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The Garbage Man
Does anybody know what China's doing? Because I don't know what China's doing. And I don't think China knows what China's doing either. Maybe Xi Jinping knows. But I'm not sure that's very comforting.
Chinese banks on Friday left both key benchmark lending rates unchanged, in line with a steady seven-day reverse repo rate.
Wait, let me back up because I'm sure half of you are already lost.
Five years ago, China embarked on an effort to simplify the country's multi-tiered rate system. Long sto
All’s Xi had to do is let trade roll on as it was, keep playing the “we’ll open our markets” siren song, encourage people to have children, and keep a low-profile. Post-Olympics, the cameras really started going up in mass around the country and that was an early sign the Xi was prepping for a time when he’d need to closely monitor everyone. That was the time to start heading for the exits.
Yeah. He wants to be Mao. Literally.
The Xision is a command economy, dominated by goods rather than services, with profit and wealth disfavored, with weak individual property and other rights. This is very Soviet/Mao, a throwback to the communist states of the 1950s-60s. I don’t know why Western investors see a future for themselves in that Xision, and seems they are not seeing it either.
I am trying to guess when China’s export growth will start being significantly slowed or even reversed by Western trade barriers. 2026? 2028?
That’s how long Xi has to build a domestic consumption economy. Because exports are the only growth driver now.
From what I’ve read, the structural changes required to do that are so large and difficult, that many think it will take a decade even if the CCP knew what to do and did it full speed. Which currently doesn’t seem to be where Xi is headed.
Helicopter money could have faster effect, but not sustained effect – and some time ago we discussed the sums required, maybe Xi would “give away” billions but – trillions would be needed for even a transitory effect.
As domestic troubles increase, Xi may be more aggressive abroad. I think the first place will be the South China Sea/Phillippines, but Taiwan is the real prize, and I think blockade is as likely as invasion. If the Houthis can shut down the Red Sea, China can shut down shipping to/from Taiwan.
In this manner, we can make some guesses on when open hostilities may start.
Somehow, as I read this, I could see the shadows of 1980-1990s Japan. Their powerful and well executed industrial policy, based on the joint tripartite agreement between the country’s bankers, government, and its large conglomerate industry complexes for a time created total wealth in excess of that of the US. We were actually forced to cap auto imports to protect our own manufacturers from being gutted. Although they didn’t have Xi, desperately seeking Mao, Japan had Toyota, Sony, Mitsubishi, etc. pounding out stuff to sell to us. I notice the pattern in China as well. In Japan, they forced the shutdown of industries and companies that were producing surplus goods and tried to develop a perfect balance in their economy. Such a goal failed there and is only now providing something of a comeback. The hollow buildings China built, the interstate-type highway system of nearly 100,000 miles, and all the excess basic industry capacity they built looks a lot like what happened to Japan. The trouble with growth goals, however well planned, is that you can’t sell something you can’t make or buy first. There has to be capacity. The Japanese pioneered “just-in-time” to try to beat this problem but the whole supply chain has to be perfectly executed and never break down, which it inevitably will. There has to be excess capacity to support growth. Rather than build that capacity here at home, we decided collectively, without any formal planning, to get others to build and own that capacity. Apple and others like it are still doing this because it makes money. Xi needs to be very careful of his personal “long march.”
The US model of off-loading low value manufacturing to others so that American workers can benefit from doing more valuable and skilled work broke down fifty years ago, when low value started becoming high tech. In some theories, as other countries move up the value chain their labor costs should rise and eliminate the cost advantage to US manufacturing, but that doesn’t work in practice. The US model has morphed into a corporate profit-maximization strategy, with worker benefit irrelevant. Bringing more manufacturing domestic has become bipartisan, so I think we’ll see more momentum to it in coming years and decades.
Article saying Chinese response to current situation is notably modest, with chart of total “credit impulse”. I don’t follow China data enough to know if that is a good series to look at,
but given Dr H’s “Xi is pushing on string” points, I wonder if BBG has it wrong – instead of being not that worried by the slump over which he presides, maybe Xi simply can’t do more about it.
For years or decades, Western media and analysts have implicitly assumed that the CCP can steer and modulate the Chinese economy, in a way that they don’t think the US government is able to control the US economy. No political gridlock, no dissent brooked, a decisionmaker with control over every institution and all the big companies in every sector, mountains of money available, always beats growth targets, the CCP is so powerful that whatever is happening must be consistent with Xi’s grand plan. Right.
https://www.bloomberg.com/news/newsletters/2024-09-21/bloomberg-new-economy-why-china-s-sluggish-growth-isn-t-rattling-xi-jinping?
Another rate cut from central bank in China.