This page will be regularly updated throughout the year.
Previous Archives: 2023 and Prior
May 2024
May 16: Land subsidies, capital investment and winning the “hearts and minds” of non-aligned, developing nations.
May 15: Throwing some chum out into the water. Why doesn’t Apple just acquire or partner with a Chinese automaker? Follows up this 2018 post on Apple and Tesla.
May 14: Response to NY Times article “China Is Raising Bullet Train Fares as Debts and Costs Balloon” that makes quite a leap interpreting a pilot program for flexible pricing strategy as a signal for deeper economic troubles with local government finances and China Railway, rail network operator.
May 13: Clarifying the excess capacity debate for Chinese ICE exports. Responding to Brad Setser’s thread.
May 11: Auto industry evolution in the ICE-to-EV transition and how it impacts everything from accounting to changes in the critical success factors for competitive car companies. Analysis of three key components: manufacturing, developmand and marketing/distribution.
May 10: A response to Tanner Greer’s excellent essay on 新一轮科技革命和产业变革 “New Round of Techno-Scientific Revolution and Industrial Transformation” with some critiques on framing but more importantly augmenting it with a specific focus on the clean energy revolution.
May 9: China’s transition away from the property sector has been smoother than many expected. What does this say about the “Japanification” comparison? Observations from Richard Koo’s recent interview in Yicai and a follow-up to a thread from last summer on a talk he gave on this topic.
May 9: German automakers are “holding service” on the ICE-to-EV transition.
May 8: The implications of a global economy that is transitioning from “finite” to “non-finite” goods and services. Re-post of a piece I wrote in 2018 “What will happen to the United States if China's technology continues to advance?” on Quora.
May 7: China’s complicated relationship with Myanmar.
May 6: Xiong’an is the culmination of four decades of urbanization in China.
May 3: Thread on declining FDI into China that accompanies a recent post (“Controlled capital investment”) that tries to breaks down the mechanics of the misunderstood “reinvested earnings” component. Follow-up thread looking at Apple’s segment data and explaining how it flows through FDI and balance-of-payment line items.
May 2: How road names reflect Taiwan’s core ambition as a “developmental state”. Also the latest episode of Californians: Taipei.
May 1: Migrant workers are the “beating heart” of the Chinese economy. The latest numbers from the annual migrant worker survey and how I interpret them.
April 2024
April 30: Reminiscing about fantasy baseball and how it impacted everything from math to microeconomics to Excel modeling.
April 30: The Third Plenum is officially on for July. It came about a year later than usual so much speculation about the content and agenda for the meeting. I expect substantive forward-looking reforms tied to the the impact of rapid technological changes, particularly in clearn energy, and Chinese “full acceptance” of a bifurcated globe and policies designed to adapt to it.
April 29: The direct-to-consumer (DTC) distribution model for EVs decreases the cash conversion cycle and lowers working capital requirements. This is one of the many disruptive changes to the traditional car business model that are making it hard for incumbent ICE manufacturers to adapt.
April 27: How asset rotation is decoupling credit formation from GDP growth in China. This is a a response to an excellent set of long-term credit and other charts from Shanghai Macro Strategist and a follow-up to a very important chart shared in October 2023 showing how credit was flowing from property to industrials.
April 26: China and ASEAN are getting closer, driven by powerful and natural economic forces.
April 25: BYD is now using electromagnetic linear motors in its high-end Yangwang cars replacing traditional hydraulic-based suspensions. This is an example of technology spillover, leveraging skills and IP that was developed in adjacent industries.
April 24: The origins of TSMC from a radical new concept in Morris Chang’s head to one of the most geopolitically significant companies on this planet in less than four decades.
April 23: TSMC’s Arizona fab and observations on TSMC’s “intensive, military-style work environment”.
April 23: Global and China EV forecasts from IEA. I am forecasting significantly higher NEV sales and production than the IEA forecasts.
April 22: All about Asian conglomerates from Japanese keiretsu to Korean chaebols to the rise of Indian conglomerates on the world stage like Tata Group today.
April 22: Are Taiwanese contract manufacturers the big losers in evolving Apple and broader consumer electronics manufacturing supply chain?
April 22: Texas controls its own power grid and it is not a coincidence that is leading the country in clean energy deployment.
April 21: Applying Ferguson’s Law to China.
April 20: The emissions payback period on the production of solar PV.
April 19: China’s “mature node” chipmaking strategy. This was a continuation of an earlier thread from from last year where Lu Feng described this strategy.
April 18: I did my first podcast with Steve Hsu at Manifold. Discussed my background and how it has shaped my perspectives on the topic of the Chinese economy. We talked about many of the topics I have been covering:
China’s evolving relationship with the West as it has moved up the economic ladder
Its policy emphasis on human capital development
The importance of advanced manufacturing
My “deep dive” into high-speed rail
Thoughts on the future evolution of the economy
April 17 (Part 1): China’s Q1 GDP numbers came out yesterday. I wrote about the numbers, but more in a broader context of how they fit into several important themes I have been talking about for the past year. Here I focus in on the structural transition away from property to advanced manufacturing and other higher-RoI activities.
April 15: In response to a question posed by Joe Weisenthal about China’s propensity to favor volume over profits in manufacturing, I wrote a long-form blog post and thread discussing this seeming paradox.
April 13: Toyota’s bet on solid-state battery technology as a lynchpin to its EV strategy is a sign that it is not taking the transition to EVs seriously.
April 10: Vietnam announces that it will prioritize the high-speed rail route to China for its North-South express railway project. This would be the second leg of an envisioned regional rail network in Southeast Asia that would enable high-speed passenger rail travel from Beijing to Singapore. This elevates Nanning (南宁), capital of Guangxi Province, in importance as a regional gateway city into Vietnam, the 3rd-largest member of ASEAN.
April 9: Two reactions to Xu Gao’s recent speech about low consumption in China, translated here by East is Read. My two main reactions:
Household demand (expenditures plus gross capital formation) matters more than consumption
Corporate profits (via dividends) are not the only way to distribute economic gains to households. Chinese SOE’s play a major role with “public goods” and are distinct in the industries they operate in (highly regulated/strategic, capital-intensive and domestic industries prone to rent-seeking).
April 9: Second-order effects of the shift from ICE to EVs on where and how they are produced.
April 8: A follow-up on “Gigapresses” from the previous week and recent Noah Smith tweet — diecasting is a mature technology where most of the world’s foremost expertise is now in China. It’s used to produce an EV chassis, which is not close to being the most critical component in the product (batteries or the drive train), so insinuating that China is “stealing this IP” distracts from the much more critical point that so much of the industrial machinery sector has moved to China and how behind America is falling in complex mass manufacturing.
April 7: As with cars, “excess capacity” or “overcapacity” in solar and battery manufacturing must be contextualized.
April 6: Chinese advanced manufacturing are “digital-native” and leading the new “intelligent manufacturing” paradigm, also known as “Industry 4.0”.
April 4: We know that the United States needs to consume less and invest more. What’s not clear is how we can make this happen. The path forward for China is much more clear at this point — deeper economic integration with the developing world.
April 1: Indonesia should develop its own national auto brand. It can leverage changes to the auto supply chain (fragmentation and specialization) and the transition to electric vehicles.
April 1 (Twitter | Substack): Exorbitant privilege of the U.S. dollar as the world’s reserve currency and its impacts on American manufacturing competitiveness.
April 1: The recency of China’s development gives it an advantage over the G-7 to trade and invest in developing countries, especially in ASEAN.
March 2024
March 30-31 (Part 1 | Part 2): Review of 置身事内 (“Chinese Government and Economic Development” h/t Rui Ma) wrapped around a critique of misapplied models (e.g. Janos Kornai’s “hard-budget constraints” vs. “soft-budget" constraints) on the Chinese bureaucracy. Using a more realistic model of the Chinese bureacracy and understanding of its weaknesses shows how the property problem is one of distribution instead of aggregate malinvestment.
March 29 (Part 1 | Part 2): Huawei financials and compensation at Huawei and BYD. Huawei and BYD as the next evolution of East Asian tech/industrial conglomerates.
March 28: To reach high-income levels of development, China will have to rely primarily on its domestic market to drive advanced industries. Its foreign expansion strategy for advanced industries will also rely more on developing economies than the G-7. In this way, the “Second China Shock” is the opposite of the first one.
March 28: Tesla and some of its impacts on the Chinese EV industry: “Gigapresses”. Despite the hoopla over these largest diecasting machines, Tesla’s contribution was more on product design, technology and distribution.
March 26: Focusing in on Chinese NEV and ICE passenger vehicle exports. Breaking down the vehicle export numbers to separate out these exports from trucks, buses and smaller ICE vehicles that do not really touch developed markets.
March 25: Response to Michael Pettis’ thread with counterpoints on why the property to advanced manufacturing transition represents a leveling up of the economy.
March 23: Analyzing China’s Belt & Road Initiative (BRI) from the perspective of labor and human capital flows.
March 21 (Part 1 | Part 2): Some interesting recent data from January-February on the Chinese EV industry. EV exports to the EU declined 20% in the first two months of 2024 increasing 36% to RCEP countries. What this says about the evolution of trade flows. From SCMP article “China EV exports, slammed by West’s trade barriers, find greener pastures with free-trade partners” (archive). Chinese EV penetration about to cross 50%, much earlier than most expected.
March 18 (Part 1 | Part 2 | Part 3): High-quality electric vehicles that — due to rapidly declining input and production costs — are cheaper than equivalent (often less fully-featured) ICE vehicles on an upfront basis, and much cheaper on an TCO (total cost of ownership) basis, represent huge productivity gains that result in both higher quantity and quality of GDP. Response to this article (archive) by Thomas Klitgaard entitled “Can Electric Cars Power China’s Growth?”.
March 18: More evidence from the first two months of the year of the property to industrial/manufacturing shift and how it may potentially create a tailwind for GDP growth. Retail also ticked up but is still well under pre-pandemic trends. Reactions to nice data-heavy thread from Patrick Zweifel.
March 18: Capital-intensive vertical farming and clean energy sit at the foundation of an epochal shift.
March 16: The economics of government-funded industrial subsidies to jumpstart a nascent industry by solving economic problems that private capital cannot.
March 16: Widening gulf between politicized economic statistics in India and on-the-ground realities. Ashoka Mody responds (archive) to the announcement of the “elimination of extreme poverty”.
March 14: Analysis of new central government funded “trade-in” stimulus program for businesses and households as reported in this SCMP article (archive) and original release from the State Council.
March 14: Introducing a new mental model that compares sectors by their underlying “productivity” and “labor intensity” characteristics:
March 12-13 (Part 1 | Part 2): Trying to figure out the true program development cost of the C919 at COMAC. Previous estimates had been in the $72 billion range. More likely in the $4-7B range (as a high-end estimate).
March 12: Reactions to FT Article “Will China be forced to stimulate?” (archive) on 2024 GDP, focusing on the knowns (policy tools) and unknowns (macro and exogenous factors).
March 12: Technical discussion on the GDP mechanics of sectoral transition from property to industrial investment. How “GDP Return” is different from vs. financial return measurements like RoE and RoIC.
March 12: Correction of a misleading chart that shows the decline in the number of available Chinese data series by the National Bureau of Statistics. It turns out that a third-party data provider (CEIC) was removing access to data series for other reasons. Some data series have been indeed taken down but much milder than what a widely circulated FT chart (archive) indicated.
March 11: India is the best bet to replace China as the labor-intensive manufacturing partner for the United States but there are some challenges. It’s main competition is ASEAN and while the United States can provide demand, FDI will likely have to come from allies like Taiwan, Japan and Korea.
March 11: Ongoing debate between Robin Brooks, Mike Bird and Noah Smith about whether the U.S. has “meaningfully decoupled” itself from the China manufacturing supply chain. Recent data shows that it has not. I also raise concerns that U.S. “decoupling” efforts may accelerate China strengthening its relationship with the developing economies, potentially pushing the U.S. out farther to the periphery.
March 10-11 (Part 1 | Part 2): Introducing the “Pareto efficiency” framework for analyzing Chinese economic development. Why the “China is over-investing” narrative is overly simplified. Applying the model to Chinese historical and ongoing economic development during the rapid urbanization era with export-oriented manufacturing, domestic-oriented housing and infrastructure investment and today’s clean energy transition.
March 9: Why electric vehicles and batteries go hand in hand. Clean energy generation needs to be evaluated as a system, which can include a “dizzying array” of combinations of solar panels, wind turbines, green hydrogen production, transformers, inverters, UHV lines, batteries, pumped storage and many more.
March 9: How many hours does it take for the average wage-earning worker to buy a car? 1909 + 1925 Model T vs. 2007 Ford Mondeo (in China) vs. 2024 BYD Seagull.
March 8: Silicon Valley “deep tech” vs. massive integrated clean energy projects in China.
March 8: How China and the United States approach de facto bans of companies.
March 8: AFRE (Aggregate Financing of the Real Economy”. Review of detailed primer and historical review of China’s financial system.
March 7: Chinese homes are back to 2014-17 levels of affordability. This suggests that China is closer to the end of the property sector adjustment process.
March 7 (Part 1 | Part 2): The GDP mechanics of long-lived housing and infrastructure investment and how it contributed to slowing GDP growth, only to be offset by accelerating real asset gowth on the “national balance sheet”. What does GDP measure and not measure?
March 6: Bytedance will not force-sell TikTok. It may sell the US operations (or maybe just let it get banned).
March 5: On the importance of updating priors.
March 5: When Chinese policymakers talk about “domestic demand” (archive) they are talking about both consumption and investment, which are accounting-driven definitions. Policymakers do not focus on them. Instead, they view things from a sectoral perspective. “Supply-side reform” is a common phrase that refers to the coordination in the shift of economic resources. Thinking about it this way helps us better the new slogan “New Productive Forces”.
March 4: Medium- to long-term dynamics in the global auto industry. Some predictions on how national automakers will shake out.
March 4: Why property prices are structurally higher in China than the United States.
Land scarcity vs. land abundance
Construction & materials costs
Land use rights vs. ongoing property taxes
March 3: Large countries (like China, India and the United States) operate on a different set of economic laws than small ones. The rational basis for greater autarky in larger economies that is driven by the principle of specialization.
March 2: History of Chinese-American immigrants, including some family history.
March 1: Applying Bayesian thinking to applied sciences and technology development. “But I cannot help but wonder whether the long-term ramifications of export controls are to give China, leveraging its enormous STEM pool and human capital, the space to leapfrog in yet another advanced high-tech industry built on applied sciences.”
February 2024
February 29: Response to the Biden Administrations press release (archive) on “National Security Risks to the U.S. Auto Industry”, including the sidelining of Tesla, not even mentioning the word “electric”, de facto U.S. ban on Chinese EVs, and potential long-term risks related to this strategy.
February 29: The different productivity characteristics of various industries. Some drive (manufacturing and technology) productivity growth in the broad economy. Others (labor-intensive services) are consumers of technology and are better at creating jobs.
February 28: Survey of the global auto market as a baseline to evaluate how different regions and countries will evolve in the EV transition. Background for why Chinese EVs are focused so heavily on developing markets.
February 27: How inbound FDI (into China) and outbound FDI (from China) are related. Outbound: Chinese industrial FDI is replacing infrastructure FDI (Belt & Road. Increasing FDI to support offshoring of labor-intensive Chinese manufacturing. Inbound: Rising competition from domestic manufacturers is replacing foreign FDI, particularly in the auto industry from the EV transition.
February 26: Time considerations in travel mode comparison between high-speed rail vs. airplane. “Breakeven (km) = HSR Time Premium (hrs) / Air Velocity Advantage (km/hr)”
February 26: Discussion about how comparative advantages can change over time. Comparison of comparative advantages between the United States and China.
February 26: China is building a “backup” network of Free Trade Agreements (FTAs).
February 23: The benefit of technological progress and productivity gains does not always show up in direct employment numbers. It can also show up in production efficiences that lower the real costs of goods and services in the broad economy.
February 23: GDP is a flow concept and the national balance sheet is a stock concept. We need to pay attention to both when evaluating major resource shifts between “consumption-oriented” and “investment-oriented” production.
February 22: The biggest obstacle to U.S. manufacturing revival is a lack of quantity and depth of manufacturing skill and know-how. Cites Tim Cook’s 60 Minutes interview and talks about how this came to be.
February 21: One of the biggest geopolitical shifts over the next two decades is China transforming from the world’s largest energy importer to an energy exporter, driven by the clean energy transition.
February 20: While China has made strides in aviation, I agree with Airbus' CEO that it won't significantly disrupt global aviation for decades. Discussing the impact of long product cycles, China’s relatively smaller scale advantage and the national security factor.
Note: subsequent information on how much COMAC has actually invested in C919 development changed my views here
February 16: Deflation tells you something different about China than from what it told you about Japan in the 90s.
February 14: The domestic market accounts for the vast majority of Chinese EV growth.
February 13: HSR is not a “terrible idea”. Critique of issues I had with Casey’s blog post on why HSR is obsolete.
February 9: Labor-intensive and low-capex manufacturing vs. high-tech and high-capex manufacturing.
February 5: Different ways to re-capitalize Chinese banks — capital injections, net interest margin, inflate away and move impaired assets off the books.
February 5: What are the embedded losses in the Chinese banking system? Key factors: aggregate level of malinvestment, equity cushion / NPL recovery, and banking system liquidity / time horizon.
February 4: China has been operating a two-speed labor economy.
February 2: Comments on IMF’s medium-term outlook for the Chinese economy and why I have a more optimistic view of 4-6% growth through 2030.
February 1: Taiwan during its labor-intensive manufacturing era with case study of Mattel / Barbie in the 60s to the 80s.
January 2024
January 31: Compilation of ideas on why developing countries are different from deveoped ones.
January 31: Scale in infrastructure can drive innovation and lower costs by changing the unit economics of fixed cost R&D. How “Going Big” played out with HSR in China.
January 30 (Part 1 | Part 2): Issues with the TFP calculation for China.
Calculating capital increase using fixed vs. variable depreciation (rising asset duration)
Problematic GDP data from Penn World Tables (PWT)
“All roads lead to Harry X. Wu”
Housing is not related to “productive capacity”
TFP trendlines based on Taiwan/Korea experience
January 28: My personal experience with Cantonese
January 27: Is it better to invent or commercialize? The story of Lithium Iron Phosphate (LFP).
January 26: The massive amount of investment China is putting into solar and all of the medium- to long-term impacts.
January 26: On China’s “persistent” trade surpluses. What drives China’s manufacturing surplus (comparative advantage) and overall trade surplus (FX policy)
January 25: Thoughts on Rhodium Groups’s low-end estimate of 1.5% GDP growth in 2023 (archive).
January 24: TFP estimate from Lowy Institute’s 2022 report “Revising down the rise of China” (archive). I argue that declining TFP was the result of sectoral shift into “low RoI” housing and infrastructure investment. Sectoral shift back into “high RoI” industrial and high-value services should provide a TFP tailwind.
January 23 (Part 1 | Part 2): The generational shift from blue-collar to white-collar labor force.
January 21: Supply-side subsidies can benefit consumers.
January 19: Observations on The Economist’s take on per capita GDP adjusted for hours worked (archive).
January 19: Air travel vs. high-speed rail adjusted for traveler comfort.
January 18: The seeds of U.S. industrial/manufacturing decline were sewn in the 70s and the decline of the machine tools industry was one of the first troubling signs. What happened to the US machine tools industry?
January 18: China Railway full-year 2023 operating results and commentary.
January 17: China’s youth unemployment rate is back after being suspended for a few months to adjust the survey methodology. Additional follow-up analysis on it in April.
January 14: China’s NEV market dynamics.
January 12: The causal link between debt creation and GDP growth is weak, at best.
January 11: Massive upwards revision in renewables driven by China growth.
January 10: Evolution of China’s manufacturing sector from a comparative advantage based on low-cost but productive labor to one based on technology and embedded know-how.
Product type
Target markets
Labor dynamics
Geopolitical environment
January 8 (Part 1 | Part 2 | Part 3): China vs. Malaysia and Thailand
January 2: Housing is consumption.