China’s subsidies create, not destroy, value – Asia Times

The European business press frequently reports that China’s funded industries destroy benefit because they are not profitable, including everything from high-speed rail to electric cars to solar panels ( the subject of the most recent The Economist collapse ).

If The Economist really knows better and is just spreading its anti-China grin, we give it a go. However, if this opinion is really held, which all indications indicate it is, then we are dealing with something much more perverse. 248 years after the publication of Adam Smith’s” The Wealth of Nations” and the West has lost the financial story. &nbsp,

To enjoy Tesla’s US$ 788 billion business cover in comparison to BYD’s$ 93 billion is to mistake opportunities with results. Both businesses are given ample tax cuts and other government benefits. Elon Musk’s success is attested by the fact that Tesla is much more successful than BYD while Vehicles have a much lower US market penetration. Tesla pocketed the incentives while BYD ( and competitors ) delivered outcomes.

Similar to how America’s First Solar just rose to the position of being the most important photovoltaic company as fierce competition in China wiped out profits. In a tariff-protected market, First Solar’s superior valuation should n’t cause celebration. &nbsp,

The fact that China’s renewable companies are slaying each other by flooding the world with cheap solar panels is prima facie evidence of beautiful policy success and worth development, despite The Economist’s hand-wringing. &nbsp,

To not be able to understand this important point would never have been able to comprehend Adam Smith. ” The Wealth of Nations” was not about the pursuit of profits. &nbsp,

They are guided by an unseen hand to distribute the necessities of life, as would have been done, had the planet been divided into equal portions among all of its inhabitants, and therefore without any intention, without any knowledge, to advance the interests of the society, and obtain means to the multiplication of the species.

The secondary/tertiary outcomes that improve outcomes for everyone were supposed to be the whole point of intelligent self-interest. &nbsp,

It is not from the compassion of the barber, the baker, or the cook that we expect our supper, but from their respect to their own personal- interest.

What we want from the butcher, the baker and the cook are pork, beer and food, not for them to be fabulously wealthy store owners. Cheap EVs and solar panels should be what China needs from BYD and Jinko Solar ( as well as the US from Tesla and First Solar ), as opposed to trillion-dollar market-cap companies. In fact, mega-cap estimates suggest that something has gone completely wrong. Do we really want t entrepreneurs, or do we really want it? &nbsp,

The company press has a mediocre grasp of value creation. At worst, liberal befuddlement has damaged the neurons of legislators, rendering them capable of diagnosing economic ills. &nbsp, &nbsp,

The far- heralded multiple- trillion dollar prices of a handful of American companies ( Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta ) – all of which will swear up and down and all day much that they are not monopolies – are symptoms of serious financial displacement. How much of their pricing is the result of advancement, and how much is the result of anti-trust impunity and governmental capture? &nbsp,

It’s hard to say. China stomped on its tech monopolies and now manages to deliver similar if not superior products and services – able to make inroads into international markets ( e. g. TikTok, Shein, Temu, Huawei, Xiaomi ) – at always much lower prices.

The European business media, confusing incentives with outcomes, gently relies on stock markets to establish value creation. An important but unmeasured indicator of economic value is a company’s market capitalization.

If you do not own shares of Microsoft, the company’s value is in the price and performance of Windows, Word, PowerPoint and Excel, which we are all forced to use. &nbsp,

Non-shareholders should be asking how much less expensive and better productivity software would be if regulators actually carried out their duties. Given Microsoft’s$ 3 trillion market cap, monopoly business model and how often Excel crashes, we can be reasonably certain that consumers are getting screwed. &nbsp,

The saddest creatures in late-stage capitalism are cheerleaders who support mega-cap companies like sports teams but only have a small amount of equity. With 54 % of total US market cap held by 1 % of the population, it’s a given that these confused devotees far outnumber the real beneficiaries. &nbsp,

Perhaps that is the end of the modern proletariat, who are stupefied fanboys who celebrate their neoliberal serfdom. This writer believes that they would benefit from less Elon Musk and a higher demand for affordable cars, but that’s just my opinion.

One must of course consult Karl Marx and” Das Kapital” in order to fully comprehend what is happening, which both declared that:” To truly comprehend what is going on, one must consult:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.

Haha, gotcha. That’s actually Adam Smith and” The Wealth of Nations”. It seems unclear whether Karl Marx and Adam Smith shared the same end goal. The profit motive can produce superior outcomes, but only when it operates paradoxically, is what Adam Smith and Karl Marx both got right. In other words, profits must be withdrawn from the market, at least for the long term. &nbsp, &nbsp,

Much of the confusion is brought on by the mechanics of capitalism. Profits become the focus of finance and, regrettably, economics because so much of the infrastructure has been devoted to its measurement because the invisible hand of the market is supposed to be guided by the enlightened self-interest of participants. &nbsp,

Every two-bit graduate of Western universities has a working knowledge of accounting, financial statement analysis, and valuation models, with the explosion of MBA programs and undergraduate business courses. &nbsp,

Unfortunately, all of that is at best half the story – the producer surplus part of the supply/demand chart. Because 1 ) no one is earning any money off of it and 2 ) there is no reliable method to measure the consumer surplus portion, it is of little interest. Universities are n’t offering Master of Consumer Advocacy programs all over each other. &nbsp,

What China has accomplished in industry after industry is to subsidize hordes of producers to flatten the supply curve. This spurs innovation, increases output and crushes margins. Value is not being destroyed, it’s accruing to consumers as lower prices, higher quality and/or more innovative products and services.

If you are looking for returns in the financial statements of China’s subsidized companies, you are doing it wrong. If China’s subsidized industries are generating massive profits, policymakers should be investigated for corruption. &nbsp,

A recent CSIS report estimated that China spent$ 231 billion on EV subsidies. We’ll go with it, even though that is a gross overestimation ( the think tank’s assumption about the EV sales tax exemption is far too high ). That comes out at$ 578 per car when spread over all ~400 million cars ( both EV and ICE ) on China’s roads. &nbsp,

The result was a Cambrian explosion of new EV manufacturers flooded China’s market with more than 250 models. Unbridled competition, blistering innovation and price wars have blinged out China’s EVs with performance/features and lowered prices on all cars ( both EV and ICE ) by$ 10, 000 to$ 40, 000. Chinese consumers will pocket a further$ 500 billion in consumer surplus in 2024, assuming an average savings of$ 20, 000 per car.

What number should we put on that? 10x? 15x? 20x? Yes, China’s EV industry is barely scraping a profit. So what? For a measly$ 231 billion in subsidies, China has created$ 5 to$ 10 trillion in value for its consumers. The combined market cap of the world’s 20 largest car companies is less than$ 2 trillion. &nbsp, &nbsp,

The supply/demand curves above demonstrate that the main market effects are what we have been studying. The more significant outcomes of industrial policy are externalities. And it is all about the externalities. &nbsp,

Switching to electric vehicles saves China from oil imports, reduces particulates and CO₂ emissions, creates jobs for swarms of new STEM graduates, and creates ultra-competitive companies in international markets, to name a few. &nbsp,

The shocking drop in solar panel prices may have even greater impact on the externalities. From mass desalinization to synthetic fertilizer, plastics, and jet fuel to indoor urban agriculture, previously uneconomic engineering solutions may be possible. China’s potential to significantly lower the cost of energy for the Global South has significant geopolitical repercussions.

The city of Hefei in backwater Anhui province has achieved spectacular growth in recent years through shrewd investments in high- tech industries ( e. g. EVs, LCD, quantum computing, AI, robotics, memory chips ). The Hefei model, which uses local governments to run venture capital funds, may be more effective than Silicon Valley’s. &nbsp,

The Hefei model is more flexible than the traditional venture capital investment returns, which are based on the company’s profits. Returns can be gathered through a variety of means, from lowering employee taxes to improving workforces to boosting consumer surplus. If positive externalities are a component of the incentive structure, the internal hurdle rate can be reduced.

The model is n’t really unique, despite Hefei’s tradition of hosting symposiums for processions of municipalities hoping that some of its magic will work. When challenged against the technological frontier, the China model looks exactly like it does. &nbsp,

While quantum computing, AI and robotics may be sexy, the formula is not much different from the macro China model. That is, a model that is aware of every aspect of value creation, from producers to externalities to consumers, not one that is fixated on and distorted by profits. &nbsp,