If you're into chips, it's not bad; at least inflation is up.

Economic updated stats from last week indicate that while factory production is “up,” domestic consumption is down. And, “up” is in parenthesis because it’s inflation that is up, not volume. Othan than chips, volume isn’t up, but the demand for chips is raising prices everywhere else. As the guys from Trivium (great podcast, BTW) stated: 

It’s an economy that’s decelerating. It’s an economy that’s trapped in a narrowing growth model. It’s an economy that is increasingly dependent on exports and the shine is off on exports. (Trivium Podcast Episode 86, Sept. 19)

Basically, the tech sector is growing vs the rest of the economy which is not. It’s now calledthe K-shaped econ. But there have always been the companies in the current 5-year plan and everyone else trying to keep up. And at an even broader level it was the East-coast cities vs the rest of the economy; and while there has been significant development, there’s a reason why there are still 1st tier and 4th tier cities. China has never had “even” development.

What This Means for Your Business

So what does this mean for you, foreign business person, interested in or working in China and/or Thailand?

First, it likely means that you've got your pick of factories in China or ASEAN who are running at less than capacity. The idea that some China apologists are sharing that Chinese factories don't want your business because they're busy with domestic orders is ludicrous. But less-than-capacity also indicates that many factories are not financially stable, and there are many stories of clients paying deposits only to never hear from the factory again. Buyer beware.

Second, it means that you have a lot of competition for any services that can reasonably be done by a Chinese national with a college degree without a decent full-time job—which is millions of people at this point. 

Chinese professionals are well educated, diligent, familiar with both China and the West to a larger extent than Westerners are familiar with China, and likely more fluent in English than you are or ever will be in Mandarin. There are real reasons why Chinese companies don't need foreign managers anymore, and one is that the Chinese are more culturally and linguistically fluent than foreign hires. And usually much much cheaper too.

Third, it should go without saying, that politics are hugely influential right now. And not just in China either. Countries all around the world are trying to figure out how to deal with the US Administration. Tariffs, responses, and nationalistic protectionism are all alive and well in every country you're likely to do business. There is more than a little confusion and animosity for both Trump's attempts to change the world economic order, but also the destructive flood of Chinese exports to developed and developing countries alike.

Xi’s visit next month to Washington, D.C., the first Chinese president in more than 10 years to visit the US, will bring who knows what types of deals, both real and imagined. Don’t hold your breath as there isn’t much incentive for China to pause AI, spend more money in the US, or give Trump even the appearance of a victory (especially after Xi both literally and figuratively looking weak at the BRICS meetings this week).

What does it look like on the ground?

Closer to the ground, here's a look at a shopping mall in Beijing. Yes, it's anecdotal, and yes, I've railed on “drop in” journalism for years. But while this isn't authoritative, it matches both what I'm being told by friends in multiple cities and what I myself saw in multiple Chinese cities last year. Many malls in Wenzhou, Shanghai, and Nanchang were dead from Monday through Thursday, only picking up on weekends. Yes, there are daily/weekly cyclical trends in foot traffic, but there is more going on here than just the regular ups and downs.

For example, the bottom floors, usually filled up with Chinese EV dealers and higher-end goods, are empty—the EV market is down 24% YoY. Luxury retail is down as much as 20% too. Turns out the boom in EV sales was just people taking advantage of one-time government subsidies (moving the buy up earlier, not creating any new demand).

What is doing well in Chinese malls are things like food courts, discount outlets, and outdoor gaming experiences, not big-ticket items. Outdoor gear, like camping and exercise, is doing well too. But traditional retail is down anywhere from 10-25% nationwide. The individual mall video might be anecdotal, but the trend is real: the economy is very slow and not getting better. 

Don’t believe me and anecdotal mall videos? Try this. Zeihan's predictions aren't always right (who is?) but his analysis is directionally correct. And his ability to explain the shitshow that is the Chinese economy in less than 5mins is fantastic.         

Side note: if you're only reading/seeing English-speaking videos then you're likely seeing content from the middle class, foreigners in service, and professionals in tech and education; the places where foreign jobs still exist, or from tourists who know nothing about China. This is a very tiny and active corner of the Chinese internet—but one that is multiple levels of income and consumption higher than the average Chinese. The Chinese-speaking internet is bleak.

Additional Numbers and Anecdotes

Another indicator of this slowdown is youth unemployment (16-30yo). This number was over 21% when they stopped publishing the numbers at the end of 2023 and changed the way they measure it before rereleasing numbers again in 2024. The change in metrics conveniently lowering the number to 14%. But now it's back to above 20%—so we can safely assume that it's more like 30%. Scary.

My uni business school students told me they were either going to grad school or going home to sit on their parents' couch. If they could get a job, they were planning to work for their family's business. Most had no hope for getting a job if their parents didn't own their own business. There were a few who said they were going to be delivering for Meituan if they didn’t get a job soon; likely more than a few will be.

My older friends and connections who own factories have either moved to Vietnam, closed up, or are underwater and surviving on government subsidies just to keep people employed. I know a few families who moved their wives and kids out of the country and into foreign schools while the husband stayed in Guangdong (or moved to Vietnam) to try and keep things going. Most can't pay foreign tuition, more than a couple have asked for loans, most of the wives are working in their new country.

My anecdotal experience traveling in China last year was that the international terminals are empty while there are indeed still some busy domestic terminals; domestic travel is seeing record numbers, and border crossings from Myanmar, Vietnam, Hong Kong/Macao are also at pre-COVID levels or higher. 

But airports look empty because the new Chinese airports are all HUGE!!! (China has amazing infrastructure, no doubt!) They’d feel empty even if they weren't. When I traveled over National Day last year, I counted 4 of 98 international gates working over a 6-hour layover in Pudong. Additionally, today every city in China has its own airport, meaning that travelers are spread out over more locations and no longer need to fly in/out of hubs, so they look empty.

For everyday people, recent oil scandals, veggie scandals, an historically flat stock market, and the still resonating purposefully tanked education-tutoring and housing markets (“houses are for living in, not investments”) mean that there is no discretionary income to spend on international travel or start-up businesses.

All of which translates into a dismal domestic consumer economy.

Quote from a Chinese teacher I know: “There are three problems in China right now: food and medical security/safety, poor quality education, and no employment. This is why everyone with money leaves for other countries.”

Economically, China is dead for most people. It's depressing if you're accustomed to the China of the first 18 years of the 21st century. Streets and industrial parks are quiet (no, not just because of EV’s); there are no new entrepreneurs or start-ups and street-level retail is slow or gone.

It's just 5-year plan tech and the gig economy which are keeping people alive. There are an estimated 300m people doing gig work in China (almost the population of the US!), but those jobs are not growing the economy. 

For example: Chinese tech companies are infamously in a battle to the bottom (involution), investing tons of capital with no profit; lots of users don't mean a lot of profit. Football and the World Cup are another good example of this in real life. China has 1.4 billion people and loves football, but the rights to the WC sold for 20% of the original asking price—only $60m USD (asking $300m).

There is money in China. But there is no place to put it. 5% of the Chinese population is worth more than $1m USD—that's 70m people!! But if you remove housing (which is now a completely non-liquid and worth less than half of what it was 5 years ago), that number drops to just 2% of the population, or less than 30m out of 1.4b. That's still not a small number, but you can see how a country of 1.4b can't function on just its domestic wealthy class alone—it's just not large enough to sustain any meaningful growth. 

For comparison, more than 8% of the US population is worth more than $1m (and similarly drops to 2.5% without housing). But US housing assets are still relatively liquid, and capital is significantly more mobile than it is in China. Wealth in China is not nearly as productive as it is in the US—meaning, it takes more to make less.

Japanification Times 2

So, it looks more and more like the Japanification (low wages, low inflation, low growth = the econ is going nowhere) of the Chinese and Thai economies is the future, despite the strident rejection of the idea by both the Chinese and Thai governments. Japanification of the Thai economy is becoming a reality.

This similarity is ironic in the sense that the Thai PM just this week said the Thai and Chinese are “one family” and should “continue to enhance  economic partnership.” Problem is, that “family” has depressed growth, low interest rates, heavy dependence on exports, and little to no domestic consumption. The two countries are not in this spot for the same reasons: Thailand has massive household debt and is losing industry to Vietnam and China, vs. China, which has a generation of lost savings due to the government-created housing crisis and a K-shaped economy. But they are tied to each other, and sinking together. Sad.

We’ll see what happens to expected travel numbers to ASEAN countries for Chinese National Day (Oct 1) now that new travel bans have been established. Both countries were hoping for good numbers before this week’s announcement, though Thai hotel bookings were already coming in low. Regardless of the holiday numbers, the Chinese economy is one of the major factors in its neighbors' economies—both for good and ill.

Dependence on and fear of China is happening in just about every ASEAN country. And there is a deep ambivalence and a complex history of the Chinese in each ASEAN country. Each country's relationship with China is different, but much of the history is problematic.

As I mentioned before, around 60-80% of businesses in ASEAN countries are owned by ethnic Chinese. That's a massive number that is very disproportionate to the populations; for example, Thailand's Chinese population is the largest, at about 14%, but more than 85% of businesses are Chinese owned!

Thailand, which has probably the best relationship with overseas Chinese, has a history of forced assimilation of all Chinese (names and businesses in the 1930s) and the current mood is mixed as Chinese seem to be the largest number of tourists overstaying their visas. In Thailand there is a feeling that the Chinese are working illegally in professional or service positions with other Chinese and buying up housing, raising the prices for locals. Zero-dollar tourism, digital loan-sharks and scams, as well as different social norms are also regularly cited issues the Thais have with Chinese.

Because of this, willingness to identify as Sino-Thai ebbs and flows with the political and economic relations of mainland China and each individual country. I've been working in Thailand since the 1990s and there are periods when Thai people with ethnic Chinese backgrounds are proud to be Chinese and share their ethnic heritage (1990s) and there are other times, like now, when people are frustrated with the Chinese presence. Different groups feel differently, of course, but many Thais are asking why there are so many Chinese here. My own post-doc research indicates that most first-generation Chinese don't integrate into Thai society, living in “Chinese bubbles” (standard expat practice: exclusive living compounds in foreign countries, with mostly Chinese food/apps/neighbors/coworkers/logistics/media/etc.).

Your ability to integrate yourself into the supply chains of your Thai/Chinese suppliers, buyers, and partners will take more than just regular orders. Financial consistency and cultural ingratiation will both be necessary in a world where instability seems to be the only constant. Good relationships in a bad economy will hopefully help you if/when there is a recovery.