1/10
In this interesting People’s Daily piece, the authors, including a former PBoC banker, say infrastructure investment is the main way for China to “stabilize” growth this year. This is almost certainly the policy consensus.
en.people.cn/n3/2022/0228/c…
2/10
In 2022, the authors say, exports and consumption are unlikely to generate sufficient growth, as is investment in manufacturing, so that infrastructure investment must grow faster than GDP if China is to achieve GDP growth targets above 5%.
3/10
They then propose the usual reasons given to justify unlimited investment spending on infrastructure: “China’s per capita infrastructure capital stock is only 20-30 percent that of developed countries, and the urban-rural and regional development gap is still large.”
4/10
These arguments implicitly assume that businesses and workers in poorer economies are able to absorb capital stock as productively as the most advanced economies at the capital frontier regardless of different economic, social and political institutions.
5/10
The main difference between a less developed economy and a highly advanced one, according to this view, is not differences in legal, financial, business, political, educational, and social institutions, but rather differences in the level of capital stock.
6/10
I disagree. It's true that very poor countries often seem to benefit from further investment in capital stock, however indiscriminate, but only up to a point. Beyond this point (which I all the “Hirschman” level in this essay), the constraint on...
carnegieendowment.org/chinafinancial…
7/10
further development is not investment, but institutional reform. Infrastructure investment, in other words, should be thought of as something that accommodates the growth in the productive capacity of the economy, and not as something that causes this growth.
8/10
If I am right, the discussion in China should really be over what the nature of the reforms needed to boost China’s capacity to absorb more infrastructure productively, rather than over how much infrastructure spending is needed to achieve growth targets.
9/10
These discussions are certainly occurring, but as was always the case for countries that followed this growth model, they don’t have much effect on policymaking. In the past constituencies that benefitted politically from the existing model were always able to block debate.
10/10
As an aside, according to this piece, investment in real estate, infrastructure and manufacturing account for 24%, 25% and 32% of investment, respectively, which together account for roughly 45% of GDP (compared to less than half that level for most other countries).

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More from @michaelxpettis

Mar 1
1/5
Many events in recent years that have been described as "turning points" were not so much turning points, in my opinion, as accelerations of existing trends, and I suspect the sanctions on Russia are more of the same.
wsj.com/articles/russi… via @WSJ
2/5
As the world becomes increasingly dissatisfied with some of the consequences of mobile finance and over-extended value chains, particularly as geopolitical tensions rise, the trend towards a reversal of globalization will become deeper, I think, and harder to dislodge.
3/5
The irony, as we have seen often enough in history, is that the rise in domestic and geopolitical tensions that is undermining globalization is itself a consequence of the kind of financial globalization that we embraced after the 1970s and 1980s.
Read 5 tweets
Mar 1
1/4
China's commerce minister is warning that trade and consumption are going to perform badly this year, and cautions that Beijing must "do everything possible" this year to spur domestic consumption.
reuters.com/markets/asia/c…
2/4
In the past, spurring domestic consumption has always meant doing so indirectly, by expanding investment in infrastructure and increasing subsidies to manufacturing. The result has usually been, ironically, deeper demand imbalances and bigger trade surpluses.
3/4
This will probably happen again. Already the industry minister promised yesterday that Beijing would "ramp up efforts to ensure stable industrial operations by beefing up policy support for key sectors and encouraging investment in manufacturing."
global.chinadaily.com.cn/a/202203/01/WS…
Read 4 tweets
Feb 28
1/8
Good piece (as always) by @adam_tooze that helps clarify the global financial implications of the Russian crisis and on the effect it may have on the willingness of China, Russia, etc. to hold dollars in the future.
adamtooze.substack.com/p/chartbook-89…
2/8
As I see it, what complicates their abilities to choose is that countries that rely on large persistent trade surpluses to resolve domestic demand imbalances must by definition acquire foreign assets in exchange for these surpluses.
3/8
If they do not want to risk acquiring these assets in the US or in the "West" (i.e. in Europe, Canada, Australia, etc.) then they only have four serious options.
Read 8 tweets
Feb 28
1/4
"A widely-anticipated push by China’s government to boost construction to stabilise growth has yet to materialise," according to SCMP. Excavator sales, they say, are down 48% in January from a year ago, while usage fell by 35%.
scmp.com/economy/china-… via @scmpnews
2/4
The very weak start to the year has the IMF, the World Bank, and most investment banks downgrading GDP growth expectations for this year to either side of 4.5%.

Growth almost certainly slowed far more than Beijing expected, but I still think GDP will grow by 5-5.5% in 2022.
3/4
Beijing may have been blindsided by the way financial-distress effects spread from the property sector through the rest of the economy, but they still have more than enough debt capacity to manage a substantial investment-driven recovery.
Read 4 tweets
Feb 28
1/7
The head of the PBoC's monetary policy department lists the four main priorities for the PBoC this year as “to ensure steady credit growth”, “to optimize the credit structure”, “to bring down overall financing costs”, and “to keep the renminbi...

global.chinadaily.com.cn/a/202202/28/WS…
2/7
exchange rate generally stable at an adaptive, equilibrium level”.

The first three of these priorities are effectively a form of “window guidance”, similar to central bank policies in Japan in the 1980s.
3/7
Their purpose is to ensure that the expansion of credit is enough to drive the amount of economic activity needed to meet expected growth targets (which I expect will be above 5%, probably 5.5%).
Read 7 tweets
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

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