1/11
While many analysts see the most recent NBS data release – with retail sales showing the first monthly year-on-year increase in 2020 and industrial production up 5.6% year on year in August – as evidence of a “solid” economic recovery in China, this graph shows just how...
2/11
lop-sided and vulnerable this recovery has been. Before 2020, retail sales – which is a proxy for consumption, although it includes other things – had grown slightly faster than industrial production, suggesting a slow rebalancing in an economy that urgently needed to...
3/11
rebalance, but in 2020 that relationship has completely reversed, with industrial production growing so much faster than retail sales that it threatens to derail the last few years of limited rebalancing.
If the production side of the economy were the constraint in...
4/11
China’s economic growth, as it had been in the 1980s and 1990s, then it would be legitimate to conclude anyway that China had recovered. But even Beijing has publicly admitted for over a decade that the real constraint is the demand side of the economy, specifically...
5/11
domestic consumption and the private sector investment driven by domestic consumption.
Not only have these barely recovered, but what many analysts are missing is that even this limited recovery has been driven by Beijing’s substantial boosting of the production side of...
6/11
the economy. By expanding public sector investment in logistics and infrastructure, underwriting an expansion of credit to businesses, and otherwise subsidizing production, Beijing has bolstered production to create the employment that has indirectly boosted consumption...
7/11
Put differently, economic recovery in China (and the world, more generally) requires a recovery in demand that pulls along with it a recovery in supply. But that isn’t what is happening. Instead Beijing is pushing hard on the supply side (mainly...
8/11
because it wants to lower unemployment as quickly as possible) in order to pull demand along with it. The problem with this strategy, as I have been writing since May, is that either it is resolved by a rapid increase in China’s trade surplus, which weakens the...
9/11
recovery abroad and forces an increase in foreign debt burdens, or it is resolved by faster growth in Chinese public-sector investment, which, because most of it is no longer productive, increases the Chinese debt burden. And this is exactly what we have been...
10/11
seeing in the data.
China’s “recovery”, in other words, is simply an exacerbation of the problems that have long been recognized. It isn’t sustainable, and unless Beijing moves quickly to redistribute domestic income, as I explain below, it will... carnegieendowment.org/chinafinancial…
11/11
either require slower growth abroad or an eventual reversal of domestic growth once Chinese debt can no longer rise fast enough to hide the domestic demand problem.
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1/14
Much interesting stuff in this new paper by Tamim Bayoumi and Joseph E. Gagnon, including their claim that "the persistence of the US current account deficit reflects inflows associated with the size of US financial markets and perceived safety of its...
2/14
assets, with net inflows ebbing and waning depending on financial sentiment about prospects for the US economy."
The idea that capital account imbalances can drive trade imbalances may seem counterintuitive to many, but it is implicit in how the balance of payments works.
3/14
It is important to work out the implications on the US economy, which have to do with far more than just whether or not the US runs a trade deficit. Because every country's internal account must be perfectly consistent with its external account, changes in...
1/10
According to Bloomberg, China’s share of US imports fell to 7.1% in May, the lowest since 2001, and less than half of the 14.8% in September 2024.
But while that may seem like progress on the trade front, in fact it isn't.
2/10
The US trade problem is not a China problem so much as a problem with the role of the US in accommodating global imbalances. It does this as much through its capital account as through its trade account. What matters is the overall imbalance, not the bilateral imbalance.
3/10
To confuse the two means failing to note that even as the US deficit with China contracts, the overall US deficit continues to rise.
And what's more, the overall Chinese surplus also continues to rise. That's not just a coincidence.
1/8 Robert Skidelsky, who has written great books on Keynes' life and work, wrote (with Vijay Joshi) a really good essay—way back in 2010—on the problems of unbalanced trade, and why Keynes' bancor proposal at Bretton Woods made so much sense.
@RSkidelsky robertskidelsky.com/2010/06/23/key…
2/8 As the revival of interest in Keynes' bancor proposal gathers pace, it is worth pointing out the similarities to his proposal and to more recent proposals in the US and elsewhere that deficit countries place a kind of Tobin tax on all capital inflows.
3/8 The way bancor worked was by taxing the capital flow component of persistent surpluses. Surplus countries, of course have to acquire foreign assets to balance their surpluses, in the same way that deficit countries must give up claims on assets.
1/6 Reuters: "Chinese government advisers are stepping up calls to make the household sector's contribution to broader economic growth a top priority at Beijing's upcoming five-year policy plan."
2/6 Reuters continues: "Household consumption currently accounts for 40% of gross domestic product - some advisers propose China should aim for 50% over the next two five-year cycles."
3/6 It's worth noting that China is such an outlier, that even if it does raise the household consumption share of GDP by ten percentage points, it will still have among the lowest household consumption shares of any major economy in the world.
1/6 Good Caixin article on developer debt resolution: "As China’s real estate slump drags on with no recovery in sight, distressed developers are shifting toward more aggressive debt restructuring for survival, forcing creditors to swallow deep losses."
2/6 "For three years," Caixin continues, "developers relied on an “extend and pretend” approach, rolling over debt in hopes of a market rebound. But home sales have collapsed, worsening property companies’ finances."
3/6 This is the classic debt resolution process, familiar to me from my early years running LDC bond-trading desks. At first, both creditors and obligors pretend that what they have is a liquidity problem, not a solvency problem, and that all is needed is time and forbearance.
1/12
A Tsinghua-related think tanks argues that "China should issue 30 trillion yuan in treasury bonds to swap local governments’ hidden liabilities to re-energise growth momentum and cut off financial risks at their root."
via @scmpnewssc.mp/gz8bj?utm_sour…
2/12
This would help in two ways, according to the report. It would transfer debt from local government balance sheets to the central government balance sheet, giving them more breathing space to prop up the economy, and it would reduce interest payments.
3/12
But this is what comes of treating a systemic issue incrementally. The problem is not that local governments have too much debt. The excessive debt burden of local governments is actually a symptom of the real problem. ft.com/content/630f82…