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China's manufacturers are going broke

economist.com

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Re: China's manufacturers are going broke

#51

Post by highfrequency »

These are some staggering numbers: 52 thousand Chinese EV companies shut down last year.

Xi Jinping (successfully) stimulated EV and semiconductor manufacturing through massive government investment and loans. The problem is that so many companies were funded that they are now viciously driving each other out of business through oversupply.

Because the supply chain networks are so dense, each bankruptcy easily cascades because the company then defaults on contracts with vendors and customers.

None of this, of course, is good news for US competitors like Tesla. With such a large field of vicious competition, it’s almost assured that the small set of businesses that succeed will be able to outcompete globally with extremely low cost structure. We see this happening with BYD.

Re: China's manufacturers are going broke

#52

Post by jncfhnb »

pphysch wrote: post #32
jncfhnb wrote: post #25

Earlier quoted context omitted.

I can’t find that claim in the article.

If you look at the aggregate of The Economist's "reporting" on China, the GPs comment is correct. One could even argue they are a Chinese asset because they mislead Western investors so fantastically and consistently on basic economic topics, a sort of Great Filter.

[flagged]

Re: China's manufacturers are going broke

#53

Post by grogenaut »

klyrs wrote: post #39
kortilla wrote: post #24

Earlier quoted context omitted.

Not a good example because Boeing didn’t outsource. China flies Boeing airframes made in the US and has for the last 50 years. Boeing is an example of financiers running the company from an ivory tower on the other side of the country.

> Not a good example because Boeing didn’t outsource. No, that's precisely my point actually. Boeing is one of the very few companies that maintained its local manufacturing capacity. (to say that they "didn't outsource" is not remotely accurate) Despite everything that was pointing in Boeing's favor -- culture, financials, market, reputation; it was taken over by the MBAs that put McDonnell-Douglas into a nosedive a…

Aah the McDonald excuse again. The favorite pivot of every boing apologist and conspiracy theorist. If only Mac, a completely successful defense contractor, hadn't somehow engineered a completely galaxy brained backdoor purchase of their largest competitor Boeing like a tapewirm because they needed cash after the f112 cancellation they never would have lost that engineering led spirit.

Get over it. Boeing wasn't doing great and has always had struggles. They wanted to get further into defense and kill off a competitor.

Also Wharton came for everyone in the 90s and 00s. If Boeing stayed seperate from the evil Mac they still would have been inmundated by best practice short term bean counters from every MBA school in the country.

Also if you ask a machinist in Seattle or STL if Boeing outsources, they sure do, to those non-union untrained unqualified folks in the south. Nevermind all the moisture that gets into the plane when you wheel a 747 from an air-conditioned warehouse to the southeast sauna. Boeing has always fought with it's union so that wasn't the fault of the Boogeyman either.

Re: China's manufacturers are going broke

#54

Post by stefan_ »

kortilla wrote: post #24
klyrs wrote: post #9

Earlier quoted context omitted.

I would not say that this is trivially corrected. The latest news from Boeing is that American manufacturing has been obliterated. Rebuilding the skill and culture that has been lost is neither easy nor guaranteed.

Not a good example because Boeing didn’t outsource. China flies Boeing airframes made in the US and has for the last 50 years. Boeing is an example of financiers running the company from an ivory tower on the other side of the country.

Because they weren't allowed to, what with their military single-source business and all that gov money keeping them alive. You betcha these MBA graduates would have shipped the entire farm to China if it promised a quarterly profit.

Re: China's manufacturers are going broke

#55

Post by alephnerd »

highfrequency wrote: post #51

These are some staggering numbers: 52 thousand Chinese EV companies shut down last year. Xi Jinping (successfully) stimulated EV and semiconductor manufacturing through massive government investment and loans. The problem is that so many companies were funded that they are now viciously driving each other out of business through oversupply. Because the supply chain networks are so dense, each bankruptcy easily cascad…

> With such a large field of vicious competition

Other than BYD (which has a strong product market fit and a very strong technical foundation in both battery tech and automotive development), where can the competition export?

Every major automotive market has preemptively or actively placed tariffs on Chinese automotive exports straight from China.

SAIC, GAG, GAC, BAIC, BYD, etc will all have to either ToT IP, open domestic factories, or create JVs in order to enter most markets.

BYD completely owns the Chinese EV market in absolute numbers - and the competitors had to preemptively begin exporting abroad, which sparked trade wars and worries of dumping, which made it harder for BYD and other players to export "Made in China" cars

Re: China's manufacturers are going broke

#56

Post by chiph »

rkwz wrote: post #38

Genuine question, if they have so much excess capacity and low domestic demand, wouldn't it be easier to just export to other countries? Or are there barriers put in place in the world stage that limits this?

A common bit of advice is to build one less of your widgets than what your customers will buy. You then meet demand (nearly!) and your price gets supported.

Chinese manufacturers on the other hand, seem to be following the "build it and they will buy" philosophy. When you do this, prices (and profits) head towards zero.

This is the exact opposite of the Toyota Way, where customer demand serves as a signal (Kanban) to produce a widget and deliver it when needed.

Re: China's manufacturers are going broke

#57

Post by almatabata »

rkwz wrote: post #38

Genuine question, if they have so much excess capacity and low domestic demand, wouldn't it be easier to just export to other countries? Or are there barriers put in place in the world stage that limits this?

Let us assume they start dumping all their excess internationally. Do you think other countries will just allow china to flood the international market and drive other countries respective auto makers out of business? Other countries will raise tariffs accordingly until they reach an equilibrium that they feel comfortable with.

Re: China's manufacturers are going broke

#58

Post by maxglute »

alephnerd wrote: post #41
maxglute wrote: post #33

China's manufactures finding the winners. This is the system working as intended - create many producers in xyz sector via subsidies, hardcore (involution) competition from 1000s in different provinces innovate manufacturing to bare margins, losers go out of business/ get bought up by better competitors and consolidate like _intended_ outcome of other PRC industrial policy. TLDR Set up competitive environment to forc…

> China's manufactures finding the winners But what happens to the failures, especially since they are overwhelmingly subsidized by local governments? Shanghai (SAIC), Jiangxi (BAIC), Guangxi (GAG), Guangdong (GAC), Hebei (Dongfeng), Beijing (BAIC), and other prefectures are putting tens of millions of dollars in SoEs that cannot compete with BYD domestically, and face preemptive hurdles entering foreign markets. If…

Some local jurisdictions, especially wealthier ones will continue to misallocate because they can. For sectors like ev/pv/chips, they pay back in reducing imports/dependencies, some level of even stupid pork barrel waste should be expected/endured, i.e. US fine with 700B fossil subsidies because strategic. 700-800/m couple income fine for 4000-5000 budget EV (new). Realistically in a few years when EV enter secondary market, they'll be 2-3k used. E: (apology for edits, out and about) 6m / 50% of annual household 8500-9500. Vs US median household income of 75k (round up to 80k to be generous) and average new vehical price of 50k. Of course they're not equivalent quality goods, but the point of driving costs down is to make 4k-5k tier cars possible.

>Instead, these players are forced to export abroad leading to unnecessary trade wars

This is very necessary, no reason not to take share from incumbent car makers, especially in RoW markets. ToT domestic players fine (E: as in fine to jurisdictions that, especially ASEAN / more integration), especially with current sanctions/potential, PRC FDI via recirculating USDs, better use now than risk lose later. E2: Let's not pretend PRC trade wars are any less strategic than US trade wars (like semi). PRC EVs sells -> EV piles -> energy infra -> sensors/fusion -> telco.

Re: China's manufacturers are going broke

#59

Post by yorwba »

Their graph off loss-making industrial enterprises looks slightly more dramatic than the underlying monthly data.

If you check the National Bureau of Statistics' data on 亏损企业 (月度数据 > 指标 > 工业 > 工业企业主要经济指标), https://data.stats.gov.cn you see that there is a yearly cycle where the number jumps in February: from 67,570 in 2021-12 to 132,371 in 2022-02 (January is skipped), from 91,222 in 2022-12 to 161,892 in 2023-2, and from 103,994 in 2023-12 to 167,895 in 2025-02. By plotting the last available month for every year, 2024 ends up sticking out a bit more than it will once the end-of-year data is out.

Nonetheless, the overall trend is undeniable.

Re: China's manufacturers are going broke

#60

Post by kkfx »

I fail to see a specific news, the article cite a single example of a failed BEV OEM, there are many, it's perfectly normal that some are not good enough to survive. In our golden age of automotive we have had countless automakers, most have failed some have skyrocketed...

Aside overcapacity should be synonymous of low prices, I still wait to see here in EU prices like in the BRICS area for products imported from China. An example a BYD Atto 3 here cost a bit less than 40k€ while in Thailand cost a bit less than 10k€ https://asia.nikkei.com/content/1f9ed40b4b44745e1a39fafaf94b... such price delta have no justification in mere free market economical terms, have only political justifications NONE OF THEM acceptable by the civil society. I still wait to see LFP batteries prices drops like in China to have a well-sized home battery at a price cheap enough to make buying it convenient, let's say 50kWh for 5k€. Let's say 15kW p.v. inverter for 1.5k€ etc.

If China manufacturers goes broke we customers do the same in EU, and I suspect in USA to, simply to enrich some local cleptocrats.

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