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Michael Pettis Profile picture
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15 Dec, 4 tweets, 1 min read
1/4
 JPMorgan has raised its GDP growth forecast for next year from 4.7% to 4.9%. I think that is way too low. I expect that they will ease up on the property sector and accelerate infrastructure spending so as to get something much closer to 5.5%.
reuters.com/world/china/jp…
2/4
 A 5.5% GFP growth rate will probably also cause China's debt-to-GDP ratio to rise by at least 4-6 percentage points. As I see it, for a GDP growth projection to be meaningful for China, it should also be accompanied by a leverage growth projection.
3/4
 This is because as long as it has debt capacity and is willing to use it, Beijing can pretty much achieve whatever growth target it decides is politically necessary, so the quality of growth is a function of both GDP growth and leverage growth.
4/4
 That is why 5.5% growth next year is not "better" than 4.9% growth. What really matters over the long run is how much growth China can achieve without having to rely on non-productive investment (and hence a rising leverage ratio).

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More from @michaelxpettis

Michael Pettis Profile picture
15 Dec
1/10
According to “Japan’s Policy Trap (2002): “The first wave of bankruptcies appeared among firms that speculated in land and stock, beginning with the sensational collapse in September 1990 of Itoman, a trading company turned property developer."
2/10
"The Itoman saga," it continues, "unrolled like a third-rate potboiler, with revelations of massive fraud, gangster connections, prison sentences, and a suicide, making it easy to dismiss as a one-off event. But such complacency did not last long."
3/10
"Within a few months," the passage concludes, "a string of other developers and speculators were either bankrupt or the subject of massive rescue operations.”
Read 11 tweets
Michael Pettis Profile picture
15 Dec
1/7
 November turned out to be a bad month for rebalancing. Retail sales – a proxy for consumption – were up by 0.22% month on month, for an annualized 2.7%, while industrial output was up 0.37% month on month, for an annualized 4.5%.
scmp.com/economy/econom… via @scmpnews
2/7
 The gap between consumption and GDP widened, in other words. Looking at things more broadly, in the first 11 months of this year industrial output was 10.1% higher than in the same period last year and, more usefully, it was 6.1% higher a year than it was in 2019.
3/7
 Retail sales for the first 11 months of this year were 13.7% higher year than in the same period last year and, again more usefully, they were 4.0% higher a year than in 2019.
Read 7 tweets
Michael Pettis Profile picture
14 Dec
1/9
 An influential Beijing think tank says in a recent article that the PBoC will have to cut interest rates in order for China to achieve GDP growth of at least 5% next year.
scmp.com/economy/econom… via @scmpnews
2/9
 Authorities need to boost domestic demand, the authors say, including consumption and investment, to counter the property slump and any slowdown in exports, or else GDP growth will remain low.
3/9
 If China’s problem were that Chinese businesses are eager to expand production facilities to meet surging demand, but are unable to do so because borrowing costs are too high, this would make sense, and the resulting growth would be sustainable.
Read 9 tweets
Michael Pettis Profile picture
14 Dec
1/8
 Interesting Caixin editorial on Beijing’s policy goals: “For 2022, top leaders have required that policymakers do everything in their power to reach these goals”, i.e. “ensuring stability on six fronts” along with “maintaining security in six areas”.
caixinglobal.com/2021-12-13/edi…
2/8
 For those who have trouble keeping up, “ensuring stability on six fronts,” first introduced as a policy objective in 2018, refers to maintaining stability in employment, the financial sector, foreign trade, foreign investment, domestic investment and expectations.
3/8
 “Maintaining security in six areas”, first introduced in 2020, refers to maintaining security in jobs, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains and the normal functions of primary-level governments.
Read 8 tweets
Michael Pettis Profile picture
12 Dec
1/4
 According to Paul Nantulya, from the Africa Center for Strategic Studies, “China’s policy banks have grown increasingly concerned about borrowers’ ability to repay loans and grown wary about extending finance.”
scmp.com/news/china/dip… via @scmpnews
2/4
 I've long argued that the rapid expansion before 2015 of Chinese financing in developing countries had far more to do with its lack of experience than with any superior financing model, as so many claimed even 3-4 years ago.
3/4
 This was nothing new. Many other countries with burgeoning trade surpluses had previously done the same thing, with similar levels of confidence and enthusiasm, and soon enough, as losses began to mount, they all retreated, as China inevitably would too.
Read 4 tweets
Michael Pettis Profile picture
11 Dec
1/4
 Puzzling article. I am not sure why, if Beijing is indeed worried about China's vulnerability to changes in US monetary policy (as it should be), that “China should waste no time in diversifying from US dollar assets”.
scmp.com/economy/china-… via @scmpnews
2/4
 Beijing is reportedly concerned that a US rate hike could cause outflows from emerging markets, including China, and could strengthen the value of the US dollar against other currencies, including the RMB. They're right to worry. The Chinese economy is indeed vulnerable.
3/4
 But if a US rate hike causes outflows, China's financial markets will be affected whether or not Chinese entities hold dollar assets, and if the dollar rises, dollar assets would in fact be the best thing to hold.
Read 4 tweets

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