally and people to make higher nominal wages for governments to collect more taxes to pay for things).

In the past 3 months, all the high frequency data has taken a *sharp* turn for the worse - from hiring market/consumption markets. For example, the beloved solar industry by many here on the forum - Inovance, the biggest supplier, saw its sales to the solar industry shrink by 20% in June/July (I haven't checked august yet).

Put in another way, for those who are sanguine about the future of the Chinese economy - let me frame my question to you all - how long will this current downturn last? What would you tell the average Chinese person you meet who's complaining to you - how long do they have to wait?



Where in the world are you getting data that suggests housing prices are going up?



I am one of the only person on this thread that has posted both positive *and* negative points. Whereas you simply cannot accept the fact that there are significant problems.



"DeEpEsT HoUsInG BuBbLe cRaSh eVeR in the world in 2014/2015"

View attachment 135626

Stop embarrassing yourself.



Are you suggesting China is not socialist with Chinese characteristics?

This one prices already leveling out.

 

[abenomics12345]

This one prices already leveling out.

Does this look like leveling out to you?

 

[Blitzo]

I appreciate you trying to frame the points here. But I absolutely see elevated risks with respect to the long term outcomes - given this current weakness in the results but more importantly confidence.

1) There is zero disagreement on the reforms necessary from the real estate market, just like there is zero disagreement that a person with a broken bone needs treatment (Given you are a doctor by trade, let me frame my perspectives in a way that you would understand). However, the disagreement I have is this notion that one needs to be like a Guanyu and have bone surgery performed on him without anesthesia even when it's available today just to prove how tough he is. (Like okay good for him that he's strong, but why?)

The rationale here is based upon the fact that people generally like to live more comfortably - and as I've referenced a couple of times - Chinese people work the longest hours in the world already. But the entire policy set up (as supported by the 'deflation enthusiasts) right now is asking people to work incrementally harder while getting paid incrementally less than they've ever gotten. ("再苦苦老百姓", as referenced in Ming Dynasty 1566). As @gelgoog aptly stated, "its a shakedown of the entire economy".

And I mean that literally - as the only line item growing in the government income statement is fines that all levels of government levied upon companies. Good luck with corporate confidence in that context.

I take it this is the argument that stimulus for consumption during this process should be done.

In terms of elevated risks for the long term, analysis of alternative situations is useful. Is it comparing the present state with a hypothetical alternative state where a brief consumption stimulus was enacted? Or a state where the property reform was never conducted, or reform conducted earlier, etc?

A medical analogy isn't too useful here, the usefulness of any analogy depends on agreement about what is being compared to begin with.

For the long term to be good, there needs to be a fundamental expectation that the future "is likely to be better" - and that needs to come with hope. About 9 months ago I made the comment that confidence/sentiment is atrocious and you took issue to that framing - but almost every numerical indicator in the Chinese economy has deteriorated.

Put simply, deflation is good if wages are growing despite prices coming down - but when deflation results in slowing (and more extremely, shrinking) wages, that is how this gets into a negative spiral. And I've also said this before, debt and interest is nominal - the debt situation for households/local governments get worse (you need companies to grow nominally and people to make higher nominal wages for governments to collect more taxes to pay for things).

In the past 3 months, all the high frequency data has taken a *sharp* turn for the worse - from hiring market/consumption markets. For example, the beloved solar industry by many here on the forum - Inovance, the biggest supplier, saw its sales to the solar industry shrink by 20% in June/July (I haven't checked august yet).

Put in another way, for those who are sanguine about the future of the Chinese economy - let me frame my question to you all - how long will this current downturn last? What would you tell the average Chinese person you meet who's complaining to you - how long do they have to wait?

Actually I would pose that question right back to you, given you are the one raising this as a major long term threat.

How long and how deep would poor confidence have to occur for, for medium and long term economic and geopolitical objectives to be likely to be unattainable?

 

[tokenanalyst]

View attachment 135628
View attachment 135629
View attachment 135630

Does this look like leveling out to you?

They are not decreasing as fast.