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Michael Pettis Profile picture
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12 Oct, 4 tweets, 2 min read
1/4
A little off my normal tweets, but I’ve already made reference here to Hiperson, one of my favorite young Chinese bands who just released their-widely acclaimed second album. They were in Beijing yesterday as one of the stops of their sold-out national tour and are off...
2/4
to Changsha tomorrow, but spent most of the afternoon and early evening visiting my place where we chatted about their plans, the ambivalence they feel about the huge sudden success of the Chinese indie scene, and about social and political...

3/4
 conditions in China and the world.

It would be great if people with hardened attitudes about China and the Chinese knew about bands like this and now much they represent the uncertainly and idealism of many young Chinese. They were supposed to...

4/4
play SxSW in Austin this year, but that trip, of course, was cancelled, and now they hope to visit and tour the US as soon as they are able. No plans as of yet, but I strongly recommend checking them out when they do.

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More from @michaelxpettis

Michael Pettis Profile picture
14 Oct
1/8
This is a pretty good article about Beijing’s attempt – yet again but this time with more urgency – to rebalance demand domestically.

politico.eu/article/china-…
2/8
I think however that the article might downplay the most important point – the same one faced by every country that has had to adjust after an investment-driven growth “miracle”: while China must eventually rebalance demand away from investment and export dependence, and...
3/8
towards domestic consumption, this cannot happen except as part of a major social and political transformation.

That’s because there is no trick to rebalancing demand in China. It must shift income equal to at least 10-15% of GDP from businesses, rich people and the...
Read 8 tweets
Michael Pettis Profile picture
13 Oct
1/7
I have no idea whether or not this “all-nation effort” will eventually be successful, but even if it is, until the project begins to produce more value than it costs it will absorb an enormous net amount of real resources – perhaps 1-2% of GDP for...

ft.com/content/46edd2…
2/7
the next several years.

Those resources have to come from somewhere, either from households in the form of less consumption, from businesses and governments in the form of less investment, or from abroad in the form of a smaller trade surplus.
3/7
It would be best economically for China if the resources could come at the expense of non-productive state-sector investment (or real-estate), but because these investments are about generating employment – and I don’t think semiconductor research generates as...
Read 7 tweets
Michael Pettis Profile picture
12 Oct
1/7
China Beige Book is worried because “small and medium-sized companies are borrowing a lot less than they were in the second quarter.” I’ve been asked if this means that Chinese debt is likely to grow less quickly this year than expected.

cnb.cx/30N9Uve
2/7
No, not if we consider debt systemically, rather than in terms of linear increments. If China Beige Book is right (and I expect they are), less borrowing by SMEs to invest in expanding production doesn’t mean less debt overall. It just means a shift in the locus of debt...
3/7
creation from SMEs to the state sector—and almost certainly a worsening of the debt burden.

This is because to the extent that China has a politically determined growth target that exceeds the real underlying growth of the economy (which I would guess is negative...
Read 7 tweets
Michael Pettis Profile picture
11 Oct
1/7
Very interesting article, but I strongly disagree with the conclusions of the (interested) participants that convincing the Saudis secretly to invest their windfall oil profits into the US Treasury market somehow benefitted the US.

chicagotribune.com/business/ct-un…
2/7
This might have seemed a good thing in the gold-standard days, when there were significant balance of payments constraints on domestic US investment, but by the 1970s those constraint were gone. At any rate Saudis would have had no other option: other countries with...
3/7
large surpluses – whether oil exporters or Asian manufacturers – did the same thing as the Saudis did, which was to invest most of their surpluses in the US, without the need for William Simon’s “brilliant” diplomacy. The reason is that the US was the only...
Read 7 tweets
Michael Pettis Profile picture
11 Oct
1/4
Governor Yi Gang says that the greater monetary stimulus adopted by the US and Europe will see diminishing effects and will be hard to quit. What is more, “in the long run, it will inflate debt and asset bubbles, distort economic...

scmp.com/economy/china-…
2/4
structures, influence income distribution and increase systematic [financial] risk.”

He is probably right, especially to the extent that the main mechanism by which monetary expansion is supposed to stimulate demand in the US, Europe, etc. is by increasing asset...
3/4
prices (as opposed to directly increasing incomes at the bottom of the income scale, or funding productive infrastructure investment). However it is pretty ingenuous to think that Chinese monetary policies are not inflating debt and asset bubbles, distorting economic...
Read 4 tweets
Michael Pettis Profile picture
10 Oct
1/4
Great graph. This is why I prefer to think of current account imbalances in terms of savings imbalances. An appreciation of the EU, as Brooks points out, doesn't resolve the huge EU imbalances. It resolves the German imbalances while making the rest of the EU worse off.
2/4
One way to resolve the EU imbalances, as Brooks says, is with north-south transfers. Another way is with German-funded infrastructure investment, either in Germany or in the EU (in the latter case these would also represent north-south transfers). A further way is to...
3/4
raise German wages in line with higher German productivity. Yet another way is to fund a stronger German or EU social safety net.
Read 4 tweets

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