Chinese Economics Thread
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His observations and reasoning are spot on.
Most Chinese families, over the booming years, have more or less done with buying major household items including appliances, electronics, cars, etc. If the new models are not much better than what they have, they do not have the urge to upgrade. The NEV market is a good example of this.
Another incentive is government rebates. The extended rebates on the NEVs have certainly helped the sales. Similarly the governments can create consumer rebate programs on greener appliances and electronics, more efficient A/C and heaters, building thermal insulation improvements, etc. This will not only stimulate consumption, but also push the manufacturers to upgrade their products.
I agree completely with what he was saying, although I always express it differently.
Deflation is the number #1 risk to the Chinese economy, there is nothing else that is a bigger threat.
However, this deflation that could derail China's economy, is rather low, maybe a 2% chance of happening. It all centers around the property market, the single largest asset class in the world.
What to avoid is the Great Depression type of debt deflation spiral. There are no signs of that happening, and if there are any hints of that happening, the Chinese government still has plenty of tools to combat that.
Of course, the chances of that happening, is close to nil.
If that is Chinese economy biggest risk, and I think that is absolutely the biggest risk, then things really are not that bad.
This fourth industrial revolution is real. That should improve productivity and create value. A lower price for the same product is more value.
The economy is still growing, and it should double in 15-20 years. Given the tech war and trade war with the Americans, they should step on the gas and accelerate it to maybe 12 years.
The demand is there, as the Chinese consumer is becoming wealthier, and the BRI creates external demand.
The property market in China, is a very tricky thing. There is no solution to that, perhaps only time.
They can try to solve that property market distortions more quickly if they can get the economy into a higher gear.
That is why I am still strong pro-growth, and like to see more stimulus.
All that tech stuff is nice, and improvements in productivity, but the animal spirits is missing. They got to reignite that. And let it boom.
Surround them from the countryside:
2023-08-24 16:10:03Global Times Editor : Li Yan
A new-energy light rail train made by CRRC Tangshan rolls off the production line in Tangshan, North China's Hebei Province, on June 6, 2023. (Photo/Courtesy of CRRC Tangshan)
CRRC, China's top train manufacturer, said it has been officially awarded a contract to build electric units for Chilean State Railways, also known as EFE, the largest single stock order in the Chilean company's history.
CRRC, in a consortium with local railcar services company Temoinsa, will supply 32 three-car units for Santiago's suburban rail network.
These new trains are an upgrade for EFE, CRRC said, noting that the trains will have a maximum speed of 140 kilometers per hour and capacity for around 800 passengers. The design of the units will emphasize lightweight construction, intellectualization and eco-friendliness.
Of the 32 new trains, 22 will be deployed to operate on the new 61 kilometer commuter line running westward from Alameda station in Santiago to Melipilla, with the remaining 10 ordered for the new route running north from Alameda to Quinta Normal and Batuco, the International Railway Journal reported.
Deliveries are expected to start in 2026. After entering operation, the new trains will greatly improve the EFE's passenger transport capability and providing transport convenience for more than one million residents along the route, according to CRRC.
The smooth implementation of the project will play an active role in the high-quality joint development of the Belt and Road Initiative, bringing convenience to local residents and boost local economic and social development, CRRC said.
The new fleet forms part of EFE's strategy to triple passenger traffic to 150 million passengers a year by 2027. The new commuter service to Melipilla is expected to carry 57 million passenger a year, and that to Batuco a further 35 million, according to the International Railway Journal.
More deflationary pressure:
2023-08-25 08:20:22China Daily Editor : Li Yan
E-commerce giant attempts to woo users, secure growth amid hot retail competition
Competition in China's online retail segment is heating up as e-commerce giant JD lowered the threshold for free shipping services for products sold by JD's self-operated stores, a move industry experts said is part of the company's low-price strategy to attract new users and bolster sales growth.
Orders for items totaling 59 yuan ($8.11) or more sold by JD's self-operated stores can be delivered free of charge starting from Wednesday, down from 99 yuan, the Beijing-based company said. For books, the minimum order amount for free shipping remains at 49 yuan, while JD Plus members enjoy unlimited free deliveries without using coupons.
JD is doubling down on its low-price strategy to woo price-sensitive consumers amid intensified competition from domestic rivals. The company launched a subsidy campaign worth 10 billion yuan in early March to compete against online discounter Pinduoduo.
"From day one of our existence, our core competitiveness and the essence of our business have been low prices. That has always been the anchor of our business philosophy — cost efficiency and customer experience," said Xu Ran, CEO of JD, in an earnings conference call with investors last week.
Xu said JD is continuing to strengthen its supply chain capabilities and optimize fulfillment, and its commitment to promoting its low-priced daily sales model needs time and dedication. The company has witnessed a significant increase in the number of third-party merchants and product offerings during the second quarter, Xu added.
JD reported its net revenue in the second quarter of this year stood at 287.9 billion yuan, an increase of 7.6 percent year-on-year. Its non-GAAP(generally accepted accounting principles) net income reached 8.6 billion yuan, up 31.9 percent year-on-year.
Mo Daiqing, a senior analyst at domestic consultancy Internet Economy Institute, said JD's latest move to lower the threshold for free shipping can be seen as a continuous measure to implement its low-price strategy, which is expected to help JD broaden its user base.
"Enhancing user stickiness and cultivating high-quality users are crucial for major e-commerce platforms as the growth of the domestic e-commerce sector is slowing," Mo said.
The increase in logistics and transportation costs accompanied by lowering the threshold of free shipping services could be offset in the short term through the rise of overall sales revenue as well as the return of old users and an influx of new users, said Cui Lili, director of the Shanghai University of Finance and Economics' Institute of E-commerce.
Alibaba Group Holding Ltd is also ramping up efforts to offer price-competitive products and strengthen consumer engagement. Dai Shan, CEO of Alibaba's Taobao and Tmall Group, said the company will continue to invest heavily in the value-for-money battle by supporting small and medium-sized merchants and attracting more merchants.
Dai made the remarks during an earnings call on Aug 10, saying Alibaba's value-for-money battle will be an area of major investment, and the company aims to make customers understand that the product offerings on Taobao and Tmall are inexpensive. It also intends to guide its merchants to improve product cost effectiveness to boost growth and ensure stable returns over the long term.
During the April-June period, revenue from Alibaba's core e-commerce businesses — the Taobao and Tmall platforms — rose 12 percent year-on-year, with the number of Taobao's average daily active users growing 6.5 percent year-on-year.
Li Chengdong, founder of Beijing-based e-commerce consultancy Dolphin, said that high-priced items might deter some price-sensitive consumers while expanding the supply of lower-priced and discounted commodities will help JD obtain more users and improve user loyalty and repurchase rates.
Major e-commerce platforms are making efforts to bring more competitively priced products to shoppers, Li said, adding that these companies should strike a balance between bringing in cheaper goods and improving users' shopping experience.
2023-08-24 16:10:03Global Times Editor : Li Yan
A new-energy light rail train made by CRRC Tangshan rolls off the production line in Tangshan, North China's Hebei Province, on June 6, 2023. (Photo/Courtesy of CRRC Tangshan)
CRRC, China's top train manufacturer, said it has been officially awarded a contract to build electric units for Chilean State Railways, also known as EFE, the largest single stock order in the Chilean company's history.
CRRC, in a consortium with local railcar services company Temoinsa, will supply 32 three-car units for Santiago's suburban rail network.
These new trains are an upgrade for EFE, CRRC said, noting that the trains will have a maximum speed of 140 kilometers per hour and capacity for around 800 passengers. The design of the units will emphasize lightweight construction, intellectualization and eco-friendliness.
Of the 32 new trains, 22 will be deployed to operate on the new 61 kilometer commuter line running westward from Alameda station in Santiago to Melipilla, with the remaining 10 ordered for the new route running north from Alameda to Quinta Normal and Batuco, the International Railway Journal reported.
Deliveries are expected to start in 2026. After entering operation, the new trains will greatly improve the EFE's passenger transport capability and providing transport convenience for more than one million residents along the route, according to CRRC.
The smooth implementation of the project will play an active role in the high-quality joint development of the Belt and Road Initiative, bringing convenience to local residents and boost local economic and social development, CRRC said.
The new fleet forms part of EFE's strategy to triple passenger traffic to 150 million passengers a year by 2027. The new commuter service to Melipilla is expected to carry 57 million passenger a year, and that to Batuco a further 35 million, according to the International Railway Journal.
More deflationary pressure:
2023-08-25 08:20:22China Daily Editor : Li Yan
E-commerce giant attempts to woo users, secure growth amid hot retail competition
Competition in China's online retail segment is heating up as e-commerce giant JD lowered the threshold for free shipping services for products sold by JD's self-operated stores, a move industry experts said is part of the company's low-price strategy to attract new users and bolster sales growth.
Orders for items totaling 59 yuan ($8.11) or more sold by JD's self-operated stores can be delivered free of charge starting from Wednesday, down from 99 yuan, the Beijing-based company said. For books, the minimum order amount for free shipping remains at 49 yuan, while JD Plus members enjoy unlimited free deliveries without using coupons.
JD is doubling down on its low-price strategy to woo price-sensitive consumers amid intensified competition from domestic rivals. The company launched a subsidy campaign worth 10 billion yuan in early March to compete against online discounter Pinduoduo.
"From day one of our existence, our core competitiveness and the essence of our business have been low prices. That has always been the anchor of our business philosophy — cost efficiency and customer experience," said Xu Ran, CEO of JD, in an earnings conference call with investors last week.
Xu said JD is continuing to strengthen its supply chain capabilities and optimize fulfillment, and its commitment to promoting its low-priced daily sales model needs time and dedication. The company has witnessed a significant increase in the number of third-party merchants and product offerings during the second quarter, Xu added.
JD reported its net revenue in the second quarter of this year stood at 287.9 billion yuan, an increase of 7.6 percent year-on-year. Its non-GAAP(generally accepted accounting principles) net income reached 8.6 billion yuan, up 31.9 percent year-on-year.
Mo Daiqing, a senior analyst at domestic consultancy Internet Economy Institute, said JD's latest move to lower the threshold for free shipping can be seen as a continuous measure to implement its low-price strategy, which is expected to help JD broaden its user base.
"Enhancing user stickiness and cultivating high-quality users are crucial for major e-commerce platforms as the growth of the domestic e-commerce sector is slowing," Mo said.
The increase in logistics and transportation costs accompanied by lowering the threshold of free shipping services could be offset in the short term through the rise of overall sales revenue as well as the return of old users and an influx of new users, said Cui Lili, director of the Shanghai University of Finance and Economics' Institute of E-commerce.
Alibaba Group Holding Ltd is also ramping up efforts to offer price-competitive products and strengthen consumer engagement. Dai Shan, CEO of Alibaba's Taobao and Tmall Group, said the company will continue to invest heavily in the value-for-money battle by supporting small and medium-sized merchants and attracting more merchants.
Dai made the remarks during an earnings call on Aug 10, saying Alibaba's value-for-money battle will be an area of major investment, and the company aims to make customers understand that the product offerings on Taobao and Tmall are inexpensive. It also intends to guide its merchants to improve product cost effectiveness to boost growth and ensure stable returns over the long term.
During the April-June period, revenue from Alibaba's core e-commerce businesses — the Taobao and Tmall platforms — rose 12 percent year-on-year, with the number of Taobao's average daily active users growing 6.5 percent year-on-year.
Li Chengdong, founder of Beijing-based e-commerce consultancy Dolphin, said that high-priced items might deter some price-sensitive consumers while expanding the supply of lower-priced and discounted commodities will help JD obtain more users and improve user loyalty and repurchase rates.
Major e-commerce platforms are making efforts to bring more competitively priced products to shoppers, Li said, adding that these companies should strike a balance between bringing in cheaper goods and improving users' shopping experience.
China had individual trade surpluses with the overwhelming majority of its trade partners: 174 of the 234 countries and territories listed.
These trade surpluses are especially visible in China’s trade relationships with many of the world’s , including the U.S. and India, with $401.1 billion and $100.3 billion surpluses respectively.
Meanwhile, a good sum of the country’s trade deficits are with major Asian economies. Its largest deficit is with Taiwan, primarily coming from integrated circuit imports. China also has deficits with Japan (-$11.9 billion) and South Korea (-$37.8 billion), the region’s second and fourth-largest economies respectively, largely due to electronics and machinery imports.
The country’s other trade deficits stem from fulfilling strategic needs. For example, China has deficits with oil-producing countries like Russia and Saudi Arabia. It also has a trade deficit with Australia, a key supplier of raw goods such as iron, gold, lithium, and liquefied petroleum gas.
| Country | Imports (2022 USD) | Exports (2022 USD) | Balance (2022 USD) |
|---|---|---|---|
| United States | $177.7B | $578.8B | +$401.1B |
| Hong Kong | $7.8B | $295.2B | +$287.4B |
| Netherlands | $12.5B | $117.4B | +$104.9B |
| India | $17.5B | $117.7B | +$100.3B |
| Mexico | $17.4B | $77.3B | +$59.8B |
| United Kingdom | $21.8B | $81.0B | +$59.2B |
| Vietnam | $88.0B | $144.4B | +$56.4B |
| Singapore | $33.9B | $80.0B | +$46.1B |
| Philippines | $23.0B | $63.9B | +$40.9B |
| Poland | $5.1B | $38.0B | +$32.9B |
Source: 2022 trade data from China’s .
It is impossible to turn to a newspaper, financial television station or podcast today without getting told all about the unfolding implosion of the Chinese economy. Years of over-building, white elephants and unproductive infrastructure spending are finally coming home to roost. Large property conglomerates like Evergrande and Country Garden are going bust. And with them, so are hopes for any Chinese economic rebound. Meanwhile, the Chinese government is either too incompetent, too ideologically blinkered, or simply too communist to do anything about this developing disaster.
Interestingly, however, financial markets are not confirming the doom and gloom running rampant across the financial media. Consider the following points.
Bank shares
At Gavekal, we look at bank shares as leading indicators of financial trouble. When we see bank shares break out to new lows, it is usually a signal that investors should head for the exit as quickly as possible. This was certainly the case in 2007-08 in the US. Between February 2007 and July 2008 (six weeks before the collapse of Lehman Brothers), banks shares lost -60% of their value.
The same pattern unfolded in Europe. Between January 2010 and August 2011, eurozone bank shares fell -45%, collapsing to new lows even before Club Med spreads started to blow out.
Now undeniably, Chinese bank shares have not been the place to be over the past few years. Nonetheless, Chinese bank shares are still up a significant amount over the last decade. And this year, they have not even taken out the low of 2022 made on October 31st following the Chinese Communist Party congress. To be sure, the chart below is hardly enticing, even if the slope of the 200-day moving average is positive. Still, Chinese bank shares do not seem to be heralding a near-term financial sector Armageddon.
Digging further, if we look at the performance of Chinese bank shares relative to US and EU bank shares over the past five years, the banks of the world’s three major economic zones have delivered roughly similar share price performance.
Zooming in on performance over the past year seems to indicate that if there is a problem with banks, it lies more in the US than in China, where bank shares are flat year-to-date. So, if you were to look only at the charts, you would conclude that the weak link in the system is not Chinese banks but US regional banks. In the past five years, US regional banks have registered two massive sell-offs—the kind of sell-offs that make shareholders uneasy.
Another very interesting and in my view enlightening read on the performances of the U.S. Treasury bonds (which is in the tank) vs the Chinese financial system that has so far outperformed the U.S. And as the author alleged, somehow the headlines plastered all over the western media is "China about to Collapse" for the zillion times.
He leaves his readers with an interesting, if not an educational chart:
The article can be read in full here:
He leaves his readers with an interesting, if not an educational chart:
The article can be read in full here:
You beat me to it in posting the link. Thank you
Cont'd.
Chinese equity markets
Given the relentless media negativity, you might expect Chinese equity markets to be making new lows. For sure, Chinese equity markets have delivered disappointing returns. Nonetheless, every major Chinese index —the Shanghai composite, the Hang Seng, H-shares—remains above its October 31st CCP Congress low, typically by between 10% and 20%. No one at Gavekal claims to be a technical analyst; and we are also well aware that all the captains lying with their ships at the bottom of the ocean relied on charts. Nevertheless, while the chart below is unenticing, it does not scream that an economic cataclysm is imminent.
Commodity markets
China is the number one or two importer of almost every major commodity you can think of. So, if the Chinese economy were experiencing a meltdown, you would expect commodity prices to be soft. Today, we are seeing the opposite. The CRB index has had a strong year so far in 2023, and is trading above its 200-day moving average. Moreover, the 200-day moving average now has a positive slope. Together, all this would seem to point towards an unfolding commodity bull market more than a Chinese meltdown.
Exchange rates
Jacques Rueff used to say that exchange rates are the “sewers in which unearned rights accumulate.” This is a fancy way of saying that exchange rates tend to be the first variable of adjustment for any economy that has accumulated imbalances. On this front, the renminbi has been weak in recent months, although, like Chinese equities, it has yet to take out October’s lows.
That is against the US dollar. Against the yen, the currency of China’s more direct competitor, Japan, the renminbi continues to grind higher and is not far off making new all-time highs. And interestingly, in recent weeks, the renminbi has been rebounding against the South Korean won.
This is somewhat counterintuitive. In recent weeks, oceans of ink have been spilled about how China is the center of a developing financial maelstrom. Typically, countries spiraling down the financial plughole do not see their currencies rise against those of their immediate neighbors and competitors.
Cont'd
Chinese consumers
While headlines in the West are all about China’s unfolding economic meltdown, recent headlines in China have been all about how tourist arrivals in Macau are returning to where they were in 2018, before Covid, before China’s tech crackdown and before the real estate derisking crackdown. Either that, or the headlines are about how strong car sales continue to be.
Meanwhile, China’s consumer-facing e-commerce sales continue to chug along nicely. This year, Alibaba delivered its strongest first quarter in history, with revenues 10 times what they were seven years ago.
In other words, a range of data points seems to indicate that Chinese consumption is holding up well. This might help to explain why the share prices of LVMH, Hermès, Ferrari and most other producers of luxury goods are up on the year. If China really was facing an economic crash, wouldn’t you expect the share prices of luxury good manufacturers to at least reflect some degree of concern?
