This @TheEconomist chart should really keep European and German policymakers awake at night.
China’s state-directed investment in ‘high-quality, productive’ forces is leading to massive overproduction that will reverberate in global markets for manufactured goods. 1/
China’s state-directed investment in ‘high-quality, productive’ forces is leading to massive overproduction that will reverberate in global markets for manufactured goods. 1/
As China's manufacturing exports exploded in the 2000s (to 19% of world total by 2013), aided by protectionism/subsidies, the US lost one million manufacturing jobs.
A second China shock is rapidly unfolding, this time in the EU's key sectors. And the shock is much larger. 2/
A second China shock is rapidly unfolding, this time in the EU's key sectors. And the shock is much larger. 2/
After China’s property bubble burst in late 2023, China directed the country’s savings toward making cars, chemicals, machinery, and chips (hi Germany).
And China has been selling the resulting overproduction on global markets to avoid unemployment at home. 3/
And China has been selling the resulting overproduction on global markets to avoid unemployment at home. 3/
The EU is poised to potentially lose many more jobs than the U.S. did during the first shock.
For one, the bloc currently has around 30 million manufacturing jobs compared to the 17 million the U.S. had in 2000. 4/
For one, the bloc currently has around 30 million manufacturing jobs compared to the 17 million the U.S. had in 2000. 4/
But the second China shock is also roughly twice as large as the first one - if you look at China’s manufactures trade surplus as a share of global GDP (h/t @Brad_Setser).
The Economist chart is another piece of evidence on the larger scale this time. 5/
The Economist chart is another piece of evidence on the larger scale this time. 5/
Here the chart again - supported by the levers of state capitalism, the number of lossmaking Chinese industrial firms is multitudes higher now than at any point in the last 25 years (right-hand side).
Rough times ahead for European manufacturing. 6/
Rough times ahead for European manufacturing. 6/
Wait, but this seems unsustainable? Sure seems like it.
The Economist hopes that China will not do bailouts and ultimately filter out weak producers
That should curb overproduction and the impact on global markets.
Perhaps. 7/
economist.com/business/2024/…
The Economist hopes that China will not do bailouts and ultimately filter out weak producers
That should curb overproduction and the impact on global markets.
Perhaps. 7/
economist.com/business/2024/…
But I, for one, have not yet seen any indication of a change in Chinese policy (eg due to EU complaints on overproduction).
And time matters.
After all, (State-directed) markets could remain irrational longer than you can remain solvent. 8/8
And time matters.
After all, (State-directed) markets could remain irrational longer than you can remain solvent. 8/8
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