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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
Mar 9
1/6
 China's deflationary environment continues to improve, with high-than-expected numbers in February. CPI inflation was 1.3% year on year and 1.0% month on month. Month-on-month inflation has been positive since December and mostly positive since July.
english.news.cn/20260309/3fc64…
2/6
 The Spring Festival always makes January and February data noisy, but ever since Beijing decided to go after the problem of involution last May and June, we've seen deflationary pressures ease. But we also saw investment growth decelerate sharply. This isn't just coincidence.
3/6
 Involution was largely caused by the post-2022 shift in investment growth out of property and into favored manufacturing sectors. Beijing's move to cut excess capacity in involuted industries reduced both total investment and defllationary pressure.
carnegieendowment.org/posts/2025/08/…
Read 6 tweets
Michael Pettis Profile picture
Mar 7
1/8
 Bloomberg: "China will issue 300 billion yuan of special sovereign bonds to recapitalize some of its largest banks, marking an expansion of Beijing’s efforts to fortify the nation’s financial system against a cooling economy and market volatility."
bloomberg.com/news/articles/…
2/8
 Chinese banks are caught between record low net-interest margins and worsening loan quality, and so are forced to recapitalize, but this just reflects the same set of inconsistencies between high growth targets and low consumption that we see everywhere else in the economy.
3/8
 Banks are forced to lower lending rates partly because highly-indebted borrowers are struggling to service their debts and partly because Beijing wants to encourage any additional investment it can in an economy that already has too much capacity.
Read 8 tweets
Michael Pettis Profile picture
Mar 5
1/7
 Xinhua: "China will actively boost consumption and implement an income growth plan for urban and rural residents, according to a government work report submitted Thursday to the country's top legislature for deliberation."
english.news.cn/20260305/4203c…
2/7
 This is certainly the right thing to say – the only sustainable way to raise the consumption share of GDP is to raise the household income share – but it tells us very little.

Raising the household income share means reducing the business and/or government shares.
3/7
 So how will these transfers occur? Almost certainly not at the expense of businesses. Given that much of China's manufacturing sector is barely breaking even, even after huge direct and indirect subsidies, the sector is clearly not efficient enough to tolerate...
Read 7 tweets
Michael Pettis Profile picture
Mar 5
1/6
 Xinhua: "China targets an economic growth of 4.5 percent to 5 percent this year."

While this is the lowest target in decades, it's still roughly twice what I think the economy can sustainably deliver without a lot more more non-productive investment.

english.news.cn/20260305/d0f4b…
2/6
 It is a good sign that Beijing has set a lower target this year (certainly better than rigidly sticking to a 5% GDP growth target), but the truth is that it doesn't change much. China will still have trouble – for all its promises – getting consumption growth to accelerate.
3/6
 This suggests that the underlying dynamics of the Chinese economy will remain the same. China still can't tolerate any significant decline in the trade surplus and, more importantly, it can allow only a very small deceleration in investment growth.
Read 6 tweets
Michael Pettis Profile picture
Mar 4
1/12
Very interesting Bloomberg article on one of my favorite topics – how, in a hyperglobalized world (i.e. one with very low transportation, communication, and financial-transaction costs), countries that control their external accounts effectively...
bloomberg.com/news/articles/…
2/12
externalize domestic economic conditions by passing them on to the rest of the world via trade- and capital-flow imbalances. These imbalances are automatically absorbed by those of their trade partners who choose to exert less control over their external accounts.
3/12
According to Bloomberg: "Chinese banks, flush with low-cost funds, are reshaping parts of the global loan market, underscoring how deflationary pressures in the world’s second-largest economy are increasingly influencing competition with international lenders."
Read 12 tweets
Michael Pettis Profile picture
Mar 1
1/9
 Good piece in Nikkei Asia by former acting deputy U.S. trade representative Wendy Cutler on trade-related discussions during Trump's upcoming trip to China. She argues, however, that for a president focused on...
asia.nikkei.com/opinion/trump-…
2/9
 rebalancing, Trump must "hold China's feet to the fire," including pressing for export restraints in sectors like steel and autos and tougher action on transshipments – or tariff dodging via third countries.
3/9
 She continues: "By seeking Chinese agreement to impose export restraint in specified product areas, discouraging Chinese companies from transshipping their goods through third countries to the U.S. and reducing tariffs and nontariff measures in nonsensitive sectors, both...
Read 9 tweets

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