Chinese Economics Thread

[abenomics12345]

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.

If you have USD offshore in a bank account because you're an exporter, you can command a significant premium by running money laundering offshore for those who want to move cash offshore (of which there are many).

I love how everyone quotes Glenn as if he's just the gospel to explain away all the bad news. He offers a *possible* explanation of the bad news - it is not *necessarily* the correct explanation. Do yourself a favor and not conflate the two - they are not the same.

The entire premise of the "everything is fine" argument seems to be based on a "its a tough year or two we'll get better once we are out of this tough period" - while I'd like that to happen, my question for all of you is - what, specifically, are the changes that will drive the economy out of this 'rut'? Because newsflash, things as they are, have not been improving.

I am not precluding the possibility that they eventually improve in the future, but as of this moment, they are not.

Real Estate sales continue to deteriorate - YoY weekly sales are -22% - Real Estate needs to stabilize (keep in mind 2023 was in general -50% vs 2022 levels) so it has not happened. What will cause this to stabilize? All the policies thus far (relaxation of home purchase restrictions, repurchase of inventory etc) have been punches on cotton - zero effectiveness.

Before anyone talk of 3rd plenum, the notion of using a structural toolkit to solve an immediate, cyclical problem is like telling someone with a heart attack that they should exercise. Like yes they should exercise, but not helpful.




This is the data from Beijing Bureau of the NBS:

Please, Log in or Register to view URLs content!

Restaurants in Beijing saw profits decline by 89% in 1H24 - they are basically not making money.

From Shanghai:

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Retail sales are -2.8% in first 7 months of the year (Jan-March was 0.1% growth) - you do the math on how April-July was (hint: its below -2.8%).

The data has been deteriorating, especially in the past 3 months.

This is the data from industry association for machine tools (supposedly a growing segment of the economy with yuuuuge potential):

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Volume up 6.6%, revenues down 3.6. Profits down 15%.

Note, the deflation thus far has not yet translated into lower wages/slower jobs market (which are lagging indicators) - but if you just look up what Boss Zhipin/Liepin say about what they're seeing right now, jobs market is slowing down, even in advanced manufacturing end markets.

For all the 'deflation is great' fanboys, how do incomes of employees go up when revenues are going down? If incomes are going down, how are people going to afford better things?

Debt is nominal, how does the country de-leverage when incomes are not growing?

Also, while I am sympathetic to the argument that China is not underconsuming simply because of the accounting differences / price declines; what this argument implies is that there is, an oversupply of products/services at the current level of consumption (which cause price competition and zero profits).

So which one is it? Is China underconsuming? Or is there an oversupply?

Hint: Politburo already answered it for you -

Please, Log in or Register to view URLs content!

"要强化行业自律，防止“内卷式”恶性竞争。强化市场优胜劣汰机制，畅通落后低效产能退出渠道。"

 

[abenomics12345]

If you have USD offshore in a bank account because you're an exporter, you can command a significant premium by running money laundering offshore for those who want to move cash offshore (of which there are many).

I love how everyone quotes Glenn as if he's just the gospel to explain away all the bad news. He offers a *possible* explanation of the bad news - it is not *necessarily* the correct explanation. Do yourself a favor and not conflate the two - they are not the same.

The entire premise of the "everything is fine" argument seems to be based on a "its a tough year or two we'll get better once we are out of this tough period" - while I'd like that to happen, my question for all of you is - what, specifically, are the changes that will drive the economy out of this 'rut'? Because newsflash, things as they are, have not been improving.

I am not precluding the possibility that they eventually improve in the future, but as of this moment, they are not.

Real Estate sales continue to deteriorate - YoY weekly sales are -22% - Real Estate needs to stabilize (keep in mind 2023 was in general -50% vs 2022 levels) so it has not happened. What will cause this to stabilize? All the policies thus far (relaxation of home purchase restrictions, repurchase of inventory etc) have been punches on cotton - zero effectiveness.

Before anyone talk of 3rd plenum, the notion of using a structural toolkit to solve an immediate, cyclical problem is like telling someone with a heart attack that they should exercise. Like yes they should exercise, but not helpful.

View attachment 135177


This is the data from Beijing Bureau of the NBS:

Please, Log in or Register to view URLs content!

Restaurants in Beijing saw profits decline by 89% in 1H24 - they are basically not making money.

From Shanghai:

Please, Log in or Register to view URLs content!

Retail sales are -2.8% in first 7 months of the year (Jan-March was 0.1% growth) - you do the math on how April-July was (hint: its below -2.8%).

The data has been deteriorating, especially in the past 3 months.

This is the data from industry association for machine tools (supposedly a growing segment of the economy with yuuuuge potential):

Please, Log in or Register to view URLs content!

Volume up 6.6%, revenues down 3.6. Profits down 15%.

Note, the deflation thus far has not yet translated into lower wages/slower jobs market (which are lagging indicators) - but if you just look up what Boss Zhipin/Liepin say about what they're seeing right now, jobs market is slowing down, even in advanced manufacturing end markets.

For all the 'deflation is great' fanboys, how do incomes of employees go up when revenues are going down? If incomes are going down, how are people going to afford better things?

Debt is nominal, how does the country de-leverage when incomes are not growing?

Also, while I am sympathetic to the argument that China is not underconsuming simply because of the accounting differences / price declines; what this argument implies is that there is, an oversupply of products/services at the current level of consumption (which cause price competition and zero profits).

So which one is it? Is China underconsuming? Or is there an oversupply?

Hint: Politburo already answered it for you -

Please, Log in or Register to view URLs content!

"要强化行业自律，防止“内卷式”恶性竞争。强化市场优胜劣汰机制，畅通落后低效产能退出渠道。"

Before anyone again calls me negative Nancy for giving you the bad news, let me also paint you the optimistic scenario. Because the future is inherently uncertain, and I hold multiple scenarios in my mind when I think about the situation - I suggest you too think in probabilities and not certainties.

1) The cash-for-clunkers program has started to be implemented (300bln in total) with some high frequency data suggesting white goods (fridges/AC) sales significantly improving. Additionally, Shanghai just announced a significant increase on automotive upgrade program:

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Notably, this is the first time that special purpose bonds have been used to directly subsidize consumption. Once the 'sanctity' of this has been broken, expect this policy tool to be used down the road. Most importantly, this would significantly alleviate the overcapacity in many sectors (including solar/wind, renewables etc) and improve profitability of corporates (which translates into better wages/job market).

2) Mortgage Refinancing. There are 38trln RMB of mortgages outstanding, so a 100bp reduction would imply 380bln RMB of cash savings directly injected into the pockets of mortgagees - those who are feeling the most pressure. To put it in context, a family with a 5mln RMB apartment at 70% LTV and 4.5% rate and 30 year amortization pays 17.6k monthly drops to 15.6k monthly payment on the 100bp cut.

3) Acceleration of implementing existing fiscal budget which opens up room for 'pulling forward' 2025 special purpose bond quotas (which was done in 2022) into this year.

4) US Rate cut would open up more room for PBoC to ease without killing the RMB exchange rate. Self explanatory.

This should buy sufficient time for some of the structural reforms to show progress and real estate market to find a bottom sometime in 2H of 2025 before it stops becoming a drag. And once housing prices stabilize and perhaps start to go up a bit more, those who have been sitting on sidelines will start to buy housing.

 

[Wrought]

Real Estate sales continue to deteriorate - YoY weekly sales are -22% - Real Estate needs to stabilize (keep in mind 2023 was in general -50% vs 2022 levels) so it has not happened. What will cause this to stabilize? All the policies thus far (relaxation of home purchase restrictions, repurchase of inventory etc) have been punches on cotton - zero effectiveness.

A great deal of ink has been spilled on how terrible and painful this is, which is perfectly true, but none of that changes the fact that it had to happen. Ideally it would have happened a decade ago, or even earlier. But nobody can turn back time. The real questions are how fast it happens, and how well other sectors of the economy can compensate for the drag on growth. Nonetheless, the property sector very much needed to be squeezed and still needs to be squeezed even more, until the valuations reflect some semblance of reality instead of speculative greed.

Stabilizing property values at distorted prices is not and will never be the answer, because that just takes you back to square one. All the supportive policies are only there to ease the rate of decline, and even that much is a necessary evil at best. The alternative is to have a 2007-style crash, and while that might be more economically efficient, it's not politically feasible. But there is no magical solution which will instantly fix the economic problems which have built up for decades. Only a lot of time and a lot of pain will fix them, and all you can do is trade one for the other to find the politically acceptable balance. And the same is true for all economies everywhere.

I would not expect a broad-based recovery for the next few years at least. Certain sectors will still do well, of course, but structural transformations take decades. Deng's reforms started in 1978 and his southern tour was in 1992. In the meantime, 吃苦.

 

[Eventine]

The problem is that it’s leading to a lot of capital out flow as richer Chinese are liquidating their assets and fleeing with the wealth over seas. The loop holes need to be closed there as that money should be redirected to state banks or key sector investments. You can’t force people not to sell in a correcting market but seeing all that value created from hard work evaporate and go to the West sucks.

 

[FairAndUnbiased]

Crocodile tears of a self hating neolib:

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[Jiang ZeminFanboy]

The problem is that it’s leading to a lot of capital out flow as richer Chinese are liquidating their assets and fleeing with the wealth over seas. The loop holes need to be closed there as that money should be redirected to state banks or key sector investments. You can’t force people not to sell in a correcting market but seeing all that value created from hard work evaporate and go to the West sucks.

Less wealth should fly when the interest rates in the west will start to cut, I believe the cuts will happen soon.

And a lot of the wealth which flies to the west is usually not from the hard work but first from grift of some sneaky business deals and then luck of the massively increasing real estate prices.

 

[Jiang ZeminFanboy]

If you have USD offshore in a bank account because you're an exporter, you can command a significant premium by running money laundering offshore for those who want to move cash offshore (of which there are many).

I love how everyone quotes Glenn as if he's just the gospel to explain away all the bad news. He offers a *possible* explanation of the bad news - it is not *necessarily* the correct explanation. Do yourself a favor and not conflate the two - they are not the same.

The entire premise of the "everything is fine" argument seems to be based on a "its a tough year or two we'll get better once we are out of this tough period" - while I'd like that to happen, my question for all of you is - what, specifically, are the changes that will drive the economy out of this 'rut'? Because newsflash, things as they are, have not been improving.

I am not precluding the possibility that they eventually improve in the future, but as of this moment, they are not.

Real Estate sales continue to deteriorate - YoY weekly sales are -22% - Real Estate needs to stabilize (keep in mind 2023 was in general -50% vs 2022 levels) so it has not happened. What will cause this to stabilize? All the policies thus far (relaxation of home purchase restrictions, repurchase of inventory etc) have been punches on cotton - zero effectiveness.

Before anyone talk of 3rd plenum, the notion of using a structural toolkit to solve an immediate, cyclical problem is like telling someone with a heart attack that they should exercise. Like yes they should exercise, but not helpful.

View attachment 135177


This is the data from Beijing Bureau of the NBS:

Please, Log in or Register to view URLs content!

Restaurants in Beijing saw profits decline by 89% in 1H24 - they are basically not making money.

From Shanghai:

Please, Log in or Register to view URLs content!

Retail sales are -2.8% in first 7 months of the year (Jan-March was 0.1% growth) - you do the math on how April-July was (hint: its below -2.8%).

The data has been deteriorating, especially in the past 3 months.

This is the data from industry association for machine tools (supposedly a growing segment of the economy with yuuuuge potential):

Please, Log in or Register to view URLs content!

Volume up 6.6%, revenues down 3.6. Profits down 15%.

Note, the deflation thus far has not yet translated into lower wages/slower jobs market (which are lagging indicators) - but if you just look up what Boss Zhipin/Liepin say about what they're seeing right now, jobs market is slowing down, even in advanced manufacturing end markets.

For all the 'deflation is great' fanboys, how do incomes of employees go up when revenues are going down? If incomes are going down, how are people going to afford better things?

Debt is nominal, how does the country de-leverage when incomes are not growing?

Also, while I am sympathetic to the argument that China is not underconsuming simply because of the accounting differences / price declines; what this argument implies is that there is, an oversupply of products/services at the current level of consumption (which cause price competition and zero profits).

So which one is it? Is China underconsuming? Or is there an oversupply?

Hint: Politburo already answered it for you -

Please, Log in or Register to view URLs content!

"要强化行业自律，防止“内卷式”恶性竞争。强化市场优胜劣汰机制，畅通落后低效产能退出渠道。"

You're true that right now the economy is not doing good, but what you can do? The only way to immediately raise the growth situation is to give big money directly to consumers, transfer of trillions of rmb. Is China govement doing it? Right now no.

There are some small stimulus trying to recover some sectors of economy, but as above people said the real estate needed correction and finally it will stop and raise to normal level again(not bubbles ones), as there is still big real demand for flats unfortunately for now hidden.

I think recently China has been following the Austrian economic theory of bubble bursting so we see deflation until the market demand finally catch up, the strongest and most innovative companies will survive, the zombies will die out in correction years.

 

[abenomics12345]

Nonetheless, the property sector very much needed to be squeezed and still needs to be squeezed even more, until the valuations reflect some semblance of reality instead of speculative greed.

You need to delineate the specific markets. The real estate market in China operates very much on a two tier system - the cities where people want to move into naturally have higher priced housing. And shitholes naturally have low prices. Rather than trying to smash property prices, the real solution is to improve social services to have more desirable places to live. The exorbitant price of real estate is the result of other problems (local government corruption, nefarious developers, lack of land supply in Tier 1 cities etc). Smashing real estate without other solutions is how you get back to square one.

Stabilizing property values at distorted prices is not and will never be the answer, because that just takes you back to square one.

Define 'distorted'. Apartments in Changsha/Xi'an/Chengdu are already at something like 10k/sqm - meaning a dual income family who makes 15-20k/month (7.5k-10k each) would have a price/income ratio of something like 4-6x - which is quite reasonable.

As for luxury apartments in Shanghai, they will never come down to that price range - nor should they. Shanghai is a world class city and its housing prices will be defined by the global supply/demand - to the extent that China wants to open up its markets to foreigners. The solution to Shanghai's housing price is to add supply of affordable housing - which goes back to my earlier point re: lack of land supply. These are structural problems that require reforms - blowing up housing prices for middle class mortgagees doesn't solve this. Much ink has also been spilt on the Singapore model.

You're true that right now the economy is not doing good, but what you can do? The only way to immediately raise the growth situation is to give big money directly to consumers, transfer of trillions of rmb. Is China govement doing it? Right now no.

Step 1 is by acknowledging the scale of the problem. The unfortunate problem today is that the negative sentiment has started a negative feedback loop, where every negative news is magnified, and any positive news is dismissed as unsustainable. You can naturally blame the Western media for info ops, but this is like blaming your enemy for using weapons against you (like yes its bad, but should you expect anything different?). The real solution is to info ops is to ensure reality is so different that people in China dismiss it as stupid western journalists - as I said before, imagine Western journalists trying to paint the HSR in China as bad - there is zero chance that 'narrative' sticks.

The reason that this negative feedback loop is sticking is because people are feeling the pain.

The cost of breaking that loop grows with time. Had the government done the stimulus that they are doing today a year ago, we would be talking about nominal GDP growth of 6% this year. Instead, the stimulus is dribbled out without offsetting the negative sentiment and we are talking about "protecting 5%"

Seriously guys, even 李云龙 knew that 添油战术 doesn't work and he didn't even go to school.

 

[Andy1974]

If you have USD offshore in a bank account because you're an exporter, you can command a significant premium by running money laundering offshore for those who want to move cash offshore (of which there are many).

I love how everyone quotes Glenn as if he's just the gospel to explain away all the bad news. He offers a *possible* explanation of the bad news - it is not *necessarily* the correct explanation. Do yourself a favor and not conflate the two - they are not the same.

The entire premise of the "everything is fine" argument seems to be based on a "its a tough year or two we'll get better once we are out of this tough period" - while I'd like that to happen, my question for all of you is - what, specifically, are the changes that will drive the economy out of this 'rut'? Because newsflash, things as they are, have not been improving.

I am not precluding the possibility that they eventually improve in the future, but as of this moment, they are not.

Real Estate sales continue to deteriorate - YoY weekly sales are -22% - Real Estate needs to stabilize (keep in mind 2023 was in general -50% vs 2022 levels) so it has not happened. What will cause this to stabilize? All the policies thus far (relaxation of home purchase restrictions, repurchase of inventory etc) have been punches on cotton - zero effectiveness.

Before anyone talk of 3rd plenum, the notion of using a structural toolkit to solve an immediate, cyclical problem is like telling someone with a heart attack that they should exercise. Like yes they should exercise, but not helpful.

View attachment 135177


This is the data from Beijing Bureau of the NBS:

Please, Log in or Register to view URLs content!

Restaurants in Beijing saw profits decline by 89% in 1H24 - they are basically not making money.

From Shanghai:

Please, Log in or Register to view URLs content!

Retail sales are -2.8% in first 7 months of the year (Jan-March was 0.1% growth) - you do the math on how April-July was (hint: its below -2.8%).

The data has been deteriorating, especially in the past 3 months.

This is the data from industry association for machine tools (supposedly a growing segment of the economy with yuuuuge potential):

Please, Log in or Register to view URLs content!

Volume up 6.6%, revenues down 3.6. Profits down 15%.

Note, the deflation thus far has not yet translated into lower wages/slower jobs market (which are lagging indicators) - but if you just look up what Boss Zhipin/Liepin say about what they're seeing right now, jobs market is slowing down, even in advanced manufacturing end markets.

For all the 'deflation is great' fanboys, how do incomes of employees go up when revenues are going down? If incomes are going down, how are people going to afford better things?

Debt is nominal, how does the country de-leverage when incomes are not growing?

Also, while I am sympathetic to the argument that China is not underconsuming simply because of the accounting differences / price declines; what this argument implies is that there is, an oversupply of products/services at the current level of consumption (which cause price competition and zero profits).

So which one is it? Is China underconsuming? Or is there an oversupply?

Hint: Politburo already answered it for you -

Please, Log in or Register to view URLs content!

"要强化行业自律，防止“内卷式”恶性竞争。强化市场优胜劣汰机制，畅通落后低效产能退出渠道。"

You mention wages, but what matters is disposable income. China has a goal of increasing disposable income at a higher rate than gdp. Income could fall, while disposable income rises.

 

[abenomics12345]

You mention wages, but what matters is disposable income. China has a goal of increasing disposable income at a higher rate than gdp. Income could fall, while disposable income rises.

Semantics here are not going to matter - but what I specifically mean here, is that when restaurants are not making money, they will fire workers and close down.

These are the bottom rungs of society who are supposed to be on the receiving end of 'increasing disposable income'. How they increase their disposable income when they lose their jobs, is a question you should think about.