Michael Pettis Profile picture
Oct 10, 2021 11 tweets 3 min read Read on X
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...

scmp.com/news/china/sci… via @SCMPNews
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.

carnegieendowment.org/chinafinancial…
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.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Michael Pettis

Michael Pettis Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @michaelxpettis

Oct 15
1/9
WSJ: "According to the people close to Beijing’s decision-making process, Xi’s hard-line strategy is based on the belief that Trump will ultimately fold and offer concessions rather than deploy Washington’s own significant leverage."
via @WSJwsj.com/world/china/ch…
2/9
If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."
3/9
But if you were to rewrite the sentence as: "With hiring slowing, domestic demand stagnant and prices declining, many economists say China isn’t positioned to absorb another major trade fight with US", it would no less true.
Read 9 tweets
Oct 14
1/8
WSJ: "President Trump is trying to publicly de-escalate tensions with China to soothe markets while privately keeping up pressure on Beijing—a difficult balancing act that is being closely watched by Wall Street."
via @WSJwsj.com/world/china/tr…
2/8
This is also the impression I got from my meetings last week. There is a sense that Beijing overplayed its hand, perhaps because until China is able to boost domestic demand (something that will be extremely difficult), it is still very vulnerable to a trade contraction.
3/8
Although it is the growing US trade deficit that accommodates the growing Chinese surplus, I suspect many in Beijing think that it is the bilateral surplus with the US that matters, which is why it believed it needed to "win" the trade discussions as quickly as possible.
Read 8 tweets
Oct 2
1/9
FT: " UBS's Paul Gong played down the chances of an EV industry-wide consolidation in the near term, as deep financial support for lossmaking groups from provincial governments and capital markets stands in the way."
ft.com/content/5f73d2…
2/9
This is a very appropriate example of János Kornai's distinction between economies that operate under hard-budget constraints and those that operate under soft-budget constraints. The hard-budget constraint sets a limit to the extent of losses a business can have.
3/9
In market economies, Kornai argued, hard-budget constraints prevent entities from persistent loss-making activities unless investors truly believe that future profits are likely to be enormously large. It is economics, not politics, that determines the extent of investment.
Read 9 tweets
Oct 2
1/8
Eduardo Porter argues in this FT piece that Latin America's import substitution industrialization (ISI) in the 1960s and 1970s "ended in a massive debt crisis that ushered in a period of economic decline known across the region as the “lost decade”."
ft.com/content/2f9dea…
2/8
This is a very common misperception. The ISI period ran from the late 1930s to the early 1970s, and peaked in the 1950s and 1960s. During this period, ISI economies in Latin America grew extraordinarily quickly and produced many of the first development "miracles" in history.
3/8
In fact at the time, it was widely accepted that several of the larger Latin American economies would reach European levels of development before the end of the century.

That all came apart by the end of the 1970s, but to blame it on ISI makes little sense.
Read 8 tweets
Oct 1
1/10
While I agree with much of what Stephen Bush argues here, I think this claim is overly simplistic: "This shouldn’t need saying in 2025 but markets and globalisation are good."
ft.com/content/2fa342…
2/10
There is no single thing called "globalization", and "globalization" is neither a good thing nor a bad thing. There are in fact many kinds of globalization and, as Keynes noted, they have different impacts both on the global economy and on individual countries.
3/10
At the basic level, as Dani Rodrik has argued, each country chooses to trade off global integration with economic sovereignty. Is choosing more global integration, which is what I assume Stephen Bush means, a good thing for England?
rodrik.typepad.com/dani_rodriks_w…
Read 9 tweets
Sep 29
1/10
This paper by Daniel McDowell describes the role of the dollar (and potential alternatives) as a global reserve currency. It's a very good and balanced paper, and I agree with his conclusions, but I can't help making one objection.
@daniel_mcdowell
atlanticcouncil.org/in-depth-resea…
2/10
He says: "To overly simplify it, being the reserve currency issuer is akin to having a credit card with an unusually high borrowing limit and the lowest interest rates available. This gives the United States unparalleled macroeconomic flexibility, allowing Washington to..."
3/10
keep taxes low while spending more freely on priorities like national defense than it could if its currency were not so special."

As widely held as this belief may be, it isn't true. Having the reserve currency is not at all like having a credit card.
Read 10 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(