Chinese Economics Thread

[abenomics12345]

Distorted is when 25% of your GDP comes from real estate. Quality of growth has been a big emphasis from leadership in recent years, and you can't achieve it with that kind of property share, especially not if you continue pouring more good money after bad.

The 25% figure is likely from that Rogoff report from Harvard - but the latest is that it's already down to 18% ish.

It's true that deeper structural reforms are necessary, but that's what the third plenum is for. And as you already pointed out (correctly), that is a long-term fix not a short-term one. It's neither realistic nor desirable to keep inflating the property bubble for however many years that takes to happen. Smashing real estate is not mutually exclusive with structural reforms, and both are indeed happening right now.

Nobody is looking to go ham on real estate again. But how is it fair that middle class mortgagees (esp. those who emptied 6 wallets) are paying the price for nefarious activities of corrupt local officials or the likes of Xu Jiayin?

So yes, I am arguing for more transfer of wealth to households in aggregate.

You may be correct in 10 years that the real estate industry is no longer as big and the economy looks more 'balanced', but you also might lose 10-20 mln upper middle class citizens over a decade who do not want to deal with this shit and emigrate elsewhere (like, who in their right mind wants to 吃苦 when there is a better alternative?) - and god knows how many star athletes/scientists you lose as part of that.

This entire negative feedback loop is as follows:

1) Corrupt local official f'over some innocent citizen in cahoot with greedy/asshole businessman (Xu Jiayin);

2) Citizen develops rage and distrust against the system who then decides to pursue short term gains by ripping off customers/cut corners on quality (with intention of emigrating away from China once they make their money);

3) Which generates more distrust/rage from more citizens (ultimately resulting in complete depletion of trust in government) which then causes more people to to pursue short term gains/cut corners, and so on.

The solution is....not to blow up the real estate market and take out entire middle class net worth along with it.

Before some smartass decides to respond with a "ban emigration" - guess what WSJ and BBC are going to do with that policy?

As much as I would like to disagree with the framing in this negative feedback loop, it is increasingly becoming the consensus in China (latest example being the Shandong Land Rover lady who beat a PLA vet because she was driving against traffic and he didn't back down).

Are there positive news? Yes, but as I said, negative news is being magnified and positive news dispelled as short term/one off or unsustainable.

 

[Michaelsinodef]

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.

That's all restaurants, right?

Is there more detailed data that drills down into it?
And what was it in the last couple years? Both in absolute and %? (Also, number of restaurants).

A quick look, 2023 for first 6 months, it had total scale of 2196 'units' (not sure what it represents, is it restaurants? is there really only 2k restaurants in Beijing?) vs 2024 which ad 2628 units (near a 20% increase).
Total revenue was 466.1 亿元 in 2023 vs 492.1 亿元 in 2024 (5% increase), and total profts did in drop nearly 90% (from 16.9 to 1.8 亿元) when comparing 2024 with 2023.
Oh and workforce went from ~261k to ~286k (8.7% increase)

Uh, seems like an 'explosion' in new restaurants -> increased competition -> lower profits is PARTLY why the profits have fallen so much.

But overall, no, I don't think there is a need to have a big worry about it (it will adjust itself, even if it might mean closing down of restaurants, and unemployment of like, maybe 20kish people? not really much in the really bigger picture).

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.

And what is the data for retail services?

Glenn has had a recent thread about it (and I think it was posted here, that retail services growth has been much higher than retail sales growth).

 

[Wrought]

The 25% figure is likely from that Rogoff report from Harvard - but the latest is that it's already down to 18% ish.

Yes, because we are years into the crackdown by this point. And it needs to keep dropping to somewhere in the 10-15% range. Like I said, another few difficult years.

Nobody is looking to go ham on real estate again. But how is it fair that middle class mortgagees (esp those who emptied 6 wallets) are paying the price for nefarious activities of corrupt local officials or the likes of Xu Jiayin?

So yes, I am arguing for more transfer of wealth to households in aggregate.

You may be correct in 10 years that the real estate industry is no longer as big and the economy looks more 'balanced', but you also might lose 10-20 mln upper middle class citizens over a decade who do not want to deal with this shit and emigrate elsewhere (like, who in their right mind wants to 吃苦 when there is a better alternative?) - and god knows how many star athletes/scientists you lose as part of that.

It's not fair. It also wasn't fair when those same people made billions off the property boom. People just didn't care as much because they were gaining less instead of losing more.

Wealth transfer is a result of structural reforms. Which take time. And yes, it's inevitable some people will leave in search of a better life. That's unfortunate, but unavoidable. Again, the best you can do is manage the pain in order to lose as few people as possible and make it as attractive as possible in the future for top talents to come back.

There is no magical painless fix which makes everyone happy. And the worst "fix" of all is to let the problem fester until it explodes. Far better to address it proactively, no matter how much people complain. That's why government exists in the first place, to take the longer view and make the hard choices that individual people who are only concerned with their individual well-being never will.

 

[Jiang ZeminFanboy]

The 25% figure is likely from that Rogoff report from Harvard - but the latest is that it's already down to 18% ish.



Nobody is looking to go ham on real estate again. But how is it fair that middle class mortgagees (esp. those who emptied 6 wallets) are paying the price for nefarious activities of corrupt local officials or the likes of Xu Jiayin?

So yes, I am arguing for more transfer of wealth to households in aggregate.

You may be correct in 10 years that the real estate industry is no longer as big and the economy looks more 'balanced', but you also might lose 10-20 mln upper middle class citizens over a decade who do not want to deal with this shit and emigrate elsewhere (like, who in their right mind wants to 吃苦 when there is a better alternative?) - and god knows how many star athletes/scientists you lose as part of that.

This entire negative feedback loop is as follows:

1) Corrupt local official f'over some innocent citizen in cahoot with greedy/asshole businessman (Xu Jiayin);

2) Citizen develops rage and distrust against the system who then decides to pursue short term gains by ripping off customers/cut corners on quality (with intention of emigrating away from China once they make their money);

3) Which generates more distrust/rage from more citizens (ultimately resulting in complete depletion of trust in government) which then causes more people to to pursue short term gains/cut corners, and so on.

The solution is....not to blow up the real estate market and take out entire middle class net worth along with it.

Before some smartass decides to respond with a "ban emigration" - guess what WSJ and BBC are going to do with that policy?

As much as I would like to disagree with the framing in this negative feedback loop, it is increasingly becoming the consensus in China (latest example being the Shandong Land Rover lady who beat a PLA vet because she was driving against traffic and he didn't back down).

Are there positive news? Yes, but as I said, negative news is being magnified and positive news dispelled as short term/one off or unsustainable.

But what you can do to change the sentiment short term? In my opinion only direct money to consumers might change the sentiment. Give 500 rmb for every child a month until it finish 18 years old, so parents will feel richer and spend more. Inflation will grow and higher nominal growth will return.

 

[abenomics12345]

That's all restaurants, right?

Is there more detailed data that drills down into it?
And what was it in the last couple years? Both in absolute and %? (Also, number of restaurants).

A quick look, 2023 for first 6 months, it had total scale of 2196 'units' (not sure what it represents, is it restaurants? is there really only 2k restaurants in Beijing?) vs 2024 which ad 2628 units (near a 20% increase).
Total revenue was 466.1 亿元 in 2023 vs 492.1 亿元 in 2024 (5% increase), and total profts did in drop nearly 90% (from 16.9 to 1.8 亿元) when comparing 2024 with 2023.
Oh and workforce went from ~261k to ~286k (8.7% increase)

Uh, seems like an 'explosion' in new restaurants -> increased competition -> lower profits is PARTLY why the profits have fallen so much.

But overall, no, I don't think there is a need to have a big worry about it (it will adjust itself, even if it might mean closing down of restaurants, and unemployment of like, maybe 20kish people? not really much in the really bigger picture).

This is a collection of incorporated entities in Beijing above 5mln RMB in sales - meaning if a restaurant Chain (say Haidilao) had multiple locations, it would be all rolled up in one entity.

Now do total employment in Beijing.

And what is the data for retail services?

Glenn has had a recent thread about it (and I think it was posted here, that retail services growth has been much higher than retail sales growth).

We are talking about nominal numbers - so while real retail sales growth (like yes you can buy more shoes per RMB) is higher, nominally it might be shrinking due to deflation. Yili (Milk) sales are -9% in 1H2024 (-16% in Q2 2024); Mengniu -6% in 1H2024. My premise is based on my argument that deflation is not good.

Please, Log in or Register to view URLs content!

Travel/Tourism/Cinema simply are not big enough baskets to offset the bigger items.

It's not fair. It also wasn't fair when those same people made billions off the property boom. People just didn't care as much because they were gaining less instead of losing more.

Wealth transfer is a result of structural reforms. Which take time. And yes, it's inevitable some people will leave in search of a better life. That's unfortunate, but unavoidable. Again, the best you can do is manage the pain in order to lose as few people as possible and make it as attractive as possible in the future for top talents to come back. There is no magical painless fix which makes everyone happy.

Yes, because we are years into the crackdown by this point. And it needs to keep dropping to somewhere in the 10-15% range. Like I said, another few difficult years.

Fair points, my biggest point is that everyone here needs to recognize the "difficult years up ahead". As opposed to dispelling negative datapoints as FUD/Western Propaganda.

But what you can do to change the sentiment short term? In my opinion only direct money to consumers might change the sentiment. Give 500 rmb for every child a month until it finish 18 years old, so parents will feel richer and spend more. Inflation will grow and higher nominal growth will return.

Yes there is a need to significantly ramp up childcare support, pension benefits, have the stock markets actually generate returns for the pension fund and the 700mln mutual fund investors in China, etc.

The point I'm making is that families/countries do not become prosperous by cutting costs - they become prosperous by making more money. Wealth generation is contingent on having good products and having people willing to pay high prices for said products.



Higher customer delight =/= you getting wealthier - it just means you are giving more value to customers as opposed to keeping what you have to yourself.

 

[Index]

The 25% figure is likely from that Rogoff report from Harvard - but the latest is that it's already down to 18% ish.



Nobody is looking to go ham on real estate again. But how is it fair that middle class mortgagees (esp those who emptied 6 wallets) are paying the price for nefarious activities of corrupt local officials or the likes of Xu Jiayin?

So yes, I am arguing for more transfer of wealth to households in aggregate.

You may be correct in 10 years that the real estate industry is no longer as big and the economy looks more 'balanced', but you also might lose 10-20 mln upper middle class citizens over a decade who do not want to deal with this shit and emigrate elsewhere (like, who in their right mind wants to 吃苦 when there is a better alternative?) - and god knows how many star athletes/scientists you lose as part of that.

You don't need to speculate how many "star athletes/scientists" China will lose as part of that. There is already a number for how many millionaires that left China in 2023. 15 000. Or 0.15%, which is below the developed country standard for high income expatriation, meaning compared to other developed countries, China made a gain in "star athletes/scientists" retention.

Why should Chinese people move? Yes, government is making them get real jobs instead of leeching off others with 0 productivity. But the knock on effects from not having to pay a crippling fee for housing anymore means higher quality and more affordable daily consumption. Things people can actually enjoy rather than paying for housing.

The rentier class is getting poorer, the rest richer. But most rentiers don't live in a vacuum. They have children in collage, middle class friends etc. Plus the rest becoming richer generates more services and products for the rentiers to explore, and they have more than enough money even after the crackdown to enjoy the boom. This is why China's expatriation rate of upper class people was so low in 2023, and will likely remain the same onwards.

 

[abenomics12345]

You don't need to speculate how many "star athletes/scientists" China will lose as part of that. There is already a number for how many millionaires that left China in 2023. 15 000. Or 0.15%, which is below the developed country standard for high income expatriation, meaning compared to other developed countries, China made a gain in "star athletes/scientists" retention.

Why should Chinese people move? Yes, government is making them get real jobs instead of leeching off others with 0 productivity. But the knock on effects from not having to pay a crippling fee for housing anymore means higher quality and more affordable daily consumption. Things people can actually enjoy rather than paying for housing.

The rentier class is getting poorer, the rest richer. But most rentiers don't live in a vacuum. They have children in collage, middle class friends etc. Plus the rest becoming richer generates more services and products for the rentiers to explore, and they have more than enough money even after the crackdown to enjoy the boom. This is why China's expatriation rate of upper class people was so low in 2023, and will likely remain the same onwards.

Please, Log in or Register to view URLs content!

Please, Log in or Register to view URLs content!

I don't know where you get 0.15% from.

What you are advocating is for socializing all wealth in China - and this is exactly part of the rationale for businesspeople to behave with such short time horizon in China ("I will make my money and GTFO because if I stay long term the government will take over my wealth because I supposedly do not add productivity").

Is the concept of property rights offensive?

I suggest you have a read of the 20th Party Congress Report:

习近平总书记在党的二十大报告中指出：“优化民营企业发展环境，依法保护民营企业产权和企业家权益，促进民营经济发展壮大。”这是坚持“两个毫不动摇”的重大部署。毫不动摇鼓励、支持、引导非公有制经济发展，是坚持和完善社会主义基本经济制度的基本要求。

 

[doggydogdo]

Things are worsening (you see employment fell 2.7% in Beijing) - you might as well argue that the first knife cut of 凌迟 isn't too bad. Until there is something positive on the time horizon, things will continue to grind lower and worse off.

How is Shanghai retail data 'too vague'? Do elaborate more.

Also, if things "are not bad", why is there serious consideration for a 80-100bp cut to existing mortgage rates?

1. Retirment, Beijing is a pretty old and China has a young Retirment age.


2.You can't get anything useful about the economy from that.

Please, Log in or Register to view URLs content!

3.I don't get how that's a big deal. It just means Chinese banks make less money.

 

[fishrubber99]

I'll add to this conversation that there is no consumption decline, consumption made up 82.5% of growth in 2023 and will most likely be similar to that this year. If consumption was declining across the board in China we would see a recession or near recession, exports and investment are not enough to make up for that shortfall.

That is why focusing on one category of consumption (retail sales) in a single Chinese city is not indicative of the overall situation.

 

[abenomics12345]

1. Retirment, Beijing is a pretty old and China has a young Retirment age.

Show me the data. If you do not, you're just pulling random theories out of your ass.

2.You can't get anything useful about the economy from that.

Please, Log in or Register to view URLs content!

All "volume" data - the fastest segment of logistics growth in China is literally people returning their products. I.E people are ordering 3 things and keeping one and returning the other 2. This is not an indication of confidence. We know export growth has been good and that's why the economy hasn't been worse. As I've said before, this price-based competition is political unfeasible globally. I've got a bridge to sell if you think China can export its way out of domestic weakness while the real estate sector continues to grind lower.

3.I don't get how that's a big deal. It just means Chinese banks make less money.

Its a big deal because they recognize the weakness in households. Notwithstanding how deeply unserious of a comment this is. The banking sector profitability is what's necessary to digest all the crappy loans to developers, LGFVs. I don't know if you're DoggyDog on Twitter, but if you are, I don't know what bucket shop of a financial firm you worked in - but you literally have zero understanding of the risks today.

The final thing I'll say here on this topic for now - is that if you talked to the people in China who have generally have extremely negative sentiment and want to 'run - a majority of them were actually as optimistic (some even more so) as the sentiments shared in this thread on the development of China - they've simply been disappointed too many times.

Majority of people in this forum sit outside of China and as a result have not been "educated by the socialist hammer" as they say - if you lived in China and had to deal with some of the crap (as opposed to visiting family for 2 weeks and being awed by AliPay and EVs) of living there long term. It doesn't take long for you to recognize the difference between what you see from Guancha's Youtube Channel vs. the nuanced reality on the ground.