One of the main root causes of deflation in China, other than property market slump, unstable world economy and productivity gain due to automation and robotics is the cheaper energy import from Russia and Iran which is 20%-40% cheaper compare to current market prices. It is a huge advantage if you compare to Europe.
Chinese Economics Thread
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broadsword
Brigadier
So was the economic stimulus announced a few months ago designed to hike inflation and thus save the economy?
No government has ever paid off any debt. Lol.
No, the YoY deflation did not start until late 2022:
See the previous screengrab from DeepSeek on why deflation is not good even with lower *nominal* interest rate.
The issue with the Chinese economy is that since the GFC, the Chinese economy has been on this rollercoaster ride - China's response to the GFC (4 trln stim from central government + 10s of trillions of LGFV debt at local government), and the hangover (2015 deflation scare) and then as the response to that (Shantytown Renovation stimulus via PSLs), and the 2020 Three Red Lines to deal with the housing issue that we've all talked about here.
Ultimately you can't run an economy on this roller coaster ride because: economic slowdown (GFC) --> stimulus --> shortages when there's a sudden spike in demand from said government stim --> massive addition to capacity (look there's money to be made!) --> overcapacity as stimulus program runs its course (fk we have too many houses) --> deflation (back to the beginning).
Which is why you can't do a 10 trillion infra/housing package (keep in mind that is not what I'm saying the government should do) today to deal with the economic issues today - but rather you have to accelerate structural reforms (boost social welfare, childbirth subsidies, healthcare improvements etc) so that people don't need to save more as a % of their income.
Keep in mind, whatever 'recommendation' or 'solution' for any given economy is highly predicated upon the *initial conditions* of said economy - in the case of the US economy - they need to do more of what Chinese people do and save more - where as for the Chinese economy - they need to save less. This does not mean that Chinese savers go spend like drunken sailors the way Americans do - but they should spend more than what they have been spending as a proportion of their income.
If you go through the Government Work Report or listen to the Press Conference with Minister Wang Wentao - he talks about the focus on travel/services (retirement services) and the lack of 优质供给 or 消费场景 for types of consumption. These are the things they want to focus on (if you've got family in Harbin - think about what they've been doing for all the 南方小土豆).
There should be zero doubt that consumption will be the focus of the economic policymaking for the next few years - this doesn't mean there won't be investments - but that they will be investing in things with higher return on capital than they have before and to facilitate more consumption (as an example - Shanxi's tourist/cultural sites have been terribly managed/promoted for whatever reason - Black Myth Wukong has made it cool to go there - but you can't exactly have many tourists go if there isn't sufficient supporting infrastructure or cultural storytelling to promote it better). Ultimately the goal is to absolve the need to do massive supply side stimulus to manage cycles. I am very specific when I write this - I do not mean that semiconductor R&D or aerospace R&D should be stopped - because that's the 'high return on investment' investments I mentioned above.
As for the productivity improvements from the economy - that has always been happening in the background - nothing I've ever posted on this forum ever suggested that the productivity improvements has ever stopped or should stop. Its just that it is an unsatisfactory explanation for why there is deflation today, and misconstruing the positive dis-inflationary impact of better technology (as opposed to suggesting that it is good to run the entire economy in deflation).
Because of the policy turn on Sept 24/26, I am a lot more sanguine about the short term of the economy because the government has decided to do something about the issues I've been talking about.
More importantly, because of DeepSeek, more Chinese people have realized what is an accepted consensus on this forum (keep in mind, just because you believe it and that it is true doesn't mean it is the consensus opinion among average Chinese people otherwise 养殖 wouldn't be a thing anymore) - that Chinese technology progress is quite impressive and that specifically in AI China is not that behind if at all (not that it was ever a surprise to any serious observer on this forum). In short, the *narrative* has been evolving to closer to what the majority of people on this forum believes and that confidence is gradually coming back (I have the high frequency data) in select fields (especially Hangzhou). This is why I said in my last post that this is the most sanguine I am in the past 4 years about the short term cyclical outlook of the economy.
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I asked my AI to use IMF data to produce a forecast of China´s GDP (PPP) compared to the combined West (defined as; USA, EU, United Kingdom, Canada and Australia). This is what my AI came up with;
China vs West GDP (PPP) - projection (using IMF data);
2020: China: $25,547,101, (West: $46,602,288) - West is 82.5% larger
2021: China: $28,722,485, (West: $50,415,259) - West is 75.7% larger
2022: China: $31,678,065, (West: $53,293,047) - West is 68.2% larger
2023: China: $34,540,882, (West: $57,077,755) - West is 65.3% larger
2024: China: $37,072,086, (West: $59,511,065) - West is 60.5% larger
2025: China: $39,438,111, (West: $61,727,157) - West is 56.4% larger
2026: China: $41,817,197, (West: $63,957,078) - West is 52.9% larger
2027: China: $44,108,393, (West: $66,282,862) - West is 50.2% larger
2028: China: $46,428,138, (West: $68,609,526) - West is 47.7% larger
2029: China: $48,836,346, (West: $71,048,176) - West is 45.4% larger
The West, as defined above, will still be significantly larger in 2029 but down to just 45.4% from 82.5% in 2020. If USA/EU (combined) is alone compared to China my AI gave me these numbers;
2020: USA/EU is 57.24% larger
2021: USA/EU is 50.34% larger
2022: USA/EU is 45.92% larger
2023: USA/EU is 40.69% larger
2024: USA/EU is 36.94% larger
2025: USA/EU is 33.47% larger
2026: USA/EU is 30.42% larger
2027: USA/EU is 28.05% larger
2028: USA/EU is 25.97% larger
2029: USA/EU is 24.00% larger
The combined GDP (PPP) of USA/EU will be reduced to 24% in 2029 from 57.24% in 2020. China may see a GDP (PPP) that is 27% larger than that of the United States by 2029. Given that the European Union and the United States continue with its poor economic policy - my AI´s scenario may see an even larger Chinese economy compare to the European Union and the United States.
I´m not sure but by 2050 China may have an economy (GDP, PPP) that is in the size of the entire West, including countries I did not include in my AI calculation such as Switzerland, New Zealand, Norway and so on. I doubt that any major industries will come back to the United States and the European Union. It seem to me that the American and European economies are driven by low-productive service jobs, low skilled mass-immigration, inflation, the financial markets, debt and monetary injections.
China has also decided to continue to spend less than 1.5% on its Armed Forces compared to 3.4% in the United States.
There is no reason for China to spend more given how large the Chinese economy actually is. Recently, the Beijing metro passed NYC Subway in number of metro stations. Of course it was already several times larger in terms of length but NYC Subway still had the edge in number of stations. That edge is now gone. The U.S. has now only 11 buildings on the top 100 list of the tallest buildings in the world. A third place after UAE (14) and China (47). In a couple of years the U.S. may have even fewer buildings on the top 100 list and may not even rank among the top 5 countries anymore. Since at least three decades years the tallest city is Hong Kong but now we can affix Shenzhen above NYC. Once upon a time the U.S. claimed that their wealth was shown in their infrastructure and skyscrapers. Although not a good measurement of wealth its not part of the American propaganda playbook anymore. It say something about the future for the combined West, China and the rest of the world.
China vs West GDP (PPP) - projection (using IMF data);
2020: China: $25,547,101, (West: $46,602,288) - West is 82.5% larger
2021: China: $28,722,485, (West: $50,415,259) - West is 75.7% larger
2022: China: $31,678,065, (West: $53,293,047) - West is 68.2% larger
2023: China: $34,540,882, (West: $57,077,755) - West is 65.3% larger
2024: China: $37,072,086, (West: $59,511,065) - West is 60.5% larger
2025: China: $39,438,111, (West: $61,727,157) - West is 56.4% larger
2026: China: $41,817,197, (West: $63,957,078) - West is 52.9% larger
2027: China: $44,108,393, (West: $66,282,862) - West is 50.2% larger
2028: China: $46,428,138, (West: $68,609,526) - West is 47.7% larger
2029: China: $48,836,346, (West: $71,048,176) - West is 45.4% larger
The West, as defined above, will still be significantly larger in 2029 but down to just 45.4% from 82.5% in 2020. If USA/EU (combined) is alone compared to China my AI gave me these numbers;
2020: USA/EU is 57.24% larger
2021: USA/EU is 50.34% larger
2022: USA/EU is 45.92% larger
2023: USA/EU is 40.69% larger
2024: USA/EU is 36.94% larger
2025: USA/EU is 33.47% larger
2026: USA/EU is 30.42% larger
2027: USA/EU is 28.05% larger
2028: USA/EU is 25.97% larger
2029: USA/EU is 24.00% larger
The combined GDP (PPP) of USA/EU will be reduced to 24% in 2029 from 57.24% in 2020. China may see a GDP (PPP) that is 27% larger than that of the United States by 2029. Given that the European Union and the United States continue with its poor economic policy - my AI´s scenario may see an even larger Chinese economy compare to the European Union and the United States.
I´m not sure but by 2050 China may have an economy (GDP, PPP) that is in the size of the entire West, including countries I did not include in my AI calculation such as Switzerland, New Zealand, Norway and so on. I doubt that any major industries will come back to the United States and the European Union. It seem to me that the American and European economies are driven by low-productive service jobs, low skilled mass-immigration, inflation, the financial markets, debt and monetary injections.
China has also decided to continue to spend less than 1.5% on its Armed Forces compared to 3.4% in the United States.
There is no reason for China to spend more given how large the Chinese economy actually is. Recently, the Beijing metro passed NYC Subway in number of metro stations. Of course it was already several times larger in terms of length but NYC Subway still had the edge in number of stations. That edge is now gone. The U.S. has now only 11 buildings on the top 100 list of the tallest buildings in the world. A third place after UAE (14) and China (47). In a couple of years the U.S. may have even fewer buildings on the top 100 list and may not even rank among the top 5 countries anymore. Since at least three decades years the tallest city is Hong Kong but now we can affix Shenzhen above NYC. Once upon a time the U.S. claimed that their wealth was shown in their infrastructure and skyscrapers. Although not a good measurement of wealth its not part of the American propaganda playbook anymore. It say something about the future for the combined West, China and the rest of the world.
I'm thinking of buying some Chinese equities. They've increased substantially from a low in early 2024. Do you think there's more room for it to reach its prior peak?
Lots of uncertainties but overall that trajectory seems to go upwards.
This number is mostly meaningless since 1) it's based on China's nominal GDP, and 2) China doesn't include stats like defense R&D in its military budget, which just by itself is likely to be in the several tens of billions of USD. So "1.5%" is really not an apples to apples comparison vis a vis many other countries' military budgets.
antiterror13
Brigadier
The Chinese stock market is volatile, with fast style switching and overall instability. It values policy guidance more than profits and fundamentals, so it is advisable to invest cautiously
Disclaimer: not financial advise, personal opinion only, etc
Chinese equity market is generally split into 2 types:
(1) core SOEs e.g. Sinopec, ICBC, China Mobile
(2) private sector and lower scale SOEs
Type 1 equity is generally dividend-focused. These businesses are heavily regulated since they are handling national-level state money. I personally see them as something like consol bonds. Given recent news about pension funds and the like being allowed to invest in a subset of stocks, I expect that they will provide a degree of stability to Type 1 stocks.
E.g. on the HK share market, ICBC (1398 HK) currently (7 March 2025) has a dividend yield of 5.76% at a closing price of 5.61 HKD. Their payout ratio has been stable at ~30% for the past 5 years. Remember to account for relevant taxes, including withholding tax for foreign markets (10% currently) and any local dividends tax your government may implement.
Type 2 equity is a casino. My view is a) Chinese policy is run to maximize consumer surplus, not producer profit; b) China is a competitive enough market that anyone with significant profit margins will be attacked & undercut by competitors until everyone's margin is pretty low; c) China will not bailout the overall stock market with inflation, unlike the US. These factors generally result in lower EPS and P/E than would be expected in a US company. Only invest in Type (2) stocks if you think you can trade swings and momentum in individual stocks -- this isn't a US-style market where the entire SP500 goes up.
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