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Michael Pettis Profile picture
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7 Feb, 4 tweets, 2 min read
1/4
The US bilateral deficit with China is down 10% since 2016, and down 26% since 2018, when the trade conflict began. This might suggest to some that Trump’s trade policies were “successful” in addressing the US trade imbalance, but in fact during...

scmp.com/news/china/art…
2/4
this time the overall American trade deficit with the world soared, as did China’s overall trade surplus.

This isn’t just an unfortunate coincidence. In a highly globalized world in which frictional costs on trade and capital flows are almost zero, bilateral imbalances...
3/4
tell us almost nothing about the sources of trade imbalances, which is why country-specific trade measures have almost no real impact beyond shifting the imbalances around. As long as...

carnegieendowment.org/chinafinancial…
4/4
distortions in income distribution in China artificially force up its savings rate, and these savings are exported directly or indirectly to the US, Chinese surpluses and American deficits had to rise. And they did.

carnegieendowment.org/chinafinancial…

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More from @michaelxpettis

Michael Pettis Profile picture
9 Feb
1/6
Chinese bank loans were up RMB 3.58 trillion in January, and total social financing was up RMB 5.17 trillion, both exceeding expectations, but because the growth in TSF seems to be slowing down, some analysts may be misinterpreting the implications.

scmp.com/economy/china-…
2/6
Major changes in the base means you must be very careful about how you compare growth rates over time, and analysts and journalists must watch the real arithmetic of China’s debt burden. While it is true that January’s TSF growth rate was lower month-on-month in 2021 than...
3/6
it was in 2020 (1.8% versus 2.0%), this occurred on a much higher base, which necessarily undermines the comparability of these two numbers. It turns out that while the growth rate of debt decelerated, the growth in the debt burden actually accelerated.
Read 6 tweets
Michael Pettis Profile picture
9 Feb
1/4
The PBoC continues to try to limit credit growth in China, in this case household debt, arguing that “there is very little room for further expansion of household debt”. It warns that the household debt ratio nearly doubled, to 62% of...

caixinglobal.com/2021-02-09/cen…
2/4
GDP, or RMB 63 trillion, between the end of 2011 and the end of 2020.

The problem is that household debt is just one locus of debt-creation needed to keep GDP growth rates high enough to satisfy political needs. If the PBoC were to restrain growth in household debt, then...
3/4
either there must be a countervailing increase in corporate and government debt, or Beijing must accept lower GDP growth rates.

This is the problem with a "technocratic" approach that identifies individual problems and seeks to address them independently of their...
Read 4 tweets
Michael Pettis Profile picture
5 Feb
1/8
Good article, although I think the argument as to whether or not GDP is a good measure of economic performance largely misses the point. Of course it isn't, but no measure can be. GDP is a proxy for certain kinds of economic activity, and not only...

ft.com/content/647345…
2/8
do we not know or agree what economic activity to include in our measure, but we're not even sure how to measure whatever we decide to include.

But as any mathematician can tell you, that doesn't make the GDP measure worthless. It can still be used comparably as long as...
3/8
the relationship between the GDP measure and whatever it is we "really" want to measure is unbiased and consistent. Last year's US GDP, for example, doesn't meaningfully measure the total value of goods and services produced last year in the...
Read 8 tweets
Michael Pettis Profile picture
4 Feb
1/5
For over 15 years Chinese regulators have implemented one reform after another aimed at taming the wildly speculative Chinese stock markets in an attempt to make them converge with more sophisticated markets in the US and Europe. I have long...

ft.com/content/b6a975…
2/5
argued that because these reforms never really addressed the structural problems in the stock markets – mainly poor-quality macro data, false financial statements, a terribly opaque corporate governance framework, suppressed interest rates, unpredictable and...
3/5
ever-changing rules of the game, political vendettas, insider activity, and other features that made it impossible for fundamental investors to project and value cashflows except at very high discount rates – none of these reforms would make a...

carnegieendowment.org/chinafinancial…
Read 5 tweets
Michael Pettis Profile picture
4 Feb
1/5
This article suggests that the reason the surge in China’s surplus isn't being matched by an equivalent rise in PBoC reserves is because there was an increase in other net capital outflows. But this is true simply by definition. The balance of...

scmp.com/economy/china-…
2/5
payments must always balance.

What really matters is what explains those other net capital outflows. There was of course a significant increase in net dollar assets among Chinese banks, which is where much of the suspicion lies, along with substantial errors and...
3/5
omissions, and the article quotes an analyst as suggesting that “Commercial banks are soaking up a lot of dollars so that they can use it for overseas lending and investments.”

That’s a little weird. It might have made sense two years ago when RMB interest rates...
Read 5 tweets
Michael Pettis Profile picture
4 Feb
1/5
Yes, you are right, Matt. In hindsight we forget how terrified the US and Europe were in the late 1950s and 1960s about what seemed like a formidable Soviet technological threat, along with a relative growth rate so high that in the early 1960s most economists expected
2/5
that the USSR would overtake the US economically and technologically during the 1980s. You have only to watch the Nixon-Khrushchev kitchen debate in 1959 to see how Soviet confidence in their technological path so exceeded US confidence.

3/5
In retrospect both sides got it so wrong that today it seems almost comical, and it is impossible to believe that the US or anyone else once took the threat seriously, but in fact an awful lot of very smart and knowledgeable people did, and a lot of long-term planning...
Read 5 tweets

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