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Michael Pettis Profile picture
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12 Feb, 4 tweets, 1 min read
1/4
I know everyone is struggling to come up with clever Ox metaphors, but I really don't think we can describe China's economy as having exhibited "ox-like endurance". That would seem to imply that the various components of the Chinese economy have...

scmp.com/comment/opinio…
2/4
been loyally plugging away in spite of adverse conditions.

But China's reported GDP only grew last year after nearly everything Beijing wanted to expand in fact contracted sharply, forcing Beijing to expand substantially everything it wanted to contract. If it wanted to...
3/4
contract that activity, it must be because it believes that this activity does not add value to the economy, or else why would it want to cut back? The ox, in other words, stopped plowing the field and chose instead to stay busy by digging a ditch that no one needed.
4/4
The inevitable corollary was the biggest increase in debt in Chinese history. This doesn't strike me as "in keeping with the creature’s fabled characteristics."

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More from @michaelxpettis

Michael Pettis Profile picture
13 Feb
1/5
Interesting and important piece by @BrankoMilan on the structure of inequality in China. I would add that there are two different but related kinds of "inequality" in China that must form part of any adjustment process. There is of course the...

foreignaffairs.com/articles/china…
2/5
highly-distorted distribution of income within the household sector in favor of the political elite (on which this article focuses), but there is also the highly-distorted distribution of income between the household sector and the non-household sectors.
3/5
In China, the household share of GDP is in rough parity with the share of non-households (businesses and governments), whereas in a more "normal" economy households retain 2-3 times the share of GDP. I would argue this distortion may be politically harder to resolve...
Read 5 tweets
Michael Pettis Profile picture
11 Feb
1/4
Interesting article. "Of the 20 most commonly used apps in China — ranging from photo editing to file sharing, from maps to streaming platforms — all have some kind of in-app loan services."

Nearly every modern bubble economy was characterized...

protocol.com/china/chinese-…
2/4
in part by an explosion in new – and so unregulated – forms of lending. Beijing is trying to regulate this app-based from of micro-lending, but this only helps if the new forms of lending are unnecessary froth on the structure of the economy and so can be suppressed.
3/4
The problem, I would argue, is that in retrospect it usually, or even always, turns out that the structure of the bubble economy had evolved to the point where the rapid extension of credit was fundamental to its growth. If that is the case in China (and I think...
Read 4 tweets
Michael Pettis Profile picture
10 Feb
1/5
One quibble. In spite of having terrible debt dynamics, I've always thought that China was unlikely to have a financial crisis because financial crises are caused by the sudden unravelling of balance-sheet mismatches. In China’s closed banking...

scmp.com/economy/china-…
2/5
 system, liabilities are easily restructured by the authorities, and so mismatches on paper are not mismatches in reality. But too many economists – who really should know better – simply assume that “excessive” debt matters only to the extent that it might lead to crisis.
3/5
This is not just wrong, it is circular. In fact both finance theory and most of the historical evidence suggests that over the medium and long term, countries with excessively-high debt levels that don’t suffer financial crises often sharply underperform those that do.
Read 5 tweets
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
7 Feb
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…
Read 4 tweets

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