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Michael Pettis Profile picture
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18 Feb, 4 tweets, 2 min read
1/3
While I am as skeptical as the USCC about the economic benefits of "decoupling", I am so skeptical about the value of these studies that I consider them almost useless. To treat the overall trade relationship between the US and China as the...

wsj.com/articles/decou…
2/3
sum of linear increments is nonsense. The real impact can only be meaningfully determined over the whole system, even if this is very hard to measure.

I'd add that the methodology used here is implicitly ideological because it must always...

carnegieendowment.org/chinafinancial…
3/3
prove the same thing, that every trade intervention leads to more unemployment and slower growth, regardless of the intervention or of what the historical precedents tell us.
For those interested in the full report, here it is:

uschamber.com/report/underst…

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More from @michaelxpettis

Michael Pettis Profile picture
18 Feb
1/5
I wonder if they've thought through the systemic implications. Given China's disproportionate share of demand (50% or more of global production of major industrial metals, for example), to predict a new supercycle of rising commodity prices...

ft.com/content/d3c439…
2/5
is effectively the same as predicting that China will run another decade or two of 4-6% GDP growth, driven mainly by surging infrastructure and real-estate investment. This in turn implies that China's debt-to-GDP ratio will rise from 280% today to at least 400-450%.
3/5
This strikes me as pretty unlikely. For those who might argue that "all it would take" is for India to begin to replicate China's growth story of the past four decades, it would take at least 15-20 years of replicating China before India were big enough to...
Read 5 tweets
Michael Pettis Profile picture
18 Feb
1/5
 James Crabtree makes an important point here: economic nationalism isn't consistent with global leadership. Boosting the US economy and raising American productivity and wages requires a very different – and generally inconsistent – set of policies...

foreignpolicy.com/2021/02/16/bid…
2/5
from reviving its alliance and strengthening its global leadership role. In fact in many cases the policies are almost reversed.

Some argue that the US has no choice but to do the latter because of competition with China, but this gets it wrong. China’s geopolitical...
3/5
expansion has mostly been a function of its economic nationalism, and not part of a trade-off. The two countries are playing very different games.

In the long run, I would argue that it is the strength, size and flexibility of the domestic economy that matters most...
Read 5 tweets
Michael Pettis Profile picture
16 Feb
1/5
It requires aggressive industrial policy by Beijing to get Washington to recognize the potential value of industrial policy, but this, says the article, is "deemed less ideologically aligned with American values."

Of course this is only true to...

scmp.com/news/china/art…
2/5
people who know almost nothing about American economic history. Even in the conservative 1920s, for example, the US Post Office heavily subsidized the US air industry to help it pull ahead that of Europe. In fact long before American economic policymaking became...
3/5
dominated by finance, it had been involved a wide range of industrial, agricultural, transportation and trade policies, with the major disagreement being whether decision-making belonged at the federal or state level. What is more, Friedrich List's groundbreaking book on...
Read 5 tweets
Michael Pettis Profile picture
15 Feb
1/4
I agree that we will see a wave of outbound Chinese investment this year and next, mainly because after the huge outflows of 2014-16, Beijing had put into place policies aimed at driving up net inflows and, as it often does, it went too far.

scmp.com/economy/china-…
2/4
Because China is now suffering the monetary consequences of massive net inflows, Beijing must now partially reverse these earlier policies and try to reduce net outflows, in part by encouraging financial outflows. But it is very hard to get speculative markets to stabilize.
3/4
The combination of large foreign inflows and rising Chinese outflows will almost certainly lead to more fragile domestic balance sheets, in which case within 2-4 years I expect net outflows will once again become a problem. Anyone with much experience in the financial...
Read 4 tweets
Michael Pettis Profile picture
14 Feb
1/4
While the NDRC and the politicos continue to support more infrastructure expansion, there have been more warnings about debt from policy advisors, with a government-linked think tank noting recently that “Infrastructure investment for the whole...

scmp.com/economy/china-…
2/4
year of 2020 increased by 3.41 percentage points more than the growth rate of nominal GDP, but its stimulus effect was limited compared to the scale of debt expansion."

We will see a partial (temporary) reversal this year, but it seems almost impossible to break...
3/4
the relationship in which GDP growth requires faster growth in FAI, which in turn requires faster growth in debt. This can go on for a long time, but it obviously isn't sustainable, and the longer it goes on, the more difficult the adjustment.
Read 4 tweets
Michael Pettis Profile picture
14 Feb
1/9
While debt-to-GDP ratios already have a limited but very misunderstood use, it seems economists are finding bright new ways of misunderstanding them. Now we say that when nominal interest rates are lower than nominal growth rates, the resulting...

economist.com/finance-and-ec…
2/9
downward pressure on the debt-to-GDP ratio makes rising government debt and larger government deficits more sustainable and more easily justified.

This is totally confused. When the nominal interest rate is lower than the nominal GDP growth rate, it only means that net...
3/9
borrowers are getting a disproportionate share of growth relative to net lenders. This in and of itself changes the comparability of the debt-to-GDP ratio, so the fact that the ratio may decline tells us nothing about its sustainability which, I'm glad to say, isn't...
Read 9 tweets

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