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Michael Pettis

@michaelxpettis

5 Nov

1/5
According to Charlie Munger, China "steps on a boom in the middle of it instead of waiting for the big bust".

I've heard other people say similar things, and it strikes me as more than a little US- or Euro-centric.
cnn.com/2021/11/03/bus…

2/5
It is hard to argue that Beijing has stepped in early to crush the bubble – even assuming that this time is real and they will not quickly ease off in the next few weeks and months.

3/5
Chinese real estate may have already been in a bubble at the time of the 2008 Olympics, and certainly Chinese regulators have worried about this for several years, but didn't know how to resolve it without causing more short-term damage than they found politically acceptable.

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Michael Pettis

@michaelxpettis

3 Nov

1/7
Good article. Beijing regulators are concerned about how their policies to internationalize China's domestic financial markets have created domestic financial risks: "There are rising concerns among investors that the tapering exercise will result...
scmp.com/economy/china-…

2/7
a more unstable yuan, as large amounts of capital will rush into the Chinese market as investors bet on the yuan’s one-way appreciation before the tapering is completed, but then rush out again to take advantage of a stronger US dollar after the tapering is finalised."

3/7
I've often discussed this typical "developing country" financial risk. Like other developing countries, China's rigid and highly distorted financial markets can easily be destabilized if large amounts of financial inflows are suddenly reversed and begin to flow out rapidly.

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Michael Pettis

@michaelxpettis

1 Nov

https://twitter.com/g_rodriguez_r/status/1454848509610446856

1/8
Thanks, Gerardo, but if domestic Argentine politics really are as hopeless as you say, then the only intelligent response would have been for investors to stop lending money. Instead, when the century bond was launched just four years ago, it was more than three times...

https://twitter.com/g_rodriguez_r/status/1454848509610446856

2/8
oversubscribed, even though much of the world found it astonishing (the WSJ called it "preposterous"). What is more, we know from history that the severe economic contraction associated with difficult debt restructurings tends to radicalize the population and...

3/8
worsen political outcomes, and current events in Argentina do not seem to be an exception. That is why I'd argue that there is no reason to assume that another decade of debt restructuring and economic pain will result in anything useful.

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Michael Pettis

@michaelxpettis

31 Oct

1/6
Rather than simply extending debt that is never going to be repaid anyway, Washington should be working with Buenos Aires to complete a final restructuring of Argentine debt with considerable debt forgiveness.
ft.com/content/814e08…

2/6
Other countries besides Argentina are facing similar problems, and allowing this mess to drag on for another decade helps no one. More importantly, and contrary to what many assume, how this is resolved isn't something that matters only to Argentina's international creditors.

3/6
It matter just as much to American farmers who compete with Argentine agricultural exports. That's because countries struggling with external debt and B-o-P difficulties usually see their imports collapse, and are forced to export a larger share of what they produce.

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Michael Pettis

@michaelxpettis

30 Oct

@SCMPNews

1/7
One of the things I teach my PKU students is that much of what we learn in economics is applicable to the US or the UK, where most economic thinking has developed, far more than to countries, like China, with very different institutions.

scmp.com/news/article/3… via @SCMPNews

2/7
This seems to be a typical example: "China’s central bank has ordered the country’s lenders to meet new asset and leverage standards to make them more resistant to risk." China wants to adopt FSB standards domestically, but these are unlikely to have the same domestic impact.

3/7
In a market-based economy, it is possible that stricter financial regulations may reduce financial risk by constraining the ability of the financial sector to support non-productive spending and excessively risky behavior (although even here, a strict Minskyite might demur).

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Michael Pettis

@michaelxpettis

29 Oct

1/9
Very interesting article about what after many years is starting to become a consensus – i.e. the similarities between China today and Japan in the late 1980s. I agree with Harding that China can learn a lot from Japan’s mistakes.
ft.com/content/af51a7…

2/9
I am skeptical however about what he believes to be the most important difference between the two. He notes that Japanese output per capita in the late 1980s was four-fifths the American level, whereas Chinese output per capita today is only one-fifth American levels.

3/9
This means, he says, that “Japan in 1990 had run out of room to catch up, whereas China still has a way to go.” I think economists overstate the tendency of developing countries to converge with advanced economies. There certainly is little evidence that this indeed happens.

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