How did you come to this observation? When everything equal, is there a case that Chinese companies rather sell their products to the foreigners than to their folks at home?
Chinese Economics Thread
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how many categories of consumption are there, where China is not #1 in?
what do you think Americans 'consume'?
Why do we assume that the Chinese economy must follow capitalist principles in chasing profit and that chinese firms must necessarily be profitable? The CPC views the economy as necessary in building socialism, not for profits hence why high speed rail doesn't generate a profit but the increased connectivity allows for greater economic development and economic activity, ditto with finance which to my dismay, i know that my SMIC shares aren't gonna go Nvidia
Not sure if you had been drinking when typing this, but the primary market for the vast majority if not all of China's manufactured goods is the Chinese market itself.
That's why you don't see Chinese brands emerge overseas first and then backwards expand into the Chinese market; all the 'new' brands you see in electronics, whitegoods, auto, operating in western markets established a clear market hold in China first, before expanding outwards.
This applies also to name contract manufacturers without the capital or logistics capability of large Chinese companies; you don't skip the huge guaranteed market at your doorstep to gamble on smaller overseas markets. Anecdotally, any product, no matter how bad, will still generate decent revenue in China just due to the size of the market. Even a product that fails, you still have enough suckers buying out of the initial batches that you would generally recoup your investment.
oh I missed this. Since this is so prevalent can you name just a few companies in China that sells more and higher end products to foreigners than to the Chinese market? I mean if it's so obvious and common, it should be easy.
the only export only company I know is Transsion, and they sell phones too low end for the Chinese market to 3rd world countries.
All these gdp numbers of various developed countries need to be compressed and adjust accordingly. For example, Japan's currency is crumbling rapidly due to decline of competitiveness. As China is climbing up in the technology value chain, all the high-tech part of the most developed countries needs to be compressed in value. This is because there is not enough high-tech economic activity and markets for all these countries to share. The leading technology companies will see their gross margin compressed, as China continue to take market share away from them.
A lot of things. That is why they are the largest consumer market on the planet, reaching total personal consumption expenditure worth more than US$18 trillion, while China reaches a value of no more than US$7 trillion. Which translates into a higher standard of living in the US than in China.
The American case is interesting, because it gives us the need for comparison. While in China, the mercantilist logic is followed as the current commercial policy, in the USA they even run a deficit in the trade balance to import consumer goods, which, contrary to what is imagined, increases the population's quality of life and even produces positive results for domestic inflation. In China, even though it is still the second largest importer in the world, there is no possibility of this being followed, because China needs to respond to the export lobby, which is still the commercial tendency of Chinese politicians.
As I already said, this trade policy worked for both exporters and Chinese politicians, as well as for the rest of the world, which appreciated the low value of imported consumer goods.
On the export side, the production of goods and consumption is exported, thus earning in strong currency - the dollar, the government incentive should not be neglected, because this mercantilism allows the government to create a huge trade surplus and accumulate international reserves, but this has a cost, someone always loses from it, the only ones who gain from it are the exporters and the government.a
The group that loses from this is the entire society that does not benefit from these goods produced and exported, that is, think of the trillions that have been produced and exported in all these years by exporting groups, all of this could be returned to the domestic market, which would guarantee a higher standard of living for the population, but this could not be done unless it validated other commercial and monetary policies.
In other words, the idea of “export-led growth” makes no sense. The export-led economy makes no sense, 10 out of 10 developmental economists shout this, when this is far from being a reality. Exports benefit the society that imported those goods, not the population that exported those goods. What generates economic growth is an increase in production. And increases in production require, in addition to investments, increases in labor specialization. Increases in specialization, in turn, require increases in trade.
If, for example, you specialize in the production of bearings, you will only prosper if there are multiple people with whom you can transact business -- not just buyers willing to purchase your bearings, but also multiple sellers willing to supply you with various goods. and services that you can buy with the income acquired from your bearings. It is exactly your consumption of these goods and services that will increase your standard of living. If you produce and sell more and more bearings, but never spend your revenue on consumer goods, then you are simply raising the standard of living of other people (those who are purchasing your bearings), and impoverishing yourself. After all, you work and work and work, but you get nothing in return -- you just accumulate money, which is useless if you never spend it to acquire things that raise your standard of living.
The people of a country can indeed become more prosperous by specializing in the production of goods and services and then exporting them to foreigners. However, this increase in production and exports will make these producers more prosperous only if they spend their income, as consumers, on goods and services that they import from foreigners. A country's standard of living is determined by the abundance of goods and services. The greater the quantity of goods and services offered, and the greater the diversity of this offer, the higher the population's standard of living. Thus, a people who export more in order to import more will become rich and improve their standard of living; Now, a people who export more just to export more and, with that, "improve their trade balance" will reduce their standard of living -- after all, by sending more products out and not bringing more products in, the internal supply of products will fall. Fewer products on the domestic market imply a direct reduction in the standard of living. This is exactly why the USA has a consumer market that is almost three times larger than China, even though China is as large an economy as the USA, which explains the higher standard of living in the USA compared to China.
It is possible to have export-led economic growth, but only if you correctly interpret the meaning of this expression. Economic growth occurs when, and only when, there are increases in the quantity of goods and services available for a country's population to consume. The more able to consume, the richer individuals are. From this we can conclude that greater opportunities to export actually generate real economic advantages. But these advantages will be reduced, or even nullified, if these greater exports do not translate into greater imports.
If we export more and receive, in exchange for these exported products, more imported goods and services that we value as consumer items -- and which we value more than national products -- then we are better off. We "grow" economically. If, however, we increase exports but do not receive more goods and services in return, then our situation has not improved at all. What really matters, therefore, is what we receive (in terms of consumer goods) in exchange for what we produce.
Thus, if the government starts to artificially encourage exports in a totally mercantilist logic, but in no way facilitates imports, then the economic growth that it will be promoting would be the same as if it started to promote the production of "yellow things" or "yellow things" rectangular" (for which there was never a demand). Producing more exports just to export more makes as much sense as producing more yellow or rectangular things just to produce more yellow or rectangular things. Therefore, there is nothing remotely special, or superior, or economically significant about "export-led growth." All growth, ultimately, is driven by production -- but only when what is produced is exchanged for goods and services to be consumed.
If, for example, Henry Ford increased the productivity of his Model T production line -- as he did -- but refused to purchase any goods or services for himself and his company in return, this lower unit cost of production made possible by this large-scale production would have been completely useless to him.
Taking advantage of opportunities to produce on a larger scale will be an advantage if there are economies of scale and if they are driven by market demands and China has this national scale. And a global market in fact has a greater number of opportunities than any national market, however large it may be, but China has fallen far short of leveraging this enormous domestic consumer market. However, it is always crucial to emphasize that any genuine economic growth that may occur through this increase in exports will be because not of what is being exported, but rather of what is being imported.
In an economy, we increase our consumption capacity by producing greater quantities for others to consume -- others who, in return, will provide us with what we want to consume. Thus, each of us "grows" economically by producing more things (measured in terms of value) for our trading partners to consume, because only then will our trading partners give us what we want from them: more things for us to consume. Just as an individual will not prosper if he hands over the fruits of his labor to others in exchange for mere pieces of paper (or electronic digits) that he will never spend, no group of people will prosper if they follow this same unwise strategy.
Exports are costs. They promote economic growth only if, in return, the population of the exporting country receives goods, services and assets that improve their quality of life and their ability to produce. Any country that insists on exporting its production and, in return, importing as little as possible (by adopting import tariffs or even directly restricting various imports) will be on the right path to poverty.
Accumulating money (in this case, foreign currency from exports) can be a strategy that increases prosperity -- but only if that money is spent. If it is never spent, all products sent to other countries in exchange for this money will just be gifts to foreigners. Any people who allow their government to adopt this policy of encouraging exports and restricting imports will only be enriching others and impoverishing themselves.
How else do you think China made it from competing with UK in size back in 1960 to becaming the world's largest economy today?
What you failed to understand is what makes a country prosperous and powerful.
Products themselves are worthless. The ability to produce is what is sought after.
The prize behind producing something is not money, but learning how to produce it better, or to create a derivative product and so on. In that process, the whole society advances, becoming more efficient and advances forward, while countries that failed to capture the market remain stagnant at their current level.
Nearly all products become obsolete in a few years. Some or even most products have no or negative worth, as they're not truly needed. But the logistical and organizational advancement behind creating such pieces of garbage is valuable.
Societies which are more efficient will always beat ones that are less efficient, assuming anywhere near similar size.
A Saudi prince typically receives a lot of "gifts", usually from the West, gold plated BMWs, diamond studded clothing, private airplanes from western plane manufacturers... Who has the real power there, the one that receives the "gifts" or the ones that design the "gifts"?
Understanding this fact of reality better is what allowed China to beat US economically.
This rant just tells me that you read too many Michael Pettis tweets. China does not primarily produce things for export, a majority of Chinese production is consumed in China, and most of recent Chinese economic growth stems from domestic consumption (82.5% of 2023's economic growth was from consumption growth).
The most prominent Chinese consumer products and brands achieved a substantial market share in China first before being exported to other countries (like BYD, DJI, Oppo, Xiaomi, Haidilao, Mixue etc). This thesis doesn't hold up to scrutiny.