This morning has brought a barrage of economic statistics from China. Here is the National Bureau of Statistics on the headline act.
According to preliminary estimates, the gross domestic product (GDP) in the first three quarters reached 101,503.6 billion yuan, up by 5.2 percent year on year at constant prices…… By quarter, the GDP for the first quarter increased by 5.4 percent year on year, for the second quarter 5.2 percent, and for the third quarter 4.8 percent. The GDP for the third quarter increased by 1.1 percent quarter on quarter.
As we observe another miracle where it is exactly in line with expectations we see that it has been slowing in annual terms so far in 2025. However it is much better than us Western Capitalist Imperialists can manage and one area simply blasts past us.
The total value added of industrial enterprises above the designated size grew by 6.2 percent year on year in the first three quarters. In terms of sectors, the value added of mining increased by 5.8 percent year on year, that of manufacturing increased by 6.8 percent, and that of production and supply of electricity, heat power, gas and water increased by 2.0 percent.
In many ways we in the West have sub-contracted manufacturing to China and although he tried to present it in a different way China will have been cheered by the claim by the UK energy minister Ed Miliband over the weekend.
The government has announced plans to train and recruit more workers for the UK’s clean energy sector, promising to create 400,000 extra jobs by 2030.
Plumbers, electricians and welders are among 31 priority occupations that are “particularly in demand”, with employment in renewable, wind, solar and nuclear expected to double to 860,000 in five years, ministers have said. ( BBC News)
All that hot air will no doubt be welcomed by Chinese solar panel and wind turbine manufacturers.
Manufacturing
If we look deeper into the Chinese figures we see this.
The value added of equipment manufacturing increased by 9.7 percent year on year, and that of high-tech manufacturing increased by 9.6 percent, 3.5 percentage points and 3.4 percentage points faster than that of the industrial enterprises above the designated size respectively.
Plus these figures rather leap off the page.
In terms of products, the production of 3D printing devices, industrial robots and new energy vehicles grew by 40.5 percent, 29.8 percent and 29.7 percent year on year respectively.
Robots are an area we have looked at several times and it looks as though China has stolen a march here. Also the electric vehicle maker BYD which has gone from strength to strength. On this road we see part of the cause of the emergence of President Trump as a response was always likely and he has chosen to try to shift some production back to the US via tariffs and a type of buy American policy.
The Chinese wayWho knows what they knowThe Chinese legend grows. ( Level 42)
But whilst this is a strategic success in one way if we bring in one of our main Chinese themes it is also a strategic failure. Indeed the success has exacerbated the problem.
Data from the Global Trade Alert shows that China has implemented more than 7,500 subsidy policies since 2009. Between 2009 and 2022, Beijing’s total subsidy count was equal to about two-thirds of all those adopted by G20 advanced economies combined, according to the IMF. ( Financial Times)
It has poured money in and as an initial impact it has been quite a triumph.
Today, China is the world’s largest manufacturer of electric vehicles, batteries and many renewable technologies. In frontier technologies, it is closing in on the US’s number-one position in biotechnology and quantum, according to Harvard University’s Critical and Emerging Technologies index. DeepSeek’s emergence in January also highlighted a growing expertise in artificial intelligence. ( Financial Times)
For newer readers I have written before about the issues with consumption in China and more on that in a bit. But there are problems before you leave manufacturing. You see that the Chinese are not as good at “picking winners” as it might first appear.
Aside from the sheer cost of subsidies — which the researchers calculate to be about 4.4 per cent of China’s GDP in 2023 — Beijing’s largesse has supported inefficiency, driven overcapacity and created huge financial losses. ( Financial Times)
For each success there is a raft of failures.
But it has come with waste and a high cost. For each BYD, there are scores of firms that make losses and eventually collapse.
The share of lossmaking Chinese manufacturing companies has risen since 2013, and rapidly so in the past few years. ( FT)
Which means in a rather curious development they have exactly the same problem as us. For example here is Bank of England Governor Andrew Bailey from Washington over the weekend,
In the UK, over that period the potential growth rate of the economy has declined from around 2½% per annum in the preceding twenty years to around 1½% since then. The largest contribution to that decline has come from productivity growth.
Now China.and TFP is Total Factor Productivity.
Estimates of China’s TFP by the IMF, Asian Development Bank, the Conference Board and Penn World Table all suggest its annual growth has slowed since the late 2000s. Some even point to outright decline in the late-2010s.
At comparable levels of development, China’s TFP growth has also underperformed east Asian “miracle” economies by a wide margin, according to analysis by the Lowy Institute. (Financial Times)
So in a rather curious way they are just like us. This is a contradiction of what I was taught as a student as exports and investment were seen as a Holy Grail. The catch as one of my lecturers Michio Morishima pointed out was that we were looking at it from a UK perspective. It is different when you already have lots of exports and investment as Michael Pettis points out.
The real lesson is that good things can be taken to extreme. Too much industrial policy can be just as damaging to an economy as too much indifference to industrial policy.
Indeed we have something else in common with them.
In this way, China’s technological rise is impressive and enormously wasteful. Its industrial policy has forged some highly productive technological titans, and countless zombies. ( FT)
The Cranberries were more accurate than they realised.
In your head, in your headZombie, zombie, zombieWhat’s in your head? In your head?Zombie, zombie, zombie, oh.
House Prices
The previous effort to boost consumption to rebalance the economy was via a house price boom or to mimic us. We have been following the bursting of this bubble for around 5 years now. How is it going?
China’s home prices fell more sharply in September, despite recent policy measures by major cities aimed at reviving the struggling property market. Data from the National Bureau of Statistics showed that new-home prices in 70 cities, excluding state-subsidized housing, dropped 0.41% from August—the steepest decline in 11 months. Resale home prices fell 0.64%, marking the sharpest drop in a year. ( CN Wire)
So these days the housing weakness is a further depressing influence on consumption and hopes of an improvement were hit last week as The Economist Klaxon was triggered.
A luxury mansion in Shanghai sold for $38m. That the wealthy are prepared to pay such an exorbitant price is being interpreted as a sign that a huge and interminable crisis might finally be ending.
Comment
China in another echo of us Western Capitalist Imperialists continues to make the same mistakes. Just mostly different ones. It over produces and under consumes. It has no inflation or at least not as it is conventionally measured as the production wastage is a type of it. But let me finish with what should end up being a positive. Food production is up.
In the first three quarters, the value added of agriculture (crop farming) registered a year-on-year increase of 3.6 percent…….In the first three quarters, the output of pork, beef, mutton and poultry was 73.12 million tons, up by 3.8 percent year on year. Of this total, the output of pork, beef, and poultry grew by 3.0 percent, 3.3 percent and 7.2 percent respectively while that of mutton dropped by 4.3 percent.
Hopefully that will help with the issue of higher food prices around the world.
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