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Michael Pettis Profile picture
@michaelxpettis
Jun 1 • 5 tweets • 2 min read • Read on X
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1/5
 WSJ: "Labor’s share of gross domestic income (conceptually similar to GDP) sank to 51%, the lowest since records began in 1947. Profits’ share climbed to 12.1%, the highest since 1950."
@greg_ip
wsj.com/finance/stocks…
2/5
 Greg Ip has a good track record of zeroing in on the key point. The profit share of GDP is rising, he notes, but the wage share is declining. This is a problem, because, as Marriner Eccles explained in the 1930s, it is overall wage growth that sustains production growth.
3/5
 If the US were running a trade surplus, it would be net foreign demand that balances the gap between the two. The fact that it is instead running a trade deficit suggests that domestic demand is being propped up by rising fiscal and household debt.
nber.org/system/files/w…
4/5
 By the way the fact that the US is running huge current account deficits in spite of running some of the highest levels of income inequality in its history (income inequality should force up the saving rate just as much as "fiscal discipline" would) suggests that it...
5/5
 is not low American saving that drives the US trade deficit, but rather large, persistent US trade deficits (driven mainly by the need of surplus countries to exchange their surpluses for claims on US assets) that drive down US saving.
imf.org/en/publication…

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More from @michaelxpettis

Michael Pettis Profile picture
Jun 2
1/4
 This OECD study is likely to have an important effect on global trade discussions, but its worth noting that its measure of the extent of Chinese subsidies do not include two of the most important subsidies that drive the global competitiveness of Chinese manufacturing.
2/4
 The first and most obvious is the undervalued currency, which is the functional equivalent of a tax on imports and a subsidy for exports. Because it is hard to quantify the exact extent of the undervaluation of the RMB, most subsidy measures exclude it.
3/4
 The second is the financial subsidy. The study does try to quantify the extent to which certain manufacturers are able to borrow below "market" rates, but when the market rate itself is repressed, with nearly all credit being directed to...
Read 4 tweets
Michael Pettis Profile picture
Jun 2
1/6
 Financial Times: "A company-level OECD analysis of government subsidies across 15 key industrial sectors found that nearly 60 per cent of Chinese firms’ global market share gains since 2005 could be attributed to subsidies."
ft.com/content/885ca6…
2/6
 "The OECD researchers said that while subsidies led to increased market share, they did not contribute to a firm’s productivity or profitability. “Subsidies result in less productive players winning unfairly at the expense of more innovative and efficient ones.”"
3/6
 The OECD make two substantial points. First, China's export success is driven not by comparative advantage but by competitive advantage, a function of large household transfers that subsidize manufacturing and that require trade surpluses to clear.
michaelpettis858496.substack.com/p/comparative-…
Read 6 tweets
Michael Pettis Profile picture
May 30
1/5
 Very good Caixin article on the struggle to manage local-government debt: "With financing squeezed, local governments are turning to a new strategy: revitalizing state-owned resources, assets and funds. Championed by Hubei and Hunan, the idea is to...
caixinglobal.com/2026-05-29/in-…
2/5
 turn all possible state-owned resources into assets, securitize them, and leverage all state-owned funds. In practice, this means identifying and packaging things from data to reservoir silt to the space under bridges, and then selling or securitizing them to raise cash."
3/5
 Is this a good thing? I've long argued that the best way for China to manage a difficult adjustment in the least disruptive way would be to force the adjustment costs onto local governments, who could absorb these costs by liquidating the huge portfolio of assets they own.
Read 5 tweets
Michael Pettis Profile picture
May 29
1/5
 SCMP: "Chinese provinces are scouring their balance sheets to revitalise idle state assets, seeking alternative revenue streams to counter intense debt pressures stemming from the prolonged property downturn."
sc.mp/eo0mk?utm_sour…
2/5
 "This form of asset-based financing has emerged as a critical fiscal lifeline for regional governments that had relied on land sales for the bulk of their income until that stream was cut off with the onset of China’s property crisis."
3/5
 This is important. One of the best things China can do to minimize social costs once it finally begins to adjust is to transfer to households, or otherwise liquidate, local-government-owned assets. It seems it may be starting to do this.
Read 5 tweets
Michael Pettis Profile picture
May 24
1/8
 I just finished reading Chris Miller's excellent book on the collapse of the Soviet Economy. Some people might think that the topic is interesting, but largely irrelevant to global economic conditions today. They would be mistaken. This is a very relevant book.
@crmiller1 Image
2/8
 Among the important points it makes is this: "The notion that political and economic reforms were separate processes misunderstands Soviet politics. The most decisive debates during the perestroika period were about the distribution of economic resources."
3/8
 Miller notes that China's reforms began in the late 1970s, when its economy was in such terrible shape that they resulted in an immediate surge in productivity, the benefits of which could be used effectively to buy off potential elite opposition (especially in the 1990s).
Read 8 tweets
Michael Pettis Profile picture
May 22
1/9
 SCMP: "To address widening trade imbalances across the Asia-Pacific region, surplus-heavy nations such as China should be buying more, and deficit-running economies need to bolster their competitiveness, a top Apec official said on Thursday."
sc.mp/y49ox?utm_sour…
2/9
 The article continues: "Carlos Kuriyama warned that structural imbalances would remain wide in the near future and cautioned that protectionist responses could exacerbate regional fragmentation rather than resolving underlying issues."
3/9
 We are definitely in the age of Joan Robinson. She warned that large, beggar-thy-neighbor trade surpluses would eventually force deficit countries into protectionist retaliation which could lead to a breakdown in trade that would harm the global economy.
Read 9 tweets

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