
China’s Consumption Downgrade: Skip Avocados, Cocktails and Kids - petethomas
https://www.nytimes.com/2018/08/22/business/china-consumer-downgrade.html
======
erulabs
This idea of consumption being the indicator of health for an economy is
troubling to me. Less consumption certainly appears troubling to shareholders,
and as some have pointed it should be viewed as a positive thing re:
environmentalism - less consumption means less resource utilization.

But from a purely economic standpoint - saving is not a bad thing. Murray
Rothbard wrote the following (fairly obvious statement):

"To increase production, man must form capital. To create it, he must restrict
his consumption and transfer his labor for that period to producing
immediately-satisfying con­sumers’ goods."

The article explicitly mentions the -goals- of those who are saving - to buy
homes or raise children. Henry Hazlitt writes:

"But when money is invested it is used to buy capital goods–houses or office
buildings or factories or ships or motor trucks or machines. Any one of these
projects puts as much money into circulation and gives as much employment as
the same amount of money spent directly on consumption. “Saving,” in short, in
the modern world, is only another form of spending."

In other words - Why would it ever be bad that people are -expanding- the time
horizon of their goals (favoring long term investments over short term ones -
ie: houses instead of lattes)? If anything, this ought to be an indicator of a
strengthening economy, even if it means "slumping" share prices in the
meantime.

~~~
hendzen
Where does the capital come from that flows in to savings?

\- From wages, which are paid by enterprises that create the goods that are
consumed

\- From investment gains in enterprises that create the goods that are
consumed

Its consumption all the way down.

~~~
adventured
Try consuming something before it's produced.

There is an order to things. It all begins with first producing/making
something, no matter what segment of the economy you're talking about. Sure,
you can start by borrowing (from someone else that has produced something),
and eventually you still have to produce to pay for that front loaded
consumption.

~~~
dnomad
> Try consuming something before it's produced.

The process starts with government who can spend money without producing
anything. Where do you think the actual currency units came from? Money
doesn't grow on trees.

~~~
quadrangle
While you're totally right about the government spending, that's where
_currency_ comes from, not where _capital_ comes from. Currency in practice is
our measure of capital, but it isn't inherently capital. The government
_could_ give everyone a trillion dollars, but whoever actually owns land and
factories and natural resources will still be the people with capital.

~~~
dnomad
> Currency in practice is our measure of capital, but it isn't inherently
> capital.

In fact it is the only real capital that exists. The rest is just leverage. In
a real economy all debts must be settled with sovereign debt ie currency.

> The government could give everyone a trillion dollars, but whoever actually
> owns land and factories and natural resources will still be the people with
> capital.

You've fallen to our own confusion. This is the classic mistake of people who
don't understand Marx: the mere presence of assets doesn't make you a
capitalist. _Everybody_ has assets. It is only the people with currency (more
precisely, the people _owed_ currency) that are capitalists because their
assets are _sovereign liabilities_ and therefore must be accepted for all debt
settlements. The "inside economy" can actually grow as long as people accept
the sovereign debt for payments. The only limit of this process are the
sovereign's borders and the existence of foreigners who refuse to be paid with
the sovereign debt.

This is important, particularly if you want to understand what's actually
happening in China, where the entire system is driven by _massive amounts of
sovereign debt_ but the country as a whole has zero external debts (including
its external assets). Growth, as the last forty years of China's history makes
very clear, is _not_ limited by any kind of exogenous investment. Countries
don't need to borrow money to grow despite the narrative pushed by the global
bankers.

~~~
quadrangle
I'm no Marxist, but capital _is_ about private ownership of core natural
resources and means of production. We use money to allow that ownership to
spread around in complex ways.

I agree with and accept your points about debts and liabilities etc., and they
don't seem to conflict with what I was saying otherwise.

Maybe we just agree and are clarifying semantic terms…

~~~
dnomad
> We use money to allow that ownership to spread around in complex ways.

Yes, we agree. My point is that "private ownership" is just another way of
saying that people have accumulated sovereign debt. There's no reason the
sovereign must issue these debts by the way, the sovereign could directly
seize control of all assets and try to satisfy all wants itself, but these
days everybody pretty much agrees the sovereign should issue debt and not try
to do everything itself.

When it comes to growth, (the original question, "Where does the capital come
from that flows in to savings?"), all of the debt in the system (particularly
the private debts that are created when capitalists borrow and lend money)
must be leveraged off existing stock of sovereign debt. If there was no
sovereign debt there would literally be no money (in any form) to invest or
borrow.

~~~
quadrangle
yeah, agreed largely. I still think "private ownership" can mean more directly
that the state protects the idea of particular people _owning_ things, e.g.
someone or some legal entity "owning" some land. And that could happen legally
in a number of ways, not all involving currency or related debt instruments.
The state could, in principle, seize the land, but as long as the state allows
private entities to control it, it can be said to be "privately owned".

As far as creating currency, as I understand it, it works out to be a lot more
effective and efficient for the state to issue that debt-currency (and create
demand for it through taxing it back) and thus create markets using it than to
directly manage resources through a top-down bureaucracy. (To be simplistic
admittedly)

------
r00fus
Is this a real problem or just a tempest in a teapot? Many anecdotes != data.

About the only thing that popped out at me is the line "She makes about $1,400
a month after taxes, but nearly half of it goes to the rent on her one-bedroom
apartment."

Maybe housing costs are what's causing the slump (if there is one)? Around
where I live I see stores closing all the time and I'd bet the #1 reason is
that rent is too damn expensive.

~~~
BadassFractal
Sounds like a very common story of people living in SF, NY, LA, Seattle,
Portland etc. unless they're very successful, even by the standards of that
city. I hear the same can be said of Paris, London, Berlin, Moscow, Tokyo,
Hong Kong etc.

Shoot, having a place all to yourself is one heck of a luxury in those cities.
Plenty of people there are having to skip nice things if they want to live in
a place like that. All while paying off student loans, while their careers are
still in the early stages.

~~~
jacobolus
One reason that property values have gone up in these places is that property
in world cities is now often used as an investment vehicle for foreigners who
made fortunes in politically unstable places, and want to park their money
somewhere safe, or at least diversified. This kind of investment is
problematic even when the money’s source is legitimate.

Having housing owned by absentee landlords who live halfway around the world
is mostly negative for a city’s residents (though might benefit some local
property owners whose property values are thereby inflated). Remote owners for
the most part don’t care about maintaining their property, improving the local
neighborhood or city, forming relationships with tenants, etc., and sometimes
even leave units unoccupied for extended periods of time, taking housing stock
off the market.

I hope governments figure out some way to impose substantial additional taxes
on non-owner-occupied housing, especially when it gets to large scale, or when
units are kept unoccupied. The purpose of housing is to provide a place for
people to live, not to build a fortune for a few capitalists, especially ones
who are not local and are therefore largely unaccountable for bad behavior.

~~~
ggm
_One reason that property values have gone up in these places is that property
in world cities is now often used as an investment vehicle for foreigners who
made fortunes in politically unstable places, and want to park their money
somewhere safe, or at least diversified. Often those fortunes were embezzled
from public coffers or built on criminal enterprises, and real estate is a
magnet for money laundering. But this kind of investment is problematic even
when the money’s source is legitimate._

Sure, if you want to talk about Colombian narco-dollars, or Russian
keptocracy.

China has a huge middle class, who worked all their life and had mandated
government savings, with a pension for women at age 55.

Please, do not write down all foreign investment in property to stolen money:
Chinese purchasors in the west of small to medium size flats, and houses are
buying for three reasons

1) the cost of property in Beijing is too high 2) their children are doing
masters or phd programmes in the economy and its sensible to invest and save
the kid rental 3) they want an exit strategy for their life savings if things
go bad in the home country

They are not kleptocrats. This is not stolen money. This is 30 or 40 years of
savings, coupled to insane property bubbles.

[Edit] I know some of them. I talk to them about this. I am not reporting from
things I read, this is what I know from my neighbours in my apartment complex.

~~~
jacobolus
By no means is all (or even most) foreign investment stolen money (though
there is a lot of corrupt money sloshing around, including a lot from China).

However, even just “middle class” millionaire foreign investors parking money
in international real estate is highly problematic for the places where the
houses are.

As an example, my parents live in a quiet suburb of Los Angeles, and recently
a few of the neighboring houses were bought by foreign investors. Maintenance
has all but stopped. One house was rented long-term to a group of college
students who used it as a party house. Tenants move in and out of those houses
within a year or two instead of staying long term. Any communication goes
through a scummy property management company.

If a critical mass of houses get like that, the neighborhood becomes a much
different place. Everything becomes transactional and low-trust. The only way
to get stuff fixed is by filing formal complaints or threatening legal action.
Minor problems just pile up because it’s not worth the trouble. People stop
caring about making things pleasant, or even making them work. Remote owners
and management companies are just there to make a buck, and tenants are just
temporarily stopping through for a place to sleep while they work out
something more permanent elsewhere.

~~~
BadassFractal
I've, anecdotally, personally seen a very similar pattern with San Francisco
office real estate as well.

------
rahimnathwani
The phenomena described are not new; this article could have been written 2, 3
or 5 years ago, when property values had already risen to levels that meant
most couples have no hope of ever buying a basic apartment in the city where
they work.

The title is a little strange: avocados have been a luxury item for as long as
I've been in China. A single, medium-sized avocado usually costs between
US$1.50 and $2.00. Avocado toast isn't a staple like it is in SF.

And, anecdotally, I've seen more cocktail bars and craft beer places open than
I've seen close.

~~~
wrong_variable
Meh,

Up until the 17th and early 18th Century most of global wealth was located in
China and India. Its what made them prime target for the militarily strong
Europeans.

I have been to Europe, Asia and the Middle East and people are almost the
same.

So how can I explain the widely different living standards ?

The only answer that ever made sense to me was colonization.

You can see the equalization happening with Britain and US having third world
style politics, corruption, etc due to having to learn to live in world
without their hegemony.

As for democracy, do you think China could have survived democracy ? It would
have ended up like Iran. Democracy only works if the country has strong
institutions which China doesn't have, they still send their best and
brightest to US universities.

~~~
unmole
So, how come India survived democracy?

~~~
newyork
India has survived democracy completely due to its massive diversity; it's
linguistic, religious, racial and social diversity make it almost impossible
for any leader/concept to wow an entire nation. It maybe a surprise that its a
single country but not really a surprise that it is still democratic

------
mattmanser
I've been reading articles like this on HN for the last 10 years. I no longer
know what to make of them.

Ideologically, I'm opposed to the Chinese government and always felt they
deserved to fall, a little like the USSR. The idea of political incarceration
sickens me to the soul. So the articles delighted me, a shameful delight in
another's misfortune.

But these articles come out promising a herald of an imminent decline and they
still climb.

Now I have a grudging respect for their emergence, and a less rosy view of the
virtues of Democracy, after it did little but cause misery in much of Iraq,
Afghanistan and Russia.

Perhaps this time China will finally succumb to its prophecised doom. More
likely, I suspect, I will be reading on HN about another compelling portent of
China's imminent decline in a year's time.

~~~
adventured
Oh it was Democracy that caused misery in Russia, not the hang-over and
cultural destruction of 70 years of party dictatorship and failed experiments
with various degrees of Communism? Not to mention mass genocide, starvation,
poverty and oppression on a scale of which humanity has rarely seen.

Meanwhile Czech, Romania, Slovakia, Poland, Estonia, Latvia, Lithuania - all
of which are Democratic, and all of which have had superior economic outcomes
to Russia - haven't had that problem. Turns out when you forcibly hold a giant
land mass together that shouldn't be together, there is a high cost.

Was Russia expected to snap instantly into a perfect Democratic model from
that? How many elections did they hold that were Democratic before returning
to a dictatorship? Not a very long experiment as it turns out.

When did Iraq get Democracy? Was that before or after the vast civil war that
killed hundreds of thousands of people and demolished its cities; or was it
before or after ISIS ripped the country in half? Immediately after leaving a
brutal dictatorship that had tortured the nation for decades? Another mass of
land arbitrarily forced together by a great power, with horrible consequences.

Afghanistan got its Democracy with a helping of decades of religious civil war
that decimated the country and continues to this day with everything
persistently under attack by the Taliban. They're expected to accomplish what
beautiful form of Democracy in that atmosphere of on-going civil war?

Using those three as examples of Democracy causing misery, is plainly absurd.

~~~
jacobolus
What caused misery in Russia was that after the collapse of the USSR, the way
“democracy” and “capitalism” were implemented was by handing over the
country’s natural resources, infrastructure, machinery, etc. to a few
kleptocrats, with everyone else left to fend for themselves. As far as I can
tell this was done with the support and encouragement of the USA and Europe
(especially various wealthy Americans and Europeans who made a whole lot of
extra money out of it).

It took a few years for the Russian mafia to consolidate power, but now the
country looks to this outside observer like a mob-owned dictatorship with a
weak economy, weak state institutions, little public accountability, no future
orientation, poor career prospects for the well educated, etc. The main
sources of power are (a) sizable natural resource reserves including gas, (b)
nuclear weapons, (c) a shameless government which is willing and able to stir
up a lot of shit in other countries.

> _When did Iraq get Democracy?_

It’s hard to form any kind of “democracy” when a foreign military comes and
destroys your local infrastructure, dismantles your local institutions, kills
a substantial proportion of your population, sparks off a civil war, provides
local paramilitary groups with loads of weapons, etc.

------
samschooler
This may be bad for the economy, but to me this sounds like a good thing?
People are lowering their spending and carbon footprint. Now if this is
because they legitimately can't afford it, that's different; but cutting
consumption is generally good.

~~~
seanmcdirmid
Not having kids is a personally financially prudent decision but not so for
society (it causes huge demographic problems if there aren’t enough kids).

~~~
mac01021
Unless you can substitute automation for the kids that are supposed to enter
the workforce. Or unless demand for labor decreases along with the decline of
the workforce.

------
pjc50
Sounds like they've completed the upgrade to Western status.

~~~
JKCalhoun
Or Japanese.

------
est
It seems that the only thing that downgrades is the quality of nyt reporting.

1/10 failing nyt downgraded itself to 朋友圈 level. I had much higher
expectations of this reporting. Give me more stats covering more industries.
Not some imaginative figure from 1st-tier whining about living in a big city
is costy.

------
Animats
This is really important, but too anecdotal.

The story was written before Alibaba's Q2 results were out, and says that if
Alibaba is down, there's real trouble. Those results are out now, and Alibaba
does not seem to have had a bad quarter.

~~~
adventured
Check out Alibaba's rapidly decelerating platform revenue growth (which is
where they make all of their profit). Their top line was bolstered by throwing
very large sums of money at one business deal after another. Their platform
sales growth declined from 36% to 25% from just the prior quarter.

Their profitability almost entirely disappeared as well. They're spending
large sums of money to buy cheap revenue, and burning up their margin in doing
so, swapping high quality sales for low quality sales. That might be ok if
they didn't have a $442b market cap to support (which was premised on them
generating a large amount of profit from a high margin ad platform).

It remains to be seen whether growth at any cost is a smart approach, or
whether it's going to result in driving into a jarring brick wall instead.
Junk revenue has consequences.

------
throwaway23434
> This way, Mr. Wang — who makes about $2,000 a month after taxes — saves $160
> a month.

This is very surprising to me. This is the typical grad-student salary in the
US (in CS), and in places outside of Bay Area, more than sufficient for a very
decent QoL.

------
lxe
I wonder, if true, how this trend will affect China's insane property market.

~~~
baybal2
Everything can be. Biggest thing to carry out of that is all press coverage in
the West of Chinese economy goes through a lot of "broken phones."

You have to do your own first hand research to get an idea of anything.

Example: the headline says "Shenzhen's property prices beat that of
Manhattans" , but that only a half truth - average still climbs up, but median
were going down for close to 3 years. Yes, the 400sqm mansion apartments did
probably beat NYC long time ago, but who cares about them?

In overall, SZ market got push not due to demographics as popular narrative
says, bur thanks to their (failed) universiade. A giant amount of property
speculators, top tier ones at that, bought into the idea that universiade,
just like the Olympics, will magically push property prices and Shenzhen will
see its own share of Pangu plazas (the once most expensive apartment building
in China). Well it just became the self fulfilling prophecy, but only for the
top of the market.

Another thing few people know - Shenzhen spend more money on the universiade
than most countries spent on the Olympics. To their disappointment, the event
did not even sell half of all tickets, and went completely invisible to the
outside world.

------
opportune
Sounds like the Chinese can finally enjoy all the wonderful side effects of a
mature economy

------
thatfrenchguy
Less consumption -> Less CO2 emissions, so that’s awesome I guess ?

~~~
graeme
That's just an individual. If consumption for an individual is down due to
price, that's consistent with risin carbon demand.

(Global carbon use is up)

~~~
quadrangle
um, if people are being priced out, that could come from either supply _or_
demand (or both or other factors).

But I think the core point is that if individuals drop out of a market, that
_relieves_ demand which can keep prices _down_ and thus allow others to keep
consuming!

In other words, if many of us do the environmental thing and drive less, that
just enables wasteful irresponsible others to more cheaply use up all the same
gasoline in the end.

Or because LED lights got so efficient, places (in China incidentally) can
plaster them over most of the surface of a building for no reason other than
showing off, thus using up all the efficiency gains.

To actually reduce overall consumption and pollution, we need widespread
social changes that make such consumption and pollution seem shameful (and/or
illegal) even though the market price isn't itself discouraging.

The only market solution would involve effectively internalizing the now-
externalized costs of pollution.

------
redahs
They could clear up rents rising faster than savings and consumption by
copying Taiwan and implementing a land value tax as Sun Yat Sen and Henry
George originally recommended. However Xi has consolidated power, begun
promoting Marx more heavily, and claims Marxism is still totally correct for
the future of China, so they probably won't. With a greater push for Marxism,
if the economy begins to slow we should expect greater nationalization of
Chinese industry. Hopefully investors realize that Taiwan is the more
sustainable political-economic system in light of current conditions.

~~~
prolikewh0a
While China may be a Communist Dictatorship, the economy is extremely
capitalistic with no aspects of Marxism. Do the workers own the means of
production? No, not Marxist. Privatization also is not Marxism.

