1/4
This strikes me mostly as an ideological string of empty cliches that doesn't really mean much one way or the other, although proposing that government spending must be bad because China does it is an argument even a high-school debater would probably avoid.
2/4
For one thing, we were doing it long before they were, and very successfully. He is also just flat out wrong in claiming that government support for scientific and technological research necessarily crowds out private-sector support.
3/4
This may have been true in some limited cases, but it has more often been the case that it has spurred rather than repressed a private-sector response, and some of the private sector's greatest successes in research and development — the internet, computers, airplanes, jet...
4/4
engines, agricultural productivity, etc. — were in fact built on the back of government-based advances.

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More from @michaelxpettis

8 Jun
1/4
Unlike many analysts who thought the 17+1 grouping was a major geopolitical initiative, I've always wondered what its point was beyond political showboating. In today's world of excess savings and weak demand, finding capital to fund profitable...

scmp.com/news/china/dip…
2/4
investments wasn't likely to be a major problem, in which case the "investment" these countries wanted from China was likely to be non-economic and something China — or anyone else — would be reluctant to provide.

Policymakers act as if we were still in the 1950s, when...
3/4
a major impediment to development is scarce capital. But capital isn't scarce and hasn't been for decades, which is why so many of these bilateral (e.g. the UK) and multilateral deals that promise cross-border investment have been so disappointing (and unnecessary).
Read 4 tweets
23 May
1/4
The RMB was up 4% against the CFETS index in the past year. Regulators are considering allowing the RMB to strengthen further in order to reduce the inflationary pressure of imported commodities, but if they do, as some have already...

bloomberg.com/news/articles/…
2/4
warned, we’re likely to see further financial inflows, which will in turn worsen domestic asset bubbles and increase the potential for financial instability. What’s more, a higher RMB could weaken exports, and while this might be partially balanced by stronger...
3/4
consumption, the net impact must be either slower GDP growth or more property/infrastructure investment, and hence a worsening debt burden.

My best guess is that we’ll see a stronger RMB and more debt. Earlier this year I argued that China could manage 6-7% GDP growth...
Read 4 tweets
21 May
1/4
"While the state-owned financial firm’s longer-term bonds are sinking toward record lows amid expectations investors will be forced to take on losses as part of an overhaul, notes maturing over the next few months trade at much higher levels.

bloomberg.com/news/articles/…
2/4
That suggests bondholders remain confident the company will continue to repay its debts on time and any restructuring is a way off."

That's an interesting development, but except for the perpetuals, which are seen as a kind of equity, I wouldn't expect the regulators to...
3/4
decide to pay off short-term bonds at the expense of longer-term bonds. If they have decided that Huarong must restructure, it wouldn't seem to make much sense for to allow it to use its limited resources in that way. That just means rewarding one group of bondholders for...
Read 4 tweets
21 May
1/7
Chinese regulators are putting ever more pressure on property developers to constrain the debt needed to fund their activity. Why? it must be because they don't think this activity contributes to real growth in the...

bloomberg.com/news/articles/…
2/7
economy, even though it is a major contributor to reported GDP. As the article points out, "real estate contributes to about 29% of China’s economic output if its wider influences are factored in, according to a joint research by Harvard University and Tsinghua University".
3/7
This is the part that I think most analysts still fail to grasp. After all these years they treat this activity as if it continued to be as economically valuable in China as it had been two decades ago, and as it would be in other countries, and yet Beijing clearly isn't...
Read 16 tweets
19 May
1/7
A PBoC director acknowledged last month what people like me have been pointing out for years (in my case well over a decade): that an internationalized RMB is incompatible with control over China’s domestic monetary and financial systems, and hence...

bloomberg.com/news/articles/…
2/7
with financial stability, which is why for all the overexcited talk about its inexorable rise as one of the world’s dominant currencies, it simply wasn’t going to happen: “We need to admit that under the condition of yuan internationalization, we won’t be able to control...
3/7
the exchange rate, and China’s central bank has to let go of exchange-rate goals in the end,” he said, which is at least a little surprising – and perhaps a little revealing – given that the PBoC officially hasn’t intervened since 2017.
Read 7 tweets
18 May
1/9
Very good article by Alexandra Stevenson (@jotted), @KeithBradsher and @caocli on the conundrum Beijing faces with Huarong. Huarong is a balance-sheet mess, and this has been widely known for many years, so it was never really a surprise that it...

nytimes.com/2021/05/18/bus…
2/9
would eventually run into payment difficulties. In the past, however, because MoF owns over 60% of Huarong, Chinese banks and bond investors always refinanced the company's debt on the assumption that the government would support its credit.
3/9
In recent years however the regulators – extremely worried by China's weak lending discipline, and eager to bring the country's debt burden under control – have been trying to convince creditors that they could no longer count...
Read 10 tweets

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