The NDRC wants to "stimulate the vitality of private investment" in key infrastructure projects such as the construction of railways, highways, ports and terminals. This strikes me as a little impractical.

sc.mp/dma1?utm_sourc… via @SCMPNews
I think this is being done partly in the hope that private participation will improve the quality of the investment decision-making process and partly to redress the growing imbalance between public- and private-sector investment in fixed assets.
SCMP notes for example that "in the first three quarters of the year, the gap in fixed-asset investment growth continued to widen between the private and public sectors, with private investment expanding by 2%, far behind the 10.6% increase by state-controlled firms."
This new NDRC proposal seems to be formal recognition that public-sector investment in infrastructure has not been a great success for the economy, but unfortunately it suggests that the reason has to do not with over-investment but rather with poor judgement.
That strikes me as optimistic. China has invested nearly twice the share of its GDP as the rest of the world, and nearly 50% more than even high-investing, rapidly-growing, developing countries. Two-thirds of that has gone into property and infrastructure.
More importantly, for the first 10-15 years the consequence was a faster rise in GDP than in the debt funding investment. In the second 10-15 years, however, this debt rose much faster than the country's GDP. Growth couldn't keep pace with the debt funding the investment.
This suggests that much of that investment wasn't economically justified. That is why, I have argued, that in recent years the state sector share of GDP had to rise. The private sector simply wasn't able to participate in that kind of growth.

The point is that in recent year much infrastructure investment was designed very specifically to meet GDP growth targets that exceeded the productive capacity of the economy.
This kind of activity, as János Kornai explained, will always necessarily be limited to entities who are able to operate outside of hard-budget constraints, i.e. the state sector. The private sector, who cannot, will not be able to afford to participate.
Inviting them to participate more formally isn't going to change the underlying problem. At best it means that the private sector will cannibalize overall infrastructure to participate in the most profitable sectors, and leave the rest to the state sector.

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More from @michaelxpettis

Nov 10
October is never a strong month for credit growth in China, but this year, despite pressure by regulators on banks to expand credit to the private sector, aggregate financing in October, at RMB 908 billion, grew well below expectations.

This was barely a quarter of September's figure, and brings total aggregate financing this year to RMB 341.6 trillion, an increase of 9.1% over 2021, or 11.0% annualized.

The RMB 28.6 trillion increase this year is equal to just over 29% of China's year-to-date GDP.
This increase in debt of 29 percentage points of GDP will deliver about 6 percentage points of nominal GDP growth. That's a lot of debt for so little growth, especially when much of this growth consists of the "low quality" growth from which Beijing is trying to get away.
Read 6 tweets
Nov 10
In their latest policy report on "Accommodative Monetary Policy", the CF40 Forum argues that Beijing should keep infrastructure investment growing by at least 10% annually and should sharply cut policy rates.

"Policy rate cuts", they say, "can still significantly improve the cash flows of households, businesses and the government, thereby increasing total expenditure. It is estimated that every 100-basis-point reduction of the policy rate can...
...increase the net cash flows of households, businesses and the government by RMB 1.19 trillion, and boost nominal economic growth by at least 1.2 percentage points."
Read 10 tweets
Nov 9
China's CPI inflation was 2.1% year on year, while its PPI inflation was negative 1.3%, both well below expectations. Given China's terrible import numbers Monday, this isn't a surprise. Domestic demand is just too weak to cause prices to rise.

I notice that analysts and journalists, at least among those I read, are no longer saying that China's low inflation implies that the PBoC has a lot more room for monetary stimulus. That's good, because low inflation in China has no such implication.
While in the US monetary expansion tends to boost the demand side, and so can be inflationary, in China monetary expand mostly boosts the supply side, and so is more likely to be disinflationary.
Read 7 tweets
Nov 9
"The weakness in producer prices was driven in large part by declining global commodity prices compared with last year, economists said. But they added that the data also reflected pressure on demand across the Chinese economy."

This is why, contrary to the expectations of some analysts, countries like China cannot replace their USD reserves with additional holdings of energy and industrial commodities.
The problem is that China is the world's largest consumer by far of these commodities, and any slowdown in the Chinese economy is likely to be result in much weaker global demand for these commodities and so lower prices.
Read 4 tweets
Nov 7
Recent comments from a senior official who is expected to play an important role in future economic policymaking show just how schizophrenic China has become about the concept of economic growth.

sc.mp/of6w?utm_sourc… via @scmpnews
On the one hand Han Wenxiu acknowledged "that the old development model involving huge capital and material injections, as well as environmental damage, can no longer be sustained, and called for innovation to be the primary source of future growth."
On the other hand he argues that "China needs to regard development as the No 1 priority, and ensure a 'reasonable growth' of the national economy in a persistent way."
Read 7 tweets
Nov 7
China's October exports are almost always lower than September's exports, but this year they were down by a whopping 7.6% month on month in USD terms and 6.9% in RMB terms. Year on year exports in October were down 0.3% in USD and up 5.1% in RMB.

This was terribly weak export performance and, coming after another weak performance last month, it suggests that the days of exports driving the "high-quality" component of Chinese growth are probably over, at least for the next several months.
Imports were down by 10.4% month on month in USD terms and 9.1% in RMB terms. Year on year imports in October were down 0.7% in USD and up 5.1% in RMB. When exports grow, in other words, imports barely keep up, and when export growth weakens, import growth keeps pace.
Read 6 tweets

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