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Michael Pettis

@michaelxpettis

19 Dec

@SCMPNews

1/4
"Chen Yulu, deputy PBOC governor, said China should build all kinds of 'firewalls' to guard against systemic financial risks, while also increasing the effectiveness of financial regulation."
scmp.com/economy/china-… via @SCMPNews

2/4
The PBoC is extremely worried about China's vulnerability to changes in external monetary conditions and wants to implement "safeguards" that protect the domestic financial system from the possibility of external disruption.

3/4
Safeguards, of course, is just another name for capital controls. The irony is that Beijing wants to increase the role of the RMB as an international currency while at the same time rejecting the risks that come with it.

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Michael Pettis

@michaelxpettis

19 Dec

1/6
They may not be allowed to call it the Chongqing model, but in the December economic work conference, "affordable rental housing for low- and middle-income households was put ahead of the development of commercial housing by private companies."
asia.nikkei.com/Editor-s-Picks…

2/6
If Beijing is really able to switch property investment massively away from empty luxury apartments and into affordable housing for the poor, it will take what in my opinion would be the single most effective step it can take towards rebalancing the economy.

3/6
This doesn't come without risk of course, not the least of which is to pop the real estate bubble – with all of the political and financial problems that entails – but after encouraging the world's biggest real estate bubble in 40 years, at least it won't be getting worse.

Read 6 tweets

Michael Pettis

@michaelxpettis

16 Dec

@SCMPNews

1/7
Small firms are disproportionately likely to be in the services or consumer sectors, in which case the best way to help them is to boost domestic consumer spending, which ultimately means boosting the household income share of GDP.
scmp.com/economy/china-… via @SCMPNews

2/7
But that doesn't seem to be what Beijing is proposing. Instead, they are turning to the same old supply-side playbook to which they have always turned in the past 3-4 decades, and this tells them to provide supply-side support.

3/7
Specifically, in this case, they plan to make it easier for these businesses to obtain financing. This just means, however, providing enough financing to reduce the hard budget constraints under which small businesses typically operate.

Read 7 tweets

Michael Pettis

@michaelxpettis

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.”

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Michael Pettis

@michaelxpettis

15 Dec

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.

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Michael Pettis

@michaelxpettis

15 Dec

@scmpnews

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.

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