1/7 Very interesting article. A series of Chinese studies may be discovering something about the high-speed rail system that France had already learned: rather than boost the economies of secondary cities, being connected...
2/7 to the HSR may actually reduce economic activity and encourage a brain drain. Even patent applications in secondary cities have dropped significantly, according to one study, after the city was connected to a high-speed line.
3/7 If this is true, it undermines the claim that even if much of the HSR is not economically viable today, it will generate enough growth in the less economically advanced areas to become viable in the future. The value of HSR is more likely to decline than to increase.
4/7 This reinforces a point I have made many times before, including in the linked essay. The idea that concentrating investment in poorer regions will drive economic convergence is based on a confusion about what drives growth.
5/7 Poorer regions are usually poorer because their social, economic, legal, and cultural institutions prevent businesses and workers from being able to absorb high levels of capital productively.
6/7 In that case more investment only generates sustainable growth when these regions are relatively underinvested, and this doesn't mean relative to more advanced regions but rather relative to their own specific institutional capacity (what I call the Hirschman level).
7/7 Once each region has as much investment as it can productively absorb — and in China most regions reached that point well over a decade ago — more investment doesn't help. What it needs is more institutional reform.
1/4 The point of this thread is not to suggest that investment in HSR, or capital deepening more generally, is economically a bad idea. It is in fact often a very good idea – for example infrastructure investment in China in the 1990s, or in the US today – but we should ...
2/4 understand both the conditions under which it can accelerate economic development and those under which further economic development will not occur without the right institutional reforms, in which case further capital deepening can actually reduce future growth.
3/4 As a corollary, the longer an investment-driven growth model has proven successful, the more politically entrenched it is likely to become – that is certainly what the historical precedents suggest – but in fact the less successful it is likely to be...
4/4 in the future as it closes the gap between actual investment and the amount of investment the region can productively absorb.
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1/14
Barry Eichengreen warns, correctly, that "The dollar’s international primacy isn’t eternal. To be sustained, it has to be actively fostered and preserved."
But why sustain the dollar’s international primacy? Is this merely a modern monetary fetish? wsj.com/finance/curren…
2/14
While the primacy of the dollar is certainly good for bankers, financiers, and very wealthy owners of movable capital, what's much less obvious is the extent to which it benefits or harms American workers, manufacturers and middle class households.
3/14
Some analysts will argue that being able to transact in dollars benefits American exporters and importers by reducing currency hedging costs, but the more honest ones will acknowledge that the benefits are tiny, at best, and that their lack doesn't seem to hamper rivals.
1/10
Interesting new IMF paper on the extent of industrial policy subsidies to Chinese manufacturers and SOEs (to the extent information is available) and their impact on productivity. imf.org/en/Publication…
2/10
It measures national-level cash subsidies, tax benefits, subsidized credit, and subsidized land, which collectively amount, it says, to a high 4% of GDP. The authors note that other subsidies exist, including sub-national subsidies, but these are harder to measure.
3/10
I'd include in the latter what is perhaps among the biggest subsidies, which is over-spending on logistical infrastructure. To the extent that these cost more in resources than they create in economic value, they represent a large transfer to the users of the infrastructure.
1/5 Is the expansion in robotaxis driven by the needs of the economy or by policy decisions? This is not a topic on which I have much information or knowledge, but last week I told a Chinese friend of mine (a well-known economist) that I had heard that as many as 30% of the...
2/5 cars in Beijing streets were Didi drivers (China's Uber). This struck me as an incredibly high number.
He told me that he thought in fact 30% might actually be a low estimate. He also told me that he believed Didi drivers aren't able to get more than one fare an hour.
3/5 Whatever the real numbers are, no one seems to doubt that driving Didi or delivering packages has become the job of last resort for a worryingly high number of urban dwellers. If that's the case, it's not clear how improvements in the productivity of taxis or of...
1/7 Although August CPI deflation widened year on year to -0.4%, compared to 0.0% in July and well above expectations of -0.2%, leading many analysts to worry that deflation in China is accelerating, I think prices actually did fine. en.people.cn/n3/2025/0910/c…
2/7 CPI was driven down mostly by a 4.3% decline in food prices, with core inflation up 0.9%, its sixth straight month of higher year-on-year prices. More importantly, in my opinion, month-on-month CPI prices were flat in August, after rising 0.4% in July.
3/7 The fight against “involution” may be responsible for at least part of the deceleration in deflation in the past two months, although if this is the case, it leaves open the question of how long Beijing can keep deflation at bay.
1/7 NYT: "Through August, China exported $141 billion to Africa, while importing $81 billion. The widening trade imbalance with Africa stems from surging exports of Chinese-made batteries, solar panels, electric vehicles and industrial equipment." nytimes.com/2025/09/08/bus…
2/7 "The swell in exports to Africa," it continues, "along with record volumes of goods sold to Southeast Asia and Latin America, underscores the resilience of Chinese manufacturers in finding new markets for the products they continue to churn out in enormous quantities."
3/7 Meanwhile, as Chinese trade surpluses surge, so do American trade deficits. This is not mainly because of transshipments, as many assume. It is because countries with expanding trade surpluses with the US use their higher revenues to fund deficits with the rest of the world.
1/7 For all the talk of rebalancing domestic demand in China, Chinese exports continue to climb much faster than imports in 2025. In the first seven months of 2025, exports were up 6.9% in RMB terms, while imports were up 1.2%. english.news.cn/20250908/e41cd…
2/7 For just the month of August, exports were up 4.4% year on year to $321.8 billion while imports were up 1.3% to $219.5 billion, leaving China with a trade surplus of $102.3 billion, its fifth trade surplus this month of over $100 billion, with five out of...
3/7 its nine monthly trade surpluses in excess of $100 billion having occurred in 2025. Year to date, China’s trade surplus is $787.5 billion, a whopping 29% increase over the same period last year.