Chinese Economics Thread

[tokenanalyst]

Please, Log in or Register to view URLs content!

I agree with this video，one important but often overlooked problem caused by this rat race 内卷, is that it pushes supply chain out of China，both low and high end，at a rate much faster than the US did in the past.

Because the capital return is so low in China , and virtually every sector is so crowded now. Chinese capital is increasingly move overseas，even if there is huge risk involved

Looks like Chinese companies have higher tolerance for lower margins that US companies. Without this high tolerance I think that Chinese companies would not have incentive to take risk to innovate because everyone would be behold to some investor asking for ever higher returns and scared of losing even a bit of money and stock market performance, instead of innovating. I think companies under the pressure of US export controls like Huawei would have collapsed years ago, also SMIC and YMTC.

The only reason that China semiconductor industry has survived the barrage of US export controls is because their high tolerance to lower margins and higher tolerance to stock performance. Would have been impossible to AMEC and Naura to even make tools, both companies operated for years on very tight margins due high cost of research under US pressure. The EV industry in China exist because this high tolerance because for many years companies like BYD operated their EV subsidiaries basically under loss, not been able to compete against companies like Tesla until their bet pay off. China Battery and SiC ecosystem wouldn't also exist.

Chinese AI models like Alibaba Qwen, moonshot Kimi-K2, Ziphu GLM, High flyer DeepSeek, Tencent, Baidu and other wouldn't have exist without China tolerance to lower margins, different from the US counterparts that are behold to investors therefore more difficult to open source, create communities and ecosystems like their Chinese counterparts.

At the end of the day there should be a balance, you don't want a "rat race" but also you don't want your companies to be hyper focus in margin, stock performance and so on that forget to innovate and compete against each other. Also you don't want investors hyper focus in a few companies. Like always the market will take care of non-performant and excesses.

 

[vincent]

There is something called trade barrier/tariff. You want to sell goods to a country you need to build factories in that country，most country has that requirement now. Yes，other countries have learned China's playbook back in 2000s，surprise ？

Also for those Chinese suppliers whose main customers are Western companies，they are demanded by their customer to build separate supply chain and factories outside of China after covid，you can find related news everywhere

What does that have to do with hyper competition in the Chinese market? This is like the famous paper that tried to link increase of child abductions with the increase length of highways in China.

 

[tokenanalyst]

There is something called trade barrier/tariff. You want to sell goods to a country you need to build factories in that country，most country has that requirement now. Yes，other countries have learned China's playbook back in 2000s，surprise ？

In fact no, there are very few countries that manufacturing capabilities of China both at the high and the lower. I been hearing that since 2014, no country has been able to achieve that. The only country that comes to my mind in capabilities is Vietnam because similarities with China but is too small to even close to replace China as outsourcing.

Also for those Chinese suppliers whose main customers are Western companies，they are demanded by their customer to build separate supply chain and factories outside of China after covid，you can find related news everywhere

Even for those, is mostly assembly of thing already manufactured in China basically to bypass tariffs.

 

[Eventine]

Tariffs & trade barriers are politically imposed distortions of natural economic conditions. Their effects should not be confused with fundamentals like whether hyper competition and economic intensity are positive things. If Chinese companies focused more on profits capture & monopolistic practices, it’d almost certainly make the situation worse.

The best solution to tariffs & trade barriers is to build up free trading systems that by virtue of being more efficient (per comparative advantage), out compete protectionist systems in economic efficiency. The challenges with doing this is that you have to accept certain supply chain components moving out of your country because of comparative advantage and economic specialization.

People often raise the hypothetical of - well, what if China is just better at everything everywhere? But that is only true in a temporal snap shot sense. New, capital intensive industries will always emerge (e.g. AI, drones, robotics, etc.) for which the barrier of entry will require the diversion of talent & resources, at which time older industries may sensibly have to be out sourced to make room. Free trade only wrecks countries if they are not sensible about what industries to invest into (e.g. the excessive financialization of the US); otherwise it is still the most competitive way to run economies.

 

[tonyget]

What does that have to do with hyper competition in the Chinese market? This is like the famous paper that tried to link increase of child abductions with the increase length of highways in China.

Because of the hyper competition in the Chinese market, more and more Chinese companies are being forced to seek oversea markets to survive，because they cannot survive domestic market. And when they want to enter other country's market，they will have to build local manufacturing capacity as required by local authority.

You don't need to be a genius to understand it

 

[tonyget]

In fact no, there are very few countries that manufacturing capabilities of China both at the high and the lower. I been hearing that since 2014, no country has been able to achieve that. The only country that comes to my mind in capabilities is Vietnam because similarities with China but is too small to even close to replace China as outsourcing.

It's not about manufacturing capabilities，it's about losing jobs and capital to other countries.

Even for those, is mostly assembly of thing already manufactured in China basically to bypass tariffs.

It started from assembly then slowing move to manufacturing，the exact same path that China went through

 

[fishrubber99]

Because of the hyper competition in the Chinese market, more and more Chinese companies are being forced to seek oversea markets to survive，because they cannot survive domestic market. And when they want to enter other country's market，they will have to build local manufacturing capacity as required by local authority.

You don't need to be a genius to understand it

If these companies had higher margins, they would seek to be expand abroad anyway because capital always seeks to expand into new markets. Apple has high margins but that doesn't mean they plan on reshoring contract manufacturing back to the US.

 

[vincent]

Because of the hyper competition in the Chinese market, more and more Chinese companies are being forced to seek oversea markets to survive，because they cannot survive domestic market. And when they want to enter other country's market，they will have to build local manufacturing capacity as required by local authority.

You don't need to be a genius to understand it

If you are a business owner and there are money to be make in oversea markets, will you go regardless the amount of money you are making at home, even if you are not a genius?

Correlation does not equal to causation. Doesn’t take a genius to understand that.

 

[tokenanalyst]

It started from assembly then slowing move to manufacturing，the exact same path that China went through

No even the same path, there is a lot of investment that most countries are not willing to do or capable to do to be competitive. And even if they do the investment they can't keep it in the long run. Mid 90s and early 2000s everything was going to South East Asia didn't happen, in 2012-2014 Mexico was the big manufacturing hype, didn't happen. The only country that come close is Vietnam, due its similarity with China but is too small.
Also Chinese companies today are not the same as Chinese companies in the early 2000s. Domestic companies have capture a huge percentage of China 1.4 billion people market but also a large good percentage of global market, in some industry the market share of Chinese companies have raised to close 50%. I think the only thing keeping Chinese buying Apple phones is that they are still Made in China but they not better than Huawei phones. Chinese companies market share of the global market is likely to increase and even if BYD make EVs in Europe a good percentage of their supply chain will still be in China to keep costs down.

 

[Eventine]

The main job of an effective government under capitalism is to make sure capital is being invested into strategic, productive industries, which means correcting imbalances caused by inefficient allocation (e.g. bubbles), where they exist.

A great example is the real estate market, which attracts tremendous amounts of capital because it is a fixed supply asset (limited by physical availability of land), which is then guaranteed to increase in value as a country develops. Money invested in real estate is often considered wasted money for this reason - no productivity or efficiency is gained by it because you can't generate land out of thin air, so it builds no long-term advantage for the country.

It's the job of governments to redirect capital away from such investments, and China has done a decent job at this in the last few years (after arguably failing to do anything for the longest time, which is the reason local governments are in so much debt and most of the Chinese population's money is invested in real estate).

Investing in factories / supply chains overseas may seem like a net negative for domestic labor and industries, but it really isn't as long as free market conditions are present. Chinese labor will adapt to the conditions - whether it means upgrading their skills or accepting lower pay. After all, that's how the free market works in promoting economic efficiency and productivity - you wouldn't want to lose this by introducing market distorting policies that encourage rent seeking, which would only weaken your population's competitiveness over time (as it has in the US).

What's important here for the government is just to avoid situations where its companies' money could be "trapped" by foreign countries via policy abuse, here is where strong arm diplomacy comes in.