Chinese Economics Thread

[Sinnavuuty]

I'm not seeing the logical step that links the cause and effect of the bolded sentence. This is essentially what India does, however India is nowhere close to China in quality of life. This is also what the US did in the past, leading to deindustrialization and today's woes.

The second question is what goods and services exist outside of China that are good enough to compete with local Chinese goods and services, and what benefits importing (rather than producing their own) would bring, in the long term. Long term consideration is needed because sustainability.
Very few examples spring to mind - Tesla (again made in China, not imported), which helped level up local EV companies in their infancy by bringing in a then-world class competitor, ICE auto JV's (again MIC, not imported) which helped level up supply chains and worker skills, Foxconn (MIC) for electronics, which all have a use by date when the "leveling has upped". Again the benefits from these were all in the form of making in China and transferring the necessary skill and tech foundation, rather than importing something that most people then could not afford (and now won't buy because they are no longer competitive).

The USD/CNY exchange rate issue is a mickey mouse issue to me; it only affects imports and overseas spending. Yes, there is an increase in QOL when travelling etc., but that doesn't drive further internal growth and thus isn't a sustainable increase (you are spending your money in someone else's country).

Re: European standard of living - they achieved this through industrialization, which allowed them to manufacture more at less cost and export the surplus. Colonization (read: stealing of resources and slave labor) also helped a lot in expanding the scope of their QOL.

I'm not sure if your background is economics (in which case you may need to de-kool aid yourself from certain theories), but the notion that importing brings prosperity is both erroneous and also doesn't work if you produce the majority of and the best goods.

Mods - feel free to move this discussion to the Chinese Economics thread if it is more appropriate there.

You basically advocating China to repeat the same mistake as the US made.

There is no need to take it to the other extreme. The case of the United States is quite unique, because it holds the reserve currency and the international exchange currency, and it can have a trade deficit as large as US$1 trillion because capital flows to the United States at the same rate. For example, if I am the owner of an automobile factory in the United States and I sell a car to a Canadian, this sale is counted as an export. On the other hand, if a Canadian buys shares in my company, this is counted as "foreign investment" and will not be included in the trade surplus/deficit calculations that concern economists so much. But note that, in both cases, something was sold. In the first situation, I sold a car. In the second situation, I sold a share. The first sale was counted as an "export". The second sale was counted as "foreign investment". And with one detail: the dollars used in this foreign investment will end up being used for imports. Therefore, the counterpart of a foreign direct investment is the import of a good or service.

However, given that foreign investment is not counted as exports/imports, is it really surprising that countries have trade deficits? Well, it is precisely these foreign investments that allow imports. A country that is importing little is a country that is not very attractive to foreign investors. It will certainly be a poor country. Therefore, it is worth repeating: all trade transactions must balance out. If a country has the capacity to import goods and services produced by the rest of the world, this means that the rest of the world has shown an interest in investing in that country.

In fact, here is a list of some countries that, in recent decades, have always or almost always had deficits in their trade balance: Australia, New Zealand, Switzerland (incidentally, the latter had the longest deficit of all, from 1950 until the mid-1990s), the United Kingdom and Luxembourg. Chile, on the other hand, during its decade of development, had recurring deficits in its trade balance. On the other hand, choose any country in South America or Africa and the chances are that you will find a country that exports much more than it imports.

Rich populations are those with broad access to goods and services produced by the rest of the world. They are those who have the means to import. That is why we wake up early and work hard: to obtain the means to raise our standard of living. And importing quality foreign goods and services raises our standard of living.

China would not have the same effects as the Americans, because of its comparative advantages in relation to the rest of the world. Go back to my previous comment about the main factors for productivity, China strictly complies with almost all the items, the revelation here is that China exports so much that it should import as much, if not more, but this effectively does not happen and has nothing to do with accessing worse products in the external market.

The advantage of exporting a lot is being able to use this foreign currency to import a lot. However, if the government imposes import tariffs, blocks trade and devalues the currency, then exporting a lot not only does not bring any benefit, but it actually worsens people's well-being. Exporting a lot means that the supply of products in the internal market is decreasing (which generates an increase in prices). And restricting imports means that there is no replacement of these products in the domestic market. In other words, those who argue that exports should be increased and imports should be restricted are actually saying that the quantity of products available to the national population should be doubly reduced — generating, at the very least, more high prices.

Furthermore, I think you really have no idea how the currency and the purchasing power of that currency can influence the decision to import. Devalued currencies end up restricting imports, because they need to use a greater amount of their currency to buy a certain amount of goods and services from another country. It turns out that they would buy even more imported goods and services if the currency were valued. A greater supply of goods and services increases the population's standard of living. The more they consume, the greater the import, the greater access to goods and services from the world... Furthermore, it is not only consumer goods that should be considered from the perspective of imports. Importing capital goods to increase general productivity further boosts the economy and economic growth. Just see the previous comment about productivity.

Regarding the concern about deindustrialization, it is really a scenario that deserves attention, but if you state with all certainty that China is really very competitive globally as it says it is, it becomes even more of a reason for China to fully liberalize its trade and imports, in addition to allowing an appreciation of its currency. Regardless, I believe that this scenario of deindustrialization deserves attention, but much of it is due to erroneous comparisons with the USA, which is a particularly unique case.

 

[doggydogdo]

This is the problem. China's industrial production is about US$5 trillion, even if Chinese industrial production jumped to US$10 trillion, which is about 4x more than the US produces, China's standard of living would still be lower than the US's, because of China's large population, which is more than 4x larger.

That is not what is under discussion, but the issue of China's need to import. What China exports allows it to import the same amount of goods and services that it exports. A surplus of US$1 trillion is an economic aberration, because if this surplus were used to import more goods and services, the standard of living of the Chinese population would be higher than it is today.

And it is not just a question of who has the most competitive products, the exchange rate factor weighs on the decision to import. If Chinese monetary policy were more suited to providing a higher standard of living for the population, the renminbi would have already appreciated against the dollar, allowing the Chinese to access even more goods and services from around the world.

Countries that need to import do not need to survive, they need to provide a higher quality of life for their population. Access to goods from all over the world at affordable prices transforms a higher quality of life for their population, whether a country is poor in resources or has abundance. What guarantees a high-quality standard of living is having access to goods and services. Even if China produced twice as much as it does now, they would not even have come close to a European standard of living.

1. It will not come close to European living standards because it would be far better, by every single metric.

2. The 1 trillion $ surplus isn't wasted, its invested. Which is objectively the best thing to do.

 

[AndrewS]

This is the problem. China's industrial production is about US$5 trillion, even if Chinese industrial production jumped to US$10 trillion, which is about 4x more than the US produces, China's standard of living would still be lower than the US's, because of China's large population, which is more than 4x larger.

Remember that using nominal exchange rates severely undervalues goods/services consumed in China.

It does feel like most things in the USA are twice the price of their Chinese equivalent.

 

[AndrewS]

.

That is not what is under discussion, but the issue of China's need to import. What China exports allows it to import the same amount of goods and services that it exports. A surplus of US$1 trillion is an economic aberration, because if this surplus were used to import more goods and services, the standard of living of the Chinese population would be higher than it is today.

And it is not just a question of who has the most competitive products, the exchange rate factor weighs on the decision to import. If Chinese monetary policy were more suited to providing a higher standard of living for the population, the renminbi would have already appreciated against the dollar, allowing the Chinese to access even more goods and services from around the world.

Countries that need to import do not need to survive, they need to provide a higher quality of life for their population. Access to goods from all over the world at affordable prices transforms a higher quality of life for their population, whether a country is poor in resources or has abundance. What guarantees a high-quality standard of living is having access to goods and services. Even if China produced twice as much as it does now, they would not even have come close to a European standard of living.

I think we should stop talking about China here, the topic is about the American economy. If you want, reply to me on the Chinese economy topic.

But for almost every category of product, the Chinese one is frequently both higher quality and cheaper than a foreign product.

So if Chinese citizens have an extra $1 trillion to spend on consumer goods, why should they spend on foreign products instead of domestically? You still end up with a $1 trillion trade surplus.

 

[Sinnavuuty]

But for almost every category of product, the Chinese one is frequently both higher quality and cheaper than a foreign product.

So if Chinese citizens have an extra $1 trillion to spend on consumer goods, why should they spend on foreign products instead of domestically? You still end up with a $1 trillion trade surplus.

The fundamental problem in assessing certain trade balance scenarios is the decisive impact of the exchange rate, which can completely change the bigger picture.

I can't make a comment without changing the scenario to a hypothetical reality to explain what I mean.

Let's start with the basics. A trade surplus of US$1 trillion is simply unimaginable in the sense that it is impossible for the reality I am trying to fit.

If a country had a strong currency (in the sense of remaining balanced or appreciating in relation to the international exchange currency - see the dollar), that country would hardly have a surplus as large as US$1 trillion, because there would be much less exports and much more imports.

There would be much less exports because of the exchange rate factor, because a country that lets its currency appreciate in relation to the international exchange currency will have greater purchasing power than others and therefore can access any good or service from any other country. If this exchange rate condition remains, it will be able to buy a greater quantity of increasingly larger goods and services.

The fact that there are not so many exports in this scenario is because, as its currency is strong in relation to other currencies, other countries will hardly be able to buy products from this country that exports with an appreciated currency. The devalued currencies of other countries prevent greater purchases/imports. It is not that trade will be completely paralyzed or blocked, but the quantity of goods and services that could be imported from this country will end up being smaller because of this exchange rate factor. In other words, there will be fewer exports to other countries.

So, what happens to the production of goods and services that would be exported and will no longer be?

They are sold on the domestic market. Those who exported their products and had their captive market in global trade, now have to redirect their clientele to sell on the domestic market. It turns out that here the scenario is even worse for this producer/exporter because of the greater competition with global products flowing into this country because of imports.

Note that this exporter, who previously produced only to export, will have to align with the country's monetary/exchange rate policy to sell to the domestic market. The cost of exporting less will be to sell the same amount of products to the domestic market, with even greater competition from the foreign market. He will have to compress his profit margins, which were previously enormous due to his access to dollars, and invest even more to improve his productivity in order to compete and not be liquidated by the competition.

This represents an abundance of goods and services for the entire society of this country. This abundance is increasingly greater due to investments in greater productivity and global competition. Greater abundance means even lower prices, a greater supply and variety for the entire society to enjoy.

As I said, the exporter will not stop exporting. He will just export less, perhaps much less. The importer, who previously imported little, could import even more. The only one who benefits from this is society, which finds itself in the midst of an abundance of available services and goods. This increases society's purchasing power and the standard of living is raised.

The question that arises is: what about deindustrialization and all the problems that arise from it?

There are several problems. The problem of deindustrialization is real. A country that fully opens its trade may find itself in a scenario where it faces a disadvantage, but it turns out that a lot can be done to offer better conditions for its industry and companies to face this global competition, from less regulation and bureaucracy, fewer taxes, better infrastructure and qualifications, etc. All of which China inevitably falls into. In other words, China's comparative advantage will still be standing, but this advantage will be compressed because of the scenario outlined above. Even so, China would hardly be deindustrialized because of this or face the same consequences as other countries that tried to do the same thing and failed.

Regarding these advantages, there are two articles on Guancha that I posted here that explain why this is unlikely to happen with China:

Miscellaneous News

Point 3 percent drop in GDP in the first quarter. However, it's much higher than what's been anticipated. Maybe, it will get revised downward https://www.bea.gov/https://www.bea.gov/ If Mr Trump doesn't abolish these foolish tarrifs and guarantees more predictability, the second quarter will be...

www.sinodefenceforum.com

There are pros and cons to this policy. There are some countries where this happens, but the differences with China are too obvious to be used as a comparison. For example, Singapore is indeed a large exporter, but it needs to import resources that it does not have. Its currency appreciated against the dollar during the period when it experienced its greatest development. This is the chart of the dollar to the SGD:

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I don't think anyone here can deny Singapore's standard of living.

 

[tphuang]

https://twitter.com/i/web/status/1918774369351786571

China has global market control over taurine which is quite important.

 

[AndrewS]

You don’t understand. I’m not taking about spending money on useless crap but being able to afford housing, food, transportation. And not being saddled with debt. That reduces stress by a lot.

I did say the caveat is that you need a middle-class lifestyle first.

My definition of this would include a holiday every year, on top of everything else.

 

[AndrewS]

The fundamental problem in assessing certain trade balance scenarios is the decisive impact of the exchange rate, which can completely change the bigger picture.

I can't make a comment without changing the scenario to a hypothetical reality to explain what I mean.

Let's start with the basics. A trade surplus of US$1 trillion is simply unimaginable in the sense that it is impossible for the reality I am trying to fit.

If a country had a strong currency (in the sense of remaining balanced or appreciating in relation to the international exchange currency - see the dollar), that country would hardly have a surplus as large as US$1 trillion, because there would be much less exports and much more imports.

There would be much less exports because of the exchange rate factor, because a country that lets its currency appreciate in relation to the international exchange currency will have greater purchasing power than others and therefore can access any good or service from any other country. If this exchange rate condition remains, it will be able to buy a greater quantity of increasingly larger goods and services.

The fact that there are not so many exports in this scenario is because, as its currency is strong in relation to other currencies, other countries will hardly be able to buy products from this country that exports with an appreciated currency. The devalued currencies of other countries prevent greater purchases/imports. It is not that trade will be completely paralyzed or blocked, but the quantity of goods and services that could be imported from this country will end up being smaller because of this exchange rate factor. In other words, there will be fewer exports to other countries.

So, what happens to the production of goods and services that would be exported and will no longer be?

They are sold on the domestic market. Those who exported their products and had their captive market in global trade, now have to redirect their clientele to sell on the domestic market. It turns out that here the scenario is even worse for this producer/exporter because of the greater competition with global products flowing into this country because of imports.

Note that this exporter, who previously produced only to export, will have to align with the country's monetary/exchange rate policy to sell to the domestic market. The cost of exporting less will be to sell the same amount of products to the domestic market, with even greater competition from the foreign market. He will have to compress his profit margins, which were previously enormous due to his access to dollars, and invest even more to improve his productivity in order to compete and not be liquidated by the competition.

This represents an abundance of goods and services for the entire society of this country. This abundance is increasingly greater due to investments in greater productivity and global competition. Greater abundance means even lower prices, a greater supply and variety for the entire society to enjoy.

As I said, the exporter will not stop exporting. He will just export less, perhaps much less. The importer, who previously imported little, could import even more. The only one who benefits from this is society, which finds itself in the midst of an abundance of available services and goods. This increases society's purchasing power and the standard of living is raised.

Couple of points:

1. The theoretical construct works for maximising consumption for all parties, but only if exchange rates can float
2. You would need governments to allow this and for trade/money flows to be relatively open, which requires trust
3. However, if one party (eg. the USA) is trying to contain the other party (eg. China), then there is the incentive for China to adopt mercantilist policies and maximise Chinese gains at the expense of the US

 

[antiterror13]

Remember that using nominal exchange rates severely undervalues goods/services consumed in China.

It does feel like most things in the USA are twice the price of their Chinese equivalent.

Twice is a bit understatement, for food I'd say 4-6x cheaper easily in China vs US

3-4x is more accurate I think, including weapon system and ships

 

[fatzergling]

There is no need to take it to the other extreme. The case of the United States is quite unique, because it holds the reserve currency and the international exchange currency, and it can have a trade deficit as large as US$1 trillion because capital flows to the United States at the same rate. For example, if I am the owner of an automobile factory in the United States and I sell a car to a Canadian, this sale is counted as an export. On the other hand, if a Canadian buys shares in my company, this is counted as "foreign investment" and will not be included in the trade surplus/deficit calculations that concern economists so much. But note that, in both cases, something was sold. In the first situation, I sold a car. In the second situation, I sold a share. The first sale was counted as an "export". The second sale was counted as "foreign investment". And with one detail: the dollars used in this foreign investment will end up being used for imports. Therefore, the counterpart of a foreign direct investment is the import of a good or service.

However, given that foreign investment is not counted as exports/imports, is it really surprising that countries have trade deficits? Well, it is precisely these foreign investments that allow imports. A country that is importing little is a country that is not very attractive to foreign investors. It will certainly be a poor country. Therefore, it is worth repeating: all trade transactions must balance out. If a country has the capacity to import goods and services produced by the rest of the world, this means that the rest of the world has shown an interest in investing in that country.

In fact, here is a list of some countries that, in recent decades, have always or almost always had deficits in their trade balance: Australia, New Zealand, Switzerland (incidentally, the latter had the longest deficit of all, from 1950 until the mid-1990s), the United Kingdom and Luxembourg. Chile, on the other hand, during its decade of development, had recurring deficits in its trade balance. On the other hand, choose any country in South America or Africa and the chances are that you will find a country that exports much more than it imports.

Rich populations are those with broad access to goods and services produced by the rest of the world. They are those who have the means to import. That is why we wake up early and work hard: to obtain the means to raise our standard of living. And importing quality foreign goods and services raises our standard of living.

China would not have the same effects as the Americans, because of its comparative advantages in relation to the rest of the world. Go back to my previous comment about the main factors for productivity, China strictly complies with almost all the items, the revelation here is that China exports so much that it should import as much, if not more, but this effectively does not happen and has nothing to do with accessing worse products in the external market.

The advantage of exporting a lot is being able to use this foreign currency to import a lot. However, if the government imposes import tariffs, blocks trade and devalues the currency, then exporting a lot not only does not bring any benefit, but it actually worsens people's well-being. Exporting a lot means that the supply of products in the internal market is decreasing (which generates an increase in prices). And restricting imports means that there is no replacement of these products in the domestic market. In other words, those who argue that exports should be increased and imports should be restricted are actually saying that the quantity of products available to the national population should be doubly reduced — generating, at the very least, more high prices.

Furthermore, I think you really have no idea how the currency and the purchasing power of that currency can influence the decision to import. Devalued currencies end up restricting imports, because they need to use a greater amount of their currency to buy a certain amount of goods and services from another country. It turns out that they would buy even more imported goods and services if the currency were valued. A greater supply of goods and services increases the population's standard of living. The more they consume, the greater the import, the greater access to goods and services from the world... Furthermore, it is not only consumer goods that should be considered from the perspective of imports. Importing capital goods to increase general productivity further boosts the economy and economic growth. Just see the previous comment about productivity.

Regarding the concern about deindustrialization, it is really a scenario that deserves attention, but if you state with all certainty that China is really very competitive globally as it says it is, it becomes even more of a reason for China to fully liberalize its trade and imports, in addition to allowing an appreciation of its currency. Regardless, I believe that this scenario of deindustrialization deserves attention, but much of it is due to erroneous comparisons with the USA, which is a particularly unique case.

Is this the "plan" of the American right: import goods in exchange of ownership and then nationalize all ownership with a stroke of a pen? It done successfully, it would be quite impressive to watch? But it would require lots of foresight and intelligence.

As said before, China has to play within a capitalist system, which means money is the key to securing workplaces. Due to neoliberalism, the US allows crown jewels to be freely bought and sold on the market. This offers China a unique opportunity, as by exchanging goods for workplaces, China can catch up with the West technology-wise. The US has woken up to this, which is why you see the protectionist measures implemented.

There will come a time where this is not needed as a developmental procedure. In that case, China will have to switch to a new developmental model. China has a deficit in minerals and oil (which country in the world can be autarkic) relative to it's population. The new model could look something like China imports X natural resources for Y finished goods, where the profit margin is low enough so that other countries consent to these deals. Of course, China will have to promote local development, local investment to sign up other countries.

Again, China is successful because they can synthesize various techniques from USSR, USA, EU etc. The inevitable consequence of Chinese competitions is that foreign manufactures will be eaten alive, and enraged countries will become protectionist. As a result, new developmental model is similar to Comecon, but more liberal and does not require constitutent countries to follow the host country's model.

Fully liberalizing trade without considering what you want to export and import is an ideological goal that only works if you are so competitive that you naturally dominate. But if you do dominate, other countries will be protectionist, and you can either go full on imperialist (something we hope never happens), or plan with other nations. And what would that plan look like other than a reborn Comecon?

As an aside, it's interesting to see how China refuses to work with the US regarding Trump's trade war. My guess is that China thinks US internal politics are too rotten, and a significant change is needed before proper negotiations can begin.