Fantastic video, explaining in clear and understandable language why a country needs a thriving service sector and why the service sector must arrive at the last stage of development. The best part of the video is at 22:45, which explains the rationale for the stages of economic development.
Ughh wtf dude this video and channel is a mess of misinformation... First off China manufactures then exports to a GLOBAL market not only domestic.... Second he said China build enough homes for 3B people... lol whattt, I knew that was bs and there is absolutely no facts surrounding that just random heresay Wait wtf this guy has a phd...
Anyone who followed Micheal Pettis, Beijing University finance professor for over 22 years, will know that China's economy would become similar to Japan, USSR, Brazil, and two other handful of other countries using the same economic model. In year 2007, both top leaders of the Chinese government, both Hu and Wen, made speeches to the people of China that they need to change their economic model from a debt-investment (infrastructure spending) model to a consumer-driven economic model like the US. Fiat currency can be printed at will since the world is no longer on the gold standard.
Yang Zoe Liu during her interview last month was filled with biases and flaws in her argument. She said it is perfectly fine that China is overleveraged. What she missed is that over the last decade, there are many years where China's GDP growth only grew one RMB per 10 to 12 RMB of debt. Understanding economics in general in a country does not mean you know what you are talking about.
To figure out the "What's Next?" question is heavily dependent on understanding China's politics. Since Pettis still teaches in China, he is not allowed to mention anything that is political in terms of the direction of how the Chinese government. Any sane and reasonable person in China have already answered this political question and the answer to that question is very dire.
It is very refreshing to see content creators putting considerable effort to research and synthesize a lot of information in order to present something truly informative and insightful.
The so-called economists he cites are all proponents of Western economics, which, in itself, is riddled with flaws. Why doesn't he reference the perspectives of scholars from non-Western economic systems?
@@龙腾洞观 Interesting and valid point. Maybe because china is now a part of an international system that is not isolated to need a local theory of economy. The economists looked at specific data from china and compared it with non western countires like Japan. I think the conclusion of the video is postive for china. China has a clear problem and enough resources to solve it if political will is present. And that's more than what many countries ask for. This video seems fair and non dramatic unlike us media. The title of this video is dramatic but the conclusion is nuanced and is not at all about the end of china's economy or something.
@@ahmed51988 He uses historical cases of economic growth and decline in countries like the United States and Japan as references to speculate on China's prospects. We know that whether a country's economy continues to grow fundamentally depends on whether its domestic productivity can steadily improve. In the process of catching up in less developed countries, rapid improvement in production efficiency can be achieved due to the advantage of being a latecomer, coupled with the demand potential of the laggards, leading to a period of rapid economic growth. However, in the process of catching up, the latecomer's advantage will gradually diminish. Whether it can gradually establish a leading advantage in certain areas and become a pioneer is crucial in determining whether the pursuer can sustain growth after the latecomer's advantage disappears (i.e., whether it can continue to improve productivity). After Japan approached the United States in catching up, it failed to establish sufficient advantages in key industries such as semiconductors due to pressure from the United States, leading to stagnation in productivity. However, for China, the latecomer's advantage is gradually diminishing, but it may continue for about 10 more years. Currently, China is already in a leading position or in the top tier in many important areas (such as new energy, electric vehicles, aerospace, quantum technology, artificial intelligence, nuclear energy, etc.), and it will not be controlled by the U.S.. For instance, the United States is making every effort to suppress China's semiconductor industry and Huawei, but this can only delay rather than prevent their development and breakthroughs. Given China's cultivation of talents in science and engineering, the period when research and development achievements continue to emerge is approaching. There is great potential for becoming a leader, so I believe there is still significant room for improvement in China's productivity.Therefore, this brings about the sustained driving force for China's future economic growth.
@@ahmed51988 Many people often mention the issues of population aging and declining birth rates in China, which indeed pose significant challenges. Particularly when compared to emerging countries like India that are catching up with China, these challenges are considered disadvantages for China. However, if we compare China with the developed countries it aims to catch up with, all economically developed nations (such as the United States, Europe, Japan, and South Korea) face similar issues. While the United States and Europe can alleviate some problems through immigration, the process itself brings about various social challenges that can hinder sustainable development. The impact of such disruptions will need to be observed in the changes in Europe and the United States in the coming decades.
I need to point out the abandoned bicycles and car showing in your video is not "not bought by anyone", it's actually bought and owned by bicycle sharing and car/taxi hailing companies. These companies went bankrupt eventually, hence the cars were being abandoned, but it was not due to the cars "not bought by anyone". Chinese factories only manufacture the products when there are orders.
I loved the balance between the up and downsides for the economic growth. Wages were low, and that greatly helped the economy, but the workers were screwed
Agreed. It points towards an unpleasant aspect of capitalism, that development is often based on heavily exploiting workers, because the people making investment decisions directly benefit from paying workers less. I'm interested in the idea of worker co-ops and how they can be used as an alternative that may result in more inclusive growth. It would be good to see more research into them at least.
@@Rb39-ej5hh in the history of mankind has there been a successful economic system that has not exploited workers for the sake of development, according to Marxist analysis? Even the communist states exploited their workers. The average worker in a communist country was probably paid much less than their capitalist worker counterpart.
@@Rb39-ej5hh The thing is that it didn't used to be. Management used to be the ones shouldering the risk, because they also made more return. Now it's the worker that shoulders the risk while management flits about from company to company not giving two shits who they work for, just whoever gives them the biggest paycheck.
@@Rb39-ej5hh but thats not capitalism, its feodalism with communist party as feodals, if it were at least somewhat free market system, workers would get an increase in wages due to competetion for them and overall economic output growth. But in a world where government controls currency and does everything it can to prevent inflation of wages, we end up without real income growth(true for many countries, including china, usa, eu, etc...)
@Rb39-ej5hh Employee owned businesses are a thing. I buy my groceries at one. Anyone can start one. They fail at about the same rate as any other business.
I really appreciate your videos, as I find you intellectually honest, always being clear about what you base your claims on and what the limits of your claims are. Too rare on RUclips...
Halfway at best. He is using very bad data. I mean the guy just said China pulled 800 million out of poverty...... yeah okay. Nope. Xi just changed what defined poverty. His number is about 4 to 5 times to high.
Fascinating stuff. I really appreciate how you broke down super complex topics without numbing them down. Truly making things simple but not too simple! Just discovered your channel today and I will follow it closely. One of the best RUclips finds in a long time. :)
Fascinating, man. Really valuable to have this kind of foundational knowledge at the back of one's mind while navigating the deluge of opinions about world events.
@@degenerate_mercenary9898 Last time China had a GDP growth of over 10% was in 2010. You really thought they were going to keep +10% for several decades or what? Also, +10% of small X is easier to achieve than +10% of bigger Y. Common sense isn't that hard.
That's because those 5% are real GDP growth, which is used for comparing living standards. However, China's nominal GDP growth measured in dollar/euro is flat because the renminbi is weakening against those currencies like what happened with Japan in the 1990s. This way China can never grow larger than the US in economic power.
Do you live in an advanced or developing economy? 3% of a large number is more than 5% of a small number. So, China, for instance, would need to have far greater growth in GDP just to catch up to the US. Starting at a lower number also means that, in theory, there is a lot more potential growth in productivity for each Chinese worker than US worker (i.e. US workers produce a lot more on average than the average Chinese worker). Advanced economies usually require around 2-3% growth in GDP in order to continue to produce enough job for the population without causing too much inflation whereas developing economies require much higher growth. Thus, you can't compare the growth of GDP of countries directly, but need to take their relative circumstances into account. Note that if China's GDP grew at the same rate as the US every year, then they would never catch up to the US economy in size (they would stay the same size relative to each other).
@@darryll5711 Precisely. Further, advanced economies are more likely to have higher accumulated wealth. Someone who has inherited 5 houses and earning $100k a year is a lot wealthier than someone who does not have a house but earns $200k a year. GDP growth is analogous to yearly earnings and does not take accumulated wealth into account.
Fantastic. I now understand why all the three sectors; Agriculture, Manufacturing and Services should emanate progressively in that order and coexist, with the latter employing the majority of the people. Domestic consumption is the key to sustainable development. It's also imperative to aim at sustainability way more than chasing infinite growth in a finite world. Lastly, to boost employees incomes, it's necessary to upgrade to manufacturing of advanced goods whose prices aren't dependent on cost of production but on the value consumers derive by consuming them! Great video as always. Kudos mkubwa.
chinese wealth distribution does not work through gdp compared to us, like you pointed out. Because gdp does not consider purchasing power, wealth concentration, money flow and control, is calculated in usd and does not consider the state houshold and budgeting, which in case of china is not as heavy on debt and more able to boost economy. It is in interest of china to have a lower gdp in dollar, lower living and production cost (not domestic purchasing power of citizens) to stay attractive for their way of international trade. And they work the numbers, so that the perception is always the desired one.
@@cwpv2477GDP has always been a Western game base on their rules which, are also alterable anytime to suit their needs. For sure, it reflects partial of the reality but, I wouldn't just soak myself in it. The methods employed to calculate GDP are vastly different between the US and China, I just don't see the relevance anymore. For example, since Health Care services are privatized in the US, it virtually turns an expense (very huge too) into profit, making up a staggering 18% of US GDP.
Unproductive labor by definition is catabolic and superfluous. Western ruling class will have us digging holes to fill them back up again just to retain wage relations.. China will be living in the future as we're still citing our superior GDP as proof we aren't spiraling into decay and destruction.
@@stevenhenry5267 Thats a massive shift in economics and politiics and would likely leave millions suffering. It isn't worth it until we're forced to or better ideas succeed.
Still it will be hard to catch USA if USA GDP grows 3% per year and China's by 5%, the gap ar least in per capita income is huge. If China posts 8% growth again, then ok...
By holding itself back, China was attempting to prevent the mantle of manufacturing powerhouse from going to nations that were next in line to assume that role, like Vietnam, Bangladesh, etc. Which would in turn make them more powerful.
Not even close. China is trying to get rid of low profit labor intensive industries and move up the supply chain. Why do you think China is boasting about breakthroughs in EVs, planes, high speed rail, semiconductor, machine tools instead of talking about how many pairs of underwears it exported?
India wasn't very open. It was protectionist throughout the Cold War and mostly remains so today. At the end it doesn't seem like, "don't need," but rather, can't afford. Great video, as usual.
USA invested in China to use it against Russia. That was the difference between India and China. India was already committed to being non-aligned. China grew because of year after year of investment by USA while neglecting its own manufacturing. India was also a democracy and bureaucracy controlled country while China had autocratic rule and could move things faster along. So it was not just a question of closed and open it was more geopolitical after Nixon and Kissinger visit to meet Mao. He only gave the speech of cat either black or white after meeting with Kissinger and Nixon. USA was desperate to get ahead in the Cold war especially since USSR was ahead in many fields including space technology at that time. USA was also an ally of Pakistan in its fight against Russia in Afghanistan. That is why it could not overlook Pakistan in favor of India.
@@Singhramdas You're conflating Nixon era policy with most of China's expansion that took place in the Clinton era of the 1990s. By the early 90s Russia was no longer a major threat to the US and most of the investment into China was being driven by the initiative of corporate actors rather than US policy. US policy began to chill toward China from the early 2000s as Cheney identified China's government as a major threat to global democracy. All while Bush continued to court Putin at the same time. Russia was not seen by US policy makers as a serious threat to its goals in the early 2000s. Obama largely continued the frosty language toward China while attempting another "reset" with Russia.
@@avernvrey7422 read your history again. Investment started after Nixon and continue right upto COVID days. Dropping only recently. Nixon/Kissinger created the policy and Mao was forced to accept it because he was broke, China was completely broken. People were dying, living in caves and starving. The policy was driven by USSR and cold war. Ofcourse later this was overtaken by capitalism and corporate greed. Today even F35 parts are made in China.
@@Singhramdas US did not "invest" in China. if you look at China FDI, most of the investment China received came from Asia. this myth that "US build China" is a lie. Japan and Germany was already developing product in China a decade before the first American business show up. Deng hand pick Sharp and VW to develop it electrical and car industry. it why VW was the biggest foreign brand in China, because it the most recognised brand in China having been in China the longest. Sharp however failed to capitalise as appliances were easier to make and soon other companies were making their own. the reason no one invest in India is because of high tarriff. if India has high tarriff on US product, than US government is going to apply high tarriff on Indian product. so if you product in India, you can't sell to the US and expect to make money. China has been trying to join every FTA it can find. RCEP for example was a major win for China. India has avoided every FTA it was invited to... it is not politic that divide the 2 country fate, it is trade policy.
The US was protectionist well into the late 19th century. Hurting India is not protectionism, but a combination of plutocracy, kleptocracy, autocracy and its millennia-old birth-based caste system that keeps the majority worker caste population permanently subordinate to the historically dominant castes. Even now, almost all the GDP "growth" has gone to the asset-owning non-worker castes
You should really look into Wenzhou Model of growth for China's future. Most people outside of China look at Shenzhen and thinks that is the model for China. Most Chinese look at wenzhou model instead.
Yeah, people forget that it' basically a continent, twice the size of the EU and twice the population. Greater Shanghai alone has a similar population to Australia or England
people who say tofu dreg construction are usually from countries whose infrastructures are crumbling, new buildings and bridges collapsing before even completion.
Great video. Regarding the political causes of China's growth, before even having good policies, a country should not have a destructive regime. I believe that a developed country is a country where the elites understand that it is more profitable to steal 2% of a billion rather than 50% of a million. I get a lot of story from people from North-Africa who learned how to run a company in the West but when they try to do it back home, they get blocked by some administrative power who expect to take away a lot of money from them. It is not even corruption, it is sabotage.
@@skutchBlobaum Big business can only do it by offering cheaper/better products, which benefit the economy as a whole. Admin can destroy businesses just because.
@@maxpower9979 "Big business can only do it by offering cheaper/better products" - you need to visit some countries like mine where they do it by bribing public officials, lobbying for legislation that limits new entrants and coalesce with commercial real estate providers so that new entrants can't get a foothold in best locations.
@@oldskoolmusicnostalgia I understand but in this case, you can mainly blame the State for accepting bribes. With a non corrupt State, attempts at bribery would result in a severe punishment for the business and its executives.
[ a country should not have a destructive regime. ] US regime is 10 times more destructive than China's... so i don't know... [ I believe that a developed country is a country where the elites understand that it is more profitable to steal 2% of a billion rather than 50% of a million. ] oh sweet summer child, you have no idea what the elite in developed country are doing do you? how did the greek manage to hide so much debt? US bank hide the numbers for them...
Ese dichoso petit que no es más que un vulgar agorero como Gordon chang y parecen hecho con la misma marca de fábrica y que se dirigen a un público ansioso y desconocedor de la historia económica para suministrarles la música que quieren oír.
Maybe it's too unknown to reach a wide audience in video, but I'd love to hear you explain the case of Thailand and why it did not manage to follow the East Asian growth model when it had a lot of advantages going for it.
If there's a coup in what seems like a couple times per a decade, would you invest billions of your company's money there, or look elsewhere? That's your answer.
when i see the question, the first thing in my mind is the economic crisis of southeast Asia in the 1990s, which led to the big failure of the economic development of southeast nations, such as Thailand, Malaysia, Indonesia
The Chinese government popped the property bubble and caused the current crisis precisely because they want to avoid Japan style stagnation. So it's a bit ridiculous to suggest that they're too politically invested in the property industry to accept a correction You also ignore a crucial factor: scale. Korea follows the same model as China, but because it's very small, it can just feed off the world market. China is very large, so it has a massive domestic market. Japan is in the middle, with a domestic market that's too small but a population that's too big to just live off exports to the world (especially in the face of competition from Taiwan, Korea and China) leading to a Galapagos effect. So China is likely to continue growing and catching up as the poor western regions catch up with the rich east.
You miss the key point. There is no way the CCP is going to go for a consumer economy. That would involve putting protections in place for the private sector. Never going to happen. Also, the Western regions you are talking about are not densely populated, don't have access to ports, and are not politically important. They are only kept in China as a military buffer zone against enemies, they have no significant economic value aside from resource extraction.
Exactly, when I heard his conclusion on Chinese industry politics I was like that sounds more like US politics. If the Chinese leaders need to inflict pain to reach long term prosperity I am certain that’s something they would do and they have shown that’s exactly what they can do. Only time would tell either way.
Very refreshing to see a RUclipsr not going the route of click-bates and simple narratives but instead explains each stage of the story with it's nuances and context in place. Please keep this consistent and base your understanding from different experts in the field and contrasting them. Thank you!
I think you have forgotten a few issues that makes the Chinese situation different: the corruption from higher officials, where the recent economic growth goes mostly, the high central and local government’s debts, (like the Germans in the 1920’s) and the pressure to keep the wages low or even cutting wages. Also, cultural and political difference (discouraging individual thinking, instead, copying behavior is encouraged). This all will make the change in economic thinking very difficult.
Your analysis of a countrys cultural and political difference isnt accurate there are many countries with cultures especially in asia that encourages conformity yet still has very innovative people , singapore is a very good example or even japan in the early 20th century where it was an authoritarian state with hyperconformist society yet they coincided with innovations like the toyota car manufactoring or mitsubishi heavy industries, they both happened at that specific period. So making sweeping claims like you did is not accurate if not outright wrong
You did not take into account the debts that makes everything harder, amd the aging population that put a clear 10 years time limit to get out of the crisis.
China literally is just 4 South Americas, 4 x 300 million, with mostly peasants making under $2000 a year. Nothing to boast about, only it's size makes it stand out. Brazil has a brighter future than China. Panama has a brighter future. I expect some day some mystery ship will drop sea mines outside Hong Kong and then laugh as without oil all the trucks in China stop, it's in a weak position yet dumbly is picking fights. ... .. The Chinese language also is awfully hard, thats a negative, it adds like 2 extra years of schooling, same with Japanese. There's a reason why Americans literally have started all 10 of the Trillion dollar companies since 1970, except Aramco in Saudi Arabia, my god do the Americans just keep succeeding yet we never mention that. China is overstated, its a big South America run by bragging annoying crooks. It's fun to see the hype! I remember hype about Brazil.
He didn't mention those because they are vastly exaggerated or simply don't exist (like "the pressure to keep the wages low or even cutting wages", where did you even get that from ?). Basically, your list is merely a list of borderline racist clichés.
I've been watching the RUclips channel "China Update" for a year or more, and "Tony" (who produces that channel) often cites the work of economist Michael Pettis of Peking University. (I have no idea why the CCP allows Pettis to keep his job.) Thus much of what you said here was familiar to me. However, your presentation was clear and concise. Your video does a very good job of providing a casual viewer with the background which is required to understand China's current dilemma: CCP control vs. the development of a sustainable service economy. Thank you.
@@kevinz-bb7it -- As early as 2021, the CCP began to warn social media not spread bad news about China's economy. More recently, the CCP has raided the offices of companies that perform "due diligence" investigations of Chinese companies in which foreign investors are considering investing. Most recently, spreading bad news about China's economy has been made a crime. So Pettis has committed (technically) "crimes".
The CCP directs who the Chinese banks loan money to quite specifically, it's to people who will "suitably reward" the CCP machine in the usual time honoured fashion, if you read between the lines and that's not my problem, it's theirs!?!
Interesting video, the conclusion seems rather sensible. I would have pointed to a 3rd factor explaining China's becoming an asian tiger and a developped nation : peace (internal and external) and stability, even at the cost of an authoritarian and repressive regime. Also, China may not reach its goal of becoming the first industrial superpower, but is it THAT important except for his leader's ego ? China has gained not only wealth, but also autonomy, being able to manufacture its own modern products (trains, computers and chips, phones, tomorow probably credible commercial aircrafts, etc). Its products may lag behind the most advanced western products, but again is it that essential if the quality reached is sufficient to have your own products and export them at a lower price than the topnoch competitor ? A lot of westerners think that China's industry still entirely depend on western technology and will crash if we deny them access to it. China has integrated western technology at a sufficient level and is developing its own research and technology on the same way than western countries do : through international interdependant cooperation. And last point : by developing its service economy, China has gained skills in logistics, finance, know-how export to third countries, and is now a geopolitical power thanks to these skills, whatever you think of their quality. As long as China does not engage in military ventures, there is no reason that this powerful country cannot cope with growth or economic crisis that are as inevitable for them than for us.
Thanks you for explaining the situation in China. I would argue as well that Chinese would rather have low growth economy then go to a service based economy as they see a lot of social consequences of doing so, like in the USA unappealing.
I have to agree with you. I think China currently is trying to move up the supply chain and become the next Japan or Germany. In short terms, Lawyers and finance jobs are great on paper, but they just do not hire enough people for a country like China.
It's a good video, i just want to clarify one thing that the Japan gov they realized that the should boost the domestic consumption after Plaza accord by lowering the interest rate, but instead of spending on comsumption, Japanese put into the stock market it was a bubble then the burst, so i would rather say that the Japan gov failed to prevent all of the money from putting into the stock market.
I think there's a bit of miscommunication here between the economists and the political scientists in the room. China already IS A SUPERPOWER and it DOES NOT need to "overtake" the US economically to do so. China is the only country that can really compete with the US in multiple economic and political sectors, the only country with as comparable a diplomatic presence, leads various valuable and world beating industries and is the largest trading partner with more countries in the world than any other. And that's not even talking about the rapid military growth. The Soviet Union never had as large an economy as the USA, and by the 1980s had a smaller economy than Japan's. Yet Japan could never be a superpower because of it lacks political independence; essentially, Japan is lock step with the United States in most major strategic initiatives and could not seriously break with them to "compete." Even if Japan had the biggest economy in the world, unless they told the Americans to fuck off and rearmed themselves, they would never be a superpower. Economics is one dimension of what makes a country a superpower.
Do you believe china GDP? The west now know that joint ventures are not good for them so them move their production to smaller nations that can not compete with the in the future
As a Chinese person, I'd like to correct a viewpoint in the video. The low wages for Chinese workers are not a result of government suppression, but rather because there are too many people in China. There is a saying in China, "If you don't do it, there are plenty of people who will," which allows companies to keep wages low. Of course, some rights of Chinese workers are not adequately protected, which is quite ironic in a socialist country.
That’s simply not true. The CPC has artificially suppressed wages through a whole bunch of deliberate means unrelated to the fact China has a lot of people. China’s monetary policy and regulatory regime are both prime examples of this, as well as the Hukou system to force internal migrants to participate in the economy on a quasi-legal status. I’d be happy to go into more examples if you’d like.
@@kpro8908 The labor prices in China are much higher than in India. Is the Indian government also suppressing wages? I think it's basic economic knowledge that supply and demand determine labor prices.
@@kpro8908 If you still believe that China operates under a planned economy, then there's no need for further discussion, because since Deng Xiaoping's reforms, China has implemented a Keynesian market economy.
Hi Joeri, very interesting video! On another note: what's your take on Argentina using dollar as their primary currency? Abstracting the likelihood of this happening if course, could this curb inflation or is this a huge risk considering international trade?
this is dumb. if argentina has alot of dollar in their bank, it might make sense, but if they don't, where is the dollar they need for circulation going to come from? if there is not enough dollar to cicular, government can't pay services, services willl shut down, the entire economy will grind down.... you won't be curbing inflation at that point, you will be forcing people to resort to barter trade. there is a reason why most countries don't use foreign currency...
Yep, you cannot have a flourishing services sector without a lot of small private enterpreneurs, who just won't exist if they are unable to accumulate capital since the wages are kept artificially low. And even credit doesn't help that, only cronies get credit without real capital requirements. It might be frightening that with rising wages the competitiveness of industry declines, but it's an organic process: with rising wages there will be more savings, which leads to more small businesses starting, which transfers workforce from existing manufacturing industry which leaves room for automation without unemployment which increases productivity and ensures competitiveness also with higher wages. But again as mentioned in the video, that requires to leave people free which, if you are a control freak you will not allow and you'll be the monkey wrench in the gears.
If people have decent wages they spend more in local and national economies, they pay tax and are not dependent on state welfare. The UK is a prime example of the harm done by a low wage policy which has resulted in high levels of immigration of unskilled workers and depressed the whole economy.
Brexit was a mistake. Immigrants are a win win if the locals can handle the dramatic improvements they usher in. Still, who wants their backyard to become an important prop on a world stage, however valuable and powerful.
From my observations in the past 50 years, I would say that although the Chinese government tend to be slow in making necessary changes, it will do it eventually, even if at a higher cost, but they will do it.
"even if at a higher cost, but they will do it." They have to, otherwise popular revolt will oust them from power, and even then the higher costs might already be catastrophic, vis the One-Child policy, or increasingly the wolf-warrior diplomacy. The issue is exactly how detached and insulated the CCP is their own policies, which allows awful policies to remain decades after they should have been abandoned. The Authoritarian nature of the Chinese state is literally the source of these problems, since there is no accountability from those affected by these policies, no matter how much the party wants to lampshade the successes of their policies. After all, China adopted it's current economic model based on Japan's and Japan achieved its success without having to be a 1-party authoritarian state.
@jackjones4824 Famines and civil wars that killed millions is just typical Chinese history. And just as with the other similar events in Chinese history, it lead to infighting and splintering in the Chinese leadership. In earlier periods it resulted in fracturing of central power and warlords all claiming the mandate of heaven, and in this case it forced Mao to lose his active position in politics (a loss of his god-among-men status like Stalin or Il-Sung) for a few years until he was able to powerplay back into power at an opportune moment. Xi is exactly worried about this situation: a rival from the CCP capitalizing on discontent with Xi to challenge him and the inner government falling into infighting as a new leader rises and the politburo cadres choose loyalties. These reshufflings also are generally the catalysts to reforms, which is exactly what happened during the Boluan Fanzheng. Technology empowers everyone, not just the government. The amount of resources China NEEDS to invest in domestic policing and suppression is mindboggling, and we still see large organized cases of demonstrations (like this and last year when people came out en-masse to protest mortgage payments to units that were not being built, or the COVID lockdown protests) shows that China's strict surveillance and censorship is very fragile, and reaffirms the necessity to keep increasing prosperity palpable for the masses. It is the only thing that keeps them politically uninterested. That is China's and the CCP's great problem - they do not get their legitimacy from elections like governments in the developed West do, they get it through promising and then delivering economic growth and wealth. And therefore when that growth falters, they lose legitimacy. The Chinese have indeed experienced great advances in wealth, but that just means they now expect more as a baseline. China in 1958 was poorer than Sudan, they now have a lot more to lose and fight for.
@jackjones4824 Power consolidation is certainly what preoccupies Xi's decision making, best illustrated by that public theatre piece with Hu Jintao last year. But that's exactly why his situation is so precarious. Xi is unable to stymie protests and revolts when people actually get motivated, vis my previous and recent examples, and he is no spring chicken. He is 70 years old. No matter how much power consolidation he does, right now he will always need to contend with adversaries in strong positions - people who know they have good opportunities to reach power within 10 years if not sooner, if only by playing a waiting game and fighting it out to be his successor with others below him. That still creates a giant risk of mismanagement, that ultimately will fall at Xi's feet as supreme leader. So Xi's public displays of consolidation betray the fact that he NEEDS them to be this visible, he is telegraphing his actions in hopes that it scare people to back off. But his sort of behavior is the double-edged sword that will result in political miscalculations, that others can take advantage of, especially withing the supreme circle of the party. You severely underestimate technology, and the stark difference contemporary society lives in compared to consolidated mass media of generations ago. I repeat, even despite the many billions spent, the large infrastructure, the army that exists primarily for domestic order with no real capability of outward projection, the firewall, et. - widespread organic protests still occur in China to this day, and that is simply due to the nature of social media connection, human ingenuity in euphemisms, and the simple fact that censorship is a reactive, not proactive strategy. Technology in China is itself also a double-edged sword, since now that so much of life is consolidated on it, yes it offers granular movement tracking for the government, but the government cannot really turn off the switch without collapsing the economy, and therefore exacerbating their legitimacy issue. The fact remains China has over a billion people. A billion angry people do not need guns. They did not need guns generations ago during previous revolts. They just need sufficient qualms to mobilize. The government is spending hundreds of billions on domestic suppression, because it is the cheaper alternative, even with that gigantic army that serves that purpose, but even so, it is still too costly to actually be able to suppress in real time. And that's the advantage. "Timing is everything in a revolt; United we stand, but divided we fall." Timing is very seldom everything. Mass and snowball effects are far more important. If timing was everything, the CCP would not be in power, the Nationalists would have stamped them out. I implore you to view China from it's own historical lens, instead of applying what appears to be an American perspective to Chinese cultural specificities.
Loved this balanced and well-researched video. The only thing I am wondering about is why you didn't include a part about the demographic changes in the country that are often claimed to have had a large effect on the ecnonomy. The large growth in population from the 1960s and the decline now after decades of the One Child Policy
@@peliculiar yeah, especially in the long term. It's estimated that if China don't take some measure to boost its birth rate, it's population would be lower that US by the end of 21st century, given that US's population is growing steadily.
@@William_Fei No it isn't, not even close. China's population is expected to decline to about 800 million by 2100 according to the UN. That is still TWICE what the US is expected to be at about 400 million.
@@ArawnOfAnnwn I have to tell you that's an overestimation. China's birth rate is lower than Japan now, only about 1.1 child per woman in 2022. If the birth rate doesn't go up in the future, and keep the current rate, China's population will be about 600 million by 2100. However there is no clear sign that the birth rate will go up, especially when considering China's economy situation, and it seems that the government don't have any measures and policies to boost the birth rate.
I'm not an economist, but I'm a bit surprised about the statement in the end that CCP would never give economic power to the households, or something like that, thereby ruling out the option of shifting to a service economy, leaving the two options of collaps or stagnation. I don't beleive that is correct, of cause they will do it with their own twist and flavour, but it is part of the 14th five year plan that was announced in 2020 and specifically called dual circulation strategy or economy, which is about boosting domestic consumption while reducing reliance on exports. I don't know how well this has been executed, but there is reports and books on the subject for those wanting to research the subject. It does however show that the party is well aware of the problem and they are doing something about it, and not just waiting for the growth to fizzle out. Apart from this, a very good video with good insights.
There is no twist. Authoritarianism and intellectual property theft combined with slavery(the wages vs. productivity) can only take you so far. Without a progression to democratic freedoms collapse is inevitable.
Great video! Really appreciate the whole story line from the late 70s to now. So much more balanced and underpinned than the other opinions out there. Having visited China this year I must say I saw a lot of service sector dynamism driven by the strong entrepreneurial culture and tech innovation. Do you have anymore data points to show how the government is constraining the service sector?
Technological innovation such as EVs and green energy is a huge, booming sector of the Chinese economy. If Xi Jinping continues to refrain from real estate stimulus, thereby deflating the property bubble, it's illogical to think China's economy would stagnate this decade.
I am not seeing the "green energy" boom you speak of. China has definitely been increasing its electricity production, but most of that is through coal fired plants.@@J_X999
The government is constraining the service sector by not allowing its citizens to keep more of the money it earns and not providing an adequate welfare system. The citizens have not got the money to spend on consumer goods and although the Chinese are good savers it's to pay for their old age pension and welfare as there isn't an adequate system in place. While China has been allowed to dominate in areas of export it targeted most of the West is pushing back on the trade imbalance of China, the US are being more aggressive in this stance and Europe is dragging its feet but slowly realising if they don't have a more equitable trade deal with China it is becoming one sided and will impose tariffs, China makes very little surplus on its trade with Asia, Africa or South America if at all, the majority of its trade surplus is gained from the West!?!
I lived in Shenzhen for 7.5 years and had never seen those old photos. Didn't know they had traditional Asian shop houses lining the streets. 0:12 I lived right between those 2 skyscrapers Diwang Da Sha and Kingway Plaza.
My family was involved in some of the early business in Shenzhen after 1978 so I was very interested in this presentation. One thing you didn't explain was that there were THREE tiers under the investment model instituted by China, namely “encouraged,” “restricted,” and “prohibited” and the auto sector which you spoke about was in the restricted class. These restrictions have subsequently been lifted (and actually it was Tesla that sparked this). Notably, the foreign manufacturers are continuing to operate with local partners even though they no longer need to. In the "encouraged" space, it was a free-for-all with cheap labour and limited government oversight and many Hong Kong businesses were involved in transferring knowledge from Hong Kong to Shenzhen to take advantage of this. Pettis is very negative on China and does not represent the consensus, try someone like Keyu Jin to counter this and get a more balanced view. Finally, you cannot read Pinyin and pronounce it like English. So for example, Deng is pronounced "Dung" and "Shenzhen" is pronounced "ShenJen".
Odd how Shenzhen in the 1980's look so similar to some parts of Vietnam today😐. Good video Joeri. Looking good today. Seems you lost some weight. Stay healthy.👍
I think this is a great video, I really enjoy this topic! There are just a few things that I think are why the Chinese government is holding onto the investment-led growth model. The Chinese government sometimes use external factor to enhance internal growth. For example, China joined WTO in the early 2000s and they had to improve many conditions internally to meet the WTO standard. Today, I think the Chinese government is trying to repeat this process. For example, they joined RCEP and they are trying to join TPP and they are currently still in the middle of a trade talk with Europe. They are trying to expand consumption elsewhere to consume all the products that the Chinese produce. Another reason is that although the coastal part of China is relatively wealthy, there are still a lot of areas within China that have a much lower standard which means they might be still economically profitable with the investment-led growth model. The Chinese government also needs to create jobs for the Chinese people, because the social welfare system in China is not great. This meant although jobs like Finance analysts and lawyers are nice on paper, they are just not going to create enough jobs like a factory.
Really? If service sector jobs really make up the vast majority of jobs in advanced economies, that would imply this is exactly where MOST jobs should come from. Also, sure parts of China are still poor. Areas that are further from the sea. Who wants to invest there?
@@ahhmm5381 You just answered your own question, China is not an advanced economy. Most of the advanced economies went to the same style of economic development, from agriculture to industrial then to service-led economies. You can not just skip a step, a worker needs to make money to pay for the services that they receive. Also, a lot of companies might decide to invest in the poorer regions of China for many reasons. A few big reasons that I can think of is low labor cost combined with more educated labor than other developing economies. A large and more united domestic market, and better infrastructure than other developing economies. Culture is another big reason. A lot of Chinese companies prefer to invest in countries like Vietnam and Malaysia rather than South Asia for that reason. Also, if you pull up a chart called China: GDP growth by province or region. You can see that the historically less developed region's GDP is growing faster.
@@ahhmm5381why should China relied on foreign companies that much today??? China itself can find domestic investors to invest in the innermost states in China. You think China is india or Vietnam? China is one of the worlds largest business creator.
@@gamba4605 Sure, this is an option. However, these poor regions have presumably abysmal infrastructure. What domestic company could make money there? As always, the government needs to invest first. Is the CCP willing to allocate massive resources from wealthier regions? With the economic downturn, unlikely. There is also the politics of it. If Xi allies are from wealthy regions, they may oppose this.
The central failure point is that the industry leaders, whether they are party elites or just wealthy businesspeople, think that they got rich by paying people as little as possible, and don't recognize that continuing to do so is the limiting factor in their own incomes. It's zero sum thinking, which is just dumb. Business is entirely about creating new stuff, so how can the total amount of stuff be fixed?
Can you talk about the economic plans for argentina from the new president elect Javir Milei? Specifically the dollarization of the economy and closing of the central bank and how viable it is?
Near the end when you talk about the future I was hoping that you touch briefly upon China's last 5 year plan that they released in 2021. In it, they have addressed it as their stated goals of fixing of many of the problem sectors that you touch upon in this video. For example, they mention lifting the restrictions of the hukou system in cities under 3 million people.
You earn my subscription because of your effort to make knowledge and research based videos unlike other RUclipsrs. Thank you for sharing this whom ever your name is. ❤
After hearing all the details I still think the simplistic explanation that China opened up -> economic progress, China closing down -> economic stagnation. Just that in this instance closing down means they won’t allow their population to evolve into consumers as they need to.
The 'closing down' argument is not well-founded and I think it is backwards. Exposure/access to global markets ('opening up') can prompt rapid growth with the favourable conditions described in the video, but only temporarily - eventually subsidies become misallocations, protection creates inefficiency, and low production costs provide little advantage in a saturated market. Stagnation is an effect of the clock running out on these conditions, and the 'closing down' is an attempt to insulate against the inevitable social and political consequences of that stagnation, a regime that has sought to legitimise its abuses on the basis of prosperity that it is becoming less able to provide.
Just an amazing and informative video not just on China but previous similar economic growth. I do generally agree with you at the end. The debt issue and housing crisis do leave a lot of potential for Great Recession type fall though with a smaller fall. Ultimately, I see them have modest-stagnant growth in the long run. Based on demographics and where China is today, i see slow but steady drop until 2030’s then it will hit some sort of stagnant phase for a while. Maybe 2% annual growth year in year out rather than 0-1% Japan had
I think China has a much more difficult road than you do. It must let some industries whither, such as real estate, because of mal-investment. But China's investment is based on political influence, not consumer preference. That is what led Argentina to its current state.
If you base it on demographics, theirs is dwindling without a sound immigration to fill the blanks. The worse of all is the unemployment rate in china. There are no new businesses being opened up. Add another layer on the 996 work format and unsustainable wages, then you have population growth rate in the negatives. I disagree thst it will be a little better than japan. It'll be worse since as stated on the video, local government were incentivized to prop up market value, making the bubble bigger. It'll be a tsunami once it pops which is nothing that happened on Japan.
@@christianlibertarian5488 I would say 1.5%-2% annual growth starting in 15 or so years is rather bad for an economy that is only in middle income and where much of that gdp will be going towards an increasingly aging demo. However, I do think what you say is very possible.. I'm picking what is most likely IMO but next most likely is what you say. I see little chance of China going the other way and having a healthy GDP growth over the long run. A lot of this really depends on how the housing market goes. In a worst case scenario, the government won't be able to do enough to stop a big crash and they would then have a worst case scenario.
@@sergeantjoe6802 Everything you said I mostly agree with but the HUGE difference between China today and Japan in 1990 is Japan had reached upper income level (and rather high) which made it difficult to find more growth. China is still middle income (perhaps lower if the GDP has been exaggerated) which means there is more space for growth. That's why I'm going with about 1 to 1.5% annual GDP growth higher than what Japan experienced 1990's and 2000's.
India had a far worse situation. Additionally, it’s suffered from democracy as most post colonial nations do (not benefitted from it). It was strife with corruption, western corporations holding power and the most diverse set of cultures in a similarly sized region in the world Apples and oranges
I learnt the other day about the 70 year interest rate cycle. I was wondering what your thoughts on this were? USA interest rate cycle every 70 years. Are we going to see interest rates rise for the next 30 years?
This was refreshing. Thank you for keeping things adult and real. Even if most people are less attracted to down-to-earth, dry delivery, as if serious topics don't exist. What some might call boring, many of us yearn for. So thanks for the thoroughness and lack of hyperbole.
Thats Why Love Your Videos Mate,You Are The Most Balanced Of All When Analysing China's Economy,Most Of Them Just Start Politics & Have Wishful Thinking Of Doom Of China.I Hope You Make More Videos Like this😊.
@@MuhammadAbdullah-kx3kn Lots of poor people vote. Ergo, the "social democracies" of Europe. Even the United States has a rather larger welfare state than you might think, with hundreds of billions spent on Medicaid and Social Security.
Wow. Can you imaging 5 months now China's GDP is still at 5.2%. Economic Think Tanks from around the world who were on the same band wagon must be feeling depress but don't worry, compare your statement to Gordon Chang and you'll feel much better.
@@Andre_XX resources are finite only in theory. For example, we get a lot of energy from the sun every day, but we only make use of a tiny portion. We can also turn hydrogen, one of the most abundant elements in nature, into energy. Of course the sun will die out, but not for a few billion years.
@@Andre_XX You can create the rest with energy, for example, food can be grown in giant greenhouses around the clock, or desalinate sea water to turn anywhere into fertile farmland, you can mine minerals endlessly, you can make anything in factories using robots when energy is abundant.
Another problem with this investment led growth model is it affects and has already affected the birth rate, which combined with the one child policy lead to the current aging population which will eventually damage the growth potential of this model. In the case of China, the extra liquidity being injected into the Chinese economy by the central bank in 2008 results in the massive increase of the real estate prices. Sadly, the wealth level of the people did not increase proportionally, and for young people now whose family didn't accumulate enough wealth, it is a struggle for them to afford properties and in this way, the demographic is hurted and hinders the investment growth model as there simply isn't enough labour to fill the factories.
What are the fertility rates in South Korea and Japan? East Asians have a sense of crisis, because potential risks reduce their willingness to reproduce and even their physiological needs. Another reason is that the population is too saturated. The population density in East Asia is much higher than that in Europe and the United States, but the level of development is indeed not as high. Imagine if China maintained such a large-scale manufacturing industry and had only 400 million people of healthy age structure, would people's consumption capacity really be weaker than that of the United States? Of course, without such a large population, there would not be the rapid development of the past few decades.
Couldn't be more wrong. Xi Jinping is actively shedding the old economic model. The downturn we are seeing is due to Xi's policies against the real estate sector.
A key aspect of the housing bubble in China that is never mentioned is that unlike in countries like the USA where borrowers can simply walk away from the property and the mortgage, in China, borrowers are personally liable for the debt. This means that even if the property is foreclosed, the borrower may still owe money if the sale of the property does not cover the outstanding loan amount. In addition to that they will face social credit penalties. This is why the Evergrande crisis is different and particularly treacherous to Chinese home buyers. Many Chinese homes are actually condos / apartments in tall towers and there’s been a crisis of builders refusing to finish the building, while buyers still owe on their mortgage. It means Chinese buyers can’t walk away even if the builder was corrupt or never finished the construction, while the lender remains protected.
This model is not unique to china. I am from EU and I am also personally liable for the debt. Bank of course appraised the hous/collateral, but if there price of house went below my debt, it doesn't matter. I am on the hook for the debt. That is why there are various requirements before you get a mortgage, e.g. loan-to-value ratio (80%, 90% for under 36 y/o), debt-to-income (8.5, 9.5 for under 36y/o) and debt-service-to-income (45%, 50% for under 36y/o). I believe this model is rather common in EU.
I think the necessary change is more likely than most people care to acknowledge; unlike Japan, China has demonstrated with Evergrande that it doesn't mind cutting losses so long as it doesn't jeopardize political stability. There are no Zaibatsu-like cliche in the CCP, nor are there any technological limitations and bureaucratic stagnation that prevent entrepreneurs from innovating and pushing for new services and products. The biggest challenge right now is for the CCP to acknowledge that it has to at some point "let go" of its restrictive and protective measures to allow people to experience service gaps where private entities can jump in to capitalize on public demand. This is particularly true with the aging population that will soon need a whole host of healthcare services that are currently in their infancy in China. Perhaps the Party is waiting for a sign?
No Zaibatsu? The entire CCP is based on bribes around economic sectors mate. This guy take the bribes from coal extraction, that guy takes the bribes for property approvals, this other guy takes the bribes from waste removal... The CCP has never "let go" of anything that would involve diminishing it's power. Ask Jack Ma and the guys at TenCent how the CCP would feel about "letting go".
@@technokicksyourass that might've been true in the early 2000's, judging by what I hear from colleagues things are very different now. The lack of transparency definitely hurts the business image, but it certainly hasn't stopped international business (outside the current slowdown due to the global recession).
Excellent piece. Easily becoming the most credible economics voice on RUclips. Gefeliciteerd! I just wanted to take a tangent on your Alexander Hamilton point. Many Americans do not appreciate how "planned" America's 19th Century economic success was (Lincoln was a big protectionist too) and from the very first president. I think an abundance of credit must be given to Washington listening to Hamilton rather than the likes of fellow Virginian and plantation owner, Thomas Jefferson. Had he gone with what he knew and Jefferson advocated, the US might not be more than a northern Brazil or Argentina. Washington saw the wisdom in planning for manufscturing growth in the economy mostly where it made sense between the two big cities of Philadelphia and New York and then up into New England. Washington is likely under-appreciated for his ability to get the most out of others and his openness to different ideas. And if he is appreciated for it, it's typically in the context of Valley Forge in the winter of 1777-78. Sorry for that tangent; I just like that story of Hamilton and Washington setting the tone for that great success story.
Very good and understandable video. I almost always learn something new from your video's. Perhaps a nice topic in a similar vein would be India. I recently saw a video about India and why skipping over the Industrial phase, and business rules / coruption effecting companies over 10 employees causes huge problems. Would love to hear your view on it, and if there is any thruth in it and a good way forward.
I really enjoyed this video, especially the linking of current events to a specific model. I would love to learn more about different development models
USA invested in China to use it against Russia. That was the difference between India and China. India was already committed to being non-aligned. China grew because of year after year of investment by USA while neglecting its own manufacturing. India was also a democracy and bureaucracy controlled country while China had autocratic rule and could move things faster along. So it was not just a question of closed and open it was more geopolitical after Nixon and Kissinger visit to meet Mao. He only gave the speech of cat either black or white after meeting with Kissinger and Nixon. USA was desperate to get ahead in the Cold war especially since USSR was ahead in many fields including space technology at that time. USA was also an ally of Pakistan in its fight against Russia in Afghanistan. That is why it could not overlook Pakistan in favor of India.
Incredibly unhealthy GDP growth. What fraction of China’s economy is from housing or infrastructure construction? Of that fraction, what percentage is going to turn out to be non-useful? If the real value of that economic activity that produces non-useful real estate and infrastructure is zero, where does that put China’s real economic growth?
@@yopyop3241The bulk is manufacturing, Idk where people kept getting that estate is 25 percent of the Chinese economy, when many other sources say it's 15 percent.
@@linusmayden8465 A lot of the manufacturing feeds into real estate. Manufacturing rebar and cement. Manufacturing construction equipment. Manufacturing hinges and doorknobs. Etc., etc.
When comparing different coutries one should use GDP-PPP and not Nominal GDP. This is due to the different prices for the same goods and service so the more expensive country would come out that has prodiced “more”. That is why UN and IMF is using GDP-PPP. China is world’s economy #1 and India is #3. The USA is #2.
A very good presentation, thank you. A couple of points that I think could have benefited from a closer look are: 1 - Demographics - China is aging rapidly and it is well known that aging populations become less productive as the ratio of workers to pensioners deteriorates. This presents significant headwinds to China's growth, even if the government was committed to delivering prosperity to all their citizens. 2 - Authoritarianism - The piece mentioned that vested interests are resisting the necessary change to consumer led growth, it should have gone further. President Xi understands that the Communist Party cannot survive as the sole source of power if the country continues to open up. Broad based prosperity would sooner or later lead to people demanding a say in how they are governed. This is why Jack Ma and other entrepreneurs ran afoul of the government. It is sad, but this makes it hard to see China's growth continuing because of these reasons.
Good observation. They can’t collapse due to the state controlled banks, they wont succeed in consumption led growth since it’ll be politically impossible and they’re running out of time to do so, the only possible scenario is the Japanese style lost decades. It could be wrong, maybe China can find a way out and not fall into one of the three outcomes to break through the mid income trap, but it will be really difficult.
Otro resentido en pleno delirio,china=japon otro dislate histórico Japón nunca tuvo la posición de privilegio que tiene la economía china en la actualidad y dependía enteramente de su patrón yanqui.
Haha😂😂😂😂I love this , China with more than 5% grow, then it it fell from grace, USA with 2.1%, German is 0% Britain is 0.6%,who is felling from Grace, I bet all these countries wish their grow rate “FELL FROM GRACE”
@@lmn6335it is not like or dislike, it is fact, the last 30 years, Gordon Chang talked about collapsing of China, everyone in the west liked it and Gordon Chang made a lot of money, he loves every minute
I am Chinese and I agree with most of your conclusions. China does need to improve workers' welfare benefits to increase China's consumption. But this alone is not enough. China needs to invest more in high technology and more in commodity brands. Only by combining them can the income of Chinese people continue to increase.
There are 2 complications in predictions: -Data out of China is always manipulated. They say they're still at 5% GDP growth while they're experiencing deflation in prices and low export growth. These things are not compatible, so we know numbers are fudged. -Lots of China's economic growth was from oversupply of building: apartments, single family homes, high speed rail almost no one uses. Those are tapped out now, so what stimulus can they come up with now? It seems the answer is flooding the world with inexpensive EVs. How will that turn out is a big unknown.
"With absolutely no advantage to be gained by lying, in a thousand instances where the explanation is of no importance one way or the other, a Chinese will relate the most absurd sort of cellophane lie. High and low, coolie, or general, they will lie naively, reassuringly, always affecting surprised pain at your doubts, when within an hour or so the truth is certain to crop out." - "Ways that are dark: The Truth About China" by Ralph Townsend (Former US Consul who lived in 1930s China) They've always been like this regardless of whomever is running their backwater country.
The best way to determine what the CPC and the Chinese government's plans is simply to read their own policy papers. China has stated repeatedly that they have three economic goals. First, to create a sustainable society, i.e., an ecological civilization. Second, to focus on innovation-driven high quality development. Third, to focus high quality social services such as cultural services, education and healthcare, along with IT, not the empty service sector of retail, hospitality, and FIRE services like other countries. This means transitioning to a circular steady-state economy with modest growth. Western economists view this as 'stagnation' and think it is horrible since it means lower profits. Yet that has never been the goal. An analogy is building a decent family-friendly minivan that can cruise along at 100 kpm. Once the car is built, the goal is to maintain it to maximize its life-cycle. Building a slightly better car that can cruise at 120 kpm is not worth the extra expense. Building cars that can go 200 kpm may be feasible, but they don't tend to be family-friendly, which is the main purpose. Cars will still improve with better materials, electronics, accessories, etc, but the base model will remain the same. The goal of the economy is to get everyone to a sufficient and sustainable income. It is not to maximize production, consumption, or any other type of economic activity. The economy serves society. Society serves families. Not the other way around. East Asia gets it. The Anglosphere not so much.
Yang Zoe Liu during her interview last month was filled with biases and flaws in her argument. She said it is perfectly fine that China is overleveraged. What she missed is that over the last decade, there are many years where China's GDP growth only grew one RMB per 10 to 12 RMB of debt. Understanding economics in general in a country does not mean you know what you are talking about.
From the information that I have come across, it does not seem that China will abandon its current economic model. As it keeps on producing more goods than can be consumed on the mainland, and then trying to export its excess inventory in an attempt to grow its economy. This though is creating growing push back from other economies, seeking to limit low cost Chinese product from flooding their markets. With more countries increasing tariffs on Chinese products in order to protect their local industries; this may force a change in the Chinese economic model, but I doubt it is a change we will see in the near future.
If China stops accepting the US PAPER dollars in exchange for their high quality products, then do you think US is still thriving? If the US regime and American people keep borrowing/printing PAPER dollar/spending, then do you think China will keep accepting those US PAPER dollars?
The US is not a luxury it is a necessity, if China stops accepting US Dollars then US and European consumers stop buying Chinese goods. The US/Europe have many alternatives to China but China has no alternatives to the US/Europe.
Yes, because contrary to what you hear the united states has the worlds largest economy and that economy is dependent on people within the US more than outside of it.
Excellent analysis. I much appreciate the references. This will be remembered as *the* video regarding china's growth history so far. Headwinds ahead: * Demographics. Declining working population often leads to stagnation and deteriorating economics. * Lack of plurality in sharing the riches. Communist style of development has run its course as the current leaders are unwilling to share the power with CEOs & ordinary people. * Foreign investment turning negative. Often associated with crisis and deteriorating economic conditions. * Insistence on Taiwan land rights and turning the world into a bipolar competition. This is clearly triggered by China's current leaders causing USA and Europe to pull back from China scientifically and economically. Globalization undone (thanks to Xi & Putin). * Punishing the entrepreneurs. Why would I want to start a company if I'll be ultimately put in jail? I'd rather lay low, and do nothing. * The current government being clueless about what drives economic development (hint: it's about empowering people, let them figure out what needs to be built and how). There's more than enough reason for China to expect several glum decades of economic conditions.
"* Lack of plurality in sharing the riches..." I'm not sure exactly what you are trying to imply, I'm guessing it's the "communism thing"? In the 2023 Congress, new 10-year-goals been set including Wealth Sharing. The government is encouraging enterprises to distribute profits to employees accordingly via pay rise / bonuses / work condition improvements ... etc, or, companies could face tax penalties. On "power sharing", the Chinese government employs elite progressive-voting model, where folks are required to build up their own profiles in young age by involving and contributing themselves within their local community and upwards. Sorry, other than extreme rare cases, you cannot be a comedian all your life than suddenly wanting to be a Chairman candidate. That's the ordinary folks' part. I'm still not catching the CEO part, what kind of power should the government share with them? If it's what I think it is, it would just turn into a voting system like the US, where politicians become muppets of enterprises. "* Foreign investment turning negative..." I see it as a temporary issue due to a sudden change in US monetary policies and political postures towards China. The high interest seasons cannot last forever, and so do direct-investment sanctions yet, these are the causes contributing to negative foreign investments. "* Insistence on Taiwan land rights and turning the world into a bipolar competition..." China has been very consistent on the Taiwan issue since over 75 years ago, never changed; Taiwan hasn't changed either, the 4th article in their Constitution has not altered since written, that they are claiming sovereignty rights of China, meaning the whole of PRC China. Two parties dispute over the same lands, PRC China has got stronger now and Taiwan plays the victim game? Maybe Taiwan should rewrite it's constitution first, at least get rid of Article 4? Meanwhile, what has changed? The US lead western world have changed, using Taiwan as hostage against China. You can believe whatever you want to, but it's not going to change the UN resolution 2758 in 1971. You actually blame de-globalization on China and Russia? Which country initiated the trade war via sanctions? Who said the most infamous line "trade wars are easy to win"? China and Russia being sanctioned thus, causing breakdown on supply chains, these are not the case that could be vice-versa, do you not understand the most simplest theory of cause and effect? "... USA and Europe to pull back from China scientifically and economically..." None of the standalone EU countries or US could do jack shit in the field of science, they are only using collective power against one single country, China. Could any of those countries build a space station on their own? Could ASML manufacture EUV machines base on solely US tech or Netherlands tech? 5G tech? Battery tech? The fact is, other than EUV tech being in initiate stage, China could build all that mentioned on it's own. What is there to be pulled out from? Economically, have you not heard of the biggest foreign investment in history from BASF and Volkswagen Group in China? Or Tesla? Germany, the powerhouse of EU is at negative growth. "* Punishing the entrepreneurs. ..." I hope you know what's law & order which, I doubt its existence especially in the Western world, where greedy entrepreneurs could always buy themselves out of jail with money, even if convicted. "* The current government being clueless about what drives economic development (hint: it's about empowering people, let them figure out what needs to be built and how)." Sure, if you want to think the Chinese government is clueless, be it. (hint: if you empowering people to figure out, it would end up like the US, a land once full of scientists and honest scholars, replaced by lawyers and accountants.)
We have always blamed communism for their abusive dictators, but the truth is they had abusive kings, before communism, abusive dictators during communism and abusive dictators during capitalism. They just let bad people run their countries.
As much as I want China to fail, the unbiased and intelligent look into their economy has won me over. Great job, possibly one of the most enlightening videos I've watched.
The westerners economic experts have been predicting the fall of China since early 1990's now its 30 yrs anniversary of their biased and hateful predictions.
The idea Special Economic Zone , was idea from Lee Kuan Yew when Deng visited Singapore in 1978. Southern China next to HK, a financial hub that time. Instead of Developing economy in Shanghai .
To figure out the "What's Next?" question is heavily dependent on understanding China's politics. Since Pettis still teaches in China, he is not allowed to mention anything that is political in terms of the direction of how the Chinese government. Any sane and reasonable person in China have already answered this political question and the answer to that question is very dire.
Im not trying to be overly critical of Money and Macro but he is leaving out key political aspects of the situation Like the U.S. government taking steps to Debilitate China's economy.
He did a video on why demographic decline isn't actually that bad. He also didn't mention a lot of other things. Such as the three red lines, and the new engines of their economy.
Keep your e-mails private at tuta.com/moneymacro
You should do a video about EU stagflation. There is no growth and the ECB are warning of potential further interest rate rises.
The EVs in those grave yards were owned by failed ride share companies, so the cars are used and have small batteries.
MM = 33 Proof all your CLAIMS are Required.
The Eastern Matriarchy runs the World and you know it.
BIRD IS THE WORD!
ANGL00REGIME PARROT SPREADING CHEAP PROPAGANDA AGAINST CHINA AS USUAL😂😂😂
😴😪 ...another wh!†€¥ smearing about chinese government. What so new about it?
Fantastic video, explaining in clear and understandable language why a country needs a thriving service sector and why the service sector must arrive at the last stage of development. The best part of the video is at 22:45, which explains the rationale for the stages of economic development.
Ughh wtf dude this video and channel is a mess of misinformation...
First off China manufactures then exports to a GLOBAL market not only domestic....
Second he said China build enough homes for 3B people... lol whattt, I knew that was bs and there is absolutely no facts surrounding that just random heresay
Wait wtf this guy has a phd...
Anyone who followed Micheal Pettis, Beijing University finance professor for over 22 years, will know that China's economy would become similar to Japan, USSR, Brazil, and two other handful of other countries using the same economic model. In year 2007, both top leaders of the Chinese government, both Hu and Wen, made speeches to the people of China that they need to change their economic model from a debt-investment (infrastructure spending) model to a consumer-driven economic model like the US. Fiat currency can be printed at will since the world is no longer on the gold standard.
Yang Zoe Liu during her interview last month was filled with biases and flaws in her argument. She said it is perfectly fine that China is overleveraged. What she missed is that over the last decade, there are many years where China's GDP growth only grew one RMB per 10 to 12 RMB of debt. Understanding economics in general in a country does not mean you know what you are talking about.
To figure out the "What's Next?" question is heavily dependent on understanding China's politics. Since Pettis still teaches in China, he is not allowed to mention anything that is political in terms of the direction of how the Chinese government. Any sane and reasonable person in China have already answered this political question and the answer to that question is very dire.
@@kennethli8So what did he avoid?
It is very refreshing to see content creators putting considerable effort to research and synthesize a lot of information in order to present something truly informative and insightful.
The so-called economists he cites are all proponents of Western economics, which, in itself, is riddled with flaws. Why doesn't he reference the perspectives of scholars from non-Western economic systems?
@@龙腾洞观
Interesting and valid point.
Maybe because china is now a part of an international system that is not isolated to need a local theory of economy. The economists looked at specific data from china and compared it with non western countires like Japan.
I think the conclusion of the video is postive for china.
China has a clear problem and enough resources to solve it if political will is present. And that's more than what many countries ask for.
This video seems fair and non dramatic unlike us media.
The title of this video is dramatic but the conclusion is nuanced and is not at all about the end of china's economy or something.
@@ahmed51988 He uses historical cases of economic growth and decline in countries like the United States and Japan as references to speculate on China's prospects. We know that whether a country's economy continues to grow fundamentally depends on whether its domestic productivity can steadily improve. In the process of catching up in less developed countries, rapid improvement in production efficiency can be achieved due to the advantage of being a latecomer, coupled with the demand potential of the laggards, leading to a period of rapid economic growth.
However, in the process of catching up, the latecomer's advantage will gradually diminish. Whether it can gradually establish a leading advantage in certain areas and become a pioneer is crucial in determining whether the pursuer can sustain growth after the latecomer's advantage disappears (i.e., whether it can continue to improve productivity). After Japan approached the United States in catching up, it failed to establish sufficient advantages in key industries such as semiconductors due to pressure from the United States, leading to stagnation in productivity. However, for China, the latecomer's advantage is gradually diminishing, but it may continue for about 10 more years. Currently,
China is already in a leading position or in the top tier in many important areas (such as new energy, electric vehicles, aerospace, quantum technology, artificial intelligence, nuclear energy, etc.), and it will not be controlled by the U.S.. For instance, the United States is making every effort to suppress China's semiconductor industry and Huawei, but this can only delay rather than prevent their development and breakthroughs. Given China's cultivation of talents in science and engineering, the period when research and development achievements continue to emerge is approaching. There is great potential for becoming a leader, so I believe there is still significant room for improvement in China's productivity.Therefore, this brings about the sustained driving force for China's future economic growth.
@@ahmed51988 Many people often mention the issues of population aging and declining birth rates in China, which indeed pose significant challenges. Particularly when compared to emerging countries like India that are catching up with China, these challenges are considered disadvantages for China. However, if we compare China with the developed countries it aims to catch up with, all economically developed nations (such as the United States, Europe, Japan, and South Korea) face similar issues. While the United States and Europe can alleviate some problems through immigration, the process itself brings about various social challenges that can hinder sustainable development. The impact of such disruptions will need to be observed in the changes in Europe and the United States in the coming decades.
@@龙腾洞观 Ofc. China's diffculties can be percieved in the context of the broader issues that concern all developed nations too.
I need to point out the abandoned bicycles and car showing in your video is not "not bought by anyone", it's actually bought and owned by bicycle sharing and car/taxi hailing companies. These companies went bankrupt eventually, hence the cars were being abandoned, but it was not due to the cars "not bought by anyone". Chinese factories only manufacture the products when there are orders.
I loved the balance between the up and downsides for the economic growth. Wages were low, and that greatly helped the economy, but the workers were screwed
Agreed. It points towards an unpleasant aspect of capitalism, that development is often based on heavily exploiting workers, because the people making investment decisions directly benefit from paying workers less. I'm interested in the idea of worker co-ops and how they can be used as an alternative that may result in more inclusive growth. It would be good to see more research into them at least.
@@Rb39-ej5hh in the history of mankind has there been a successful economic system that has not exploited workers for the sake of development, according to Marxist analysis? Even the communist states exploited their workers. The average worker in a communist country was probably paid much less than their capitalist worker counterpart.
@@Rb39-ej5hh The thing is that it didn't used to be. Management used to be the ones shouldering the risk, because they also made more return. Now it's the worker that shoulders the risk while management flits about from company to company not giving two shits who they work for, just whoever gives them the biggest paycheck.
@@Rb39-ej5hh but thats not capitalism, its feodalism with communist party as feodals, if it were at least somewhat free market system, workers would get an increase in wages due to competetion for them and overall economic output growth. But in a world where government controls currency and does everything it can to prevent inflation of wages, we end up without real income growth(true for many countries, including china, usa, eu, etc...)
@Rb39-ej5hh Employee owned businesses are a thing. I buy my groceries at one. Anyone can start one. They fail at about the same rate as any other business.
I really appreciate your videos, as I find you intellectually honest, always being clear about what you base your claims on and what the limits of your claims are. Too rare on RUclips...
Very well said, completely agree!
Halfway at best. He is using very bad data. I mean the guy just said China pulled 800 million out of poverty...... yeah okay. Nope. Xi just changed what defined poverty. His number is about 4 to 5 times to high.
CORRECT!
Fascinating stuff. I really appreciate how you broke down super complex topics without numbing them down. Truly making things simple but not too simple! Just discovered your channel today and I will follow it closely. One of the best RUclips finds in a long time. :)
Very good videos. Love the academic and journalistic integrity you put into these videos. Keep up the great work!
Thanks, will do!
Fascinating, man. Really valuable to have this kind of foundational knowledge at the back of one's mind while navigating the deluge of opinions about world events.
This channel is so much better than other economics channels that don’t bother showing evidence for their explanations. (cough EE cough)
If 5% GDP growth is considered stagnation, then my country is in a deep recession.
Will they manage to keep those 5% in the future, if most of it comes from useless investment?
@@degenerate_mercenary9898 Last time China had a GDP growth of over 10% was in 2010. You really thought they were going to keep +10% for several decades or what? Also, +10% of small X is easier to achieve than +10% of bigger Y. Common sense isn't that hard.
That's because those 5% are real GDP growth, which is used for comparing living standards. However, China's nominal GDP growth measured in dollar/euro is flat because the renminbi is weakening against those currencies like what happened with Japan in the 1990s. This way China can never grow larger than the US in economic power.
Do you live in an advanced or developing economy? 3% of a large number is more than 5% of a small number. So, China, for instance, would need to have far greater growth in GDP just to catch up to the US. Starting at a lower number also means that, in theory, there is a lot more potential growth in productivity for each Chinese worker than US worker (i.e. US workers produce a lot more on average than the average Chinese worker). Advanced economies usually require around 2-3% growth in GDP in order to continue to produce enough job for the population without causing too much inflation whereas developing economies require much higher growth. Thus, you can't compare the growth of GDP of countries directly, but need to take their relative circumstances into account. Note that if China's GDP grew at the same rate as the US every year, then they would never catch up to the US economy in size (they would stay the same size relative to each other).
@@darryll5711 Precisely. Further, advanced economies are more likely to have higher accumulated wealth. Someone who has inherited 5 houses and earning $100k a year is a lot wealthier than someone who does not have a house but earns $200k a year. GDP growth is analogous to yearly earnings and does not take accumulated wealth into account.
Fantastic. I now understand why all the three sectors; Agriculture, Manufacturing and Services should emanate progressively in that order and coexist, with the latter employing the majority of the people.
Domestic consumption is the key to sustainable development. It's also imperative to aim at sustainability way more than chasing infinite growth in a finite world.
Lastly, to boost employees incomes, it's necessary to upgrade to manufacturing of advanced goods whose prices aren't dependent on cost of production but on the value consumers derive by consuming them!
Great video as always. Kudos mkubwa.
chinese wealth distribution does not work through gdp compared to us, like you pointed out. Because gdp does not consider purchasing power, wealth concentration, money flow and control, is calculated in usd and does not consider the state houshold and budgeting, which in case of china is not as heavy on debt and more able to boost economy. It is in interest of china to have a lower gdp in dollar, lower living and production cost (not domestic purchasing power of citizens) to stay attractive for their way of international trade. And they work the numbers, so that the perception is always the desired one.
@@cwpv2477GDP has always been a Western game base on their rules which, are also alterable anytime to suit their needs. For sure, it reflects partial of the reality but, I wouldn't just soak myself in it. The methods employed to calculate GDP are vastly different between the US and China, I just don't see the relevance anymore. For example, since Health Care services are privatized in the US, it virtually turns an expense (very huge too) into profit, making up a staggering 18% of US GDP.
Or maybe humanity should stop consuming so much. Time to leave capitalism behind.
Unproductive labor by definition is catabolic and superfluous. Western ruling class will have us digging holes to fill them back up again just to retain wage relations.. China will be living in the future as we're still citing our superior GDP as proof we aren't spiraling into decay and destruction.
@@stevenhenry5267 Thats a massive shift in economics and politiics and would likely leave millions suffering. It isn't worth it until we're forced to or better ideas succeed.
they've been saying this for 20 years
Remember Gordon Chang?
40 years.
20 years ago they were saying China was going to rule the world.
@@lephinor2458 they were right.
Still it will be hard to catch USA if USA GDP grows 3% per year and China's by 5%, the gap ar least in per capita income is huge.
If China posts 8% growth again, then ok...
By holding itself back, China was attempting to prevent the mantle of manufacturing powerhouse from going to nations that were next in line to assume that role, like Vietnam, Bangladesh, etc. Which would in turn make them more powerful.
Don't forget India too. China isn't gonna like more powerful India that for sure.
Not even close. China is trying to get rid of low profit labor intensive industries and move up the supply chain. Why do you think China is boasting about breakthroughs in EVs, planes, high speed rail, semiconductor, machine tools instead of talking about how many pairs of underwears it exported?
但是中国鼓励部分制造业转移到东南亚
You are projecting too much. China does not think like America.
Ridiculous
India wasn't very open. It was protectionist throughout the Cold War and mostly remains so today.
At the end it doesn't seem like, "don't need," but rather, can't afford.
Great video, as usual.
USA invested in China to use it against Russia. That was the difference between India and China. India was already committed to being non-aligned. China grew because of year after year of investment by USA while neglecting its own manufacturing. India was also a democracy and bureaucracy controlled country while China had autocratic rule and could move things faster along. So it was not just a question of closed and open it was more geopolitical after Nixon and Kissinger visit to meet Mao. He only gave the speech of cat either black or white after meeting with Kissinger and Nixon.
USA was desperate to get ahead in the Cold war especially since USSR was ahead in many fields including space technology at that time.
USA was also an ally of Pakistan in its fight against Russia in Afghanistan. That is why it could not overlook Pakistan in favor of India.
@@Singhramdas You're conflating Nixon era policy with most of China's expansion that took place in the Clinton era of the 1990s. By the early 90s Russia was no longer a major threat to the US and most of the investment into China was being driven by the initiative of corporate actors rather than US policy. US policy began to chill toward China from the early 2000s as Cheney identified China's government as a major threat to global democracy. All while Bush continued to court Putin at the same time. Russia was not seen by US policy makers as a serious threat to its goals in the early 2000s. Obama largely continued the frosty language toward China while attempting another "reset" with Russia.
@@avernvrey7422 read your history again.
Investment started after Nixon and continue right upto COVID days. Dropping only recently.
Nixon/Kissinger created the policy and Mao was forced to accept it because he was broke, China was completely broken. People were dying, living in caves and starving. The policy was driven by USSR and cold war. Ofcourse later this was overtaken by capitalism and corporate greed. Today even F35 parts are made in China.
@@Singhramdas US did not "invest" in China. if you look at China FDI, most of the investment China received came from Asia. this myth that "US build China" is a lie. Japan and Germany was already developing product in China a decade before the first American business show up. Deng hand pick Sharp and VW to develop it electrical and car industry. it why VW was the biggest foreign brand in China, because it the most recognised brand in China having been in China the longest. Sharp however failed to capitalise as appliances were easier to make and soon other companies were making their own.
the reason no one invest in India is because of high tarriff. if India has high tarriff on US product, than US government is going to apply high tarriff on Indian product. so if you product in India, you can't sell to the US and expect to make money. China has been trying to join every FTA it can find. RCEP for example was a major win for China. India has avoided every FTA it was invited to... it is not politic that divide the 2 country fate, it is trade policy.
The US was protectionist well into the late 19th century. Hurting India is not protectionism, but a combination of plutocracy, kleptocracy, autocracy and its millennia-old birth-based caste system that keeps the majority worker caste population permanently subordinate to the historically dominant castes. Even now, almost all the GDP "growth" has gone to the asset-owning non-worker castes
Great way of presenting different views and scenarios! I very much enjoy the analysis. Thank you!
You should really look into Wenzhou Model of growth for China's future. Most people outside of China look at Shenzhen and thinks that is the model for China. Most Chinese look at wenzhou model instead.
Yeah, people forget that it' basically a continent, twice the size of the EU and twice the population. Greater Shanghai alone has a similar population to Australia or England
Yet shenzhen's framework is MORE predominant in the entrenched political elites of China.
@@petermanuel5043 tofu dreg building.
people who say tofu dreg construction are usually from countries whose infrastructures are crumbling, new buildings and bridges collapsing before even completion.
@@madsam0320 wumao!!
Great video. Regarding the political causes of China's growth, before even having good policies, a country should not have a destructive regime.
I believe that a developed country is a country where the elites understand that it is more profitable to steal 2% of a billion rather than 50% of a million.
I get a lot of story from people from North-Africa who learned how to run a company in the West but when they try to do it back home, they get blocked by some administrative power who expect to take away a lot of money from them. It is not even corruption, it is sabotage.
What's the difference between admin's destroying small business and big business destroying small business ?
@@skutchBlobaum Big business can only do it by offering cheaper/better products, which benefit the economy as a whole.
Admin can destroy businesses just because.
@@maxpower9979 "Big business can only do it by offering cheaper/better products" - you need to visit some countries like mine where they do it by bribing public officials, lobbying for legislation that limits new entrants and coalesce with commercial real estate providers so that new entrants can't get a foothold in best locations.
@@oldskoolmusicnostalgia I understand but in this case, you can mainly blame the State for accepting bribes. With a non corrupt State, attempts at bribery would result in a severe punishment for the business and its executives.
[ a country should not have a destructive regime. ]
US regime is 10 times more destructive than China's... so i don't know...
[ I believe that a developed country is a country where the elites understand that it is more profitable to steal 2% of a billion rather than 50% of a million. ]
oh sweet summer child, you have no idea what the elite in developed country are doing do you? how did the greek manage to hide so much debt? US bank hide the numbers for them...
GREAT VIDEO MAN!!! You have an excellent niche here. Great distillation of the Pettis thesis into a narrative many can understand. A true educator!
Ese dichoso petit que no es más que un vulgar agorero como Gordon chang y parecen hecho con la misma marca de fábrica y que se dirigen a un público ansioso y desconocedor de la historia económica para suministrarles la música que quieren oír.
Maybe it's too unknown to reach a wide audience in video, but I'd love to hear you explain the case of Thailand and why it did not manage to follow the East Asian growth model when it had a lot of advantages going for it.
So much political instability
true but maybe there is more @@BoltarThePirate
If there's a coup in what seems like a couple times per a decade, would you invest billions of your company's money there, or look elsewhere? That's your answer.
when i see the question, the first thing in my mind is the economic crisis of southeast Asia in the 1990s, which led to the big failure of the economic development of southeast nations, such as Thailand, Malaysia, Indonesia
The Chinese government popped the property bubble and caused the current crisis precisely because they want to avoid Japan style stagnation. So it's a bit ridiculous to suggest that they're too politically invested in the property industry to accept a correction
You also ignore a crucial factor: scale. Korea follows the same model as China, but because it's very small, it can just feed off the world market. China is very large, so it has a massive domestic market. Japan is in the middle, with a domestic market that's too small but a population that's too big to just live off exports to the world (especially in the face of competition from Taiwan, Korea and China) leading to a Galapagos effect.
So China is likely to continue growing and catching up as the poor western regions catch up with the rich east.
You miss the key point. There is no way the CCP is going to go for a consumer economy. That would involve putting protections in place for the private sector. Never going to happen. Also, the Western regions you are talking about are not densely populated, don't have access to ports, and are not politically important. They are only kept in China as a military buffer zone against enemies, they have no significant economic value aside from resource extraction.
Exactly, when I heard his conclusion on Chinese industry politics I was like that sounds more like US politics. If the Chinese leaders need to inflict pain to reach long term prosperity I am certain that’s something they would do and they have shown that’s exactly what they can do. Only time would tell either way.
yes，you are right
Very refreshing to see a RUclipsr not going the route of click-bates and simple narratives but instead explains each stage of the story with it's nuances and context in place. Please keep this consistent and base your understanding from different experts in the field and contrasting them. Thank you!
Love this guys presentation style. Very balanced and not sensationalized. His students were very fortunate.
Appreciate all the research you put into this, excellent deep dive into the topic. Thanks!
this video is cope, there growth was 5% which is huge for a 18 trillion dollar economy and China surpassed US in terms of PPP long ago
@@banjoowo4001 But not for the amount of people that live there...
I think you have forgotten a few issues that makes the Chinese situation different: the corruption from higher officials, where the recent economic growth goes mostly, the high central and local government’s debts, (like the Germans in the 1920’s) and the pressure to keep the wages low or even cutting wages. Also, cultural and political difference (discouraging individual thinking, instead, copying behavior is encouraged). This all will make the change in economic thinking very difficult.
Your analysis of a countrys cultural and political difference isnt accurate there are many countries with cultures especially in asia that encourages conformity yet still has very innovative people , singapore is a very good example or even japan in the early 20th century where it was an authoritarian state with hyperconformist society yet they coincided with innovations like the toyota car manufactoring or mitsubishi heavy industries, they both happened at that specific period. So making sweeping claims like you did is not accurate if not outright wrong
You did not take into account the debts that makes everything harder, amd the aging population that put a clear 10 years time limit to get out of the crisis.
China literally is just 4 South Americas, 4 x 300 million, with mostly peasants making under $2000 a year. Nothing to boast about, only it's size makes it stand out. Brazil has a brighter future than China. Panama has a brighter future. I expect some day some mystery ship will drop sea mines outside Hong Kong and then laugh as without oil all the trucks in China stop, it's in a weak position yet dumbly is picking fights. ... .. The Chinese language also is awfully hard, thats a negative, it adds like 2 extra years of schooling, same with Japanese. There's a reason why Americans literally have started all 10 of the Trillion dollar companies since 1970, except Aramco in Saudi Arabia, my god do the Americans just keep succeeding yet we never mention that. China is overstated, its a big South America run by bragging annoying crooks. It's fun to see the hype! I remember hype about Brazil.
@@u2beuser714 Hi bro 👋🏽
He didn't mention those because they are vastly exaggerated or simply don't exist (like "the pressure to keep the wages low or even cutting wages", where did you even get that from ?). Basically, your list is merely a list of borderline racist clichés.
Really well put together. Thanks for providing clarity on all this controversy on what’s happening in China
I always love your analysis. I would love it if you covered the Indian Economy in such detail sometime.
The problem with our economy is that our story didn't start until 1991.
Good thing the IMF forced us to open our doors.
India skipped the manufacturing phase so they still have large parts of population working in agriculture.
@@alburaq3290 yaa
The govt has noticed that and has started to focus on manufacturing and service both
@@fly463 It's not that actually, we have never invested enough on human capital that we could take the full benefits of a libralized economy.
@@ashwinvk4124 yea but slowly it is happening now
Great in depth video. Love to see more of these.
I've been watching the RUclips channel "China Update" for a year or more, and "Tony" (who produces that channel) often cites the work of economist Michael Pettis of Peking University. (I have no idea why the CCP allows Pettis to keep his job.) Thus much of what you said here was familiar to me. However, your presentation was clear and concise. Your video does a very good job of providing a casual viewer with the background which is required to understand China's current dilemma: CCP control vs. the development of a sustainable service economy. Thank you.
China allows people to criticize the government, policies, and economy, but it does not allow criticism of the CCP.
@@kevinz-bb7it -- As early as 2021, the CCP began to warn social media not spread bad news about China's economy. More recently, the CCP has raided the offices of companies that perform "due diligence" investigations of Chinese companies in which foreign investors are considering investing. Most recently, spreading bad news about China's economy has been made a crime. So Pettis has committed (technically) "crimes".
ironcially the academia is more free in China than US... shit really hit the fan if you critized Israel... cancel culture is so cursed.
@@kevinz-bb7itchina is always a one party system 😅
CPC is always the best
Watching this video from Shenzhen 😉 Very balanced storytelling, thank you for your analysis!
I’m watching from Wenzhou😂
Incredible work Joeri. Thank you for putting this together. I learned alot and I found it very insightful.
Very happy to hear that!
It’s a dangerous myth that the lower interest rates means banks will lend to entrepreneurs. Banks don’t loan money to high risk or new ventures.
The CCP directs who the Chinese banks loan money to quite specifically, it's to people who will "suitably reward" the CCP machine in the usual time honoured fashion, if you read between the lines and that's not my problem, it's theirs!?!
Interesting video, the conclusion seems rather sensible.
I would have pointed to a 3rd factor explaining China's becoming an asian tiger and a developped nation : peace (internal and external) and stability, even at the cost of an authoritarian and repressive regime.
Also, China may not reach its goal of becoming the first industrial superpower, but is it THAT important except for his leader's ego ? China has gained not only wealth, but also autonomy, being able to manufacture its own modern products (trains, computers and chips, phones, tomorow probably credible commercial aircrafts, etc). Its products may lag behind the most advanced western products, but again is it that essential if the quality reached is sufficient to have your own products and export them at a lower price than the topnoch competitor ? A lot of westerners think that China's industry still entirely depend on western technology and will crash if we deny them access to it. China has integrated western technology at a sufficient level and is developing its own research and technology on the same way than western countries do : through international interdependant cooperation.
And last point : by developing its service economy, China has gained skills in logistics, finance, know-how export to third countries, and is now a geopolitical power thanks to these skills, whatever you think of their quality.
As long as China does not engage in military ventures, there is no reason that this powerful country cannot cope with growth or economic crisis that are as inevitable for them than for us.
Military ventures? Like the ones they've been doing all over Asia? Dream on.
Thanks you for explaining the situation in China. I would argue as well that Chinese would rather have low growth economy then go to a service based economy as they see a lot of social consequences of doing so, like in the USA unappealing.
I have to agree with you. I think China currently is trying to move up the supply chain and become the next Japan or Germany. In short terms, Lawyers and finance jobs are great on paper, but they just do not hire enough people for a country like China.
经济转型，不再以房地产拉动经济，从而生产高端制造，造船，飞机，汽车，电子，不会再做低端生产代加工，我们要掌握价格主动权😂😂😂
The Chinese have no choice. Xi decides.
Yeah that's why the number 1 destination for immigration for Chinese is US !
@@yamingyu2234Japan and Germany are service economies
Thank you, your research finally make me understand what is going on with China’s economy
It's a good video, i just want to clarify one thing that the Japan gov they realized that the should boost the domestic consumption after Plaza accord by lowering the interest rate, but instead of spending on comsumption, Japanese put into the stock market it was a bubble then the burst, so i would rather say that the Japan gov failed to prevent all of the money from putting into the stock market.
Excellent video, sums up a lot of research accessibly and concisely
I think there's a bit of miscommunication here between the economists and the political scientists in the room. China already IS A SUPERPOWER and it DOES NOT need to "overtake" the US economically to do so. China is the only country that can really compete with the US in multiple economic and political sectors, the only country with as comparable a diplomatic presence, leads various valuable and world beating industries and is the largest trading partner with more countries in the world than any other. And that's not even talking about the rapid military growth.
The Soviet Union never had as large an economy as the USA, and by the 1980s had a smaller economy than Japan's. Yet Japan could never be a superpower because of it lacks political independence; essentially, Japan is lock step with the United States in most major strategic initiatives and could not seriously break with them to "compete." Even if Japan had the biggest economy in the world, unless they told the Americans to fuck off and rearmed themselves, they would never be a superpower. Economics is one dimension of what makes a country a superpower.
well said, I do not understand the definition of 'superpower' according to economist like macro. I hope he would elaborate.
Do you believe china GDP? The west now know that joint ventures are not good for them so them move their production to smaller nations that can not compete with the in the future
This is the best explanation I have heard so far for the trajectory of the Chinese economy in the last 40 years or so. It makes sense.
As a Chinese person, I'd like to correct a viewpoint in the video. The low wages for Chinese workers are not a result of government suppression, but rather because there are too many people in China. There is a saying in China, "If you don't do it, there are plenty of people who will," which allows companies to keep wages low. Of course, some rights of Chinese workers are not adequately protected, which is quite ironic in a socialist country.
yeah, that didn't make sense to me either
“Some rights?” 😂
That’s simply not true. The CPC has artificially suppressed wages through a whole bunch of deliberate means unrelated to the fact China has a lot of people. China’s monetary policy and regulatory regime are both prime examples of this, as well as the Hukou system to force internal migrants to participate in the economy on a quasi-legal status. I’d be happy to go into more examples if you’d like.
@@kpro8908 The labor prices in China are much higher than in India. Is the Indian government also suppressing wages? I think it's basic economic knowledge that supply and demand determine labor prices.
@@kpro8908 If you still believe that China operates under a planned economy, then there's no need for further discussion, because since Deng Xiaoping's reforms, China has implemented a Keynesian market economy.
Hi Joeri, very interesting video! On another note: what's your take on Argentina using dollar as their primary currency? Abstracting the likelihood of this happening if course, could this curb inflation or is this a huge risk considering international trade?
this is dumb. if argentina has alot of dollar in their bank, it might make sense, but if they don't, where is the dollar they need for circulation going to come from? if there is not enough dollar to cicular, government can't pay services, services willl shut down, the entire economy will grind down.... you won't be curbing inflation at that point, you will be forcing people to resort to barter trade. there is a reason why most countries don't use foreign currency...
Video coming soon
Yep, you cannot have a flourishing services sector without a lot of small private enterpreneurs, who just won't exist if they are unable to accumulate capital since the wages are kept artificially low. And even credit doesn't help that, only cronies get credit without real capital requirements.
It might be frightening that with rising wages the competitiveness of industry declines, but it's an organic process: with rising wages there will be more savings, which leads to more small businesses starting, which transfers workforce from existing manufacturing industry which leaves room for automation without unemployment which increases productivity and ensures competitiveness also with higher wages.
But again as mentioned in the video, that requires to leave people free which, if you are a control freak you will not allow and you'll be the monkey wrench in the gears.
If people have decent wages they spend more in local and national economies, they pay tax and are not dependent on state welfare. The UK is a prime example of the harm done by a low wage policy which has resulted in high levels of immigration of unskilled workers and depressed the whole economy.
Brexit was a mistake. Immigrants are a win win if the locals can handle the dramatic improvements they usher in. Still, who wants their backyard to become an important prop on a world stage, however valuable and powerful.
From my observations in the past 50 years, I would say that although the Chinese government tend to be slow in making necessary changes, it will do it eventually, even if at a higher cost, but they will do it.
"even if at a higher cost, but they will do it." They have to, otherwise popular revolt will oust them from power, and even then the higher costs might already be catastrophic, vis the One-Child policy, or increasingly the wolf-warrior diplomacy. The issue is exactly how detached and insulated the CCP is their own policies, which allows awful policies to remain decades after they should have been abandoned. The Authoritarian nature of the Chinese state is literally the source of these problems, since there is no accountability from those affected by these policies, no matter how much the party wants to lampshade the successes of their policies. After all, China adopted it's current economic model based on Japan's and Japan achieved its success without having to be a 1-party authoritarian state.
@jackjones4824 Famines and civil wars that killed millions is just typical Chinese history. And just as with the other similar events in Chinese history, it lead to infighting and splintering in the Chinese leadership. In earlier periods it resulted in fracturing of central power and warlords all claiming the mandate of heaven, and in this case it forced Mao to lose his active position in politics (a loss of his god-among-men status like Stalin or Il-Sung) for a few years until he was able to powerplay back into power at an opportune moment. Xi is exactly worried about this situation: a rival from the CCP capitalizing on discontent with Xi to challenge him and the inner government falling into infighting as a new leader rises and the politburo cadres choose loyalties. These reshufflings also are generally the catalysts to reforms, which is exactly what happened during the Boluan Fanzheng.
Technology empowers everyone, not just the government. The amount of resources China NEEDS to invest in domestic policing and suppression is mindboggling, and we still see large organized cases of demonstrations (like this and last year when people came out en-masse to protest mortgage payments to units that were not being built, or the COVID lockdown protests) shows that China's strict surveillance and censorship is very fragile, and reaffirms the necessity to keep increasing prosperity palpable for the masses. It is the only thing that keeps them politically uninterested. That is China's and the CCP's great problem - they do not get their legitimacy from elections like governments in the developed West do, they get it through promising and then delivering economic growth and wealth. And therefore when that growth falters, they lose legitimacy. The Chinese have indeed experienced great advances in wealth, but that just means they now expect more as a baseline. China in 1958 was poorer than Sudan, they now have a lot more to lose and fight for.
@jackjones4824 Power consolidation is certainly what preoccupies Xi's decision making, best illustrated by that public theatre piece with Hu Jintao last year. But that's exactly why his situation is so precarious. Xi is unable to stymie protests and revolts when people actually get motivated, vis my previous and recent examples, and he is no spring chicken. He is 70 years old. No matter how much power consolidation he does, right now he will always need to contend with adversaries in strong positions - people who know they have good opportunities to reach power within 10 years if not sooner, if only by playing a waiting game and fighting it out to be his successor with others below him. That still creates a giant risk of mismanagement, that ultimately will fall at Xi's feet as supreme leader. So Xi's public displays of consolidation betray the fact that he NEEDS them to be this visible, he is telegraphing his actions in hopes that it scare people to back off. But his sort of behavior is the double-edged sword that will result in political miscalculations, that others can take advantage of, especially withing the supreme circle of the party.
You severely underestimate technology, and the stark difference contemporary society lives in compared to consolidated mass media of generations ago. I repeat, even despite the many billions spent, the large infrastructure, the army that exists primarily for domestic order with no real capability of outward projection, the firewall, et. - widespread organic protests still occur in China to this day, and that is simply due to the nature of social media connection, human ingenuity in euphemisms, and the simple fact that censorship is a reactive, not proactive strategy. Technology in China is itself also a double-edged sword, since now that so much of life is consolidated on it, yes it offers granular movement tracking for the government, but the government cannot really turn off the switch without collapsing the economy, and therefore exacerbating their legitimacy issue. The fact remains China has over a billion people. A billion angry people do not need guns. They did not need guns generations ago during previous revolts. They just need sufficient qualms to mobilize. The government is spending hundreds of billions on domestic suppression, because it is the cheaper alternative, even with that gigantic army that serves that purpose, but even so, it is still too costly to actually be able to suppress in real time. And that's the advantage.
"Timing is everything in a revolt; United we stand, but divided we fall." Timing is very seldom everything. Mass and snowball effects are far more important. If timing was everything, the CCP would not be in power, the Nationalists would have stamped them out. I implore you to view China from it's own historical lens, instead of applying what appears to be an American perspective to Chinese cultural specificities.
their government today arent the goverment 50 years ago
What do you think is happening now? They burst the real estate bubble all by themselves
Loved this balanced and well-researched video. The only thing I am wondering about is why you didn't include a part about the demographic changes in the country that are often claimed to have had a large effect on the ecnonomy. The large growth in population from the 1960s and the decline now after decades of the One Child Policy
Demographics will have even larger effect on the chinese economy. Today it is a minor problem.
@@peliculiar yeah, especially in the long term. It's estimated that if China don't take some measure to boost its birth rate, it's population would be lower that US by the end of 21st century, given that US's population is growing steadily.
@@William_Fei No it isn't, not even close. China's population is expected to decline to about 800 million by 2100 according to the UN. That is still TWICE what the US is expected to be at about 400 million.
@@ArawnOfAnnwn I have to tell you that's an overestimation. China's birth rate is lower than Japan now, only about 1.1 child per woman in 2022. If the birth rate doesn't go up in the future, and keep the current rate, China's population will be about 600 million by 2100. However there is no clear sign that the birth rate will go up, especially when considering China's economy situation, and it seems that the government don't have any measures and policies to boost the birth rate.
@@ArawnOfAnnwn China's situation is worse than everyone think.
I'm not an economist, but I'm a bit surprised about the statement in the end that CCP would never give economic power to the households, or something like that, thereby ruling out the option of shifting to a service economy, leaving the two options of collaps or stagnation. I don't beleive that is correct, of cause they will do it with their own twist and flavour, but it is part of the 14th five year plan that was announced in 2020 and specifically called dual circulation strategy or economy, which is about boosting domestic consumption while reducing reliance on exports. I don't know how well this has been executed, but there is reports and books on the subject for those wanting to research the subject. It does however show that the party is well aware of the problem and they are doing something about it, and not just waiting for the growth to fizzle out. Apart from this, a very good video with good insights.
There is no twist. Authoritarianism and intellectual property theft combined with slavery(the wages vs. productivity) can only take you so far. Without a progression to democratic freedoms collapse is inevitable.
Great video! Really appreciate the whole story line from the late 70s to now. So much more balanced and underpinned than the other opinions out there. Having visited China this year I must say I saw a lot of service sector dynamism driven by the strong entrepreneurial culture and tech innovation. Do you have anymore data points to show how the government is constraining the service sector?
Technological innovation such as EVs and green energy is a huge, booming sector of the Chinese economy. If Xi Jinping continues to refrain from real estate stimulus, thereby deflating the property bubble, it's illogical to think China's economy would stagnate this decade.
Sorry, but you both see the "shop windows" of Chinese economy. This is not a new norm yet.
I am not seeing the "green energy" boom you speak of. China has definitely been increasing its electricity production, but most of that is through coal fired plants.@@J_X999
The government is constraining the service sector by not allowing its citizens to keep more of the money it earns and not providing an adequate welfare system. The citizens have not got the money to spend on consumer goods and although the Chinese are good savers it's to pay for their old age pension and welfare as there isn't an adequate system in place. While China has been allowed to dominate in areas of export it targeted most of the West is pushing back on the trade imbalance of China, the US are being more aggressive in this stance and Europe is dragging its feet but slowly realising if they don't have a more equitable trade deal with China it is becoming one sided and will impose tariffs, China makes very little surplus on its trade with Asia, Africa or South America if at all, the majority of its trade surplus is gained from the West!?!
Great video! Thank you for uploading such an informative video
I lived in Shenzhen for 7.5 years and had never seen those old photos. Didn't know they had traditional Asian shop houses lining the streets. 0:12 I lived right between those 2 skyscrapers Diwang Da Sha and Kingway Plaza.
I love your videos. Have been a fan since the start of the channel. Keep making high quality informative videos !
Thanks, will do!
I love your videos ! It is refreshing to see someone research both side of every argument. Keep up the good work please :)
My family was involved in some of the early business in Shenzhen after 1978 so I was very interested in this presentation. One thing you didn't explain was that there were THREE tiers under the investment model instituted by China, namely “encouraged,” “restricted,” and “prohibited” and the auto sector which you spoke about was in the restricted class. These restrictions have subsequently been lifted (and actually it was Tesla that sparked this). Notably, the foreign manufacturers are continuing to operate with local partners even though they no longer need to. In the "encouraged" space, it was a free-for-all with cheap labour and limited government oversight and many Hong Kong businesses were involved in transferring knowledge from Hong Kong to Shenzhen to take advantage of this.
Pettis is very negative on China and does not represent the consensus, try someone like Keyu Jin to counter this and get a more balanced view.
Finally, you cannot read Pinyin and pronounce it like English. So for example, Deng is pronounced "Dung" and "Shenzhen" is pronounced "ShenJen".
Odd how Shenzhen in the 1980's look so similar to some parts of Vietnam today😐. Good video Joeri. Looking good today. Seems you lost some weight. Stay healthy.👍
I think this is a great video, I really enjoy this topic! There are just a few things that I think are why the Chinese government is holding onto the investment-led growth model. The Chinese government sometimes use external factor to enhance internal growth. For example, China joined WTO in the early 2000s and they had to improve many conditions internally to meet the WTO standard. Today, I think the Chinese government is trying to repeat this process. For example, they joined RCEP and they are trying to join TPP and they are currently still in the middle of a trade talk with Europe. They are trying to expand consumption elsewhere to consume all the products that the Chinese produce. Another reason is that although the coastal part of China is relatively wealthy, there are still a lot of areas within China that have a much lower standard which means they might be still economically profitable with the investment-led growth model. The Chinese government also needs to create jobs for the Chinese people, because the social welfare system in China is not great. This meant although jobs like Finance analysts and lawyers are nice on paper, they are just not going to create enough jobs like a factory.
Really? If service sector jobs really make up the vast majority of jobs in advanced economies, that would imply this is exactly where MOST jobs should come from.
Also, sure parts of China are still poor. Areas that are further from the sea. Who wants to invest there?
@@ahhmm5381 You just answered your own question, China is not an advanced economy. Most of the advanced economies went to the same style of economic development, from agriculture to industrial then to service-led economies. You can not just skip a step, a worker needs to make money to pay for the services that they receive. Also, a lot of companies might decide to invest in the poorer regions of China for many reasons. A few big reasons that I can think of is low labor cost combined with more educated labor than other developing economies. A large and more united domestic market, and better infrastructure than other developing economies. Culture is another big reason. A lot of Chinese companies prefer to invest in countries like Vietnam and Malaysia rather than South Asia for that reason. Also, if you pull up a chart called China: GDP growth by province or region. You can see that the historically less developed region's GDP is growing faster.
@@yamingyu2234 You are missing the point. No foreign company would want to invest far from easy shipping, aka a port.
@@ahhmm5381why should China relied on foreign companies that much today??? China itself can find domestic investors to invest in the innermost states in China. You think China is india or Vietnam? China is one of the worlds largest business creator.
@@gamba4605 Sure, this is an option. However, these poor regions have presumably abysmal infrastructure. What domestic company could make money there?
As always, the government needs to invest first. Is the CCP willing to allocate massive resources from wealthier regions?
With the economic downturn, unlikely. There is also the politics of it. If Xi allies are from wealthy regions, they may oppose this.
The central failure point is that the industry leaders, whether they are party elites or just wealthy businesspeople, think that they got rich by paying people as little as possible, and don't recognize that continuing to do so is the limiting factor in their own incomes. It's zero sum thinking, which is just dumb. Business is entirely about creating new stuff, so how can the total amount of stuff be fixed?
Can you talk about the economic plans for argentina from the new president elect Javir Milei? Specifically the dollarization of the economy and closing of the central bank and how viable it is?
Near the end when you talk about the future I was hoping that you touch briefly upon China's last 5 year plan that they released in 2021. In it, they have addressed it as their stated goals of fixing of many of the problem sectors that you touch upon in this video. For example, they mention lifting the restrictions of the hukou system in cities under 3 million people.
Yes, it is. Hukou system is becoming less and less important in the past 10 years. For Shenzhen, you are almost free to get the Hukou of Shenzhen.
That will help. But means more financial obligations for local governments.
You earn my subscription because of your effort to make knowledge and research based videos unlike other RUclipsrs. Thank you for sharing this whom ever your name is. ❤
After hearing all the details I still think the simplistic explanation that China opened up -> economic progress, China closing down -> economic stagnation. Just that in this instance closing down means they won’t allow their population to evolve into consumers as they need to.
The 'closing down' argument is not well-founded and I think it is backwards. Exposure/access to global markets ('opening up') can prompt rapid growth with the favourable conditions described in the video, but only temporarily - eventually subsidies become misallocations, protection creates inefficiency, and low production costs provide little advantage in a saturated market. Stagnation is an effect of the clock running out on these conditions, and the 'closing down' is an attempt to insulate against the inevitable social and political consequences of that stagnation, a regime that has sought to legitimise its abuses on the basis of prosperity that it is becoming less able to provide.
Just an amazing and informative video not just on China but previous similar economic growth.
I do generally agree with you at the end. The debt issue and housing crisis do leave a lot of potential for Great Recession type fall though with a smaller fall. Ultimately, I see them have modest-stagnant growth in the long run. Based on demographics and where China is today, i see slow but steady drop until 2030’s then it will hit some sort of stagnant phase for a while. Maybe 2% annual growth year in year out rather than 0-1% Japan had
I think China has a much more difficult road than you do. It must let some industries whither, such as real estate, because of mal-investment. But China's investment is based on political influence, not consumer preference. That is what led Argentina to its current state.
If you base it on demographics, theirs is dwindling without a sound immigration to fill the blanks. The worse of all is the unemployment rate in china. There are no new businesses being opened up. Add another layer on the 996 work format and unsustainable wages, then you have population growth rate in the negatives.
I disagree thst it will be a little better than japan. It'll be worse since as stated on the video, local government were incentivized to prop up market value, making the bubble bigger. It'll be a tsunami once it pops which is nothing that happened on Japan.
@sergeantjoe6802 1*4 billion people is big enough I think
@@christianlibertarian5488 I would say 1.5%-2% annual growth starting in 15 or so years is rather bad for an economy that is only in middle income and where much of that gdp will be going towards an increasingly aging demo.
However, I do think what you say is very possible.. I'm picking what is most likely IMO but next most likely is what you say. I see little chance of China going the other way and having a healthy GDP growth over the long run.
A lot of this really depends on how the housing market goes. In a worst case scenario, the government won't be able to do enough to stop a big crash and they would then have a worst case scenario.
@@sergeantjoe6802 Everything you said I mostly agree with but the HUGE difference between China today and Japan in 1990 is Japan had reached upper income level (and rather high) which made it difficult to find more growth. China is still middle income (perhaps lower if the GDP has been exaggerated) which means there is more space for growth. That's why I'm going with about 1 to 1.5% annual GDP growth higher than what Japan experienced 1990's and 2000's.
Oh, man. This explanation is so good and simple, it's crazy. Now all makes sense!
India had a far worse situation. Additionally, it’s suffered from democracy as most post colonial nations do (not benefitted from it). It was strife with corruption, western corporations holding power and the most diverse set of cultures in a similarly sized region in the world
Apples and oranges
I learnt the other day about the 70 year interest rate cycle. I was wondering what your thoughts on this were? USA interest rate cycle every 70 years. Are we going to see interest rates rise for the next 30 years?
This was refreshing. Thank you for keeping things adult and real. Even if most people are less attracted to down-to-earth, dry delivery, as if serious topics don't exist. What some might call boring, many of us yearn for. So thanks for the thoroughness and lack of hyperbole.
Your videos always look so amazing 🎉
Thats Why Love Your Videos Mate,You Are The Most Balanced Of All When Analysing China's Economy,Most Of Them Just Start Politics & Have Wishful Thinking Of Doom Of China.I Hope You Make More Videos Like this😊.
*❝Democracy is a rule of the **-people-** capitalists, for the **-people-** capitalists & by the **-people-** capitalists.❞*
@@MuhammadAbdullah-kx3kn Lots of poor people vote. Ergo, the "social democracies" of Europe. Even the United States has a rather larger welfare state than you might think, with hundreds of billions spent on Medicaid and Social Security.
Wow. Can you imaging 5 months now China's GDP is still
at 5.2%. Economic Think Tanks from around the world who were on the
same band wagon must be feeling depress but don't worry, compare
your statement to Gordon Chang and you'll feel much better.
Sustainable growth is unsustainable. Physics trumps economics every time.
What does that even mean?
@@darshanchung It means you can't grow forever when your resources are finite.
@@Andre_XX resources are finite only in theory. For example, we get a lot of energy from the sun every day, but we only make use of a tiny portion. We can also turn hydrogen, one of the most abundant elements in nature, into energy. Of course the sun will die out, but not for a few billion years.
@@darshanchung You need more than just energy.
@@Andre_XX You can create the rest with energy, for example, food can be grown in giant greenhouses around the clock, or desalinate sea water to turn anywhere into fertile farmland, you can mine minerals endlessly, you can make anything in factories using robots when energy is abundant.
Another problem with this investment led growth model is it affects and has already affected the birth rate, which combined with the one child policy lead to the current aging population which will eventually damage the growth potential of this model. In the case of China, the extra liquidity being injected into the Chinese economy by the central bank in 2008 results in the massive increase of the real estate prices. Sadly, the wealth level of the people did not increase proportionally, and for young people now whose family didn't accumulate enough wealth, it is a struggle for them to afford properties and in this way, the demographic is hurted and hinders the investment growth model as there simply isn't enough labour to fill the factories.
What are the fertility rates in South Korea and Japan? East Asians have a sense of crisis, because potential risks reduce their willingness to reproduce and even their physiological needs. Another reason is that the population is too saturated. The population density in East Asia is much higher than that in Europe and the United States, but the level of development is indeed not as high. Imagine if China maintained such a large-scale manufacturing industry and had only 400 million people of healthy age structure, would people's consumption capacity really be weaker than that of the United States? Of course, without such a large population, there would not be the rapid development of the past few decades.
Excellent format and Fantastic video and why a country needs a thriving service sector to keep growing.
You are right. China is too invested in the current growth model. So, decades of stagnation is the way things will go
Couldn't be more wrong. Xi Jinping is actively shedding the old economic model. The downturn we are seeing is due to Xi's policies against the real estate sector.
A key aspect of the housing bubble in China that is never mentioned is that unlike in countries like the USA where borrowers can simply walk away from the property and the mortgage, in China, borrowers are personally liable for the debt. This means that even if the property is foreclosed, the borrower may still owe money if the sale of the property does not cover the outstanding loan amount. In addition to that they will face social credit penalties.
This is why the Evergrande crisis is different and particularly treacherous to Chinese home buyers. Many Chinese homes are actually condos / apartments in tall towers and there’s been a crisis of builders refusing to finish the building, while buyers still owe on their mortgage.
It means Chinese buyers can’t walk away even if the builder was corrupt or never finished the construction, while the lender remains protected.
This model is not unique to china. I am from EU and I am also personally liable for the debt. Bank of course appraised the hous/collateral, but if there price of house went below my debt, it doesn't matter. I am on the hook for the debt. That is why there are various requirements before you get a mortgage, e.g. loan-to-value ratio (80%, 90% for under 36 y/o), debt-to-income (8.5, 9.5 for under 36y/o) and debt-service-to-income (45%, 50% for under 36y/o). I believe this model is rather common in EU.
This was insightful and amazing. Thank you for the stellar content!
I think the necessary change is more likely than most people care to acknowledge; unlike Japan, China has demonstrated with Evergrande that it doesn't mind cutting losses so long as it doesn't jeopardize political stability. There are no Zaibatsu-like cliche in the CCP, nor are there any technological limitations and bureaucratic stagnation that prevent entrepreneurs from innovating and pushing for new services and products.
The biggest challenge right now is for the CCP to acknowledge that it has to at some point "let go" of its restrictive and protective measures to allow people to experience service gaps where private entities can jump in to capitalize on public demand. This is particularly true with the aging population that will soon need a whole host of healthcare services that are currently in their infancy in China.
Perhaps the Party is waiting for a sign?
No Zaibatsu? The entire CCP is based on bribes around economic sectors mate. This guy take the bribes from coal extraction, that guy takes the bribes for property approvals, this other guy takes the bribes from waste removal... The CCP has never "let go" of anything that would involve diminishing it's power. Ask Jack Ma and the guys at TenCent how the CCP would feel about "letting go".
China has their own zaibatsu/cheabol like monopolies.
@@technokicksyourass that might've been true in the early 2000's, judging by what I hear from colleagues things are very different now. The lack of transparency definitely hurts the business image, but it certainly hasn't stopped international business (outside the current slowdown due to the global recession).
Old age isn't a health challenge in China do to lifestyle which makes a majority of the Chinese die young.
@@Ranaimuye Chinese Average life expectancy: 78.5，Close to the US's 79.4
Excellent piece. Easily becoming the most credible economics voice on RUclips. Gefeliciteerd!
I just wanted to take a tangent on your Alexander Hamilton point. Many Americans do not appreciate how "planned" America's 19th Century economic success was (Lincoln was a big protectionist too) and from the very first president. I think an abundance of credit must be given to Washington listening to Hamilton rather than the likes of fellow Virginian and plantation owner, Thomas Jefferson. Had he gone with what he knew and Jefferson advocated, the US might not be more than a northern Brazil or Argentina. Washington saw the wisdom in planning for manufscturing growth in the economy mostly where it made sense between the two big cities of Philadelphia and New York and then up into New England. Washington is likely under-appreciated for his ability to get the most out of others and his openness to different ideas. And if he is appreciated for it, it's typically in the context of Valley Forge in the winter of 1777-78.
Sorry for that tangent; I just like that story of Hamilton and Washington setting the tone for that great success story.
Very good and understandable video. I almost always learn something new from your video's.
Perhaps a nice topic in a similar vein would be India. I recently saw a video about India and why skipping over the Industrial phase, and business rules / coruption effecting companies over 10 employees causes huge problems.
Would love to hear your view on it, and if there is any thruth in it and a good way forward.
I really enjoyed this video, especially the linking of current events to a specific model. I would love to learn more about different development models
Thanks for sharing
USA invested in China to use it against Russia. That was the difference between India and China. India was already committed to being non-aligned. China grew because of year after year of investment by USA while neglecting its own manufacturing. India was also a democracy and bureaucracy controlled country while China had autocratic rule and could move things faster along. So it was not just a question of closed and open it was more geopolitical after Nixon and Kissinger visit to meet Mao. He only gave the speech of cat either black or white after meeting with Kissinger and Nixon.
USA was desperate to get ahead in the Cold war especially since USSR was ahead in many fields including space technology at that time.
USA was also an ally of Pakistan in its fight against Russia in Afghanistan. That is why it could not overlook Pakistan in favor of India.
China’s development is not given . It is the people who make it. Your mind is narrative when said it is U.S. geopolitics that give China …
He left out China uses unfair trade to grow there economy.
I don't think I would ever in a million trillion billion quintillion years say India "has always been open"
Great video! Please do a similar video on India from an investors perspective
GDP growth in 2023 with 5% = Western Media: stagnation economy
Incredibly unhealthy GDP growth. What fraction of China’s economy is from housing or infrastructure construction? Of that fraction, what percentage is going to turn out to be non-useful? If the real value of that economic activity that produces non-useful real estate and infrastructure is zero, where does that put China’s real economic growth?
Do you believe in chinese GDP with so many poor people
Chinese GDP is more reliabile than American GDP @@huunguyen5280
@@yopyop3241The bulk is manufacturing, Idk where people kept getting that estate is 25 percent of the Chinese economy, when many other sources say it's 15 percent.
@@linusmayden8465 A lot of the manufacturing feeds into real estate. Manufacturing rebar and cement. Manufacturing construction equipment. Manufacturing hinges and doorknobs. Etc., etc.
Top quality, as always!!
When comparing different coutries one should use GDP-PPP and not Nominal GDP. This is due to the different prices for the same goods and service so the more expensive country would come out that has prodiced “more”. That is why UN and IMF is using GDP-PPP. China is world’s economy #1 and India is #3. The USA is #2.
Stagnation... (with Chinese characteristics) 🤣
A very good presentation, thank you. A couple of points that I think could have benefited from a closer look are:
1 - Demographics - China is aging rapidly and it is well known that aging populations become less productive as the ratio of workers to pensioners deteriorates. This presents significant headwinds to China's growth, even if the government was committed to delivering prosperity to all their citizens.
2 - Authoritarianism - The piece mentioned that vested interests are resisting the necessary change to consumer led growth, it should have gone further. President Xi understands that the Communist Party cannot survive as the sole source of power if the country continues to open up. Broad based prosperity would sooner or later lead to people demanding a say in how they are governed. This is why Jack Ma and other entrepreneurs ran afoul of the government.
It is sad, but this makes it hard to see China's growth continuing because of these reasons.
JAI HIND
Good observation. They can’t collapse due to the state controlled banks, they wont succeed in consumption led growth since it’ll be politically impossible and they’re running out of time to do so, the only possible scenario is the Japanese style lost decades.
It could be wrong, maybe China can find a way out and not fall into one of the three outcomes to break through the mid income trap, but it will be really difficult.
Otro resentido en pleno delirio,china=japon otro dislate histórico Japón nunca tuvo la posición de privilegio que tiene la economía china en la actualidad y dependía enteramente de su patrón yanqui.
Haha😂😂😂😂I love this , China with more than 5% grow, then it it fell from grace, USA with 2.1%, German is 0% Britain is 0.6%,who is felling from Grace, I bet all these countries wish their grow rate “FELL FROM GRACE”
When someone gets an answer they don't like, they become schizophrenic
@@lmn6335it is not like or dislike, it is fact, the last 30 years, Gordon Chang talked about collapsing of China, everyone in the west liked it and Gordon Chang made a lot of money, he loves every minute
US GDP has grown $6 trillion in three years while china hasnt grown at all
China plays shell games to boost it's numbers.
I am Chinese and I agree with most of your conclusions. China does need to improve workers' welfare benefits to increase China's consumption. But this alone is not enough. China needs to invest more in high technology and more in commodity brands. Only by combining them can the income of Chinese people continue to increase.
There are 2 complications in predictions:
-Data out of China is always manipulated. They say they're still at 5% GDP growth while they're experiencing deflation in prices and low export growth. These things are not compatible, so we know numbers are fudged.
-Lots of China's economic growth was from oversupply of building: apartments, single family homes, high speed rail almost no one uses. Those are tapped out now, so what stimulus can they come up with now? It seems the answer is flooding the world with inexpensive EVs. How will that turn out is a big unknown.
"With absolutely no advantage to be gained by lying, in a thousand instances where the explanation is of no importance one way or the other, a Chinese will relate the most absurd sort of cellophane lie. High and low, coolie, or general, they will lie naively, reassuringly, always affecting surprised pain at your doubts, when within an hour or so the truth is certain to crop out." - "Ways that are dark: The Truth About China" by Ralph Townsend (Former US Consul who lived in 1930s China)
They've always been like this regardless of whomever is running their backwater country.
The best way to determine what the CPC and the Chinese government's plans is simply to read their own policy papers.
China has stated repeatedly that they have three economic goals. First, to create a sustainable society, i.e., an ecological civilization. Second, to focus on innovation-driven high quality development. Third, to focus high quality social services such as cultural services, education and healthcare, along with IT, not the empty service sector of retail, hospitality, and FIRE services like other countries.
This means transitioning to a circular steady-state economy with modest growth. Western economists view this as 'stagnation' and think it is horrible since it means lower profits. Yet that has never been the goal.
An analogy is building a decent family-friendly minivan that can cruise along at 100 kpm. Once the car is built, the goal is to maintain it to maximize its life-cycle. Building a slightly better car that can cruise at 120 kpm is not worth the extra expense. Building cars that can go 200 kpm may be feasible, but they don't tend to be family-friendly, which is the main purpose.
Cars will still improve with better materials, electronics, accessories, etc, but the base model will remain the same.
The goal of the economy is to get everyone to a sufficient and sustainable income. It is not to maximize production, consumption, or any other type of economic activity. The economy serves society. Society serves families. Not the other way around.
East Asia gets it. The Anglosphere not so much.
Yang Zoe Liu during her interview last month was filled with biases and flaws in her argument. She said it is perfectly fine that China is overleveraged. What she missed is that over the last decade, there are many years where China's GDP growth only grew one RMB per 10 to 12 RMB of debt. Understanding economics in general in a country does not mean you know what you are talking about.
From the information that I have come across, it does not seem that China will abandon its current economic model. As it keeps on producing more goods than can be consumed on the mainland, and then trying to export its excess inventory in an attempt to grow its economy. This though is creating growing push back from other economies, seeking to limit low cost Chinese product from flooding their markets. With more countries increasing tariffs on Chinese products in order to protect their local industries; this may force a change in the Chinese economic model, but I doubt it is a change we will see in the near future.
Yes it increasingly looks like they will try to go back to export led growth even though they are now far too big for that
If China stops accepting the US PAPER dollars in exchange for their high quality products, then do you think US is still thriving?
If the US regime and American people keep borrowing/printing PAPER dollar/spending, then do you think China will keep accepting those US PAPER dollars?
The US is not a luxury it is a necessity, if China stops accepting US Dollars then US and European consumers stop buying Chinese goods. The US/Europe have many alternatives to China but China has no alternatives to the US/Europe.
So if China stops accepting US PAPER dollars for iPhone, then where do US/EU go to buy iPhone? India? Good luck with that.@@drscopeify
Yes, because contrary to what you hear the united states has the worlds largest economy and that economy is dependent on people within the US more than outside of it.
China and several countries are buying gold for their central banks.
They definitely want off the dollar.
Excellent analysis. I much appreciate the references. This will be remembered as *the* video regarding china's growth history so far.
Headwinds ahead:
* Demographics. Declining working population often leads to stagnation and deteriorating economics.
* Lack of plurality in sharing the riches. Communist style of development has run its course as the current leaders are unwilling to share the power with CEOs & ordinary people.
* Foreign investment turning negative. Often associated with crisis and deteriorating economic conditions.
* Insistence on Taiwan land rights and turning the world into a bipolar competition. This is clearly triggered by China's current leaders causing USA and Europe to pull back from China scientifically and economically. Globalization undone (thanks to Xi & Putin).
* Punishing the entrepreneurs. Why would I want to start a company if I'll be ultimately put in jail? I'd rather lay low, and do nothing.
* The current government being clueless about what drives economic development (hint: it's about empowering people, let them figure out what needs to be built and how).
There's more than enough reason for China to expect several glum decades of economic conditions.
"* Lack of plurality in sharing the riches..."
I'm not sure exactly what you are trying to imply, I'm guessing it's the "communism thing"?
In the 2023 Congress, new 10-year-goals been set including Wealth Sharing. The government is encouraging enterprises to distribute profits to employees accordingly via pay rise / bonuses / work condition improvements ... etc, or, companies could face tax penalties.
On "power sharing", the Chinese government employs elite progressive-voting model, where folks are required to build up their own profiles in young age by involving and contributing themselves within their local community and upwards. Sorry, other than extreme rare cases, you cannot be a comedian all your life than suddenly wanting to be a Chairman candidate. That's the ordinary folks' part.
I'm still not catching the CEO part, what kind of power should the government share with them? If it's what I think it is, it would just turn into a voting system like the US, where politicians become muppets of enterprises.
"* Foreign investment turning negative..."
I see it as a temporary issue due to a sudden change in US monetary policies and political postures towards China. The high interest seasons cannot last forever, and so do direct-investment sanctions yet, these are the causes contributing to negative foreign investments.
"* Insistence on Taiwan land rights and turning the world into a bipolar competition..."
China has been very consistent on the Taiwan issue since over 75 years ago, never changed; Taiwan hasn't changed either, the 4th article in their Constitution has not altered since written, that they are claiming sovereignty rights of China, meaning the whole of PRC China. Two parties dispute over the same lands, PRC China has got stronger now and Taiwan plays the victim game? Maybe Taiwan should rewrite it's constitution first, at least get rid of Article 4? Meanwhile, what has changed? The US lead western world have changed, using Taiwan as hostage against China. You can believe whatever you want to, but it's not going to change the UN resolution 2758 in 1971.
You actually blame de-globalization on China and Russia? Which country initiated the trade war via sanctions? Who said the most infamous line "trade wars are easy to win"? China and Russia being sanctioned thus, causing breakdown on supply chains, these are not the case that could be vice-versa, do you not understand the most simplest theory of cause and effect?
"... USA and Europe to pull back from China scientifically and economically..."
None of the standalone EU countries or US could do jack shit in the field of science, they are only using collective power against one single country, China. Could any of those countries build a space station on their own? Could ASML manufacture EUV machines base on solely US tech or Netherlands tech? 5G tech? Battery tech? The fact is, other than EUV tech being in initiate stage, China could build all that mentioned on it's own. What is there to be pulled out from?
Economically, have you not heard of the biggest foreign investment in history from BASF and Volkswagen Group in China? Or Tesla? Germany, the powerhouse of EU is at negative growth.
"* Punishing the entrepreneurs. ..."
I hope you know what's law & order which, I doubt its existence especially in the Western world, where greedy entrepreneurs could always buy themselves out of jail with money, even if convicted.
"* The current government being clueless about what drives economic development (hint: it's about empowering people, let them figure out what needs to be built and how)."
Sure, if you want to think the Chinese government is clueless, be it. (hint: if you empowering people to figure out, it would end up like the US, a land once full of scientists and honest scholars, replaced by lawyers and accountants.)
We have always blamed communism for their abusive dictators, but the truth is they had abusive kings, before communism, abusive dictators during communism and abusive dictators during capitalism. They just let bad people run their countries.
As much as I want China to fail, the unbiased and intelligent look into their economy has won me over. Great job, possibly one of the most enlightening videos I've watched.
The westerners economic experts have been predicting the fall of China since early 1990's now its 30 yrs anniversary of their biased and hateful predictions.
Why the hell would you want China to fail?
Lifting 800 million out of poverty depends on the definition of poverty.
The idea Special Economic Zone , was idea from Lee Kuan Yew when Deng visited Singapore in 1978. Southern China next to HK, a financial hub that time. Instead of Developing economy in Shanghai .
To figure out the "What's Next?" question is heavily dependent on understanding China's politics. Since Pettis still teaches in China, he is not allowed to mention anything that is political in terms of the direction of how the Chinese government. Any sane and reasonable person in China have already answered this political question and the answer to that question is very dire.
LMAO Westards believe the dumbest sh!t
Im not trying to be overly critical of Money and Macro but he is leaving out key political aspects of the situation Like the U.S. government taking steps to Debilitate China's economy.
Very good video.
The one thing that I'm sad you didn't cover is the changing demographics of China and how that will affect things.
He did a video on why demographic decline isn't actually that bad. He also didn't mention a lot of other things. Such as the three red lines, and the new engines of their economy.