1. Mass employment via light and low skilled manufacturing will not help provide mass prosperity in 2025. Automation is the name of the game (can confirm in Vietnamese and Indian high value manufacturing as well as Chinese)
2. Work to build a social safety net that complements gig work. An export driven economy is increasingly tenuous in the current climate. Expanding a domestic consumer market by ensuring prosperity reaches the bottom half is what will allow you to build a resilient economy.
----------
I've ranted about this for over a decade now. Concentrating only on export and industry development while ignoring the need to expand a domestic consumer market either by leveraging higher incomes (highly unlikely) OR a stronger social safety net is the solution to over-production in most cases.
It's an increasingly mainstream view in Chinese economic academia as well, but the Xi admin remains petulantly opposed to what it derisively terms as "Welfarism" ("福利主义典范国家，中产塌陷、贫富分化、社会撕裂、民粹喧嚣，这不乏警示— 防止落入“福利主义”养懒汉陷阱"*) [0].
Li Keqiang was a major proponent of expanding the social safety net due to his early experiences in childhood, but he sadly passed away.
Countries like Vietnam are following a similar approach, and it is not going to end well.
* - "In a welfare state, the middle class is collapsing, the rich and the poor are polarized, society is torn apart, and populism is clamoring. This is a warning to avoid falling into the trap of "welfarism" that breeds laziness."
As Germany and Japan can attest, export-led growth works great until it doesn't, because you are stuck to suppress wages across the economy to maintain your export edge. You need to also build the internal market and carefully manage the housing market as the central instrument for wealth accumulation of your citizens.
I think the US is unique to realize that they can achieve more by being a consumer spending economy and using run-away housing prices to inflate their citizens wealth (using immigration to increase demand).
The US can do this because the dollar's global reserve currency status. This works on a longer cycle but will be far more painful and difficult to address when it reaches a tipping point.
I can see the point re internal market vs export orientation. But why make the housing market the focal point of wealth creation? Wouldn't the stock market be a much more overall beneficial place to let your population accumulate wealth (which the US also does quite successfully, through 401k, cheap and trustworthy financial products like ETFs, a strong SEC,...)?
Pushing house prices ever higher comes with so many societal problems, and also with serious financial risks. The start of Japan's lost decades, which you mentioned, wasn't weak domestic demand. It was a housing price bubble so extreme that small areas of central Tokio were worth more than all of California. Domestic demand was actually very strong in Japan up until that bubble burst. The biggest financial crisis in the US in recent memory (2008) was also due to the housing market, its consequences eclipsing that of the dotcom bubble or the 1987 crash. That being said, stock market bubbles are no fun either - the Great Depression of the 1930's was caused by a stock market crash. But at least stocks don't tend to push people into homelessness already while they're booming.
>Xi admin remains petulantly opposed to what it derisively terms as "Welfarism"
The joke I heard that Xi welfare mindset is much closer to Reagan than other welfare states. However I say it's not entirely wrong. Freebies and welfare including very generous pension is really addictive policy and no electorates would be willing to sap them out much less going cold turkey.
The chicken will come home to roost when it's time to upgrade your tech, industry or infrastructure but you don't have adequate capital to do that.
While there are issues with populism induced freebies, China's social welfare spent is anemic for the size of economy it is.
Almost all social welfare has been devolved to the state level, but state level spend and incentives are overwhelmingly spent on large capex projects that align with larger initiatives (eg. the EV price wars with dozens of SoEs jumping into the fray despite the overwhelming majority of the Chinese EV industry being won over by private sector BYD).
That's tens of billions of dollars of capex per province just on one initiative that has turned into a price war that is forcing central level intervention. It's the same misaligned incentive structures that lead to the construction boom and bust in during the 2015-20 period, the overzealous Zero COVID enforcement, and the subsequently haphazard end to Zero COVID.
Most provinces are heavily indebted and lack a robust enough capital market to raise from in the way you can get local and state bonds in the US, or municipal bonds in much of the EU.
The Xi admin's policies is the equivalent of America having Reaganism during the 1950s-80s. Reaganism was bad for the US, but at least the US had a higher human capital by the 1980s thanks to New Deal (1930s-1950s) and Great Deal (1960s-70s) policies for a generation.
The kinds of people who had sympathy for solving spatial inequality in China are no longer represented after Li's passing, and this kind of petulant opposition to welfare expansion with no data to show otherwise is what will trip up China longterm if something does not change in the next 3-5 years.
The kinds of policies being pushed by the Xi admin currently are similar to those from a decade ago, yet China is a much older society than it was 10 years ago, and as I pointed out elsewhere, a society where the median household is much poorer than it's peers at GDP per capita (and even significantly below in the case of Thailand).
This is the same point the Economist article is getting at - a country where 10-20 million people are earning European and American level salaries but with almost half a billion people with Indian or Vietnamese levels of household incomes is an underperforming society if spending cannot be unlocked because the bottom half of society is saving heavily for a rainy day due to a limited to nonexistent social safety net.
And now that most of China is at Thailand level ages, there just isn't much room for convergent development using an export model.
If a social safety net expansion comparable to the Great Deal isn't initiated by 2029-30, I truly cannot see how a 4-5% GDP growth rate can be sustained over a long enough time period to converge with a Japan, Korea, or Western Europe, let alone the US.
They do provide a safety net but you have to move into the cities. They can't afford to build a comparable one for the rural areas too as rural productivity is too low and they can't realistically induce skilled people to move into impoverished rural areas.
Even the urban safety net is gated behind getting an urban hukou which has income requirements and stable residency requirements - both of which are difficult for the bottom half of society becuase of the chicken-and-egg situation. But the added issue is migrants on a rural hukou do not want to give up their rural hukou because oftentimes this means losing the right to any rural landholdings they may have - which for someone earning Yuan 2,000 to 4,000 a month doing gig work on Meituan is basically their only appreciating asset if the local prefecture decides to say expand a road or create an LGFV and thus entitling them to some (relatively) decent compensation.
This is the crux of the issue. There are very table stakes reforms that the central and provincial can conduct to help alleviate inequality, yet the bulk of spending is essentially expended on capex investments or subsidizes, which while great for building high value industries aren't generating a significant number of jobs because those industries require a college education.
No provincial government will work on expanding a social safety net without it becoming a priority at the Central level because everyone wants to climb the ladder, and there just isn't much fiscal leeway to expand that without central intervention.
> They can't afford to build a comparable one for the rural areas too as rural productivity is too low
That didn't stop Thailand or Malaysia. They might not have the same GDP per capita as China, but the median household disposable income of both is significantly higher (1.5x in the case of Thailand and 2.5x in the case of Malaysia).
Unlike both Thailand and Malaysia, the central government in China has much more leeway to expand the welfare net if it was a priority.
Trans. by Firefox (w/ a little bit of G. Translate edits): "Which is more important: dividing the cake or making the cake? On the surface, the cake is directly related to fairness, but fundamentally speaking, the cake and making the cake are not one of the two, making the cake is the premise, the fair distribution of the cake is the result, the development is the premise and the key, any distribution system must first be based on the big cake, the cake can be divided." ... "On the other hand, dividing the cake well and carrying out distribution system reform is to promote economic and social development, not just to complete consumption."
It works, and its a reasonable comparison, it's also just amusing to read some some Chinese position paper and then he starts wandering into cake discussions after a bunch of very formal propaganda stuff "superiority of socialism is ultimately to be reflected in its development of productive forces", ect...
Honestly, it's sad and frustrating. It's literally a "let them eat cake" kind of statement.
China is at the point where a social safety net is needed to ensure long term prosperity, and concentrating on an export first model isn't going to cut it long term, because high value industries are heavily automated and skilled, and simply don't demand or need that many employees.
China has reached a point where the mean years of education amongst working age people (~8 years) has caught up with countries that used to be much richer than China 15 years ago like Brazil, Thailand, Turkiye, and Malaysia and it's mean life expectancy has outpaced all those countries except Turkiye and Thailand, which it is for all intents and purposes tied [0]. This is a MASSIVE win for global poverty eradication.
Yet the median age is significantly higher than all of them except Thailand [1], and median disposable household income remains around $400/mo [2] - lower than Thailand [3], Malaysia [4], or Türkiye's [5] despite having a GDP per capita (~13.3k in 2024) that is comparable to the latter 2 and above Thailand's.
Now is the time for China to expand its welfare system in order to make that leap into being a truly developed country, just like South Korea did in the late 1990s and early 2000s. Expanding the welfare state would help hundreds of millions of Chinese gain the ability to purchase higher value goods thus reducing the specter of "overproduction" leading to the current global trade war, while truly ensuring common prosperity.
Otherwise, it will flounder like Malaysia and Thailand did, both of which used to be South Korea's peer until the Asian Financial Crisis, or Turkiye after it's peak in 2014.
People mention "course correction" but what course correction can you do when disdain for a welfare system is so engrained in the upper echelons of leadership.
This is not a statement on the "collapse of China" (that's dumb), but if this problem around domestic consumption and a lack of a safety net is not nipped in the bud in the next 3-5 years, it will be much harder for China to take full advantage of the capabilities it has and ensure common prosperity.
Thanks for all the work finding the local national reporting on those statistics.
Turkey's numbers look crazy though. Almost doubling every year? Is that just the exchange ratio's runaway hyperinflation? https://tradingeconomics.com/turkey/currency Almost linearly upward for the last half decade.
2021 2022 2023
98,416 181,200 374,899 household available income
48,642 90,116 187,728 household available individual income
> Is that just the exchange ratio's runaway hyperinflation
Yep. Turkiye is in a weird position where there is hyperinflation but also economic expansion. It's the hallmarks of an overheating economy.
A lot of this was due to the run-up Russia-Ukraine War, which saw significant capital outflow from Russia to all over the CEE, Balkans, and Turkiye (as is reflected in their GDPs per capita), along with Turkiye's then abnormally low interest rates in order to subsidize the construction industry, because Turkiye had it's own Evergrande 10-15 years ago.
Turkiye - just like leadership in China who were in their 20s to early 30s in the 1980s - was influenced by the development of Malaysia and Singapore. Mahatir Mohammad was the original Erdogan (infrastructure driven growth mixed with a large welfare state mixed with a heavy dose of Pan-Islamism), and both he and LKY used the same economic model and had a love-hate relationship with each other as they were in the same circles in their early career, but it's easier to develop a 4 million person city state like Singapore instead of a 15-20 million country like Malaysia under Mahatir.
Additionally, much of the Chinese economy in the 1990s and 2000s was developed thanks to the Chinese Malaysian diaspora heavily investing in China. The ethnolinguistic group (Hokkien) in the province Xi spent most of his career in (Fujian) itself represents the majority of the Malaysian Chinese business class, and they heavily invested in Fujian (along with Guangdong) during Xi's time there, and were a major reason why China's economy opened up in the 1980s-2000s.
Consumption habit is much more dependent on personal experience and has little to do with the safety net. Older retired people with state pensions still have little desire to spend or don't even know how to spend in the new online economy, while young people who never experienced hardship are happy to spend every penny. If you want to increase spending you need to steer income to young people (child credit e.g.). Healthcare is mostly accessed by old folks. Generous pension and healthcare benefits are not going to lift spending.
Personal view on the healthcare side, at least in America, while the old spend 36% compared to 10-15% in every other age category, 10-15% spend is still relatively significant. [1]
In America, the average age of medical bankruptcy is 45 years old, that's not really that old. [2] 17% had to declare bankruptcy or lose their home and 45% of Americans worry a major health event will bankrupt them.
I might personally spend more money if I had a difficult health condition and reasonable healthcare, vs being uninsured and crippled by financial costs. If I live every day in fear of bankruptcy, I'm not very willing to spend money on much of anything I don't "really" need.
Having worked in the government, the pension thing is difficult. They exhibit a J-shaped accrual pattern, where young workers don't get much, and long term workers are difficult to pay for. So the motivation is to burn people out and then get rid of them before the pension costs get to be too much.
They're "supposed" to be funded to an adequate amount to pay for the benefits, yet political pressures and less rigorous accounting standards result in excessive commitments to employees and retirees, but inadequate contributions. In the American gov that has resulted in a lot of attempts at buy-outs, early retirement schemes, and almost anything to get people off the pension payrolls.
Personally, an acceptable result was the employee matched retirement contribution. That worked acceptably from my own experience in the government. Generous ceiling on how much we'll match, and employees who actually use the program are effectively getting a 3-5% pay raise because of contributing. IE: "I put in 5%, and my employer matches my contribution with 5%"
> Consumption habit is much more dependent on personal experience and has little to do with the safety net
The per capita (not median, so skewed upward) yearly expenditure of a Chinese household in 2024 was Yuan 28,227 [0]. The per capita urban household in China had around Yuan 34,000 a year in expenditures in 2024, and the per capita rural household in China had around Yuan 20,000 a year in expenditures in 2024.
61% of a per capita Chinese household's expenditures are just on food, residence, and healthcare. And that becomes 75% when factoring transit and telephone/internet bills.
Only 11% of a per capita household spend was on recreation, 5% on clothing, and around 3% on miscellaneous services.
This means the mean household in China only had aroud Yuan 7,000/$1,000 in all of 2024 on anything that is a non-essential or discretionary purchase. This is abnormally low for a country with China's GDP per capita and highlights a very real problem for the bottom half of Chinese households.
Heck, in Thailand in 2022, the median household only spends 1.4% of their income on medical care [1] and with a significantly higher household disposable income ($600/mo) and significantly better health indicators.
Literally reducing the per capita Chinese household's healthcare spend to the same ratio as Thailand's would unlock an additional Yuan 2,200 a year that can be used on discretionary spend. That itself could unlock (back of napkin math) almost $161 billion in potential discretionary spending or an additional 0.7%-0.8% of GDP growth, thus allowing China to hit the 5% GDP growth target while also reducing overproduction and increasing health standards.
And that's just healthcare.
This is why China needs a LBJ and FDR style Great Deal and New Deal reform. China is growing much slower than it should be because of pigheadedness at the upper echelons of leadership preventing this kind of development.
China's median age is now 40. 20 years ago the college enrollment and urbanization rates were much lower. That's why the numbers alone don't tell the whole story for a fast changing economy like China's. You need to look at disaggregated numbers if you want to make predictions.
Also the number you quoted lumped housing together with other costs.
China has very high home ownership and home prices are very elevated. Much public services and transport infrastructure builds are funded through government land sales and therefore through home sales. That could also skew the data.
Another problem with the national median data is the great variations in development levels and therefore cost of livings across geographic regions.
It's not easy to change the spending habits of the older adults. Consumption is also work. It's about increasing utility, not just spending. Consider the time after the Fukushima when misinformed consumers hoarded salt. It would be hard to argue that consumption increased utility. You want consumers to be informed, you want spending to discriminate against incompetent manufacturers and bad services. If older adults get more utility from watching their bank accounts grow than doing the work to consume without regrets, just shoveling more money indiscriminately isn't going to stimulate consumption much.
Not a single thing you have said justifies not expanding the social safety net in China. I have literally provided data from 国家统计局, and all you have provided are anecdotes about why expanding the social safety net will not have an impact.
Show me the data that justifies not expanding the social safety net in China. I have provided a moral, economic, and developmental reason all showing the net benefit for China to expand the social safety net - and this is a fairly common view in Chinese academia as well.
To continue using my healthcare example, only the top 20% of households in China even have a disposable household income (Yuan 95,000 [0]) comparable to China.
In fact, the bottom 60% of Chinese households have a lower disposable household income than that in Thailand. For these households, an additional Yuan 2000 a year would be have a significant positive impact.
If you think trickle down economics work and expanding the social safety net is unnecessary, just come out and say it - just like the Xi administration did.
But you cannot deny the wealth gap that China has - and it is a severe one compared to it's peers at it's GDP per capita. The only other country amongst China's developmental peers with a similar disparity is Brazil.
If this disparity is not resolved, then best case a plateau similar to Malaysia's occurs.
Your arguments are not supported by what is actually happening. They just rolled out child payments and I support that. Pensions grew very fast for 体制内 people and there is scant evidence that stimulates spending other than burdening local finances. 大病保险 reimbursement rate is also up a lot while office visit costs are kept very low and while I think that is good there's little evidence that it stimulates consumption.
Your attack on my analysis as annecdotes is ridiculous. For one to induce change one needs differential data to get the derivatives on proposed changes and your citation of national bulk statistics at a point does nothing of that sort. Secondly on the ground experience can provide directions that inform experimentations. Government finance is tight. You don't want to get another 100% GDP in debt with little to show (as in Japan). Thirdly this is not an academic forum and I am not an expert. If you feel like you are one you can write papers on your ideas. Attacking me isn't going to achieve anything.
> They just rolled out child payments and I support that
Absolutely, and it's a good start, but more can be done. This is literally the bare minimum.
> Pensions grew very fast for 体制内 people and there is scant evidence that stimulates spending other than burdening local finances. 大病保险 reimbursement rate is also up a lot while office visit costs are kept very low and while I think that is good there's little evidence that it stimulates consumption
体制内 only represent around 4% of Chinese according to the 2018 census [0], but I would be shocked if the number in 2025 has broken 5%. Most Chinese are not 体制内, and any impact of 体制内 social spending expansion has no bearing on China as a whole.
> Pensions grew very fast for 体制内 people and there is scant evidence that stimulates spending other than burdening local finances
Most Chinese - and especially elderly Chinese - are not 体制内. The majority of social safety spend it basically gated for 体制内.
> 大病保险 reimbursement rate is also up a lot
Show me the data and show the the trendline. What is the rate of change. Is it statistically significant?
While the rate of catastrophic health emergencies (ie. those health emergencies that can bankrupt a household) has reduced from ~16% in the early 2010s to ~13.8% in 2022 [1], this is still an elevated rate.
In both studies, severe spatial inequality was found. An acquaintance who was an alum of the same research group as mine who returned to China to work in healthcare investment banking and then a C9 research and lecturer position worked on a similar study, and they had to return to the US because their grant was pulled because it ruffled some feathers at their department.
> Your attack on my analysis as annecdotes (sic) is ridiculous
Anecdotal evidence is evidence that is unsourced. As I mentioned before, show me the data if you are giving assertions.
> You don't want to get another 100% GDP in debt with little to show (as in Japan).
Absolutely, and this is what makes me annoyed. Industrial policy is good, but the manner in which it was approached from 2017 onwards was reckless. Look at EVs as an example.
Billions of dollars were burnt by provincial owned SOEs to build EV brands yet none of them aside from SAIC has even come close to competing with private sector BYD (which had a comparative advantage of being a leader in battery chemistry for decades that pivoted into automotive around 2008-09). Nor did EV manufacturing provide a significant amount of jobs for a large number of provinces.
The comparative advantage that Guangdong, Shanghai, Zhejiang, and arguably Anhui had in automotive manufacturing should have meant the rest of the provinces in China and some of the central SOEs should have have even touched EV production, and could have reallocated capital to either building industries that these provinces had a comparative advantage in or spend on social welfare. Yet mid-level functionaries incentivized this kind of spending to climb up the ladder as well as induce demand on LGFVs during the real estate crisis.
And that's just EVs. This is a common problem across Chinese industry, and it is discussed at C9s and amongst diaspora academics as well, but the upper echelons of leadership response very very slowly. Heck, I was warning on HN that there was going to be central intervention into the EV price war years before the recent actions by the central government.
> this is not an academic forum
It is commonly accepted on HN to give sources to assertions, as a large subset of us were ex-academics.
> If you feel like you are one you can write papers on your ideas
Been there, done that. The research group I was affiliated with back when US-China relations were more optimistic advised on what became 精准扶贫 because of 李克强's backing.
> Attacking me isn't going to achieve anything
Asking for sources to assertions is not an attack. Asking for basic data analysis (which is a table stakes skill in the tech industry in 2025) is not an attack.
1. Mass employment via light and low skilled manufacturing will not help provide mass prosperity in 2025. Automation is the name of the game (can confirm in Vietnamese and Indian high value manufacturing as well as Chinese)
2. Work to build a social safety net that complements gig work. An export driven economy is increasingly tenuous in the current climate. Expanding a domestic consumer market by ensuring prosperity reaches the bottom half is what will allow you to build a resilient economy.
----------
I've ranted about this for over a decade now. Concentrating only on export and industry development while ignoring the need to expand a domestic consumer market either by leveraging higher incomes (highly unlikely) OR a stronger social safety net is the solution to over-production in most cases.
It's an increasingly mainstream view in Chinese economic academia as well, but the Xi admin remains petulantly opposed to what it derisively terms as "Welfarism" ("福利主义典范国家，中产塌陷、贫富分化、社会撕裂、民粹喧嚣，这不乏警示— 防止落入“福利主义”养懒汉陷阱"*) [0].
Li Keqiang was a major proponent of expanding the social safety net due to his early experiences in childhood, but he sadly passed away.
Countries like Vietnam are following a similar approach, and it is not going to end well.
[0] - http://theory.people.com.cn/n1/2021/1116/c40531-32283350.htm...
* - "In a welfare state, the middle class is collapsing, the rich and the poor are polarized, society is torn apart, and populism is clamoring. This is a warning to avoid falling into the trap of "welfarism" that breeds laziness."