Chinese Economics Thread

[abenomics12345]

Cus Chinese people are tricky LOL. My take is that too many Chinese companies open up to get-rich-quick schemes and then close after they've made their money. Also, China is a much newer market with many more emerging companies than the US, which generally has established megacorps that have long histories and can't go under; they are sure to do well on the stock market in the long term. On the other hand, China's market is newer and more dynamic. The big companies are still new compared to those in developed countries and there are new-kid-on-the-block big hit pop-ups at a much higher rate than in the US.

Yes, that's my point, a corrupt Chinese official's RMB assets cannot get that big before he's asking to go to jail. But with USD hidden in offshore accounts, his greed can continue to be fed. That's another corruption issue that China will have to sort out...

The problem here is that sketchy Chinese companies link up with corrupt Chinese officials - and are often the same people. The notion that the corruption problem has been cleaned up after Xi is not true - as shown by the latest CCDI documentaries. At this point a serious question that needs to be asked is, can this be accomplished? If not, then is there even a point to try and rat out everything. What is an acceptable level of corruption?

The US doesn't have corruption because it's all legalized and operationalized.

Before anyone brings 'buh Singapore' - that's a citystate the size of Chaoyang district, not exactly comparable.

You can look at China's better returns on bonds and think that global investors found medium and long-term gov. bonds in China to be safer, hence China is a more financially healthy country than the US. Or a better safeguard of wealth at least. That is taking it at face value.

The PBoC is cutting rates and RRR to.....cool an overheating economy. Keep coping bro.

I'm thinking this because the article mentioned that there is high participation of foreign investors, those are not domestic investors speculating and flying from stocks to bonds. To me, it looks like it's some kind of long-term, value-based movement and not sentiment-based.

This is a lot of "foreign investors are good long term value investors whereas domestic investors are speculators" energy.

Where's your domestic confidence now?

 

[abenomics12345]

What can I buy with all this RMB? A lot, but not some very important things. I can't buy airliners with RMB. I can't buy the most advanced semiconductors and pharmaceuticals with RMB. I can't buy the most sophisticated industrial equipment with RMB.

I've frequently commented that having RMB is like having an Amazon gift card - you can buy a lot of things but not everything, especially some of the most important things. And as you said, you also cannot invest in the Chinese stock markets as a place to preserve/grow your wealth much like how Amazon gift cards cannot be invested.

 

[FairAndUnbiased]

Very interesting discussion these last few pages. I find it helpful to consider the question of RMB as reserve currency from first principles. A definition that gets at the core of the issue is that a currency is a reserve currency when accumulating it becomes an end in itself. Financial institutions around the world don't accumulate USD to trade with the US, or even to trade with each other using USD, they do so because accumulating USD is the point.

There's a potent network effect here, a lot of what drives this behaviour is that others do it. This makes the network robust as it requires a simultaneous, widespread shift in behaviour to destroy it. However, the strain the network can endure is not linear. There comes a point where the network is non-viable if enough nodes - especially "influencer" nodes - leave.

Of course, the question is what's "enough" and I don't know the answer to that or even if there is a way to determine the answer.

What are the variables that influence the health of the USD reserve currency network? Perhaps controversially, I don't think US monetary profligacy is a factor. The US can spend like a drunken sailor and nobody will divest of their paper because the USD is the only candidate. When you're the only candidate, you're the only choice.

Therefore, the presence of another candidate for reserve currency alone will do much to damage the US's standing. So how does the RMB get to be a candidate? To answer that, let's put ourselves in the shoes of a central bank director in Latin America or the Middle East.

What can I buy with all this RMB? A lot, but not some very important things. I can't buy airliners with RMB. I can't buy the most advanced semiconductors and pharmaceuticals with RMB. I can't buy the most sophisticated industrial equipment with RMB.

That's just the tangibles. I can't buy protection with RMB - nuclear-powered supercarrier 014 isn't going to dock nearby any time soon. I most certainly can't buy political influence in China with RMB. I can't even park RMB in Chinese equities to get more RMB! A stock market with 70% retail investors that's fallen back to 1990s levels? No, thanks. I'd be imprisoned if I made the decision to accumulate more RMB than absolutely necessary, and rightly so.

The path forward is both clear and difficult:

• China must continue to advance its technology on all fronts. Not just the hardware, which is already making excellent progress, but the political part of technology like standards and certifications.
• China must continue its military buildup and extend the reach of the PLA to a global scale. There is a limit to how close countries will get to China if they don't feel China can provide them with at least some token level of security.
• China must establish credibility in its stock markets by institutionalizing them. They must be reformed until they're no longer the back-alley gambling dens they are now. I foresee state-owned investment funds playing a big role here.
• Most controversially, China must provide some avenue of political influence (limited and carefully monitored) where those countries who accumulate RMB are favoured over those who do not.

This is exactly it. Producing the technology is good but the real money is in the standards and certifications, the rules of the game so to speak. The one who makes the rules gets the gold.

The stock market will be a very tough one as many Chinese companies and especially SOEs do not rely on equity fundraising but bank financing. But equity financing means giving control up, that is what equity is after all. The alternative investment vehicle would be government bonds.

I don't think USD can buy political power. We all know that Chinese oligarchs tried during the Clinton and Obama eras, and it failed. Only took Trump and now Biden to uproot decades of effort. It would be disastrous for RMB to be able to buy Chinese political power. The benefit of the RMB should be obvious and self evident such that no need for anything under the table exists.

 

[GiantPanda]

And this, is precisely the goddamn problem.

There's a lot of "the foreign machine is by definition better than the Chinese machine" energy from this line of thinking.

Why is it that the US market is treated as a wealth accumulating market whereas the Chinese market is not?



I am saying that wining and dining in NYC on caviar and lobster and 3 star restaurants is the cultural identity of what it means to be 'global elite'. Going back to my earlier point on 'calling the shots' - this is a function of Hollywood's propaganda successful at portraying the US as something it is not. The US as a 'destination' of debauchery and opulent/luxurious lifestyle is attractive especially when the government takes a laisse faire attitude towards these issues. China, on the other hand, does not take so kindly to this - ask Kris Wu.



First of all, quote these "forceful statements" - where are they?

Second of all, I think you have a fundamentally misconstrued understanding of how stock markets actually work vs. what you saw in Wolf of Wall Street. Like, seriously. Just stop. Go read his book on Structural Reform if you are interested in learning about the plans/goals of reforms in China. I've read it and that is why I am categorically calling you out here.

Investing 101:

The present value of a stock is the cumulative sum of all future cashflows discounted to the present using an appropriate discount rate. As such, return of a stock equate to a combination of: dividends + earnings growth + change in the valuation (P/E ratio as a standard). Over the very long term, change in valuation should net out so return from a stock is a sum of dividend + earnings growth.

While you may think stock market involves frequent trading - true returns are made from actually investing in companies over the long term. This means participating in the company's growth as it adds value to customers, employees, and shareholders. This equation breaks when any particular stakeholder is sacrificed. In China, the current problem is that employees and shareholders are sacrificed to overly benefit the customer.

I would recommend you read Poor Charlie's Almanack if you want to understand the 'proper' way of doing things.



There's a lot of activity that is not profitable - you can use all the electricity and commodities you need but prices for your end products keep deflating - there is less money made. More stuff produced =/= better companies. Total corporate profits in 1H23 was actually down for publicly listed companies - let alone the swath of private small businesses that went bankrupt.

Nobody, absolutely nobody serious in China is calling for 'excessive profit made without production'.



The Chinese bond market doing well is precisely an indicator of poor economic sentiment, and this isn't something you want to brag about...

I've made enough from the stock market to know how it works. I also know that the Chinese market had been a casino that doesn't reflect the Chinese economy. It had been this way for decades.

This is what caused the current slump in Chinese markets to begin with and it was done purposefully:
"In 2021, regulatory reforms to the economy saw policymakers shift their priorities from short-term asset performance to social well-being, or ‘Common Prosperity’."

I would love a working stock market for China. But it is not one of their priorities. And you can tell from the pittance that is rumored to be the rescue package.

This isn't complicated stuff. If the market issue is as critical as you are trying to convince us then they would move $Trillions to fix it.

China didn't come from a Third World backwater to the largest real economy on the planet with a working stock market, it did it without one. Just look at the collapses in the market during boom years.

 

[hereforsemithread]

RRR cut of 50bps overnight.

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C-SOEs senior management will now have 'market capitalization/value' as part of their KPIs.

The narrative you espouse sounds smart until you actually track what they are doing. The correct take from this should be: the central government has pushed out one policy after another and yet fundamentals have not improved - it's not that they don't care but that they don't have capacity to influence change.

Okay then how did they resuscitate the stock market after the 2015 crash if they did not have the capacity to influence change?
How did they effectively stimulate the economy in the aftermath of the 2008 crash if they do not have the capacity to influence change?
Historical experience shows the party's control over the financial system and valuations are substantial. Do you believe that power has decayed decisively under Xi? If so, how do you justify this, given the extent to which he has integrated the financial bureaucracy with that of the party?
Is it more comfortable for you to believe that they want to raise valuations but can't, than to believe valuations just aren't big enough of a priority for them to compromise other goals for valuations' sake?

 

[abenomics12345]

I've made enough from the stock market to know how it works. I also know that the Chinese market had been a casino that doesn't reflect the Chinese economy. It had been this way for decades.

As I've made extremely clear, the *future* growth of the Chinese economy, as predicated by the goal of common prosperity, is contingent on a well functioning capital market. For someone who claims to have made money in the stock market, you don't seem to understand that the past is not necessarily indicative of the future.

"In 2021, regulatory reforms to the economy saw policymakers shift their priorities from short-term asset performance to social well-being, or ‘Common Prosperity’."

I am talking about primary source document, not some third party interpretation that may or may not be unreliable. Where did you get that from? Come on dude - do better.

Okay then how did they resuscitate the stock market after the 2015 crash if they did not have the capacity to influence change?
How did they effectively stimulate the economy in the aftermath of the 2008 crash if they do not have the capacity to influence change?
Historical experience shows the party's control over the financial system and valuations are substantial. Do you believe that power has decayed decisively under Xi? If so, how do you justify this, given the extent to which he has integrated the financial bureaucracy with that of the party?

If you actually did some work on this, the 4 trln RMB in 2008 stimulus was a underestimation of the actual fiscal impulse by historic proportions. The LGFV problem we have today was created in the aftermath of 2008.

In 2015, the shanty-town renovation drove another dose of fiscal impulse that flowed through.

Rather than me doing all the work, why don't you do some work and tell me what China's Debt/GDP was in 2008 and 2015? What is it today in 2024?

Consolidating power into one umbrella =/= that the bureaucracy is better run.

The gaming regulation fiasco in Dec 2023 was *plenty* evidence that they have significant coordination problems.

 

[hereforsemithread]

If you actually did some work on this, the 4 trln RMB in 2008 stimulus was a underestimation of the actual fiscal impulse by historic proportions. The LGFV problem we have today was created in the aftermath of 2008.

In 2015, the shanty-town renovation drove another dose of fiscal impulse that flowed through.

Rather than me doing all the work, why don't you do some work and tell me what China's Debt/GDP was in 2008 and 2015? What is it today in 2024?

Consolidating power into one umbrella =/= that the bureaucracy is better run.

I know all of that. I didn't think I had to mention it because you should know that it proves my point about party/state economic control completely.

Yes LGFVs played a major role in the 2008 stimulus. They were set up and owned by local governments, injected with land owned by local governments, and then used that land as collateral to take out loans from banks owned by local governments (or the cg). Every step of the way state power and control was involved, and by extension that of the party. This experience is proof that the party can exert very powerful control over the economy when it wants to, which is exactly to the contrary of what you claimed. And yes it caused problems, but how exactly is that a point in favor of the government intervening to prop up stocks? I never claimed such intervention would be cost-free, only that they could do it. Again this is my point; they could prop up stocks, but only at the cost of other social/economic goals, chief among them deflating the real estate bubble, since any kind of sustained support for the stock market from the cg would require a substantial monetary expansion, which would fuel the exact cancer they're in the middle of debriding. So that they aren't doing this can only lead us to one conclusion: there are other social/economic goals conflicting with short-term maximization of valuations, and the cg holds the former in higher priority.

Now you could say that it's the party's fault that there isn't any magical method of fueling stocks that doesn't implicate other outstanding economic issues, but I think that's obviously a ridiculous standard that no government could ever meet.

 

[hereforsemithread]

I know all of that. I didn't think I had to mention it because you should know that it proves my point about party/state economic control completely.

Yes LGFVs played a major role in the 2008 stimulus. They were set up and owned by local governments, injected with land owned by local governments, and then used that land as collateral to take out loans from banks owned by local governments (or the cg). Every step of the way state power and control was involved, and by extension that of the party. This experience is proof that the party can exert very powerful control over the economy when it wants to, which is exactly to the contrary of what you claimed. And yes it caused problems, but how exactly is that a point in favor of the government intervening to prop up stocks? I never claimed such intervention would be cost-free, only that they could do it. Again this is my point; they could prop up stocks, but only at the cost of other social/economic goals, chief among them deflating the real estate bubble, since any kind of sustained support for the stock market from the cg would require a substantial monetary expansion, which would fuel the exact cancer they're in the middle of debriding. So that they aren't doing this can only lead us to one conclusion: there are other social/economic goals conflicting with short-term maximization of valuations, and the cg holds the former in higher priority.

Now you could say that it's the party's fault that there isn't any magical method of fueling stocks that doesn't implicate other outstanding economic issues, but I think that's obviously a ridiculous standard that no government could ever meet.

By monetary expansion I specifically meant cutting rates

 

[FriedRiceNSpice]

In the US stock market, 95% of the wealth created is diverted to 1% of the population. US is a great place to be for the wealthy, not so much for anybody else. How does that align to a goal of, "common prosperity?" I'm not saying that capital markets are not needed - but the US model where the rich just get richer is not a good model for Chinese policy makers.

 

[supercat]

The US doesn't have corruption because it's all legalized and operationalized.

Well, at least China doesn't waste money on trillion-dollar wars. In the US, I suspect that the distribution of the annual military budget and healthcare expenditure alone probably involve enormous corruption and waste, not to mention city and state budgets. God knows how much pork there is in those.

China is one of the regions that has the least wealth disparity based on median income.

https://twitter.com/i/web/status/1750140803240886779

China is striving to double its middle income class from 400 million to 800 million or so in a decade.

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