China’s Economy in Need of Rescue?
In the last post “Trump, Biden Policies Shifted Trade from China, Study Shows,” voanews.com, (read again if needed) we were talking about China sneaking its parts into the US through Mexico and Vietnam. The VOA article is the same as shown on Bloomberg. As you read that post, I think you will see I had real issues with being able to sneak the same Chinese parts out of those countries and into the US. Furthermore, for either country to manufacture those parts; there is a process and a raft of procedures and processes which must be certified for automotive and other industries as well.
Could it happen? Not without some people knowing these are Chinese parts. There is a huge liability if these countries are making them plus they have to tool up for them. It is not as easy as it sounds. If you read “China’s economy is in desperate need of rescue” below, China appears to be having economic issues. To my knowledge, trade was its biggest money maker. There is a shadow bank issue. Banks could also be suffering due to a loss of trade too.
Something to think about.
China’s economy is in desperate need of rescue, economist.com,
The headlines keep getting worse for China. Consumer prices are falling. America is shunning exports from the country and restricting investment in it. China’s trade with its best customer and biggest rival shrank by a fifth in July compared with a year earlier. The country’s property sector, which has driven more than 20% of its GDP in recent years, is teetering. Developers, which carry debts worth about 16% of GDP, are struggling to meet their obligations. Two of them, Country Garden and Sino-Ocean, have missed bond payments. Investment products sold by Zhongrong Trust, which are probably exposed to property, have failed to pay out.
These reports have been accompanied by even scarier metaphors. China’s economy is a “ticking time-bomb”, according to America’s President Joe Biden, because of its ageing workers and unemployed young. Others think it is suffering from “long covid” because of the private sector’s “immune response” to Xi Jinping’s meddlesome rule. Many worry that China faces “Japanification”—a combination of debt, deflation and demographic decline—in the long term and a “Lehman moment” in the more immediate future, as defaults cascade through the shadow-banking system.
It is a disorientating state of affairs. For 40 years Chinese officialdom’s commitment to growth was never much in doubt. When China began its reform era in 1978, gdp per person was only $2,000 at purchasing-power parity, which adjusts for differences in the cost of living. More than 70% of the country’s workforce toiled on farms. Almost 90% suffered in abject poverty. Only 12 firms were permitted to trade across borders. The millions who worked in state-owned factories were saddled with “obsolete and dysfunctional products”, according to Thomas Rawski of the University of Pittsburgh and his co-authors, such as “transformers that failed to keep out rainwater” and “sewing machines that leaked oil onto the fabric”.
Market reforms meant managers “switched from politics to business”, as one of them put it. China’s gdp per person now exceeds $20,000, above the global average. The most wretched poverty has been eliminated. Those 12 trading firms have been succeeded by tens of millions of others, turning China into the world’s biggest exporter of goods by 2009, and perhaps its biggest exporter of cars this year. The country’s manufacturing gdp exceeds America’s and the European Union’s combined, churning out chips, ships and industrial sewing machines (60m leakless ones in the past ten years). In its combination of scale and speed, this economic revolution has no precedent.
The transformation included a remaking of China’s urban landscape. From 2010 to 2020, the country added more than 140m units of housing to its cities, according to Morgan Stanley, a bank. In just three years, it produced enough cement to turn the whole of Britain into a car park. The amount of living space per person increased from a cramped 27 square metres (like the eastern half of Europe) to a more comfortable 35 (like the western half), according to calculations by Rosealea Yao of Gavekal Dragonomics, a research firm. Chinese residential property became one of the world’s largest asset classes, worth over $30trn by the end of 2019.
China’s miracle is long over. Its economy has matured. Its workforce is shrinking. Fundamental demand for new property in China’s cities, driven by people’s aspirations for a first home or better digs, has passed its peak. For China’s leadership, the pursuit of prosperity must now compete with other goals.
China’s economy is in desperate need of rescue (economist.com)
The question now is whether the next phase is moderate or malign. China’s strict “zero-covid” policy played havoc with its economy last year. Thus hopes for this year were high. China’s reopening released pent-up demand for the goods and services it was hard to enjoy when a single infection could imprison an entire city block. It also cleared a backlog of export orders and allowed a flurry of home purchases in China’s more expensive cities. Some private-sector economists raised their growth forecasts for the year to a jaunty 6%.
This bout of spending was, however, considerably briefer than hoped. And, crucially, it did not lift morale sufficiently to sustain a broader recovery of spending. In April consumer confidence fell back to last year’s lows, according to the National Bureau of Statistics, which promptly stopped releasing the figure (see chart 1). Foreign direct investment all but vanished in the second quarter, falling by 87% year-on-year to $4.9bn, as multinationals repatriated their earnings rather than reinvesting them. The Shanghai Composite, a benchmark stock index, is down by about 5% compared with a year ago, when the memory of Shanghai’s torturous lockdown was still fresh. Prices for existing properties in China’s 100 biggest cities have dropped by 14% compared with their 2021 peaks, according to Beike, a broker. In the smaller cities, where price information remains patchy, things are probably worse.
Many economists now expect growth to meet the government’s target of “around 5%” only because the word “around” gives it some wriggle room. Slowing growth has also been accompanied by declining prices and a weaker currency. The combined effect could wipe trillions off the dollar value of China’s gdp. In the past four months, for example, Goldman Sachs, a bank, has slashed its forecast for this year and next by a combined $3trn.
For some observers, there is little hope of improvement. Adam Posen of the Peterson Institute for International Economics, a think-tank, has suggested that China’s economy is suffering from something akin to “long covid”. Draconian and arbitrary lockdowns in 2020-22 ruptured people’s faith in Mr Xi’s meddlesome party. Households and entrepreneurs can no longer assume that the party will not bother them if they do not bother it, he argues. Therefore private investment is tentative, purchases of consumer durables are weak and bank deposits are unusually high, as people self-insure against an uncertain future.
Confidence has also suffered as a result of the “regulatory storm” that struck after 2020, humbling China’s online platform companies, such as Alibaba and Meituan, and all but killing the ed-tech industry. The succession of crackdowns and lockdowns left the impression that the government was newly willing to sacrifice economic growth for other ends. Whereas Mr Zhu urged China to keep growth at 8%, Mr Xi insists that it must be “high-quality”, by his own evolving definition. For entrepreneurs, that requires an uncomfortable switch from business to politics.
China’s economy is in desperate need of rescue (economist.com)
Policies Shifted Trade from China? Angry Bear
It’s worse than you think. https://www.foreignaffairs.com/china/xi-jinping-age-stagnation
@lj,
Thanks for this link. It is excellent.
LJ:
Was it something I said for you to comment here?
Just timing. I was reading that article and came across your post, thought I’d share.
I’d comment more but I seem to remember something about if you don’t have anything good to say, don’t say anything at all.
LJ:
Some like to attack the writer, which will get you tossed. If you stay to the topic, we will probably ignore a negative comment. Why? Because much research, experience, and prior education beyond a BA goes into this.
With everyone getting sick, I always welcome back those who show presence and are alive. It has been a difficult and bad few years for all of us. So yeah, I will say I am glad to see you considering all the crap we all went through.
Thank you.
LJ:
I try! Stay alive. We lost Dan Crawford to cancer. It has not a great 6 weeks.
Bill
Factories May Be Leaving China, but Trade Ties Are Stronger Than They Seem
NY Times – August 29
The United States is trying to lessen its dependence on Chinese goods, but research is showing how tough it is to truly alter global supply chains.
Global Supply Chains: The Looming “Great Reallocation”
“China’s economy is in desperate need of rescue”
What is stunning is that there is no mention of the repeated and now continual US economic attacks on China since 2011 and the Wolf Amendment which cut China off from work on space development with NASA. The US has been trying to undermine and stop Chinese economic development.
Just as the US was unsuccessful in stopping Chinese programs in space development, the US will be unsuccessful in undermining Chinese general development. But, fair or honest writing in The Economist should call attention to the US efforts to undermine Chinese economic development.
China’s economy is a “ticking time-bomb”, according to America’s President Joe Biden, because of its ageing workers and unemployed young. Others think it is suffering from “long covid” because of the private sector’s “immune response” to Xi Jinping’s meddlesome rule….
Adam Posen of the Peterson Institute for International Economics, a think-tank, has suggested that China’s economy is suffering from something akin to “long covid”….
[ Notice that the American and British way of attacking China has repeatedly-continually used illness as an analogy since the 1800s and the Chinese Exclusion Act. These attacks on China are all about race. ]
Were China in trouble, the fault would be the determined effort by the US to undermine Chinese development. However, China is countering every effort by the US and has grown at a 5.5% rate in the first half of this year and is making advance after advance that insures growth for the rest of the year.
Huawei has just overcome years of ferocious US attacks to produce a landmark advanced phone completely made in China. Huawei’s accomplishments are a fine indication of just how healthy China is.
Then again, there are the increasing economic ties between China and developing nations about the world and especially in Africa. Trade will be fine.
China is in fine shape and will be growing well from here.
Economist.com:
“When China began its reform era in 1978, gdp per person was only $2,000 at purchasing-power parity, which adjusts for differences in the cost of living….”
Actually Chinese per capita GDP was $370 in 1980 and was $21,291 in 2022 or 69.7 times greater.
Remember, do remember, that Japan invaded China in 1937 and in the ensuing Japanese destructiveness until 1945 there were about 20 million Chinese deaths.
The IMF has increased the Chinese per capita GDP figure for 2022:
Actually Chinese per capita GDP was $370 in 1980 and was $21,392 in 2022 or 69.7 times greater…
Now China GDP per capita is 12720 usd, according to https://www.wecobook.com/
Then there were tens of millions more during Mao’s idelogically induced famine.
Then there were tens of millions more during….
[ This is wildly offensive rubbish, but I suppose the need is to try to destroy a 5,000 year old civilization of 1.4 billion. The need in Western Europe not that long ago, was to try to destroy another 5,000 old civilization. Imagine not learning.
No matter, China is fine and will be just fine. The likes of the Opium Wars will not be repeated. ]
Then there were tens of millions more during….
[ This is just like excusing the Germans for trying to destroy the Jews of Europe. Astounding, what prejudice does. ]
Yes, thoroughly human development:
https://aqli.epic.uchicago.edu/wp-content/uploads/2023/08/AQLI_2023_Report-Global_v03.5_China_view_spreads.pdf
August, 2023
China’s War Against Pollution Marches On
China’s pollution has been declining each year since the country began a “war against pollution” in 2014. This decline continued through 2021, with pollution levels down by 42.3 percent compared to 2013. Due to these improvements, the average Chinese citizen can expect to live 2.2 years longer, provided the reductions are sustained.
Despite significant increases in particulate pollution in many regions of the world, global pollution has declined since 2013. That decline is due entirely to China’s success in steeply reducing pollution—pollution dropped 42.3 percent between 2013 and 2021 and by 5.3 percent from 2020 to 2021 alone. Beijing province experienced the largest decline in pollution, dropping 56.2 percent in just eight years. Without China’s steep decline in pollution, global average pollution would have slightly increased from 2013 to 2021.
What China has accomplished these 45 years:
https://fred.stlouisfed.org/graph/?g=16TkI
August 4, 2014
Real per capita Gross Domestic Product for China, United States, India, Japan and Germany, 1977-2022
(Percent change)
https://fred.stlouisfed.org/graph/?g=16TkM
August 4, 2014
Real per capita Gross Domestic Product for China, United States, India, Japan and Germany, 1977-2022
(Indexed to 1977)
I think China will do just fine in its way. It no longer needs Western investment, and the US, in particular, needs to up its own game rather than relying on China. China started cutting off outside investment nearly a decade ago. Now the US has started paying attention to its own industrial base. This was going to happen eventually.