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Michael Pettis Profile picture
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19 Oct, 4 tweets, 1 min read
1/4
 Good article: "As a result, Chinese policymakers feel they have a 'window of opportunity' to re-engineer what they see as the Chinese economy’s over-reliance on debt-fuelled property investment to generate growth."

ft.com/content/aafca7…
2/4
 Beijing definitely has the chance to suppress the property sector and reduce credit growth this year, and perhaps the beginning of next year. This is mainly because a partial reversal of last year's disastrous contraction in "high-quality" growth will generate...
3/4
 enough growth this year to satisfy their political growth needs. But this will only be a one-off event, and even then, the debt-to-GDP ratio is likely to rise by a couple of percentage points this year. If Beijing really wants to "re-engineer" China's over-reliance...
4/4
 on debt, either China must undergo a radical transformation of the economy, with significant institutional reform, or Beijing must settle for much lower growth levels. As of yet there is little evidence they are planning the former or are prepared to accept the latter.

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More from @michaelxpettis

Michael Pettis Profile picture
21 Oct
1/10
Demand for USD bonds issued by the Chinese government was very strong, and Lexington sees this as evidence that investors are ignoring or discounting domestic financial turmoil in China's property markets.
ft.com/content/677723…
2/10
I don't think this is the right way to look at it. It makes more sense to argue that the nature of China’s domestic problems are more likely to result in the near term in greater inflows, and so China's domestic problems in fact strengthen China's external position.
3/10
This may seem surprising at first, but it is why for the past two years even as debt problems have deteriorated I have nonetheless been telling my clients not just to buy USD bonds issued by the Chinese government but, even better, to buy RMB bonds. The currency...
Read 10 tweets
Michael Pettis Profile picture
19 Oct
1/5
 Very interesting article about rising opposition – from both homeowners and local officials – to property taxes designed to reduce or eliminate speculation in the property market. This is a point some of us have been making for years:

wsj.com/articles/in-ta… via @WSJ
2/5
 Once the systemic imbalances created by institutional distortions are deep enough, any attempt to remove those distortions will be painful and likely to arouse opposition – and the deeper the imbalances, the greater the opposition.
3/5
 I would add that those who worry that property taxes could set off a decline in property prices which, in turn, could hurt consumer spending, are right. But this is an insoluble problem. Highly speculative markets don't stabilize – they either rise or fall.
Read 5 tweets
Michael Pettis Profile picture
19 Oct
1/7
 Many analysts seem to explain slowing growth in China as the consequence of a deterioration in exogenous factors – i.e. the economy had been supported by tailwinds in the past, but as these are replaced by headwinds, inevitably the economy...
wsj.com/articles/china… via @WSJ
2/7
 must grow more slowly. These “headwinds” include the resurgence of the pandemic, rising energy prices, debt mismanagement, political shifts in attitudes towards the role of markets, supply-chain bottlenecks, and so on.
3/7
 Because most economists think incrementally rather than systemically, and because journalists must come up with new explanations every few weeks, it is probably easier for them to explain China this way, but I think this is a mistaken way to view the Chinese economy.
Read 7 tweets
Michael Pettis Profile picture
18 Oct
1/4
 The National Bureau of Statistics has just released China’s Q3 data and GDP grew 4.9% year-on-year in 2021 Q3, down sharply from 7.9% and 16.3% in Q2 and Q1. This was a little less than already-weak expectations.

stats.gov.cn/english/
2/4
 China's quarter-on-quarter GDP growth rate was 0.2% in Q3, compared to 1.2% in Q2 and 0.2% in Q1. It’s very difficult to get the Y-o-Y growth rates provided by the NBS to reconcile with their Q-o-Q growth rates, but I’d guess...
3/4
 that Q4 GDP would have to be 0.6-1.3% higher than Q3 GDP for the full year’s GDP growth rate to hit 8%.

For the first nine months of the year, industrial production was up 11.8% over 2020 and 6.4% a year over 2019.
Read 4 tweets
Michael Pettis Profile picture
17 Oct
1/11
Kevin Rudd makes some important points in this article, but he also writes: "The implications for the global economy from such a scenario are very real. China represented 28 per cent of all global growth between 2013 and 2018 — twice that of the US.

ft.com/content/d9ce37…
2/11
A significantly slowing Chinese property market would mean slower global growth, with a particular impact on commodities that service construction."
3/11
Rudd may be expressing a confusion — one that many others have too — between China's share of global growth and China's contribution to global growth. It is true that China has accounted for the biggest share of global GDP growth in...
Read 11 tweets
Michael Pettis Profile picture
17 Oct
1/6
 "It is harder to predict what will happen to home prices in China. If they do decline far or over any length of time, expect to see much bigger problems emerge for banks and for consumers as negative wealth effects spread among the urban population."
theguardian.com/world/2021/oct…
2/6
 As @georgemagnus1 suggests in his article, this is probably the biggest problem the Chinese economy faces. The past 1-2- decades have seen the creation of an extraordinary amount of bezzle, i.e. fictional wealth created by...
carnegieendowment.org/chinafinancial…
3/6
 the systematic capitalization of expenses and by the overvaluation of housing, infrastructure and other assets. The total amount is probably comparable only to the amounts created in Japan in the 1980s or the US in the 1920s.
Read 6 tweets

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