Chinese Economics Thread

[Hadoren]

Thank God Zero COVID is over.

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[Overbom]

Zero covid should had been ended months ago but it is what it is. A waste of a few quarters with underperforming GDP growth

 

[Quan8410]

In China or almost everywhere, Politics > Economics > Science. If the Party Summit is not over, Covid will not be over. I'm sure members here will not want the protests happen right before the Summit.

 

[Hadoren]

Okay, so I'll be a fanboy and predict 6.5% GDP growth for 2023.

This is a very simple calculation. Assume China's medium-term growth rate is 5-6%. To appease China watchers, I'll use 5%.

Thus, the average of 2022 to 2033 is 5% growth. We saw something similar from 2020 to 2021, which averaged 5.2% growth. 2023 will be a bounce-back year.

However, the first quarter of 2023 will have lower growth - due to the receding COVID wave.

We thus get the following.

	2022 GDP Growth	2023 GDP Growth	Notes
Quarter 1	4.8​	3.0​	Assume 3.0% growth due to damage from COVID wave.
Quarter 2	0.4​	9.6​	Averages to 5%.
Quarter 3	3.9​	6.1​	Averages to 5%.
Quarter 4	2.9​	7.1​	Averages to 5%.
Year	3.0%​	6.5%	You get 7.2% GDP growth assuming an average of 5.5%.

Let's see if this hopium comes true!

 

[Hadoren]

Thinking further - I'm going to also predict how China watchers will analyse "China's Collapse, Version 2023!"

1. China's population is collapsing!
Our favourite superpowah will have the world's biggest population. Yup, 2023 heralds the rise of the Ganges.

2. China's exports are collapsing! Supply chains are moving away from Chinaaaaaa!!!!!
China's exports will probably decrease by 5-10%. That's right, get ready to endlessly hear our favourite word from China watchers. dECouPLinGgGGgggggg!!!!!

China watchers will conveniently ignore the one trillion dollar increase in exports since 2019.

China is collapsing, 2023!

 

[sinophilia]

I also think the fact that they grew 2.9% in Q4 seems to not jive with some of the reporting on the ground. The auto industry store visits in Nov/Dec was horrible.

Are you saying the numbers are inaccurate

 

[AndrewS]

*sigh*

View attachment 105235

Get your facts straight. US household debt/GDP declined over the past 3 years.

That statement is not really relevant.

As you've pointed out, you're trying to figure out Chinese GDP growth this year, and the potential growth effect from excess savings.

If you take a more granular view for the past 3 years, you can the US experienced a 5% jump from Jan 2020 to Jan 2021. This is more comparable to the Chinese situation. But then in 2021, the COVID lockdowns ended and we saw a mini-boom, which resulted in decreases in US household debt levels and a return back to the 15 year megatrend.

tradingeconomics.com/united-states/households-debt-to-gdp

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Using a 20 year view on household debt/gdp is just too long. You get the megatrend for the past 15 years, which is a steady reduction in US household debt since the Great Financial Crisis. Therefore a continuation of that trend is the part of a baseline GDP forecast for the US.

In comparison, the Chinese trend is steadily increasing household debt/gdp over the past 10 years.
There was a larger than normal jump in 2020 due to the pandemic, but since then, household debt/gdp has been stable.

tradingeconomics.com/china/households-debt-to-gdp

So if I look at the US situation, there was an increase in household debt of 5% combined with 12% of excess savings
For China, we've got an increase in household debt also of 5%, but excess savings of around 25% of GDP

So the effect of paying off the net debt increase only soaks up 20% of the accumulated excess savings currently in China.

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And I also question the validity of using household debt in China as a measure of general economic confidence and the capacity of the Chinese consumer to spend.

Remember that household debts in China are overwhelmingly in the form of mortgages for property, whether to live-in or for investment. In comparison, US household debt has a significant credit card and consumer loan component, which is a direct proxy for economic confidence.

On average, we've only seen minor decreases in property prices in China, so current existing wealth levels in property is largely intact.

However, the long-needed property crackdown/correction does mean expectations of property as a good investment bet are dashed.

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And another consideration which I didn't really want to outline previously.

The coming covid wave in the countryside will disproportionately affect the elderly because they are more vulnerable and many have resisted vaccinations. The traditional mourning period is 49 days, so this will subdue economic activity for an entire family/community. But afterwards, there will be an inter-generational wealth transfer from low-spending elderly to their younger heirs who do spend more.

Note that we're currently still in the 49 day mourning period from the effects of the big COVID wave in Nov/Dec-2022.

Hence I expect an economic pickup after Chinese New Year, as previously explained.
But then there will be an explosive economic acceleration starting Q2.

 

[Bellum_Romanum]

Since semiconductor chips is part of the broader push for both the US and China to control if not dominate this domain, I thought this video would be a good addition to the discussion here regarding China's drive and relentless pursuit for semiconductor independence and likewise with American led pursuit against China's goal.


The discussion is on the recently published book titled "Chip War" by Chris Miller that's gaining more attention in the US due to reasons most of us on this forum are already familiar with.

If this video is out of place being posted here, please move or let me know where to post this.

 

[AndrewS]

It was avoided precisely because of the necessary reforms in Sanming. If there is any misunderstanding, Sanming is an example of a success story. The difficulty is really pushing that across the entire country before in the 2030s when there is the mother of all demographic bombs. This is a fact that anyone here who's interested in understanding China *has* to accept. There will be a lot of old people and the healthcare costs, unless arrested, will bankrupt NHSA.

By the way, as someone whose career is a bet on the Chinese economy, this isn't something I'm terribly worried about at all. I'm more excited about the opportunities from healthcare reform.

I think the much of what Singapore does is the way to go.

But it's funny how both diehard socialists and diehard free-marketeers can't comprehend how it is arguably the world's best healthcare system in terms of design and how it is run.

 

[mossen]

The FT has a fascinating two-part series on how Apple got intertwined in China.

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Part 1:

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I will not post the entire text because it is yuge. However, I'll add a few quotes.

O’Marah began to learn that Apple was not really “outsourcing” production to China, as commonly understood. Instead, he realised that Apple was starting to build up a supply and manufacturing operation of such complexity, depth and cost that the company’s fortunes have become tied to China in a way that cannot easily be unwound.
Over the past decade and a half, Apple has been sending its top product designers and manufacturing design engineers to China, embedding them into suppliers’ facilities for months at a time.
These Apple employees have played integral roles co-designing new production processes, overseeing the minutiae of manufacturing until things were up and running, and keeping close tabs on suppliers to ensure compliance.
Apple has also spent billions of dollars on custom machinery to build its devices, developing niche expertise that its rivals did not even know about, let alone compete with.

And why China's dominance is going to be really hard to replace.

Today, China accounts for 70 per cent of all smartphone manufacturing, according to Bloomberg Intelligence, and China sports a level of technical sophistication that multiple experts say they struggle to even comprehend. “It’s a really, really highly-evolved ecosystem in China,” says Jay Goldberg, founder of tech consultancy D/D Advisors.
China’s dominance can partly be quantified. In 2021, the number of organisations in the country that had been audited to confirm best practices in “quality management systems” — ISO certification 9001 — was 426,716, or roughly 42 per cent of the global total. For India the figure was 36,505; for the US, it was 25,561.
This order of magnitude superiority has reshaped the global economy, granting China influence rivalled only by the US. Apple got in on the ground floor and channelled that power to dominate the tech sector. But now, a reckoning looms.
“For Apple to give that system up is tricky,” says Goldberg. “You’re not just saying ‘we’ll build our plants somewhere else’, it’s [that] the subcontractors and suppliers to that plant are all based in South China.”
If Foxconn, for example, needs to install sonic welders — a process to merge different metals or plastics with ultrasonic energy — it can call up any number of firms to run the line and hire the labour.
“There’s all these subcontracted, specialty niche firms, and nowhere else does that exist, anywhere else in the world,” Goldberg says.

Bonus chart:




Folks predicting India getting 50% of orders by 2025 are talking nonsense. The "RoW" also includes Vietnam which thus far has been the biggest winner. I'd be surprised if China wasn't having a majority of production even by the end of this decade.