Share this page!

Michael Pettis Profile picture
Twitter logo
28 Oct, 5 tweets, 1 min read
1/5
The PBoC yesterday asked banks to suspend the counter-cyclical factor in yuan fixing, which was introduced in 2017 as a way to limit further depreciation. This initially caused the offshore markets to weaken.

en.people.cn/n3/2020/1028/c…
2/5
Three weeks ago the PBoC announced it would reduce to zero the reserve requirement ratio, established in 2018, for financial institutions conducting foreign exchange forward trading. This was also established to limit depreciation in the RMB, and the announcement caused...
3/5
the currency again to weaken. There were also reports last week that SAFE would be issuing new quotas under QDII and other outbound investment schemes to allow greater outflows.
4/5
The standard explanation for all these moves is that the PBoC wants to see more flexible financial markets and a more market-determined exchange rate. An alternative explanation, given that all the moves are in one direction (and that other Chinese financial institutions...
5/5
have been scooping up dollars even though this means running a negative carry), is that Beijing may be concerned about recent strength in the RMB.

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Michael Pettis

Michael Pettis Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @michaelxpettis

Michael Pettis Profile picture
29 Oct
1/7
Good article by Janan Ganesh, but while I agree that governance is what democracies are supposed to do best, I would also argue that democracies, as Churchill is supposed to have said about the US, do end up usually doing the right thing, but...

ft.com/content/92ec21…
2/7
only after having tried out the alternatives. While non-democracies often go to their graves sticking rigidly to their institutions, healthy democracies are pragmatic and flexible, trying first one thing and, when that fails, trying something else.
3/7
This adjustment process may seem uglier and more dispiriting than the steadfastness of countries that don’t adjust as quickly, but for that reason, ironically, it most undermines the credibility of democracies just as they are proving their greatest worth.
Read 7 tweets
Michael Pettis Profile picture
29 Oct
1/7
It’s pretty well-known that while the balance sheets of China’s biggest banks, which account for just under 50% of total lending, combine questionable assets with cheap and stable funding, most of the other, smaller banks in China have...

bloomberg.com/opinion/articl…
2/7
terrible assets and very risky funding. This Bloomberg article does a very good job of explaining just how bad these can be, and how difficult it is for the regulators to solve a problem that has been festering for well over a decade.
3/7
Among other things the article points out that Chinese regulators lack a coherent strategy for dealing with the banks, and as a result have resorted to a crazy patchwork of one-off solutions for each of the at-least five banks that have been intervened since Baoshang, in...
Read 7 tweets
Michael Pettis Profile picture
26 Oct
1/8
While straight-line projections may be inviting, they are really questionable even in the best of circumstances. Bloomberg says that if China’s economy can stick to the growth trajectory of recent years, it’ll surpass the U.S. within the next decade.
2/8
This is true if it is just a statement about arithmetic. For China’s GDP to match that of the US in ten years requires that Chinese GDP grow annually by roughly 3.4 percentage points more than the US. In the past five years, China grew by 4.3 percentage points faster.
3/8
Can China grow by 3.4 percentage points faster over the next ten years? Perhaps, but at the rate Chinese growth has been slowing, that would be pretty extraordinary – and historically unprecedented: no investment-driven “miracle” economy in history has been able to avoid...
Read 8 tweets
Michael Pettis Profile picture
25 Oct
1/4
While I've always expected that after 2020 Beijing would target growth rates between 5% and 6%, there is simply no way that sustainable consumption, exports and productive private investment can contribute enough growth to get even halfway there.

scmp.com/economy/china-…
2/4
This means that the only way to achieve these levels of growth will require a further expansion of the share of public-sector investment and real-estate development in the economy, and, with it, continued rapid growth in China's debt burden.
3/4
I estimate that if China's reported GDP continues to grow by 5-6% a year over the next three years, the official debt-to-GDP ratio will climb from 254% at the end of 2019 to at least 360-390% of GDP by the end of 2023. We don't know where debt capacity limits lie, but we...
Read 4 tweets
Michael Pettis Profile picture
22 Oct
1/8
Although I sympathize with Stephen King’s frustration at some of the sillier things proposed in the name of MMT, I think it is deceptive to suggest that government borrowing today represents “borrowing from our collective economic futures”.

ft.com/content/bcb523…
2/8
The fact is that everything we produce today will be consumed or invested by ourselves today, and, likewise, everything we produce in the future will be consumed or invested by ourselves in the future. Borrowing does not increase consumption today at the expense of future...
3/8
consumption. Instead it transfers spending power today from one group to another and then transfers it again in the future as the debt is repaid (although not necessarily from the former to the latter, as taxes and inflation can change the relationship between money...
Read 8 tweets
Michael Pettis Profile picture
21 Oct
1/9
A lot of analysts seem to be arguing that the trade surpluses of certain countries have surged because those countries recovered early from Covid-19, and so are the only economies that can benefit from continued global demand. This way of thinking treats exports as...
2/9
linear increments rather than as part of an economic system.

If their early recoveries from Covid-19 do indeed explain surging exports, in a well-functioning trading system these surging exports should in turn cause domestic shifts that also cause other...
3/9
kinds of imports to rise (or other exports to drop). For example more exports overall should mean that more workers get paid, their consumption rise, and through various multipliers their imports should also rise. But in many of these countries we haven’t seen an...
Read 9 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get email notifications when new thread is out from this Author!

Check out other threads from this Author!

Read all threads by @michaelxpettis