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Michael Pettis Profile picture
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9 Mar, 5 tweets, 1 min read
1/5
The "national team" may be intervening to stabilize Chinese stock markets which, as of this posting, are up roughly 1.4% on the day. Although I don't think there is anything wrong with counter-cyclical behavior when speculative markets are soaring...

bloomberg.com/news/articles/…
2/5
or crashing, this does indicate one of the major difficulties Beijing faces when it tries to rein in debt or stabilize housing prices: policymakers have almost no tolerance for rapid price declines.

If you believe, as I do, that debt in China must surge and real-estate...
3/5
prices rise for structural reasons, there is little Beijing can do to address these problems that won't automatically result in rapidly-slowing GDP growth or falling real-estate prices. For all the promises of the past decade, and no matter how urgent they have recently...
4/5
become, if Beijing cannot tolerate the consequences, there is very little they can do beyond wishful thinking to resolve the problem. This means that we will continue to see measures aimed at slowing credit growth or stabilizing real-estate prices, but these will...
5/5
be followed quickly by a relaxation of those measures as soon as they begin to bite.

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More from @michaelxpettis

Michael Pettis Profile picture
10 Mar
1/4
This prominently-placed Xinhua article about steps to promote "dual circulation" is fairly revealing. Except for a couple of abstract promises to expand consumption, without explaining how, each of the more concrete proposals involves increasing...

xinhuanet.com/english/2021-0…
2/4
production efficiency, subsidizing production costs, or substituting foreign imports, and then suggesting that more production will lead automatically to more consumption.

It might, but of course rebalancing doesn't mean more consumption; it means having domestic...
3/4
consumption absorb a larger share of total production so that China can reduce its dependence on non-productive investment and trade surpluses for growth. Until Beijing puts into place concrete policies that increase the GDP share retained by ordinary...
Read 4 tweets
Michael Pettis Profile picture
10 Mar
1/6
The seeming paradox that stronger-than-expected economic growth in the US can actually undermine growth in developing countries by setting off capital outflows is further evidence, if more were needed, that unfettered capital damages the global...

wsj.com/articles/u-s-g…
2/6
economy. The widespread assumption that global productivity actually benefits from the free flow of capital implicitly assumes that, in the aggregate, investors mostly try to take advantage of productive growth opportunities and, by doing so, reinforce that growth.
3/6
But it's been decades since anyone (except the occasional economist) pretends that this is indeed the way the world works. International capital doesn't flow towards productive investment opportunities. It mostly flows to take advantage of expectations of short-term...
Read 6 tweets
Michael Pettis Profile picture
8 Mar
1/4
No country in history has ever been able to choose its long-term economic growth rate. The fact that China – like several countries before it, by the way, before they were forced into "unexpectedly" difficult adjustments – was able to target high...

scmp.com/economy/global…
2/4
GDP growth rates for many years, and plans to continue doing so for another 15 years, must mean either that the Chinese economy and its economic institutions are manipulable in a way that is almost incomprehensible, or that GDP growth simply doesn't mean in China's case...
3/4
what we think it means. It is astonishing to me that most analysts continue to opt for the former, and work on the basis that China's GDP growth rate is somehow comparable to GDP growth rates of other countries. Fortunately Beijing seems to be getting increasingly...
Read 4 tweets
Michael Pettis Profile picture
7 Mar
1/4
Yet again Beijing promises to try to get a grip on real estate prices, this time by making more land available to developers. I suspect however that for all their worry, they are not yet willing to take the necessary steps to stop the bubble.

scmp.com/business/china…
2/4
The reason I continue to be skeptical is because it has been a long time since real-estate markets in China were responding mainly to fundamentals. We have been firmly in the world of real-estate speculation for well over a decade, and few economists seem to understand...
3/4
that the dynamics of a speculative market are very different. In a speculative market it is expectations of rising prices that drive demand, in which case there is almost nothing Beijing can do to stabilize prices, let alone have them gently glide downwards. Prices must...
Read 4 tweets
Michael Pettis Profile picture
7 Mar
1/5
I've long argued that the two most important steps Beijing can take to rebalance demand in China are to eliminate the hukou system and to provide cheap, low-income housing to the poor. To the extent that, as part of the next 5-year plan, revamping...

scmp.com/news/china/pol…
2/5
the hukou system is serious, it is very good news.

It won’t be easy, however. Eliminating the hukou system is only meaningful to the extent that it involves a massive income transfer from local governments to migrant workers. The thing to remember is that for many...
3/5
decades, municipalities benefitted enormously from the huge contributions migrant workers made to their economies versus the very little they returned to migrant workers. This huge "subsidy" provided by migrant workers allowed them to spend enormously on infrastructure...
Read 5 tweets
Michael Pettis Profile picture
5 Mar
1/12

Li Keqiang just announced that China’s GDP growth target – surprising most analysts, who did not expect China to set one this year – would be set “above 6%” in 2021. Most analysts were expecting growth this year to be between 8% and 10%, while...

scmp.com/economy/china-…
2/12

the more conservative IMF on January revised down its 2021 forecast from 8.2% to 7.9%. This target consequently should come as a shock to most analysts and journalists.

But I have been arguing pretty consistently since December that these forecasts were likely...
3/12

to be wrong for the same reason that forecasts of negative growth in 2020 were so wrong. I expected growth to be 6-7% this year. Why? Because we have to see fixed-asset investment in infrastructure and real-estate development as the residual Beijing uses to meet...
Read 12 tweets

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