Yves here. I am hoisting these comments from February 10 Links for two reasons. One is that in many ways, it illustrates the commentariat living up to its potential via a serious debate of the proposition, “Is China’s growth rate lower that its official statistics say?” But two (and yes I have mixed feelings about making an example of a particular reader, but it is also impossible not to include his remarks for the thread to make sense), one of the participants in the thread engaged in a version of the sort of conduct that led me to shut down comments: bad faith argumentation (ad hominem attacks on sources of evidence rather that addressing what they said), ignoring/talking over other evidence that countered his view (my anecdata from a fair range of sources), and most important, an unwarranted dismissive tone. This was a comparatively mild case but illustrates how some readers will resort to testiness even when met with reasoned and substantiated rebuttals.
Please forgive the minor formatting eccentricities below. Trying to make it hew more closely to the original comment section appearance seemed likely to undo the nesting, so I opted for “the perfect is the enemy of the good” version.
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Yves Smith No, its GDP is NOT growing at 5% a year. I can tell you here from the sex capital of Southeast Asia that Chinese tourism is way down v. last year, and that was before the actor kidnapping scandal made things even worse.The reported China GDP figures have been widely recognized as unreliable forever. That is why analysts looks for proxies like electricity use…and then China started hiding that.Michael Pettis has debunked that: https://www.scmp.com/economy/china-economy/article/2189245/chinas-gdp-growth-could-be-half-reported-number-says-us One specific and large source of difference from how everyone else calculates GDP is bad debt losses are debited from GDP totals. China does not do that.
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Roger B So the China Electric Council is just lying then about 7% annual electricity usage growth and the huge expansion in Chinese renewables, while coal electricity generation remains stable, is just feeding nothing? Pettis pushes the “China over-production and under-consumption” narrative that has been used for years, while Chinese consumption actually keeps increasing as real incomes rise.https://www.reuters.com/business/energy/china-power-demand-growing-faster-than-expected-2024-industry-association-says-2024-10-29/#:~:text=The%20China%20Electricity%20Council%20now,kWh%20in%20its%20previous%20report.https://www.carbonbrief.org/analysis-record-surge-of-clean-energy-in-2024-halts-chinas-co2-rise/#:~:text=Even%20larger%20clean%20energy%20additions%20likely%20in%202025&text=Yet%20solar%20and%20wind%20capacity,wind%20connected%20to%20the%20grid. -
Yves Smith I can tell you from direct and indirect reports I am here (where I am has lots of Chinese backing for projects plus an intermarried mafia) that China is not in very good shape right now. These reports are consistent. Yes, anecdata but the sources they tie back to are pretty varied (like princeling children, tour operators, Chinese entrepreneurs and entertainers).From the Financial Times November 2024. Note it specifically questions consumption data: China’s official statistics, particularly its annual GDP figures, have long been the subject of scrutiny. In 2007, Li Keqiang, later the premier, remarked that they were unreliable and that he relied on three alternative indicators to evaluate economic performance: railway cargo volume, electricity consumption and bank lending. These metrics came to be known as the “Keqiang Index”.
Many observers suspect that GDP figures in the past few years have been inflated. Local officials tend to view meeting regional targets as necessary not only to keep their jobs but also to secure promotions. This atmosphere of distrust intensified in August 2021 when China’s internet tsar prohibited any social media publications that could “distort” macroeconomic data. Such restrictions have silenced comments from leading economists in China, and several banks and research institutions have become reluctant to publish forecasts which fall below official figures. In some cases, economists have been told to refrain from critiquing official data.
The government’s attempts to suppress negative commentary may stem from concern over the long-term effect of stringent economic controls imposed during the Covid-19 years, which saw investor and consumer confidence decline to what was then an all-time low. This has had a perverse effect: in private conversations, jokes about GDP figures are more widespread than ever.
Publicly available, reliable, up-to-date data allows investors to monitor developments and manage their expectations. If fundamental statistics such as GDP, consumption index and unemployment rates lose their credibility, investors will be forced to prepare for the worst-case scenario. In 2023, China’s National Bureau of Statistics stopped publishing youth unemployment data after figures reached a record high for several consecutive months. The government later resumed the release but excluded students from the count, claiming that this offered a more accurate representation.
In December 2023, China’s Ministry of State Security warned key commentators on social media to stop criticising the economy and spreading what it alleges to be disinformation. Last month, Zhu Hengpeng, a leading economist at a top government think-tank, reportedly disappeared after making disparaging remarks about the economy in a private WeChat group.
These troubling developments have intensified scepticism about China’s economic reality, creating what could be described as a Tacitus Trap. Named after the Roman historian, this theory posits that when public trust in government erodes, citizens will assume that all information released by government — regardless of its truth — may be false. Some netizens even joke that China owes its recent economic success to the National Bureau of Statistics, the Central Propaganda Department and the Internet Information Office.
https://www.ft.com/content/de9af759-2b94-4b7e-98e4-42698900efeb
As for the figures you cited, any GDP estimates or proxies need to cut to reflect debt writedowns.
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Roger B The Pettis article is from 6 years ago, how is that relevant to 2025? He has been going on about Chinese “issues” for a very long time, but China just keeps on growing and upgrading its economy. He wants China to mimic the consumption centric Western nations, while China focuses on investment raising real wages. GDP is a calculation of the output of goods and services, debt is not a part of that calculation – so what is the problem with Chinese GDP per capita? Chinese debt is also predominantly owned by Chinese, much of it the state, while Chinese nominal GDP grows and it has very large foreign exchange reserves.China is rebalancing quite massively (and successfully) from the housing investment driven economy to one more focused on the development and upgrading of the productive forces. It is managing bad debts in a very controlled fashion, which a Party-state dominated society that owns and significantly controls most of the financial sector can do. The US has regularly played the same games in allowing banks to count actual bad debts as good ones on their balance sheet, so that they can “work off the bad debts”. The Fed also took on massive amounts of devalued debt securities and loans onto its books in the GFC at face value to socialize private losses. As European states and the ECB did in the early 2010s.The rebalancing will most definitely be felt by the richer and younger Chinese who invested in now much depreciated Tier-1 and Tier-2 city properties, but much much less by the less wealthy and outside those cities. Also, much of the easy money in property and financial speculation has been stopped. So the group that travels abroad and ostentatiously consumes and speaks much better English will be affected. And the groups that you mention would certainly be feeling the pain. There is also a very strong official drive away from the exuberant display of wealth. While luxury goods suffered in 2024, new car sales reached a new record. As for the FT, it sadly lost its journalistic integrity a few years ago. I say sadly, because before it was a very reliable source. Referring to 2007 when there most definitely were issues with Chinese GDP reporting is pretty irrelevant for 2025, especially after the government made strenuous efforts to clean up its act. Accurate statistics are central to accurate decision making by both the state and private actors, and they understood that. The rest of the story is hardly better than unsourced tittle tattle (well below previous FT standards). Excluding students from the youth unemployment count is actually the general standard, shame on the FT for not stating such. China does not include any meaningful amount for the fictitious “household implied rent” as the US does, so there are definitely swings and roundabouts.
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Yves Smith I have contacts who own businesses in other parts of SE Asia and they also report that China has slowed, so this is a completely different set of data points. Chinese investment in projects here is also down, which is again not a function of tourism. I said the reports were coming from all sorts of sources, including princelings, and struck me as admissions against interest.The underlying Pettis reports on how China’s GDP computation is not comparable to Western methods is here, which I was remiss in not posting. The structural issues on how GDP is computed remain the same: https://carnegieendowment.org/china-financial-markets/2019/01/what-is-gdp-in-china?lang=enSee also: Some economists say China’s GDP figures have become less reliable.
“Namely from 2014 to 2019, Chinese GDP growth barely moved at all, just a little over 1.5 percentage points for six years,” Wright said. “We can never find another major economy, particularly one of that size, where GDP had been that stable over time.”
In the meantime, he said, China’s interest rates were going up and down, commodity prices collapsed and credit conditions tightened, yet none of that volatility showed up in China’s GDP.
“In 2023 it’s an even more questionable story that China’s economy is growing at 5% or faster,” Wright said. “It’s hard to know what exactly is accounting for that growth.”
https://www.marketplace.org/2023/07/17/is-gdp-still-a-useful-gauge-of-chinas-economy/
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PlutoniumKun Leaving to one side the undoubted biases in Chinese data (stated numbers have always to be taken with a large grain of salt), GDP is itself a very inadequate measure of economic development – Simon Kuznets, who developed the measure in the 1940’s repeatedly warned about this and was not happy about politicians using it to compare countries, in particular at different stages of development. Its worth reading his own analyses of its weaknesses to understand why its very unwise to see short term changes as having any real meaning with regard to ‘real’ growth.There are of course proxies such as energy use, but they too are limited, in particular in recent years. Japanese energy use actually increased significantly after the crash in 1990 – mostly because the government turned to covering much of the country in concrete in a desperate attempt to keep the economy going. It is unsurprising that energy usage (specifically electricity use) is increasing in China as it has heavily skewed its economy towards investment, otherwise known as making vast amounts of concrete and steel and trying to find somewhere to put it. There is also a major transition taking place within the economy to move from direct thermal to electric use for industry, which is undoubtedly skewing the figures. In many ways, a drop in overall energy use would probably be a good sign, because it would indicate that older plant is being finally mothballed in favour of more modern higher productivity industrial uses.The Chinese property bubble was by some measures the greatest misallocation of capital in history. It hasn’t even come close to being resolved, property prices to income are still vastly out of synch with nearly every other country at similar or higher levels of development. Your comments about who are effected are way off the mark – property is the fundamental source of saving for hundreds of millions of ordinary middle income Chinese. 80% of Chinese are homeowners, and 20% own two or more properties. The rich and better off were protected by their foreign hedges. I don’t believe there is a precedent in history for such a high proportion of a population to be so invested in one form of savings, and then seeing it going into terminal decline. The Japanese, Irish and Spanish property crashes were small beer in comparison to the decline in China, and its only at its initial stages, there is a long, long, way before it hits a floor. You cannot win against the long term fundamentals. Add in a demographic decline and what we are seeing is a massive destruction of what was always purely notional wealth. There is nothing new or anti-Chinese in Pettis’s analysis. He is saying nothing that has not been written repeatedly since the 1990’s by Chinese economists and even the Chinese government itself. The choice to go for a suppression of domestic demand and a very high investment oriented economy was deliberate. Its the exact same model which was pioneered by the US, then followed by Germany, Japan (twice), ROK, China, etc. The hazard in this model is, and has always been well known to students of economic development – that you can only go so far with investment before rates of return fall, and you can only produce goods in line with long term demand. Supply does not create demand unless we find another planet to sell stuff to (or… crazy idea this – you pay people enough to buy more stuff). And if foreigners no longer want to take up your demand, you have to develop it yourself.
China is now in a situation which was widely predicted – by the Chinese government itself which was quite open in the early to mid ’00s about the upcoming need to recalibrate and balance (the 2007 crash knocked this off course). Its the same ‘ceiling’ that the US hit in the 1870’s (the Long Recession, which took around 2 decades to resolve itself), and every other fast growing developing economy has hit a similar ceiling at some stage. Some have gotten past it (ROK), some just got over the line before staggering to a halt (Japan), some fell all the way back (Argentina, Brazil, etc). These issues are well known to anyone with a passing acquaintance with economic history (which obviously excludes most economists).
China is perfectly capable of getting past this problem – in theory anyway. But its one thing to identify a problem, its another thing to implement the solutions. So far, they are doubling down on past policies (i.e. increasing ‘investment’ and hoping demand for it appears by some magic), which is probably just putting off the inevitable return to fundamentals.
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The statistic that I believe to be most important in China is the number of STEM graduates. With over 3 million graduates a year, China is adding four times more STEM educated people to its workforce than the U.S. If you believe, as I do, that technological advance will be the driving force in economics in the foreseeable future, then China will be in a very good position, irrespective of macroeconomic disturbances.
One question raised in the past at least has been “what is the quality of these graduates?” Twenty years ago my Chinese colleagues in grad school openly talked about cheating being the way many or most students made it through. How much has that changed? Yes, China has accomplished some real breakthroughs, but below that top tier, are the bulk of STEM graduates competent? They may well be, but I would not just assume it.
More than a decade ago, when I was an economics student, my professor lamented that Chinese students plagiarized too often.
I can only speak to the Chinese I have been working with in software & tech, but the general quality of these vs your average Silicon Valley software engineer puts the Americans to shame. It is not uncommon for a child from a rich family to have their tuition bought at a “well respected” US university, only to slack and cheat. Perhaps many of China’s brightest are now attending Chinese universities, which are increasingly leading in producing groundbreaking research.
There may be different cohorts. I have seen complaints at elite schools where Chinese were admitted for tuition $ (as in they were iffy on the merits, not unlike legacy kids) who were unserious about studying and generally did not mix with non-native Chinese students. The impression was that they were getting tickets punched. That type may have been a small minority of mainland Chinese students but I think they galled (for the same reason as legacy students) and therefore elicited comments out of proportion to their numbers.
Michael Pettis is an excellent source for analysis of China markets… and economic wisdom in general.
To tell the truth i believe that Spain is now following, though not at the same level, the same model as Japanese and Chinese and i am thinking particularly in a region which has People’s Party regional and municipal governments: Madrid. They are pouring concrete everywhere and not for very good reason in many instances. It is some kind of “conservative Keynesianism” in which there are always reforms and constructions needed here and there with public money for contractors and subcontractors to make business when there is in reality little business to be done.
I understand Pettis has strong family links to Spain – he wrote quite a bit on his blog about Spain 10 or so years ago, and I think most of his predictions (especially about constant high unemployment if Spain didn’t leave the Euro) have held up.
Its unfortunate that so many politicians get fixated on construction to try to address structural problems – here in Ireland we’ve just elected a government fully committed to building lots more roads, despite no evidence whatever of economic benefits. At least Spains boom left a legacy of excellent HSR, we just got lots of half empty motorways and a railway system that was built in the mid 19th Century to move cattle around.
As Pettis has pointed out, even ‘bad’ infrastructure investment can make a lot of sense in country with serious underinvesment problems, but the situation reverses once a country gets to a developed status – its then that concrete pouring can result in white elephants – anyone travelling around rural Japan can see the results.
Yes, Pettis’ balance sheet approach is very useful: what kind of assets are being financed by the debt and what future returns on these assets can be expected. At the end China will have to officially write down a lot of the debt from RE investments and bridges to nowhere resulting in downward revisions of previous GDP numbers or keep it unofficial not acknowledging what analysts already know/suspect about real Chinese economic growth. The problem here are the vast amounts of concrete and steel wasted to keep the fiction going and the carbon print of such waste. Can it be quantified?
“At the end, China will have to officially write down a lot of the debt from RE investments and bridges to nowhere…”
Forgive me, but could you reference any “bridge to nowhere” in China. I know of no such bridge in China, and wonder which such bridge I have missed.
Ghost towns, particularly in third and fourth-tier cities.
https://english.news.cn/20250119/b3a5311d649543e1aaaa5093aa2ea7f5/c.html
January 19, 2025
China’s housing market gains strong momentum amid policy boosts, inventory cuts
BEIJING — Cafe on the first floor, gym and reading center on the second, and a fully furnished one-bedroom apartment with a monthly rent of 836 yuan (about 116 U.S. dollars)… for fresh college graduates like Liu Yumeng, this is the dream apartment they’ve always hoped for.
The building, located in Zhengzhou, capital city of central China’s Henan Province, is one of the commercial housing projects that were acquired and turned into affordable housing by local state-owned enterprises.
The move, part of the country’s policy mix introduced last year to reduce housing inventory, has played a major role in stabilizing the property market.
MEANS FOR SALES
Given a lingering slump in China’s property sector, policymakers emphasized the need to understand the new dynamics of supply and demand in the real estate market last year, and urged measures to strictly control the increase of new commodity housing projects, optimize the existing stock and improve quality.
In response, local governments rolled out city-specific policies to slash housing stock. Key measures include eased purchasing restrictions, lower home-buying costs and the introduction of a trade-in scheme for houses to stimulate demand.
On the supply side, local authorities have encouraged the conversion of commercial housing into government-subsidized housing, while also curtailing land sales to cap market supply…
China produces more concrete in 2 years than the US did in the entire 20th Century. Even allowing for population differences and different construction standards, that still indicates a vastly oversized construction industry.
This is one of the reason why CO2 levels in China are so high relative to its probable ‘real’ wealth, and why increasing energy use is almost certainly not a good indicator of real growth, just as it wasn’t for Japan in the 1990s. On the topic of Japan, a book called Dogs and Demons by Alex Kerr is an amusing non-specialist overview of how pouring concrete as a solution to everything went out of control in Japan. As is the Spike Japan blog. Its pretty clear that the same thing is going on in China right now.
A key problem though is that assessing the value and returns of infrastructure is notoriously difficult. Most infrastructure (roads, rail, ports, etc) are not profitable in the normal sense (which is why there isn’t much interest by the private sector in building toll roads or railways). They have to be justified through estimates of economic benefits, and most of the methodologies are, shall we say, subject to imaginative interpretation. This doesn’t matter during the ‘catch up’ phase of development, where there are almost always benefits to even very ill-considered infrastructure spending. It only becomes apparent where you’ve overspent when the economy cools down, or you’ve taken all the low hanging fruit in terms of investment. And by then it’s usually too late.
Trying to incorporate environmental issues into cost benefit analyses is notoriously fraught. The core issue is the non-commensurability of environmental values. This was actually the topic of my first economics thesis. It didn’t go down very well with my tutor when I concluded that incorporating environmental issues into cost benefit analysis was a waste of time.
It should be acknowledged ‘wasted’ money on infrastructure can be useful in the long term. Most 19th Century railways were built during the ‘boom’ of boom and bust phases and never made financial sense, but in the long term they provide a benefit long after the unfortunate bankrupted investors are dead. But for every good railway legacy, there is also usually a pile of tulip bulbs. I suspect the ratio of the two is one of the key indicators of whether a country will break through the middle income trap.
Here is a recent bit from Pettis that I found interesting…
https://www.ft.com/content/879f5de7-cd9b-4987-9c2b-8b23cf0f3800
This thesis on excess savings is a corollary to the well know propositions of weak social safety net, smaller families, wage suppression, etc. Now that the middle-class saving-for-retirement/rentier strategy of property investment has gone on the rocks, one would expect even more retrenchment and diminished spending by the population. It will be telling to see how the Evergrande fiasco plays out. The Hong Kong court has ordered liquidation, but I don’t think that this will effect the PRC’s course of action.
Regarding Thai tourism as an indicator of the Chinese economy health, I Googled the status of the Macau gaming industry and 2024 was up significantly from 2023.
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Reuters does confirm that gambling was up in Macau by 1/4 for 2024 over 2023 but was still below pre-pandemic levels: https://www.reuters.com/business/macau-2024-casino-revenues-top-official-estimate-below-pre-pandemic-levels-2025-01-01/. Even though Reuters acted as if the growth was above forecast, it was in the range predicted by S&P at the start of 2024.
And Chinese were traveling overseas less post-pandemic due to the lower value of the renminbi, so one would expect domestic travel and leisure to be beneficiaries of that.
So properly framed, Macau does not in fact show that China is doing well, just relatively less bad than immediately post pandemic.
Macau casinos are notorious for both money laundering and as key components of the shadow banking system. . When capital controls get strong in China, gambling rates have a habit of going up in Macau, more so since HK banks have been put under tight control. In simple terms, gambling ‘losses’ are a useful way of evading capital controls, just as transfer pricing of goods used to be for HK.
When it comes to Chinese tourists, Japan is the new Thailand. First of all, the 2024 numbers are still below pre-pandemic levels, https://www.statista.com/statistics/1449393/japan-expenditure-by-chinese-tourists-shopping/, but this year has started with a big bang:
https://asia.nikkei.com/Business/Travel-Leisure/Japan-overtakes-Thailand-as-China-s-most-popular-destination
https://asia.nikkei.com/Business/Retail/Returning-Chinese-tourists-drive-Japan-s-department-store-sales
I moved to Japan at the end of 2024 and lived in Tokyo for 45 days, the city is overrun by Chinese tourists.
I’ve not seen detailed figures on this, but I think a lot of the Chinese presence in Japan is not ‘tourism’ in the sense we think of it in Thailand or elsewhere. A lot of Chinese are seeing Japan as a sort of lilypad destination – a second home if you like, a little like Brits and Germans having a base in Spain or Portugal. On my last visit to Tokyo I was amazed at how much mandarin I heard around – but most of these people were clearly not shopping tourists, they are living at least part of the time in Tokyo. Relatively cheap property is a draw, as well as what they see as a very safe and stable environment. Even one of my neighbours here in Dublin, a finance student from Shanghai, lived 5 years as a teenager in Tokyo with her parents – she told me they keep their home in Shanghai, but have bought in Tokyo and intend to stay there long term.
The main complaint they have is the food. Most Chinese restaurants in Tokyo are staffed with Chinese students, not real chefs, so I’m told they continuously get the basics wrong. I get the impression that most of the Chinese there, like my neighbours parents, are what you might call more cosmopolitan upper middle class types. Not super rich, but generally pretty well off and educated and comfortable with living in other countries. And also the sort who might be at the brunt of a backlash if things went badly in China.
I am not seeing the distinction. Chinese nationals have been snapping up properties in Thailand for a long time as second homes, https://www.bangkokpost.com/property/2947870/thai-properties-at-risk-as-chinese-buyers-go-cold-amid-abduction-trafficking-news. From the article:
“Beijing resident Evelyn Lin paid US$274,000 for a flat in Bangkok in 2018, hoping to use the property as her home when she spends holidays in the Thai capital.”
“Between 2018 and 2023, Chinese buyers were the most active foreign buyers in the Thai property market. They snapped up about 38,000 units with a total gross value of 170 billion baht, according to local media reports.”
Most Chinese restaurants in Tokyo, known as 町中華 cater to locals not Chinese tourists. Japan has its own ideas about Chinese cuisine just like Americans think of chop suey and General Tso’s chicken as “Chinese food”. Heck, there are many types of dishes developed by Chinese people in South East Asia that would be unrecognizable in mainland China either. When I traveled in China years ago, I thought the food especially in the north, sucked (what basics?), would rather eat SE Asian Chinese food all day.
If you read the only quote from an owner, she was in Thailand only for 2 months a year.
I can speak only to what I see here, which is only one beachy/sex tourism city.
First. the new developments here are either for the Chinese or not. The condos targeting Chinese are small, 22 to 30 sq meters. Very glam though, with more amenities than ones for other farangs, like (in addition to the obligatory pool and frequent but so-so gym), a kiddie room, perhaps a small theater for showing movies, an unattended bar (residents bring beverages).
Second, the Chinese do seem to come only for a month or two and leave after the Chinese New Year period.
Staying for more than 6 months would incur some kind of tax liability I think, https://taxsummaries.pwc.com/thailand/individual/residence. And then there’s the practical matter of living i.e. earning money to afford your vacations. To PlutoniumKun’s reply to my original post, I think there’s comparatively very few people who can afford to have multiple residences in multiple countries and hop from one to another over the course of a year.
When it comes to vacations, is Thailand a major destination for the Chinese? Absolutely, but there’s Japan, and then there’s also Singapore (and maybe other places too), https://www.channelnewsasia.com/singapore/chinese-tourists-singapore-experiences-free-and-easy-travel-changing-habits-4905301. My take is that there’s no doubt that the Chinese economy is facing some pretty serious headwinds, https://www.youtube.com/watch?v=6GyNAXwYaj0, but people are still traveling, albeit consumption activities are now being shifted to Japan because of the weak Yen.
Thailand historically did not tax foreign tax residents on foreign source income, only on income earned in baht. It is literally not clear what is on now. There was a plan to tax foreign tax residents ONLY on remittances and then ONLY remittances from income earned after Jan 1, 2024. Oh, and inheritances are not taxable under Thai tax code. The tax commissioner declared that this change was in effect for 2024 and foreign tax residents needed to file returns. But there has been no legislation passed and some expert think that this cannot be implemented without legislation.
On top of that, Trump taking the US out of the OECD BEPS (global minimum) corporate tax initiative may have thrown a spanner. The US actually had not passed the relevant tax laws but was supporting this initiative and presumably would formally join when others did. But one of Trump’s first day actions was to noisily repudiate it. On his second day, he said the US would retaliate against any country that imposed what he called discriminatory corporate or individual taxes.
Thailand was going to join BEPS. One tax expert claimed the Trump action blew up the Thai individual tax initiative as far as Americans are concerned. I can’t fathom that since BEPS is only about corporate taxes. Nevertheless…
There are tons of Brits and Europeans and Aussies who live here 4-6 months a year. March-April-early May are pretty bad heat-wise
As I understand it, the distinction is that a significant proportion of those Chinese in Tokyo are making it their home (for at least part of the year) as opposed to those buying in Thailand, etc., who are basically investors or are buying holiday homes. Many of those in Japan seem to get residency via business visas or similar.
Sorry I wasn’t clear about my point regarding Chinese food. The complaint I heard was referring to those Chinese places that the expats are fond of in areas like Ikebukuro and Toyoso. The point seemed to be that unlike other Chinese communities around the world, there isn’t a population of lower paid Chinese to work in the kitchens providing genuine home food. So there is a demand for ‘real’ Chinese food, just not enough chefs to provide it as cheffing seems to be a little too beneath the dignity of many of the incomers. This is in contrast to, for example, Vietnamese food, where there are some great little out of the way cheap places around Japan, including small towns, serving the very large new Vietnamese population there.
You are conflating long term residents and tourists across your posts. There has always been some kind of immigration from China to Japan, heck to all countries around the world. The number of long term residents from China has increased over the long term with some fluctuations along the way, https://www.statista.com/statistics/876448/japan-chinese-foreign-resident-numbers/, but their spending will not be counted under the following, https://www.statista.com/statistics/1449393/japan-expenditure-by-chinese-tourists-shopping/ from my original post. Tourists are tourists and residents are residents. And no, buying a house in Japan does not entitle you to some kind of visa, https://mailmate.jp/blog/can-i-live-in-japan-if-i-buy-a-house.
I still don’t get your point about Chinese food in Japan. If there’s actual demand for real Chinese food, there’s ways to get someone over from China to cook at a restaurant, using the Skilled Labor Visa for example. Other foreigners working in other restaurants have not had trouble securing one, so why would it be different for the Chinese? My take on it is that Chinese food here is acceptable for most Chinese people even visitors, good enough they don’t go on Xiaohongshu to complain about it.
With respect, I’m not ‘conflating’ them. There are a very large number of Chinese – I know many personally – who don’t fall into the easy category of tourists or residents. They maintain homes in different countries, or have small businesses for the sole purposes of getting resident visas, or send their children to study/work abroad to gain citizenship… many different options (many of which, shall we say, strain the limits of immigration laws). This isn’t uniquely Chinese of course, its just that China is very big, and very diverse, so even if just a small percent are doing this, it amounts to a very large number of people.
One outcome of this is that the background of Chinese people who live/travel/settle in different countries is quite different – geographically, culturally, economically. My overall point about Japan is that it is a particular subset of these Chinese people who are focused on living in Japan (or to be precise – Tokyo) – for the most part highly educated and somewhat bohemian, whose motivation is as much cultural as it is economic. Maybe a little like the early 20th Century, when Paris was a magnet for a certain type of American who wanted something different.
My point about food was connected. While Chinese people may be able to get skill visas to work in restaurants in Japan (I actually doubt this is the case for the most part, as this type of visa for modestly skilled worker is usually only available to big Japanese companies such as retailers), they aren’t doing this in Japan – hence the complaints I’ve heard about the food – specifically that the kitchens were full of students, not ‘real’ cooks and chefs. Having sat many times at tables while listening to Chinese friends argue intently about whether what as being served is ‘good’, or ‘authentic’, I’m well aware of what a lively topic this can be among Chinese people. Many years ago I once unwisely offered my opinion in front of someone who I was later informed was a very famous TV chef and Chinese food expert. I learned my lesson then to keep my opinions on food to myself and just eat what I’m served.
Great to see the comments back, Yves and crew. I’m really sorry you reached a trip-wire last week and hope the fever broke with the pause.
On this topic, I’m ultimately pretty optimistic about China’s prospects, though I suspect they will have to deal with their economy as part of a crisis-period in the short-term. I can totally buy the Chinese GDP figures are untrustworthy; underlings passing on fake data to their higher-ups has probably been a thing since the Qin. But while Pettis is definitely more of an expert than me, I think he still misses the point that China isn’t the same as a Western society: culturally or strategically.
Even if the Chinese government was truly prioritizing GDP growth after Deng replaced Mao, I doubt it was ever more than means to an end. If they decide growth isn’t the best standard to focus their efforts anymore, they will toss it aside very unceremoniously. And it sounds like Xi is explicitly going in that direction now with his attacks on consumerism (it will be fun if he totally commits to the new line and starts distributing a ‘zine throughout the Pacific NW).
The piece that chuck roast posted is a great link; excess savings explain so much about why the Chinese economy works how it does. But even in the piece, Pettis quickly falls into universalism, and in re. domestic demand, assumes Chinese policy is driving things instead of riding the tiger.
I don’t know if he’s considered the possibility that maybe Chinese people just value some things very differently, and maybe that means they will always prioritize saving over consumption. And politically, China has a millennia-long track-record on that count, of sacrificing even growth to maintain state capacity for its own reasons, typically via mercantilism.
TL/DR: The Chinese economy almost definitely has problems (every economy does), but I’m not sure they’re what most Western economists think they are because China may have fundamentally different goals. It’s just my internet rando guess, but I suspect the Chinese government is really trying to evolve a new version of mercantilism / Colbertism, only without the trade imbalances that modern economics (credit where credit is due) revealed to be a huge problem.
I’m not disagreeing that China is much better managed than Western economies and if anyone can manage itself out of its challenges, it’s them.
https://english.news.cn/20250217/6c0f204e63c24f49bb3a496e2b7b3eb5/c.html
February 17, 2025
China’s NEV output, sales surge in January
BEIJING — China’s new energy vehicles (NEVs) performed strongly, with production surging 29 percent year on year to 1.02 million units in January, industry data showed on Monday.
NEV sales grew rapidly by 29.4 percent year on year to 944,000 units in January — accounting for 38.9 percent of total new vehicle sales last month, according to the China Association of Automobile Manufacturers (CAAM).
China’s auto industry witnessed a steady start to the year, with both passenger car production and sales posting year-on-year increases in January.
Total passenger car output reached 2.15 million units last month, up 3.3 percent year on year, while sales grew 0.8 percent year on year to top 2.13 million units.
Meanwhile, China’s auto exports rose 6.1 percent year on year last month, totaling 470,000 units in January…
https://harpers.org/archive/2008/05/numbers-racket/
It’s useful perhaps to read this article and consider that if Chinese economic figures are problematic, they are no more so than u.s figures
Glad to have the comments back here! Anecdotally, a friend of mine just came back from Thailand the day before CNY and said there weren’t many Chinese tourists.
RE: China’s Property Market
I see a lot of criticism of their housing market and how it crashed. It’s my understanding that the goal of increasing homeownership was accomplished and a Western-style housing market was never the intention, so a “crash” was inevitable.
Yves, or someone maybe more familiar with the situation on the ground – How is this perceived in China? Is it an accurate assessment to say that construction and homeownership was financed and then a controlled deleveraging of the market was intended?
P.S – Is there a way to get email notifications of replies?
I don’t have contacts in China who know enough to know re RE. We ran a post that suggested controlled deleveraging was structurally very difficult due to among other things perverse incentives:
https://www.nakedcapitalism.com/2024/04/on-a-relative-scale-theres-a-strong-case-that-financialization-is-worse-in-the-prc-than-the-us.html
https://www.nakedcapitalism.com/2024/04/chinas-local-government-financing-vehicles-lgfvs-ponzi-finance-on-steroids.html
And no, we don’t have a way to alert readers to replies. Apologies. We don’t have the capacity to e-mail at all from the site and it would take work at our hosting service to do so.
The origins or the China property boom and bust have been well studied. As so often with China, with both good policies and bad, it started when Beijing issued orders to local governments to achieve targets without telling them how to do it, or giving them the correct financing. In the mid 1990’s China faced a huge problem with a rising population and a very poor housing stock. The ‘solution’ a number of regions hit on was a combination of privatisation and the use of arms length financing vehicles to generate rising property values to try to create a ‘virtuous circle’ of supply and demand, with the surpluses used to provide infrastructure. It was spectacularly successful, except insofar as they forget to engineer an exit strategy.
It’s often forgotten that another element of the strategy was (as is frequently the case in developing countries), to promote rising home values to create capital for small businesses. Almost every small business in China has, at its root, a loan based on rising home values. As a strategy, this works very well, up until the value starts to drop.
In my anecdotal experience, the Chinese view of house values isn’t that much different from anywhere else in a boom. It’s generally assumed it will keep going up, and everyone plans accordingly. One peculiarity I always found is that the notion of ‘location, location, location’ never applied. Everything was calculated on a per sq. m basis. I frequently had to educate Chinese friends on this when they tried to invest outside China. Property was always seen simply in terms of capital values – even rental value seemed a foreign concept. It was the exact same in Japan in the boom years. As with the Japanese, they are learning basic property investment rules the hard way. The details may differ, but if you study historic housing boom and busts going back 2 centuries or more, pretty much the same things happen in nearly every country in the first round of the cycle.
‘controlled deleveraging’. Wow, I haven’t heard that term since around 2008.
Discussions about China always go very, very seriously far astray from the facts.
Almost every source you can get is telling similar narratives which are selected, even for many of those who are Chinese and live in China.
There are few economists who know China well, there are even fewer Chinese economists who know China well, and most of them can only repeat words from their counterparts in the West.
Voices like this are what you rarely saw from the FT or Reuters: https://thechinaacademy.org/china-will-in-no-way-repeat-u-s-and-japans-real-estate-crises/
narratives are hardly able to be debunded, because these are only twisted and selected, these are not false
for example
> “It’s hard to know what exactly is accounting for that growth.”
this is called narrative, not evidence, but it’s not false, thought like this is even popular among chinese middle-class, it’s because those 800 million chinese who were lifted out of poverty are not in the sight of those
And some facts will be ruled out to avoid interrupting the narrative
like:
China’s total exports grew by 7.1% year-on-year to reach RMB25.45 trillion in 2024
I know, I’m making “hominem attacks on sources of evidence”, but unfortunately this is the situation
to be fair, it’s very hard to have a good insight about China economic, good luck
In some command economies even the most important policymakers end up not knowing what the real state of play is. When Gorbachev became agriculture secretary in the politburo towards the end if Brezhnev’s time he asked Andropov (then KGB head) for details of the budget, and Andropov – despite being Gorbachev’s patron – refused point blank to provide the information, as it was something only about three people were allowed to know. Official dishonestly, and even the dishonesty between officials, creates its own transaction costs, almost to the point where it becomes impossible to steer the ship of state in any meaningful direction. See here for an excellent recent discussion of the problem by Mark Harrison: https://www.sup.org/books/history/secret-leviathan
I suspect that Chinese statistics have not been debauched to the same extent as Soviet statistics, but it is possible that the experience of the CPSU may ‘rhyme’ to some extent with that of the CCP.
There are some similarities (I don’t know a lot about Soviet internal accounting), but imo in China it is less the authoritarian top down nature than the quasi federal structure which causes serious issues in how information travels from top to bottom. An enormous amount of internal debt in China is wrapped up in its Local Government Financing Vehicles – NC article on the topic here. There is a massive amount of hidden debt within China – in many ways I think it has more in common with the 1980’s situation in Japan where there was a vast amount of debt on local bank balance sheets which nobody wanted to acknowledge. Its anyones guess as to whether it can be dealt with sustainably or not. It may turn out like the S&L crisis in the US, where it turned out to be no biggie in the long term – or it may turn out like Japans – a permanent drag on growth. I don’t know, and I doubt if anyone else really does either.
The other issue – and this is one that applies to most countries, not just China – is the difficulties in really valuing ‘investment’ in a fast catch up economy. Anyone can come up with imaginative ways to justify massive overinvestment in energy, infrastructure, and so on, trying to actually measure it is much more difficult. Beijing is absolutely convinced that, for example, building an electrical generation system way in advance of what is needed now is a necessary step for future growth and strength. They may be right… or they may find that if growth projections don’t match, or other countries refuse to accept more imports, or the demographic transition bites, that they have simple created multiple white elephants. To take a concrete example, just look at their car industry. There are something like 60 car companies now in China, many of which are owned by provincial governments, all of which have received massive subsidies. Maybe half a dozen have any real chance of being world beaters. What happens when they have to roll up all the failures? Maybe it will be a price worth paying for dominating a major industry. Maybe it will just turn out to have been a gigantic waste of money even if some do end up becoming the new Toyota. I have no idea which way this will play out, and I’m not sure Beijing does either.
I’ve lived in Beijing for about 24 years and have kept a close eye on the housing market here. In fact, I bought (and lost) my first home here in Beijing very early on (sad story) but went on to buy a second home with my wife. The home was cheap, about $43,000 US at the time but started to increase in value to the point that it probably still is, despite a small slowdown in Beijing, to about US $400,00. The problem as I see it with the real estate market is essentially two big issues: housing in the big cities where the jobs are had gotten too expensive and those buyers with the means to a buy a home were pretty much sated. For example, it’s standard for a middle class family and on up to buy one home for themselves and buy another one for a son as a son is required to have a home in order to attract a wife. If there is no son, it’s also often the case that home is purchased for a daughter as well. With two homes already, how many more do you need? You could buy a condo in a vacation area which you seldom use or a big house in the sticks which you might use even less. The point is, the market for those who can afford homes is pretty much sated and since many big real estate developers were as yet unsated they continued to build home in areas where there were no jobs really but hoped to sell the places on speculation. Thus a whole lot of buildings were started well outside of the large cities but the people with money didn’t need them and the locals in those areas couldn’t afford them and so what you have is a housing bust. As for the big cities, in my West Beijing section of Beijing, I can count at least six new housing developments that have been erected close by. One area as I counted is about 60 thirty floor towers which was built during Covid and is full. More developments in the area go up all the time as well as office tower complexes which tend to take awhile to fill up but the housing goes fast. As for now, there is also a big push to provide publicly owned housing for those with lower incomes and that is a huge need and one which will eventually soak up a whole lot of unfinished residential buildings and even perhaps empty office complexes. In fact, I invested in a Beijing related REIT which is involved in this public housing push and it’s done me well so far, Mike Liston