China's economic stutter

[Ag3ma]

https://edition.cnn.com/2023/08/21/economy/china-economy-troubles-intl-hnk/index.html

It seems most people in economics and media have had it in for China's economy currently.

China's property market was well noted for being a bubble years ago, and appears to be bursting (possibly in large part with the government ensuring a managed decline rather than an implosion). Exports are down, investment is down, and it is has made a load of low value investments that aren't producing or have more capacity than it needs. It has simply stopped reporting some indicators like youth unemployment.

To add to this, China is going to start hitting a declining workforce, has minimal social security, exacerbating likely headaches it's going to face. Some projections suggest it's GDP growth by the end of the decade will be stuck long-term at Western levels (~2%), leaving China to remain as a middle-income country. Some economists think China's economy may need massive structural reforms, but does it have the political will and administrative competence to carry them out?

However, China has also been the bedrock of global economic growth for the last couple of decades, and plenty of that growth feeds everyone else's economic health.

 

[gorfias]

https://edition.cnn.com/2023/08/21/economy/china-economy-troubles-intl-hnk/index.html

It seems most people in economics and media have had it in for China's economy currently.

China's property market was well noted for being a bubble years ago, and appears to be bursting (possibly in large part with the government ensuring a managed decline rather than an implosion). Exports are down, investment is down, and it is has made a load of low value investments that aren't producing or have more capacity than it needs. It has simply stopped reporting some indicators like youth unemployment.

To add to this, China is going to start hitting a declining workforce, has minimal social security, exacerbating likely headaches it's going to face. Some projections suggest it's GDP growth by the end of the decade will be stuck long-term at Western levels (~2%), leaving China to remain as a middle-income country. Some economists think China's economy may need massive structural reforms, but does it have the political will and administrative competence to carry them out?

However, China has also been the bedrock of global economic growth for the last couple of decades, and plenty of that growth feeds everyone else's economic health.

I've heard that the US could do in South America and Mexico in particular, the manufacturing we currently do in China when, all told, would result in a cost savings for the US. Not sure why if this is so we'd still be so heavily invested there.

 

[Ag3ma]

I've heard that the US could do in South America and Mexico in particular, the manufacturing we currently do in China when, all told, would result in a cost savings for the US. Not sure why if this is so we'd still be so heavily invested there.

Well... "the USA" doesn't invest in China per se, US companies do, they're just following money for themselves, from the USA tends to benefit generally. The USA could try to incentivise US companies to move production out of China of course: arguably, it already is.

However, there's a lot of time and cost involved in moving operations - workplaces themselves, infrastructure, supply chains, training workers, etc. Then, China has a population, thus workforce, larger than the entirety of Latin America. China's probably also more stable, and has deliberately geared to this sort of capacity (power, education, infrastructure, port facilities, economic zones, etc.) Finally, Latin America also already has an economy so doesn't have a huge pool of unused labour waiting to be tapped. Everything moved there would have to compete for available land, resources, workers, etc.

I suspect US firms may well be - if not exiting China - then diversifying somewhat because the more recent trade disputes and general sabre-rattling will be making everyone think very carefully about whether they want too many eggs in the same basket. But it's going to be a long and slow business.

 

[SilentPony]

I saw a video, I think it was on Reddit, about a month or so ago of some dude filming himself in the newly built Chinese apartment complexes in Beijing. And he just puts a hand to the wall and pushes slight and the wall caves in, later he goes to a corner wall and squeezes it and it just collapses. He goes to a railing on like the 10th floor and effortlessly rips the railing out and then just takes a door off its frame with a push.
Showing how cheaply the Chinese were building, and how corrupt the officials were.

 

[The Rogue Wolf]

It's almost as if eternal growth is impossible and we should be building our socioeconomic systems around that fact.

 

[Silvanus]

However, there's a lot of time and cost involved in moving operations - workplaces themselves, infrastructure, supply chains, training workers, etc. Then, China has a population, thus workforce, larger than the entirety of Latin America. China's probably also more stable, and has deliberately geared to this sort of capacity (power, education, infrastructure, port facilities, economic zones, etc.) Finally, Latin America also already has an economy so doesn't have a huge pool of unused labour waiting to be tapped. Everything moved there would have to compete for available land, resources, workers, etc.

Plus, the US prefers to outsource its labour to countries with abysmal labour laws and workplace protections, to keep import costs absolutely minimal. China fits that bill more than South America.

 

[Gergar12]

Everyone with money wants to move out, there is high youth unemployment, and not to mention the leader is obsessed with Taiwan. Xi saw his country getting flooded, and when Secretary of State Antony J. Blinken and then NatSec Advisor Jake Sullivan visited to talk among other issues about climate change he told his officials to ignore American pleas for cooperation while his actual advisors were meeting with the two. High-tech parks and agriculture were being wiped out, and food prices have soared. That's not how you run a state. I am not saying Trump was better, but it's like all these autocrats have ego problems.

Everyone wants to revolt but is too chickenshit to do it. He purged his rocket force(The best of the best), and the tech sector for no fucking reason, they don't have high-powered guns and tanks, and they aren't going to revolt. He is about to purge his finance sector again for no fucking reason.

Meanwhile his 'enemies' the US military is deploying Marines armed with anti-aircraft and anti-ship missiles all across the Indo-Pacific which will surely wreck whatever trade is left.

 

[Silvanus]

Everyone wants to revolt but is too chickenshit to do it.

Source?

He purged his rocket force(The best of the best), and the tech sector for no fucking reason, they don't have high-powered guns and tanks, and they aren't going to revolt. He is about to purge his finance sector again for no fucking reason.

Are you referring to the regulatory crackdown that started in late 2020?

Because if so, there was a very clear reason for it-- limiting the growth, market share, and investment opportunities of private sector players in those sectors, and increasing the presence of the state.

 

[Thaluikhain]

Meanwhile his 'enemies' the US military is deploying Marines armed with anti-aircraft and anti-ship missiles all across the Indo-Pacific which will surely wreck whatever trade is left.

In a shooting war, perhaps. But whilst there's no war the China merchant vessels and the Marines can wave as they pass each other.

 

[Satinavian]

Plus, the US prefers to outsource its labour to countries with abysmal labour laws and workplace protections, to keep import costs absolutely minimal. China fits that bill more than South America.

China has lost a lot of the low wage business to other countries in the last decade. It is not that cheap.

It still had other benefits like good infrastructure, fast-track bureaucracy, sufficiently educated workers, access to supply chains and special benefits in accessing the market to sell, if you invest there.
However, other difficulties arose in recent years and for every company investing in China there is at least one pulling out nowadays.

 

[gorfias]

Well... "the USA" doesn't invest in China per se, US companies do, they're just following money for themselves, from the USA tends to benefit generally. The USA could try to incentivise US companies to move production out of China of course: arguably, it already is.

However, there's a lot of time and cost involved in moving operations - workplaces themselves, infrastructure, supply chains, training workers, etc. Then, China has a population, thus workforce, larger than the entirety of Latin America. China's probably also more stable, and has deliberately geared to this sort of capacity (power, education, infrastructure, port facilities, economic zones, etc.) Finally, Latin America also already has an economy so doesn't have a huge pool of unused labour waiting to be tapped. Everything moved there would have to compete for available land, resources, workers, etc.

I suspect US firms may well be - if not exiting China - then diversifying somewhat because the more recent trade disputes and general sabre-rattling will be making everyone think very carefully about whether they want too many eggs in the same basket. But it's going to be a long and slow business.

I am seeing some doom and gloom videos that make me hide under the bed about how our modern way of life is supported by vulnerable entities, Taiwan in particular, suggesting we diversify from there. I hear what you're saying about there already being an economy in South America but what I've heard must be taking that into account when saying we could do it cheaper there. The stability you note in China though? To investors, that may be worth more than money.

 

[Ag3ma]

The stability you note in China though? To investors, that may be worth more than money.

Stability IS money! Think, for instance, risk and insurance costs.

 

[meiam]

China is at an awkward point, the one child policy was a success at the time and let the country lift itself out of poverty, but not high enough. So now they're going to deal with rich country problem (lots of old people and high dependent/worker ratio) but with the income of a middle country. I'd resist going "its all communism fault" and instead would say "its in large part authoritarian fault".

China has a bad habit of shooting itself in the foot for no particular reason, the most spectacular recent one being when they decided that tech company were too successful and decided to kneecap a bunch of them, which accomplished nothing but definitely sent bad messages, both to investors (the government might destroy all your value at a moment notice) and to the populations (don't you dare become too successful). Now all countries have these kind of issue, but democratic countries tend to have a lot of inertia and momentum built in them, so that crazy stupid idea they're leader get take a lot of time to be put in practice and often become blunter. But authoritarian one have none of this, and so when the great leader gets a dumb idea, it gets carried out. And this is far from the only example, for profit education has been essentially made illegal and video game have been severely curtailed.

Then there's the quasi ponzi scheme nature of the construction bubble that can only work with ever growing population. The government could help this along by making it easier for people to move from rural area to urban center, fill those empty tower, but here again they're shooting themselves in the foot by making it very hard for people to move between provinces and city.

It a bit hard to predict what will happen next, usually when country hit rough patch people will start to agitate for change. But China government is so strong, especially with Xi being so well established, and censorship so thorough, that there seem to be no agitation. Even with joblessness of youth reaching such high number that the government decided to stop publishing the number, there doesn't seem to be any chance of something like 1989 happening again, and even that was very small and unlikely to bring any large change. The population seems more apathetic about it all, young people saw their parent work hard so that they could have better live, but they didn't really get better life, so they don't see any reason to work hard themselves or start a family.

The danger is that the CCP decide they need something to distract the population and they start looking at reunification of Taiwan as an easy target, but its not clear they even need to. With Xi and the CCP being as secure they have ever been, there's really no reason to. For the time being they seem to mostly focus on economic independence while at the same time trying to push to preserve they status as a large exporter and they've been having some reasonable success, notably in electric car and solar panel. More western aligned nation are trying to decouple, but they have to chose between very expensive workforce in western aligned country (which usually just mean they'll use robot) or going to other cheap labor country, which tend not to have poorer workforce and supply chain than China. Either case, price are going to rise which might fuel higher inflation for the rest of the world for the foreseeable future.

 

[TheMysteriousGX]

At some point, global capitalism is gonna have to find a way to function without having an underclass to grossly exploit though "cost of living" differences

 

[Kwak]

At some point, global capitalism is gonna have to find a way to function without having an underclass to grossly exploit though "cost of living" differences

Why we should have a single standard world currency.

 

[Ag3ma]

Why we should have a single standard world currency.

Maybe, maybe not.

Local currencies can be useful. For instance, even in the same country, different areas can experience different economic conditions (growth, decline, etc.) where the ability to control currency may mitigate economic pain, dangerous booms, etc. This was part of the problem with the Eurozone around the financial crash (although of course not the same country). The Euro was really benefitting strong exporters like Germany when many Eurozone countries really could have benefitted from higher inflation, depreciation etc.

Regional adjustments could be made fiscally rather than monetarily, but that's potentially easier said than done, especially with wider political issues.

 

[Thaluikhain]

China is at an awkward point, the one child policy was a success at the time and let the country lift itself out of poverty, but not high enough. So now they're going to deal with rich country problem (lots of old people and high dependent/worker ratio) but with the income of a middle country. I'd resist going "its all communism fault" and instead would say "its in large part authoritarian fault".

China has a bad habit of shooting itself in the foot for no particular reason, the most spectacular recent one being when they decided that tech company were too successful and decided to kneecap a bunch of them, which accomplished nothing but definitely sent bad messages, both to investors (the government might destroy all your value at a moment notice) and to the populations (don't you dare become too successful). Now all countries have these kind of issue, but democratic countries tend to have a lot of inertia and momentum built in them, so that crazy stupid idea they're leader get take a lot of time to be put in practice and often become blunter. But authoritarian one have none of this, and so when the great leader gets a dumb idea, it gets carried out. And this is far from the only example, for profit education has been essentially made illegal and video game have been severely curtailed.

Successful democratic countries often were in the sort of terrible mess that China was in a few generations back, though. A lot of places that are doing well now have built on a long history of doing well.

But then democracy being better because it is hard to get anything done has been an idea that's been popular for literal ages.

 

[meiam]

Successful democratic countries often were in the sort of terrible mess that China was in a few generations back, though. A lot of places that are doing well now have built on a long history of doing well.

But then democracy being better because it is hard to get anything done has been an idea that's been popular for literal ages.

True, but China is walking a path well trodden and yet somehow makes all the same mistake (and more) that democracy did when they were figuring stuff out. Also democraty never intentionally starve their entire country for no reason nor limit birth or such.

Why we should have a single standard world currency.

The euro was established between mostly friendly country with similar level of development, close geographical proximity and all member being part of the same economic block. And yet they're still having trouble with it decades after establishment with member country occasionally getting close to electing people who expressively talk about leaving it. A world wide currency would be good if everybody got along and nativist didn't exist, but thats very much not the world we have.

 

[Ag3ma]

True, but China is walking a path well trodden and yet somehow makes all the same mistake (and more) that democracy did when they were figuring stuff out. Also democraty never intentionally starve their entire country for no reason nor limit birth or such.

A lot of the sort of problems countries can face are known about, but even still very hard to avoid. Silentpony noted for instance widespread shoddy construction: this is just basically corruption. But for all a government might know corruption occurs, stopping it is another matter. In other cases, China might be well aware it is making "errors" in a certain sense, but those errors are preferable to the consequences for the regime (e.g. loss of government authority).

I read an interesting article years ago on middle income countries - it pointed out that of middle income countries in 1950, very few made it to high income countries by about 2000. And those that did often had unusual amounts of Western support (e.g. South Korea, Israel). The implication is that the transition from middle to high income is extremely difficult, and in practice middle income countries hit a point where their growth drastically reduces so that growth levels around those of high income countries and they stop effectively "catching up" (often associated with heavy social/political disorder). If China does too get "stuck" economically, it would be very much equalling the trend.

I also wonder whether this doesn't relate to China's desire to suddenly reverse the birth restrictions and encourage family growth. The drop in population it's facing is significant but superficially probably manageable. Until you consider that it has very little social security, so it's going to end up with a lot of older people without care or imposing a burden on their families, who will be unhappy. This will put pressure on the government for welfare/healthcare and taxes, potentially suppress growth. Or simply that if the GDP/capita drops to Western levels, plus a population decline to ~800 million, then China won't charge into becoming the world's largest economy and a renewed imperial power dominating the far east as it once dreamed.

 

[Gergar12]

Source?



Are you referring to the regulatory crackdown that started in late 2020?

Because if so, there was a very clear reason for it-- limiting the growth, market share, and investment opportunities of private sector players in those sectors, and increasing the presence of the state.

The Covid protests which were in many tier one cities, protest against the local governments, protests with regards to real estate build delays, protests due to bad banks. Word of mouth. Protests in flooded area due to diverting water from Beijing to other places. Granted allot of my info is from China uncensored, but government sources aren’t trustworthy ever since the south China morning post lost allot of credibility. High youth unemployment which is a possible catalyst. I will admit my post wasn’t academically rigorous but there are lots of small factors that add up to a big picture of things not going well and Xi being mentioned in the protests which is a first in years.

https://youtube.com/@ChinaUncensored?si=D3WE70BM2TrAyVEW