Overcapacity, the biggest gray rhinoceros in the macroeconomy

Luo sir's words

2024-05-16 19:15Posted in Sichuan Workplace Creators

From not having enough to eat to having too many things, the good and bad of the market economy are all reflected.

On Tuesday, Biden announced that he would raise tariffs on mainland cars from 27 percent to 100 percent, an almost fourfold increase and more than many expected.

There is no doubt that the United States is afraid, even afraid, of the appearance of continental cars in the American market. From the low-end manufacturing industry in the past to today's manufacturing power, automobiles have undoubtedly become one of the most dazzling business cards of the mainland's manufacturing industry.

Behind all this, in fact, it is inseparable from the mainland's strong support for high-tech manufacturing.

In the past few decades, we have been methodically leading more and more industries, from the toy and clothing industry in the 80s of the 20th century, to today's semiconductors and new energy, relying on huge population advantages and industrial subsidies, so that we have leapt from the world's factory to a manufacturing power in just a few decades.

Today, the continent has produced one-third of the world's manufactured goods, more than the United States, Germany, Japan, South Korea, and the United Kingdom combined, and the trade surplus from these goods is equivalent to 10% of the mainland's GDP.

The importance of exports cannot be overstated.

But today, oversupply is increasingly looking like a big problem that plagues us.

What is the meaning of oversupply, at present, we still have a big difference with Europe and the United States. But there is a clear fact that when there is too much to produce and the market cannot digest and sell, there will be a surplus of supply.

And now, with the US imposing tariffs again, and the EU's upcoming tariffs on mainland cars, will effectively raise the risk of oversupply in the mainland.

Not to mention, when the continent's trade surplus is equivalent to 10% of total GDP, it will naturally trigger an even bigger rebound.

Yellen's two visits to China in a year mentioned the overcapacity of the mainland's manufacturing industry, but in fact it is because the goods produced on the mainland are of high quality and low price, and they sell well in Europe and the United States.

However, once tariffs are imposed and the price of mainland goods is raised, then the goods cannot be sold, which is in line with the de facto overcapacity.

Top leaders in the United States and Europe are calling for the continent to reduce exports to the world and increase imports to address the trade surplus, and Biden on Tuesday sharply raised tariffs on Chinese imports of electric vehicles, solar panels and other high-tech manufactured goods.

Are these appeals and practices of theirs useful?

This is to look at the problem from within our economy. Yellen has also called on mainland households to spend more, but in fact, it is precisely because of concerns about uncertainty that domestic consumption has remained weak and has not recovered.

There are more than 140 trillion huge deposits lying in the bank, but they just don't consume; Of course, there is a greater possibility that the huge amount of 140 trillion yuan is owned by a few of them, and most of them have already been emptied of their savings by houses and high living costs.

Therefore, Yellen's call for the mainland to increase household consumption is unrealistic.

When appeals are useless and Europe and the United States begin to raise tariff barriers, for us, it means a more severe employment and macroeconomic situation.

When the employment and macroeconomic situation is worse, in turn, our internal consumption will only be more rational and domestic demand will be weaker.

The problem of overcapacity is even greater when everyone is desperately producing rather than consuming more.

Ten years ago, we obviously didn't think that globalization would become what it is today, otherwise we might not have focused on manufacturing, but on raising incomes.

Almost a decade ago, the mainland launched its "Made in China 2025" ambition, which aims to have the continent replace key imports with domestically made products in 10 advanced manufacturing areas, and the banking system is responsible for directing loans to these key industries.

Ten years on, the mainland economy is now being affected by the downturn in the real estate sector, and manufacturing has become a key sector to stimulate economic growth, with lending to manufacturing increasing to compensate for the slowdown in consumer spending, and we have ramped up exports.

This logic is easy to understand, when domestic consumption is insufficient, human capital still exists, and energy production is continuous, but due to insufficient domestic demand, we can only hope for more exports and use global consumption power to make up for the lack of domestic consumption power.

But now the problem has become, the tariff barriers in Europe and the United States are getting higher and higher, but our production capacity cannot be stopped, and the risk of overcapacity is naturally getting higher and higher when domestic demand is still slowing down.

But at the moment, we don't have many options. Stimulating economic growth is nothing more than a troika, investment, consumption and exports, with the real estate downturn, investment began to pull the hips, consumption is not very bright, exports have become almost the only straw.

But today, exports are also facing tariff barriers from Europe and the United States, and we have almost reached the point of no return.

It all happened too fast, but it was essentially the macroeconomic structural problems that led us to the passive situation we are in today.

First of all, we don't have many investment channels; In the case of foreign exchange control, the investment channels of Chinese people are extremely limited; In the past few decades, the economy has grown rapidly, but the stock market has stood still, and in the case of private wealth in the pursuit of value-added and preservation, real estate has become the only means of value-added and value-preserving for a period of time.

When real estate starts to decline, a lot of wealth still has nowhere to go, especially with the rise of the dollar, so the money has nowhere to go, so it can only lie obediently in the bank, even if the deposit interest rate is very low.

Banks, on the other hand, can lend the funds at low interest rates to startups and other businesses, and according to the central bank, net industrial lending to the mainland has grown sharply, from $83 billion in 2019 to $670 billion last year.

Today, manufacturing has almost become an industry that bets on the fortunes of the country, but in comparison, the income of ordinary people has hardly increased much, and even declined.

The data shows that during the May Day holiday in the mainland this year, although the total amount of tourism spending is more, the per capita consumption is only more than 600 yuan, which is less than the same period in 2019.

Either way, it shows that the current market may not be as good as in 2019.

But on the contrary, net industrial loans have increased from $83 billion in 2019 to $670 billion last year.

Behind the industry means production capacity, at a time when the effective demand of the Chinese people is insufficient, and foreign tariff barriers are getting higher and higher, it is still unknown what kind of return such a large amount of total loan investment can be exchanged for.

If tariffs in Europe and the United States become higher in the future, there is no doubt that it will be a huge disaster for the mainland's overcapacity.

The result of crazy subsidies to enterprises does not mean that people have higher incomes, but this has become the biggest driver of the price war of enterprises, and finally subsidies are given to enterprises and markets, but they are not directly given to consumers.

According to a study by the Kiel Institute for the World Economy in Germany, mainland provided direct subsidies to more than 99% of listed companies in 2022.

But these subsidies are given to the company, which may not have raised the wages of its employees.

In turn, workers' wages have not even changed much from a decade ago. Chengdu Foxconn's basic salary is 2,100 yuan, but this is already the basic salary ten years ago.

The base salary determines a worker's overtime pay, and with the base salary unchanged, it also means that the income of Foxconn workers has not changed much compared to ten years ago, except for higher prices.

The unchanged wages of workers are indeed conducive to improving the international competitiveness of the manufacturing industry, but as the tariff barriers in Europe and the United States become higher and higher, the final supply may still have to return to stimulating domestic demand, rather than thinking about exports.

The subsidies have spurred growth in many industries on the mainland, but they have also raised concerns in Europe and the United States about the potential loss of jobs in their factories, and the current U.S. tariffs are aimed at exports from some of the mainland's largest and fastest-growing industries.

The automotive industry is one of the most striking examples of industrial subsidies.

Just four years ago, the mainland was a weak exporter of automobiles, exporting only 1 million cheap cars a year to markets in the Middle East and other less affluent regions.

Today, we are the world's largest exporter of automobiles, exporting nearly 6 million vehicles per year.

From weak to strong, industrial subsidies are one thing, and technology transfer is also one thing.

As early as 2011, we asked European and American car companies to transfer key technologies to domestic partners, so that these European and American car companies can receive the same subsidies as domestic electric vehicles.

In South Korea, for example, it was a leader in the production of batteries for electric vehicles, but in 2016 we announced that we needed to use batteries produced by factories owned by domestic companies in order to be eligible for subsidies.

As a result, automakers have ditched batteries produced at South Korean battery makers' domestic factories and transferred contracts to domestic battery makers such as CATL.

Today, Continental has produced most of the world's electric vehicle batteries, in addition to almost all of the world's solar panels, PV cell exports have more than doubled in the past four years to $44 billion, and lithium-ion battery exports jumped from $13 billion in 2019 to $65 billion last year.

All this has objectively led to a greater reaction from Europe and the United States.

The contradiction also began to emerge at this moment, when our production capacity is getting bigger and bigger, when the tariff barriers in Europe and the United States are getting higher and higher, and when the income of domestic residents is insufficient, who should consume these huge production capacity?

If the goods cannot be sold, it will lead to a surplus, which in turn will lead to the destocking of enterprises, the reduction of prices, or even the reduction of employees, and the end result may be that the employment situation is becoming more and more severe.

Today, our companies focus more on the market, but neglect to improve the income level of employees, perhaps enterprises understand that only when employees have money, will they spend.

But not too many companies dare to do this, after all, for enterprises, people may not be the first competitiveness, in the environment of involution, talents are everywhere, which also leads to enterprises would rather invest money in R&D and marketing, rather than to employees.

When income growth begins to slow or even stagnate, overcapacity may eventually become the biggest grey rhino that will engulf us, especially as Europe and the United States become increasingly conservative.

If this problem is not solved well, it will be as powerful as real estate and local debt.

end.

Author: Luo sir, concerned about the economy, society and everything in our world, curious about the logic behind the development of things, optimistic pessimist.

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