Share this page!

Michael Pettis Profile picture
Twitter logo
12 Nov, 4 tweets, 1 min read
1/4
 Good article, reflecting what I think is an emerging, if still subdued, consensus in China's financial community. Among other things it points out that "The effects of China’s long-running campaign to stamp out speculation in...
caixinglobal.com/2021-11-11/in-…
2/4
 the residential property market, control prices and rein in the excessive debt of real-estate developers have become more obvious this year. Government and industry data show sales growth has plummeted as have investment and land acquisitions by property companies."
3/4
 That was always the problem which for so long many analysts, policy advisors and policymakers had failed to understand. Speculative activity and the surge in Chinese debt ratios weren't simply unfortunate accidents caused by a few bad apples.
4/4
 They were fundamental to the way the growth model worked, with surging property prices as much an engine of growth as surging property-sector debt. Get rid of one side and you lose the other side.

• • •

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

Michael Pettis Profile picture
12 Nov
1/6
 From @M_C_Klein's important article on Janos Kornai: "For Kornai, the essential feature of the 'capitalist' economies is that businesses face 'hard budget constraints'."
ft.com/content/9d842b…
2/6
 The constraint: "If they do not make money enough from their operations, they need to raise funds from banks or the capital markets. And if they can’t raise funds, they go bust."
3/6
 In contrast, he points out, enterprises that operate under soft budget constrains "had unlimited financial support from the government [and] could always 'afford' to employ workers, invest in physical capital and accumulate raw materials."
Read 6 tweets
Michael Pettis Profile picture
11 Nov
1/4
 Unfortunately trade negotiators in most countries are still stuck within an obsolete trade framework in which trade imbalances are mostly caused by implicit and explicit trade restrictions.
scmp.com/news/china/dip… via @scmpnews
2/4
 If that were still the case, policies aimed at opening up markets and liberalizing previously-restricted sectors might help rebalance trade and increase the economic benefits of greater global integration.
3/4
 But that is no longer the case, and hasn't been since at least the 1980s. The reason for deeply unbalanced trade has primarily to do with domestic savings imbalances and distortions in some countries in the distribution of income. It has little to do with trade restrictions.
Read 4 tweets
Michael Pettis Profile picture
11 Nov
1/5
 The CFETS RMB index has appreciated to 100.83, its highest point since December 31, 2015, and has risen in almost a straight line from 91.42 in July 31 2020. That’s a 10.3% increase over the period, for an annualized appreciation of 7.9%.
caixinglobal.com/2021-11-11/yua…
2/5
 With rising financial inflows and some of the largest monthly trade surpluses in Chinese history, I expect continued appreciation pressure on the RMB into 2022.
3/5
 It is worth remembering, however, that this can turn quite suddenly. Large trade surpluses and even larger capital inflows drove PBoC reserves, along with the RMB, to record heights in 2014, with PBoC reserves topping out at $4.0 trillion in June 2014.
Read 5 tweets
Michael Pettis Profile picture
10 Nov
1/6
 This sounds like a really interesting OMFIF discussion. According to the participants: "China is leaving behind a successful and more liberal economic model which boosted the private sector but created...
omfif.org/2021/11/chinas…
2/6
 large inequality and relied excessively on high investment rates and credit growth to hit robust growth targets. It is shifting to a new development concept making lower growth more subservient to social objectives."
3/6
 "This growth model, they go on argue, "is far more state- and party-driven, critically meshing with and reinforcing the current autocratic and top-down centralised Xi administration."
Read 6 tweets
Michael Pettis Profile picture
10 Nov
1/10
It's strange – but probably not surprising – that a number of Chinese economists are worried that attempts by Beijing to control the rise in property- and infrastructure-related debt "is eroding the foundation of China‘s long-term success."
scmp.com/economy/china-…
2/10
In fact it isn't. It is enhancing the foundation of China‘s long-term success. If this debt supported real growth in the economy's productive capacity, then over the medium term the ratio of debt to GDP should have been constant, or even declining.
3/10
But if it mostly funds investment, the fact that it is growing much faster than GDP, and has been for 15 years, suggests much of this investment supports non-productive economic activity. This "inflated" growth (to quote Xi Jinping) must undermine "genuine" growth.
Read 10 tweets
Michael Pettis Profile picture
9 Nov
1/6
 No big surprise: foreign holdings of Chinese stocks and bonds continue to rise, with bond purchases now outpacing stock purchases.

ft.com/content/9f281d…
2/6
 I think this trade continues to make sense for at least another year, especially in the case of Chinese government bonds, in part because in the past two years, and probably for at least another year, it has been part of a virtuous circle.
3/6
 The combination of financial inflows and trade inflows (with surging trade surpluses in recent months) means that the RMB is likely to continue appreciating, and an appreciating currency of course encourages more inflows, which in turn puts more upward pressure on the RMB.
Read 6 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

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

Donate via Paypal

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get emails when @michaelxpettis has new unrolls!

Check out other threads from @michaelxpettis!

Read all threads by @michaelxpettis

:(