There are two very different types of “wasted” infrastructure spending by the government, and each has a different impact on the overall economy. One kind of waste consists of spending $110 of resources and labor to produce...

wsj.com/articles/who-w… via @WSJOpinion
something that raises economic productivity by $100. In that case the country is poorer overall by $10.

Another very different kind of waste consists of spending $90 of resources and labor and $20 in bureaucratic costs (including graft) to produce something...
that raises economic productivity by $100. In that case the country is still richer by $10, but there has also been a $20 transfer within the country from one sector of the economy to another.
Governments, in other words, have different constraints than the private sector. The private sector is always worse off when it spends $110 to generate $100 in value.
For the country overall, however, spending $110 to generate $100 in value only leaves it poorer if bureaucratic costs are less than $10.
That's just another way of saying that high bureaucratic costs are a problem because they result in inefficient and unfair transfers, but they do not in themselves invalidate the need for government spending on necessary infrastructure.

• • •

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!


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

18 Nov
@gonglei89 1/4
The growth in the debt-to-GDP ratio did slow after 2015, partly because the regulators were able to squeeze out especially egregious forms of debt creation and partly because stricter regulations resulted in some debt creation moving off the balance sheet.
@gonglei89 2/4
Beijing however did not get debt under control, or even come close. After 2015 (even excluding 2020), official measures of debt continued to grow more than 1.2 times the GDP growth rate.
@gonglei89 3/4
Given how high the debt ratio has reached by now, this means that the increase in debt each year (still excluding 2020) is the equivalent of more than an astonishing 25% of that year's GDP (or 31% if we use your numbers rather than the PBoC numbers).
Read 4 tweets
17 Nov
In May 2016 the SCMP wrote excitedly about a major new policy piece in the People's Daily by an "authoritative" figure (which in PD-speak means someone extremely senior).
scmp.com/news/china/eco… via @SCMPNews
"A People’s Daily article published yesterday," it said, "showed that China’s leadership is trying to make a grand shift in the nation’s economic policies in a bid to say goodbye to debt ­fuelled growth. In a sign of distaste for the credit-pumped growth in the past...
couple of months, the Communist Party mouthpiece cited an unidentified 'authoritative' figure as saying that boosting growth by increasing leverage was like 'growing a tree in the air', and that a high leverage ratio could lead to a financial crisis."
Read 7 tweets
15 Nov
Chinese consumption growth in October surprised on the upside, with annualized month-on-month growth (5.28%) exceeding that of industrial production (4.78%) by 0.5 percentage points. That's fine, but it's not nearly enough.
scmp.com/economy/china-… via @scmpnews
Consider that retail sales for the first ten months of 2021 grew by an average of 4.0% a year in the past two years, while industrial production grew in that period by an average of 6.3%. This means that the consumption imbalance is much worse today than it was two years ago.
If consumption growth continues to outpace production growth, can the former grow fast enough relative to the latter that next year the consumption imbalance is no worse than it was in 2019?
Read 6 tweets
15 Nov
In October China's economy continued to rebalance towards consumption, as in recent months, but much too slowly to make up for the deep worsening of the imbalance that occurred last year. Retail sales were up in October by 4.9% compared to last year.

They rose by an average of 4.6% a year compared to 2019. This was higher than consensus expectations, but still fairly low. During the first ten months of 2021, retail sales were up by 14.9% compared to last year and by an average of 4.0% a year compared to 2019.
Industrial production was up in October by 3.5% compared to last year and by an average of 5.2% a year compared to 2019. This was also higher than expectations, but also still fairly low.
Read 10 tweets
14 Nov
Interesting article. There are two important points I think it illustrates. First, Beijing is already starting to ease growth constraints in the property sector. This is because not to do so would mean much slower growth in 2022 than it can tolerate.
Second, state developers seem to be expanding their share of the market at the expense of private developers. This is no accident.
As long as much of the investment in the property sector is speculative or non-productive, enterprises that do not operate under hard-budget constraints must expand their share at the expense of enterprises that do.
Read 4 tweets
12 Nov
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...
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."
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.
Read 4 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!