The cracks behind 6.8 percent fertilizer growth: factories are more prosperous, and why residents’ consumption is only 0.6 percent higher

The company is becoming one of the most bright patterns of local industrial policy in China. Reuters on September 10 that the city that betting on new energy vehicles, semiconductors and display panels, in the first half of this year, the economy grew by 6.8%, significantly faster than the national average; but at the same time, retail sales grew by only 0.6%. On the one hand, the factory expansion, the acceleration of the production line, and on the other hand, the consumption of residents is almost on the ground, the company presents the deepest set of contradictions in China's economy.

If a city can do a lot of production, but can’t simultaneously boost the consumption capacity of the average household, then the “manufacturing miracle” must be redefined. Growth is not just about how many cars are out of line, how many circles are put into production, but whether income, job security and household expectations really improve.

* Local governments as risk investors, success also makes dependence

At the core of the fertilizer model, the government capital is actively betting on strategic industries. Local state capital investments in projects such as Zhejiang, Zhejiang Storage, Kyoto East, etc. are seen as typical of "production by input". It has indeed changed the city industrial structure, and also allowed fertilizer from traditional inland cities to quickly enter the new energy and chip chart.

But the problem is that once this model becomes a national competition, it turns from “a few successful cases” to “replicating everywhere”.Each city wants to build new energy vehicle bases, semiconductor parks and robotics industrial parks, and the result may not be more innovation, but subsidy competition, rebuilding and capacity accumulation.When profits are swallowed by price wars, the ultimate risk is often still the local finance, banks and suppliers.

The real question is not whether we can continue to build more cars, but whether industrial expansion can translate into more stable incomes, more confident families, and more active services.

Production of 25 percentage points – what the consumption divide reveals

According to Reuters, there is a huge gap of about 25 percentage points between production and consumption growth in the fertilizer industry.Behind the figures are two economies: some high-skilled engineers, R&D personnel and industrial chain companies enjoy policy dividends; others, small, service professionals and ordinary residents still face job instability, property pressure and cautious consumption.

China's macroeconomy has long relied on investment and manufacturing, while resident consumption accounts for a low share of the economy. After real estate adjustment, the household balance sheet is damaged, and local government land finances shrink, but is still required to seek growth exports through "new quality productivity."So industrial investment continues to increase, and insufficient consumption is delayed once and again.

“Advanced manufacturing” cannot be a new slogan to avoid the issue of distribution.

China, of course, needs chips, electric vehicles, and advanced manufacturing.But if policy resources continue to be concentrated on the corporate side, while residents face greater uncertainty over education, healthcare, old age, housing and unemployment risks, then families naturally tend to save rather than consume.

The next step in the fertility model is to answer at least three things:

• can more of the fiscal income created by the high-tech industry be converted into social security and resident income;
• who bears losses when local state-owned investment fails, whether there is transparency in accountability;
• how to avoid price wars and excess capacity damage each other when the cluster of similar industries is replicated across the country.

Focus on China believes that fertilization is not the end of the “Chinese model success”, but a pressure test board. It demonstrates the ability of the party state system to concentrate capital, land and policies to quickly create industrial clusters, but also exposes the hardest answer to the question of this way of growth: the state can order where capital goes, but can not order families to restore confidence.