No one is more dogmatically insistent on conformity than those who advocate “diversity.”--Sowell
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State-Directed Production
Chinese e-commerce giant Temu is the latest warning sign that the world’s second-largest economy could be headed for a doom loop caused by overproduction and Beijing’s industrial planning.
PDD Holdings, the parent company of Temu and Pinduoduo, stunned Wall Street on Monday with weak quarterly results and a warning that intense competition will dampen future earnings.
Shares sank more than 30%, wiping out $50 billion in PDD’s market value and ending founder Colin Huang’s short-lived reign as China’s richest man.
In an analysis written before the earnings report, a top China scholar described an economic landscape that helped explain PDD’s woes.
Other China watchers have blamed the recent stagnation on the real estate meltdown, the country’s aging population, and President Xi Jinping’s tighter grip on economic policy.
But a longer-term driver is Beijing’s decades-old strategy of favoring industrial production over all else, resulting in enormous overcapacity, wrote Zongyuan Zoe Liu, a China scholar at the Council on Foreign Relations, in Foreign Affairs magazine.
“Simply put, in many crucial economic sectors, China is producing far more output than it, or foreign markets, can sustainably absorb,” she added. “As a result, the Chinese economy runs the risk of getting caught in a doom loop of falling prices, insolvency, factory closures, and, ultimately, job losses.”
When profits shrink, companies boost production higher and drop prices lower to generate enough cash to service their debt, Liu explained, adding that government-designated priority sectors also sell products below cost to meet political goals.
This dynamic has been destabilizing the global market with a flood of cheap Chinese exports creating a sharp backlash in the form of stiff tariffs. The domestic market is also marked by overproduction and cutthroat price competition that risks sending the economy into deflation, Liu warned.
“Analogously, although China’s vibrant e-commerce sector might suggest a plethora of consumer choices, in reality, major platforms such as Alibaba, Pinduoduo, and Shein compete fiercely to sell the same commoditized products,” she said. “In other words, the illusion of consumer choice masks a domestic market that is overwhelmingly shaped by the state’s industrial priorities rather than by individual preferences.” (from Fortune)
Interestingly, even though vast sums are pouring into AI, the money is going to companies that can expand the most quickly rather than the most innovative ones.
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Nearly $2 billion of American Rescue Plan funds were earmarked for nonexistent county governments in Connecticut and Rhode Island.
$13 million went to a water park in Danville, Ill
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$13 million went to a water park in Danville, Ill
***
State-Directed Production
Chinese e-commerce giant Temu is the latest warning sign that the world’s second-largest economy could be headed for a doom loop caused by overproduction and Beijing’s industrial planning.
PDD Holdings, the parent company of Temu and Pinduoduo, stunned Wall Street on Monday with weak quarterly results and a warning that intense competition will dampen future earnings.
Shares sank more than 30%, wiping out $50 billion in PDD’s market value and ending founder Colin Huang’s short-lived reign as China’s richest man.
In an analysis written before the earnings report, a top China scholar described an economic landscape that helped explain PDD’s woes.
Other China watchers have blamed the recent stagnation on the real estate meltdown, the country’s aging population, and President Xi Jinping’s tighter grip on economic policy.
But a longer-term driver is Beijing’s decades-old strategy of favoring industrial production over all else, resulting in enormous overcapacity, wrote Zongyuan Zoe Liu, a China scholar at the Council on Foreign Relations, in Foreign Affairs magazine.
“Simply put, in many crucial economic sectors, China is producing far more output than it, or foreign markets, can sustainably absorb,” she added. “As a result, the Chinese economy runs the risk of getting caught in a doom loop of falling prices, insolvency, factory closures, and, ultimately, job losses.”
When profits shrink, companies boost production higher and drop prices lower to generate enough cash to service their debt, Liu explained, adding that government-designated priority sectors also sell products below cost to meet political goals.
This dynamic has been destabilizing the global market with a flood of cheap Chinese exports creating a sharp backlash in the form of stiff tariffs. The domestic market is also marked by overproduction and cutthroat price competition that risks sending the economy into deflation, Liu warned.
“Analogously, although China’s vibrant e-commerce sector might suggest a plethora of consumer choices, in reality, major platforms such as Alibaba, Pinduoduo, and Shein compete fiercely to sell the same commoditized products,” she said. “In other words, the illusion of consumer choice masks a domestic market that is overwhelmingly shaped by the state’s industrial priorities rather than by individual preferences.” (from Fortune)
Interestingly, even though vast sums are pouring into AI, the money is going to companies that can expand the most quickly rather than the most innovative ones.
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