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Michael Pettis Profile picture
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Feb 23 • 4 tweets • 1 min read
1/4
 Yu Yongding argues that slowing growth creates a bigger debt problem for China than infrastructure and property investment. He criticizes Beijing for not having adopted more expansionary policies last year.
scmp.com/comment/opinio…
2/4
 What is more, he argues, Beijing "should have made more efforts to boost growth in infrastructure investment to offset the negative impact of the slowdown of real estate investment on economic growth."
3/4
 I think this year we will see Beijing do just that. Because growth in the past quarter (and, so far, in this quarter) seems to be slowing much more quickly than Beijing can tolerate, it is easing credit to the property sector and accelerating infrastructure spending.
4/4
 But that is also why I think we will once again see growth in debt substantially outpace GDP growth. If investment is broadly productive, GDP growth can keep pace with growth in debt. When it isn't, more investment necessarily means rising debt ratios.

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More from @michaelxpettis

Michael Pettis Profile picture
Feb 25
1/9
 So far regulators aren't responding to the crisis among private-sector property developers by easing their access to credit, except indirectly, by forcing banks to expand mortgages, even as home-buying interest declines.
scmp.com/business/artic… via @SCMPNews
2/9
 Instead, the credit easing takes place mainly in the form of transfers of market share from the private sector to state-owned property developers.

This also makes it easier for the regulators to direct a larger share of new building towards low-income rental.
3/9
 More low-income housing would definitely be a good thing for China: cheap housing for the poor is one of the most efficient ways to rebalance income (depending on how it is funded).

But you can't ignore a problem for 10-20 years and then just hope it will somehow go away.
Read 9 tweets
Michael Pettis Profile picture
Feb 24
1/7
 Greg Ip argues here that globalization, which was already in retreat in the past decade, is likely to be further hurt, perhaps badly, by Russia's actions in the Ukraine. I agree.
@greg_ip
wsj.com/articles/clash… via @WSJ
1/3
 The data show "that while manufacturing has declined as a share of GDP in some nations (notably Canada, Italy, Spain, the United Kingdom, and the United States), it is stable or growing in...
itif.org/publications/2…
2/3
 many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Sweden). The loss of U.S. manufacturing is not due to some inexorable shift to a post-industrial economy; it is due...
Read 4 tweets
Michael Pettis Profile picture
Feb 23
1/4
 This is interesting. According to a Beijing-based institute, it takes 6.9 years of per-capita GDP to raise a child in China, compared to 4.1 years in the US and 4.3 years in Japan. Of the countries studied, only South Korea is more expensive.
reuters.com/world/china/ch…
2/4
 Perhaps not surprisingly, South Korea is also one of the few countries with a lower birth rate than China's. Correlation isn't causality, of course, but the study does suggest strongly why it will be so difficult to raise Chinese birth rates.
3/4
 I'd add two points. First, China's number would be even higher if its GDP were adjusted to make it comparable to the GDPs of other economies which, unlike Chin's, operate largely under hard budget constraints.
Read 4 tweets
Michael Pettis Profile picture
Feb 22
1/4
 Unfortunately as less money enters Turkey and more money leaves, Turkey's current account deficit will contract. But if its current account deficit contracts, Turkey must either produce more, invest less, or consume less.
nytimes.com/2022/02/19/wor…
2/4
 Internal imbalances, after all, must be consistent with external imbalances. Obviously producing more would be best, but in the near term that's pretty unlikely. Because investing less would make things worse in the long run, ultimately Turkey must cut consumption.
3/4
 Unfortunately the only real way to cut consumption is to reduce the real wages of workers and the middle class. Even putting a substantial burden on the rich won't affect consumption by nearly enough.
Read 4 tweets
Michael Pettis Profile picture
Feb 22
1/5
 No big surprises here. Beijing plans to cut taxes and increase transfers to local governments while "calling for infrastructure investment to be frontloaded to help cushion the slowdown, which looks set to worsen in the first half of this year."

reuters.com/markets/rates-…
2/5
 "At present" according to vice finance minister Xu Hongcai, "China's economy is facing new downward pressure, which requires the strength of fiscal policy to be appropriately front loaded."
3/5
 Given weakness in domestic demand, which Beijing expects will only get worse, it would have been far more effective to increase direct and indirect transfers to households. Increased consumer spending would have encouraged more business investment and healthier growth.
Read 5 tweets
Michael Pettis Profile picture
Feb 19
1/4
 China's trade surplus is caused by distortions in its distribution of domestic income, with households retaining too low a share and local governments too high a share. No trade "tools" the US can yield will change that.
reuters.com/business/ustr-…
2/4
 More importantly, US deficits are driven by the US role in absorbing excess global savings. Again, no trade "tools" can change that unless they were substantial and were imposed on all trade partners. Even matching China's effective manufacturing subsidies won't change that.
3/4
 Trying to resolve trade imbalances as if trade and capital flows still operated as they did in the 19th or early 20th centuries hasn't worked in the past four decades. It won't work in the future either. We need a very different trade strategy.
Read 4 tweets

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