Comment by bobthepanda
2 months ago
They’re certainly good at building.
Actually utilizing that capacity is something else entirely; there are factories less than ten years old shuttering due to overcapacity. https://www.nytimes.com/2024/04/23/business/china-auto-facto...
And the rush to subsidize more capacity is a big contributor to local government debt burdens in China, which is estimated to leave Chinese debt to GDP at 117%.
You are never going to get exactly the right amount of capacity, so the question is whether you want to err on the side of too much or too little. Too little might often be more efficient, but there are undeniable strategic benefits to having too much. The events of the last few years have taught us all some painful lessons about the hidden costs of JIT and lean. China might have got the balance wrong, but they aren't prima facie wrong.
They are prima facie wrong, their overcapacity is bad and actively harmful, this isn't a sign of it succeeding, its a sign of desperation from it failing.
There's a type of Western mind that gets distracted by their scale, and getting to build things we built a century ago.
Dazzled by the spectacle, this misses that their economy is characterized by deflationary headwinds due to a massive, massive over-investment in property, and this just squeezes the toothpaste (debt taken on to goose GDP) to another side of the tube. (housing to batteries)
> There's a type of Western mind that gets distracted by their scale, and getting to build things we built a century ago
Where in the US can one find the secret, cross-country high-speed rail built in the roaring twenties?!
There's also a type of western mind that automatically dismisses the odds of a different country succeeding, based on nothing but the fact that they are using a different approach (on the surface). It's a kind if circular reasoning: our system is the best because we're the best, because of the system we have. To subvert the Simpsons - "the best so far"
Edit: I'm far from a Sinophile, but there's a certain willful blindness, concerning an almost religious belief that the west will prevail because it's the west, regardless of all the systemic weaknesses that show up again and again. It would suck for a dictator-for-life leading the biggest economy in the world, but healthy minds would introspect to see how we can do better, like we should, right? I have no doubt out leaders will pick the wrong lessons, like social credit scores and pervasive surveillance
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> There's a type of Western mind that gets distracted by their scale, and getting to build things we built a century ago.
The thing is, overcapacity combined with the 996 week and labor exploitation can be used to outcompete any Western company - especially the old ones, who are spread around the country. Look at the supply chain of the established (i.e. everyone but Tesla) companies... dozens of manufacturing plants, thousands of suppliers, almost zero vertical integration because "manufacturing batteries, ECUs or windshield wipers is not our core competency, let Bosch do that".
The only car manufacturer in the Western world not following that is Tesla. They have only very few, but very large factories that vertically integrate as much as possible on site, which not only gives them the advantage of cutting out the middlemen and their profit margin but also allows for much, much faster iteration cycles when everything is done in-house with no bureaucratic bullshit associated with change requests.
Typically, a car model, its design and parts are fixed for around 2-5 years after the prototype manufacturing run, no changes are possible at all outside of maybe the software, unless the design change is necessary to meet regulatory compliance or if it's something horribly defective. Then the model gets a "rebrush" integrating a few changes, which lives on for another 2-3 years, and then a fully new iteration crops up. Tesla (and SpaceX) in contrast, they do iteration times of weeks.
The disadvantage of that model is of course spare parts logistics and repair training, because holding stock for hundreds of subvariants and iterations is all but impossible, and that shows in every statistic for Tesla's average body shop waiting time.
And to come back to China's automotive sector - they're copying that model of iterative speed just as well. We've seen them come from piles of junk barely roadworthy (or not road-legal in Europe at all) a few years ago to be able to fight heads-on with the European car giants.
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China’s debt load fluctuates if you consider just the central government, local governments, and SOEs owned by either the central or local governments. Then you have private sector debt. SOEs are where a lot of china’s shadow debt comes from (localities ask SOEs they control to fund public projects of their own books), this is what pushes China’s debt load over 100%.
There’s that and the LGFVs financed by land sales which are all off official balance sheets.
Debt in China is not a big issue, because Chinese banks are mostly owned by the Government. They can rearrange debt to deal with problems much more freely than Western governments.
while this is true, they also have to do a lot more management of capital than most and it's a very delicate balancing act. Already, you have issues with bank confidence and normal people getting fleeced by fradulent or overly risky financial products because of the government's interventions in banking.
Japan used to be activist towards in its banks too, and it was very good until it was catastrophic one day.
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In the US this model is called venture capital - build lots of things knowing lots will fail.
It's a model that creates big winners and lots of losers.
Ironically of course the other alternative is central planning which is a hallmark of communist economic systems.
> estimated to leave Chinese debt to GDP at 117%
Japan is 264%, Singapore 168%, the US 129%, France 112%, Canada is 107%, UK 97%, Germany 66%, Australia 22%, Afghanistan 7.4%, Kuwait 2.1%.
A debt ratio isn't particularly useful to know on it's own.
Not a great take - those factories are foreign owned ICE car factories. Hyundai basically underestimated how fast China's EV transition would be.
That's good news for China, full speed domestic EV production.
10-year old ICE car factories idling is a sign of success in their transition to NEV.
> China has more than 100 factories with the capacity to build close to 40 million internal combustion engine cars a year. That is roughly twice as many as people in China want to buy, and sales of these cars are dropping fast as electric vehicles become more popular.