Thread by @michaelxpettis

1/8
FT: "That said, “the weakness in consumption is more structural”, Logan Wright added."

He's right. Every month there are incremental explanations as to why consumption was weak "last month", but the problem is not temporary. It is structural.
ft.com/content/7db729…

2/8
The property sector can stabilize, the Iran war can end, the weather can get better, a new toy fad can emerge, Beijing can launch another consumption program, but while these may all cause temporary increases in consumption, overall consumption will continue to struggle.

3/8
The reason, as I've argued for years, is that China's low consumption is not an accident or an oversight. It is fundamental to the way the economy works. It is China's low household share of GDP that drives both its low consumption share and the "competitiveness" of...

4/8
its investment and manufacturing (and the surging debt) needed to achieve excessively high GDP growth targets. For China truly to drive up the consumption share of GDP means giving up the growth targets and allowing China's manufacturing "competitiveness" to decline.

5/8
It was not an accident that during the 17 years it took to raise the consumption share of Japan's GDP by ten percentage points (1991-2008), Japan experienced GDP growth of barely half a percent and saw its share of global manufacturing decline by more than 60%.

6/8
Japan was in a similar position – although not so extreme – when it learned that its global competitiveness was built not on the efficiency of its manufacturing but rather on low unit labor costs and an addiction to ample credit, undervalued currencies, and overinvestment.

7/8
Every year Beijing says it is more determined than ever to boost the role of domestic consumption in driving the economy, but it also says it is determined to achieve high GDP growth targets and to expand the global "competitivness" of its manufacturing sector.

8/8
The problem is that these are contradictory goals, and they can only be temporarily resolved with an even faster growth in China's debt burden. But, as Japan and many other precedents teach us, it is the surging debt itself that will eventually cause the model to break down.