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PaperclipPerfector  8d ago (text post)   31560 thread views

Culture War Roundup for the week of April 7, 2025

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China’s PPP GDP is only 25% larger than that of the US? Come on people… who are we kidding?

Its not hard to pick out a few industries youre strong in. The only number there thats worth taking seriously for macro measures is electricity. And that still seems consistent with the 25% number - manufacturing generally needs more electricity than services, e.g. Icelands GDP is not actually underestimated. Theres an argument that services are BS and therefore Chinas economy really is better - but at that point, youre far enough from conventional economics that GDP is a questionable measure anyway.

But he actually argues that the Chinese services sector size is underestimated, by Chinese accounting mainly.

We believe China’s GDP and PPP GDP are lowballed by an incomplete transition from the Material Product System (MPS) of national accounts, which excludes services by design. The World Bank is likely dutifully doing its sums with goods consumption in China multiples of the US but measuring services consumption as a fraction of the US.

The United Nations System of National Accounts (UNSNA) provides voluntary guidelines and specifically states that nations should base their national accounts on local conditions. What that has meant in the West is to adopt all UNSNA “innovations” introduced over the years.

Items like imputed rent, legal fees and R&D are now all included in GDP. The UK went hog wild with both illegal drugs and prostitution as now part of their GDP because… hey, why not? UNSNA’s 2008 guidelines explicitly recommend that illegal market activity should be included in GDP.

China’s NBS stood its ground on a conceptual level. Rightly or wrongly, the Leninist MPS considers services necessary costs of material production rather than real value creation. In China’s first attempt at converting MPS to SNA in 1985, it tacked on a ludicrously low 13% to the MPS number and called it China’s services GDP.

Over the years, the World Bank has twisted the arm of the NBS for modest increases to China’s services GDP – with limited success.

The affordability crisis in Western economies, the US in particular, is largely driven by inflation of necessary services – rent, healthcare, education and childcare – not by manufactured goods. While these costs have also gone up in China, they have increased less and much are left out of GDP anyway.

Also not captured by the ICP survey conducted in 2021 are the price and service wars that have broken out across industries and products – a bane on businesses but a boon for consumers.

This is most visible in China’s car market with OEMs either cutting prices to the bone (Hyundai Sonatas down to $17,000 from $42,000) or offering cutting-edge technology for peanuts (a 2,000-kilometer range BYD Q plug-in hybrid electric vehicle for $14,000). The price of solar panels fell 50% in 2023 and continues to trend down in 2024. CATL has announced plans to cut lithium-ion battery prices in half by the end of 2024.

Restaurants are offering white glove perks like hot towels, lotion by the sink and snazzy remodeled decors. Hairdressers hand out bottled water and fruit plates. Tech companies have slashed large language model (LLM) prices to basically free. Service quality in China, impossible to quantify, is now head and shoulders above the West and probably even Japan.

Adherence to UNSNA has caused a breakdown in the meaning of GDP. As necessary services become an ever larger share of Western economies, their growth does not appear to result in discernable improvements in living standards.

It's not a workshop country. The thesis isn't that they have a strong industry - everyone knows that.

If Chinas service economy is actually triple of what those numbers say, it gets you from 125% of US to ~155% - not a significant change to debt/GDP.

The affordability crisis in Western economies, the US in particular, is largely driven by inflation of necessary services – rent, healthcare, education and childcare – not by manufactured goods.

This is still propably a problem with the concept rather than the measurement - depending on how exactly PPP is defined, but just a few things being weirdly expensive it would likely miss. With housing especially, if you consider the value of location at all, its hard to see how international "quality" comparisons could be made.

Also not captured by the ICP survey conducted in 2021 are the price and service wars that have broken out across industries and products

Why are they not captured?

it gets you from 125% of US to ~155% - not a significant change to debt/GDP.

Fair. This author thinks that the real scale is Chinese economy is 2x of the US or more, all things considered.

With housing especially, if you consider the value of location at all, its hard to see how international "quality" comparisons could be made.

I think American housing value is inflated by the peculiar, unique necessity of getting away from Undesirable People while still being in the vicinity of jobs, schools and other desirable factors.

Why are they not captured?

For example, how do you compare the utility of a high-status American SUV and a noname Chinese SUV with some crazy AI-driven suspension or drone launch pad, especially if they do not meaningfully coexist on either market?

I think American housing value...

And how do you expect this fact to make its way into PPP determinations? I mean even aside the overton considerations, is there any way to say how much of US housing prices are due to this, beyond "I reckon"? At risk of meme-ing, if I said that living in a free and democratic country is valuable to consumers and this is reflected in the prices of the naturally limited houses-near-XYZ in such countries, how do we know youre right and Im wrong? Indicator measures arent useful if measuring them is epistemology-complete, which is why PPP is almost certainly defined in a way that cant detect these things.

especially if they do not meaningfully coexist on either market

Im sure this is true in some cases, but I dont think its true "across industries". And with services it seems like the default case - e.g. the "style of waiting" in everyday-grade european restaurants propably isnt offered in the US - so they propably have some strategy to capture it anyway

I think that if we are trying to genuinely compare apples to apples, PPP is inadequate between significantly different developed systems and we may indeed have to fall back to Marxism-Leninism and factors of production. In the end, what is being discussed is whether China will be able to finance their debt, and any analysis must have to backchain to the possibility to say anything about that.

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