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.

https://twitter.com/michaelxpettis/status/2061666911868289059

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.

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.”"

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.

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."

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."

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 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."

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."

1/10
Important FT article by Mark Sobel, Brad Setser and Robin Brooks. They make the seemingly counterintuitive point that while incremental trade agreements, in which one side or the other agrees to buy a little more of this or a little less of...
ft.com/content/b600db… 2/10
that, may impress policymakers (and dealmakers) who don't understand trade – or, for that matter, how the balance of payments work – in fact they have no impact at all on the overall trade imbalances.

1/5
It’s hard to know how significant this is, given the uncertainties created by the war, but April numbers were terrible for China. Industrial output grew 4.1% year on year in April, well below expectations.
bloomberg.com/news/articles/… 2/5
For the first four months of 2026, industrial output grew 5.6%. Against this, retail sales grew by a measly 1.9% year on year in the first four months of 2026, and by a shocking 0.2% in April.

1/4
NYT: "President Trump departed Beijing on Friday, touting trade deals to sell American-made airplanes, farm goods and other products, the signature outcome of his two-day summit with Xi Jinping, China’s top leader."
nytimes.com/2026/05/15/bus… 2/4
This is the kind of thing that confuses far too many policymakers and analysts. China's huge trade surplus is the result of income distribution and transfer policies that force Chinese production to exceed, by a large margin, China's total consumption and investment.

1/12
Very good article by Greg Ip. I think the most important point he makes is this one: "The Achilles’ heel of Chinese industrial policy is its cost and waste. China runs bigger budget deficits relative to economic output than the U.S."
@greg_ip
wsj.com/world/china/be… 2/12
Most trade and industrial policy consists effectively of transfers from less favored to more favored sectors. In China's case this has meant very large explicit and implicit transfers from the household sector to subsidize infrastructure and manufacturing investment.

1/4
According to Reuters, domestic car sales in China were down 21.6% year on year in April, even as car exports surged 80.2%. Everyone knows that domestic demand remains incredibly sluggish in China, but such sharp drops in domestic car...
reuters.com/business/autos… 2/4
sales in the past seven months should still seem surprising, until we remember that much of the consumer-voucher programs of earlier years were directed at car purchases. This meant that Chinese households who had planned to buy cars anyway just accelerated their purchases.

1/7
Bloomberg: "China pledged to step up efforts to defuse local government debt risk while supporting growth, as the State Council called for stronger policy execution in a challenging global environment."
bloomberg.com/news/articles/… 2/7
Every few months for the past 4-5 years we have seen similar promises to get debt under control while maintaining high GDP growth rates, and every time I have the same response: China cannot do both, because the determination to maintain high GDP growth rates is...

1/6
SCMP: "The EU’s top trade official used her departing appearance at the EU Parliament to pour cold water on the prospect of an investment deal with China, hinting that new weapons for dealing with Chinese “macroeconomic imbalances” could be on the way."
sc.mp/6ku4s?utm_sour… 2/6
Sabine Weyand said: “I’m not talking about a cyclical imbalance in trade, I’m talking about structural macroeconomic imbalances or what the IMF calls macro-industrial policy, which really suppresses domestic demand and creates durable imbalances in the relationship.”

1/4
Caixin: "The results underscore how China’s leading bad-debt managers are leaning on accounting gains linked to state-backed bank stakes to offset the effects of the prolonged property slump and broader economic slowdown."
caixinglobal.com/2026-05-06/chi… 2/4
Caixin produces yet another very good article, this time about the surging losses at the AMC's (China's "bad banks", created in the 2000s to offload bad loans at the Big Four banks), and how these losses have been covered by what is an old accounting trick.

1/9
Brilliant article by Martin Wolf on global imbalances. Wolf is one of the few economists who have an intuitive sense of the global economy as an economic system, which means he is also one of the few who understands how global imbalances work.
ft.com/content/72ab51… 2/9
He notes in this piece that "the domestic counterpart of its external deficits today is borrowing by the US government."

Many economists find this almost impossible to understand. They do not see how net capital inflows can contribute to rising US debt.

1/4
Brad Setser explains why China didn’t truly de-dollarize—it just shifted its dollar holdings from official reserves at SAFE to less transparent state entities like banks and investment funds.
@Brad_Setser
cfr.org/articles/china… 2/4
But his explanations will probably continue to be ignored in favor of much more exciting stories about the collapse of USD as a reserve currency. That's because as long as the PBoC shifts out of its direct holdings of US Treasuries (mainly, it seems, into indirect...

1/9
Interesting SCMP article: "China’s top market regulator is intensifying its crackdown on debt-laden “zombie companies” – rolling out a pilot programme in seven economic hubs to facilitate the forced exit of unprofitable firms."
sc.mp/q2aq0?utm_sour… 2/9
Developing a robust bankruptcy framework in China is among the most important steps Beijing can take to reduce the role of non-productive investment in driving the economy. Hard budget constraints are what force economic activity to remain economic value creating.

1/8
Brendan Greeley on the development of the eurodollar. If Beijing truly wants CNY to be more widely used in international finance, the eurodollar market provides one potentially useful model to show how that might happen.
ft.com/content/be3459… 2/8
From the 1960s through the early 1980s, the eurodollar was a separate offshore dollar market and not simply an extension of the onshore USD markets. it was a way for dollars to circulate outside US regulation and US control. Its separation was created by...

1/5
It's true that China was able to withstand the effects of the Iran war better than many other countries because it had stockpiled commodities. But it is a little silly, perhaps even a little orientalist, to say that it did so because of strategic thinking.
bloomberg.com/news/features/… 2/5
We forget that Japan also stockpiled massive amounts of commodities in the late 1980s, and given the subsequent fall in commodity prices (driven in part by ja[an's own economic slowdown), this later turned out to be an additonal drag on economic performance.

1/6
Good Steven Barnett piece. He points out that "targeting growth rates inconsistent with productivity trends leads to distortive policies", and argues instead for a "dramatic, permanent payroll tax cut" to boost consumption.
ft.com/content/d078c7… 2/6
This would certainly work, as would any other policy that increases the disposable income of average Chinese households relative to GDP. China's extraordinarily low consumption share of GDP is mainly a consequence of the low household income share.