Chinese Economics Thread

[tphuang]

this is the full breakdown of industrial production in August

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construction sector is definitely hurting demand for iron/steel, cement and such.

The major production expansions are NEVs, machine cutting tools, industrial robot, Solar panels and power generators.

Chinese government is imo prioritizing all the high end science & technology sector because it considers those to be high quality growth. It's willing to take short/medium term pain on the property related stuff, because it thinks those are low quality growth

 

[broadsword]

Some more

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Also the thread by Glenn he comments on.

Some people can't get off the 'deflation is all bad' theme. They seem to be able to accept that US inflation is transitory but can't accept China's transitory deflation as if it will stay for a lost decade. Yi Gang, like any decent Chinese, does not want to see deflation becoming more serious than it should be. I think China's policy is to let the market forces do more of the deleveraging while applying lean measures.

 

[Jiang ZeminFanboy]

Some more

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Also the thread by Glenn he comments on.

I don't see any develaraging going on in China, the current fiscal policy is just a choke on growth. Debt to GDP is still growing slightly cause nominal growth is low, even seems it will be lower than real gdp Growth. No delevaraging possible with that kind of growth structure, end results just slower growth, with debt staying.

Austerity sucks, you can look at eurozone austerity policy and its results from last decade. Or if you want a recent example, look at Poland and Czech Republic, one went with huge fiscal and monetary expansion and this fiscal expansion did almost nothing to debt to gdp cause of the nominal growth rate, the other did austerity and killed domestic demand, which killed growth. I'll let you decide who is who when looking at graph.

https://twitter.com/i/web/status/1768574643676270880

 

[GiantPanda]

I don't see any develaraging going on in China, the current fiscal policy is just a choke on growth. Debt to GDP is still growing slightly cause nominal growth is low, even seems it will be lower than real gdp Growth. No delevaraging possible with that kind of growth structure, end results just slower growth, with debt staying.

You have got to be kidding me. The entire property sector in China is being de-leveraged right now.

And the investment there is being put into high value, high technology sectors.

This is a structural change far greater than anything going on anywhere else in world.

Some people can't get off the 'deflation is all bad' theme. They seem to be able to accept that US inflation is transitory but can't accept China's transitory deflation as if it will stay for a lost decade.

Exactly. But China transitory deflation is coming from a massive increase in productivity and capacity too which is a structural advantage being built in China unlike US inflation which is from the printing press does nothing for the American real economy once its impact passes. This is why China does not do short-term stimulus.

Give China's transition from RE driven to R&D and high value manufacturing a few years. The dividends are not fully in yet. But you can already see some of the results -- just look at the EVs industry.

 

[Michaelsinodef]

Pretty sure it got posted before (or something similar)

But car sales in China is not only above 2019, but the average price of the car is also quite a lot higher:

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On the other hand, this is EU:

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(First response have a graph of the fall).

On, and its the same for US (annual car sales still lower than 2019).

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[Michaelsinodef]

Some other fun fact.

There is actually like, some 200+ billion in foreign investment in mostly RE in China (lots of Chinese RE companies issued US bonds and the likes in Hongkong and foreign markets like US).

They are standing to recover some 0% of their investments btw lol.

(The banks in China have collateral from these companies, so when like Evergrande goes bankrupt, their remaining assets will basically go to the bank, and there will be nothing to pay back the issed US bonds).

There's a reason why western was so hysterical about Chinese RE market and want the Chinese central gov to save the RE companies lol.

 

[Jiang ZeminFanboy]

You have got to be kidding me. The entire property sector in China is being de-leveraged right now.

And the investment there is being put into high value, high technology sectors.

This is a structural change far greater than anything going on anywhere else in world.



Exactly. But China transitory deflation is coming from a massive increase in productivity and capacity too which is a structural advantage being built in China unlike US inflation which is from the printing press does nothing for the American real economy once its impact passes. This is why China does not do short-term stimulus.

Give China's transition from RE driven to R&D and high value manufacturing a few years. The dividends are not fully in yet. But you can already see some of the results -- just look at the EVs industry.

I agree that the change in % of GDP going from real estate to other sectors is structural and in the end good thing, but again what deleveraging? Property sector sales just crashed, and with it defaulted many developeres, I don't see any delevaraging going(reduced debt). Debt to GDP is still growing.

Instead of hobbling growth with weak fiscal support, do the support and give the cash e.g. for kids. It's a good thing that first salvo was fired, I mean monetary support with the lower interest rates.

You need high nominal growth for deleveraging, not real growth higher than nominal.

When the nominal growth drastically slowed down (from 2022 until now, no wonder it slowed with that weak fiscal support), China's debt to GDP started growing again. You can see below an amazing 2021 year (high nominal growth), with debt to GDP falling. That's the only way you can deleverage. You can't deleverage with austerity. It's just killing demand and growth. In the end, you end up with debt to GDP as before the "campaign of austerity", but with lower GDP.

By the way, why do we need to deleverage? We don't need to. Just spend(public not private debt) and grow. Public debt in your own currency is good. China just should go back to MMT, and outgrow the debt, say yes to fiscal stimulus and private sector surplus.

 

[GiantPanda]

I agree that the change in % of GDP going from real estate to other sectors is structural and in the end good thing, but again what deleveraging? Property sector sales just crashed, and with it defaulted many developeres, I don't see any delevaraging going(reduced debt). Debt to GDP is still growing.

Instead of hobbling growth with weak fiscal support, do the support and give the cash e.g. for kids. It's a good thing that first salvo was fired, I mean monetary support with the lower interest rates.

You make little sense. You want overall de-leveraging but at the same time you want a stimulus.

ALL stimulus involves incurring debt. China tried that in 2008 which got us into the property issue in the first place.

What China is doing now is de-leveraging RE and investing in sectors that can provide growth and return in the future. Instead of a short term stimulus that will simply be saved in the bank anyways.

Again, this economy is still growing during a massive RE bubble pop. I suggest you look at what happened to the US during the sub-prime property bubble pop. The US stock market halved, electricity usage dropped 4% and the US gov had to save American industry with trillions in "quantitative easing."

Since the engineered RE de-leveraging in August 2020, with Covid 19 and a lockdown in top of that, China still grew its electricity demand 7% every year with new industries coming onboard and expanding.

I, and everyone else, knows that an economy will be hit by a RE bubble burst. Even without a RE crisis, a fundamental structural change in a major economy that massively transfers investment from one sector to another is bound to create mis-alignments and other issues during transition. With both of them going on at the same time, you have to expect contraction to be perfectly honest.

But unlike the US (and EU) in 2009 which was a fucking full blown recession, China is still growing and grew every year since this RE de-leveraging started in 2020.

Look, all countries would reach for stimulus if things are bad. In fact, it is the easiest thing to do to just print money and hand it off. Like what the US had done for the past four years to the tune of $5T -- bigger than the goddam GDP of India ($3.5T.)

The fact that China hadn't is because it sees things nowhere as bad as you and the Western narrative is trying sell and is restructuring calmly for the future.

 

[broadsword]

@Jiang ZeminFanboy is using the economic meaning of deleveraging to mean reducing debt. That will take time. Give China 3-4 years.

 

[GiantPanda]

@Jiang ZeminFanboy is using the economic meaning of deleveraging to mean reducing debt. That will take time. Give China 3-4 years.

Look at his cartoons. He is advocating higher deficit spending and more debt. He doesn't really know what he wants.

I understand what he is asking for though. He wants a government stimulus to push consumption. Which is this Western trope over the past three years. But that is directly opposite to incurring less debt.