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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
Feb 4
1/8
 Jason Furman: "A weaker dollar may improve the economy’s long-run balance, but it does so by forcing Americans to cut back on spending. That is like telling children to eat more spinach today so they will be healthier in the future."
nytimes.com/2026/02/03/opi…
2/8
 Furman is right. Currency appreciation reduces consumption costs in the short term by making imports cheaper, but in a hyperglobalized world, it also undermines domestic manufacturers by making them less competitive against foreign manufacturers.
3/8
 Academic economists (mainly in the US) will argue that this is a good thing because the goal should be to maximize consumption, but the only sustainable way to maximize consumption over the longer term is to maximize production.
ft.com/content/89110b…
Read 8 tweets
Michael Pettis Profile picture
Feb 3
1/4
 Yicai: "China's macro leverage ratio – a measure of total debt relative to nominal GDP – rose by 11.8 percentage points to 302.3 percent in 2025, exceeding the 10.1 point increase recorded in 2024, according to a new research report by CASS.
yicaiglobal.com/news/chinas-de…
2/4
 There is a lot of disagreement about the real debt-to-GDP ratio in China, especially given the difficulty of counting hidden debt, along with an "abnormal" rise in payables and receivables that reflects inability to pay debt more than it reflects rising revenues.
3/4
 If we use the official total social finance number as the measure of debt, the ratio is 315%. The BIS and other entities show even higher ratios. But whatever the real number, it is among the highest in the world, perhaps exceeded only by Japan among major economies.
Read 4 tweets
Michael Pettis Profile picture
Feb 2
1/7
 SCMP: "Chinese scholars have called for greater urgency in reducing reliance on US dollar assets, particularly after Washington and its allies froze about US$300 billion in Russian foreign exchange reserves in 2022."
scmp.com/economy/global…
2/7
 Although this may be a favorite new topic among academics – and not just Chinese academics - few seem to understand that a country cannot restructure global capital flows without also restructuring global...
3/7
 trade flows, nor that a country cannot change its external imbalances without either changing its internal imbalances or changing the external imbalances (and thus the internal imbalances) of its trade partners.
Read 7 tweets
Michael Pettis Profile picture
Jan 22
1/12
This talk about Europe's ability to wield its holdings of US Treasuries as a political tool is as divorced from reality as the talk about China's ability to wield its holdings of US Treasuries as a political tool.
via @ftft.com/content/7d6436…
2/12
For all the huffing and puffing, Chinese holdings of US assets actually increased. This shouldn't have been a surprise. If you run massive trade surpluses, you have no choice but to acquire foreign assets, and if you won't acquire the alternatives, you must buy US assets.
3/12
These analysts seem to forget that you cannot change your capital account without also changing your trade account, and that you cannot change your external imbalances without also changing your internal imbalances.
Read 12 tweets
Michael Pettis Profile picture
Jan 21
1/7
 EU commissioner for trade Maroš Šefčovič is absolutely right to question the usefulness of the WTO: "If the WTO is to meet today’s challenges, its rules must be fair and deliver balanced, legitimate outcomes. Currently, they do neither."
ft.com/content/2ff1d4…
2/7
 The fact that decades of the largest, persistent trade imbalances in history have largely been WTO compliant suggests strongly that the WTO is more about maintaining legal fictions than it is about discouraging the adverse impact of trade intervention on the global economy.
3/7
 As Keynes (and many others) pointed out nearly a century ago, evidence that a country is intervening in trade shows up very clearly in the form of persistent, beggar-thy-neighbor trade surpluses. If the latter exists, then the former exists.
Read 7 tweets
Michael Pettis Profile picture
Jan 21
1/6
 Reuters: "Chinese leaders have pledged to "significantly" lift household consumption’s share of the economy over the next five years, but have not given a specific target."
reuters.com/world/asia-pac…
2/6
 If we assume that Beijing hopes to raise the consumption share of GDP by 3-5 percentage points (roughly a third of what it would need to be a more "normal" low-consuming economy), consumption would have to grow by 1-2 percentage points faster than GDP over the period.
3/6
 That's a pretty big gap, and one we have never yet seen in the past 3-4 decades of Chinese growth. The good way to manage this, of course, would be for consumption growth to accelerate, although it is not at all clear what would cause that acceleration.
Read 6 tweets

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