China's economy risks heading into recession as Producer Prices enter deflation - Chemicals and the Economy
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China's economy has been the growth engine for the global economy since 2008's financial crisis. But now it seems possible it could enter recession

cross-posted from: https://feddit.org/post/3202701

China’s problem is essentially that it has too much debt.

The main role of debt is to bring forward demand from the future. […] China’s stimulus has kept on increasing since 2008, until it peaked with the end of the pandemic.

Now China risks entering a classic ‘debt trap’ where new loans are taken out to repay existing debt – not to create new demand. In other words, the debt is no longer being used to generate growth. In turn, this risks generating a downward spiral.

[…]

The underlying problem, of course, is China’s massive housing bubble. It was probably the largest ever seen. And it has been bursting for some time, with home sales slumping, as the Bloomberg chart shows.

[…]

China needs to urgently boost [domestic] consumption and downsize manufacturing.

[…]

  • Housing is currently unaffordable for most people
  • The real estate market is an outsize risk for the economy – it is 29% of GDP, and 70% of China’s urban wealth
  • Given China’s ageing population, it seems likely [that housing sales] volume could drop at least another 20% before the market bottoms
  • That will mean China will need to import a lot less oil, metals, plastics and everything else connected to the bubble.
  • peopleproblemsEnglish
    -6•3 months ago

    Modern inflation has nothing to do with supply/demand.

    We exist in a supply side economy, meaning that demand is always less than available supply. Yet inflation is a real problem. Current inflation is largely do to a variety of middle men getting entire pieces of transactions - credit card fees, payment for order flow market making, insurance, etc.

    Any business that relies on production will not see existing demand change. McDonald’s for instance does not make it’s money off selling food - they make money off of real estate and licensing. You’ll see McDonald’s jobs disappear, but the demand for cheap fast food will still exist. Local diners will pop up to take their place.

      • peopleproblemsEnglish
        -4•3 months ago

        Ok, if you want the conspiracy theory part, you’ll find out every public publishing economist you have heard/read about had an education at a college where the program was entirely funded by financial institutions. Meaning that the education is tailored towards “good economy = strong financial institutions” and “bad economy = weakening financial institutions”.

        That is a conspiracy theory. The statements above are fact. Conspiracy theories, for your information, are built around groups of people working together to manipulate some action.

        McDonald’s doesn’t work with insurance companies to raise the price of a burger. Credit card companies don’t work with their customers to increase the profit of their products. Market makers just exist to make money on each transaction any way. No collusion needed.

        • @[email protected]English
          0•3 months ago

          Yeah kinda this, met way too many Economists who are on the economic right and most of the teaching is influenced by Chicago economics.

          I remember when a minimum wage got introduced where I am and my macroeconomics professor was incredibly proud to show how this would cause unemployment. Turned out the minimum wage was so far away from what would be the equilibrium wage that there wasn’t ever an oversupply of workers because the minimum wage would have to be much higher than any politician would ever set it in order to cause unemployment. That is assuming such a thing as the equilibrium wage would actually exist in the real world.

    • @[email protected]English
      3•3 months ago

      You’ll see McDonald’s jobs disappear, but the demand for cheap fast food will still exist.

      You almost made me choke on my $15 Big Mac.

      • peopleproblemsEnglish
        -2•3 months ago

        It’s still cheap food. Maybe not to you, but to McDonald’s

        • @[email protected]English
          1•3 months ago

          Yes, but the “demand” that you are talking about is for cheap on the consumer side, not on the producer side. It may (arguably) still be cheap food on the producer cost side, but the consumer price side has gone insane. The quality definitely is shit.