Chinese Premier Li Qiang met with representatives of the U.S. business community in Beijing. 🔵 A stable and predictable China-U.S. economic and trade relationship serves the interests of both countries and the world. 🔵 A steadily growing Chinese economy will provide more opportunities for companies from all countries, including U.S. enterprises. 🔵 A stable and open policy environment is the long-standing and unwavering commitment of the Chinese government. 🔗

AI demand is fueling China’s economy: Chinese semiconductor exports surged +111% YoY in May, to a record $36 billion. This marks the largest annual increase in 13 years. Outbound shipments of computers and parts jumped +66% YoY, to ~$27 billion, the 2nd-largest on record. This surge was largely price-driven, with Chinese chip export volumes rising +2% over the same period, as global shortages caused by the AI data center buildout pushed semiconductor prices sharply higher. Together, chips and computers accounted for roughly half of China's total export and import growth in May. As a result, overall exports rose +19% YoY, while imports soared +27% YoY, leaving a trade surplus of $105.4 billion, the largest since January. AI infrastructure spending is reshaping the Chinese economy.

I just finished Logan Wright's new book on the Chinese economy. It provides a great deal of data to support the claim that China’s enormous credit expansion is running out of room, leaving Beijing under growing pressure to rely on exports to keep economic activity from declining.

> When the Chinese economy finally collapses in two weeks, who will become the next supplier of overshilled underperforming local models? > Why the hell would Chinese economy collapse? The gooners are gaining awareness discourses are coming together…

Japanese companies are leaving China in record numbers, as a slowing Chinese economy and a diplomatic freeze force businesses to reassess their presence in the world’s second-largest economy. The number of Japanese companies operating in China fell to a historic low, standing at 10,118 as of June. That’s down 22% from June 2024 and about 30% below the 2012 peak, Teikoku Databank data showed. Find out what's driving the shift:

"China’s banking crisis in the 2000s was resolved by transferring the costs to households through financial repression—a decision that recapitalized the banks while exacerbating the structural imbalances that continue to shape the Chinese economy today." As Chinese debt continues to surge, and as Beijing increasingly tries (so far unsuccessfully) to rein it in, it is worth remembering how China managed its last major debt cleanup, from 2002 to 2011, and what the consequences were for the economy. I discuss this in my latest piece for the Carnegie Endowment.

Yesterday's People's Daily editorial seems to suggest (and warn) that it is becoming increasingly hard to achieve the GDP growth target: "When observing the Chinese economy, we cannot focus solely on growth rate, nor can we get bogged down in the highs and lows of individual quarterly or monthly indicators. Instead, we must pay more attention to the quality of economic operation, focusing on the quality of technological innovation, the level of industrial development, and the sustainability of economic growth."

With the National Day long holiday just around the corner, the Shanghai Composite and the Hang Seng are trying hard to take back the lost ground at the open today. In the near term, 3800 is a dependable bottom for traders. Consensus seems to think yesterday’s stimulus was underwhelming and calls for “structural reform” to solve the problem. However, the structural problem of strong investment and weak consumption has existed for years. Using a long-term structural problem to explain and resolve short-term issues is illogical and futile. I have long held that weak consumption is an income and wealth distribution and disparity problem, as Chinese labor compensation as a percentage of output is way too low. I have consistently expressed this view in various high-level speeches and interviews in the past few years. Simply put, Chinese labor is underpaid, especially considering how productive it has been. To reform is to improve. It's good that the Chinese economy has grown dramatically, and thus can now afford to pay its labor more. The money made from exports should be used better for people, their welfare, healthcare, and development. $FXI $KWEB $CQQQ $BABA $PGJ $PDD $EWH