Chinese Economics Thread

[Andy1974]

china has low inflation because it produces a lot and there isn't enough demand for them. if you just look at the auto market. people are holding back purchases because they think it will keep getting cheaper

In capitalism countries our economists always tell us that cheaper prices is bad.

Factories are getting much more productive, so naturally prices should decline, this is great for consumers.

If the prices of cars is going down, and Chinese people slow the purchase of the cars while waiting for the prices to drop… that is great for consumers.

If prices go down, and savings go up as a result of people waiting, that is great for people’s disposable incomes, purchasing power and quality of life.

This is not even bad for the car companies, as we see they are doing very well indeed. We can have lower prices AND higher profit. Chinas factory gate prices are dropping at 5% a year.

China is a socialist country, so this should be naturally the situation.

 

[tphuang]

In capitalism countries our economists always tell us that cheaper prices is bad.

Factories are getting much more productive, so naturally prices should decline, this is great for consumers.

If the prices of cars is going down, and Chinese people slow the purchase of the cars while waiting for the prices to drop… that is great for consumers.

If prices go down, and savings go up as a result of people waiting, that is great for people’s disposable incomes, purchasing power and quality of life.

This is not even bad for the car companies, as we see they are doing very well indeed. We can have lower prices AND higher profit. Chinas factory gate prices are dropping at 5% a year.

China is a socialist country, so this should be naturally the situation.

if people never buy anything, then your economy stops functioning

 

[Eventine]

In capitalism countries our economists always tell us that cheaper prices is bad.

Factories are getting much more productive, so naturally prices should decline, this is great for consumers.

If the prices of cars is going down, and Chinese people slow the purchase of the cars while waiting for the prices to drop… that is great for consumers.

If prices go down, and savings go up as a result of people waiting, that is great for people’s disposable incomes, purchasing power and quality of life.

This is not even bad for the car companies, as we see they are doing very well indeed. We can have lower prices AND higher profit. Chinas factory gate prices are dropping at 5% a year.

China is a socialist country, so this should be naturally the situation.

Deflation is considered bad because of the historical lesson of Japan where it resulted in decades of economic stagnation from people preferring to save money than either spend or invest. This made it difficult for companies to raise capital as investors and banks would rather sit on cash than lend it out, causing general industrial decline. In addition, the stronger currency caused by forced appreciation under the Plaza Accords made it hard for their products to be internationally competitive against rising competitors in South Korea, China, and the US. You’ll remember this was around the time South Korean companies like Samsung and LG began to displace Japanese ones, and also when they started falling behind in emerging technologies like smart phones, internet companies, and high end displays. Poor demographics didn’t help either of course.

China’s situation isn’t entirely the same for two reasons. First, it has control over its own currency, different from Japan, so it can keep its export prices competitive. Second, it has relatively better control over its banks and can force them to invest, though this goes back to market planning, which has its own challenges - throwing money at a problem can lead to a lot of waste if it isn’t governed by market forces.

However China also has unique problems Japan didn’t have to deal with. High corporate and local government debt, which makes deflation worse since you definitely don’t want the value of money to go up when you’re paying back debt. Another problem is worse demographics than Japan’s at the time from the one child policy.

 

[Andy1974]

if people never buy anything, then your economy stops functioning

Consider the car example again, if someone waits to buy, it means they don’t need the car right now. If they do need the car, they can buy it today and get a good deal, because the car is cheaper today, than yesterday. In both cases it is a good deal and a win.

The family that waits, get a better price, and doesn’t spend on unnecessary things.

Once the 4th Industrial Revolution is fully completed the price of goods should stop falling and hopefully remain the same going forward.

If price stability can be achieved this would be an ideal situation.

About commodities, if the prices of these can drop closer to the production, or lifting, price then prices will also drop, again this is very good for society.

Taken to the extreme, where AI designs and robots produce everything using free electricity and land given to them we will see very very low prices. You might say this is bad for the economy because it will be smaller, but this is the future of society and it is great.

 

[Serb]

Deflation is only bad if it leads indirectly to the slowing down in economic activity or the lowering of wages.

However, if it doesn't lead to that, it means nothing. It just means that people pay less for more stuff.

And there is no written rule that it must lead to that always. It depends on your economic model and tools.

The Western MSM and economists for years placed too much unnecessary emphasis on deflation and downplayed inflation.

That's why they always targeted 2% inflation, as a cushion against deflation, because if they were hit by deflation, then they could do nothing to save themselves as their interest rates were already near zero.

And their economic model is basically people internally spending money 80%, that's why the deflationary spiral was so dangerous to them.

And their population is generally more uneducated, and less intelligent, so their politicians always thought that it is better to have price increases than wage cuts, despite the damage to their standards of living being the same, for their political carers, because of that.

That is because, for their current economic model and monetary and fiscal position, deflation is indeed more dangerous.

But for China, deflation isn't all that dangerous, because they are a more externally based economy relying on imports more.

And if Chinese companies start suddenly holding back on purchases of materials, due to domestic deflationary expectations, in the future, then they would risk losing global market share, so they wouldn't do that.

It is not the same case as a consumer withholding back on purchases because the price will be cheaper locally.

 

[Andy1974]

Deflation is considered bad because of the historical lesson of Japan where it resulted in decades of economic stagnation from people preferring to save money than either spend or invest. This made it difficult for companies to raise capital as investors and banks would rather sit on cash than lend it out, causing general industrial decline. In addition, the stronger currency caused by forced appreciation under the Plaza Accords made it hard for their products to be internationally competitive against rising competitors in South Korea, China, and the US. You’ll remember this was around the time South Korean companies like Samsung and LG began to displace Japanese ones, and also when they started falling behind in emerging technologies like smart phones, internet companies, and high end displays. Poor demographics didn’t help either of course.

China’s situation isn’t entirely the same for two reasons. First, it has control over its own currency, different from Japan, so it can keep its export prices competitive. Second, it has relatively better control over its banks and can force them to invest, though this goes back to market planning, which has its own challenges - throwing money at a problem can lead to a lot of waste if it isn’t governed by market forces.

However China also has unique problems Japan didn’t have to deal with. High corporate and local government debt, which makes deflation worse since you definitely don’t want the value of money to go up when you’re paying back debt. Another problem is worse demographics than Japan’s at the time from the one child policy.

Yeah, this is the argument against deflation, the one example from Japan. Everyone brings this up, but I just feel it is not credible or relevant to China.

You make a great point about debt though. However, as deflation starts, interests rates should be low, allowing refinancing.

 

[ansy1968]

But for China, deflation isn't all that dangerous, because they are a more externally based economy relying on imports more.

And if Chinese companies start suddenly holding back on purchases of materials, due to domestic deflationary expectations, in the future, then they would risk losing global market share, so they wouldn't do that.

It is not the same case as a consumer withholding back on purchases because the price will be cheaper locally.

Bro spot on, with cheap oil coming from Iran and Russia, rising productivity due to cheap energy, China is in an ideal situation compare to the collective west. Now is the perfect time to implement the DUAL CIRCULATION policy.

 

[tphuang]

The Chinese economy and consumption is under performing right now. People are not feeling optimistic on the ground. This is not great.

Unless consumer spending starts to tick up, china is just not going to grow as much as want it to grow.

Continuing to keep your currency down when you are already far and away the cheapest is not a good idea.

 

[Quan8410]

I don't know why people think cheaper price is always great. For consumers, maybe. For manufacturer, tell me if price is always falling even to peanut and you are making less profit, would you continue to manufacture? And R&D? People don't consume anything assuming that price tmr will be chaper than today, what profit are you as a manufacturer making? And your employees also earn less too, would they be happy about that? The thing is to fight inflation there is multiple tools but for deflation, it is very hard to control.

 

[Serb]

The Chinese economy and consumption is under performing right now. People are not feeling optimistic on the ground. This is not great.

Unless consumer spending starts to tick up, china is just not going to grow as much as want it to grow.

Continuing to keep your currency down when you are already far and away the cheapest is not a good idea.

The Chinese economy is doing "good" as opposing to the "great" it used to do for decades because the Western consumer market is collapsing and causing a downturn in the whole world. And that's why Chinese consumers also feel less confident. However, it's still too early for authorities to do anything and bring heavy economic guns for such a still small problem. Anyway, remember that however is China doing economically, the West is doing many times worse now for sure.