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China's Dreams of World Leadership are Fading

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58 minutes ago, Marcin2 said:

It is so sad for me that US is going down so fast. US does not understand that using only sanctions against Chinese companies as a way to compete with them is a very self damaging move. Look at a new yesterdays accusations: racketeering, stealing an IP from 6 US companies through employment of their former workers ? These are really desperate moves. The next 5 years will be very dangerous as US tools are mainly extorsion and military power. I hope this will not lead to war.

In the meantime nobody would want to economically co-operate with US companies as they present too much political risk.

tl;dr   China good USA bad

Carry on.

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19 hours ago, Marcin2 said:

On R&D and modernization of industrial base:

- I am very glad that you express your opinions about China being unable to go up the value chain and build their own Intellectual Property.

But again hard FACTS on the ground are different:

- China goes up in all metrics of R&D, I was writing extensively about it here. Chinese companies, mainly private companies contribute 80% of R&D spending, China goes up in competition, technological etc. rankings every year.

Please give me some FACTS that back your opinion that China cannot innovate. In the different threads I created on this forum I proved by FACTS that China can innovate and does a lot of R&D. Why US conducts the most brutal tech assualt on Chinese tech companies since the end of the Cold WAr ? Because Chinese are so weak in R&D or Chinese are so strong in R&D and they are threat to US supremacy ?

 

- I do not know what is your definition of high-margin or low-margin economies. Please explain.

 

 

There is no doubt that Chinese companies and scientists and engineers do R&D with great success. It is keeping it proprietary to the ones funding the R&D that makes it high margin. Otherwise it is all priced like cement. Might as well be rocks. Or to be more precise, a bag of unassembled parts. 

Why do you think Huawei is such a target? The Ericson and Nokia technology and employees they poached saved them billions in R&D effort, so they can offer the same products and capture the market at a low cost, since they didn't put out of pocket cost to do the R&D. Now that they do I would bet that they keep it all secure and even CCP agents are not allowed access under a "need to know" arrangement, because they have the Party's protection. Everybody else has to accept party hacks throughout their operations spying on them and pilfering trade secrets etc. and selling it where they can make a Yuan.  The anti corruption campaign would have included 89 million communist party members in jail. 

You can't produce a high margin from commodities that anyone else can make. It has to be proprietary in some way; technology, production optimization, production tricks, design fine points, rock solid quality assurance, high craftsmanship, brand recognition, aftermarket service.... If you rely on pilfered technology then you may destroy the inventor's business, but you won't be making a good business for yourself. 

What China needs is protection of technology and business secrets from the CCP. I.e. eliminating it's people from all labs, shop floors and design bureaus. Otherwise, everything proprietary you invest in will show up in competitor's products, and likely long before yours make it to show and tell at the next CES. 

The party has a conceit that you climb up the value chain. It is not so. You create the value chain by improving several aspects in a way nobody else has and thus obtaining a higher price and thus margin. If the info is common knowledge then all you get is the price of the materials and labor and a small margin. So you only destroy value the way the CCP thinks of it. You make what took precious investment over years and make it as worthless as a supermarket's markup.  

 

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20 hours ago, Marcin2 said:

On Eurasian integration:

China-Central Asia - Russia/Europe land route is just a supplementary way to transport goods by rail and road. It is a middle solution by rail (12-18 days; potential to decrease to 5-7 days), between air freight (1-2 days) and sea freight (25-60 days). It will never have: volume of sea freight (100 million containers and 1 billion tons magnitude), or speed of air freight. This route is also used to import hydrocarbons from Central Asia and Russia. Central Asia and Russia is just 200 million people.

Most of Eurasian economic integration dominated by China goes: China-East Asian tigers (high tech supply chains), China-ASEAN (general trade, offshoring), China-Pakistan (direct access to Indian Ocean and Middle East). China-Europe is also important but it goes like US-Europe integration due to geographic distance.

To sum up the model of trade/transport would be most of all still through sea lanes, like today.

Actually most of this integration is already the fact.

Why Eurasian integration is an important aspect of future Chinese hegemony:

- China-East Asia (Japan, South Korea, Taiwan; 7.6 trillion GDP, 200 million people) high-tech trade and supply chains - currently most important for China. For all East Asian countries China is already the most important economic partner by big margin. Unfortunately for US actions of Trump administration 2018-2020 only tightened and streamlined development of these relations. China is the largest consumer of high tech components (by value: mainly integrated circuits). It is observed (reports by Pentagon and various American industry associations and think tanks) that each month more and more global companies cease to use American high-tech components, and try to substitute: mainly in East Asia but also Europe. All Chinese companies and international companies with Chinese based manufacturing base are in this trend. It is simply: a) expensive due to import/export tariffs b) very risky potential disruption to global supply chains - risk of further export and technological embargos to source any high-tech components in the American companies (from their US and global facilities alike). Of course substitution will take a few years as the United States is dominating some high-tech sectors, but substitution out of US components is a FACT. That is why it was Pentagon that recently VETOED further sanctions against Huawei.

- China - ASEAN (3.2 trillion GDP, 650 million people) is about general trade, physical integration, ASEAN gets access to vast Chinese market, Chinese gets access to cheap offshoring (like US offshoring to China in the past).

These 4 centers: China, ASEAN, East Asia and Central Asia/Russia is : 2,450 million people, 25 trillion dollars. This is very deep, very close part of integration, China being the most important economic partner by high margin.

Add to this: Australia, Bangladesh and Pakistan, also close but different another: 400 million people.

 

 

About Chinese banking system:

I do not have currently time to dissect and refute your arguments so please refer to:

https://bruegel.org/wp-content/uploads/2018/05/Presentation-by-Alicia-Garcia-Herrero.pdf

It has actually rebuttal to all your: Chinese finance system (and mainly bank system) will crash fears.

The problem with the US technology export controls and its restrictions is well known and a generally bad idea when you have other options, like levying fines via legal cases, levying tariffs etc.. The industry has always argued that technology embargoes hurt their revenues and thus their ability to fund cutting edge next generation products. It is true. Nobody can afford such high R&D and instrumentation costs without access to the broadest markets, and obviously the US is not 50% of the market any longer and has not been for a long long time. China, as an assembler is a large importer of technology, but the bulk of it is not for final markets in China but to cheaply assemble US and other non-China technology into export products marketed by the technology companies, largely American, and EU and many others too. Many sensors and optics are made in large scale uniquely in China. High grade ones are still made in Taiwan, Japan and Korea. Nobody brings novel proprietary technology into manufacturing in China. It is presumed to be automatically stolen. Increasingly, key parts don't go through the China supply chain at all. 

China is not exactly "manufacturing abroad" or offshoring for cheaper labor. They are losing entrepreneurs and their capital. Not just the headline Chinese companies moving production to ASEAN cheap labor locations. 

While it is entirely true that China is well integrated into the supply chains, and the US actions have indeed brought damage to markets for US technology companies, that is not tightening the relationship of China with non-US technology suppliers as much as claimed by the tech companies. The main point is that the non US technology companies are gaining share because of the US policy among users that can't leave China YET, or at all. Additional market share loss is due to some companies still doing other business in China that targets final markets there. The trend of moving out of China production is already 6-7 years old. Tariffs accelerated it substantially, The Covid-19 quarantine will accelerate it that much further. 

The recognition that China is not the rising middle class target market that consensus thinks it is, will come soon enough. The financial crisis I am expecting will happen. Don't expect official numbers to declare "oh, we're broke" market numbers will show it up. The Chinese interbank repo crisis that endured a full quarter last year is just one. 

 

You are adding up numbers as if the association of the ASEAN and Europe and other populations on the Eurasian land mass mean something when added to the Chinese numbers. All are integrated into a global economy into which the US is as well. You can add them up with the US and exclude China just the same. You are claiming that the Chinese bribery and the fear and loathing of its neighbors on the S. China sea are friendships and signs of integration. In some cases it may be that way, but this is actually a long term US focus and there will be a real effort made to turn the relationships towards the US. I can't say that it will work, but I am not expecting that cut rate Chinese armaments are going to win them loyalties in more sophisticated countries that they win in subsaharan Africa. Philippines has already asked that the US return to its old bases there as a sign of "friendship" with China.  

If the Chinese expect the sea route to be a real option because they have ports in Pakistan and Myanmar that India could block if it cared to, then China remains just as dependent on the US for protecting its trade routes as it is today. It would still be so if it had a real navy. The US already chose the UK and Japan as partners. Both are closer to floating a real navy than China's 2nd attempt at a carrier. We will see how partnerships will develop - key is India Thailand and Australia and whether Indonesia can be bought and the Philippines have staying power in addition to will. Malaysia keeps swinging either way.  

 

Ms. Garcia Harfera's presentation at Bruegel ignores some of the available numbers for leverage and does not address the obvious point that the NPL numbers are just plain bogus, as the banks can arbitrarily decide to roll the loans and the unpaid interest. China based economists are loud enough about the issue. She also ignores the fact that 150 Trillion Yuan of the bond market are issued bank bonds that are owned nearly exclusively by the other banks - a crossholding arrangement that increases assets so that they appear to be in excess of liabilities, which they may be, but not by as much as claimed for their capital cushion, and they may not be so at all. Otherwise the crossholding of bonds would not have been made it can't serve any other goal other than marking up each other's books.

She does not comment about the idiotic juxtaposition of these two charts as they are in complete disagreement with each other. There is no way that corporate profit growth was near 0 for a decade (falls back to 0 in 2018) and NPLs were falling and flat. Obviously the NPL number is a "declared" number based on no criteria.It is discussed among Chinese economists. 

 

 

Alicia Garcia Harrero presentation on CHINA banking at Bruegel.gif

 

In short, it is not a critical discussion and does not refute anything. I suggest you go over Prof. Malinen's presentations. Helsinki can't be far, perhaps you can communicate with him to get a better picture. Most of his detailed and up to date content is behind the Gns paywall. You obviously want to ignore Kyle Bass and his detailed presentations. 

 

You need to shake off the Chinese hegemony delusion. They have the plans, but not the means. They wave their fake economic numbers made up of a decade of stimulus as if it were a profitable enterprise to attract partners to their hegemony plan. But they will be remembered most for their export of swine fever  and Covid-19. 

The dissociation of China from the US will continue and so will its disconnection from world trade, of which they are 40% incoming + outgoing. It will be sad, hard for the Chinese people, bad for everyone, but will happen.

Edited by 0R0
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20 minutes ago, 0R0 said:

The recognition that China is not the rising middle class target market that consensus thinks it is, will come soon enough. The financial crisis I am expecting will happen. Don't expect official numbers to declare "oh, we're broke" market numbers will show it up. The Chinese interbank repo crisis that endured a full quarter last year is just one.

Back in the day, we called it the "if we can sell our widget to even half of China" syndrome.

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19 minutes ago, Dan Warnick said:

Back in the day, we called it the "if we can sell our widget to even half of China" syndrome.

Microsoft discovered that it is a one sale and you're done market. 

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1 minute ago, 0R0 said:

Microsoft discovered that it is a one sale and you're done market. 

To this day over here in Asia, if you buy a computer and tell them you want it preloaded with Windows 10, a REAL genuine from Microsoft version, they look at you like a deer caught in the headlights.  "Uh, okay, we can do that but it will take a few days to order it in."  This is but one example out of.....

Singapore is probably the only country that this is not true, but I could be wrong.

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16 minutes ago, Dan Warnick said:

To this day over here in Asia, if you buy a computer and tell them you want it preloaded with Windows 10, a REAL genuine from Microsoft version, they look at you like a deer caught in the headlights.  "Uh, okay, we can do that but it will take a few days to order it in."  This is but one example out of.....

Singapore is probably the only country that this is not true, but I could be wrong.

It is common in poor countries to steal software. China isn't really poor any longer, even if not quite as well off as government stats would have you believe. .

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5 minutes ago, 0R0 said:

It is common in poor countries to steal software. China isn't really poor any longer, even if not quite as well off as government stats would have you believe. .

According to the UN, China is still a developing country...😂

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8 minutes ago, Douglas Buckland said:

According to the UN, China is still a developing country...😂

Doesn't mean that it is poor.

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24 minutes ago, 0R0 said:

It is common in poor countries to steal software. China isn't really poor any longer, even if not quite as well off as government stats would have you believe. .

The country I'm in has a GDP higher than Singapore and everyone, right up to the provincial government uses copy software.  There is not a poor section of the city I live in, and I believe every house has at least one computer and 2 androids or iphones.  What you say may be true for the villages here, but then again, they don't normally have computers either (but they still have an android or 2 at least, and a truck, which is more important than a computer to them anyway).

Edited by Dan Warnick

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18 minutes ago, 0R0 said:

Doesn't mean that it is poor.

I just checked you on that, and found that estimates vary but only between 3.2% and 3.3% still below the poverty line.  Impressive, to say the least.  That means they have lifted 100's of millions out of poverty.  Very impressive, indeed.

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1 hour ago, 0R0 said:

Doesn't mean that it is poor.

EXACTLY! They use the UN classification to skirt certain restrictions/responsibilities to get a better deal from the World Bank (for example) on one hand, while spouting their status of superpower on the other!

The world’s second largest economy is a developing country! Give me a break. You shouldn’t be able to claim both.

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50 minutes ago, Dan Warnick said:

I just checked you on that, and found that estimates vary but only between 3.2% and 3.3% still below the poverty line.  Impressive, to say the least.  That means they have lifted 100's of millions out of poverty.  Very impressive, indeed.

Depends on what the definition of ‘poverty line’ is....and who determines it.

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22 minutes ago, Douglas Buckland said:

Depends on what the definition of ‘poverty line’ is....and who determines it.

Do a search, Douglas.  What I found was that it was 3.2%-3.3% by everyone.

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16 minutes ago, Dan Warnick said:

Do a search, Douglas.  What I found was that it was 3.2%-3.3% by everyone.

I believe you! The problem is the metric. What is the poverty line in China and who sets it.

For example, our resident economic wizard (AOC) recently proposed that the poverty level in the US should be set at something like $35,000/year. If that was adopted EVERYONE would agree that alot more people in the States would be living in poverty.

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2 hours ago, Douglas Buckland said:

I believe you! The problem is the metric. What is the poverty line in China and who sets it.

For example, our resident economic wizard (AOC) recently proposed that the poverty level in the US should be set at something like $35,000/year. If that was adopted EVERYONE would agree that alot more people in the States would be living in poverty.

 

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4 minutes ago, Douglas Buckland said:

She’s a legend in her own mind....

Yes, but you have to admit she is right, in her own mind!

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Even a broken clock is right twice a day...

Honestly, I just can believe what comes out of her mouth at times

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That is, she probably is convinced she is correct, in her own mind. I think this is called ‘delusional’ behavior.

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Sorry.  Getting way off topic.  It's Douglas' fault.  He put AOC to the table and it's hard to resist, in fact it's futile to resist, when AOC's on the table..

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