Other than exports, no country wants to be like China.
China Overindebtedness, Overbuilding and Overcapacity
The Wall Street Journal reports China’s Economy Is Burdened by Years of Excess. Here’s How Bad It Really Is.
Destiny deferred
China’s rapid growth meant that for years forecasters expected China to overtake the U.S. as the world’s largest economy. As recently as 2019, some forecasters were expecting China’s GDP to eclipse the U.S.’s around 2030. Today, it is the U.S. powering the global economy and China that is battling stumbling growth. Few now expect China to catch up with the U.S. before midcentury, if it manages to at all.
Ticking time bomb
China is also facing demographic headwinds that will make it harder to restore its economic vigor. China’s working-age population is shrinking, reversing the demographic dividend that powered its economic ascent.
China’s Working-Age Population
China’s economy has for decades been powered by heady levels of investment. At first, that yielded modern infrastructure and propelled the expansion of China’s manufacturing engine and its megacities. But sticking with that strategy year after year has meant China today is beset by colossal debts, unneeded apartments and industrial overcapacity.
Debt as Percentage of GDP China
Debt: Borrowing by government, households and corporations in China is approaching 300% of its annual GDP. “Hidden” borrowing by local governments—debt held off the books on their behalf by opaque investment companies known as local government financing vehicles—is a major problem. On some measures, the scale of those debts and the burden of servicing them in China is more severe than in the U.S. before the financial crisis or in Europe in the depths of its own debt crisis a decade ago.
Real estate: China’s real-estate boom was unprecedented—and so is the ongoing bust. New construction and sales have cratered since the government took steps to rein in the bubble in 2020. It has struggled to stabilize the market, despite measures to ease purchase restrictions and offer cheap credit to would-be buyers.
One sign of the boom’s excesses: There are as many as around 80 million vacant units in China, according to the latest estimates at the end of November, equivalent to half the total housing stock of the entire U.S.
Share of Global Manufacturing
Industrial Overcapacity
In response to the slowing economy, and to transform China into a technological colossus, leader Xi Jinping has been funneling investment into China’s already huge factory sector. The result has been a surge in industrial capacity and two years of falling prices for Chinese producers, which are increasingly looking overseas to find buyers for goods they can’t sell at home. That is sparking trade spats with the U.S.-led West and emerging markets such as Brazil and India.
Debt Deflation Trap
China is in a debt deflation trap of its own making.
It makes sense to add capacity if the debt is productive and can be serviced.
China should write down debts but much of that is in State Owned Enterprises (SOE), and the political class will not take a hit or admit mistakes (just like everywhere else).
Mirage of Growth
For decades, China depended on property bubbles for growth. With building now crumbling, all of that growth was a mirage.
I have been writing about China’s “ghost cities” where no one lives for a decade. They are a result of malinvestment.
Building those cities added to GDP, but it was really 100 percent waste.
World’s Biggest Property Bubble
On March 23, 2011 I noted World’s Biggest Property Bubble: China’s Ghost Cities Revisited; 64 Million Vacant Properties
The true state of affairs is China’s banks are insolvent. China is building units for which there is little demand and few can afford. China will have to print money to pay for all of this malinvestment. The idea the Yuan is undervalued fails to take into consideration any of this.
Bonds of China’s Largest Property Developer Crash
On August 10, 2023, I noted Bonds of China’s Largest Property Developer Crash to 25 Percent of Notional Value
Hello there Purchasing Power Parity (PPP) GDP advocates and China horn tooters in general, let’s discuss real estate.
It was a long time waiting for the inevitable.
Flashback Hoot of the Day: When Will China Overtake the US?
On August 6, 2023 In Flashback Hoot of the Day: When Will China Overtake the US? I discussed a bet that Michael Pettis made with the Economist on when China would pass the US in GDP.
The Economist made a bet with Pettis in 2012 that by 2018 China would pass the US. The Economist lost the bet by a mile. China is still not close to the US in GDP. A couple of my readers say not so, based on PPP.
Fundamentally, PPP is horrendously flawed.
Purchasing Power Parity Silliness and the Myth China Passed the US in GDP
On August 8, 2023, I discussed Purchasing Power Parity Silliness and the Myth China Passed the US in GDP
Some of my readers claim China passed the US in GDP based on Purchasing Power Parity (PPP). The rationale is hugely flawed.
Michael Pettis: “Adjusting GDP for differences in purchasing power makes a great deal of sense in certain cases, but the way it is done is so filled with problems that it is extremely difficult to find any economist who takes these measures very seriously.“
What I Said in 2011
All this talk about how undervalued the Yuan is, how China will rule the world, and why the Yuan will be the next global reserve currency is pure silliness.
China’s growth is nothing more than a credit bubble on steroids. Cities are vacant, yet China keeps building, and building and building.
Savings Glut Thesis
There is still rampant belief that China is this big nation of savers, and US trade deficits are the other side of the coin.
Ben Bernanke, Larry Summers, and even Michael Pettis believe in the savings glut thesis. It is my one ongoing disagreement with Pettis.
But Pettis is slightly different in that he calls it a savings imbalance. I still disagree, but “imbalance” is closer.
I highly respect Michael Pettis, he taught me nearly everything I know about trade.
Here’s my question: China now has a debt to GDP ratio of nearly 300 percent. So where the heck is the saving either in China or here?
We can look at M2 or money supply and the massive wealth of people like Elon Musk, but printing money (yaun or dollars) is not savings.
What is Saving?
Saving is production minus consumption. China’s property bubble is a great example.
People alleged “saved” their money by investing in property bubbles. But entire cities are now worthless. China needs to spend money to tear them down.
That savings has been rendered worthless, but the debt remains, and the cities are now of negative value (they need to be torn down).
That China made a few billionaires in the process is not a savings glut, not a savings imbalance, and not net savings.
Ghost cities do not constitute savings. They do constitute savings destroyed. And the process is still ongoing.
Hoot of the Day
People are still predicting the demise of the US and destruction of the US dollar. Nonsensical US hyperinflation talk has been ongoing the whole time.
China is a manufacturing miracle but all China did was replace a property bubble with an even bigger manufacturing bubble to keep people employed.
We are now at a point where China is subsidizing exports to an extent the world has never before seen, just to keep it’s economy growing (on paper).
This is a better use for “saving” than property bubbles that have been more than 100 percent wiped out (again think of cleanup costs), but the return on these manufacturing investments is less than zero.
Who’s Paying the Price?
Chinese consumers paid the price of now less than worthless property bubbles.
Chinese consumers continue to pay the price of subsidizing exports.
China desperately needs a course correction but there are no signs China is about to do so.
So, What Country Wants to Be Like Germany Now?
On December 17, 2024, I asked So, What Country Wants to Be Like Germany Now?
The collapse of Germany shocks many. But I have been discussing why this was inevitable for over a decade.
The current chancellor has called for bailouts and subsidies to save jobs and prop up struggling carmakers, while Merz has floated a menu of supply-side measures such as lower taxes, less bureaucracy and steps that would make it cheaper for businesses to reach Berlin’s climate goals.
Shocked? I’m Not
This is all so predictable. The only thing debatably shocking is how it too so long.
Flashback April 11, 2013: Eurozone Math; One Size Fits Germany; Door Number Two
As a direct result of the unstable eurozone treaty, sovereign interest rate imbalances, Target II imbalance, and trade imbalances are out of control. Germany and the other European creditor countries are owed money that cannot be paid back.
Few have made the connection, but Germany and China are both following in the footsteps of Japan’s debt deflation trap.
Price deflation is a benefit. Debt deflation and writeoffs of debt are a curse.
We are in this mess because Central banks and governments fail to differentiate. Don’t be like central banks and confuse the two.
Hoot of the Day
“PPP may be horrendously flawed is still more reliable than the completely made up nominal GDP where a big chunk of US output is hot air.”
Yeah, like we believe China’s GDP but not the US. What a hoot.
“Be careful making fun of who predicted what, people have been predicting the collapse of China for like 20 years now so….”
That doesn’t even make sense.
I have been saying for 15 years that China would not overtake the US, and it hasn’t except by bullshit measures.
That is different than predicting a collapse. I don’t know anyone who has predicted a collapse of China.
I know many prominent people who predicted a collapse of the US.
Yes, I did mock them.
5. Mish: Years of Repeat Central Planning Mistakes Have Doomed China’s Economy
What is a good alternative measure?
How about types of unemployment and types of employment?
For example, in the offshore sector, salaries in the USA and Australia are probably the highest, but that’s because there’s not a lot of (tax) incentive for locals to work in those sectors, plus barriers to entry (like certifications), and they are both protectionist economies with silly visa rules and crazy unionisation.
Salaries in the North Sea are also good, but the tax regimes in each country affect the demographic of who works in each sector. Salaries in the mediterranean countries are low, because the tax and work culture doesn’t attract talent.
British tend to avoid working in the UK sector, and work in the other sectors, and people avoid Norway because of high tax, unless the company effectively pays it by topping up the salary/dayrate. France and Germany struggle for similar reasons to the US and Australia, whilst Denmark and Netherlands take a different stance, and they can attract more workers. My point is that a lot of GDP outcomes are more policy-driven, than market-driven. Most of the work is ultimately for governments or the big utility companies that are almost like SOEs.
In capitalist developing parts of Asia unemployment is low because people have to work, and find something to do in the informal economy; but in developed NE Asia, it’s too bureacratic and unemployment is hidden by massive quiet quitting – people just hanging around in offices doing nothing useful like in Japan, or building pointless projects like in China, although I know that for some in the coastal places like Shenzhen stress at work is definitely up in export-orientated businesses.
Africa is all danger money. Brazil is closed shop like the US and Australia, France, Germany.
GDP seems quite abstract, I mean we can all sense from various metadata how well countries are doing relative to each other. The EU is uneven and parts of it are overloaded with state intervention, and consequently wages are often lower than in the USA. Despite everything, the USA still seems to be doing quite well relative to other places. There’s lots of news about how emerging markets in Asia are being hit by China’s implosion and the US’s impending policies. Much of it is down to demographics as much as policies. China is the most extreme example of that, but it already happened in Japan, so we can see how that pans out.
Some developing countries are stuck in other ways, Thailand is an interesting example, where it’s demographics have peaked before it has fully developed, yet it has low government debt, high personal debt, and the Thai baht is quite strong, unlike other currencies in Asia. Indonesia and Korea in a particularly bad situations. Vietnam is storming ahead (but it is going through a population boom, as is the Philippines). It’s an interesting mixed picture, and there must be some lessons to extract from all that about what works and what doesn’t.
Maybe one way to look at it is which countries would you choose to go and live in now? Because if they doing badly they probably feel a bit broken and unsafe, but if they are doing ok, they probably feel less tense as environnments to be in. There’s certainly tenion in lots of parts of the EU, and plenty of Canadian and Australians are under stress; 10% of the population of NZ is working in Australia. Some of it can work for you, places like Turkey are quite good value for money if you’re not a local.
But even within countries, you have uneven pictures with prosperous and stressed areas, how do you measure “prosperity”, which is what GDP is trying to do, I guess?
as measured by Purchasing Power Parity, the only meaningful comparison of national GDP, China’s economy surpassed that of the United States years ago and their lead only continues to grow. If the United States is to compete successfully in the coming years the first step must be to stop deluding ourselves and resting on our past glory. denying reality is not a strategy.
That is bullshit and Michael Pettis explained why.
PPP is UN bullshit.
PPP may be “horrendously flawed” is still more reliable than the completely made up nominal GDP where a big chunk of US output is hot air. PPP is not hard to understand Mish, if in Country A you build a house spending $1 mil and in Country B you build the same house spending 300K, at the end of the day you still have a house, regardless of the nominal transaction price. Just yesterday on this topic, an economist on X posted the pic of a airport cart machine in the US asking $8 for a cart laughing about the US official GDP figures….a $10 Starbuck latte is part of your dear nominal GDP Mish….
Be careful making fun of who predicted what, people have been predicting the collapse of China for like 20 years now so….
Hoot of the Day
“PPP may be horrendously flawed is still more reliable than the completely made up nominal GDP where a big chunk of US output is hot air.”
Yeah, like we believe China’s GDP but not the US. What a hoot.
“Be careful making fun of who predicted what, people have been predicting the collapse of China for like 20 years now so….”
That doesn’t even make sense.
I have been saying for 15 years that China would not overtake the US, and it hasn’t except by bullshit measures.
That is different than predicting a collapse. I don’t know anyone who has predicted a collapse of China.
I know many prominent people who predicted a collapse of the US.
Yes, I did mock them.
Mish, there are books about the collapse of China starting 20 years ago, I did not accuse you of making such predictions.
When it comes to PPP, it is far from perfect and obviously China can and does manipulate its GDP figures but, on principle, PPP is more accurate than nominal GDP, it is a matter of logic.
all ppp does is take nominal gdp and adjust it for local cost of living. that’s it. A haircut in usa cost $30.00 while in Iraq it cost 30 cents. But in terms of buying commodities on the open market or cooperate buyouts a dollar is still a dollar (or yen or yuan ect). gdp works fine for a quick glance sketch of an economy
PPP still applies corrections and adjustments but in principle you are correct, this is why the so called “service economies” (UK, USA, etc…) take the biggest hit when you calculate their economies using the PPP methodology. PPP metrics still account for the open market (commodities, etc…) part of the economy.
” gdp works fine for a quick glance sketch of an economy”
Not at all. For example look at Ireland and its ridiculous GDP figures mostly results of offshore corporations economic activities that have nothing to do with the country.
GDP alone (nominal or PPP) does not capture the real economic power of a nation which it includes a lot of complex variables (energy production, industrial production capabilities, technology, etc…).
These things seem to not only be too abstract, but also misapplied.
When you say “GDP” and PPP, what are you really trying to say?
How “wealthy” a country is? How “wealthy” people are?
What kind of wealth? Their salaries? Savings? Assets? What?
How much is exported as an aggregate of thousands of different sized companies in different industries with different inputs and different markets? It seems like trying to squeeze loads of unrelated things into a oversimplified blob.
Take the UK… If you separate England from the rest, England is the most densely-populated country in Europe, and generates much more per capita than the other nations, which rely more on public sector jobs.
Then if you separate London from England, the same sort of thing happens… then you might pick some specific boroughs of London, like Westminster, and the same thing happens… then within that borough you may have Wards where bigger companies are, but then what are you doing… getting their worldwide revenue and extrapolating from it… and expand back to the whole UK & NI, and you get picture that doesn’t really describe the slums in the north of England or South Wales or bleak rural villages in Scotland. What of all the 11 dependencies owned by the UK… Bermuda, BVI, Caymans, IoM, Jersey, Guernsey, all awash with money… does that go into the mix as well…
It’s hard to know what you’re trying to say with GDP.
The UK is still in the top 10 countries for GDP, but salaries are not, and nor are living costs …people can tell you you’re living in a rich country, but does it really feel like it?
Oversupply and price deflation will come from Chinese exports..enjoy them while we can. Sadly, debt bombs even in secondary economies manages to make it to primary economies so we will get the tsunami at some point. The US was a secondary economy in the 20s and took the whole world down with it
debt bombs dont scare me, usa is still +700% of gdp with assets minus liabilities. there’s plenty of money folks… but we may need to appropriate it from the oligarchs to make it work for regular folk
So your solution for the failures of Communism is more Communism?!
The U.S. has made a similar mistake with central planning called social security and medicare. While China has spent trillions on empty houses, the U.S. spends trillions on keeping people that contribute little to nothing alive that should just die from natural progression of end of life. Money wasted on unproductive activities instead of the right productive activities.
Central planning doesn’t work, it always fails. Two examples, same result.
Interesting thought. But, consider this: does the healthcare “industry” in this country actually cure people?
Does the healthcare “industry” encourage rational diets and truly intelligent lifestyle/eating habits?
From my experience, most of today’s corporately captured doctors do not.
In fact, when considering the way those corp doctors and hospital systems handled the covid debacle, I would say that they don’t have much of a say in our care. They do what they are told, or they are terminated.
So, I believe that you are correct in this way; big $$ are spent to keep the old and sick alive. Because there is a ton of money to be made. But, if you consider how many people die years and decades before their time, because of the pathetic, narrow-minded treatment mandated by Corporate Controlled, BIG Healthcare, the costs spent on the oldest during their last 6 months of life are probably a wash.
Imagine how much $ was saved by treating people “the corporate way” during covid?
And not to mention, how many elderly were rushed out the door of hospitals and nursing homes right up to the Pearly Gates, saving us billion$ by hastening their demise due to that sh!tty Corporate Care..
The bottom line is this, we need to be our own strongest advocates because Big Corp Care really doesn’t give a damn about us.
Healthcare or whatever it is is designed to bleed you dry of savings. Get a nice little long-term illness, need expensive meds and treatments and drain the coffers dry until the limit of primary home and 1 car.
Not sure what the previous writer said by,”Spending trillions on people who do not contribute.” If that’s retired people, do you expect them to retire like a carton of milk and you toss them “somewhere?”
The sad part about our safety nets are they are a ponzi apparatus and not designed to be a safety net. They are designed to add to tax revenue and hopefully you croak before you need them. Hence the new chronic diseases in US introduced by big ag and pharma. It’s not working fast enough . COVID was also a failure to “cull the herd.”
Social Security is okay, self-funding and built into the social contract at this point. The elderly shouldn’t be forced to work nor to starve. The incentives could be adjusted to increase the incentive to work as long as one can be productive, though.
On the other side, Medicare is a complete and utter disaster, a resource drain that the nation cannot afford. I heard that something like half of Medicare costs go to pointless treatments during the last 6-12 months of someone’s life – pointless in the sense that they neither extend that life nor improve the quality of what remains.
I think Medicare costs could be greatly reduced, by requiring all enrollees to file detailed “end of life” instructions directly with Medicare.
End of life costs rack up because families don’t know exactly what the patient wanted. Families need to be removed from the loop.
social security and medicare are funded directly through payroll taxes. SS in particular has tons of cash. There is an imbalance that could see it run out of money in 2080 or something but that is easily fixed : slow the growth of payments (ss payments are adjusted upwards to keep up with inflation) or get rid of the $120k income limit on SS payments. with a stroke of the pen SS is fixed . this idea that SS is a debt bomb that will “collapse” the economy is just pure doomer prepper wishful thinking
Since 2021, the vaccine rollout, we have 1.1 million excess Americans dying, 4.0 million disabled—we estimate another 28.6 million injured that are missing work from time to time due to chronic illness.
So, it’s about 33 million Americans have been injured, disabled, or died from this vaccine.ref 4
~ Ed Dowd, ex-Blackrock manager and author of Cause Unknown: The Epidemic of Sudden Deaths in 2021 and 2022 and 2023
If these statements were true then costs for social security should be going down and not up so it’s a simple mathematical proof that you posted nonsense.
The thing is … the data he is referencing … is from the government
Check it out hahaha
https://x.com/SenseReceptor/status/1789561485229953084
Anecdotally I have 4 friends dead from Turbo Cancer… half a dozen with serious heart issues… one blood clot survivor (in her lungs… she is disabled and does not leave the house)…. and I know of many many more… ALL MULTI VAXXED…
You are kidding yourself if you think this is Long Covid hahaha
Cricketer dies after suffering heart attack and collapsing mid-match
https://www.dailymail.co.uk/sport/cricket/article-14233777/Cricketer-dies-heart-attack-collapsing-field.html#
Another one drops… dead…
https://www.nzherald.co.nz/sport/kiwi-mma-fighter-hakaraia-wilson-dies-aged-26/WVIWWM52RVHYBPQMYNUNHSDNCQ/
Actually, there are 10,000 MORE Boomer$ retiring each and every day, each collecting a fresh, new SS payment, so he is probably correct..
Check it out.
That has been happening for a while now. (10,000 retiring each day).
Here’s the link-https://finance.yahoo.com/news/10-000-boomers-retiring-daily-160054105.html
That is where much of the increased SS spending is coming from.
And it will continue until around 2029…..
I don’t think you did the math correctly. Show us the numbers, if you want credibility.
If more people are retiring than dying, the increased death rate will be masked in the data.
Excellent Topic and Info!
I do wonder what took so long for this to all come out as such. Maybe it was simply occurring and not being discussed openly? I seem to recall this all being discussed roughly a decade ago. In fact, I believe Pettis may have been one of the standouts in calling out a “China Property Collapse” back then. Love His work!!
Green central planning doomed Europe.
I agree, and if not for Our size and Our energy availability, we may very well have followed them there.
The West always portray China as scary evil. What they never mention is that – China grows from very poor state to world economic power in very short period in world history, China has become technological advanced, China has liberated over 600 millions abject poverty to middle class ( obviously China has to build hundred of millions of buildings to accommodate )
Of course we can expect some mismanagement.
US, Europe, Japan and Korea have been exporting cars for many decades and never over capacity. When China export they call it over capacity. Why? China eats their lunch.
My parents subsidise me to graduate and I’m now independent. I subsidise my kids to graduate and they are now independent.
China subsidise its car companies to succeed and they are now independent.
Its normal. Nothing’s wrong.
The Guradian 2023 – Year-long study finds China leads in 37 of 44 areas it tracked, with potential for a monopoly in areas such as nanoscale materials and synthetic biology.
Do you want to compare trading? Diplomacy? military? manufacturing capacity? PPP? China has already surpass.
US can inflate its economy by its reserve currency. ( immense advantage )
Tesla, Apple, etc – multitrillion dollar companies? ? ? ? Really ? ? ? ?
China can’t compete with US consumption of 70%.
I agree their economy seems strong though this article does show it has issues with debt and malinvestment and interest rate manipulation and probably bribery, as does the USA in a big way. What is lacking in comparison is the Chinese govt doesn’t allow the people free speech. Real leaders can face criticism and stand for free and fair elections.
Free speech? ? ?
Is there free speech in US and West? eg. Julian Assange
And is that free speech genuine or lies?
Free and fair elections? ? ?
May be if there is no assassination or parties are labelled
illegal if not in the deep state’s interest. eg. Afd
One party and multiparty –
There is no perfect system in the world.
If you can say pros, I can tell you cons.
Only leaders with merit can bring you prosperity.
Yes, free speech. China has the right idea in valuing manufacturing but are there forums such as this in China where the people can criticize policy and leaders when they do wrong. No, critics get sent to some kind of reeducation camp where who knows what kind of bad stuff will happen to them. And Russia doesn’t allow free speech or fair elections either. We can rightfully criticize any politicians and policy on forums such as this here in the USA. Yes, leaders with merit can establish and maintain the conditions for prosperity or destruction, that’s why the USA is in such a debt mess, because the leaders here are being ingorant and reckless economically, and that could end up costing us our free speech.
@Peace – The same things were being said of Japan in the 1980s.
China has done great things, and is definitely a peer to the U.S. economically with a variety of relative advantages (population, industrial output) and disadvantages (food supply, land per person). But China has real problems too.
China’s current recession due to “prosperity overshoot” is a universal phenomenon in all nations that grow so fast. US 1920-1935, Japan 1980-1995, China 2010-today are all very similar.
China has an enormous number of disciplined and hardworking people, but even more much government corruption and wasted effort than in the U.S.
Most importantly, China has a ridiculous amount of surplus housing, over-reliance on housing as an “investment”, and a declining population. That’s not a good combination for the economy.
The U.S. should no longer be relying so much on reserve currency and trade deficits; but also China as a leading nation should no longer be relying on exports to sustain its economy.
It’s dragging down a lot of Asia too, which are either directly or indirectly tied to the fortunes of China. Think about the impact on Australia of China going down the pan… the effects there are going to be catastrophic to the Oz economy. At least Canada has the chance to join the US… maybe Australia will follow too… the USA might end up with 100 states if you add in all the other bits of the Anglosphere that are tanking because of dependence on China.
Most people in China are dirt poor… the government overreports the “GDP” by about 20% and overspends on it’s miltary and security stuff, and helps itself to proles savings, and the CCP seems to be in the late stages of lashing out to save itself.
Could we export our drug-addicted raving lunatic West Coast homeless to those empty China cities?
They would probably be happy to have them, and would put them right to work!
making long post short!
china printed a lot of money to build stuff, and kill competition around the world?
sound like a plan to me!
There is no money-printing… that’s not how it works… banks extend credit… in China they do it at the command of the state, rather than from bets on future business growth, and China’s demographics are going to have a large negative impact just as they had a large positive impact over previous decades… the summit was 2018.
I have noticed recently that Chinese products under Chinese brands have suffered a drop in quality overall. I don’t know if we can generalize it but if so then that that could be a sign of deep problems.
not really! my readme 10 smartphone works perfectly!
Redmi is cheap junk, it’s perfectly working as a piece of cheap junk.
A very aging manufacturing class I would guess…
The precarious financial situation of China just described could cause China to sell US bonds and convert dollars to yuan. Converting dollars to yuan would strengthen the yuan and pull interest rates in China lower as debt gets repaid.
Yes, but do you want to strengthen the yuan, when your economy is so dependent on exports? You’d be shooting yourself in the foot.
They don’t really see it that way, but then they are nationalists like Erdogan.
More likely they will convert the dollars to gold or to assets. They have built up gold reserves much greater than any other country and they are buying up assets internationally. How many shipping ports do they now own in countries like Pakistan, Egypt, Sri Lanka, Australia and also near the Panama Canal.
And if China is doomed then so is the US. War is a good diversion from problems and China wants Taiwan. What can the US do when China has the manufacturing capacity to make all the drones and ships to win a war. They have 300X the ship building capacity of the US and make over half the worlds drones and drone components.
Short of going nuclear the US will have to back down and then the world will see that the US is no longer the ruling empire it was.
China cannot afford to strengthen the Yuan because that would destroy their export income. The trend in the Yuan vs. Dollar is down, down, down.
China cannot afford to sell many U.S. bonds because no one trusts the currency of a Communist dictator-for-life regime unless it’s backed by hard assets of some kind.
The rich will only allow deflation to occur, if it can happen suddenly.
So that assets can be bought at yard sale prices. Ala 2009. Then YUGE QE would be enacted.
The civil unrest that would occur during a 30+% unemployment event caused by deflation, could not be withstood by the United States.
Sudden deflation would bring on a revolution so I doubt the rich would want that.
Indebted countries generally try to monetize their debts with inflation not deflation..
When everything else fails, start a war.
Yup, invasion of Taiwan will happen the first time the U.S. is preoccupied elsewhere
When in the past 70 years hasn’t the U.S. been (pre)occupied elsewhere?
who will fight it? the elderly chinese and their poorly-built vessels?
where will the fuel and food come from with trade stopping in the seas of APAC? Young Chinese are barely motivated to work, they are even less motivated to fight, Taiwan is a precoccupation of the regime, not the people. If the regime embarked on that adventure, they would leave China vulnerable to counter-revolution and civil war… the CCP can’t risk it.
typo: bid -> big in “China is this bid nation of savers”
Yes, bad planning by China. But what has the US done? Our growth partially, though significantly, reflects the growth of Facebook and Google and other internet and tech stocks whose societal value is dubious. If Facebook or Google went away, would anybody notice? Would anybody be affected to any serious degree? Is the GDP value of these social media and tech companies anywhere near the national value of being able to manufacture a nation’s own medicines, armaments, and staples? Economists will say, surely, yes. I have serious doubts.
The economy would be severely impacted if they went away, yes. That’s because cloud services owned by the big players enable a lot of the economic activity of today — the most obvious impact that everyone would feel is e-commerce. Growth in e-commerce has been a big reason why consumer spending remains strong in this country (relatively — as Mish has pointed out it’s never adjusted for inflation because that would make the picture look worse).
But cloud is insecure and is proving to be costlier than if the companies just used their own infrastructure. I predict a lot of firms will wake up to that fact within the next decade. There’s going to be a reckoning for Big Tech, I’m afraid, whether they like it or not.
Zombies: Ranks of world’s most debt-hobbled companies are soaring, and not all will survive
https://apnews.com/article/zombie-business-corporate-debt-investing-interest-borrowing-52bd9ebbe1dd98983d39fe7d14e3c7fd
Maybe they’ll take the deportees.
Yes. China has made plenty of investment mistakes. But all investments carry risks, and many investment decisions don’t work out as planned. Do the Chinese overinvestments in real estate, and manufacturing “doom” China’s economy?
Perhaps. Yet heavy investment by China has made them the world leader in many areas:
Electronics: China is the world’s largest producer of consumer electronics, including smartphones, computers, and other digital devices. Major global brands often rely on Chinese manufacturing for their products.
Automobiles: China has become a leading manufacturer of automobiles, including electric vehicles (EVs). The country is home to some of the largest EV manufacturers, such as BYD and NIO.
Textiles and Apparel: China remains a dominant player in the textile and apparel industry, producing a significant portion of the world’s clothing and fabrics.
Machinery and Equipment: China is a major producer of industrial machinery and equipment, supplying both domestic and international markets.
Renewable Energy Technologies: China leads in the production of renewable energy technologies, including solar panels and wind turbines. The country has invested heavily in these sectors to support its green energy goals.
Steel and Aluminum: China is the largest producer of steel and aluminum, essential materials for various industries, including construction and manufacturing.
China tries to plan for the long term, rather than for the next quarterly report, or the next election. One area where this has been successful is in renewable energy production, batteries, EVs, and rare earth materials.
Their long term plan is to reduce their reliance on energy imports of coal, oil and natural gas and to be more energy self-sufficient.
Add pharmaceutical chemicals to the list.
If there is one notable game changer of 2024, it is the leapfrog of Chinese car manufacturers. If VW management goes into panic mode, you know that the Chinese manufacturers have improved beyond expectation.
One major failure is in developing own operating systems. There was an attempt by promoting Red Flag Linux which seem to have gone nowhere. Compatibility and lack of applications is a hard to overcome hurdle.
Yes. Though not as dominant in pharmaceuticals and chemicals, they are a major player. (I almost added those as well).
Regarding new nuclear generation facilities: China has 22 under construction, and 70 more planned. The US has zero new plants under construction and zero planned. Yet our demand for electricity is growing rapidly.
China is also adding more renewable energy each year than the rest of the world combined.
I consider all energy investments a smart thing to do.
I should have qualified: pharmaceutical primers. The US pharma is not going to suffer in the short run, the US spending on healthcare makes sure of it.
Further question: is the merger between Honda and Nissan a one off, or are further mergers in the pipeline as the industry is readjust to new reality?
There have been a lot of mergers in the auto industry over the years. In general, they happen when companies become uncompetitive and need to pool resources to survive. This merger is being driven by strong Chinese competition. It is possible that we will see more mergers, but that is just speculation on my part. Did you have any specific companies in mind?
I have predicted Ford and GM to merge before the decade end. Watch them dig their holes.
As I analyze the situation, however, the problems associated with nuclear electricity generation are more complex and immediate than most people perceive. My analysis shows that the world is already dealing with “not enough uranium from mines to go around.”
In particular, US production of uranium “peaked” about 1980 (Figure 1).
For many years, the US was able to down-blend nuclear warheads (both purchased from Russia and from its own supply) to get around its uranium supply deficit.
Today, the inventory of nuclear warheads has dropped quite low. There are few warheads available for down-blending. This is creating a limit on uranium supply that is only now starting to hit.
Nuclear warheads, besides providing uranium in general, are important for the fact that they provide a concentrated source of uranium-235, which is the isotope of uranium that can sustain a nuclear reaction.
With the warhead supply depleting, the US has a second huge problem: developing a way to produce nuclear fuel, probably mostly from spent fuel, with the desired high concentration of uranium-235. Today, Russia is the primary supplier of enriched uranium. (Read the rest)
Agree. The uranium market is already undersupplied and demand is growing, particularly with all the reactors being built and planned in China. Which means it will be difficult for nuclear generation to meet much of our future needs here in the US. (Though we don’t have any plans to build more facilities anyway.)
Which means that our growing need for electricity will have to be met by natural gas and renewables.
Yes, precursors for Fentanyl is a case in point… “world leaders” FFS
How many nuclear power plants has China completed? They don’t have enough water to cool them, especially inland.
How about all that copper cabling and transformers to install to make all this electrical fantasy become real?
What is the actual capacity of the energy produced by all this, and the losses through the network? Is it actually enough, and how much debt is being added to subsidise all this?
Everything I buy, for the most part, is made in China. They’re not going down, but up. Corrections happen whenever there is an excess. That’s the free market at work.
Agree. But China’s economy is struggling at the moment. And further tariffs and restrictions from Trump could weaken it further. However I do not think their economy is “doomed” as Mish suggested. Though I think their rate of growth will be weak. Much like ours.
That’s just not true. They are most definitely going down – big, hard, and long.
Up to the 1930’s the US was dominant in manufacturing as China is today. That didn’t keep us from having a depression greater than in other countries. Overproduction and deflation led to the crisis then and China will probably experience the same phenomenon soon.
Hard to see them having a depression, but anything is possible.
It won’t be long before there are 2 workers for every pensioner in China… the implications of that for the Chinese economy and depression are huge.
What about the cost, at some point and sooner rather than later I suspect, Will China start to address the Environmental issues and Clean Water/Air etc. that their Country suffers from.
I suspect we would be talking Billions upon Billions to do so properly, and in a manner in which to keep it that way. Suck that out of the China Economy, and we shall see just how prepared they are. Definitely a Long Term Plan, if even possible in some areas I would guess, depending on the sheer damage, and overall ability to reverse or even repair the damage. Water I would think, would be their largest issue. Not really sure…
They are already addressing some of that. They are adding so many renewables each year that they should be able to reduce total coal generation use beginning in 2025 or 2026.
They should sell more EVs and PHEVs than ICE vehicles in 2025.
25% of semi sales are now CNG and 12% are EV. So less diesel emissions.
72% of their trains are electric. And 25% are high speed.
By the end of this decade China will be the world leader in reducing emissions.
So sell your shares of coal mining in Canada and Australia.
Middle East will also be in surplus oil. Reduced revenues for GCC governments will cause wide spread instability.
Growing demand in India will likely replace any decline in Chinese demand.
I see this growth, and attention to choices they must make, but I was more referring to the “Damage” done already.
You don’t just change dirty, toxic, or heavily polluted water source’s over night. You can’t simply add water sources when and where needed. The Air quality is also highly suspect and causing all sorts of health issues, and must be addressed. Sure the newer cleaner technology will help moving forward, but not assist in cleaning up the past, or I wouldn’t think anyway.
I have read a lot about these issues in China, and seen a lot of the photos, but very little in the way of clean-up efforts from the past, or even the present. I must assume it’s being at least discussed?
I an no expert in this area but found this info:
Air quality is already improving. For example:
Air pollution levels in China fell a “remarkable” 42.3% between 2013 and 2021, according to this year’s Air Quality Life Index from the University of Chicago’s Energy Policy Institute (EPIC).
One reason is that they keep building newer, cleaner coal generating facilities, and decommissioning older polluting facilities. And as they bring on more renewables, coal generation is relegated to backup as needed.
Regarding water:
China is actively working to clean up its rivers and lakes. The Chinese government has launched several initiatives aimed at tackling pollution and restoring the ecological health of major water bodies. For example, the Ministry of Water Resources has set out an action plan to restore the ecology of 78 rivers and 10 lakes by 2025.
They just don’t have enough water… the clean up is much more serious a challenge than you might realise. Around Peking, they are as dry as Saudi Arabia.
You talk as if the CCP has either the competence or the ideological interest in pursuing free-market economics. Most of that activity is not home-grown, but led by foreign companies who have been fleeing as the ground falls away beneath them.
Those categories of products you list gloss over the important details… they are overproducting and dumping products that they can’t sell domestically and pushing the price down and prompting other countries to throw up tariffs.
You also seem oblivious to the lack of quality control of those products, even things like steel, where they have tried dumping their overproduction before. Those EVs are not being sold nearly enough, they are poor quality, and the price is collapsing.
You just don’t bother going into the details of whart kinds of consumer electronics, what kinds of cars, what kinds of textiles, what kinds of machinery, what the quality problems are, where the markets are, and whether those markets are putting up barriers to protect their own industries. Most of those things can be made cheaper in Vietnam or elsewhere, and at the same level of quality. a lot of electronic components from China are exported to other manufactuing countries in Asia, for their own manufacturing, but they don’t have to buy from China.
China is not the world leader you claim it is, maybe in volume of crap, but that volume has cratered over recent months, and the locals are definitely feeling it in salary drops and unemployment and stress.
The notion of China being self-sufficent in energy is retarded. They are not even self-sufficient in food, because they have toxicified their water and environment to make it even unsafe to touch in some areas, never mind consume.
You basically appear to have no idea about China in reality.
Go on, pretend that you’ve invested in this and that and made millions, you sound like a Wolf Warrior 50cent troll… by all means type your reply in Mandarin, I can read it.
While purchasing power parity may have problems, so does GDP in dollar terms.
I think dollar GDP underestimates real output of non-western systems and over-estimates others, particularly highly financialized systems.
Does anyone really believe Italy has a higher GDP than Russia (as measured in dollars)? I certainly don’t. Can Italy make probably the best anti-missile (S-400) system, EW, and other military gear in the world (as we’re finding in Ukraine)? No, but Italy makes high-end fashions. Increasingly, Italy is shifting production to China or Vietnam, then marked up because of branding, which is counted in Italy’s GDP numbers. So is the clutter of advertising to puff up the market value of these brands. All gets added to GDP and “intellectual property” asset values, all resting on sand.
Much of U.S. GDP (highly financialized economies like Britain) is a mirage because so much is paper accounting and hard-to-value intangibles (“Goodwill”) when the intent of GDP is to measure “real output of goods and services.”
I think the IMF is right: the U.S. absolutely produces less “real output” than China in PPP terms. And the U.S. will continue to decline in the rankings, even with (especially with) tariffs.
China’s “Ghost Cities” may be empty now, but I suspect they’ll fill up when 100’s of millions of senior citizens decide to seek assisted living there over the next 10-20 years when they get too frail to stay on the farm.
We have no conception how challenging it is to plan for the demographic shifts for a 1.5 billion population.
As for China’s debt: it is mostly denominated in Yuan. Japan’s debt is in Yen. Europe’s is in Euro’s. Please explain why China’s debt is a bigger problem for China than it is for Japan, the U.S. and Europe? Every major country is going deeper into debt. Deeper, deeper, and still deeper. And that all that interest “income” gets counted in GDP even though it mostly sits in a tax haven somewhere.
Debt is manageable if you have surplus.
the threat of increased tariffs is the ammunition for an economic war.
increased costs and reduced availability (like the toilet paper episode)
appear to me on the horizon.any suggestions?
here is one example of what i ask:
after the NC mountain floods, tanker trucks arrived with gasoline,
but there were not enough gas cans to go around to carry gas to the portable generators since some roads were blocked/destroyed/unsafe for most vehicles. so….invest/hoard/whatever gas cans (or fill in the blank)?
BREAKING: Explosives found in New Orleans were placed by 3 men and a woman, according to AP
Prediction: it was the Muslims.
Were their passports and a perfectly written manifesto found laying in the debris?
Couples dont want to birth any babies in a dictatorship, where their kids will never be rewarded for their efforts but only because of who they know. It takes decades, but dictatorships cannot stand very long.
They were on the right track and then Xi turned out to be a communist and not a capitalist. Who knew
The Chinese government is more popular with its citizens than the US government is with its citizens. Mish’s first chart showing Chinese GDP rising from 11% of US GDP in 2000 to 80% in 2024 explains why. Total fertility rate in the US among the native-born is below replacement, as is true throughout the West. Total fertility rate in China is similar to that of Japan at 1.2.
Meet your masters https://fasteddynz.substack.com/p/who-runs-the-world
Hey knucklehead. You live in a dictatorship. You still don’t know who killed JFK and the sailors on the USS Liberty murdered by the Israeli’s in the 1960’s were allowed to by our government. Get a grip and stop watching Fox, CNN and all that other trash.
Chinese women don’t want children or even want to get married anymore. They have sooooo many men to choose from.
Sounds like a single’s bar. I haven’t been single for forty years, but I remember.
Really not true… the majority of women live in cities, where they can outnumber men by 9 to 1… you are making that common mistake of treating data like a monolith, China is a big place, and most of it is small cities, towns, villages, and the distribution of age and gender varies with where you are… just because the data for the country as a whole says more women than men, it doesn’t tell you much… bearing in mind that women live longer than men, and there’s a lot more little old ladies than you can imagine, for whom having children is no longer an option… lots of women in the their 30s, 40s and 50s trying to find a dream guy, and not enough men can afford their demands. Especially when the housing market has imploded, bankrupting many… men are supposed to show wealth and pay bride price, but many who want to, can’t afford to, and many who can afford to, don’t want to.
My Chinese female friends say that they feel safe in China, but not free… they want to find foreign men so they can leave China, be free, be prosperous, and partly because they see foreign men as taller and more appealling, but there is definitely a crisis with family formation in China, despite there being more men than women, the distribution of them both geographically and in terms of education and career is very mismatched, and so you have rural areas with lots of skint old boys, and cities with lots of spinsters running out of time, going mad with hypergamy demands on men.
Think of all the new ship building that China will need once much of their Navy’s fleet is sunk during the coming attack on Taiwan. It’s the old “broken window” theory. Not that the US won’t need to do the same. Fortunately, right now we are the cleanest dirty shirt in the laundry. All the “great powers” (Britain, France, Germany, Japan, China and Russia) are slinking toward bankruptcy and many believe that the only thing that can save the lot of them is a good war.
Our debt is still a major problem. ✂️ must be made
You still cant pick even one cut that matters, and the right never has been able to. Sounds great, but cant be done in the end. Tell your buddies they pay a lot of taxes and they need to pay more.
Cut the military budget by half and the CIA budget by 80%. Eliminate the US Agency for International Development and the National Endowment for Democracy. Cut the State Department budget by 75%. Cut off Israel and the Ukraine.
I’d vote for you in a heartbeat.
Imagine how many jobs would be lost if you cut the defence budget by half
hahahahahaahahaa
Putin and Xi’s wet dreams.
That would get the deficit down by like, maybe 10%.
We’re a social insurance company masquerading as a government.
More like 35%.
And watch America collapse
There once was this empire called Rome and they got overextended, see…
…and watch the world economy implode and be replaced by jihadists.
My best friend is more liberal than you. He pays an effective tax rate of 51 percent in NYC. That’s not enough?
He gets what he votes for.
Then he’ll move to Florida and vote to fuck it up.
Cut Medicare and SSDI fraud.
NOLA reports the suspected terrorist is 42-year-old Shamsud Din Jabbar.
The source said Jabbar was carrying an ISIS flag in the truck, and authorities have said he was dressed in military gear. -NOA