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Michael Pettis

@michaelxpettis

Oct 24

1/4
Interesting article by Yanmei Xie: "Why does involution defy repeated attempts to purge it?" she asks. "Because the foundational structure of China’s political economy breeds it."
ft.com/content/e768df…

2/4
She's absolutely right. "Involution:" is just the latest name for a decades-old problem arising from a development model built around the need to keep increasing investment in capacity, even when capacity is already excessive.
carnegieendowment.org/posts/2025/08/…

3/4
Xie points out that what creates this excess capacity is simply the flip side of the very thing that creates global competitiveness, concluding that "what begins as glut at home could end as supremacy abroad."

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Michael Pettis

@michaelxpettis

Oct 23

1/8
Yale's Stephen Roach says China must raise the household consumption share of its GDP by ten percentage points over the next decade. In August PKU economics professor Lu Feng, said that China should raise it by 5 to 10 percentage points over the..
bloomberg.com/news/articles/…

2/8
next 5 to 10 years, while Peng Sen, chairman of the China Society of Economic Reform, said it should raise it by more than 10 percentage points.

A 10-percentage-point increase, by the way, would still leave China with among the lowest consumption shares of any major economy.

3/8
While by now pretty much every serious economist in and out of China agrees that China must urgently raise the consumption share of its GDP, and by a lot more than analysts had at first assumed, what they aren't yet doing is explaining why it will be so difficult.

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Michael Pettis

@michaelxpettis

Oct 23

1/7
The NYT on US (and probably EU) over-reliance on China for the chemicals involved in manufacturing drugs. They argue that it is the combination of lower unit labor costs and a greater tolerance for environmental degradation that makes the difference.
nytimes.com/2025/10/15/hea…

2/7
If this isn't too much of an oversimplification, a rational trade policy could easily address both issues. The purpose of such a policy would not be to protect specific sectors except to the extent that they have national security implications.

3/7
It would be simply to ensure broadly balanced trade. Once trade is balanced, after all, countries cannot run surpluses to externalize the costs of their domestic policies. For example if a country chooses to become globally competitive in a particular sector, perhaps in...

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Michael Pettis

@michaelxpettis

Oct 22

1/9
Bloomberg: "There’s an upside for the entire global economy from the massive, state-led investments China has made over the years: The abundant supply of cheaper Chinese vessels has helped push down freight rates and keep cargo moving around the world."
bloomberg.com/search?query=H…

2/9
This type of incremental thinking explains why our understanding of trade has been so muddled for decades. To assume that the story stops at cheaper freight rates is to ignore almost everything important about this story.

3/9
There is a major difference to the global economy between a country that exports in order to pay for imports of other goods and one that export in order to externalize the cost of its weak domestic demand.

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Michael Pettis

@michaelxpettis

Oct 20

1/9
The FT's Tej Parikh makes a very important point here. China's industrial policies have involved among the greatest support and subsidies for technology in history, and we've clearly seen the benefits when it comes to advanced technology.
ft.com/content/b44458…

2/9
But in the roughly two decades of their implementation, not only have we not seen a corresponding rise in productivity, but in fact China's fall in productivity has been extremely steep, and has occurred at a much, much lower level of development than it had occurred...

3/9
in other economies that followed similar strategies, e.g. Japan, South Korea, Taiwan, Singapore and Hong Kong.

The point is not that China doesn't have great technology. It is that Chinese technology doesn't seem to make Chinese workers more productive.

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Michael Pettis

@michaelxpettis

Oct 20

1/9
China's GDP growth for the third quarter came in at an expected 4.8% year on year, with the first three quarters growing 5.2%. It seems China is very much in line to report GDP growth for 2025 at – or just under – the GDP growth target of 5%.
english.news.cn/20251020/f556e…

2/9
This shouldn't surprise. As I wrote earlier this year, we all know that China's GDP growth target is not a prediction. It is politically determined, and by the end of the year China will have achieved it by directing however much credit is needed.
carnegieendowment.org/posts/2025/05/…

3/9
The fact that analysts are constantly changing their China GDP growth targets over the year – and sometimes by large amounts – only shows just how different the meaning of GDP is in an economy that mostly doesn't operate under hard budget constraints versus ones that do.

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