Don't Underestimate China's Economy

[AndrewJin]

Glenn Solomon
Solomon is a partner at GGV Capital, a venture capital firm that invests in the U.S. and China.

The steady drumbeat of news of China’s macro-economic slowdown has continued, taking Chinese equity markets down seemingly with each headline. Meanwhile, the US stock markets have been hit hard in sympathy, with investors clearly worried about the impact a slowdown in China may have on the global economy. With this tumult, we’ve seen a chorus of negative sentiment from leading Silicon Valley voices regarding China.

Clearly all is not perfectly well in China right now, but its important to keep China’s economic growth in perspective. China’s 2015 GDP is estimated at over $11 trillion (in US dollars), over twice as much as both Japan and Germany and closing in on the US, with over 7% annual growth. The world has never witnessed this rate of growth for an economy so large. At GGV Capital, we remain excited by the prospects for China’s new economy, both shorter and longer term, and we believe investors will be rewarded for staying patient and doubling down as the less committed capital fleas the market. Consider the following:

New Economy Versus Old Economy

Outsiders find it difficult to fathom how quickly China has emerged as a modern, economic powerhouse. The immense Chinese economy we know today has grown out of trends and local reforms that are barely 30 years old. The past 150 years of development in the US have essentially occurred 5x faster in China. And, because China’s economic development has occurred more recently, its growth has been infused with much more modern technology than is the case in the US.

As my GGV Capital partner Hans Tung recently mentioned on CNBC, one consequence of the rapid, technology-heavy development cycle in China is a bifurcation between traditional, “old economy” companies, many of which are SOEs (state-owned enterprises) that trade publicly on China’s local exchanges, and “new economy” mobile and internet companies. As a result, the dichotomy we see in the US between slow growing, declining industries such as durables manufacturing or brick & mortar retail, and rapidly growing, tech-enabled segments such as sharing economy and mobile, on-demand companies is even more pronounced in China. While old economy industries in China are slowing, the growth in new economy industries remains vibrant. As we see in many of our own Chinese portfolio companies, new economy models are flourishing in industries such as retail, exports, travel, real estate, food and auto. Apple is flourishing in China. Software is eating China, as it is in the US.

Much of the growing middle and upper class in China is employed by new economy companies and increasing consumption of new economy goods and services is driven by this group as well. Macro-economic factors are certainly important, but the micro-economic dynamics of the new economy in China are profound. As I’ve written earlier, because public stocks are not widely held in China, the recent declines in local stock indices is hurting a relatively small percent of the Chinese population. As long as the Chinese consumer stays in the game, the new economy in China will continue to flourish.

 

[TaiShang]

China promoting global economic stability
By Zhang Yugui 2015-9-9 0:13:01

Growing prominence means nation must shoulder more responsibility

Illustration: Luo Xuan

Under the framework of global economic integration, China, as the world's second-largest economy, is paying increasing attention to the spillover effect of its economic and financial policy and is also committed to promoting global economic prosperity and financial stability by maintaining stability and growth at home.

At the G20 meeting of Finance Ministers and Central Bank Governors that concluded over the weekend in Turkey, leaders from G20 countries showed a new degree of concern and interest in China's economy and financial situation. This not only shows the global economy is dependent on China's growth - it also revealed the classic "beggar thy neighbor" mindset of some G20 members.

Japan, as always, found fault with China's policy at the G20 meeting, but this did not prevent China's economic policy and exchange rate reform from gaining wide international support. In fact, Japan has its own economic troubles at home and is not in a position to point fingers at China's economy. Under the impact of "Abenomics," Japan is facing difficulties in returning to its good old days of prosperity.

At the meeting, Zhou Xiaochuan, China's central bank governor, patiently explained the recent developments in China's stock market as well as the yuan exchange rate reform. Zhou oversees the largest volume of forex assets in the world and was fully aware of the key areas of concern from major economies about China's economic development. Therefore, his speech at the G20 meeting struck a powerful counterblow to doom mongers about China's economy, and also convinced his counterparts that China has the ability to stabilize the country's economic growth.

Furthermore, Chinese Finance Minister Lou Jiwei also said at the meeting that China can maintain a growth rate of around 7 percent over the next five years, even amid a period of strategic economic transition. Even if China only saw growth of 6 percent annually in the next five years, it would still be the envy of major global economies.

The meeting recognized the importance of avoiding the false assumption that something that is true for one segment of the economy is true for the economy as a whole, and this is of particular importance when assessing the economic policies of different G20 member countries under the current economic situation. Countries should communicate and coordinate with each other in order to minimize negative spillover effects from their own domestic economic policies and to reduce uncertainty while shaping their policies.

At the meeting, G20 members reached agreement about the need to avoid competitive currency devaluation and to resist all forms of trade protectionism. It showed the G20 countries have increased their awareness of international coordination, even if this consensus may not be observed and put into practice by some economies due to the limitations of the existing G20 mechanism.

Furthermore, China successfully convinced finance ministers and central bankers of other major economies at the meeting that they don't need to worry about China's economic policy. Indeed, the fundamentals of China's economy have remained unchanged. The new method for how the yuan's reference rate is calculated and the currency's depreciation in August signified a step forward for China toward greater liberalization of the exchange rate mechanism.

China's economy is currently in a key phase of shifting to a more advanced model from a growth model based on quantity. Even if the annual growth rate is only 5 percent during the 13th five-year plan period (2016-20), it would be sufficient to allow China's economy to rank above that of the US by 2020. But everyone knows that efficient growth is more important than low-quality and inefficient growth, especially for a large emerging economy like China. Finance would be rootless without support from the real economy, and a strong and advanced manufacturing sector will be the foundation of China's economy.

China's economic policy will have even greater international implications in the future. After China completes its industrialization and builds a sound financial services system, it should not be content with passively accepting the existing rules of the international economic order. Rather it should actively provide public services and products to the world.

In this sense, trans-regional institutions such as the Asian Infrastructure Investment Bank show the efforts of policymakers from emerging countries to escape the strategic shackles of the existing international economic system. By creating and extending a multilateral platform that serves their nations' interests, they aim to eliminate differences through international consensus, dialogue and multilateral agreement, as well as promoting a free flow of commodities and capital and thus gaining benefits through sharing. While actively seeking to get their voices heard internationally, they also try their best to play the role of safeguarding the global economic system. During the process, China must shoulder greater responsibility and strive to maintain global economic and financial stability.

The author is dean of the School of Economics & Finance at Shanghai International Studies University.

@Martian2 , @tranquilium

 

[AndrewJin]

Do Not Ignore The Positive Side Of China’s Economy

Recent financial volatility has clouded the Chinese economy, but people need to view the bright side if they want the full picture.

Chinese officials do deny that the world’s 2nd largest economy is facing trouble, it is not easy to deliver an annual growth of around 7% after 30 yrs of rapid expansion.

It is true that China’s traditional competitiveness is fading on rising labor costs and tougher measures to protect the environment, but some Western analysts overstated this.

They expect a “hard landing” or even a collapse of the Chinese economy, as the stock market dive, and a weaker RMB Yuan fuel the pessimism.

The G-20 finance ministers and central bank governors, representing 85% of the global economy, reached consensus last week that there was no reason to fear slower Chinese growth.

These senior policymakers see a different picture than the pundit and media pessimists because they paid enough attention to signs of improvement in the Chinese economy.

China’s real estate sector continues warming this year, despite repeated stock market corrections since mid-June.

In August, prices for new homes in 100 Chinese cities rebounded after 10 months of declines. Sales are increasing.

Property is of greater significance than stocks to economic growth and financial stability as real estate is one of China’s pillar industries, widely used as collateral for bank loans.

In August, power generation rose to the highest level this year, rail freight edged up, steel production and prices began to grow following 4 months of decline.

China maintains momentum in commodity imports, refuting accusations that shrinking Chinese demand caused weaker commodity prices. In July, at least 21 different commodities reported China sales growth of more than 20%.

While manufacturing PMI in August fell below 50, the expansion-contraction line, sub-PMI for high-end manufacturing and consumer goods production came in at 52.2 and 54.6, indicating strong vitality.

Production of new energy vehicles, bullet trains, “smart” electronic devices, photovoltaic products reported robust growth, while polluting cement and plate glass dropped substantially.

Chinese cinemas are crowded with moviegoers, restaurants filled with customers and tourist attractions at home and abroad full of Chinese visitors.

Market researcher BCA said overseas travel, cinema box office revenue and e-commerce in China are all seeing “explosive growth”.

All these signs show the country is transforming with painstaking efforts from an investment-led economy to one based on high-end manufacturing, consumption and services.

China is the world’s most populous country and the 2nd largest economy. It is possible for this giant nation to sustain strong growth for a long time to come. As its market potential is huge and the country is far from high-level industrialization and urbanization.

Do not be fooled by overblown stories or biased analysis that say China is slipping into crisis. Instead, with positive signs emerging, the economy is becoming healthier and more sustainable.


Fengjie County, Chongqing Municipality

U can either see the dark interior or the bright sky, your choice.

 

[Martian2]

For 30 years, they have been saying that China's economy will collapse.

After reading BusinessWeek and The Wall Street Journal for decades, you get tired of the "China collapse" nonsense.

Just ignore it. There's no need to defend against the "China collapse" theory. Everyone knows it's anti-China propaganda.

How could a country with $3.6 trillion in foreign exchange reserves, $600 billion annual surplus, and growing at almost $1 trillion per year economically possibly qualify as a collapsing economy?

It's a waste of time and that's why I ignore the issue on The National Interest, Huffington Post, and CNBC. I merely posted China's $57.7 billion August 2015 trade surplus on The National Interest as an occasional reminder.

If the anti-China posters want to keep regurgitating the "China collapse" nonsense, there's no point writing counter-posts. Another anti-China poster will surface next week and you'll be back to square one. The funny thing is that everyone knows it's not true.

In conclusion, let them waste their time writing "China collapse" posts. I'll be back at the end of the year to write one post on China's total trade surplus. See how efficient that is? They write for a year and I negate it with one post at year end.

 

[Jlaw]

Bro, not only Glenn Solomon but another investment guru Jim Rogers know so too.

Jim Rogers exits India, says one can’t invest just on hope - Livemint

So you’ve exited India. You bought into India last year, and as you said, the markets have done well since. Did you therefore make a good deal of money when selling?

I don’t like to talk about how much money I have, or how much I made. I am not complaining about my investments in India. Let us leave it at that. I may see myself returning back to India at some stage if Modi starts doing things, or if the markets go down a lot—some stage can even be a long time away, but not at the moment. If Modi made the currency convertible, if he made the markets open to outsiders, then I would have to be back in India again. So far Modi has been doing worthwhile things like addressing some social issues—I am all for that, and that is great for a lot of people—but India needs more.

As someone who has watched India for a long time, where do you see the country headed? What are the challenges for India—is it job creation for the youth that meets their aspirations?

India has very high debt-to-GDP (gross domestic product) ratio—it is higher than many countries. Studies have shown that when countries have a high debt-to-GDP ratio, it is difficult to grow at a reasonable rate. I don’t really see much going for India right now except Modi, who is not doing anything,..

In history, India has been one of the great agricultural nations of the world—you have the land, the people, weather—God gave you everything. And then, he also gave you Delhi to mess it all up.

What is your take on what is happening in China right now? The reality is that foreigners hold very few China shares.

China is pure noise and hype and it is exciting to talk about the Chinese market that has moved a lot. Virtually no foreigners own shares in China. The press is talking about short-selling, but there is hardly any short-selling in China. The Chinese market has done better this year than the American stock market. So you in the press should be talking about the American stock market—but for you that may not be exciting enough as compared with China. I bought Chinese shares during the two-three days when its market collapsed—on the really serious down days, I bought more. I like to buy low, and I found that in history, usually when you buy during panic, things will turn out to be okay two-three years down the road.( word of wisdom)

I would rather be in China than in most parts of the world, because its stock market is still somewhat depressed. The Chinese stock market is still below 50% of its all-time high. The American stock market is near its all-time high. The situation is that for the first time ever, we have had six years of huge money print across the world. The world is floating on a huge artificial ocean of liquidity and that is going to end sooner or later—it is looking to be sooner. Many markets are going to suffer in the future as this happens. I would expect that this year or next year, we will begin to see a lot of problems worldwide. In 2008, China had a lot of money saved for a rainy day, and when it started raining, they began spending their money. This time around, China is facing debt—historically China has not had much debt—so China, is not going to be so insulated the next time around. I bought Chinese shares in the panic, and some of them are more down now because the Chinese markets went down again after I had bought. I feel that I should own something and China and Russia are the couple of markets that are depressed, where they are changes, and that is why I own these shares.

 

[TaiShang]

For 30 years, they have been saying that China's economy will collapse.

After reading BusinessWeek and The Wall Street Journal for decades, you get tired of the "China collapse" nonsense.

Just ignore it. There's no need to defend against the "China collapse" theory. Everyone knows it's anti-China propaganda.

How could a country with $3.6 trillion in foreign exchange reserves, $600 billion annual surplus, and growing at almost $1 trillion per year economically possibly qualify as a collapsing economy?

It's a waste of time and that's why I ignore the issue on The National Interest, Huffington Post, and CNBC. I merely posted China's $57.7 billion August 2015 trade surplus on The National Interest as an occasional reminder.

If the anti-China posters want to keep regurgitating the "China collapse" nonsense, there's no point writing counter-posts. Another anti-China poster will surface next week and you'll be back to square one. The funny thing is that everyone knows it's not true.

In conclusion, let them waste their time writing "China collapse" posts. I'll be back at the end of the year to write one post on China's total trade surplus. See how efficient that is? They write for a year and I negate it with one post at year end.

Indeed. The anti-China troll army is probably composed of sockpuppets. Hence, you can't beat a software to repeat stuff. Just state the facts and move on. Silent readers and critical minds will get it. Truth always prevails.

As Schuon said: "There is no true greatness outside the Truth."

 

[Martian2]

Indeed. The anti-China troll army is probably composed of sockpuppets. Hence, you can't beat a software to repeat stuff. Just state the facts and move on. Silent readers and critical minds will get it. Truth always prevails.

As Schuon said: "There is no true greatness outside the Truth."

I was on Bloomberg and some crazy guy kept re-posting ad nauseum the exact same comment about boycotting China.

Every three months, I would post China's trade surplus and ask him how his boycott was coming along.

Eventually, they banned him. It was annoying to read the exact same boycott advertisement in the comment section for almost a year.

The point is that anti-China posts don't work. China's trade surpluses speak for themselves. People all over the world vote with their money. It doesn't matter how many anti-China posts that someone writes. It has no effect on the real world.

 

[cirr]

Glenn Solomon
Solomon is a partner at GGV Capital, a venture capital firm that invests in the U.S. and China.

The steady drumbeat of news of China’s macro-economic slowdown has continued, taking Chinese equity markets down seemingly with each headline. Meanwhile, the US stock markets have been hit hard in sympathy, with investors clearly worried about the impact a slowdown in China may have on the global economy. With this tumult, we’ve seen a chorus of negative sentiment from leading Silicon Valley voices regarding China.

Clearly all is not perfectly well in China right now, but its important to keep China’s economic growth in perspective. China’s 2015 GDP is estimated at over $11 trillion (in US dollars), over twice as much as both Japan and Germany and closing in on the US, with over 7% annual growth. The world has never witnessed this rate of growth for an economy so large. At GGV Capital, we remain excited by the prospects for China’s new economy, both shorter and longer term, and we believe investors will be rewarded for staying patient and doubling down as the less committed capital fleas the market. Consider the following:

New Economy Versus Old Economy

Outsiders find it difficult to fathom how quickly China has emerged as a modern, economic powerhouse. The immense Chinese economy we know today has grown out of trends and local reforms that are barely 30 years old. The past 150 years of development in the US have essentially occurred 5x faster in China. And, because China’s economic development has occurred more recently, its growth has been infused with much more modern technology than is the case in the US.

As my GGV Capital partner Hans Tung recently mentioned on CNBC, one consequence of the rapid, technology-heavy development cycle in China is a bifurcation between traditional, “old economy” companies, many of which are SOEs (state-owned enterprises) that trade publicly on China’s local exchanges, and “new economy” mobile and internet companies. As a result, the dichotomy we see in the US between slow growing, declining industries such as durables manufacturing or brick & mortar retail, and rapidly growing, tech-enabled segments such as sharing economy and mobile, on-demand companies is even more pronounced in China. While old economy industries in China are slowing, the growth in new economy industries remains vibrant. As we see in many of our own Chinese portfolio companies, new economy models are flourishing in industries such as retail, exports, travel, real estate, food and auto. Apple is flourishing in China. Software is eating China, as it is in the US.

Much of the growing middle and upper class in China is employed by new economy companies and increasing consumption of new economy goods and services is driven by this group as well. Macro-economic factors are certainly important, but the micro-economic dynamics of the new economy in China are profound. As I’ve written earlier, because public stocks are not widely held in China, the recent declines in local stock indices is hurting a relatively small percent of the Chinese population. As long as the Chinese consumer stays in the game, the new economy in China will continue to flourish.

Welcome back。

 

[terranMarine]

For 30 years, they have been saying that China's economy will collapse.

After reading BusinessWeek and The Wall Street Journal for decades, you get tired of the "China collapse" nonsense.

Just ignore it. There's no need to defend against the "China collapse" theory. Everyone knows it's anti-China propaganda.

How could a country with $3.6 trillion in foreign exchange reserves, $600 billion annual surplus, and growing at almost $1 trillion per year economically possibly qualify as a collapsing economy?

It's a waste of time and that's why I ignore the issue on The National Interest, Huffington Post, and CNBC. I merely posted China's $57.7 billion August 2015 trade surplus on The National Interest as an occasional reminder.

If the anti-China posters want to keep regurgitating the "China collapse" nonsense, there's no point writing counter-posts. Another anti-China poster will surface next week and you'll be back to square one. The funny thing is that everyone knows it's not true.

In conclusion, let them waste their time writing "China collapse" posts. I'll be back at the end of the year to write one post on China's total trade surplus. See how efficient that is? They write for a year and I negate it with one post at year end.

China shall remain a powerhouse no matter what haters posts

 

[TaiShang]

I was on Bloomberg and some crazy guy kept re-posting ad nauseum the exact same comment about boycotting China.

Every three months, I would post China's trade surplus and ask him how his boycott was coming along.

Eventually, they banned him. It was annoying to read the exact same boycott advertisement in the comment section for almost a year.

The point is that anti-China posts don't work. China's trade surpluses speak for themselves. People all over the world vote with their money. It doesn't matter how many anti-China posts that someone writes. It has no effect on the real world.

There are similar personalities on Global Times, as well, repeating the same long tirade over and over again. I am surprised how the moderators allow so much anti-China rhetoric that is laden with racism, sexism, and all kinds of insult.

If one-third of this happened on Western MSM, they would be purged.

These important and popular news portals must have their own moderation teams.

 

[Martian2]

There are similar personalities on Global Times, as well, repeating the same long tirade over and over again. I am surprised how the moderators allow so much anti-China rhetoric that is laden with racism, sexism, and all kinds of insult.

If one-third of this happened on Western MSM, they would be purged.

These important and popular news portals must have their own moderation teams.

I was on GlobalTimes for a few months.

I said what I thought was interesting about China's South China Sea islands. In particular, I focused on China's historical discovery and claims.

When I was done, I left. I'm pretty sure that most of the GlobalTimes readers saw my viewpoint and I moved on.

Unless I have new information or a novel viewpoint, I don't repeat myself. Repetition feels too much like propaganda and it'll annoy readers.

Thus, most of those repeat-bots on GlobalTimes are wasting their time. No one reads their regurgitated posts. Same thing happens on The National Interest. I've seen the exact same post like twenty times now.

No one responds to those posts. Also, I skip any post that is too long (e.g. more than two paragraphs). Assuming that most readers react the same way that I do, I would say the repeat-bots are wasting their time.

 

[Jlaw]

I was on GlobalTimes for a few months.

I said what I thought was interesting about China's South China Sea islands. In particular, I focused on China's historical discovery and claims.

When I was done, I left. I'm pretty sure that most of the GlobalTimes readers saw my viewpoint and I moved on.

Unless I have new information or a novel viewpoint, I don't repeat myself. Repetition feels too much like propaganda and it'll annoy readers.

Thus, most of those repeat-bots on GlobalTimes are wasting their time. No one reads their regurgitated posts. Same thing happens on The National Interest. I've seen the exact same post like twenty times now.

No one responds to those posts. Also, I skip any post that is too long (e.g. more than two paragraphs). Assuming that
most readers react the same way that I do, I would say the repeat-bots are wasting their time.

Actually, repetition have shown to actually work best. You should repeat it often because that's how babies learn. Unfortunately that's how those idiots learn also.

 

[TaiShang]

Actually, repetition have shown to actually work best. You should repeat it often because that's how babies learn. Unfortunately that's how those idiots learn also.

Repetition makes a certain image of the target in the minds of the gullible. And yes, it is often the gullible that is most needed to pull out a color revolution.

Especially done in a professional manner, repetition works, I guess. There is an entire social-personal psychology behind it. China must study it very carefully and run some social engineering on the target countries. The Black-White race issue in the US would be a nice test zone.

 

[Vassnti]

U can either see the dark interior or the bright sky, your choice.

Or you can see both , beautiful pic btw

Its not just the west that sees the end of the mythical 7%

"China needs to drop the fantasy of keeping a high growth rate of 7 or 8 per cent and just accept 6, 7 or even 5 per cent."
Wang Jianlin

'Drop the fantasy': China's richest man Wang Jianlin says Beijing must give up high growth rate plan | South China Morning Post

That leaves aside the other question, the amazing ability to hit the exact target set by the goverment year after year makes you think honest statistics are as rare as a magic rabbit.

 

[AndrewJin]

Or you can see both , beautiful pic btw

Its not just the west that sees the end of the mythical 7%

"China needs to drop the fantasy of keeping a high growth rate of 7 or 8 per cent and just accept 6, 7 or even 5 per cent."
Wang Jianlin

'Drop the fantasy': China's richest man Wang Jianlin says Beijing must give up high growth rate plan | South China Morning Post

That leaves aside the other question, the amazing ability to hit the exact target set by the goverment year after year makes you think honest statistics are as rare as a magic rabbit.

I think 6%-6.5% is enough for the next 2-3 years.
China is moving up in the supply chain, other countries should have some room in cheap labour work.
And fewer young people want to work in factory, they'd rather find a job in tourism.