China's economic data

Investment Analysis Clubs Macro Economic Trends and Risks
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Fair enough, and I’m even willing to stipulate that the class/wealth divisions in the US probably don’t apply terribly closely to China. Just looking at my parents and the “Depression” generation with their giant freezers in the basement, I can imagine what the “Cultural Revolution” generation and “famine generation” of China are like these days, so no, I likely overstated the percentage, just as I accused Z of overstating it his way.

That said, I’ll also say while the “population bomb” in China is certainly an issue, it’s not a one-for-one comparison. For instance, and for the sake of argument, let’s say that 20&30 something’s are the big spenders, or at least proportionally big. So they have fewer numbers but bigger spending. I’m not sure why this is a “bomb” of unsolvable dimension, given that as new consumers marching through the years (and as older, non-consumers drop dead) the Chinese economy is destined for the scrap heap.

There are a gazillion, maybe 2 gazillion young Chinese consumers. Let’s pretend they do spend more, per capita, than their parents. OK, but there are fewer of them than their parents. Then again, they’re the ones traveling, buying stuff, using WeChat or whatever is the app-du-jour, yukking it up in nightclubs or whatever, and going to college while the parents sit home, gloomily drossed in their generational hangover. If this scenario is even remotely true, the Chinese economy should be primed for growth. Slow, admittedly, and with a real estate hangover as bad as any you’ve had on New Year’s Day, but hardly fatal or even terribly debilitating.

Now it could be that they sink into a Japanese style devaluation (US 1929, etc.) and have a hard time of it, and yes, a demographic wobble presents a challenge, but I’m willing to think maybe they’re just experiencing a Covid lockdown morning after and that once that passes they’ll be OK. I just don’t buy the doom and gloom prognostications, at least not yet. It’s too soon, I think, to make meaningful predictions, especially based on a population pothole that has existed in plain sight for the past decade, even as China became the economic miracle of the world.

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Yes, but in China there is a big lump of people nearing the end of their main spending years,. And that lump is bigger than the people about to enter their main spending years. And the cohort behind that is even smaller. It is hard to grow the economy if the population is shrinking. And China’s population is already shrinking.

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Again, I agree. Predicting catastrophes is how Zeihan gets views. But I don’t think the “population pothole” is the major problem today with the Chinese economy. China has routinely invested over 40% of it GDP, about twice that of the mature western economies. That’s a good thing if you have worthwhile projects to invest in. Unfortunately for China, it has demonstrated over the past decade that it does not. China has spent enormous sums on unproductive infrastructure (e.g., all those infamous “ghost cities”) and real estate projects that has resulted in enormous government debt at the local levels and a massive property bubble.

Local governments and real estate developers default on their debts, putting stress on businesses and banks. Banks stop lending, businesses stop hiring, the unemployment rate jumps, and domestic spending declines. This is where China is at the moment.

China has to rebalance its GDP such that the contribution of government investment reduces to a more sustainable 25% or so. But this will mean either substantially reducing GDP or replacing the reduction in government investment with some combination of increased domestic consumption and exports. The latter has turned out to be difficult so China’s GDP growth is now under severe pressure.

All of this is occurring within the context of a population ageing at unprecedented rates, putting additional downward pressure on the economy that will continue for the foreseeable future.

As you mentioned, these problems were foreseeable for a long time as other countries have gone through the similar trials and tribulations. The difficulty is, none of these countries came up with a solution. All entered periods of economic decline or stagnation. So far it looks like China also does not have any answers.

https://carnegieendowment.org/chinafinancialmarkets/89466#:~:text=China%20is%20different.,during%20the%20COVID-19%20period.

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That is what all the media seems to do constantly today. Yesterday, we had some rain, and I heard all of three claps of thunder. This after 3 days straight of the media screaming “SEVERE WEATHER, 60MPH WIND, 1 INCH HAIL”

Steve

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LOL !! We get, and got, hail in the 2" to 4" range this past week. The MN State Fair starts on Thursday, Aug 24 and runs through Labor Day. If only they did delivery from the fair–but not done in many years.

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Opinion piece in the WaPo today on this topic.

Gift link:

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It is a matter of probability. If a very bad event has a 30% chance of happening, shouldn’t people be warned even if odds are it won’t occur?

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Thing is, all it takes is a government forecast of a “marginal risk”. A “marginal risk” is a 5% probability. A 30% probability is an “enhanced” risk. two levels above “marginal risk”. An “enhanced risk” is rare in Michigan. Of course, the media doesn’t actually tell anyone what the percentage probabilities are: that they are in full hysteria mode, forecasting a worst case scenario that there is a 95% probability won’t happen. Even if the edge of the “marginal risk” area is 50-75 miles away from metro Detroit, they still carry on like it’s the end of the world. I have seen the “news” declare a “severe weather alert day”, where there isn’t even a “marginal risk” forecast within a hundred miles. I have seen the local “news” skip over the next day or two, because the outlook is benign, so they can spend the entire segment screaming about a “marginal risk” three days out.

Here are the actual probabilities for the categories.

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And every once of them is suddenly gloom and doom. It’s so weird because three months ago everyone was worried to death that China was about to become the #1 economy in the world and was growing like a 3 year old with new pants and …

Now it’s all the other way, and as far as I can tell, the trends were pretty much there a while ago. The only thing that’s changed is that they stopped the “lock down” policy and likely carried it on too severely and for too long. But how that would impact the sudden discovery (I exaggerate) of “The Population Bomb” is beyond me.

Why would that be the conclusion? Perhaps they have invested badly, but that is a different thing. Surely there is going to be investment going forward around the world that will be productive. If China tilted towards empty apartment buildings and whatnot, well, bad for them. Surely there’s lots of “good” investment to be had: chip fabs, EV batteries, maybe some kind of newfangled washing machines for the masses, I dunno. Across the years the US has made many great investments (Panama Canal, Interstates, Marshall Plan, Space Program) and many dumb ones (See: Heritage Group or DrBob.org for a partial list).

Sometimes bureaucrats’ vision doesn’t pay off. Sometimes it does: Japan/steel, automobiles & electronics; Korea/flat screens; Europe/Aerospace; China/consumer goods; Israel/software; and so on. Those were all aided & abetted, in some cases subsidized by their government to get the industry to a scale where it could be competitive.

China clearly let the property developers get out of hand, but then so did we around 2005, so we shouldn’t wag our finger too much, eh?

I realize this is heresy, and no one will take it seriously, but how about if “growing GDP” isn’t the be all and end all. Maybe just “improving people’s lives” would be enough. Maybe cheaper food, cheaper electronics, smaller cars would do it. Maybe everybody doesn’t have to have Michael Jordan sneakers instead of Keds? I’m not sure, but it seems as though the only target anybody talks about is “more” - when it really ought to be “better”. No?

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There has been some smoke on the horizon for a while.

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Two reasons, history and data. History shows that high investment, export driven economies are not sustainable. They inevitably reach a point of overproduction, deflation, and economic stagnation. See the US in 1929 and Japan in 1989. The data reason is the observation that China’s overall debt burden has been growing at historically high rates. This is because the revenues generated by the investments are much less than the cost of the investments.

Surprisingly there aren’t when you are dealing with the level of spending China is doing. The return from investments into badly needed schools, roads, ports, and airports are high. Once those get built the next level of investments is likely to be less productive. Eventually the state starts building bridges to nowhere just to keep construction companies happy. That’s when the debt burden explodes. And it has.

China can keep massively subsidizing its companies to build up production and hope that competing countries are okay with losing their domestic manufacturing businesses. Seems like a long shot though.

That’s doable for a wealthy country where maintaining the status quo is not a bad thing. That’s why Japan could be politically stable with a high quality of life despite zero GDP growth for decades. China is not that wealthy. A sizeable portion of its population hasn’t experienced the economic miracle yet. Hard for that to happen if the GDP isn’t growing.

Remember, we aren’t talking about Norway, Finland, or happy Denmark. This is China, run by a near-dictator whose primary goal seems to be to supplant the US as the dominant global power.

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He does not have the water to make it happen.

Yes everything was meant as an end run. The end run we are cutting off is technology. We still will take other goods.

The tariffs increased our trade deficit with China till this year. That might have actually mess up China. The factories were doing better and better. Build more factories for US demand. Now the widgets are not wanted. The newer widgets are made here or in Mexico. China is out of luck. Mexican labor is less expensive and from reports better more skilled.

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I think the difference (that people are now realizing) is that in 2005/6, the USA overbuilt. But the population of the USA continued to grow after 2005/6 and all that housing stock was used over the next decade. In China, they overbuilt in 2018/19/20/21, and suddenly in 22-23 everyone realized that their population is decreasing, and will continue to decrease for at least the next decade or two. It’s quite possible that all that overbuilding will go to waste.

For the most part, “growing GDP” IS the measure of “improving people’s lives”.

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Is it really? If all of the GDP growth ends up in the hands of the top 1% or 5% or 10%, is that growth really improving people’s lives?

Seems to me a better measure for that would be something like median income.

—Peter

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Median income goes up as GDP goes up. You can easily compare countries with a few decades of higher GDP growth to countries with a few decades of lower GDP growth, and you will see that median income rises more in the higher GDP growth countries.

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This is a worthwhile dohickey to contemplate. There are damning issues regarding the history, intent, implementation, and usefulness of the measure. But worth a look and a thought.

Preface: I have great respect for economic development and my and my husband’s main work these days is in increasing access to economic development for young poor people where we live.

I have always been deeply impressed by the many truly happy and thriving “poor people” I have known and loved and been loved by. For me, happiness, well-being, personal power, and economic prosperity are each definitely in different realms that overlap in complex ways. Spiritual and moral development, especially in their communal forms, are now fading into quaintness and even total abandonment for far too many people, but these insubstantialities stubbornly remain at the crux of all that matters, both emotionally and physically. My main contributions to poor brilliant country kids seeking education in my neighborhood is not money as a sponsor but moral support and spiritual kindness as a mentor.***

The world’s insane stupidity regarding GCC, amongst other shandas, is rooted in our increasing rootlessness regarding all but the often frankly bizarre statistics of economic production and our alienation from the natural world and lived life.

david fb
***for a concrete picture of this see

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It all depends on what makes you “happy”. There are apparently some people to whom “happy” means having a bigger stack of loot, far more than could ever be spent satisfying reasonable material needs, than anyone else, and get added “happy” by taking other people’s loot by “outsmarting” (cheating) them.

Steve

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That’s the beauty of freedom, and freedom of movement. Some people can choose to live among the happy poor people, and other people can choose to live among the loot seekers. To each their own.

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Problem is, the loot seekers gain some of it, by taking it away from others.

In the current labor contract negotiations at the big three, the union is trying to recover things that were taken away from them: retiree medical, a COLA, and an end to the tiered wage system. Stellantis management replied that, not only are they not going to return anything they previously took away from the workers, but they intend to take more away, because that makes management happy.

The union head, having no intention of making the workers sad, for the ease and comfort of management, promptly tossed the management proposal in File #13.

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