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China’s rise is often portrayed as unstoppable. It dominates global supply chains, pours money into research and development (R&D), and boasts some of the world’s largest tech companies. But scratch beneath the surface of this economic juggernaut, and a picture of structural inefficiencies, inflated innovation claims, and deep technological dependencies emerges. For all its ambition, China is caught in a trap: it is trying to act like a high-tech superpower while stuck with the productivity levels and export profile of a middle-income country.
The reality is this: China’s economic stature is overrated. Despite heavy investments in technology, its economy suffers from a persistent productivity problem. Its exports are still centered around low- to mid-value goods, and its much-hyped artificial intelligence (AI) sector is more about state direction than spontaneous innovation. Follow, as we explore how China’s economic strengths are vastly exaggerated by examining three areas: productivity performance, the composition of its exports, and the realities behind its AI development.
Total factor productivity (TFP) is a key measure of how efficiently an economy uses its inputs such as labor and capital to produce output. It reflects the true contribution of innovation, technology, and efficiency to economic growth. In China’s case, TFP has been sluggish or even declining, despite years of rising R&D spending, more university graduates, and an explosion in scientific papers and patents.
This is what economists Alexander Hammer and Shahid Yusuf have called a “high-tech, low-productivity trap.” In their analysis for the US International Trade Commission, they note that while China has invested heavily in building technological capacity through initiatives like “Made in China 2025,” these efforts have failed to deliver significant productivity gains. China’s economic growth is slowing, and the returns on its investment-heavy strategy are diminishing. …
Basic research—the kind that lays the groundwork for transformative technologies—is underfunded in China. It made up only about 6 percent of total R&D spending in 2020, compared to more than 20 percent in many developed economies. Without basic science, it’s difficult to produce the kinds of groundbreaking discoveries that shift the technological frontier.
The political and regulatory environment further hampers innovation. As Alicia García-Herrero and Robin Schindowski explain in a recent assessment, China’s institutional reforms have slowed, and the regulatory landscape has become more complex. Centralized agencies, like the Cyberspace Administration of China, exercise sweeping authority over tech firms, creating uncertainty, and discouraging risk-taking. At the local level, firms often rely on personal ties to government officials, limiting opportunities for newcomers to compete on equal terms. …
China has achieved remarkable economic progress over the past few decades. But its claim to technological supremacy and innovation leadership remains far from realized. Productivity growth is weak, its exports still rely on foreign inputs, and its AI sector is driven more by policy than by independent discovery.
For all the patents, R&D spending, and strategic plans, China has yet to crack the core challenge of becoming a truly innovative economy. Without structural reforms to encourage competition, invest in basic research, and allow bottom-up innovation to thrive, China risks stagnating just below the technology frontier.
The global conversation about China’s rise needs to catch up with this more nuanced reality. The country is large and ambitious, but its economic power is not as deep or advanced as it may appear. Recognizing this isn’t about underestimating China—it’s about seeing the real constraints it faces in becoming a world-class innovator.
Imagine that!! China is more of a paper tiger then even we thought. Anyone looking at China’s situation through the eyes of an economist should be able to see the obvious: China is not really a huge economic threat. The one factor that brought it to my attention was the ghost cities, a massive malinvestment in real estate that will never be used and that is being destroyed as we read this. If there is such malinvestment going on there is little stability in the economy and we know that from our own economy and the malinvestments here from the experts trying to run the economy. It is one of those problems where the tighter you grasp the economy, the more it slips between your fingers. The big problem is that the experts, politicians and tyrants are even trying to grasp the economy in their greedy hands.
I don't know why "we" keep being surprised by this. First the Soviets, then Japan, and now China, America is not going to be overtaken by a more centrally planned economy.
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Nope, NEVER!!! A centralized economy, even the EU, will never be able to even keep up with an economy where each and every individual is allowed to do the best for himself and what he sees as others’ desires. There are too many incentives, and if we are careful with what we let the state do, fewer controls on innovation by entrepreneurs. Many minds working on many problems rather than the experts assigning people to work on something they may not want to work on. Free enterprise always beats controlled economies!
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I'm not sure it's such a hard lesson for people to get. I suppose it's because they're fundamentally authoritarians.
I got it when I was a kid and thought the Cold War sounded completely stupid. It was obvious to me then that if capitalism is better, then there's no economic threat from the commies. We can just wait for them to fail on their own.
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Yes, when I was very young, my father explained the same thing to me over and over again until I thoroughly understood it. He was also an entrepreneur, running his own company. He never did explain where he got his ideas, though, and his library never contained any Austrian economists’ books, that i could tell. He made sure each and every one of us siblings knew this economic reality. Every one of us went on to owning our own businesses.
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Do you seriously contend that USA is wealthy solely because it is a capitalist economy? The current global hegemony of the US is surely due to many factors - not solely the nature of its economy. Its distance from Europe and ability to avoid entanglement in the wars that eroded European wealth and power, the vast largely undeveloped landmass and resources of the US, its fortunate position geographically all surely have played a major role in its current dominance. But USA is not a purely capitalist free market economy- any assertion that it is is easily refuted. The degree of cronyism in US politics and business today is obvious to any impartial observer, as is the importance of US military power. The USSR was never blessed with the geographic and historical advantages of the US and Japan was since WW2 effectively a military and monetary tribute state to the US- entirely reliant upon the US for protection and strongly influenced by US demands in terms of economic management. USA 'won' WW2 by staying out of it as long as possible and then once drawn into the conflict by a massive mobilisation directed by the government. Prior to WW2 the US had implemented substantial centrally directed economic reforms as had most western nations, adopting a mixed economy under Keynesian economic principles where the government drove major programs of economic development and stimulus. WW2 only increased the level of government involvement in the economy. China is qualitatively different- its economy today is a mixed one- with central government directing capital flows and overall strategy, mush as the US and western nations did until the neoliberal 'reforms' of the 1980s. Since those neoliberal reforms it can be said that capital allocation has shifted substantially from public driven initiative to private bankers. The building and maintenance of infrastructure in the US and west more generally has declined substantially and the US economy has become hugely dependent upon financialisation often involving debt leveraged speculation in non productive assets at the expense of infrastructure and productive assets. Chinas development is one based on mechcanical engineering- the construction of infrastructure and productive capacity, refining and manufacturing of raw materials and manufactured goods. The USA today has lost the physical manufacturing capacity required to sustain a military conflict or even a trade surplus. The USA today is a highly financialised highly debt burdened econoy with weak and declining infrastructure and massive inequality and political divisions. China is said to have a demographic problem but China is hugely in advance of the US in terms of robotics and the US also has an aging population and a significant lack of savings. China is raising the age of retirement for women from 50/55- to 55/60 and men from 55-60. The US does not have the same room to move. There has never been a successful empire without the careful and strategic involvement of government in directing capital and military capacity to build and sustain that empire. The contest between China and the US is real and not something to be easily dismissed with simplistic analysis- I would not like to have to pick the winner as the outcome is certainly not one that can be credibly called at this point. One thing is clear- the trends are mostly in Chinas favour at present. US decline is apparent across so many metrics while Chinas rise is equally clear across most metrics. It is folly to claim to know which side will triumph at this stage.
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You may not be worried about the Saudis joining mBridge and BRICS but Trump sure as hell is. Trump also understand US manufacturers are fucked without Chinese supply chains...in particular but not only rare earths. The USA is not a capitalist economy it is a crony capitalist economy that is reliant upon its legacy domination of international institutions and protocols. The US government is beholden to Jewish bankers and military contractors. Without the seigniorage and rent from the USDs global domination of trade payments the US empire is swiftly insolvent.
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CHINA HAS WON THE TRADE WAR ALREADY
US hegemony is now on the Defensive Militarily...
US Exceptionalists are in a state of deluded denial of reality.
'For more than 70 years, since the end of the Korean War in 1953, tens of thousands of American troops have been based in South Korea to deter a North Korean invasion. Now the future of the long-established alliance has been thrown into doubt as the Trump administration seeks to reorder its forces against what it identifies as a greater threat: China.
Behind the scenes, and without any significant public debate in South Korea, senior United States officers have been briefing foreign governments, security experts and journalists on their plans for a profound change.
Instead of defending only against North Korea, American forces stationed on the peninsula will be called upon to respond to conflict in other parts of east Asia - above all a Chinese attempt to invade Taiwan.
The adoption of what is referred to as “strategic flexibility” will require a change to the composition, and perhaps the numbers, of US personnel in South Korea - more than 28,500 at present.
And it will infuriate China, and alarm those South Koreans who are reluctant to be enlisted in the emerging superpower struggle between Washington and Beijing.
“Strategic flexibility is what everyone pursues,” General Xavier Brunson, the commander of US Forces Korea, told an online seminar recently, according to reports in South Korean media. “We must be able to deploy our forces outside of South Korea to ensure peace through strength.”
At a security conference in Singapore this month, US Defence Secretary Pete Hegseth said Beijing was “credibly preparing to potentially use military force to alter the balance of power in the Indo-Pacific”, and that the Pentagon was “reorienting toward deterring aggression by communist China”.
In practice, this means that US troops based in Japan and the US Pacific islands of Hawaii and Guam, as well as South Korea, will all be prepared to play a part in responding to moves by China.
However, none of this has been discussed with people in South Korea, which has a long history of left-wing opposition to the presence of the US military.
Most South Koreans accept the need for American help in defending against North Korea, but many will object when it becomes clear that the troops they are hosting are also preparing for war against China.
The new doctrine presents a dilemma for Lee Jae-myung, South Korea’s newly elected president, who represents the left-leaning Democratic Party. He says he wants to engage with North Korea, but will want to do so from a position of strength and security, with the backing of US troops in the country.
But accepting South Korea’s status as what Brunson has described as “a fixed aircraft carrier” risks dragging Lee into a future conflict with China, America’s biggest trading partner.
In 2017, Beijing was enraged when the US introduced into South Korea an advanced missile defence system, which it believed threatened its own missiles. It halted tourism to Seoul, and blocked access to South Korean companies for several years.
US President Donald Trump has expressed resentment at what he sees as an unfair alliance under which South Korea enjoys protection but makes an inadequate financial contribution.
Victor Cha, of the Centre for Strategic and International Studies, a Washington think tank, wrote: “Resisting strategic flexibility will likely be interpreted by US military planners not only as out of step with the administration’s policies, but also seen by Trump as ‘free-riding’ by the Korean ally, which might cause him to take vindictive actions to express his displeasure. This could even include pulling all troops out of South Korea.”
Andrei Lankov, an associate professor at Kookmin University in Seoul, said: “But they [South Korea] face a choice: either accept strategic flexibility, housing forces which are actually aimed at China - or complete loss of US military support.”'
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China has won the trade war- now the consequent battle for dominance in military and institutional structures and protocols has begun. US Exceptionalist Libertarians cannot handle reality - Chinas mixed economy produces real world manufactured goods, including war materiel, far more effectively and profusely than Americas declining Crony Capitalist Empire can.
archive.ph/UfmXo
'Adapting to the dual challenge of China’s military and its economy has been a focus of U.S. administrations for years. America is losing ground. Modern warfare is a contest of industrial might, as Russia’s invasion of Ukraine has shown. Both sides are burning through arsenals of artillery shells, rockets and military vehicles. Automated factories now spit out drones day and night. Even an old-fashioned howitzer requires precision manufacturing. The U.S. won World War II in part by producing more of everything—from bullets to food—than its enemies. One California shipyard in 1942 assembled a supply ship in less than five days. America is no longer capable of that kind of manufacturing feat. Today, the country that can make the most of almost everything is China. Its products run the gamut from basic chemicals to advanced machinery. With tensions rising between the U.S. and China, the two countries’ industrial capacity is coming into focus as a key battleground in any conflict.'
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0 sats \ 1 reply \ @Mishawaka 3h
They have excellent food. Might order from China Sea tonight
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Gotta watch out for the oil though!! You’ll never know the source of the oil.
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#999116 Andrei Jikh | The Bond Market Is Collapsing (JPMorgan’s Final Warning) Deluded US Exceptionalists cannot deal with reality!
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The USA is incapable of implementing a CBDC. Yet USA with its decades of decline in productivity and manufacturing is today almost entirely dependent upon its financial system hegemony. SWIFT is an antiquated analogue relic. Chinas CBDC is already operational as is mBridge and CIPS via which a rapidly growing portion of global trade is settled, outside of the control of US institutional reach, control and even measurement. The deluded US exceptionalists thought that financial services could sustain US wealth and power in the absence of the ability to produce any manufactured goods- but this delusion is now being exposed as the proxy war between the US and China unfolds. Chinese supply Russia with both trade payments outside of USD/SWIFT and the vast range of manufactured goods Russias war economy needs. At the same time China buys Russian oil and gas (as a nice discount) resulting in Russia now being a dependent upon China. Trump is hugely worried with very good reason- with China now supporting both Iran and Russia and with Iran and Russia both costing the US military and its associates increasing billions, if Saudi Arabia signs over to allegiance with China the US empire would swiftly be insolvent- the 'petrodollar' would collapse. The war in Ukraine has depleted US military stocks while Russia backed by Chinas much larger manufacturing capacity does not face such a problem. The USA is not the global leader in production of most essential materials required for war today- China is. USA is on the back foot- if Saudi Arabia sign up to mBridge its all over for Uncle Sam.
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