Chinese Economics Thread

[Biscuits]

China's GDP % of US economy has declined to 64% this year. Down from 78% in 2021. This is due to overvaluation of US dollar due to interest rate hikes.

Its nominal data as well unadjusted for inflation.

I expect China's yuan to increase in value against US dollar in latter half of 2024. If China sees an inflation rate of 2%, then that would help too.

China only ever had a ~18% lead on US. Not 64%???

In productivity maybe, but not gdp, because gdp is distorted by different calculation methods.

If there is inflation in China wouldn't matter for gdp calculation, as its normalized first when calculating it.

 

[antiterror13]

GDP is the sum of all income earned. U.S basically increased the minimum wage and all other incomes. By doing that, Lifestyle in America is expensive whereas it is cheap if you bring your USD to elsewhere.

You get a better purchasing power in even Europe with your USD than America. It is a global thing.

nope, GDP and income are 2 totally different things, you can google it for a start

 

[victoon]

I'm not sure what the point of that second tweet is...is actually suggesting that China would have trouble paying in USD??? Sorry but not sure how to parse that tweet in the context of ehat sounds like a great plan for China to de-risk itself from America!!

We have changed from using $ to store our national wealth to owning mines and ports, or Yuan debt (which means they need to sell us something we want to repay us).

 

[manqiangrexue]

I don't see it that way at all. The U.S. is not like one of those primitive powers of centuries past that tries to dominate everyone. It is really an exceptional country that was founded on the ideals of human equality, and, as Antony Blinken said, although it often is imperfect, it tries to improve itself and strive to be good. That is why so many countries from Europe to Japan consent to live under U.S. domination - because they know that, the U.S. is a benevolent power that will not try to hold down their peoples just for wanting a better life. That is why it is such a surprise, to me, and morally wrong, thay the U.S. would try to do this to China.

And for those of you who glibly and smugly say, "You should have expected this", consider this: If the U.S. suppressed China's development successfully, the next day it could do the same to your country, if your country were to become too successful or cross whoever is in Washington at the time. Would you be so complacent and accepting then? If the U.S. can suppress any country's development by diktat from Washington, then it will be able to subjugate anyone. There, it is in the interests of 90% of the world's population that technology is distributed and not in the hands of such a small group of elites.

Damn, saw this and came to step on it but then saw the posts following and realized I'd be like the 108th Mario cosplayer to step on a Goomba pinata...

Yeah, the US is exactly like every primitive power in humanity; its founding ideals have nothing to do with its conduct. Its ideals of "good" and "evil" are only to be followed when in its own self interests. America displays the exact pattern of ascent and decline you would expect to see from every power's rise and fall in history. It rose due to being open and accepting everything for fast and dirty growth, entering it into its golden decades where it felt more and more like a hero and defender of good, but when it got challenged and felt the mortality of its own reign, it became darker, more hateful and xenophobic trampling on all of its own ideals in a desperate grab to stay in power. Classic rise and fall of an empire. You saying the US isn't like the others and is "truly exceptional" reminded me of this:

As an American,

I can only push for my government to change policy and adopt a more enlightened approach that will restore our moral high ground in the future.

The moral high ground of murdering Native Americans for their land or of enslaving black people?

 

[PeoplesPoster]

This seems like a significant policy decision. Does anyone have any better information on this than Bloomberg? China moving towards a Singapore social housing system is a interesting way to control real estate growth and housing prices.

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[Michaelsinodef]

This seems like a significant policy decision. Does anyone have any better information on this than Bloomberg? China moving towards a Singapore social housing system is a interesting way to control real estate growth and housing prices.

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The government and party, has long ago already talked about 2035-2049 transition to a higher stage of socialism (from low to mid).

That housing would change, to be kind of more like current Singapore system shouldn't surprise anyone.

Or like, change from what it currently is, to something better shouldn't surprise anyone (neither that there is gonna be experiment and test cities).

 

[Phead128]

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Not saying everyone is entitled to a home, but everyone is entitled at a fair shot at home ownership at a decent/reasonable price. So much capital is wasted in property speculation, esp. since property is not a productive asset, not worth money/capital wasted there when you can be building factories or new businesses with that money.

 

[ficker22]

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Not saying everyone is entitled to a home, but everyone is entitled at a fair shot at home ownership at a decent/reasonable price. So much capital is wasted in property speculation, esp. since property is not a productive asset, not worth money/capital wasted there when you can be building factories or new businesses with that money.

There is Plenty of Tea left!

 

[abenomics12345]

To begin, any number that doesn't start with a trillion RMB literally won't matter in terms of the grand scheme of GDP growth. We can talk about industrial upgrade but that isn't really this discussion.

Some aggregate data to keep the discussion grounded in reality:

Chinese economy was 115trln RMB in 2021 and will most likely be ~119trln RMB in 2022 (assuming a little more than ~3% growth) - billions here or there won't move the grand scheme of things.

2021 Economic Data - Big Accounts - Not calculating C+G+I+(X-M), just laying out what will move the needle.
Retail Sales - 44 trln
FAI - 54.5 trln (Real estate was ~20 trln)
Export - 21.7 trln
Import - 17.4 trln

View attachment 105154

This is the result of the Shanghai lockdown - it was bad. As a result of the 3RL + poor consumer sentiment/income expectations, we all knew what happened to real estate:
View attachment 105158

And the Chinese economy was kept afloat by the significant stimulus of Fixed Asset Investment (FAI), largely in the infrastructure account (government - both local and central), as well as tax cuts/stimulus.

View attachment 105155

Additionally, government has cut significant taxes in 2020-2022 - probably has already used up all the policy tools here - we are back to 2000 in terms of tax as % of GDP.

Furthermore, PBoC is likely constrained as they've already cut RRR/LPR quite a bit - as well, liquidity only helps when credit demand is high - right now the problem is low credit demand (TSF took a nosedive in Q4 2022)

View attachment 105157


So how does 2023 look like:

Retail sales is most likely negative for 2022 vs 2021 - so a reasonable assumption is some recovery (as ZCP goes away and consumption occasions come back)

- Exports will be bad - December data was just released today and exports turned negative - keep in mind exports grew 21% in 2021 and has been on a downward path since.

- FAI will be still positive, but less positive vs. 2022 - while property investment might stabilize at some 13trln RMB (vs a peak of 20trln in 2021), infrastructure investments will also be weaker as a result of constrained local government finances.

View attachment 105160

(There is some ~65 trln of LGFVs - nobody knows how much of it is money good - it might be rolled as we saw with Zunyi Road & Bridge with ridiculous terms like 20 year extension with 10 year PIK, but let's just say markets are not buying more - before anyone says MMT - do I need to remind people of the inflation we are seeing globally in DM countries?)

Assuming an 8% retail sales growth, and assuming infrastructure to grow with a healthy clip, this is the sensitivity analysis on GDP growth for 2023 (that 3.1 is real, so add some inflation to get to nominal).

View attachment 105159

Look, to be clear, 4-6% growth in 2023 for China is amazing compared to the rest of the world. But China is literally the cleanest shirt in a dirty laundry pile in the world - not the shining beacon of global growth it was in 2010s.

All the excitement in EVs, clean energy, biotech, semiconductors are all great, but they are literally rounding error in the grand scheme of things - we need trillions to grow the pile.

I'd like to see someone push back on how this is higher in 2023 with trillions- not 10s of billions.

Edit: all historical data is from Wind/CEIC - you can ignore the forecasts but they're from Autonomous Research.

Seeing as we are near the end of 2023, I am here to revisit my initial expectations from earlier this year. I believe my expectations have largely stood the test of reality and time. In fact, retail sales growth is on trend below my initial expectations and by all means my initial estimates of 5.5% GDP growth was likely an overly optimistic estimate, especially in context of the additional stimulus that the central government unleashed (1trln disaster relief infrastructure spend, 1 trln of refinancing for imminent LGFV debt due, as well as various real estate policy changes etc.).

Having spent 5 months in China and met with over 200 publicly listed companies and engaged with people of all aspects of society ranging from Didi drivers and barbers to those who have had relatives attending the 20th party congress, I believe I am in a position to summarize the takeaways in a way that clearly and accurately reflects the Zeitgeist.

To start, all of the positive things that everyone loves to talk about here - and I will categorize them as 'industrial upgrade' - EVs, medical equipment, aerospace, semiconductor, renewable energy - are largely progressing quite rapidly, and in many places they are ahead of schedule/expectations (as we saw from the HiSilicon Kirin 9000S chip). I won't preach to the converted here and elaborate more other than to say the vast majority of the people outside of China have zero clue there will be a wave of high quality + reasonably priced Chinese manufacture that will compete extremely hard in the RoW.

However, this is about where the good news end.

Confidence/sentiment is Atrocious... While everyone here are gungho about the outlook of the economy, such is not true domestically among vast swaths of the population. In terms of the upper middle income class - real estate/internet/afterschool tutoring/finance/public workers - making up a significant proportion of the 100mln or so global middle class population (I believe the 'passport' class is a good way to describe them) have gotten screwed royally. So they're not interested in spending their money. This is where I was extremely accurate earlier on in the year when I made a bet with @tphuang re: retail sales growth in 2023. Before someone cites how travel is strong, yes I know, but keep in mind its not sufficient to move the needle on retail sales. Just have a look at JD/Alibaba's results vs. Pinduoduo's results and you should have a good sense of how consumers are downgrading. Another good indicator is the performance of subprime lenders like Qifu360 - these are the people on short term contracts/gig jobs - and they're not doing well. So the upper middle class is quite reticent from spending is leading to underemployment by the lower income folks. Consumption as % of disposable income has fallen significantly in 2022 vs. pre-pandemic.

As such, the majority of the population do not share the overall positive sentiments espoused by those on this forum. Take it for what its worth - you may disagree and think they are all idiots or they are wrong, but you better make sure you understand that this is the feeling of majority of the population.

...and is at risk of turning into a vicious cycle. As a result, the overall negative sentiment is turning into a societal consensus and this is the biggest risk for Japanification at a much lower disposable income level - if the population at large do not share confidence in the future of the State, then you have situations where all the 'elites' want to run. Yes, I've seen the 2021 data showing significant repatriation of technical talent in the West into China - but the clear facts on the ground in China is that 'in Shanghai the best performing businesses in 2023 are those who help with immigration and those who help with kids' overseas education'. This likely is a function of the lack of understanding by domestic 'elites' in terms of the problems facing the RoW - but it doesn't change the fact that this is highly problematic for future of economic development in China if those with money want to leave and do not instead invest domestically. Obviously this is a lot of the '高知' types who thinks WSJ and NYT still are 'better' - and they're idiots for that - but it doesn't change that their behaviour impacts facts on the ground, and disproportionately so given their wealth/'status' and social influence.

Obviously there are substantial capacity by the central government to enact reforms and stimulate the economy to get people to be more confident again, but thus far we've seen small 'dribble' of stimulus that hasn't changed the narrative from the population at large.

Additionally there are risks of mis-management/policy mis-execution (Covid lockdowns in 2022 being the biggest) that lingers in the mind of many entrepreneurs in China.

We are at a point where, if everyone in China was confident, there would be no issues; but if everyone remains negative Nancy, then there will be issues.

 

[supercat]

...and is at risk of turning into a vicious cycle. As a result, the overall negative sentiment is turning into a societal consensus and this is the biggest risk for Japanification at a much lower disposable income level

China's GDP is about 1/3 of Japan's, why would its GDP growth stagnate now? China has 300-400 million middle class, and its domestic market is potentially 10x bigger than Japans. With more than 1.4 billion people, I doubt some emigration would really change the trajectory of China's growth. Think about it, proportionally, probably more Chinese elites emigrated in the past than currently. Yet China has developed to today's level. Further more, unlike Japan, China's economy is being integrated with the Global South, which pretty much solves China's demographic problem.

If China links its economy to 6 billion people in the Global South, the issue of demographic decline disappears: China will direct the work of the world's young people.

https://twitter.com/i/web/status/1726622684233273616

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Consumption-wise, big ticket items such as car sales are doing well.

https://twitter.com/i/web/status/1726425480880935338

This seems like a significant policy decision. Does anyone have any better information on this than Bloomberg? China moving towards a Singapore social housing system is a interesting way to control real estate growth and housing prices.

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Since China's current home ownership (combined urban and rural) is about 90%, this has to be a long term policy that mainly benefits the next generations. BTW, China has started to deflate the property sector as early as the onset of COVID-19.

https://twitter.com/i/web/status/1726466375307419736

There is no real decoupling between China and the US.

https://twitter.com/i/web/status/1726263919222694095