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Michael Pettis

@michaelxpettis

9 Nov

1/7

Because RMB is a managed currency, whether or not it rises depends on the PBoC, but if rising expectations cause significant continued inflow into RMB, there are basically three ways, or some combination, in which the PBoC can react.

ft.com/content/b9991e…

2/7

First, it can allow RMB to rise, which would be good for Chinese rebalancing but bad for China’s manufacturers. It would mean slower growth, but there are very few ways in which rebalancing does not lead to slower growth.

3/7

Second, the PBoC can intervene directly to prevent RMB from rising, in which case we will see domestic monetary expansion and probably more debt and more asset price increases. This would lead in the short term to faster GDP growth, but it would worsen the imbalances...

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Michael Pettis

@michaelxpettis

7 Nov

1/9

Of course regulators worry about Ant's disruptive potential. Its overwhelming success had less to do with its technological innovation and more to do with the fact that a lightly regulated entity will always outperform its highly regulated rivals.

scmp.com/business/banki…

2/9

Ma thought that his backdoor deregulation – which he called “disruption” – was a good thing, but while it might at first seem like China would benefit economically from the replacement of its neolithic banking sector with a swifter, more flexible financing and savings...

3/9

system, in fact an inefficient, financially repressed and highly controlled banking system has always been at the heart of the Chinese growth model. It is the existing banking system that is responsible for much of the past growth in excess economic activity.

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Michael Pettis

@michaelxpettis

5 Nov

1/8

Too many people focus on the Washington-Beijing circus as if it were the only show in town, but while it is true that the US-China relationship will probably deteriorate no matter who the president is, this, as I discussed in my 2013 book, is...

scmp.com/news/china/dip…

2/8

only part of the story. It has to be seen more generally within the context of the bigger "deglobalization" story, in which anti-foreign and anti-immigrant feelings, along with geopolitical tensions, are rising everywhere.

3/8

It is this bigger story that explains why the US has turned against countries in Asia and Europe that could have been allies against China, why everyone in Europe hates everyone else, and why anti-immigration policies everywhere are such vote getters.

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Michael Pettis

@michaelxpettis

5 Nov

1/4

Many analysts are arguing that the surprise suspension of the Ant IPO was mainly, or at least partly, the consequence of Jack Ma’s angry speech two weeks earlier, but my understanding is that his speech was itself a response to regulatory...

ft.com/content/3d2f17…

2/4

concerns that were already being widely discussed.

If true, perhaps the IPO should've been withdrawn much earlier by Ant and its bankers, pending clarification of the new regulations. It may be that regulators were not the only ones to have handled this whole thing badly.

3/4

By the way this article explains that had the IPO occurred, Ant would have become overnight the most valuable bank in the world, which is ironic because the IPO was very pointedly organized not as a bank IPO but rather as a tech IPO.

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Michael Pettis

@michaelxpettis

5 Nov

1/4

Given how good Chinese infrastructure is, and how much it has over-invested in infrastructure in the past 5-10 years, it might at first seem surprising that fixed-asset investment in the transport sector nonetheless grew by 9.8% year on year in...

xinhuanet.com/english/2020-1…

2/4

the first three quarters of 2020, but infrastructure spending in China is less about increasing economic efficiency and more about generating economic activity and subsidizing manufacturing. In that case the resulting increase in debt will have exceeded the...

3/4

resulting increase in the country's ability to produce goods and services.

Or to put it differently, debt will have risen faster than real debt-servicing capacity, which means that ultimately the debt must be serviced through real transfers from some sector of the economy.

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Michael Pettis

@michaelxpettis

2 Nov

1/5

Good article, in which Gavyn Davies is right to argue that government debt limits in the US are probably pretty far off, although I disagree that government debt sustainability is increased when interest rates are below the GDP growth rate.

ft.com/content/aa63c3…

2/5

This is a systemic fallacy. Low real interest rates are just another way to service the debt through real transfers, no different than inflation or taxes.

I think the problem with much of the discussion about whether or not Washington should run larger deficits is that...

3/5

it ignores the purpose of these deficits. As long as the fiscal deficit is used to fund productive infrastructure investment, or is used to prevent a larger contraction in GDP, or funds income redistribution that incentivizes further business investment by boosting...

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