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Michael Pettis Profile picture
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Mar 2 • 4 tweets • 2 min read
1/4
 SCMP points out that private-sector firms have struggled in the past year relative to state-owned firms. They claim that this is the result of common prosperity-related regulatory crackdowns and strict pandemic-control policies.
scmp.com/economy/china-… via @scmpnews
2/4
 These may have had some effect, but I'd argue that the strengthening of SOEs relative to the private sector has been going on for many years in China, and is more of a structural problem than the consequence of regulatory and political preferences.
3/4
 As long as Beijing sets GDP growth targets above the growth rate of the productive part of the economy, the economy must migrate from sectors that operate under hard-budget constraints to those that operate under soft-budget constraints.
ft.com/content/907740…
4/4
 To the extent that Beijing sets unrealistically high GDP growth targets, in other words, and expects non-productive investment to expand to meet these targets, the public-sector share of the economy must expand. ideological preferences have little to do with it.

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More from @michaelxpettis

Michael Pettis Profile picture
Mar 4
1/9
 Another interesting piece by Adam Tooze in which among other things he notes Russia's intensively conservative monetary policy: "Under Finance Minister Siluanov, Russia pursued a regime of severe austerity, coupled with...
@adam_tooze adamtooze.substack.com/p/chartbook-91…
2/9
 a free floating exchange rate and an increasing shift to a domestic bond market - the classic trifecta of the Wall Street consensus (Daniela Gabor)."
3/9
 He then asks, in the context of MMT, "why should Russia not use its monetary and fiscal sovereignty, reinforced by the new regime of exchange controls, to launch a stimulus program and, in so doing, negate a large part of the impact of sanctions?"
Read 9 tweets
Michael Pettis Profile picture
Mar 3
1/5
 This is interesting. According to ANZ, official Russian entities may together account for one quarter of total foreign ownership of China's onshore bonds, or $140 billion, probably mainly in the form of government bonds.
bloomberg.com/news/articles/…
2/5
 It's always hard to get the data to reconcile, but according to ChinaBond, foreigners hold just under $400 billion (roughly 11%) of Chinese government bonds, which comprise the bulk of foreign bond holding in China's onshore markets.
bloomberg.com/news/articles/….
3/5
 This suggests to me that if ANZ's data are correct, official Russian entities own closer to one-third the total foreign ownership. Either way, they hold a large amount.
Read 5 tweets
Michael Pettis Profile picture
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 6 tweets
Michael Pettis Profile picture
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
Michael Pettis Profile picture
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
Michael Pettis Profile picture
Feb 28
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.”
Read 10 tweets

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