Chinese Economics Thread

[fishrubber99]

How much of this lack of consumption hysteria is actually due to Chinese consumers belt-tightening and how much of it is domestic Chinese companies beginning to take market share away in industries traditionally dominated by western firms (like automobiles)?

Both would ultimately result in western firms becoming more bearish in China.
Something tells me it's a mix of both.

 

[curiouscat]

How much of this lack of consumption hysteria is actually due to Chinese consumers belt-tightening and how much of it is domestic Chinese companies beginning to take market share away in industries traditionally dominated by western firms (like automobiles)?

Both would ultimately result in western firms becoming more bearish in China.
Something tells me it's a mix of both.

Yes, I think it’s also both. Chinese companies are clearly becoming significantly more competitive against Western ones but Chinese consumers are also not feeling great since the real estate sector tanked.

 

[Maikeru]

Caixin Manufacturing PMI 50.4. Moderately good, could be better:

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Once again Caixin and NBS diverging.

Other Manufacturing PMI: Eurozone 45.8, Germany 42.4, France 43.9, Japan 49.8, UK 52.5 (yay!)

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[jli88]

Excuses. They accused 1980/90s Japan of the same thing.
US citizens consume more simply because the US runs on credit unlike most of the world.

Chinese citizens have high home ownership, car ownership rates which indicates that domestic consumption is perfectly normal.

Ownership is a stock measure, not a flow measure, while economic size (GDP) is a flow measure.

How much of this lack of consumption hysteria is actually due to Chinese consumers belt-tightening and how much of it is domestic Chinese companies beginning to take market share away in industries traditionally dominated by western firms (like automobiles)?

Both would ultimately result in western firms becoming more bearish in China.
Something tells me it's a mix of both.

Yes, I think it’s also both. Chinese companies are clearly becoming significantly more competitive against Western ones but Chinese consumers are also not feeling great since the real estate sector tanked.

It's not a controversial fact (it's acknowledged pretty widely even by government) that economy is going through a pretty rough phase. Obviously no where near the delusional slanders from some Westerners.

Some issues:

1. Retail sales are growing in low single digits, sometimes even ~2%! For the economic stage of China, that is too slow.
2. Economy is broadly in deflation, now that would not have been a big thing if the wages/consumption was growing, but it's not at the pace needed.
3. Huge capital outflows in the last 3-4 years. Migration of Chinese millionaires/billionaires abroad should decrease with time, but it accelerated in the last few years.
4. Unemployment issue.
5. Nominal per capita $ GDP has stagnated for the last 2-3 years.

China is such a large country that obviously the economic situation would be mixed, there are definitely a lot of positives as well going on with the economy.

The thing is that China is going through a transition phase, it's understandable if there's slower growth for a couple of years, however the transition has to be managed well if China wants to reach Korean/Japanese per capita standards. It's an uncertain time for a couple of years.

 

[fishrubber99]

Some issues:

1. Retail sales are growing in low single digits, sometimes even ~2%! For the economic stage of China, that is too slow.
2. Economy is broadly in deflation, now that would not have been a big thing if the wages/consumption was growing, but it's not at the pace needed.
3. Huge capital outflows in the last 3-4 years. Migration of Chinese millionaires/billionaires abroad should decrease with time, but it accelerated in the last few years.
4. Unemployment issue.
5. Nominal per capita $ GDP has stagnated for the last 2-3 years.

I feel like all these points have decent counterarguments,

1. Retail sales are constantly used as equivalent to overall consumption, when this is not the case. Some estimates of overall consumption point to it being ~2% lower than the 2019 trend line,
   https://twitter.com/i/web/status/1802734036986593311
2. I think a part of the deflationary environment is caused by a lack of credit growth due to the real estate bubble popping, but a part of it can also be attributed to productivity increases driving down supply-side costs for producers (e.g. $15,000 EVs),
   https://twitter.com/i/web/status/1758519937079935302
3. Any degree of policy making that drives down asset prices (like the 3 red lines) or result in greater oversight over people's wealth and the means they acquired that wealth (like the anti-corruption campaign and increased scrutiny by tax authorities) will result in this occurring, but the alternative to this is allowing the moral hazard of a class of people responsible for making housing unaffordable and are known for committing tax fraud,
   https://twitter.com/i/web/status/1823335458262470727
4. Unemployment is primarily an issue facing younger people (<30 years old) but employment for people in the 30-59 age group is relatively stable and low, at around 3.9%. Overall employment is also around 5% which is not alarmingly high.
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5. Nominal GDP per capita can be explained more by US interest rate hikes resulting in a depreciation in CNY to USD. You can see it was roughly 6.4 CNY to USD in 2021-2022, but now it's around 7.11 CNY and will probably go back to around 2022 levels if the Fed begins lowering rates this month and continues to do so into next year. That means the CNY depreciated by around 10% but economic growth kept China's nominal GDP around the same size as in 2021-2022.
   
   

There's no doubt that China's economy is going through a rough patch, but there's a reason the top policy makers aren't pumping out massive amounts of stimulus like they did in response to the GFC. I would also argue that policy makers need to look at other metrics (not just economic growth) to measure the wellbeing of their population, there's a reason why China's health indicators (e.g. life expectancy, maternal and infant mortality, etc) are better or about the same as the US despite having a much smaller economy per capita.

 

[proelite]

I feel like all these points have decent counterarguments,

1. Retail sales are constantly used as equivalent to overall consumption, when this is not the case. Some estimates of overall consumption point to it being ~2% lower than the 2019 trend line,
   https://twitter.com/i/web/status/1802734036986593311
2. I think a part of the deflationary environment is caused by a lack of credit growth due to the real estate bubble popping, but a part of it can also be attributed to productivity increases driving down supply-side costs for producers (e.g. $15,000 EVs),
   https://twitter.com/i/web/status/1758519937079935302
3. Any degree of policy making that drives down asset prices (like the 3 red lines) or result in greater oversight over people's wealth and the means they acquired that wealth (like the anti-corruption campaign and increased scrutiny by tax authorities) will result in this occurring, but the alternative to this is allowing the moral hazard of a class of people responsible for making housing unaffordable and are known for committing tax fraud,
   https://twitter.com/i/web/status/1823335458262470727
4. Unemployment is primarily an issue facing younger people (<30 years old) but employment for people in the 30-59 age group is relatively stable and low, at around 3.9%. Overall employment is also around 5% which is not alarmingly high.
   Please, Log in or Register to view URLs content!
5. Nominal GDP per capita can be explained more by US interest rate hikes resulting in a depreciation in CNY to USD. You can see it was roughly 6.4 CNY to USD in 2021-2022, but now it's around 7.11 CNY and will probably go back to around 2022 levels if the Fed begins lowering rates this month and continues to do so into next year. That means the CNY depreciated by around 10% but economic growth kept China's nominal GDP around the same size as in 2021-2022.
   
   View attachment 135119

There's no doubt that China's economy is going through a rough patch, but there's a reason the top policy makers aren't pumping out massive amounts of stimulus like they did in response to the GFC. I would also argue that policy makers need to look at other metrics (not just economic growth) to measure the wellbeing of their population, there's a reason why China's health indicators (e.g. life expectancy, maternal and infant mortality, etc) are better or about the same as the US despite having a much smaller economy per capita.

Earlier I mentioned that Chinese companies are keeping 500 billion - 2 trillion USD State side due to yuan carry trade. I'm of the opinion that a lot of the export boom in the past years failed to translate into economic benefits domestically because the money isn't repatriated and reinvested in China. Once the interest rate is lowered I expect the economy to get a big stimulus of the best king.

What do you think.

 

[henrik]

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[mossen]

Even if Chinese consumption is better than the usually assumed, given no immigration and a gently declining population, should we really be worried about consumption? In such an environment, consumption will necessarily have to slow down. Wage growth is also likely to be slower going ahead given that growth is unlikely to breach 5% going forward in the next decade. Wages cannot outstrip GDP growth for a long time.

It's true you can pump up consumption by letting in tons of people (see Canada) but GDP per capita isn't necessarily growing because population growth often outstrips productivity increases in such a scenario, as has happened in Canada.

I think a bigger issue might be deflation, but as previous commentators noted, a lot of Chinese deflation is just driven by relentless productivity improvements. As crazy as it sounds, doing "nothing" in this environment might be the most rational outcome, which is why the govt is unwilling to make any major interventions as of now.

 

[curiouscat]

Even if Chinese consumption is better than the usually assumed, given no immigration and a gently declining population, should we really be worried about consumption? In such an environment, consumption will necessarily have to slow down. Wage growth is also likely to be slower going ahead given that growth is unlikely to breach 5% going forward in the next decade. Wages cannot outstrip GDP growth for a long time.

It's true you can pump up consumption by letting in tons of people (see Canada) but GDP per capita isn't necessarily growing because population growth often outstrips productivity increases in such a scenario, as has happened in Canada.

I think a bigger issue might be deflation, but as previous commentators noted, a lot of Chinese deflation is just driven by relentless productivity improvements. As crazy as it sounds, doing "nothing" in this environment might be the most rational outcome, which is why the govt is unwilling to make any major interventions as of now.

I think consumption is still a concern because for China current income growth trajectory consumption is definitely downbeat. Almost all my family and friends in China say most people got pretty scared after real estate cratered and they continue to be. I think doing nothing is the best option since the only real way to deflate the real estate situation is time.

 

[Jiang ZeminFanboy]

I feel like all these points have decent counterarguments,

1. Retail sales are constantly used as equivalent to overall consumption, when this is not the case. Some estimates of overall consumption point to it being ~2% lower than the 2019 trend line,
   https://twitter.com/i/web/status/1802734036986593311
2. I think a part of the deflationary environment is caused by a lack of credit growth due to the real estate bubble popping, but a part of it can also be attributed to productivity increases driving down supply-side costs for producers (e.g. $15,000 EVs),
   https://twitter.com/i/web/status/1758519937079935302
3. Any degree of policy making that drives down asset prices (like the 3 red lines) or result in greater oversight over people's wealth and the means they acquired that wealth (like the anti-corruption campaign and increased scrutiny by tax authorities) will result in this occurring, but the alternative to this is allowing the moral hazard of a class of people responsible for making housing unaffordable and are known for committing tax fraud,
   https://twitter.com/i/web/status/1823335458262470727
4. Unemployment is primarily an issue facing younger people (<30 years old) but employment for people in the 30-59 age group is relatively stable and low, at around 3.9%. Overall employment is also around 5% which is not alarmingly high.
   Please, Log in or Register to view URLs content!
5. Nominal GDP per capita can be explained more by US interest rate hikes resulting in a depreciation in CNY to USD. You can see it was roughly 6.4 CNY to USD in 2021-2022, but now it's around 7.11 CNY and will probably go back to around 2022 levels if the Fed begins lowering rates this month and continues to do so into next year. That means the CNY depreciated by around 10% but economic growth kept China's nominal GDP around the same size as in 2021-2022.
   
   View attachment 135119

There's no doubt that China's economy is going through a rough patch, but there's a reason the top policy makers aren't pumping out massive amounts of stimulus like they did in response to the GFC. I would also argue that policy makers need to look at other metrics (not just economic growth) to measure the wellbeing of their population, there's a reason why China's health indicators (e.g. life expectancy, maternal and infant mortality, etc) are better or about the same as the US despite having a much smaller economy per capita.

I want to add that retail sales also includes a lot of things consumed by real estates, when real estates plummets so does retail sales of these categories. Retail sales accouting is a bit tricky

https://twitter.com/i/web/status/1802731977222545594

However services retail sales still grows fast. It's a new indicator, established just few years ago, not included in basic retail sales statistics

https://twitter.com/i/web/status/1822093252167643464