Another brick in the wall when this becomes law next week. How significant is this? /1 US House passes final version of China bill that bans all Xinjiang imports over forced labour scmp.com/news/china/art…
US imports from Xinjiang are tuning at roughly $250m a year which is a drop in the ocean set against total imports from China. So in value terms, US firms could easily source elsewhere, and it’s a rounding error for China’s trade. But political significance goes way further /2
Expect China to be pretty angry with invective galore and possibly threats of actions poss or actions against US firms either wrt trade or more importantly doing business in China. /3
Also it doesn’t stop necessarily in XJ. Intra-provincial trade in China means XJ firms allegedly using slave labour presumably source products and inputs and ship goods elsewhere. Would these fall within the new law? Ends.
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Conventional narrative keeps telling us it’s only a q of time until China is the worlds largest economy, maybe 5 or 10 years. But there’s nothing inevitable about that at all. In fact it’s being stressed right now. Read on /1
US and China nominal GDP are about 23 and 14.7 trillion usd. Over the last couple of decades and to now, US gdp growth has trended at 5%, but now running at close to 10%. China’s the opposite, trend 10%, now closer to 5%. Get the picture? /2
Let’s say for the next decade, US is 6.5% - higher inflation but lower than now, and China is 5.5 % lower real gdp trend and little inflation. In a decade, the tyranny of compounding has China falling further behind not overtaking. This isn’t just a numbers game /3
This is of course correct by Martin Wolf, and conclusion that the ‘model has to be replaced’ echoes a refrain that’s been v familiar for some time. But here’s the problem /1. The economic threats from China’s real estate bubble via @FT on.ft.com/3oOuKav
What to do? Dual circulation strategy is abt self reliance and investment. Regulatory crackdown is about bringing private sector to heel and aligning with party goals. Common prosperity is ostensibly abt inequality but isn’t a levelling up strategy. /2
What’s still missing is a comprehensive strategy to redistribute income/wealth from state to household sector, reform of tax structure to make much more progressive, local/central govt fiscal governance reboot, and welfare deepening. /3
China’s Evergrande debt crisis is the focus of the moment but property on China’s economy is the story. For the first time since the housing welfare system became a proper market, China’s property is facing up to a decade or more of stagnation. 1/7
First up demography. China’s cohort of first time prime age homebuyers, aged 25-39 is going fall by 25% by 2040, from 327m to 247m. So properly firms already overbuilding are in deep doodoo 2/7
Next sales. These are now falling year on year by a lot. August/Sept together maybe down 30% year over year. And it could get worse as developers retrench, are forced to discount, manage too much inventory 3/7
I remember at UBS we used to write in 2000s how and why China’s property market was the most important in the world. Fast fwd to 2021, it still is. At over 16% GDP, its more than 2 x US real estate in 2008. Evergrande et al are key to real estate, & metaphor for the economy /1
It surely cannot be allowed to end up in a messy default with collapsing property prices a) anyway b) so close to nov 22 Party Congress, but govt restructuring plan can’t wait too long as fin distress mounts /2
That said, extend and pretend, and other restructuring solutions will only defer a denouement for real estate, which is cyclically and structurally weak and having regulatory headwinds, incl from Common Prosperity. /3
China’s crackdown on tech, finance & data isn’t over, and while each firm/sector has its own tale,the big pic is more ominous/political and not just about regulation. My take on why CCP is providing latest in why ‘inevitable rise’ isn’t a slam dunk at all newstatesman.com/world/asia/202…
Aside from fact that CCP is not comprised of economic magicians, China’s development path, which many extrapolate on spreadies to mid century +, isn’t a mechanical concept. Too many need reminding of both. /2
I’m addition to Red Flag structural headwinds, China now faces the most hostile external environment in over 4 decades. What some see as it’s Sputnik moment may also be game changer in more troubling, negative ways. /3
China tech crackdown rolls on, today the gaming sector. But what do all these sector campaigns in tech, finance and data actually mean? Is China boldly going, or screwing up? /1 Tencent Shares Dive After Chinese Media Brand Online Games ‘Spiritual Opium’ bloomberg.com/news/articles/…
Much of what’s going on falls under Xi’s social agenda, aka common prosperity, in which the CCP will act against tendency of markets to exacerbate inequality or threaten party’s control of data, unchallenged power and so on. /2
You can come up with reasons on a case by case basis to see China blazing a trail that many liberals would support to act against consumer technologies that add little to economic welfare and may undermine it /3