1/4
Interesting article by Yanmei Xie: "Why does involution defy repeated attempts to purge it?" she asks. "Because the foundational structure of China’s political economy breeds it."
ft.com/content/e768df… 2/4
She's absolutely right. "Involution:" is just the latest name for a decades-old problem arising from a development model built around the need to keep increasing investment in capacity, even when capacity is already excessive.
carnegieendowment.org/posts/2025/08/…

1/8
Yale's Stephen Roach says China must raise the household consumption share of its GDP by ten percentage points over the next decade. In August PKU economics professor Lu Feng, said that China should raise it by 5 to 10 percentage points over the..
bloomberg.com/news/articles/… 2/8
next 5 to 10 years, while Peng Sen, chairman of the China Society of Economic Reform, said it should raise it by more than 10 percentage points.

A 10-percentage-point increase, by the way, would still leave China with among the lowest consumption shares of any major economy.

1/7
The NYT on US (and probably EU) over-reliance on China for the chemicals involved in manufacturing drugs. They argue that it is the combination of lower unit labor costs and a greater tolerance for environmental degradation that makes the difference.
nytimes.com/2025/10/15/hea… 2/7
If this isn't too much of an oversimplification, a rational trade policy could easily address both issues. The purpose of such a policy would not be to protect specific sectors except to the extent that they have national security implications.

1/9
Bloomberg: "There’s an upside for the entire global economy from the massive, state-led investments China has made over the years: The abundant supply of cheaper Chinese vessels has helped push down freight rates and keep cargo moving around the world."
bloomberg.com/search?query=H… 2/9
This type of incremental thinking explains why our understanding of trade has been so muddled for decades. To assume that the story stops at cheaper freight rates is to ignore almost everything important about this story.

1/9
The FT's Tej Parikh makes a very important point here. China's industrial policies have involved among the greatest support and subsidies for technology in history, and we've clearly seen the benefits when it comes to advanced technology.
ft.com/content/b44458… 2/9
But in the roughly two decades of their implementation, not only have we not seen a corresponding rise in productivity, but in fact China's fall in productivity has been extremely steep, and has occurred at a much, much lower level of development than it had occurred...

1/9
China's GDP growth for the third quarter came in at an expected 4.8% year on year, with the first three quarters growing 5.2%. It seems China is very much in line to report GDP growth for 2025 at – or just under – the GDP growth target of 5%.
english.news.cn/20251020/f556e… 2/9
This shouldn't surprise. As I wrote earlier this year, we all know that China's GDP growth target is not a prediction. It is politically determined, and by the end of the year China will have achieved it by directing however much credit is needed.
carnegieendowment.org/posts/2025/05/…

1/9
Bloomberg's Chris Anstey notes that "the consumer — not the producer — has been the main focus of officials in Washington. By contrast, China’s leadership, drawing on Marxist tradition, of course focused on production."
@AnsteyEco
bloomberg.com/news/newslette… 2/9
There is nothing wrong, of course, with maximizing consumption. The whole point of economic development, after all, should be to improve total welfare. This was one of Adam Smith's main points.

1/9
China Daily says that the next Five-Year Plan might see a change in the way local governments collect taxes, shifting collection from the site of production to the site of consumption.
chinadaily.com.cn/a/202510/17/WS… 2/9
This will presumably change local-government incentives from encouraging more production to encouraging more consumption. According to China Daily, "Local governments, eager for economic growth and...

1/5
Chinese debt continues to rise quickly, with total social financing rising by 8.7% year on year in September (more than twice GDP growth) to RMB 437.08 trillion. This is equal to nearly 312% of 2025's expected GDP (versus 303% at the end of 2024).
caixinglobal.com/2025-10-16/chi… 2/5
In the first nine months of the year, TSF rose RMB 30.09 trillion. If you assume interest on the stock of debt at an average of 2.5%, this implies that it required an increase in debt in the past year equal to 17% of GDP in order to boost nominal GDP by around 4%.

1/9
WSJ: "According to the people close to Beijing’s decision-making process, Xi’s hard-line strategy is based on the belief that Trump will ultimately fold and offer concessions rather than deploy Washington’s own significant leverage."
via @WSJwsj.com/world/china/ch… 2/9
If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."

1/8
WSJ: "President Trump is trying to publicly de-escalate tensions with China to soothe markets while privately keeping up pressure on Beijing—a difficult balancing act that is being closely watched by Wall Street."
via @WSJwsj.com/world/china/tr… 2/8
This is also the impression I got from my meetings last week. There is a sense that Beijing overplayed its hand, perhaps because until China is able to boost domestic demand (something that will be extremely difficult), it is still very vulnerable to a trade contraction.

1/9
FT: " UBS's Paul Gong played down the chances of an EV industry-wide consolidation in the near term, as deep financial support for lossmaking groups from provincial governments and capital markets stands in the way."
ft.com/content/5f73d2… 2/9
This is a very appropriate example of János Kornai's distinction between economies that operate under hard-budget constraints and those that operate under soft-budget constraints. The hard-budget constraint sets a limit to the extent of losses a business can have.

1/8
Eduardo Porter argues in this FT piece that Latin America's import substitution industrialization (ISI) in the 1960s and 1970s "ended in a massive debt crisis that ushered in a period of economic decline known across the region as the “lost decade”."
ft.com/content/2f9dea… 2/8
This is a very common misperception. The ISI period ran from the late 1930s to the early 1970s, and peaked in the 1950s and 1960s. During this period, ISI economies in Latin America grew extraordinarily quickly and produced many of the first development "miracles" in history.

1/10
While I agree with much of what Stephen Bush argues here, I think this claim is overly simplistic: "This shouldn’t need saying in 2025 but markets and globalisation are good."
ft.com/content/2fa342… 2/10
There is no single thing called "globalization", and "globalization" is neither a good thing nor a bad thing. There are in fact many kinds of globalization and, as Keynes noted, they have different impacts both on the global economy and on individual countries.

1/10
This paper by Daniel McDowell describes the role of the dollar (and potential alternatives) as a global reserve currency. It's a very good and balanced paper, and I agree with his conclusions, but I can't help making one objection.
@daniel_mcdowell
atlanticcouncil.org/in-depth-resea… 2/10
He says: "To overly simplify it, being the reserve currency issuer is akin to having a credit card with an unusually high borrowing limit and the lowest interest rates available. This gives the United States unparalleled macroeconomic flexibility, allowing Washington to..."

1/10
I just finished reading Sven Beckert's history of the development of the global cotton industry. It's a bit repetitive in its main theses, and sometimes a bit of a slog, but well worth reading for those interested in the history of trade and industrial policy. 2/10
One of the interesting aspects of these economic histories – and something which mainstream academic economists have so much trouble understanding – is the extent to which trade patterns and comparative advantage are not "natural" but emerge directly out of policies and institutions.

1/4
According to a new IMF study, "trade imbalances boost incomes in surplus economies at the expense of deficit economies."

The reason? "This is the consequence of scale economies concentrated in the traded sector."
elibrary.imf.org/view/journals/… 2/4
"A trade deficit," the study continues, "shifts labour towards non-traded activities, while a surplus shifts labour towards the traded sector. In the presence of scale economies concentrated in traded production, this reduces labour productivity and real income in...

1/8
Huang Yiping: "Consumption is relatively weak. If consumption is weak, you run the risk of overcapacity. How do we increase consumption? The government has already introduced a package of stimulus policies, but their impact will be very slow."
caixinglobal.com/2025-09-27/wee… 2/8
"Let the market play a decisive role in allocating resources. Local governments allocating resources is better than one central government allocating all the resources, but it’s still not as efficient as the market is."

1/9
Yang Weimin, former deputy head of the Office of the Central Leading Group on Financial and Economic Affairs: “The main reason for weak consumer demand in China is fundamentally a matter of income.”

He's right, of course.
scmp.com/economy/china-… 2/9
But this is only the second of what is likely to be a 3-stage process. First is a recognition that weak consumption is the main medium- and long-term constraint on Chinese growth. That's certainly happened in the past 3-5 years.

1/9
Yicai: "China’s central government should shoulder more of the country’s debt burden to ease the financial strain on local governments and rebalance how debt is shared between central and local authorities, a number of experts said yesterday."
yicaiglobal.com/news/chinas-ce… 2/9
On the surface it may seem a good idea to relieve struggling local governments by shifting some of their debt burden onto the central government balance sheet, but this is just another way of not recognizing the problem.

1/4
"Alphaville suspects that many policymakers in Beijing agree with the IMF’s conclusions that it should unwind a lot of these industrial policies. But we also suspect it is another case of St Augustine’s “Lord make me chaste, but not yet”."
ft.com/content/be774b… 2/4
Exactly right. By now most economists know (or suspect) that there is an overinvestment problem across all sectors. Even the official press acknowledges the possibility.

But until something causes consumption growth to surge to 6-7%, there is no way to be "chaste" with...