The China Thread

[The Minsky Moment]

Japan's Lost Decade is the closest analogue but China is quite a bit bigger and not as far advanced in per capita GDP.  We are in uncharted territory.

[Josquius]

Yeah, Japan busted the middle income trap and found itself trapped instead in a pretty stable self contained comfortable stagnancy.
That's the sort of failure countries dream of.
China is some way off having that safety net.

[The Minsky Moment]

The classic middle income trap are mid-to-largish countries that are more balanced and pursing import substitution strategies: Brazil, Argentina, South Africa.

Export promotion strategies have been pretty reliable in getting over that hump when pursued vigorously.  The trick is such strategies involve scavenging off of consumer demand overseas. Smaller countries (Singapore, Taiwan, even Korea) can get away with that because net global impact is low. Japan was large enough to encounter push back but just managed to break through advanced status before the backlash hit.  China OTOH is so big that it caused significant global impact while still in middle income territory.

[The Minsky Moment]

Nov 21 from Caixin

By the end of September, Chinese mills had produced 746 million tons of crude steel, down 2.9% from a year earlier. But domestic consumption slumped 5.7% to just under 649 million tons, a much steeper decline. The imbalance sent a clear message: in the world's largest steel-producing nation, the core problem isn't output. It's overcapacity, with too few buyers at home to absorb what's being produced.

That demand shortfall is reverberating through the economy. Steel prices have slid to multi-year lows — with the China Steel Price Index briefly dipping below 90 in June, the lowest since 2017. Industry executives, analysts, and government officials now say a structural shift is underway: from decades of expansion to a difficult period of contraction and consolidation.

. . .

To fill the widening gap, Chinese steelmakers are aggressively pivoting to export markets. In 2024, outbound shipments surged to 110 million tons, up 22.7% from the year before. The momentum continued into 2025, with 87.96 million tons exported in the first nine months, a 9.2% year-on-year increase. Analysts expect the full-year figure could reach 130 million tons, nearing an all-time high.

But volume has come at the cost of value. The average price of Chinese steel exports dropped 19.3% in 2024 to $755.40 per ton. This year, prices fell another 9.5%. Many steelmakers are caught in a high-stakes race to preserve market share overseas — even if it means selling at razor-thin margins or below cost. "Domestic demand is weak, foreign markets are better," one coastal mill executive told Caixin. "So we're all focused on expanding abroad."

. . .

With trade tensions simmering and environmental targets looming, experts say China's steel exports are approaching a ceiling — already accounting for around 30% of global trade. Over the next five years, direct exports may fall by half, according to Jiangsu Steel Association President Chen Hongbing. That would push China's apparent steel consumption down from more than 1 billion tons today to around 750 million — a contraction that would reshape not just an industry, but a cornerstone of China's post-reform economy

Not sustainable.

And steel is one example among many.

[Jacob]

I appreciate the analysis Minsky. Thank you