Chinese Economics Thread

[fatzergling]

There are several reasons, but the most important one is that these companies are siphoning scarce resources (STEM talent) and investment away from strategic sectors like semiconductors, EDA, OS, etc. China needs to develop a world-class portfolio of core technologies, it doesn't need more e-commerce sites and food delivery apps.

Some other reasons include their lax data security (putting it mildly), gaming the financial system like Ant and dumping risk on the state-owned banks, and extremely toxic work culture (996).

And it wouldn't surprise me in the slightest if some of these companies got too big for their britches and thought to translate their economic heft into political power. Jack Ma certainly seems stupid enough to try it.

Unfortuntaly in the US at least EDA, OS, etc companies can't offer the same level of compensation that Google or Meta could. As a result, top college graduates in the US were funneled into FAANG companies code farming while EDA companies largely hired overseas foreigners in comparison.

Encouraging people to pursue such fields would require a way to provide a similar level of compensation in comparison to Google or Meta, especially when compensation is viewed as the #1 factor in choosing a starting career. CS used to be quite unpopular until about 10 years ago when FAANG began offering finance-level packages to new grads. Such a compensation adjustment can be accomplished using a variety of tactics, but the important part is to manage the compensation in order to attract and utilize emerging talent.

FAANG used to hire all the best and brightest college graduates from top universities even if these people never fully utilized by these companies. We have witnessed how Meta fired so many dead-weight without any stress. I won't rule out it is deliberately attempt from these companies to stifle innovation from competitors.

If that were the case, then I won't rule out the central government wanted to weaken Chinese high tech companies from hiring talent without investing in R&D. Many hardware companies such SMIC were able to hire talent much more easily lately due to the job conditions of STEM students as Alibaba, Tencent or Meituan have stopped hiring as much.

Striking at large tech companies is one way to encourage talent to flow to desired sectors, although a more coercive one. Keep in mind that if Baba, Tencent, etc offer higher compensation and growth compared to semi companies, young people will flock to join them once the large tech companies began hiring again. The only way to stop this talent drain long term is to make these companies more attractive to work for.

 

[FriedRiceNSpice]

There are several reasons, but the most important one is that these companies are siphoning scarce resources (STEM talent) and investment away from strategic sectors like semiconductors, EDA, OS, etc. China needs to develop a world-class portfolio of core technologies, it doesn't need more e-commerce sites and food delivery apps.

Some other reasons include their lax data security (putting it mildly), gaming the financial system like Ant and dumping risk on the state-owned banks, and extremely toxic work culture (996).

And it wouldn't surprise me in the slightest if some of these companies got too big for their britches and thought to translate their economic heft into political power. Jack Ma certainly seems stupid enough to try it.

Yes Jack Ma definitely did cross the line, attempting to skirt the line around financial regulations to try to pull off leverage ratios that would have raised eyes even on pre 2008 Wall Street standards.

But I think many here dismiss big tech as rent seekers without understanding the benefits they bring to the entire tech industry. Big tech drives a lot of the demand for other technology products, including the semiconductors that most like to focus on. How do you think the West pulled ahead in semiconductors anyways? It's because big tech in the West drove the demand and provided the capital to invest in R&D of more advanced chips and SME.

Also, while building those e-commerce and ride hailing apps at the scale that they do, these companies have to overcome enormous challenges in distributed systems engineering. While tackling these challenges, these companies produce both valuable research/knowledge and software that become available to other players across the technology industry. In the age of AI, these distributed systems are even more important than high end chips. A testament to how good Chinese software industry is at building and scaling distributed systems is the speed at which they developed the nation wide Covid color code app, a task that any of the big tech companies in the US would consider impossible to do if given half a year.

Also, STEM talent is not really interchangeable. We often discuss it as if it was an aggregate collective, but really STEM covers a wide diverse variety of specialties and disciplines. An individual with a predisposition to do well in one discipline may struggle in another. So it's not correct to think of semiconductor companies and software companies as competing from the same talent pool. The best electrical and industrial engineers are going to end up in the most in demand semiconductor jobs regardless of how many talented software engineers end up at software companies. If anything, software companies drive up the demand for skilled workers in other non software fields.

Right now it's not the time to worry about how best to allocate STEM talent. Focus should be on creating as much growth and demand across science and technology fields and let the market sort out where talent goes.

 

[abenomics12345]

Do you have any data to support this claim? Out of the proportion of unemployed youth, what proportion of those had STEM degrees vs those that had other degrees? How do those proportions compare to the overall proportions of young Chinese that pursue STEM vs non STEM? What data do you have to actually suggest there is a STEM oversupply?

The point that is missing here is that the significant increase in GaoKao test takers and increasing acceptance rates over the past years imply that the *stock* of students in University/Colleges have significantly increased over the years. What these people represent is a stock of people that will look for jobs when they graduate, in 3-4 years when they graduate. So the employment pressures today, are a reflection of the job search of people that entered schools 3-4 years ago, depending on the length of programs - which is significantly less than the number of GaoKao test takers today, who will be looking for jobs 3-4 years in the future. (If you've been paying attention to headlines, Gaokao takers in 2023 reached all time highs at almost 13 million - these people will want jobs befitting of a college/university degree in 3-4 years time when they graduate.) So this means, in 2027, there will be 10-12 mln university grads looking for work, vs. about 8mln grads who entered school in 2018/2019 that were looking for jobs in 2022.

This is happening at a time when the GDP growth rate is slowing down structurally, as well as having a 3-year economic downturn where job growth was significantly impacted due to COVID. Anyone think Chinese GDP growth will continue at 8% is as delusional as anyone who thinks the Chinese soccer team can win the World Cup.

For context, China was creating more than 13 mln urban jobs from 2013-2019 - and this is *with* the significant increase of gig workers like Didi/Meituan/Express delivery.


Source: NBS

Keep in mind here, the number of young people is shrinking over time, as the birth-rate reductions catches up - so what this means is that an increasing proportion of youth will be university educated (more educated work force) going into an economy where structural growth is slowing down and job creation is also slowing down. So yes, the younger people will be more educated, but if the number of high paying jobs is shrinking - esp. in context of real estate controlled demolition, destruction of the afterschool tutoring industry, and big tech laying off people - this is not, in any way/shape/form, a good situation for employment. See below for alternative data that shows how hiring for new grads has shrunk significantly since 2021 even:



In the early 1990s, if you're a university grad you had companies lining up to get you, and in 2020s, if you're a university grad, you go to the back of the line and wait.

This is precisely why "involution" became a problem - people are competing harder for less. So what do they do, they go look for graduate school degree - this is why the data of more graduate enrollment is actually a reflection of increasing difficulty to get a job, as opposed to some altruistic desire to want more schooling. This is precisely why number of applicants to become a civil servant has also doubled over the past years, as has the increase in the number of teacher applicants - because civil servants/teachers have job security.

So to answer your question, because 1) increasingly all job seekers are university graduates; 2) increasing number of university graduates are STEM students; 3) job market will get tougher in the coming years due to slower economic growth + more competition - by definition there will be STEM degree holders who will be jobless.

The additional problem here to think about is that the people who entered school in 2016-2018 probably thought Internet/E-commerce was the hot shit - except those are just now shitty industries - so what they learned in school =/= what they will be doing. The problem is not for those who went to 985 or 211 schools, it is those who went to lesser schools that are not competitive at all. So their only alternative is to go into, you guessed it, service industry (Didi drivers/small business entrepreneurs/Meituan drivers).

Oh by the way, you know the increasing number of oversea returnees? Guess what, all else equal, they will be taking jobs that would've gone to domestic students as well.

Like, I don't really care about this because I'm looking to invest in Chinese companies that will hire the Top 10% of these students - so this is great for what I'm trying to do because Chinese companies will have access to increasingly talented students at cheap prices - but you are delusional if you think the job market in China is going to get easier over the next 5 years.

 

[FriedRiceNSpice]

Unfortuntaly in the US at least EDA, OS, etc companies can't offer the same level of compensation that Google or Meta could. As a result, top college graduates in the US were funneled into FAANG companies code farming while EDA companies largely hired overseas foreigners in comparison.

Encouraging people to pursue such fields would require a way to provide a similar level of compensation in comparison to Google or Meta, especially when compensation is viewed as the #1 factor in choosing a starting career. CS used to be quite unpopular until about 10 years ago when FAANG began offering finance-level packages to new grads. Such a compensation adjustment can be accomplished using a variety of tactics, but the important part is to manage the compensation in order to attract and utilize emerging talent.

Yet OS is world leader in EDA, and last time I checked that the most used OS in the world are built by FAANG (Apple, Google) or FAANG-equivalent (Microsoft). You mentioned a very good point in that the presence of these big successful companies encouraged an influx of entrants to the talent pool. So not only are these companies drawing on the talent pool, they are encouraging suitable talent to join the pool and increase the size of the pool. Software engineers that couldn't make it into FAANG were able to fill the growing demand for software professionals in many other firms. Before the rise of big tech, the best software engineers were mainly working for finance firms like you mentioned, where they contributed little other than increasing the profits of private equity funds quant trading shops (the very best programmers are still ending up these kinds of places, not FAANG).

FAANG served as an attainable goal that encouraged many young people to try out their hand at programming. Vast majority of these programmers did not end up at FAANG, but are contributing to meeting demand for software skills across a variety of industries and fields. Generally software engineers in any major company will be well compensated, the market will naturally allocate funding and talent into the industries that need them.

 

[FriedRiceNSpice]

So to answer your question, because 1) increasingly all job seekers are university graduates; 2) increasing number of university graduates are STEM students; 3) job market will get tougher in the coming years due to slower economic growth + more competition - by definition there will be STEM degree holders who will be jobless.

Above statements may be all true, but my question still remains:

Out of the proportion of unemployed youth, what proportion of those had STEM degrees vs those that had other degrees? How do those proportions compare to the overall proportions of young Chinese that pursue STEM vs non STEM?"

In order words, are STEM graduates better or worse off than non-STEM graduates, and are graduates better or worse off than non-graduates?

If the total number of unemployed graduates increase, then naturally the number of unemployed STEM graduates also increases. But if the rate of growth of the number of unemployed STEM graduates relative to the proportion of STEM graduates to total graduates is less than the rate of growth of the number of unemployed non STEM graduates, then the issue is not really too many people going into STEM.

In the US, where there is a definite shortage of STEM talent in many industries, and which increasingly relies on foreign talent - there are many STEM graduates driving Uber. Heck, every other Uber I take I end up with a driver with some sort of engineering degree. A degree in STEM does not validate that one is actually qualified to work in STEM. Are STEM graduates from tier 1 and tier 2 universities in China struggling with finding jobs?

Look, if you review the historical data on any nation transitioning from middle income to higher income status in the past 50 years (Japan, S Korea, Taiwan, Poland), you can see structural changes in the job market which was accompanied by high unemployment. Heck, the industrial revolution caused high unemployment, yet what did it do for Britain's economic output? The scope of the technological revolution happening today extends far beyond the manufacturing sector, jobs across a multitude of sectors are going to be impacted.

 

[Philister]

So from your point of view do you think China should slow down on stimulating innovation until the demand go up? Or perhaps stimulation innovation while provide even greater incentives to build demand?

It’s not like that, innovation, sometimes creates new demand, and most innovations in human history are utterly useless when going practical, so for that 1%actually useful innovation, the stimulation must go on

 

[abenomics12345]

Above statements may be all true, but my question still remains:



In order words, are STEM graduates better or worse off than non-STEM graduates, and are graduates better or worse off than non-graduates?

If the total number of unemployed graduates increase, then naturally the number of unemployed STEM graduates also increases. But if the rate of growth of the number of unemployed STEM graduates relative to the proportion of STEM graduates to total graduates is less than the rate of growth of the number of unemployed non STEM graduates, then the issue is not really too many people going into STEM.

In the US, where there is a definite shortage of STEM talent in many industries, and which increasingly relies on foreign talent - there are many STEM graduates driving Uber. Heck, every other Uber I take I end up with a driver with some sort of engineering degree. A degree in STEM does not validate that one is actually qualified to work in STEM. Are STEM graduates from tier 1 and tier 2 universities in China struggling with finding jobs?

I have nothing against STEM students, and my point has nothing to do with whether "STEM is better or worse off than Non-STEM" - my point is that an oversupply of university graduates that cannot find jobs being a significant problem to social stability.

The initial conditions of the last time that China had such high urban unemployment rate was quite different - the economy was small enough (+ WTO entry in 2000s) where China quickly grew out of and absorb the excess labour, but this wasn't without challenges ("All Dongbei people are gangsters" and "Henan people steal manhole covers").

But FWIW, oversupply of STEM is not any better than a shortage of STEM, where it is especially not a problem in the US when the US will have carte blanche for all the Indian STEM students that are lining up to get H-1Bs - because ironically, the more people think India is a shithole, the better the US is as a relative destination.

This is why low STEM wages in China is not a good sign - you want Chinese STEM students to make more money as they create more value so they can become real global middle class consumers. That is how you attract the best STEM talent globally to build world class companies.

As for your last question, if the economy doesn't get back to trend growth (as it clearly has not, despite what all the jingoistic nationalists predicted), they will definitely be struggling to find jobs soon enough.

 

[FairAndUnbiased]

I can understand the social reasons for wanting to rein in the private tutoring industry, but I'm baffled at why government wanted to kneecap high growth tech companies. They are either seeing it from a higher dimension than I can comprehend or it's just a power play by Xi.

software platform companies are effectively modern tax collectors/landlords.

in the feudal era, landlords and tax collectors that owned the land made money by doing nothing except being the first warlords to conquer a piece of land. if a peasant wanted to participate in the economy (through selling farm products and buying manufactured products) then they would be forced to pay taxes to private landlords and tax collectors.

today, platform software companies that own the platform makes money by doing nothing except being the first investors to conquer a market platform. if a peasant wanted to participate in the economy (through selling and buying products) then they would be forced to pay taxes to private platform software companies.

 

[FriedRiceNSpice]

I have nothing against STEM students, and my point has nothing to do with whether "STEM is better or worse off than Non-STEM" - my point is that an oversupply of university graduates that cannot find jobs being a significant problem to social stability.

The initial conditions of the last time that China had such high urban unemployment rate was quite different - the economy was small enough (+ WTO entry in 2000s) where China quickly grew out of and absorb the excess labour, but this wasn't without challenges ("All Dongbei people are gangsters" and "Henan people steal manhole covers").

But FWIW, oversupply of STEM is not any better than a shortage of STEM, where it is especially not a problem in the US when the US will have carte blanche for all the Indian STEM students that are lining up to get H-1Bs - because ironically, the more people think India is a shithole, the better the US is as a relative destination.

As for your last question, if the economy doesn't get back to trend growth (as it clearly has not, despite what all the jingoistic nationalists predicted), they will definitely be struggling to find jobs soon enough.

Economic growth is not ever going to go back to 6% sustained growth. Look at S Korea's growth curve before and after 2000. Once you out of the middle income range, a lot of the low hanging fruit for fast growth is gone. The amount of total increase needed for each percentage of growth is three times higher than it was a decade ago, and the amount of investment needed to generate growth is substantially higher.

China is no longer cost competitive in labor intensive manufacturing, which means a lot more people are going to have to find work in service industries. Natural consequence of moving up the value chain and becoming an advanced, high income economy.

If you compare to the US, then you see a lot higher proportion of the workforce holds college degrees in the US, and a lot more college degree holders in the US are working in service / gig jobs that do not really require college degrees. This is a natural consequence of developing into an advanced, high income economy. Due to high wages and incomes, a lot of labor intensive jobs are just no longer economically viable, so you have more people driving Uber or delivering Doordash.

The fact of the matter is, true STEM talent anywhere in either the US or China gets scooped up in an instant. I can guarantee you there is a shortage of STEM talent in China. Doesn't mean every STEM graduate has the necessary ability and skills to fill those jobs. So what's so wrong for them to work as delivery drivers or taxi drivers? At least they aren't saddled with tens of thousands of student debt like their American counterparts.

 

[coolgod]

Originally I posted in a wrong thread, so I deleted this post. Since you summoned the "troll", I'll bite for this post only since its off topic.

Taiwan's a nation? You are going to get skewered here dude. @coolgod @FairAndUnbiased you trolls going to let this go?

Look, if you review the historical data on any nation transitioning from middle income to higher income status in the past 50 years (Japan, S Korea, Taiwan, Poland), you can see structural changes in the job market which was accompanied by high unemployment.

Nation, state and country are three separate things, please don't confuse them. It seems like FriedRiceNSpice was deliberately trying to avoid calling Taiwan a country so he used the term nation, which is also a term whose definitions are widely debated. Without resorting to awkward sounding terms, out of the three terms I mentioned, its probably most politically correct (from the Chinese perspective) to refer to Taiwan as a state in his given context.