Re: "DeepSeek" - China AI App Shakes Up Tech Markets

On Tue, 28 Jan 2025, rbowman wrote:

On Tue, 28 Jan 2025 21:40:42 +0100, D wrote:
>

I like the humiliation thesis. But I also think it is a little but more
refined than that. Causing US companies financial damage is very
attractive to them, and if they can hasten the crash of the AI bubble
along, they would be happy too.

>
The US tried to cripple them by limiting Nvidia exports. They made do with
second tier GPUs.
>
It's interesting how an awful communist dictatorship open sourced the
whole thing plus a long paper on how they did it while Microsoft, Meta,
OpenAI and the others are only interested in their bottom line.
>
Mao to the contrary I think China is really a successful national
socialist country.
>

I'm not so sure. Plenty of stuff is hidden there and never reaches our eyes and ears.
What follows is an article from the swedish mainstream press about how things in china might be far worse than we know. Add their demographical situation on top of that, and it does not look so good for them.
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svd.se
China is trying to protect its population – with heavy subsidies
Johan Carlström
11–15 minutes
China's rescue plan could be a disaster – for Europe
Illustration: Alexander Rauscher
Illustration: Alexander Rauscher Photo: TT
The Chinese regime is trying to protect its population from a crisis economy, with the help of heavy subsidies. But what happens in Europe if we continue to be flooded with cheap goods from the East.
"2024 has been the worst year in the more than twenty years that I have been in this business."
Hao, owner of a printing and advertising company in the Chinese capital Beijing, told the Financial Times last week. The man did not want to give his full name.
China's economy has been struggling with headwinds recently. According to official statistics, the economy grew by 5 percent last year. But not everyone believes the figures. One of them is Tim Rühlig, a China expert and analyst at the European Union Institute for Security Studies, the EU's foreign and security policy think tank. He describes an economy in deep crisis.
Rühlig has visited the country for two decades, most recently a few weeks ago. During the visit, he spoke to several people with connections to the regime. The conclusion is that politicians have not been this worried about the economy in twenty years.
China expert Tim Rühlig works at the European Union Institute for Security Studies, the EU's foreign and security policy think tank.
China expert Tim Rühlig works at the European Union Institute for Security Studies, the EU's foreign and security policy think tank. Photo: Andrea Vinson
“China is in an extremely difficult situation. The country is in deep shock, optimism is completely gone and many Chinese people do not see the future as bright,” says Tim Rühlig.
According to official statistics, unemployment has remained essentially flat in the country's largest cities in recent years, at around five percent. But Rühlig paints a different picture. According to him, there are mass layoffs and state-owned companies have cut employee salaries by up to 40 percent.
At the same time, youth unemployment is high. At its peak, more than one in five young Chinese between the ages of 16 and 24 was unemployed. According to the Financial Times, the country has seen an increase in work-related stress, protests, suicides, crime and random violence in various places.
- In the past, people who lost their jobs found new jobs. But that is no longer the case, says Tim Rühlig.
Chinese prices are falling
Unemployment has left its mark on inflation. In recent years, consumer prices have barely risen at all.
At the same time, Chinese producer prices have fallen for three years in a row. The producer price is the price that companies charge when they sell their products to other companies. Last year, they fell by more than 2 percent. This is unusual. Normally they tend to rise.
Rühlig explains the development by saying that politicians have actively decided to produce more goods than the country actually needs. This is done through government subsidies that, according to Rühlig, are nine times larger than the corresponding subsidies in Europe.
Photo: Eugene Hoshiko/AP
The idea is that the support will keep goods production going and thus prevent unemployment from rising even further. The subsidies have also helped China, but have made it more difficult for foreign companies, such as Swedish ones, to compete with Chinese companies.
– Chinese companies are flooding the world market with cheap goods that are sometimes sold at a lower price than it costs to produce them. Not the US, but India, Latin America and Europe have all seen a massive increase in exports from China recently, says Rühlig.
China continues to win
In the short term, China's subsidy-related overproduction may benefit European consumers because it means cheap goods and low inflation. But Chinese policies can also create problems.
– Consumers may like low prices, but if it also means they lose their jobs, they probably won’t like it as much. It’s not discussed much, but it could really be a disaster for Europe if it were to happen, says Tim Rühlig.
In recent years, both the US and Europe have imposed tariffs on Chinese goods to protect their own companies and jobs.
But according to SEB’s Asia economist Eugenia Victorino, China has continued to gain ground in the global export market. To compensate for lower exports to the US, the country has instead focused on other markets, including Europe.
Eugenia Victorino works as an economist and Asia strategist at SEB in Singapore Photo: SEB
– Despite the tariffs, China’s trade surplus (exports minus imports; editor’s note) has more than doubled in the last seven years: from $400 billion to $1,000 billion, says Victorino.
The reason is not only increased exports but also an active policy to get more foreign companies to move production to China.
Victorino recently visited the country and warns of the consequences if US President Donald Trump raises trade tariffs on Chinese goods. Europe then risks being flooded with even more goods from
from China that would otherwise have been shipped to the other side of the Atlantic.
– If and when Trump raises tariffs, China will probably pursue an even more aggressive export policy towards Europe and other parts of the world.
At the same time, the Chinese regime continues to do what it can to support the economy. Among other things, they have lowered the key interest rate and given discounts to households that have replaced old appliances with new ones. This year, even more interest rate cuts are expected.
China's trade surplus has more than doubled in the past seven years. Photo: AP
Tim Rühlig has a negative view of China's future. The country's public debt has increased sharply in recent years. He believes that subsidies have led to China's loans being larger than what is shown in public statistics and that perhaps even the regime does not know how big the debt is.
According to him, however, the country's government is quite good at resolving crises. The main scenario is that it succeeds this time too. But Rühlig does not rule out a significantly worse scenario: that the economy crashes.
Tough on – but at a slower pace
According to Rühlig, a crash could have major consequences for the world economy, including Sweden. China is the world's second-largest economy and importer of goods, and many foreign companies operate in the country.
The most likely outcome, however, is that the subsidies will cause the economy to continue to toughen up, but at a slower pace than we are used to.
- In a way, the politicians can't afford it, but I still think they will continue to subsidize their companies, says Rühlig.
In January, many Chinese celebrate New Year. Relatives reunite in their hometowns and bring gifts and red envelopes filled with money. But not Hao. The income from his company almost halved last year. Profits fell even further.
"At my age, going back means giving red envelopes to the younger generation, and I simply don't have the money to do that," he told the Financial Times.
How the economy in China and Sweden fared China Sweden
GDP growth 5.0% 0.6%
Inflation 0.2% 2.8%
Unemployment 5.1% 8.4%
Public debt/GDP 84% 34%
Note: Swedish figures are Nordea's latest forecast. China's figures are a combination of outcome and forecast
Source: Nordea, IMF