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Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

carnegieendowment.org

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Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#11

Post by baybal2 »

andygoo wrote: post #8

Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Yeah, if it won't be utilised then there will be unemployment, well pointed by the author. If domestic consumer will cons…

>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised.

Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo.

Edit: specified that I talk about price elasticity

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#12

Post by andygoo »

baybal2 wrote: post #11
andygoo wrote: post #8

Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Yeah, if it won't be utilised then there will be unemployment, well pointed by the author. If domestic consumer will cons…

>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo. Edit: specified that I talk about price elasticity

If they are more elastic it means that demand is more responsive to price hikes. This is opposite to your conclusion

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#13

Post by andygoo »

baybal2 wrote: post #11
andygoo wrote: post #8

Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Yeah, if it won't be utilised then there will be unemployment, well pointed by the author. If domestic consumer will cons…

>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo. Edit: specified that I talk about price elasticity

Did you mean that China can just decrease domestic price and sell the goods to domestic consumers?

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#14

Post by tsuabing2 »

eksemplar wrote: post #4

I don’t get this article. China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth. Their wages are steadily increasing. Their internal market is the healthiest of any g20 economy. Investments both internally and internationally are up and their population has little dept. On top of that they haven’t touched retirement age, so they have a lot of leverage there.

> China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth

Wrong. Fake GDP. It's estimated that 1/3 of their GDP is wasteful government spending. Many of their provinces also have confessed to 20-30% fake GDP, thus another 1/3 of their gdp is fake. https://www.bloomberg.com/news/articles/2018-01-19/this-is-h... https://www.investors.com/politics/editorials/new-study-shin... so we're looking at maybe 1-2% gdp growth, and maybe their GDP is only about 70% of what they claim (9T vs 13T)

> Their wages are steadily increasing.

Wrong. Chinese graduates salaries have fallen for second year in a row. https://www.ft.com/content/fb5865e4-4993-11e7-919a-1e14ce4af....

> Their internal market is the healthiest of any g20 economy

Wrong. Consumer spending growth declined. https://www.google.com/search?q=chinese+spending+down&rlz=1C... . Beijing rent increased 25% !!! in july year over year. That's not a healthy sign of any economy. https://www.ft.com/content/6324fc2a-a445-11e8-8ecf-a7ae1beff... . and now we know Chinese consumers are taking on too much personal debt https://www.bloomberg.com/view/articles/2018-02-15/chinese-c...

And did you forget China is about to be hit with tariffs from US on 200B worth, soon to be 500B? when their economy is export oriented?

> Investments both internally and internationally are up

Wrong. Yuan has lost 12% this year. Chinese stock market has crashed 30% this year. That's not a sign of increasing FDI. that's FDI leaving and screaming

> On top of that they haven’t touched retirement age

Wrong. Chinese demographics looks horrible, and will reach peak in 2025. Their population will shrink 1/3 in the next 60 years.

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#15

Post by yxhuvud »

Nokinside wrote: post #10

Unlike liberal democracies, Beijing has more room to act in crisis. China has extractive institutions that will ultimately be a growth limiting factor, but I don't see it limiting their crisis responses. * There will be no political gridlock between left and right that can be solved only with half measures. Decisions are done in small groups of 30 people at most, with several hundred people having some influence. * T…

The problem for China won't be dealing with private property, it will be dealing with government owned property. Just because the average Joe doesn't get to vote doesn't mean the system isn't geared to preserve the status quo. I think you are quite naive if you think vested interests and political corruption is a smaller problem than having to respect private property.

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#16

Post by andygoo »

tsuabing2 wrote: post #14
eksemplar wrote: post #4

I don’t get this article. China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth. Their wages are steadily increasing. Their internal market is the healthiest of any g20 economy. Investments both internally and internationally are up and their population has little dept. On top of that they haven’t touched retirement age, so they have a lot of leverage there.

> China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth Wrong. Fake GDP. It's estimated that 1/3 of their GDP is wasteful government spending. Many of their provinces also have confessed to 20-30% fake GDP, thus another 1/3 of their gdp is fake. https://www.bloomberg.com/news/articles/2018-01-19/this-is-h... https://www.investors.com/politics/editorials/new-study-shin... so…

Why government spending is neccesarily wasteful? I would say consumption of financial services part of GDP which is massive in us is less relevant to layman that vital services government provides

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#17

Post by Nokinside »

yxhuvud wrote: post #15
Nokinside wrote: post #10

Unlike liberal democracies, Beijing has more room to act in crisis. China has extractive institutions that will ultimately be a growth limiting factor, but I don't see it limiting their crisis responses. * There will be no political gridlock between left and right that can be solved only with half measures. Decisions are done in small groups of 30 people at most, with several hundred people having some influence. * T…

The problem for China won't be dealing with private property, it will be dealing with government owned property. Just because the average Joe doesn't get to vote doesn't mean the system isn't geared to preserve the status quo. I think you are quite naive if you think vested interests and political corruption is a smaller problem than having to respect private property.

The political elite is relatively small number of people.

When the political power is not widely distributed, you can take care of the elites without hurting the economy.

If the top 100,000 power players and their families are shielded from the fallout, how much will that cost? Few $100 billions or so?

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#18

Post by baybal2 »

andygoo wrote: post #12
baybal2 wrote: post #11

Earlier quoted context omitted.

>The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Undifferentiated low end products are more price elastic than brand goods. China will do fine even if USA will declare a 100% embargo. Edit: specified that I talk about price elasticity

If they are more elastic it means that demand is more responsive to price hikes. This is opposite to your conclusion

I mean that Chinese manufactures have an option just to do a slight downgrade of their undifferentiated mass consumption goods that were previously sold to America, and sell them to poorer countries, as well as domestic consumer.

This is what happened in 2008. To Chinese electronics industry the crisis was a blessing in disguise. It saw an unprecedented expansion after it reoriented from OEM for "rich American co." to selling own products to places like South Asia, CIS, and African nations.

A bit of explanation:

Pre-2008 industry was very oriented on developed countries with contract manufacturing of high premium goods secured by branding, marketing, IP lockdown and such - in other word, niches with very inefficient market and companies hellbent on profit maximisation. Thus, they had a huuge leeway for trading unit value for volume which they used to devastating effect.

That was right the time when people in places like Africa realised that $20 Nokla is no worse than low end $100 Nokia, the rest is history.

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#19

Post by denimnerd »

andygoo wrote: post #16
tsuabing2 wrote: post #14

Earlier quoted context omitted.

> China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth Wrong. Fake GDP. It's estimated that 1/3 of their GDP is wasteful government spending. Many of their provinces also have confessed to 20-30% fake GDP, thus another 1/3 of their gdp is fake. https://www.bloomberg.com/news/articles/2018-01-19/this-is-h... https://www.investors.com/politics/editorials/new-study-shin... so…

Why government spending is neccesarily wasteful? I would say consumption of financial services part of GDP which is massive in us is less relevant to layman that vital services government provides

some of the spending just saw on my trip was mind blowing. Acres of granite pavers and timber decking in new parks. Huge new city walls in place of ancient ones. (protecting them they call it)

Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

#20

Post by cinquemb »

nkurz wrote: post #9

I've tried reading this piece a couple times, but despite the bullet points and numbered lists, I can't make any sense out of it. I presume this is because I lack essential background knowledge. Can someone please help explain the context? When he says "China's debt problems", what exactly is he referring to? When he says "there are also only four ways that Beijing can respond", what are they responding to and what i…

I'm assuming the debt problems are the corporate defaults on bond payments [0] for 2018 until July, were close to equal to the entire year of 2016. There's also consumer debt stuff that's blowing up as well (the whole p2p loan companies going bankrupt was linked on HN recently).

As for the what are they responding to is the engine for economic growth is stalling out from knock on effects behind whats going on above, and I can only speculate that the "goal" of any kind of response will be to maintain some kind of economic "stability".

[0] https://www.bloomberg.com/news/articles/2018-07-02/china-hea...

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