1/4

It’s a little absurd that we're still discussing “the belief that government can drive growth” as if it were a matter of religion, which we must either accept on faith, or deny. While there certainly are legitimate discussions we can have about...

wsj.com/articles/behin…
2/4

the kinds of social and political institutions we want – for example the tradeoff between government efficiency and constraints on government power – there can be no question at all that government intervention can indeed promote growth, sometimes spectacularly, just as...
3/4

it can hamper growth, depending on the underlying conditions and the specific policies. Anyone who cannot easily point to cases of either knows next to nothing about economic history. To object to government intervention, as Kevin Hassett seems to in this article, on...
4/4

the grounds that “the laws of economics can’t be repealed,” is about as intelligent as objecting because “what goes up must come down”, or because “a stitch in time saves nine”: it is meaningless.

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More from @michaelxpettis

1 Apr
1/8

This article has been pretty widely circulated, which is why I want to point out why I disagree with it. It complains that by creating demand for commodities, China’s investment binge is making Joe Biden's infrastructure investment program more...

bloomberg.com/news/articles/…
2/8

expensive, and that, to make matters worse, Beijing has been very cleverly racing ahead of the US by stocking up on commodities last year when it didn't yet need them.

But aside from the fact that China’s investment binge is no more making Joe Biden's stimulus more ...
3/8

expensive than Joe Biden's stimulus is making China's investment binge more expensive, it isn't really true. In fact Chinese investment surged last year, accounting for nearly 200% of the country's GDP growth. This is the main reason China bought large amounts of...
Read 8 tweets
1 Apr
1/5

"He added the trade tensions are long-standing and they will continue to exist as China’s economy becomes increasingly competitive across every part of the value chain."

This suggests substantial confusion over basic trade dynamics. Trade tensions...
scmp.com/economy/china-…
2/5

are not caused by economies becoming more productive, because in that case their export success is rewarded with rising imports.

Trade tensions are caused by economies that achieve "competitiveness" by keeping wages, relative to productivity, lower than that of their...
3/5

trade partners. It is only because of lower relative wages that surplus countries cannot convert export success into imports, and instead convert them into persistent trade surpluses.

Countries like Germany, Japan, China, etc. don't run persistent surpluses because...
Read 5 tweets
1 Apr
1/3

Last year China reported its first financial account deficit in four years, which I assume was driven mainly by a very counterintuitive (to put it politely) surge in the net dollar position of large banks. This has led inexorably to huge losses...

caixinglobal.com/2021-03-31/chi…
2/4

both from the negative carry and on the currency position, but the banks seem not only willing to take the losses but even to increase their positions.

While the yuan has been quite stable against the CFETs basket during the past four years, technically the PBoC has not...
3/4

intervened at all, but then thanks to the intervention of these big banks, which (coincidence?) has risen and fallen in lockstep with the net inflow every year for the past four years, there was no need for it to do so.
Read 4 tweets
30 Mar
1/4

Beijing is worried enough about the net economic benefits of extending HSR that it is trying to prevent projects that give short-term boosts to local economies while worsening their debt burdens — something, I'd argue, that has been an issue for...

caixinglobal.com/2021-03-30/chi…
2/4

many years. Because an investment can only worsen the debt burden if its total cost exceeds its total economic benefits, it is clear that what worries Beijing is the HSR equivalent of "bridges to nowhere".

There has been an active debate for many years about whether...
3/4

or not China's huge HSR network is economically justified. While some might argue that this Caixin article indicates only that Beijing wants to ensure that the problem doesn't arise in the future, Chinese precedents (and those of most other countries following a similar...
Read 4 tweets
30 Mar
1/7

The lesson here was always more about ordinary incompetence than debt-trap diplomacy. One of the big problems with development-country lending — and especially from inexperienced lenders — is how dangerously pro-cyclical it always is.

ft.com/content/36f5f0…
2/7

Another problem is how easy it has always seemed to countries that are first "going out" into development lending — e.g. the US in the 1920s, the USSR in the 1950s, OPEC in the 1970s, Japan in the 1980s, China in the 2000s, etc.
3/7

In the early stages of the lending, when underlying conditions were good and commodity prices rising, Chinese investors, like all of their predecessors, thought they had discovered a new, better way to invest in riskier countries — with foreign observers worriedly...
Read 7 tweets
29 Mar
1/5

SASAC wants to keep the debts of local SOEs from spiraling out of control, by helping them deleverage when debt levels get too high "through measures such as restricting new investment, introducing strategic investors or converting debt into equity."

caixinglobal.com/2021-03-29/chi…
2/5

This, however, is based on a pretty fundamental misunderstanding of China's debt dynamics. Soaring debt isn't caused by careless borrowing on the part of a few undisciplined borrowers. It is a systemic problem caused by the setting of GDP growth targets that exceed the...
3/5

real underlying growth rate of the economy. As long as this continues, debt must rise faster than GDP (which will rise faster than the real economy), in which case the best regulators can do is to allocate the soaring debt burden from one sector of the economy to another.
Read 5 tweets

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