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Michael Pettis Profile picture
@michaelxpettis
Oct 4, 2020 • 4 tweets • 1 min read • Read on X
1/4
 The author says that "since 2015, the central bank has allowed the currency to trade more freely. The PBoC’s shift has enabled the renminbi to undertake the same signalling role that the yen historically played regarding the dollars prospects."

ft.com/content/0534f1…
2/4
 I disagree with much of this article, but especially the claim that the RMB began trading freely in 2015. In fact what happened is that the PBoC shifted from targeting USD to targeting a basket of currencies (the CFETS RMB Index). If you continue tracking the RMB against...
3/4
 the dollar, it might seem that the RMB has become much more volatile, but most of that is simply USD volatility.

Against the basket, on the other hand, the RMB has been very stable: it is less than 1% higher today, for example, than it was four years ago. What is...
4/4
 more, during the past four years it has always has remained well within four percentage points of its current level, and at least 3/4s of that time it has remained within two percentage points of its current level. This is far from being a freely floating currency.

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More from @michaelxpettis

Michael Pettis Profile picture
May 17
1/10
We can't make too big a deal out of one month's data, but today's data release does seem to confirm that China's heavily supply-side response to what is mostly a demand-side problem is making the Chinese economy more unbalanced than ever.

stats.gov.cn/english/PressR…
2/10
In April, according to the NBS, the industrial output proxy rose by 6.7% year on year, and by an even heftier 0.97% month on month. These were above last month's numbers and well above market expectations. They suggest that China' strong production is getting even stronger.
3/10
Today's data suggest, however, that China's weak consumption is getting even weaker. Retail sales, the proxy for consumption, were up 2.3% year on year, and up a measly 0.03% month on month. Both number were below expectations.
Read 11 tweets
Michael Pettis Profile picture
May 17
1/5
 If China is indeed selling off US assets ($53 billion is a little over 1% of its total direct and indirect reserves), this may be a good thing for China, but it's also a good thing for the US.

via @marketsbloomberg.com/news/articles/…
2/5
 It means fewer foreign savings being dumped into US economy, less strength in the dollar, and a contracting US current account deficit. And contrary to what many believe, it would have no net impact on US interest rates.
3/5
 If China were swapping US assets for assets of developing countries (which is unlikely), this would be a win-win-win, as it would likely lead to an increase in domestic investment in those countries.
Read 5 tweets
Michael Pettis Profile picture
May 15
1/4
 Using Noah Smith's four reasons for protectionist policies, it is important to note that while the Biden tariffs may accomplish points 1 and 4, they will not resolve US trade imbalances (point 2).
2/4
 That's because as long as China retains its excess savings, and as long as the bulk of these are directly or indirectly invested in the US, China's overall surplus will be unchanged, as will the overall US deficit.
3/4
 One risk is that the protection of the targeted industries comes at the expense of untargeted industries. This would happen mainly through adjustments in the currency or adjustments in domestic demand.
Read 4 tweets
Michael Pettis Profile picture
May 14
1/9
 Adam Tooze responded to several recent articles and comments, and as always, his response is very thoughtful and very illuminating. As he says "clearly, Pettis and I are maneuvering around the same set of issues."

adamtooze.substack.com/p/chartbook-28…
2/9
 He worries about the wrong sorts of tactical alliances in the name of economic sovereignty and, frankly, so do I, but I am much more pessimistic about the sustainability of the existing system of global imbalances than he is and, perhaps more importantly, we disagree on...
3/9
 the importance of manufacturing to the US economy. As I see it, the relative decline in the US share of global manufacturing is not a US strategy so much as the obverse of strategies implemented abroad. This has implications I plan to write about soon.
Read 9 tweets
Michael Pettis Profile picture
May 14
1/5
 "Globally," Tyler Cowen notes, "the labor share, which is the fraction of an economy’s output that goes to workers, has declined by six percentage points since 1980."

@tylercowen via @opinionbloomberg.com/opinion/articl…
2/5
 "If globalization were the culprit," he adds, "labor’s share should be rising in China and other major exporting countries — but the opposite is true."

I see it very differently, as Matt Klein and I argued in our book. Image
3/5
 In a hyperglobalized world, countries determined to expand their relative share of manufacturing do so mainly by directly or indirectly suppressing wages and household income. Businesses must respond by shifting production to low economies with low unit labor costs.
Read 5 tweets
Michael Pettis Profile picture
May 13
1/8
 Adam Tooze is of course right to worry that any major adjustment in the global role of the US dollar is likely to be disruptive for the global financial system, but I think he, like others, grants too much agency to US control of the dollar.

via @ftft.com/content/ad0e04…
2/8
 It is true that Washington and the Fed can affect the short-term performance of the dollar, both directly and by implementing industrial and trade policies that change the US role in the global economy. Ultimately, however, the outsized role of the dollar, and the…
3/8
 concomitant role of the US economy as absorber of last resort of global excess savings – and, which is the same thing, as global consumer of last resort – has created decades of distortions that have caused major trade imbalances, surging debt, rising inequality, and a...
Read 8 tweets

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