[alephnerd]

> Isn't that just Chinese policy cancelling out American policy

Pretty much. And that's the point from the US side (http://industrialpolicy.us/resources/SpecificIndustries/IT/f...)

The whole idea of the Sullivan Principle is to force Chinese players to spend more and more money but remaining the same distance apart (2 gen) [0]. The idea is Chinese players keep burning money building capacity, yet lagging behind relatively speaking, and that money could have been used for better applications by China.

Already China's GDP per Capita has remained stagnant since COVID began [1] and those tens of billions spent on building capacity could have been better applied building a more robust domestic economy, yet median per capita household incomes are stuck at around $4.6k/yr with a massive urban-rural gap (approx $7k urban, $2.9k rural) [2]. Without a robust domestic economy, and increased limits on export markets, this only leads to overproduction and deflation.

Edit: can't reply, so replying in here.

Const 2015 dollars is still an approximation of production, and even then absolute household disposable income is low. It doesn't matter what GDP per Capita you have if the delta between that and median household income remains so large. All this implies is that the majority of revenue from production is captured by a minority. This is extremely rickety, and leads to long term economic malaise.

And it's not like you are paying in 2015 dollars in 2024 - absolute cost of inputs still change, and these kinds of transformations don't mean much when looked at holistically with other metrics like median household disposable income and nominal GDP per Capita.

Reply 2: Yet 50% of Chinese households still have a disposable income of well below $5k/yr. You can argue PPP all you want (it isn't even the correct application when discussing median incomes) yet inputs and all trade abroad continues to be executed at nominal rates. Only 13% of per capita household income per quarter is spent on transportation and telecom (ie. ~$50/mo per Chinese household), and much of that is spent on existing products not new products. Sure you have overproduction today, but what about 5 years from now? With absolute growth decreasing how are median household incomes expected to increase? And even the Chinese government has a finite amount of money - and instead of giving it to consumers to allow them to build a domestic economy it's only going to a handful of businesses that themselves are heavily automated and gatekept due to skilling requirements

[0] - https://www.belfercenter.org/event/competition-without-catas...

[1] - https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...

[2] - https://www.stats.gov.cn/english/PressRelease/202402/t202402...

[yorwba]

> Already China's GDP per Capita has remained stagnant since COVID began [1]

That is the "current dollar" value, which is not adjusted for inflation. If you look at the inflation-adjusted data https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?location... the stagnation disappears.

[maxglute]

Basically.

Per capital _disposable_ income 31k->39k rmb since 2019 using local currency with minimal inflation. Measured in USD, most global players stagnent relative to strong USD last few years. Measure in PPP etc PRC growth exceed other major economies with increasing lead in GDP PPP gap, i.e. worldbank 2019 PRC 24T vs US 21T, 2023 PRC 34T vs US 27T. By useful competitive metric, PRC is speeding past vs stagnating.

Core inflation mostly normal 1-2%, there's only statistical near deflation because pork prices (big part of basket) collapsed now that stock has recovered from ASF. A few 10s of billions spend on semi industrial policy per year is drop in bucket, especially if it pays back in reducing 300B+ annual semi imports. Western FDI in general low single % of PRC aggregate investments. Overall PRC growth fine, most of slow down (~2% of GDP) can be attributed to restraining domestic RE. Meanwhile PRC exports increasing thanks to strong USD, much of which moving up value chain in intermediate goods and high tech, including mature semi.

Driving down cost of goods with low inflation, high competition (and involution) is the strategy for increasing domestic QoL and exports. It's not just about bumping GDP #s maximally, the point is to modelT things like EV to reasonable costs i.e. 5-10k usd for no frills value models. Higher % of production which are absorbed domestically relative other major car producers, i.e. most other producers have more excess capacity relative to PRC, with excess capacity itself just dogwhistle for competitive exports. Domestic consumption with proper accounting (i.e. including social transfer in kind), PRC about OECD average, US is simply anomalously high due to financialization of services like education.

[addicted]

Yup. And although Chinese exports have rebounded in a big way, China’s economy has remained extremely weak.

Because China has lost the massive buffer that the rest of The world was giving it by investing in it for free, transferring technology to China for free, building its industries for it for free, and in return being kicked out the moment the Chinese did not need them anymore.

[aragonite]

> and in return being kicked out the moment the Chinese did not need them anymore

This is just an unfalsifiable claim, devoid of empirical content. If you cite any of the numerous American companies with significant presence and revenue in China, say Starbucks, the reply will be that they are still there only because "China still needs them." But in what sense does China actually need Starbucks?

If the answer is "in the sense that Starbucks creates NNNN jobs and contributes to the Chinese economy", the exact same reasoning can be used to conclude that Chinese companies operating in the US are there only because "the Americans still need them." TikTok for example employs 11k Americans! Likewise, if the answer is "in the sense that Starbucks has something special to offer", the exact same thing can be used to conclude that Chinese companies (you can again use TikTok as an example) operating in the US are there only because "the Americans still need them."

In other words: 'need' can be taken either in a stricter or in a looser, watered-down sense. In the stricter sense, it's simply false that American companies are kicked out the moment China no longer needs them. Case in point: Starbucks, which is not strictly needed, but not kicked out either. Conversely if you take 'need' in the looser sense, foreign companies in any country still operate there only because "the locals still need them," and there's nothing unique about China's situation.

[seanmcdirmid]

Starbucks is a great example, as they were allowed to buy out their 50% JV partner in 2017. Even Tesla was allowed to operate a factory there without a JV partner at all, a privilege no other foreign car manufacturer was allowed.

[riehwvfbk]

Those investments were more than paid for with cheap Chinese labor. Which is why these companies moved manufacturing there in the first place. Now China doesn't need the buffer anymore. In fact, it's ahead in many areas, electric cars for example. Smart.

[alephnerd]

Yet the median Chinese household cannot afford those EVs, because median household income has stagnated at around 33k Yuan/$4.5k for years now.

If you're overproducing yet there is limited ability for domestic consumers to put these products, this means you are dependent on foreign trade partners.

Yet even these trade partners are forcing Chinese players to manufacture in those markets or face high tariffs and revocation of MFN guaruntees.

[riehwvfbk]

The median American can't afford to pay for a new car outright either. And they've got loans in China too.

[alephnerd]

Absolutely, yet absolute consumption remains low [0]. The kind of consumption on high tech gizmos is barely 13% of per capita household consumption (so median is much lower).

There just isn't enough spend on a quarterly basis to subsidize industries like EVs, Chips, etc industry without export - and most markets are only increasing the barrier of entry, or requiring domestic JVs.

Every EV, PV, Construction, etc JV that a Chinese manufacturer creates in countries like Mexico, Brazil, Indonesia, India, etc is an equivalent amount of jobs and domestic investment lost.

What's the point of being ahead if you're spending tens of billions yet most domestic consumers cannot afford them. This only kills domestic capacity long term (and is what Zhou Qiren has argued for years and why he was so prominent at the third plenum).

Edit: cannot reply below so replying here

Yet even with low prices, products are still relatively expensive. For example, auto loans tend to be limited to 36 months by banks to non-high income consumers. Assuming you get a 3.85% loan (as the current Chinese LPR is) to purchase the BYD Seagull (cheapest EV), even with a 50% down you are looking at half of the median monthly disposable household income (~$150/mo). The per capita Chinese household spends no more than $50/mo on transportation AND telecom according to govt stats [0].

And this is the crux of the issue - if most Chinese cannot afford most products, and foreign markets are increasingly adding tariffs where does all this stuff go?

[0] - https://www.stats.gov.cn/english/PressRelease/202404/t202404...

[riehwvfbk]

Low percentage of household income spent on gadgets could also simply be reflective of how dirt cheap they are domestically in China.

To take your argument further: Californians spend way more on housing than people anywhere else in the world. They must all live in palaces.

[mensetmanusman]

Foreign direct investment has dropped 10x in a few years.