Ever so often I find things written about China that are the kind of things, I almost wish I had written it myself they are just so good. This is one of those pieces. Allow me a moment to highlight what I think are some of the key pieces a couple of key extrapolations. 1/n

https://twitter.com/JonathonPSine/status/1775473073640317282

This piece is about local government financing vehicles (LGFVs) and how they came to be in China and their importance for both growth and their outsized importance to debt composition in China. As the author notes, the overall financial picture is bad. Really bad. 2/n

This is a very good article and if I may say, I've been telling you this for a couple years. That said while continuing to say it is a very good article I would like to nibble at the edge of things I think are a little more important. First, making the transition from 1/n

https://twitter.com/PM_Thornton/status/1773334233613824281

Investment to consumption driven economy is not the matter of flipping a switch or changing some tax law but is literally just a little short remaking the entire economy. I don't think the magnitude of what is being asked is appreciated by these authors or others 2/n

Sure. Let me provide two examples. Trans-shipment example: China produces the t-shirts WITHOUT a made in label, ships the t-shirts to Vietnam, someone in Vietnam prints "Made in Vietnam", ships to US. In this case, the Chinese controlled company and its representative 1/n

https://twitter.com/e_blyler/status/1767211796987809998

a) do almost no work in Vietnam b) control the USD outside of China earned from exporting. Now let's tackle the arbitrage example. Let's assume (hyper simplistic example) that China can make t-shirts at $1 and Vietnam at $1.05. China however, faces a 10% tariff so their 2/n

This is an excellent follow up question to the Beijing move to centralize control over tech firms. This could easily house multiple dissertations but let me give you the broad outlines. First, 10-30 years ago centralization played minimal role in Chinese domination of 1/n

https://twitter.com/seanthekelly/status/1760121231393833162

In fact, Chinese firms generally succeeded in spite of the state not because of it. Huawei legendarily had to fight for all kinds of things. Even sectors like low wage/skill garment manufacturers were not centralized but even were locked out of access to finance mostly 2/n

So after this thread from yesterday, I had multiple people ask me a very reasonable question responding to the "how do you pay for it?" question. Why can't they just print money to bailout the bad loans? Totally fair question. Ready to get crazy? 1/n

https://x.com/BaldingsWorld/status/1754507832806752765?s=20

Before we even dive in, especially when we look at the balance sheet expansions of like the Fed and BoJ, it makes perfect sense to use that as a framework to both ask the question and whether this could be applied in China. So let's review a couple of things specific to China 2/n

So since I see so many opeds from China and other places that China needs to bailout or public support for its stock market/banking/housing or other sector and these people have a pathological inability to understand second order conditions let me pose a simple question: 1/n Now this is where it gets complicated so only Phd economists will understand my question: how do you pay for it? Since I'm feeling feisty let me impose a second crazy condition: how do you pay for it that actually accomplishes anything other than lighting money on fire? 2/n

So since China's local government debt is getting more attention and the book smart reality poor idea that China's central government should just take over the debt is getting renewed attention, let me use small words and simple ideas to explain why it will not happen 1/n People have been proposing variations of this idea for years. Literally probably almost a decade. Because most economists are as book smart as they are reality blind and second order ignorant, they never ask the question if it is such a good idea why isn't it happening? 2/n

I think there are a number of bigger picture lessons about the deterioration of America (I am not the US pessimist many others are so pay attention). First, objective standards are effectively irrelevant many in America and especially elite positions. This is a problem 1/n I would flunk any under grad or grad student for the plagiarism we've seen. It's not racist, sexist or anything else because academia and society agrees plagiarism is bad. This is clear as day evidence. It's an objective standard. Anyone can see it. Yet there is strong 2/n

There are many ideas being tossed around the China watcher universe that are absolutely great ideas on paper but completely devoid of pragmatic reality its driving me nuts. The latest is China doesn't have to worry it has a huge reserve of assets to cushion its finances 1/n There are so many reasons this is bogus but let's just do some simple math. Most of the Chinese banking industry is state owned at literally every level. These are literally the biggest banks on the planet to the small rural banks. Theoretically this means Chinese government 2/n

Thread #2. A lot of people misunderstand what it means when we say China manufactures fentanyl or fentanyl pre-cursors. Most people when they hear this think of something like Breaking Bad with a meth dealer using household chemicals in his garage or they think of 1/n El Chapo from a remote hideout in the Mexican desert off the grid away from the authorities. In both cases, neither is remotely close to what happens in China. The reality is China fentanyl manufacturers are effectively Chinese SOE or close to SOE companies. They typically 2/n

I'm feeling philosophical and this is a free platform so I'm saying what I want. As I watch events and content in the world one thing I've become convinced of is as information overwhelms, most people struggle to have information and knowledge and knowledge types. You ready? 1/n Let's go over a simple example. First, people confuse disagreement types. For instance, you think the tax rate should be 30% I think 28%, that is a marginal policy difference. You think I shouldn't exist and be wiped from the earth, that's a fundamental difference. 2/n

One lesson I was taught by a couple of people who worked at the top levels of foreign policy was that the depth of most geopolitical thinking was similar to a fruit flies wading pool. "Great idea let me explain to you the 10 different reasons it won't work." Or... 1/n "Great idea, how do we make that into tangible explicit policy and not just a cliche or grad paper?" What's amazing is that this type of thinking is everywhere. Let's take the most common current example: a call for an Israeli ceasefire. Will Hamas stop launching rockets? 2/n

With all the attention being paid to the Chinese economy, I am getting questions about data issues so if you are a China data geek this is for you. Otherwise keep moving. First, ALL Chinese data is a bogus manipulated political number. All of it. No exceptions. 1/n This does not just apply to GDP but pick almost any number you want and within almost any time it wouldn't be hard to pick it apart. Retail sales. Bank financials. You name it. It is all bogus. All of it. No exceptions. There are however a multiple important follow up rules 2/n

I think there are two major mental (epistemological) hurdles to Americans and even most in the developed world understanding the conflict we see with Russia/Ukraine, Iran&Hamas/Israel & US, and the simmering conflict with China. Follow me a minute 1/n Most people frame them as economic conflicts in the sense that if we give them benefits then that will solve the conflict and they will not be expansionist, authoritarians. This is the type of framework used for most domestic type of negotiations. It must be about funding 2/n

Excuse the potentially long thread on the British spy where I will tie a number of threads together. My first time in China was because my architect wife got head hunted to spend some time in Beijing building large homes in the suburbs a few years before 2008 Olympics 1/n We lived in a suburb far from expat areas and were the only white people for miles around. I was in the middle of grad school doing nothing related to China. Two weeks into our time we were taken to dinner by someone in Chinese intel/security. We knew almost nothing about 2/n

Excuse my potentially lengthy rant on the state of China analysis in many pockets of the world today. Fundamentally there is a stunning degree of thinking that just chooses to ignore the glaringly obvious about China to propose solutions that have zero chance of reality 1/n Let me give you a simple example. The other day Paul Krugman who is a fine economist wrote an oped about the why China should stimulate consumer spending. A common idea among those writing about China these days and in fairness an economically reasonable idea. The problem? 2/n

Twitter China Galaxy Brains continue to churn out hot takes and think pieces wondering why Communists won't suddenly go free market and why Beijing won't make it rain. I've pointed out their broke and communist. Now let's make it interesting and include Evergrande financials 1/n As noted, Evergrande has 1.7 TRILLION RMB in current liabilities and 9 BILLION in cash on hand. If you don't have a Harvard MBA able to decipher such complex data: that's bad. This is like having $100k in the bank and a $2 million balance on the over due credit card 2/n

I think the example of Gal Luft is a great example of how the think tank game works exposing the sordid under belly. So follow me he for a minute. Let's try and cover a variety of issues. First, there is a carve out under FARA registration for intellectual, academic, 1/n and think tank type work. I am also pretty sure there is a line though I am not a lawyer so I can't answer how a professor/tankie crosses the line from accepted carve out work to FARA agent. The reason I mention this is many DC/NYC think tanks accept checks from foreign 2/n

There are many things to say about this but I think this analysis presents a distinctly but unintentionally misleading picture of Chinese reserves. Let me just pick one issue to focus on here that when you think about it has MAJOR implications. Foreign loans. 1/n

https://twitter.com/Brad_Setser/status/1674525617700700170

It is at best fool hardy to count foreign loans as anything close to shadow reserves for many reasons. Why? Since most of this is Belt and Road related, these are loans to Zambia, Pakistan, and other countries. At best these loans are completely illiquid and cannot be 2/n

Let me tell you about a book that impacted my thinking on education and affirmative action. It is a book called Mismatch by a UCLA law professor named Richard Sander. Looking at his work it is all with left leaning groups so this is not a right wing idealogue 1/n The basic premise of the book was simple: colleges show their admissions numbers by race but they show effectively nothing on post admissions outcomes so how effective were the actual policies in promoting targeted outcomes? Put another way, we take it as a given that race 2/n

There is something many miss seeking to understand modern geopolitics. As the 1999 Paul Thomas Anderson masterpiece Magnolia points out that we might be through with the past, but the past ain't through with us. People fail to grasp we are fighting a 19th century conflict 1/n To most people it seems absurd that we are referencing the 19th century about what would motivate leaders like Xi and Putin or China and Russia to invade other countries but this is fundamentally what is motivating the conflict we see unfolding and how this frames events 2/n