Why is China producing so many export goods, anyway?(noahpinion.blog)
noahpinion.blog
Why is China producing so many export goods, anyway?
https://www.noahpinion.blog/p/why-is-china-producing-so-many-export
39 comments
Most people do in fact value cheap shit more than those issues.
I'd like to add a seventh theory to Noah's six: Chinese capital owners over-invest in certain manufacturing sectors because many other options are unavailable or politically risky. Solar manufacturing, which China led globally as early as 2012 (and saw tariff fights with the West starting around then) was attractive to Chinese capital because it was domestic, export oriented, non-ideological, and not already crowded with or formally claimed by state owned enterprises.
A lot of investment options that are attractive among wealthy Westerners aren't available in China because:
1: Overseas investment is restricted for Chinese citizens.
2: The state already owns large enterprises in many sectors of the economy (mining, electrical infrastructure, nuclear power, transportation...) and it's not clear that it is possible (in terms of competition or what's allowed politically) for a private enterprise to dominate in those sectors.
3: Even in sectors where the state isn't well established, private enterprises may face rules that stymie growth (e.g. the widely remarked differences between TikTok and its closest domestic Chinese equivalent, Douyin, which are driven by Chinese content restrictions.)
Ambitious wealthy Chinese are left with fewer attractive investment options. They "over-invest" in manufacturing goods for export, despite modest returns, because it's the least-worst option.
A lot of investment options that are attractive among wealthy Westerners aren't available in China because:
1: Overseas investment is restricted for Chinese citizens.
2: The state already owns large enterprises in many sectors of the economy (mining, electrical infrastructure, nuclear power, transportation...) and it's not clear that it is possible (in terms of competition or what's allowed politically) for a private enterprise to dominate in those sectors.
3: Even in sectors where the state isn't well established, private enterprises may face rules that stymie growth (e.g. the widely remarked differences between TikTok and its closest domestic Chinese equivalent, Douyin, which are driven by Chinese content restrictions.)
Ambitious wealthy Chinese are left with fewer attractive investment options. They "over-invest" in manufacturing goods for export, despite modest returns, because it's the least-worst option.
Why is this supposed to be a mystery? Every country wants a trade surplus.
China exported US$3.38T in 2023, but also imported US$2.55T.
In fact, their exports are only a little above the US's, which exported about US$3.053T in 2023.
China exported US$3.38T in 2023, but also imported US$2.55T.
In fact, their exports are only a little above the US's, which exported about US$3.053T in 2023.
There are a lot of think tanks that thrive in an environment of increased tensions. Theres a lot of projection going on. It only gets dangerous when the leaders buy into the paranoia… which unfortunately seems to be happening.
Big money is behind both sides. Ask yourself, is it wise for one country to depend on another?
>Every country wants a trade surplus.
I thought mercantilism went out of vogue a few centuries ago?
I thought mercantilism went out of vogue a few centuries ago?
Setting aside theories around state directed strategies around favouring exports etc shouldn't we expect, in the dull normal case, a remarkable amount of exports from China given that they're a very large country that is dramatically larger than most?
Additionally, government-controlled exchange rates, low inflation, low wages, and above all huge local market scale ensures their finished product prices are always lower than the rest of the world.
The only thing missing from the article is what would be a good response to this policy.
Tariffs seem like a very suboptimal solution. It seems highly unlikely that manufacturing at the scale needed to replace China is possible domestically. There’s simply not enough people that can run the factories required to service demand. Perhaps the manufacturing base will shift to eg India, but the de-industrialization of the US will continue.
It boggles my mind why the US is doing this. Targeted sanctions on cutting edge technologies seems fine, but Steel tariffs? Come on. American retailers are going to jack up prices, American consumers will get squeezed more than ever before and high inflation is only going to cause more instability.
The US seems intent on accelerating its demise.
Tariffs seem like a very suboptimal solution. It seems highly unlikely that manufacturing at the scale needed to replace China is possible domestically. There’s simply not enough people that can run the factories required to service demand. Perhaps the manufacturing base will shift to eg India, but the de-industrialization of the US will continue.
It boggles my mind why the US is doing this. Targeted sanctions on cutting edge technologies seems fine, but Steel tariffs? Come on. American retailers are going to jack up prices, American consumers will get squeezed more than ever before and high inflation is only going to cause more instability.
The US seems intent on accelerating its demise.
I think you see the response:
1. Tariffs
2.Strategic Government Funding (e.g. Chips Act)
3. Leverage Alliances to Deny Key Components (e.g. ASML EUV lithograph)
Chinese Chip Manufacturers are going to have to spend more money to try to keep up with competing chips and even then will largely be uncompetitive in the short to mid term.
1. Tariffs
2.Strategic Government Funding (e.g. Chips Act)
3. Leverage Alliances to Deny Key Components (e.g. ASML EUV lithograph)
Chinese Chip Manufacturers are going to have to spend more money to try to keep up with competing chips and even then will largely be uncompetitive in the short to mid term.
China is sending us goods - what are we sending back?
It can't be just the funny money that we print, can it?
Otherwise, what is the problem?
It can't be just the funny money that we print, can it?
Otherwise, what is the problem?
There is a misconception that the US is just buying Chinese goods with dollars and not selling them anything, but this isn't true. The US exports hundreds of billions of dollars of goods to China every year, from agricultural products, to petroleum, to civilian aircraft, to cars and trucks, to even specialized electronics.
https://usafacts.org/articles/what-are-the-top-us-exports-to...
https://usafacts.org/articles/what-are-the-top-us-exports-to...
If you actually read the article, what we send back is just IOUs or funny money. It's irrelevant what we send back actually, because the goal could be deindustrialization of other countries. The actual goods created are just the side effect of industrial production in order to keep their industries running until they need to swap them to military production.
The funny money we print allows China to invest in third countries, build up their manufacturing base, and buy resources. It makes sense for them to do this until their economy surpasses ours, then they plan on moving to an internal consumption centric model.
Invest into what in other countries? Companies? Land?
Does that really work? Can you enslave the world by buying other countries? Like "Ha, Italy, you work for us now because we own all your infrastructure!"? Wouldn't Italy just tell them to GFYS at some point, if China stops sending goods or US Dollar and just wants to get stuff for free?
Does that really work? Can you enslave the world by buying other countries? Like "Ha, Italy, you work for us now because we own all your infrastructure!"? Wouldn't Italy just tell them to GFYS at some point, if China stops sending goods or US Dollar and just wants to get stuff for free?
Maybe Italy could but how many countries in the belt and road initiative can do that right now?
In fact they are not even incentivized to do so as Chinese money is providing them the chance to build up modern infrastructure.
In fact they are not even incentivized to do so as Chinese money is providing them the chance to build up modern infrastructure.
That's easy, huh?
To make things more concrete, look at how long the EU was (and still is) dependent on Russian gas. Russia even used it to influence politics by shutting off supply to Ukraine. Poland, along with its non-German neighbors especially, have been working to diversify their supply to prevent that, but it basically took the war in Ukraine to push Europe in that direction (and even then, reluctantly; take Germany for example).
Or consider the case where your economic partner is much larger economically (like US in relation to Mexico). Who do you think has more weight at the negotiating table? Who has more money to influence political realities? Who can take a bigger hit? There is mutual dependence, but the relationship is not symmetrical.
It's easy to say GFYS, but often difficult to do in practice. First, there has to be an alternative, second, you have to migrate to that alternative. This can be costly if not practically impossible until a contender emerges: he'll have your back against the other, but now you're their vassal, so to speak.
Some call this phenomenon "neocolonialism"; Picketty also uses the term "foreign-owned countries". You get lodged in a web of incentives. You always are.
Right now, the China-US dependent is something like: the US needs China for cheap labor and cheap goods, but China needs the US to buy all these things to fuel its economy. The balance can eventually tip and shift, however. Indeed, that's what BRICS is about.
To make things more concrete, look at how long the EU was (and still is) dependent on Russian gas. Russia even used it to influence politics by shutting off supply to Ukraine. Poland, along with its non-German neighbors especially, have been working to diversify their supply to prevent that, but it basically took the war in Ukraine to push Europe in that direction (and even then, reluctantly; take Germany for example).
Or consider the case where your economic partner is much larger economically (like US in relation to Mexico). Who do you think has more weight at the negotiating table? Who has more money to influence political realities? Who can take a bigger hit? There is mutual dependence, but the relationship is not symmetrical.
It's easy to say GFYS, but often difficult to do in practice. First, there has to be an alternative, second, you have to migrate to that alternative. This can be costly if not practically impossible until a contender emerges: he'll have your back against the other, but now you're their vassal, so to speak.
Some call this phenomenon "neocolonialism"; Picketty also uses the term "foreign-owned countries". You get lodged in a web of incentives. You always are.
Right now, the China-US dependent is something like: the US needs China for cheap labor and cheap goods, but China needs the US to buy all these things to fuel its economy. The balance can eventually tip and shift, however. Indeed, that's what BRICS is about.
Wasn't the strategy to exploit the European dependence on gas a failure then though because especially Germany didn't really put up a fight against the sanctions to keep using the cheap Russian gas.
One can argue about how "painless" it was, but I would have thought that stopping Russian gas imports within a few months would cause a recession and a lot more havoc in the economy. And I always assumed that was what Russia was counting on, Germany's dependence and thus tacit support but I didn't see much of that.
One can argue about how "painless" it was, but I would have thought that stopping Russian gas imports within a few months would cause a recession and a lot more havoc in the economy. And I always assumed that was what Russia was counting on, Germany's dependence and thus tacit support but I didn't see much of that.
> then they plan on moving to an internal consumption centric model.
China does not have the demographics for this.
China does not have the demographics for this.
Huh? An aging population is actually one of the things that will force it. More retirees will take more of the surplus from the productive population and reduce the surplus left for export.
Peak consumption happens around 45-54, and then declines. Kids are out of the house (which is paid for). At retirement, consumption is more conservative because the retiree is on a fixed income.
Speaking of fixed incomes, these retirees are dependent on risky investments like real estate (collapsing) and public pension schemes (about to collapse). On top of this, retirees aren’t generally the consumers of the supply chain components that China makes. Remember, they never moved up the value chain of sophisticated goods manufacturing. They got too expensive before that.
Speaking of fixed incomes, these retirees are dependent on risky investments like real estate (collapsing) and public pension schemes (about to collapse). On top of this, retirees aren’t generally the consumers of the supply chain components that China makes. Remember, they never moved up the value chain of sophisticated goods manufacturing. They got too expensive before that.
I'm not talking about peak consumption, I'm talking about the production-consumption split.
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Cause China sees the war as inevitable. With all this overcapacity, the industrial production can be converted in militar output. Simply as that.
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Because it can?
Theory 7: Exports make money
Exports make money, but the Chinese Government is heavily subsidizing the manufacturing and so the prices are artificially low and likely are unprofitable without the subsidies. Their plan is to crush domestic competition in export countries with prices below cost. Once they have extinguished competition they will increase prices and dominate any foreign market dumb enough to have left them in. Countries with domestic production would be foolish not to implement tariffs.
And also: you can export stuff if you have the strongest industrial base in the world by far. :-)
Helps to stock up on USD I bet
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they make it hard to import into china but easy to export and manipulate their own currency to make manufacturing in their country cheaper than domestic so multinationals will move manufacturing to china.
now no country pushes back on anything they do because it would interrupt the flow of cheap goods. we let them take Tibet, suffocate free speech and democracy in Hong Kong, they are stealing land in Butan and India, they are invading the protected waters of their neighbors in the south china seas, and are threatening to take Taiwan. but we keep shoveling them money and appeasing them because we want cheap shit