China's exports were up 20.9% in December, more than most analysts expected, while its imports were up by 19.5%, which was much less than most analysts expected.
The result: a whopping $94.5 billion trade surplus, the biggest monthly trade surplus in Chinese history and perhaps the biggest ever seen anywhere. Equal to 7% of Chinese GDP for the month, it implies a deficit for the rest of the world of nearly 1.5% of its collective GDP.
Once again analysts have been surprised (astonished, more like it) by the size of China's trade surplus, mainly because they insist on seeing trade incrementally rather than as a systemic outcome.
Because the trade surplus is a function of the excess of savings over investment, China's lagging household income, which resulted in lagging consumption, meant that any slowdown in debt or investment must be balanced by an increase in the trade surplus.
That's just what happened. We'll continue to see large trade surpluses as China struggles to revive investment in property and infrastructure. Meanwhile it should be clear that there has been no meaningful rebalancing of income this year.
Exports for the whole year rose 21.2%, while imports rose 21.5%, barely keeping pace, to leave the country with a record trade surplus of $676.4 billion (nearly 4% of China's GDP), which some are saying is the highest annual surplus ever recorded for any country.

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More from @michaelxpettis

14 Jan
This set of tweets from a Chinese think tank – about what “steady” GDP growth means in China's political and economic context – shows just how different the concept of GDP growth in China is from that of other countries, and why it is meaningless to compare them.
Among other things they discuss a proposed “shift from high-speed growth to high-quality growth,” as if these were two different things.
They aren't. If GDP has any meaning at all, it is as a proxy for the real economic value of goods and services generated by the economy, in which case there can be no difference at all between “high-quality” growth and “high-speed" growth.
Read 15 tweets
12 Jan
China's aggregate financing (TSF) rose by RMB 2.37 trillion in December, or by 0.8% of November's outstanding. This is in line with the average monthly increases in the second half of the year.
TSF was up 10.5% in 2021, and as expected well below the 11.8% annual increase of the past five years. 2020's contraction in "high quality" growth (consumption, exports and private-sector investment), required a surge in debt to deliver a positive GDP growth rate.
In contrast because of a partial rebalancing, however, 2021 saw a very high share of "high-quality" growth. This is what allowed Beijing to clamp down so heavily on the property sector, one of the main sources in China of burgeoning debt.
Read 4 tweets
12 Jan
While the world is trying to expand transfers to households to support struggling demand, Beijing is slashing pay packages for civil servants while at the same time calling for local governments to accelerate infrastructure spending.
scmp.com/news/china/pol… via @SCMPNews
"Noting that China has lowered taxes and fees by as much as 8.6 trillion yuan since 2016," the SCMP reports, "Li Keqiang said the process must continue so the government could give more benefits to businesses and energise the economy.
Beijing, in other words, is determined to reduce waste on the demand side while increasing waste on the supply side. This suggests that for all the talk of rebalancing, dual circulation and common prosperity, Beijing finds it difficult even to conceptualize a policy shift.
Read 4 tweets
12 Jan
"The valuation of bank stocks has been tepid in recent years amid an economic downturn, the widespread liquidity crisis among real estate developers and other factors," according to Caixin.
"The average price-to-book ratio of the banking sector is 0.6 to 0.7, and only a few banks have a price-to-book ratio greater than 1, such as Bank of Ningbo Co. Ltd., China Merchants Bank and Ping An Bank."
The price-to-book ratio of Chinese banks has dropped in fifteen years from nearly 4 to well below 1. This tells us something about the economy's expected growth. In a 2007 paper I argued that an option framework makes clear that in some cases the prices of bank stocks...
Read 4 tweets
11 Jan
"Mr. Dalio said he thought that through its own system, the U.S. 'needs more common prosperity, a lot of countries do.' His presentation showed U.S. wealth and income gaps at heights last hit in the 1930s."
wsj.com/articles/bridg… via @WSJ
The irony – which I think passed over Dalio – is that while the US (and many others) would benefit greatly from common-prosperity type programs that redistribute income from the extremely rich to the middle and working classes, these won't benefit China nearly as much.
That's because the problem in China is not just income inequality within the household sector but, far more importantly, the huge disparity between the share government receives and that received (directly and indirectly) by the household sector.
Read 4 tweets
11 Jan
people are often confused about the impact of automation on employment and the consumption balance. One argument is that automation and robots will reduce the number of workers needed, and so also reduce the consumption share of GDP.
scmp.com/economy/china-… via @scmpnews
One of the experts cited here makes this point: "Automation helps upgrade manufacturing and the supply chain, but it does little to help domestic consumption and the ageing problem.”
This isn't really true. Automation and robots increase the productivity of workers, and if wages keep pace with this increase in workers' productivity, employment and consumption will rise in line with production.
Read 4 tweets

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