Chinese Economics Thread

[AndrewS]

Total factor productivity cannot increase if most people are retired. That’s the demographic threat, which has materialized already in Japan and is on the way to doing so in South Korea.

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You can read the study on how demographics have fundamentally strangled Japanese TFP growth (with contributions from other reasons, like the Plaza Accords and the rise of competitors).

Average productivity is certain to increase in China. But can it overcome the gravity of a declining work force?

There's another 15 years before the demographics in China really kick in.
And yes, that would be equivalent to what we see in South Korea today, where growth is around 3% per year

Then you'd be looking at something like 1% annual decreases in the labour force but productivity growth of 4% to counteract.

So today and also in 15 years time, China would still be growing faster than the global average.

 

[Eventine]

There's another 15 years before the demographics in China really kick in.
And yes, that would be equivalent to what we see in South Korea today, where growth is around 3% per year

Then you'd be looking at something like 1% annual decreases in the labour force but productivity growth of 4% to counteract.

So today and also in 15 years time, China would still be growing faster than the global average.

Yes, there’s still a window. But looking at the trajectory of Japanese and Korean economies does not grant confidence in the long term. The trouble with demographics is that aging doesn’t wait for anyone. You can reach labor force reductions before you can exploit the under utilized labor (ie average productivity may not be able to grow faster to compensate if the pyramid inverts sufficiently rapidly).

South Korea will be an interesting case study because its TFR is much worse than Japan’s since it’s society aged a lot quicker relative to level of development. The Koreans have invested tremendously in automation to try and compensate. We’ll see whether it keeps them competitive economically.

 

[AndrewS]

If you are talking about per capita, I don't think China will ever surpass the U.S. However, high per capita is not a required ingredient to make you become a superpower. The best China can achieve is average to above average income level or top 25%. There are many countries with super high per capita income yet they are not a strong country.

GDP per capita is fundamentally about the the efficiency of the economy. Given that China has a commanding overall lead in the technologies of the next industrial revolution, it would be premature to say that Chinese per capita wealth won't exceed the USA.

Think technologies such wind, solar, nuclear, electric vehicles, AI, 5G, robotics.

U.S per capita income is going up quite fast and so are the prices of good and service.

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If you look at real GDP per capita increases over the past 10 years to 2021, you get the following:
US: 1.5% per year
China: 6.1% per year

And that includes the effect of the pandemic, which has resulted in an artificial and temporary boost in US consumption, whilst China stimulus has been very limited in comparison, although I expect that to change this year once there is herd immunity

And if you look at the past 3 years, the Chinese average is still running at 5.1% per year

Source: World Bank

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[Strangelove]

Not every companies wanted to decouple from China.

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Panasonic had been quite "pro-China", back in 1989 they pretty much bucked the trend and invested in China after the Tiananmen incident.

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China’s yuan strengthens against US dollar on bullish economic recovery outlook

RMB gains 4,500 basis points since Nov

By Qi Xijia Published: Jan 06, 2023 11:14 PM

yuan Photo: CFP
China's yuan strengthened against the greenback on Friday on investor optimism that recent policy support measures and reopening will bolster an economic recovery in China in 2023.

The onshore yuan closed at 6.8588 to the US dollar on Friday, 143 basis points stronger from the previous close. The People's Bank of China (PBC), the central bank, set the midpoint rate at 6.8912 per US dollar prior to the market open on Friday, 14 basis points stronger from the previous fix of 6.8926.

The Chinese yuan has been on an appreciation trend in the past few months with the onshore yuan strengthening from a low of 7.328 per US dollar in early November to 6.8588 this week, a gain of more than 4,500 basis points.

In order to promote the development of the foreign exchange market, the PBC and the State Administration of Foreign Exchange (SAFE) from Tuesday extended the trading hours of the inter-bank foreign exchange market to 3 am the next day, covering more trading hours in Asian, European and North American markets.

The move is the latest one aimed at promoting the coordinated development of onshore and offshore foreign exchange markets, providing more convenience for global investors, and further enhancing the attractiveness of yuan assets, according to the officials.

The yuan gains are supported by the improved market sentiment on China's economic growth in 2023, as the impact of the epidemic on economic recovery weakened, and economic and social life has gradually returned to the right track, analysts said.

The most important driver of the redback comes from China itself, as the market feels greater optimism over prospects for a domestic economic recovery, Zhou Maohua, an economist at Everbright Bank, told the Global Times on Friday.

With the optimized epidemic measures, reduced restrictions on economic activities and the implementation of a package of policy measures, consumer demand will pick up significantly, becoming the first engine of growth in China, Zhou noted.

In contrast to recessions in the US and Europe, China could revive consumer and service activity in the second half of 2023, according to a report issued by the Standard Chartered Wealth Management Chief Investment Office (CIO) in its Outlook 2023 report sent to the Global Times.

With the continuous optimization and adjustment of the epidemic prevention and control measures, Chinese residents' travel and offline consumption gradually increased during the New Year's Day holiday, the Ministry of Commerce (MOFCOM) said on Friday.

Demand for inter-provincial and long-distance travel has increased significantly, hotel occupancy and booking rates in popular tourist destinations have continued to rise, and the operating rate of cinemas across the country reached 85 percent, a 10-month high, according to MOFCOM.

In a fresh move to stabilize the economy, PBC on Wednesday said it would continue to step up financing support to spur domestic consumption and key investment projects and support a stable real estate market.

In 2023, the yuan exchange rate is poised to have a friendlier environment and continue to operate at a reasonable and balanced level, given the sound domestic economic outlook against gloomy economic prospects in the US, Zhou said.

The more certain recovery trend of domestic economic demand will increase the attractiveness of yuan assets. On the other hand, the end of the Fed's interest rate hike cycle, coupled with slowing economic growth in the US, restricted the dollar's attractiveness, Zhou said.

The yuan is expected to have room to appreciate against the dollar in 2023 on hopes of China's economy recovering significantly, Dong Dengxin, Director of the Finance and Securities Institute of the Wuhan University of Science and Technology, told the Global Times on Friday.

Overseas investors have been seen snapping up A-shares in 2023 recently, seeking a safe haven for international capital, which also paved the way for the yuan's rally, Dong said.

Overseas institutions are increasingly bullish on yuan assets in anticipation of China's economic recovery, and cross-border capital inflows are also on the rise.

As of Friday close, the net inflow of northbound trading hit 6.066 billion yuan ($880 million) on the trading day. The first four trading days in 2023 have seen net inflow of northbound funds hit 20 billion yuan.

Shanghai Composite Index gained 0.08 percent while Shenzhen Component Index closed 0.32 percent higher on Friday.

 

[In4ser]

That doesn't change how average Chinese productivity and wage levels still have a long way to go to reach the productivity frontier.
It will still be another 15 years for this to double, and this will still not reach current US or European levels.

China is nowhere near a decline stage yet

Economic power is not the same thing as GDP per capita. Look at Russia (which has a lower GDP per capita than China) but is much more economically powerful than Italy or Poland (with higher GDP per capita).

While much of China's low GDP per capita comes from having a large elderly population that is unskilled and less educated labor, their dying off will cause a substantial decline in total GDP even if it means the nation's per capita will be higher because of it.

Once you are developed, it becomes a lot harder to maintain growth. Ask Japan and especially Korea as forcing everyone to get college degrees or work excessive hours is not only diminishing return on investment but in many cases actually harmful. Even if a Japanese or Korean is 2-3x more productive than a Chinese person, there are only so much time, space, and resources they can pour into their economies to compete. If China works 996 shifts then they must work even longer and harder, it is a recipe for killing their own people through stress, overwork, and suicides which are already very high.

There is no substitute for having that margin of error of an underutilized population for growth though demand and resources from the Global South will hopefully offset it much as Chinese labor and consumption did for the US economy.

Moreover, I think it's not necessarily China's GDP per capita is high but instead, the US and the West's GDP per capita are unnaturally strong and overvalued which is why they are facing such high inflation because the market is pricing in the economic reality of their uncompetitive labor force and economies.

As I've stated previously the greatest threat to China's growth isn't lower productivity per se, but the size of the elderly population which will be a net detriment that adds an increasingly more difficult burden for each successive generation on a youth already having a difficult time buying homes and start a family.

 

[luminary]

How does China manage strong growth with its ageing population in the next few decades.

You should check out the demographics thread.

 

[AssassinsMace]

I've personally seen an old Chinese women carry more on her back than your average American male can so I don't know where this idea in the US where having more young people is better for the economy. I know someone who was an Amazon delivery driver and he said the older guys were more reliable to the outfit he was working for. The ones at the young age that the US says is coveted to have in a workforce had a higher turnover rate. They discount middle-aged people as not important when they can be more counted on. That's why I think it's a bunch of nonsense made up by someone thinking about making money only and as usual Americans follow it like lemmings. Younger people are less experienced and naïve hence why they tend not to think about saving money and just spend spend spend. Older people are more likely to vote and have savings. Young people are not a stabilizing force in society.

 

[Overbom]

Wall Street Journal with another correct scoop

https://twitter.com/i/web/status/1611595804573339648

 

[Chevalier]

I've personally seen an old Chinese women carry more on her back than your average American male can so I don't know where this idea in the US where having more young people is better for the economy. I know someone who was an Amazon delivery driver and he said the older guys were more reliable to the outfit he was working for. The ones at the young age that the US says is coveted to have in a workforce had a higher turnover rate. They discount middle-aged people as not important when they can be more counted on. That's why I think it's a bunch of nonsense made up by someone thinking about making money only and as usual Americans follow it like lemmings. Younger people are less experienced and naïve hence why they tend not to think about saving money and just spend spend spend. Older people are more likely to vote and have savings. Young people are not a stabilizing force in society.

It's a difference of values; older american workers on average demand more and work less hours, especially if you take into account the Pareto Principle, that 20% of the labour force actually does any meaningful work. Chinese boomers who built China throughout the 80s-90s would still have the work ethic and this would be translated via the cultural familial memetic lineage ie cultural values.
American boomers who are infamous for being the classic 'Me Generation'/'Après moi, le déluge', would have raised Millenial and Zoomer children who switch and change jobs at the drop of a hat.

 

[AndrewS]

Economic power is not the same thing as GDP per capita. Look at Russia (which has a lower GDP per capita than China) but is much more economically powerful than Italy or Poland (with higher GDP per capita).

While much of China's low GDP per capita comes from having a large elderly population that is unskilled and less educated labor, their dying off will cause a substantial decline in total GDP even if it means the nation's per capita will be higher because of it.

It's obvious that economic power has to consider the size of the population and the structure of the economy as well.

But consider that China will still have a larger population and workforce than the collective West in 15 years.
So a doubling of GDP per capita means world-class companies and technology in every field.

That is why I say China's peak isn't in 15 years, but more like 30 years into the future

GDP is economic activity. If we look at Chinese elderly, they typically don't spend or earn much at all.
And with their passing, the accumulated assets will end up transferred to the next generation, who do spend a lot more.
So I see the effect as marginal on the total GDP figures.