Connect with us


China’s Ensnared In The Middle-Income Trap

China’s Ensnared In The Middle-Income Trap

Authored by James Rickards via,

China has fallen victim to what economists…



China's Ensnared In The Middle-Income Trap

Authored by James Rickards via,

China has fallen victim to what economists call the middle-income trap. Economists consider a low-income country to have around $5,000 annual income per capita. Middle-income countries have between $8,000 and $15,000 annual income per capita. High-income countries begin at around $20,000 annual income per capita.

China’s per capita annual income is $12,970 — solidly in the middle income category. By the way, in the U.S. it’s $75,180, among the highest in the world (second to Switzerland).

Due to China’s extreme income inequality, it is more useful to think of China as having two populations. One population of about 500 million urban workers has an annual per capita income of about $28,000, while a second population of about 900 million villagers has an annual per capita income of about $5,000.

That would put the 900 million villagers solidly in the lower income category, not even close to middle income. And there is extreme income inequality within the 500 million high-income groups such that most of those would have a middle income of about $12,000 per year, while a select few would be earning millions of dollars per year each.

China is predominately a low-income country with a significant middle-income cohort and a tiny slice of the super-rich. This income inequality makes China’s climb out of the middle-income ranks even more difficult. And the super-elite cohort is a potential source of social unrest among the less well-off.

The conventional wisdom is that the rise from low-income to middle-income status is fairly straightforward. You begin by moving tens of millions (or in China’s case, hundreds of millions) of people from rural villages to cities. You provide decent if spartan housing, public transportation, and attract foreign direct investment to build manufacturing plants.

With some training, the city residents become adept at assembly-style manufacturing. Low labor costs allow goods to be assembled cheaply and exported at attractive prices. The cycle feeds on itself with more migration, more direct foreign investment, and expanded manufacturing capacity. Per capita income rises from the low to middle-income range.

But to make it to the big leagues of high-income status, you need high technology applied to high-value-added innovation and manufacturing. China lacks this. China advocates seem impressed that 90% of our iPhones come from China. That’s true, but Chinese value-added is only about 6%. If an iPhone costs $1,000, only about $60 goes to China’s net of import costs and royalties.

In fact,very few countries (excluding OPEC members) have ever made this leap from middle-income to high-income. The only examples in Asia are Japan, South Korea, Hong Kong, Taiwan, and Singapore.

This list leaves many more countries (Malaysia, India, Turkey, Thailand, Brazil, Mexico, Argentina, Russia, Chile, and others) stuck in the middle-income trap with China.

High growth from a starting point of low-income to middle-income is not surprising and should be expected. It’s not a “miracle.” It’s just what happens when you clamp down on corruption, build enough infrastructure, and move millions from the country to the city. China’s done that.

The key variable in forecasting Chinese growth in the years ahead is therefore technology.

Can China not merely license foreign technology (at a high cost), but develop its own technology ahead of advanced-economy competitors?

The outlook here is not good for China.

They have shown little or no capacity to invent or produce in areas such as advanced semiconductors, high-capacity aircraft, medical diagnostics, nuclear reactors, 3D printing, AI, water purification, and virtual reality.

Projects that China has on display that are advanced (such as their bullet trains that run quietly at 310 kph) are done with technology licensed from Germany or France or are done with stolen technology. China has done little innovation on its own.

But the stolen technology channel is being shut down by bans on advanced semiconductor exports to China, and sanctions on the use of 5G systems from Huawei, for example.

On top of all that, China faces powerful economic headwinds in the form of excessive debt, adverse demographics, collapsing real estate markets, and a lack of oil and natural gas reserves. The country is also trying to reopen from its pandemic failures at a time when the world may be entering another global recession worse than 2008.

China also faces powerful geopolitical headwinds as a result of its genocide against the Uyghur minority, involuntary organ harvesting from political prisoners, concentration camps, female infanticide (over 20 million baby girls killed), suppression of religion, censorship, social credit scores, house arrests, and expropriation from entrepreneurs like Jack Ma of Alibaba Group.

Above all, China is handicapped by its return to Mao-style Communism under the leadership of the new Emperor for Life, Comrade Xi Jinping.

Xi has largely abandoned the relatively open economic policies of Deng Xiaoping, which prevailed from 1992 to 2007 under the leadership of Deng’s successors Jiang Zemin and Hu Jintao, with an updated version of Mao’s policies which place the Communist Party and its “core leader” at the center of all decision making and economic direction.

China’s economic headwinds can be summed up in three words — debt, demographics, and decoupling.

There is substantial empirical evidence that national debt to-GDP ratios in excess of 90% result in slower growth. It’s tough to precisely determine China’s, but its debt-to-GDP ratio is probably about 350%.

This problem is exacerbated in China by the fact that much of the debt is not spent productively. I have visited construction projects in the countryside of China where entire cities visible to the horizon were being built from the ground up.

Along with the cities were airports, highways, golf courses, convention centers, and other amenities. It was all empty. None of the buildings were occupied except by a handful of show tenants. Promises of future tenants rang hollow. The construction did create jobs and purchases of materials for a few years, but the debt-financed infrastructure was completely wasted.

The only ways out of a debt trap of the kind China has constructed are default, debt restructuring or inflation.

The last two are just different kinds of defaults. The situation does not necessarily resolve itself quickly. The debt burden can persist for years. Just don’t expect robust growth while it persists.

China’s birth rate is now below what is called the replacement rate. That rate is 2.1 children per couple. China’s current rate is reportedly about 1.6, but some analysts say that the actual rate is 1.0 or even lower. At that rate, China’s population will shrink from 1.4 billion to about 800 million in the next 70 years.

That’s a loss of 600 million people in a single lifetime.

If you assume productivity will remain constant (a reasonable assumption if China fails the high-tech transition), and the population drops by 40%, then it follows that the economy will shrink by 40% or more. That’s the greatest economic collapse in the history of the world.

In all, the pandemic, demographics, debt, decoupling, technology, and global recession should negatively impact Chinese growth in the years ahead.

This growth story inevitably bleeds into geopolitics in terms of a potential invasion of Taiwan and war in the South China Sea.

It is no doubt the greatest economic and geopolitical drama playing out in the world today with important implications for all investors.

Tyler Durden Wed, 02/15/2023 - 22:25

Read More

Continue Reading


Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

Read More

Continue Reading


COVID-19 lockdowns linked to less accurate recollection of event timing

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing…



Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Credit: Arianna Sahraie Photography, CC-BY 4.0 (

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Remembering when past events occurred becomes more difficult as more time passes. In addition, people’s activities and emotions can influence their perception of the passage of time. The social isolation resulting from COVID-19 lockdowns significantly impacted people’s activities and emotions, and prior research has shown that the pandemic triggered distortions in people’s perception of time.

Inspired by that earlier research and clinical reports that patients have become less able to report accurate timelines of their medical conditions, Pawlak and Sahraie set out to deepen understanding of the pandemic’s impact on time perception.

In May 2022, the researchers conducted an online survey in which they asked 277 participants to give the year in which several notable recent events occurred, such as when Brexit was finalized or when Meghan Markle joined the British royal family. Participants also completed standard evaluations for factors related to mental health, including levels of boredom, depression, and resilience.

As expected, participants’ recollection of events that occurred further in the past was less accurate. However, their perception of the timing of events that occurred in 2021—one year prior to the survey—was just an inaccurate as for events that occurred three to four years earlier. In other words, many participants had difficulty recalling the timing of events coinciding with COVID-19 lockdowns.

Additionally, participants who made more errors in event timing were also more likely to show greater levels of depression, anxiety, and physical mental demands during the pandemic, but had less resilience. Boredom was not significantly associated with timeline accuracy.

These findings are similar to those previously reported for prison inmates. The authors suggest that accurate recollection of event timing requires “anchoring” life events, such as birthday celebrations and vacations, which were lacking during COVID-19 lockdowns.

The authors add: “Our paper reports on altered timescapes during the pandemic. In a landscape, if features are not clearly discernible, it is harder to place objects/yourself in relation to other features. Restrictions imposed during the pandemic have impoverished our timescape, affecting the perception of event timelines. We can recall that events happened, we just don’t remember when.


In your coverage please use this URL to provide access to the freely available article in PLOS ONE:

Citation: Pawlak DA, Sahraie A (2023) Lost time: Perception of events timeline affected by the COVID pandemic. PLoS ONE 18(5): e0278250.

Author Countries: UK

Funding: The authors received no specific funding for this work.

Read More

Continue Reading


Hyro secures $20M for its AI-powered, healthcare-focused conversational platform

Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare…



Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare sector. Specifically, they sought to automate the routine messages and calls that often lead to administrative burnout, like calls about scheduling, prescription refills and searching through physician directories.

Several years after graduating, Krush and Cohen productized their ideas with Hyro, which uses AI to facilitate text and voice conversations across the web, call centers and apps between healthcare organizations and their clients. Hyro today announced that it raised $20 million in a Series B round led by Liberty Mutual, Macquarie Capital and Black Opal, bringing the startup’s total raised to $35 million.

Krush says that the new cash will be put toward expanding Hyro’s go-to-market teams and R&D.

“When we searched for a domain that would benefit from transforming these technologies most, we discovered and validated that healthcare, with staffing shortages and antiquated processes, had the greatest need and pain points, and have continued to focus on this particular vertical,” Krush told TechCrunch in an email interview.

To Krush’s point, the healthcare industry faces a major staffing shortfall, exacerbated by the logistical complications that arose during the pandemic. In a recent interview with Keona Health, Halee Fischer-Wright, CEO of Medical Group Management Association (MGMA), said that MGMA’s heard that 88% of medical practices have had difficulties recruiting front-of-office staff over the last year. By another estimates, the healthcare field has lost 20% of its workforce.

Hyro doesn’t attempt to replace staffers. But it does inject automation into the equation. The platform is essentially a drop-in replacement for traditional IVR systems, handling calls and texts automatically using conversational AI.

Hyro can answer common questions and handle tasks like booking or rescheduling an appointment, providing engagement and conversion metrics on the backend as it does so.

Plenty of platforms do — or at least claim to. See RedRoute, a voice-based conversational AI startup that delivers an “Alexa-like” customer service experience over the phone. Elsewhere, there’s Omilia, which provides a conversational solution that works on all platforms (e.g. phone, web chat, social networks, SMS and more) and integrates with existing customer support systems.

But Krush claims that Hyro is differentiated. For one, he says, it offers an AI-powered search feature that scrapes up-to-date information from a customer’s website — ostensibly preventing wrong answers to questions (a notorious problem with text-generating AI). Hyro also boasts “smart routing,” which enables it to “intelligently” decide whether to complete a task automatically, send a link to self-serve via SMS or route a request to the right department.

A bot created using Hyro’s development tools. Image Credits: Hyro

“Our AI assistants have been used by tens of millions of patients, automating conversations on various channels,” Krush said. “Hyro creates a feedback loop by identifying missing knowledge gaps, basically mimicking the operations of a call center agent. It also shows within a conversation exactly how the AI assistant deduced the correct response to a patient or customer query, meaning that if incorrect answers were given, an enterprise can understand exactly which piece of content or dataset is labeled incorrectly and fix accordingly.”

Of course, no technology’s perfect, and Hyro’s likely isn’t an exception to the rule. But the startup’s sales pitch was enough to win over dozens of healthcare networks, providers and hospitals as clients, including Weill Cornell Medicine. Annual recurring revenue has doubled since Hyro went to market in 2019, Krush claims.

Hyro’s future plans entail expanding to industries adjacent to healthcare, including real estate and the public sector, as well as rounding out the platform with more customization options, business optimization recommendations and “variety” in the AI skills that Hyro supports.

“The pandemic expedited digital transformation for healthcare and made the problems we’re solving very clear and obvious (e.g. the spike in calls surrounding information, access to testing, etc.),” Krush said. “We were one of the first to offer a COVID-19 virtual assistant that deployed in under 48 hours based on trusted information from the health system and trusted resources such as the CDC and World Health Organization …. Hyro is well funded, with good growth and momentum, and we’ve always managed a responsible budget, so we’re actually looking to expand and gather more market share while competitors are slowing down.”

Hyro secures $20M for its AI-powered, healthcare-focused conversational platform by Kyle Wiggers originally published on TechCrunch

Read More

Continue Reading