China's Finance Ministry reviews the 14th 5YP (2021-25) and looks ahead to the 15th (2026-2030).

Source transcript here: mof.gov.cn/zhengwuxinxi/c… x.com/Sino_Market/st… Fiscal revenue grew ~19% in the 2021-25 period compared to the 2016-2020 period (~3.5% nominal growth).

Note: IIRC fiscal revenue excludes categories like land sales, which are part of an auxiliary budget.

Scholars once worried that China's gender ratio imbalance would lead to a generation of surplus men, fueling crime, chaos, and even war.

What we got instead was ... this. Certain China watchers busy penning missives on how this Paw-temkin Village is merely the latest example of the country's addiction to construction, penchant for capital misallocation and "politically entrenched elites" blocking efforts at structural reforms.

Productivity is what ultimately drives per-capita economic growth and increases in living standards over the long run. This concept is one of the pillars of developmental economics.

I’ve come to realize one of the the fundamental issues with Pettis/Setser economic framing is misplaced reliance on accounting identities with little to no consideration of productivity effects.

To wit: nowhere in this thread is there any mention or consideration of how this sectoral shift impacts productivity. In the short to medium run, there can certainly be supply-demand disequilibrium where “weak demand” is an issue.

e.g. in this 🧵 from a year ago I tried to quantify the headwinds from reverse wealth effect impact of the policy-driven pivot away from real estate to manufacturing since 2020 and how they could offset wage growth driven by underlying productivity growth enabled by sectoral shift.

In January, I speculated how "the most impactful outcome from DeepSeek's rise may ultimately be closer collaboration with Huawei and other chip designers".

We now have direct evidence of this collaboration, with potential standardization around UE8M0 the first major tangible result.

While some may dismiss this as technical or esoteric jargon relevant only to AI, computer science, or math enthusiasts ... I will try to explain here in plain language some key market and geopolitical implications of this development. First I want to acknowledge others who are much closer to DeepSeek and AI for both raising, highlighting and explaining these recent developments, particularly @teortaxesTex @zephyr_z9 and @Compute_King

In this 🧵 I am merely synthesizing the insights and knowledge gained from following their timelines and trying to add value by layering on market and geopolitical insights.

About a year ago, ahead of "Two Sessions", I performed a deep dive into China's economic transition (away from real estate).

Five years since "Three Red Lines", China is now entering the "late innings" of that transition.

▪️ Exogenous macro risks ↘️
▪️ Real estate ↔️ and no longer a major headwind.
▪️ "Animal spirits" ↗️ Exogeneous macro risks are lower than a year ago:

▪️ Trade war-related risk/uncertainty largely cleared w/ better-than-expected outcomes.

▪️ China progressing in broad tech war. It is decisiveley leading renewables & EVs + closed gap in AI & chips.

https://x.com/GlennLuk/status/1839019741618516063

> “The state cannot allocate capital more efficiently than the market.”

An oft-repeated axiom chanted like a religious mantra and accepted by many as a universal truth.

But one that can be easily debunked with a straightforward contra-example from one of the most capital-intensive industries of them all: passenger rail. China Railway (SOE) vs. Brightline (private)

CR HSR:
▪️ 48,000 km of greenfield track, predominantly elevated on viaducts
▪️ Serves 3.6B passengers annually
▪️ ¥550B of revenue on ¥5T of capital investment (9 years revenue payback)
▪️ 42 fatalities over 17+ years and 23B passenger rides

Brightline Florida:
▪️ 376 km of refurbished at-grade track
▪️ Serves 2.8M passengers per year
▪️ $187M revenue on at least $5.5B capital investment (29 years revenue payback)
▪️ Caused 182 fatalities in two-plus years of operation (hint: maybe you shouldn’t run fast trains over at-grade crossings).

Did the private company really do a better job allocating capital here? (rhetorical)

Re-invigoration of biking culture in China and the relentless expansion of dedicated biking lanes today can really be traced to the invention and proliferation of dockless bike-share systems starting around a decade ago.

https://twitter.com/modacitylife/status/1954092681912627575

Like many emerging industries in China, dockless bike-sharing got off to a chaotic start but within a few years settled into a stable equilibrium.

https://x.com/GlennLuk/status/1317042021148680193

If you ever played Civilization, 👇 is the equivalent of discovering tech that allows you to upgrade a desert tile into an energy-producing one.

Affordable solar PV production has the same effect as discovering oil in the Middle East and then multiplying it by 10x.

https://twitter.com/glennluk/status/1947188789069398471

~830B barrels of proven reserves in the Middle East has effective energy equivalent of around 11,300 GW of solar PV that produce over a 25-year useful life.

At 14 km2/GW, this would take up desert space of ~158,200 km2, which is less than a quarter of China’s portion of the Gobi Desert.

Moreover, regular maintenance and replacement means this infrastructure would produce energy in perpetuity, while the Middle East oil fields run out or become more costly/difficult to extract (even with improved extraction technology).

Pettis’ theories and models have a clumsy track record of falling apart upon closer inspection by trained specialists in their fields of study.

https://twitter.com/briancalbrecht/status/1947708929128976807

The above is an example from economics.

He also did it here with misapplication of “inclusive-extractive” framework.

https://twitter.com/glennluk/status/1848455615904948708

I think foreigners — especially Americans — do not fully appreciate China's predilection for large, capital-intensive infrastructure projects because most do not know what it was like to live in a place starved of God-given natural endowments. While we marvel at the economic benefits of a navigable Mississippi River system, bountiful arable land enabling "amber waves of grain", and "purple mountain majesties above the fruited plain" and rich stores of oil & gas + other useful commodities ...

readwriteinvest.com/p/america-the-…

I had written a deep dive on known issues in the measurement of China’s GDP and how misleading it was to frame the discussion around the GDP accounting identity, especially if the way those numbers are calculated differed wildly from country to country.

In light of the recent discussion of China’s under-counted consumption 👇, it was worth re-upping these pieces. Part I provided relevant background on the technicalities of GDP measurement and the historical development of Pettis’ “Over-investment Thesis” and the critical role of the GDP accounting identity on determining “imbalances” in China’s economy.

readwriteinvest.com/p/tyranny-of-t…

Essentially, the key takeaway of this study is something many have already long known/suspected:

China’s per capita consumption of real goods and services is very much in line with countries at a similar level of per capita GDP + the reason why it is low as a % of GDP is because it is measured more conservatively.

(This is also suggests that China’s overall GDP is also under-counted, in direct contradiction to what many believe) Even though Chinese households are verifiably consuming everything from food to cars to education services in real per capita terms at or higher to comparable economies like Mexico + sometimes close to or even exceeding fully developed economies like Japan, cultists will insist that consumption is lagging on the basis of flimsy accounting identities.

Others have now raised this topic a few times, so allow me to share some thoughts on the BYD (and broader) supply chain financing story:

1⃣ BYD's high payables number actually reflects the strength of its underlying business model and market dominance for two key reasons (ability to extract favorable supplier terms; how that number is driven in part by rapid expansion in production capacity)

2⃣ Establishing industry norms that forces larger players like BYD to adhere to standard payment terms (voluntarily or involuntarily) is a positive step forward for the whole industry, leading to more efficient overall financing approach.

3⃣ BYD and other market leaders that also run large negative working capital balances are generally not a risk of insolvency by adhering to new industry norms as they are generally under-leveraged (with traditional debt financing) and will simply plug the financing hole with more traditional debt and equity financing. In BYD's case, I expect all or most of it to be to replaced with debt (long-term bonds). 1⃣ BYD's high payables figure reflects strength of its underlying business model and is in part a reflection of its rapid growth in production capacity

While the high payables figure has been portrayed as a potential weakness (with some even raising the idea that BYD is insolvent), actually it reflects the opposite.

People have a tendency to compress complex, multi-decade stories into simple narratives that follow cause-and-effect storylines, often ones that tie into pre-existing narratives. This creates the risk of dangerous over-simplification.

In this case, the prevailing narrative goes something like this:
▪️ "China failed to build a competitive auto industry for decades."
▪️ "Then Tesla entered the market and became the magic fix that enabled China to develop a globally competitive car industry."
▪️ "Therefore, we should apply the same magic fix to our own industry."

In my view, this is a dangerous over-simplification. Reducing the story to a simple cause-and-effect narrative often leads to blissfully naive solution sets that fail to address the core issue: how do we re-industrialize America?

Believing that simply inviting Chinese car companies into the U.S. will serve as a "magic fix" — just as Tesla supposedly was for China — misses the mark, for two key reasons:

1. The "magic fix" narrative is a gross oversimplification of five decades of development in China's auto and broader industrial/manufacturing sectors.

2. The fundamental challenges China faced over those decades are very different from the ones the U.S. faces today.

None of this is to say that inviting Chinese automakers to invest FDI in the U.S. cannot be part of a LT solution**. But it must be done thoughtfully — and only in tandem with addressing core domestic issues — if the goal is truly to re-industrialize this country in a meaningful way.

** Of course, all of this assumes they even find the risk/reward decision to commit long-term capital to the U.S. in today’s geopolitical climate remotely attractive compared to FDI opportunities elsewhere. 1⃣ First, let me go through several points that were brought up in the excerpted sections of the interview as well as the post to show how reality was much more complex than presented**

** I full interview is not out and I haven't seen it, so perhaps there will be more nuance there; this is mainly a reaction to how the narrative on the rise of China's auto industry has been grossly oversimplified and in certain cases, simply wrong.

This popped up on my timeline and was just a reminder of some of the sillier narrative framing of Chinese EVs just a year and a half ago.

https://twitter.com/glennluk/status/1746605680566698438

Since this post in January 2024, Chinese NEV production has increased from a ~10-11 million run rate to ~>16 million as of mid-2025 and virtually ALL of the increase has been absorbed by the Chinese market …

https://twitter.com/michaelxpettis/status/1746398654590574967

Chinese chip designers finding workarounds for EDA software is roughly the same degree of difficulty / switching cost as moving away from CUDA/nVidia.

This is an effort measured in months, not years.

eetimes.com/u-s-restricts-… By comparison the advanced lithography ban was an OoM more complex/difficult and the switching cost process measured in years, not months.

That was the largest source of leverage in the American tech/economic dominance toolkit and it was played early.

Can we please stop with this fiction that there are "only 2-3 profitable Chinese EV companies"?

I count at least 8 profitable NEV operations + CATL/Huawei. And it is the only market that is close to profitable selling NEVs at the sectorwide level after accounting for subsidies. In 2023, the first year after Beijing ended buyer rebates, China's car sector sold an ~9.5M NEVs generating revenue of ~$233B ($24.6k ASP).

Sectorwide gross margin was ~21% (~14% ex-subsidies) with operating profit of ~1.4B (negative ~$21B after subsidies).

Saying Apple "invests $55B in China every year" is financially illiterate nonsense.

We know exactly how much Apple has invested in China, as it discloses annually in its annual 10-K.

Apple has cumulative investment in "Greater China" (includes HK/TWN) of $4.8B as of 9/2024. Included in this $4.8B balance sheet figure are leasehold improvements on Apple Stores, "inventoy prepayments" and owned "capital assets at its suppliers' faciliities" like molds and specialized equipment sitting in Foxconn's factories.

The whole China-US supply-demand debate is polluted by shoddy economic reasoning and false narrative premises that have led to piss-poor strategy and policy implementation:

▪️ U.S. demand isn't fixed but driven by income (both wage- and capital-related), which is driven by productivity. Lower productivity — whether from trade war-related economic adjustments or retaliatory actions — will negatively impact income, which leads to lower sustainable demand.

▪️ The U.S.-China bilateral goods balance overstates the surplus as it does not account for offsetting deficits that China runs with other countries, the large FDI income and services deficits and other factors. Thus focusing on this metric has led policymakers to seriously overestimate the economic leverage American "demand" has over China.

▪️ Focus on China's "low consumption" has long been a red herring. It is demand — which like the U.S. and or any economy, is driven by income and productivity — that matters in the long run.

▪️ China's "low consumption" is mainly a function of its gross capital formation (GCF) levels being high. GCF is mostly domestic. And people forget GCF is merely a form of deferred consumption: all economic activity (GDP) becomes consumption at some point; "consumption" and "gross capital formation" are merely differentiated by the question of whether it is consumed now or consumed later. This concept might be less confusing if we properly referred to "consumption" in a GDP concept by its more accurate technical name, "household expenditures".

▪️ China's persistent "low consumption" or "low household expenditures" is not a function of debt or institutional "constraints" but policy choice that is largely underpinned by demographics: China's current labor force complements capital-intensive development. And Chinese housing and infrastructure buildout is not close to being complete.

▪️ That said, the former (labor force priority) is changing rapidly, driven by actual demographic change, automation and the trade war, all of which force costly economic adjustments on the economy.

▪️ The trade war-related adjustments lead to productivity boosts in the long run. Offshoring labor-intensive export processing work that dominates Chinese exports to the U.S. is what China needs to do in the long run to become an advanced, high-income fully developed economy.

▪️ Both the U.S. and China need to undertake costly economic adjustments in the short- to medium-term. The "winner" out of the trade war is the one that can (i) more rapidly undertake these adjustments and (ii) make the right adjustments that lead to productivity growth in the long run. "U.S. demand isn't fixed"

There are many analysts out there — e.g. those who like to use the phrase "supplier of demand" — who seem to rather ignorantly assume that American demand is some constant, magical force without considering the fundamental sources of real demand, which is productivity and global trade ... and how the trade war might impact both of these.

The American economy is highly productive! A key part of productivity growth, particularly over the last three decades, has been the continuous rise of the American MNC, especially in sectors like technology/Internet and pharma.

American MNCs have gone out into the world and absolutely crushed it. Their rise drives the incomes of well-paid employees (mainly located in the U.S.) and capital income in the form of dividends, share buybacks and rising market capitalizations (which support persistent capital inflows).

Rising incomes support rising demand. American MNCs directly and indirectly enable American households to increase their purchases of physical goods from places like China.

Simplest way to think of Huawei is that it has first pick (de facto monopsony) on elite STEM talent from the largest pool of STEM talent in the world and a culture and organizational & incentive structure that can efficiently re-allocate its R&D workforce to new product development adjacencies.

The NBA lottery is coming up so I will use that as an analogy. From this perspective, it is analogous to a company like Samsung Electronics and TSMC — which hold similar “draft rights” on elite Korean and Taiwanese STEM talent** — but scaled up 20x and 50x, respectively.

** the Korean and Taiwanese equivalents of Cooper Flagg, Ace Bailey, VJ Edgecombe and Dylan Harper …

China exports ~100M iPhones p.a. to the U.S. currently. This is valued by customs at ~$45B, or ~one-tenth of exports.

China’s economy only makes ~$60 in net GDP per average iPhone 👇 (this one says $72 but this is a high-end iPhone).

So China needs to replace ~$6B of lost GDP, or 0.033% of its annual output. At ~$8/hour, this is ~300k (mostly blue-collar) workers.

Every day, on average China creates ~33k urban jobs (~12M annualized). So losing the iPhone trade amounts to ~9 days of job absorption.

Remember this is ~one-tenth of China’s bilateral exports to the U.S.

So you need to explain to me why China won’t be able to absorb the loss of these relatively low value-add export processing jobs? If anything, it will merely just accelerate its move up the value chain.

Instead of assembling iPhones, China will grab higher market share of higher-value components like chips, memories and OLED screens. Now think about what happens when Apple loses market share, either as a result of retaliatory actions on its China sales or by tariffs rising prices and lowering demand.

Apple sells ~45 million iPhones in China today at ~$900 per unit. It generates ~43% operating margins, or ~$390 per iPhone.

Say Apple loses half its market share in China. ~22M iPhones x $390 operating profit per iPhone = ~$8.5B in lost economic value to Apple / U.S.

Who is hurt more in this exchange?