Chinese Economics Thread

[Eventine]

I should have commented on this the first time around but I missed it. That's exactly what the data shows in China's case. Look at the Coming Collapse of China flavour of the month - the unemployment rate among 16-24 year-olds - and contrast it with the rate among 25-33 year-olds. I don't have the data but I'll bet the latter is much lower for a simple reason: the Western media isn't harping on it.

Based on that, the hypothesis that getting older in China makes you more employable is well-supported by the evidence. There are a lot of reasons for that to be the case - the older you are, the more experience you have (which makes you more valuable as an employee) and the likelier you are to have realistic expectations for your career.

How do you get experience if you're unemployed the entire time...?

The phenomenon of 20+% youth unemployment is recent. Comparing it to contemporaneous data on 25-33 year old isn't going to paint you an accurate picture because those people were employed before the lock downs. We'd need to wait 5-10 years for the effects on the current cohort to show.

Demand is demand. Elderly people spend money on the same things young people do: food, shelter, entertainment, etc. In fact, their demand for medical services stimulates the critical sectors of biotechnology and medical technology. This is especially important in China's case since these sectors are still small and trailing technologically.

Even if we accept all that, a 20 year old today is going to spend a lot more over the course of their life than a 60 year old today, for simple mathematical reasons. This is why inverted population pyramids are a growth killer.

That's the American economy. Printing money in America causes inflation because there's no productivity to back the money printing, and America is busy decoupling itself from the productivity it was getting from China. There's no comparison between the Chinese and American economies.

Even if we keep the "from working age people" clause, define working age people. China's retirement age is at least a decade behind that of developed countries while its life expectancy is comparable (and in America's case, superior). I believe the coming 1-2 decades will see revolutionary advances in medicine - which I hope China leads - where life expectancy will increase dramatically. What's "working age" when the average life expectancy exceeds 100?

Robots are displacing humans all the time without being fully autonomous. If a company previously needed to hire 100 people for a given output now needs to hire only 20, those 80 people who would have otherwise been hired have been displaced. We could argue about other jobs in the economy being available to them, but that's another discussion.

As for their age, who is more productive - a 60 year-old sitting in an air-conditioned room operating mining equipment over a 5G connection, or a 20 year-old with a pickaxe? Let's make a fairer comparison, if the 60 year-old and 20 year-old were performing the same job, who would be more productive?

20 year-olds don't either. The average age of successful entrepreneurs is 45:

Please, Log in or Register to view URLs content!

This is a false dichotomy. A 20 year-old with no experience is certainly going to be less productive than a 60 year-old. But do the same comparison between a 30 year-old and a 70 year-old. Or a 40 year-old and a 80 year-old. Which would you rather have?

An inverted population pyramid, by definition, results in more people in the 60-90 range, and less in the 20-50 range. You want most of your population in the prime working age range (25-55 or 20-60) to create a growing economy. This is the whole theory behind population dividends. Technology may shift the range but nothing in the pipeline is going to make 70 year old people as productive as 30 year old people. There are basic biological limits to what people can do as they grow older. It's not just muscles that decline. It's everything.

 

[Chish]

First, Tasmania can do that because it's a tiny state of ~500,000 people. You can't get a proportional number of wealthy people who want to retire in China because 1) there aren't enough rich people in the world for that and 2) China isn't an island paradise.

Second, even if you could, do you really want China to be a vacation country for old people from around the world? I know you're just talking about alternatives here. But I'm pretty sure the Chinese population don't want that for themselves.

There's always places like Tasmania in a country - vacation islands / resort states where the main economic driver is old people bringing their money to retire off of. In China, Hainan is a great example of that. But you can't build a national economy off of that because you need to generate wealth before you can spend it.

The point I am trying to bring about is spendings by retired people regardless where they live, do generate positive economic activities. Tasmanian is just an example due to it large retired population.

 

[Strangelove]

Please, Log in or Register to view URLs content!

‘We can de-risk but not decouple’ from China, says Raytheon chief​

Head of aerospace and defence group says western manufacturers will find it impossible to completely cut ties

Greg Hayes: ‘If we had to pull out of China, it would take us many many years to re-establish that capability either domestically or in other friendly countries’ © Samuel Corum/Bloomberg

Please, Log in or Register to view URLs content!

in Paris

Western manufacturers will be able to de-risk their operations in China but will find it impossible to cut ties completely with the country, according to the head of one of the US’s largest aerospace and defence companies.

Greg Hayes, chief executive of

Please, Log in or Register to view URLs content!

, said the company had “several thousand suppliers in China and decoupling . . . is impossible”.
“We can de-risk but not decouple,” Hayes told the Financial Times in an interview, adding that he believed this to be the case “for everybody”.

“Think about the $500bn of trade that goes from China to the US every year. More than 95 per cent of rare earth materials or metals come from, or are processed in, China. There is no alternative,” said Hayes.

“If we had to pull out of China, it would take us many many years to re-establish that capability either domestically or in other friendly countries.”

Hayes’ comments underline the difficulties facing western manufacturers amid growing friction between China and the US and its allies.
Beijing in February imposed

Please, Log in or Register to view URLs content!

on both Raytheon and US defence peer Lockheed Martin for supplying weapons to Taiwan. Hayes has also been placed under sanctions.

The sanctions have had little commercial impact as the groups are not allowed to sell military equipment to China. Raytheon, however, has a substantial commercial aerospace business in the country through its engine subsidiary, Pratt & Whitney, and aviation systems and cabin equipment specialist Collins Aerospace. It has about 2,000 direct employees in China.

Both subsidiaries, along with other western aerospace groups, are suppliers to China’s first large homegrown jet aircraft, the C919, which made its commercial debut at the end of May. China is also an important aviation market for Boeing and Airbus.
Nevertheless, the company is looking for alternative sources for some of its components.

“We are looking at de-risking, to take some of the most critical components and have second sources but we are not in a position to pull out of China the way we did out of Russia,” said Hayes.

Raytheon believes that its decision to rebrand itself as RTX, announced on Sunday, will allow for a clearer distinction between the commercial aerospace businesses and its defence activities which will continue to trade under the Raytheon brand, he said.

Hayes told investors on Monday, the first day of the

Please, Log in or Register to view URLs content!

that the company would still meet its target to achieve $9bn of free cash flow in 2025 despite headwinds over the past two years, including inflation and a strained supply chain that is stressing resources both on the civil as well as the military side.

Pratt & Whitney has been juggling to supply enough new engines to Airbus while at the same time delivering spares to existing airline customers to fill gaps left by faster-than-expected wear and tear. Pratt & Whitney’s latest-generation GTF engine powers the Airbus A220s as well as some A320-neo family jets, although they have had some

Please, Log in or Register to view URLs content!

in particular in hot and dusty climates.
About 100 aircraft were on the ground awaiting engines, he said.
Adding to the challenge is Airbus’s planned increase in production of its single-aisle aircraft to meet resurgent demand from airlines.
“There is a natural tension between delivering engines to Airbus versus delivering spare engines to our customers,” said Hayes.

The company is bringing on additional capacity both in the supply chain and in its maintenance operations. A new factory to manufacture turbine blades will open this year in North Carolina. It has also launched an upgrade programme to help improve the durability of the GTF engines.

On the defence side, supply chain snarls continue to impact the production of rocket motors for missiles for both Raytheon and Lockheed Martin, including Stinger missiles and Javelins. The focus has been on capacity constraints at rocket motor producer Aerojet Rocketdyne which recently received government funding to help it expand its operations.

“There is a bit of black magic to these rocket motors,” said Hayes. “We’ve had quality issues, shortages of labour and materials.”

 

[ZeEa5KPul]

The phenomenon of 20+% youth unemployment is recent.

The number is recent, but the higher unemployment rate among that cohort has been there for as long as the data has been collected. Whatever the problem is, it sorts itself out. I'll consider it worthy of concern when unemployment rises across all cohorts.

This is why inverted population pyramids are a growth killer.

GDP = size of labour force * productivity. Do you understand that the second factor can grow faster than the first shrinks? That's not just a hypothetical, that's been true in China's since 2015. And despite all the Chicken Littling in this thread, the Chinese economy is going to grow at >5%, a rate the US economy couldn't dream of.

We'd need to wait 5-10 years for the effects on the current cohort to show.

Alright then. We'll re-examine the issue when the Chinese economy is 50% larger.

But do the same comparison between a 30 year-old and a 70 year-old. Or a 40 year-old and a 80 year-old. Which would you rather have?

You're not getting the point of the example. The point is the vast bulk of the work is being done by the machines. The workers are just doing the bare minimum of supervision and correction. The productivity is a result of the technical work that went into designing, programming, and manufacturing the machines.

You want most of your population in the prime working age range (25-55 or 20-60) to create a growing economy.

Which is the case for China and will remain the case throughout the century. China has 25% of its working age population hunched over in rice fields, it does not suffer from a shortage of working age people and will not throughout our lifetime. A 20% unemployment rate among 16-24 year-olds is not due to there being too few of them, I don't know how to be any clearer.

 

[paiemon]

A inverted population pyramid if not corrected is an existential issue for a nation. Optimistically it'll never get to that, but Japan's experience with aging, which began long before China's or Korea's, isn't a particularly hopeful example (Japan's TFR has improved from the bottom, but it's still way below 2.1).

Economically, a sharp collapse in fertility will lead to a lost generation, almost without question. The adjustment required to go from "normal" to "super aged" is just too drastic. Pension systems, property prices, taxation strategies, economic structure, and labor expectations all have to be adjusted. I'd brace for some serious economic effects similar to Japan's and Korea's respective "corrections" in about 20 years time, and much sooner for investments.

I disagree, I think China, and to be frank many countries are evolving from a quantity to quality. Yes, Japan's TFR has dropped alot but for the most part Japan has been treading water and maintaining productivity, and that is with poor women's participation in the workforce amongst other metrics. A mechanical engineer today is vastly more productive than one in say the 1930s who didn't have access to CAD tools and was doing drawings by hand. If the population pyramid shifts from a vast population of poorly educated, unskilled laborers to a smaller population of high skilled, technically proficient professionals you can maintain and exceed in performance. Just look at the military, they have slimmed down their numbers but are even more deadly due to technological advances and upskilling their personnel to operate more sophisticated and productive equipment like drones. I will let time judge this hypothesis.

 

[Franklin]

This article state correctly that China's sluggish economy does not come from weak exports but rather comes from the problems in the real estate sector and local government debts that are by the way linked. But I don't think that China should pull out the big guns to bail them out. It would simply be throwing good money after bad. China need to allow these sectors to deleverage. And resources need to be put into future growth and China should invest more in science, technology and (high tech) industries. China up till now have a relatively benign inflation environment. But that could change if large stimulus is applied. And I think the leaders in China understand this. But how much pain can they take before giving up on their fight against asset bubble's, debt and leverage in the economy.

Please, Log in or Register to view URLs content!

 

[Strangelove]

Massive boost in productivity coming soon...

Please, Log in or Register to view URLs content!

China to facilitate over 3,000 firms to build 5G factories

Technology 10:24, 22-Jun-2023

The automatic guided vehicle is transporting semi-finished products in a 5G+Industrial Internet application center, Yingtan City, east China's Jiangxi Province, March 14, 2023. /CFP

China's Ministry of Industry and Information Technology has released a work plan on the development of industrial internet, listing 11 key actions and 54 specific measures in the sector.

The work plan proposes to formulate and implement an upgraded version of the "5G+Industrial Internet" 512 project, which is to promote the integration, innovation and development of "5G+Industrial Internet" and improve its development management platform.
In terms of infrastructure, it will facilitate no less than 3,000 enterprises to build 5G factories and construct no less than 300 5G factories, creating 30 pilot benchmarks. The first batch of 5G factory directories will be released as well.

The plan also aims to promote high-quality development of external networks of China Telecom, China Mobile and China Unicom to connect enterprises and cloud platform resources, servicing over 3,000 enterprises. The idea is to accelerate the transformation and development of enterprises' internal networks in key industries, support the construction of private 5G networks in mining enterprises, and upgrade the networks in chemical industrial zones.

China has been promoting the application of the "5G+Industrial Internet" as the 5G network has entered the fast lane of innovation development.

By the end of April, China had built 2.73 million 5G base stations, with 5G networks covering all prefecture-level cities and the 5G-enabled mobile phone users reaching 634 million, according to a press briefing for the Global Digital Economy Conference 2023 on Wednesday.

The industrial internet has been fully integrated into 45 major sectors within the national economy, with an industrial scale of more than 1.2 trillion yuan (about $166.9 billion). The "5G+Industrial Internet" has been applied in thousands of industries and extended to the core links of production, according to the press briefing.

The country is also eyeing next-generation internet and other frontier fields and comprehensively advancing the research and development of sixth-generation (6G) communications technology.

 

[Eventine]

GDP = size of labour force * productivity. Do you understand that the second factor can grow faster than the first shrinks? That's not just a hypothetical, that's been true in China's since 2015. And despite all the Chicken Littling in this thread, the Chinese economy is going to grow at >5%, a rate the US economy couldn't dream of.

For total growth to out pace TFR decline, productivity growth would need to be exponential, for which there is no evidence it can be sustained.

You're not seeing the effects yet only because TFR in China dropped off a cliff recently.

It was ~1.7 for most of the last three decades, and ~2-3 before that. All the people born during those periods are still in the work force. That's why total GDP growth is still above 5%. The population dividend hasn't yet exhausted itself.

But look at South Korea (a country that's about a decade ahead of China in TFR decline, with a higher automation density per capita and a similar work ethic) for where this is heading. There is literally no country in the developed world, regardless of level of automation, that is still growing at ~5%.

Which is the case for China and will remain the case throughout the century. China has 25% of its working age population hunched over in rice fields, it does not suffer from a shortage of working age people and will not throughout our lifetime. A 20% unemployment rate among 16-24 year-olds is not due to there being too few of them, I don't know how to be any clearer.

Name me one country that's escaped the TFR trap and managed to maintain high-level growth through productivity gain amidst a general population collapse.

 

[ZeEa5KPul]

For total growth to out pace TFR decline, productivity growth would need to be exponential, for which there is no evidence it can be sustained.

No. Once again:
GDP = labour force * productivity. All that is required is that the latter factor grow faster than the former shrinks. There's no requirement that it be exponential, linear, logarithmic, or whatever else. There's every piece of evidence that productivity will continue to grow at sufficient pace to offset the decline of the workforce.

Furthermore, the word "exponential" doesn't mean what you think it does. It's not a synonym "very fast" - it simply means that the quantity doubles over a constant period. 1% growth per annum is exponential, 0.00001% growth per annum is exponential, they're all exponential because they have have constant doubling time.

You're not seeing the effects yet only because TFR in China dropped off a cliff recently.

If it dropped off a cliff recently then there's sufficient time to get it back to the top of the cliff it dropped off.

It was ~1.7 for most of the last three decades, and ~2-3 before that. All the people born during those periods are still in the work force. That's why total GDP growth is still above 5%. The population dividend hasn't yet exhausted itself.

The labour force has been in contraction since 2015. Overall, the Chinese labour force has expanded by 25% over the last three decades while the economy grew 40x. Why did the GDP grow 40x while the labour force only expanded 25%? Protip: the answer is in the equation above.

But look at South Korea (a country that's about a decade ahead of China in TFR decline, with a higher automation density per capita and a similar work ethic) for where this is heading. There is literally no country in the developed world, regardless of level of automation, that is still growing at ~5%.

What was South Korea's per capita GDP a decade ago compared to China's per capita GDP today? What was its urbanization rate?

And I won't look at South Korea. Why would I look at a failure? I want to look at successes like Hungary:

Please, Log in or Register to view URLs content!

A TFR that was in the toilet following the collapse of the USSR until Orban's social policies lifted it up to a quasi-respectable level. Still more work to be done, but remarkable progress nonetheless. China has recently shifted to a pro-natal policy stance and results will follow.

Name me one country that's escaped the TFR trap and managed to maintain high-level growth through productivity gain amidst a general population collapse.

What "TFR trap"? Is "trap" a word you use like "exponential" by evacuating it of meaning? As I've shown you in the example of Hungary, TFR is a mutable variable that can be changed by government policy. Furthermore, Chinese productivity growth has a lot of runway to go until per capita GDP at least doubles if not triples.

 

[Eventine]

No. Once again:
GDP = labour force * productivity. All that is required is that the latter factor grow faster than the former shrinks. There's no requirement that it be exponential, linear, logarithmic, or whatever else. There's every piece of evidence that productivity will continue to grow at sufficient pace to offset the decline of the workforce.

5 x 5 = 25

Now let's multiply the former by 1.5 (50% increase, +2.5) and the latter by 0.5 (50% decrease, -2.5).

5 x 1.5 x 5 x 0.5 = 18.75

Do you get it now? If your productivity increases by 50% and your population drops by 50%, that leads to a large drop in aggregate productivity. To just maintain the same aggregate productivity, you need a 200% increase in productivity to compensate for a 50% drop. To compensate for a 75% drop, you need a 400% increase in productivity. It's not enough to grow productivity at the same rate as you're losing population. If China's population is decreasing 1% each year, you need more than 1% productivity growth just to maintain GDP.

If it dropped off a cliff recently then there's sufficient time to get it back to the top of the cliff it dropped off.

The labour force has been in contraction since 2015. Overall, the Chinese labour force has expanded by 25% over the last three decades while the economy grew 40x. Why did the GDP grow 40x while the labour force only expanded 25%? Protip: the answer is in the equation above.

Productivity growth is fastest when a country is industrializing, and experiences serious diminishing returns as it becomes industrialized. Expecting the same productivity growth for the next three decades is the height of hubris. In fact, China's productivity growth has slowed to ~5% from ~15% two decades ago. This trend will continue because there are physical limits to productivity. No government policy, however superior, is going to change natural laws.

And I won't look at South Korea. Why would I look at a failure? I want to look at successes like Hungary:

Please, Log in or Register to view URLs content!

A TFR that was in the toilet following the collapse of the USSR until Orban's social policies lifted it up to a quasi-respectable level. Still more work to be done, but remarkable progress nonetheless. China has recently shifted to a pro-natal policy stance and results will follow.

What "TFR trap"? Is "trap" a word you use like "exponential" by evacuating it of meaning? As I've shown you in the example of Hungary, TFR is a mutable variable that can be changed by government policy. Furthermore, Chinese productivity growth has a lot of runway to go until per capita GDP at least doubles if not triples.

Hungary "solved" its problem by increasing TFR, not by compensating with more productivity, which is exactly the argument. You can't compensate for bad TFR with ever more productivity. South Korea tried, and it's failing. The only answer to a demographic crisis is better demographics. You can be the best economics policy maker there is, optimize your productivity however you want, but unless you solve the demographics problem, you will still fail.