The Chinese economy is either doing so well or about to collapse.
The Chinese have had a massive overcapacity in steel for a number of years:
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Seems to me that that statement is exactly wrong, and that is not a reflection on us puzzled onlookers but on the collapse of good reporting. China is an extremely complicated mess that has done stupendously despite stunning corruption and stupidity, and is now very seriously troubled but certainly NOT collapsing.
I have been listening to this guy for four years now, and he is by far the best free, easily available, professional, literate, daily China report in English, despite idiotic and usually misleading scream titles pushed on it by the youtube algorithm. (E.g., the actual content of todays broadcast almost directly contradicts how it is titled).
Check it out.
d fb
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How can anyone make out what is happening in China when a Chinese economist who tells the truth when in the U.S. is muzzled when he returns to China?
Xi Jinping Muzzles Chinese Economist Who Dared to Doubt GDP Numbers
Gao Shanwen questioned Beijing’s ability to boost its economy as threats loom from a property meltdown, burgeoning debt and other challenges
By Lingling Wei, The Wall Street Journal, Updated Jan. 8, 2025
At a Washington forum last month, a prominent Chinese economist raised doubts about Beijing’s economic management and said China’s economy might have grown at less than half the roughly 5% pace flaunted by authorities.
When Xi Jinping found out, he was furious.
According to people familiar with the matter, the Chinese leader ordered an investigation of Gao Shanwen, chief economist at state-owned SDIC Securities, who has frequently advised the government on economic and financial policies. Xi then ordered authorities to discipline him…
“We do not know the true number of China’s real growth figure,” Gao said at the Dec. 12 event, whose webcast is available on the Peterson Institute’s website and on YouTube. “My own speculation is that in the past two to three years, the real [gross domestic product growth] number on average might be around 2% even though the official number is close to 5%.”…
Xi’s order led to a ban on Gao speaking publicly for an unspecified period, said the people familiar with the matter. For now, he has been allowed to keep his job…
At a meeting this weekend, Cai Qi, Xi’s chief of staff, urged propaganda chiefs across the country to “strengthen economic publicity and expectation management”—a call to snuff out negative commentary about the economy… [end quote]
OOPS, that free speech thingie will nail you every time! It sure is tempting to say what you really think when you are in the U.S. and everyone else is doing it. Too bad what you say can get back to China…and you will have to get back to China to face the music.
Gao is lucky they didn’t fire him and then send him for re-education at a pig farm.
There is no free speech in China. Officials (and anyone else) better toe the official line…or else. How can anyone make out what’s going on in China when published data may be falsified. GIGO.
The article says, “Economists at Barclays wrote to clients in October that they noticed discrepancies between a sudden improvement in China’s third-quarter headline economic-activity data and the country’s weakening economic indicators, such as wage growth, exports and a purchasing-managers index.”
Many pundits are talking about China. But I don’t know how anyone can be sure of what’s happening.
Wendy
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Shorten the title, “I can never make out in China.”
The Captain 
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The tariffs against China might not have exclusions this time. Other countries might join us in higher tariffs against China.
Xi is unacceptable. China must change or be economically back into the stone ages.
Yes. And might not.
But no question to me but that for myriad reasons China is on very thin ice and cracking sounds are audible. Only questions are how long it will take and how much collateral damage will occur as the CCP’s illusions and self-delusions shatter.
d fb
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China’s big capital drain is in EV factories. Most of them are imploding. Other products are making money in the US or EU. We are the same team in this. Whether Argentina cars or not is minor headlines. China needs the US and EU. We are about to turn off the lights. The EU won’t be far behind.
“Many are called but few are chosen.”
The Captain
Misunderstanding of how China works. The explosion of Chinese EV factories is a feature, not a bug. When the government withdraws support there will be a survivor-of-the-fittest contest as the new industry coalesces around a handful of survivors. Some of those new factories will be absorbed by new owners. Some will be shut down (just as happens here.)
All things being equal, China’s factories are in no danger. Item:
When adjusted for inflation, China’s trade surplus last year far exceeded any in the world in the past century, even those of export powerhouses like Germany, Japan or the United States. Chinese factories are dominating global manufacturing on a scale not experienced by any country since the United States after World War II.
The outpouring of goods from Chinese factories has drawn criticism from an ever-lengthening list of China’s trade partners. Industrialized and developing countries alike have erected tariffs, attempting to slow the tide. In many instances, China has [retaliated] in kind, bringing the world closer to a [trade war] that could further destabilize the global economy.
Now I’m the first to say “all things are not equal” and this sort of imbalance can and will lead to non-textbook pan-economic externalities, sure to include tariffs and possibly outright bans of some products, possibly even war, or other things that are outside the usual economic reactions of demand and supply.
The next couple of years are going to be interesting,m and perhaps not in a good way.
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The low moronic period.
Sometimes, but not always. For example, building lots of buildings last decade was the “feature” that allowed China’s economy to power ahead rapidly. All the downstream companies did very well, steel, bricks, concrete, metals, etc. But in the end a lot of it was mismanagement of capital and now much of that capital is stranded and rapidly deteriorating. Not only that, but it negatively affected most localities because they funded themselves via “selling” property to developers. It is possible that the massive numbers of EV manufacturers, as they start going bust, might also strand quite a bit of their capital. Maybe the other companies don’t want their factories for various reasons (we’ve even seen that here in the USA to the great detriment of Detroit over a few decades). Even worse, maybe there will be a few million cars on the road, or on car lots, or in the scrapyards, that aren’t maintainable because the company that produced them has gone bust. We don’t know, but there could be all sorts of knock on effects as time passes.
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China can not afford to waste the capital. It is a misdirection if the West has any say.
The bar for making an economic profit is higher than making a GAAP net profit. EVs are a loss for China.
They are a gain for the rest of us that the Chinese are buying them.
We are avoiding that whole sale loss. Whether with higher prices or a slower uptake as the tech matures.
As I noted upthread, that was not part of the national industrial policy, nor something encouraged by the Central Committee. That was fomented by the odd way China’s local governments were set up - basically most of their funding came from land sales, not direct taxes. Yes, it had a lot of beneficial downstream effects (as you note: steel, concrete, etc.) It also had one major disastrous effect: the misallocation of resources into a sector that got overbuilt and sucked in a lot of capital. (Watch: “The Big Short”, now on Showtime for a tutorial on how the US economy did the same thing, just in a different way.)
There is no doubt that when some of these EV companies go bust there will be stranded owners, just as there are when Betamax loses the contest to VHS, or when Bell & Howell, Sharper Image, etc. go bust here. That’s how a market economy works - not by perfectly matching every single transaction ever between producers and consumers, but by gross movements putting some producers out of business and leaving the spoils to the survivors.
As I said, some of the factories will be bought by winners and revamped. Some won’t, and will atrophy. Same as in the US (see: steel mills, textile mills, auto assembly lines, and all the other abandoned production facilities that “creative destruction” has left behind.)
At the moment, maybe. But it’s a playbook they used to decimate the worldwide business of solar panel production, screen production, cell phone assembly, textiles and footwear, wind turbines, computers and electronics, and others. China is not so worried about “the next quarter”, they have a longer view and are quite willing to lose money for a while until they have built an industry, at which time they withdraw support and let the business sort itself out. It has been fabulously successful. Somehow you think it won’t be this time. OK, we shall see.
Except for countries with a substantial domestic automobile sector (US, Germany, Canada, Japan, South Korea), they will likely worldwide dominate vehicle production in a few years. (Technically they already do: they produce more vehicles as the next five largest countries combined .) And that’s without substantial exports so far. Most of the sector is already profitable, I expect EVs to be so soon, if they are not already.
If you’d like to learn a little about reality in China, I suggest this link, also posted elsewhere earlier today. Fascinating read, for those who want to know:
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I’m pretty sure that China will dominate (as you mention they already dominate) in EVs just like they do in almost every other consumer product. But my point was that along the way they will likely strand quite a lot of capital that may have been better allocated elsewhere, but isn’t because the capital isn’t allocated entirely freely, but is rather allocated partially based on government central planning. Furthermore, because China tends to commoditize all products, the prices of EVs will be driven down such that profitability is lower (that is the nature of anything that is commoditized). So they will end up dominating the market, but at lower profit, which hopefully just barely justifies all the capital put into the business. As you recall, you disagreed with me regarding why Apple declined to enter the car business, but this is EXACTLY why I think they declined … because it will become commoditized and thus not profitable enough to justify the investment into it.
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This needs context. The primary reason this happened is demographics. China had cheap labor and a disciplined, educated population. This made it possible to make stuff at lower prices than the rest of the world. In addition, China’s miracle growth began with Deng Xiaoping who brought more capitalism and individualism to China. Cheap, educated labor and a freer market were the catalysts for China’s growth.
The demographics aren’t so favorable anymore. India has cheaper, younger labor. China’s workforce is getting smaller with higher expectations about what they should be earning. How long before all that manufacturing starts to move to greener pastures?
Thanks to their deep labor pools and growing scale and capabilities across diverse industries, Mexico, India, Southeast Asia, Turkey, and Morocco are rapidly emerging as future export powerhouses. For example, from 2018 through 2022, US goods imports declined by 10% from China in inflation-adjusted terms, but they rose by 18% from Mexico, by 44% from India, and by 65% from the ten countries of the Association of Southeast Asian Nations (ASEAN). https://www.bcg.com/press/21september2023-north-american-companies-have-relocated-production-sourcing-over-past-five-years
The wealthy nations that buy China’s exports are also growing older, their economies slowing. I don’t see how China can maintain an export driven economy for another decade. A new economic plan is needed. Not sure China has one.
China claims 5% economic growth yet there are reports of 20% unemployment for recent college graduates and persistent deflationary pressures in the domestic market. A lot of this doesn’t make sense and certainly is not indicative of a healthy economy.
It certainly has been successful in an environment of huge trade surpluses and massive government investment that drove demand for all those products. Those exports are going to decline and China is facing rising debt that limits their domestic investments. We are already seeing evidence of a massive oversupply of goods, suggesting that this centrally planned economy is out of kilter with both the Chinese and global markets.
And yes, the Chinese car industry is certainly dynamic. But as far as I can see there are only a couple of companies making a profit. That looks more like America’s dot.com boom than a healthy market.
I’m not so optimistic about China. Their near future I think is more like today’s Japan and Germany. A major economic player but not one destined to global dominance. The demographics aren’t there.
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The timing now won’t work.
The times have changed.
This is weird. It isn’t “China”, it’s “market capitalism”. Tell me the essential difference between a Ford and a Chevy, an Imana refrigerator and a GE, a Coke and a Pepsi. If your LG microwave craps out, will a Samsung replacement work just as well to heat your food?
Sure, almost everything turns into a commodity eventually. It’s rare that something has the kind of network-lock effects of the iPhone iOS or Microsoft softwares that create such a moat. Most times when they do it’s branding (see: Coke, Mercedes, Disney), with a dollop of product superiority, but not enough to explain the huge gap in sales. (Is Coke really 50% better than Pepsi or 1000% better than Sam’s?)
I suspect their margins will be about the same as the US car business, which are about the same as the Japanese car business, which are about the same as the European car business. In other words: business.
My dispute is that if they are only going to go into businesses with Apple’s typical margins, then they are not going to go into any businesses at all. It’s too late to own “Cloud” or probably “AI”, “music” has come and gone, they’re not a big player in streaming entertainment, and I don’t see a lot of organic linear extensions worth talking about (buds? VR headsets? Beats? Seriously?)
I’m the first one to say that “automotive” would be a much lower margin line - but one with vastly more dollars per transaction and in total. (Again: Walmart: groceries). Anyway they spent $10 billion not finding anything, even as a dozen others spent less and found more, so I’ll stop flogging that horse.
(Meanwhile: they’ve dropped to #6 at times in China, their 2nd largest market, so maybe the “lock” on those margins isn’t as secure as it used to be?)
Goofy go back to bed.
Not for nuthin’, but so did India, yet that’s still a relative backwater. Thailand, Vietnam, and others had the same opportunity, but it didn’t happen. Why? Because China used government resources in targeted industrial policy.
You mean like the US, whose economy has collapsed and there are no jobs anymore? Oh wait! Economies evolve. Maybe China’s will too. Funny thing, once people get a taste of the better life, they often find even better things for an even better life, and service sectors appear. (I freely admit that might not happen in China for both cultural and temporary macro reasons, most particular at the moment the housing collapse which has erased so much “wealth” of the middle class and cause their savings rates to skyrocket. A problem to be dealt with by government policy - assuming they get it right.)
Well, I’d say “belt and road” is a better effort than the US has put out since the Marshall Plan, which means they’re using levers we have but don’t bother with. They’re not wasting trillions on protecting oil shipments in the Middle East, nor stationing troops around the world, nor expending blood and treasure trying to re-take a former province like Ukraine. So let’s give them a little credit, at least.
And yet it is the statistics from the US, Europe, and Africa which add up to a trillion dollar trade advantage , so there’s something going on that’s “healthy.” (No, it probably can’t continue because other countries, at least those that can resist will start to resist in ways economic and political, but that’s a slow grind, absent war.)
Yes the dot.com boom produced a lot of losers. Funny, though, I notice that it also produced a large number of winners, a HUGE economic boom, largely dominated by American companies even 25-30 years later. Mostly, when a country gets that kind of jump, it lasts for a while. Not forever, I’ll grant, but a long while. See: US in the 20th century in automotive, computers, internet, Hollywood, technology, chips, aviation, space, military, global currency, fashion, culture, military and political influence.
It’s possible it will peter out in China, as it seems to have in Japan. It’s just as likely it won’t, and as we stagnate in political and economic gridlock, the new kid on the block will make some adroit moves and own the next phase of human development.
India is just entering its golden demographic period and is projected to be the primary driver of global economic growth over the next few years while China’s economy is expected to decline. India will likely surpass Japan in GDP by 2026. Thailand and Vietnam have done fine for mid-sized nations.
Sure but let’s also hold China’s leadership accountable for holding on to the one-child policy far too long and the Draconian zero-covid policy that has accelerated their economic problems. Can also talk about their banking system or the lack of respect for intellectual property, but that gets into the economic weeds.
It’s not just possible, it is inevitable. Here is the historical progression: Cheap labor>rising GDP>more education>declining birth rate>expensive labor>stagnant economy. No country has escaped this pathway so far except those that augment their labor through immigration. China’s problem is that it hit this demographic wall at an earlier stage of its economic development than Japan or the EU. Japan could socially deal with a decade or two of economic stagnation. Can China?
I am not all that optimistic about the US. My experience in academia tells me that we have developed an economic system where our best and brightest end up becoming glorified gamblers on Wall Street rather than people who create and build. It wouldn’t surprise me if the center of innovation shifts to the Indian subcontinent, unless the really bad impacts of climate change gets there first. Indian immigrants certainly seem to be driving a big chunk of US innovation.
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