1/4
Because the only sustainable way to rebalance the Chinese economy towards a greater role for consumption in driving demand requires that household income, including transfers, rise faster than GDP, it is good news that...
english.news.cn/20250416/47426… 2/4
China's per capita disposable income increased by 5.6% (5.5% nominal) year on year in the first quarter of 2025, versus GDP growth of 5.4%.

The problem is that the gap between GDP growth and household income growth must be much larger.

1/8
China's GDP growth for the first quarter of 2025 came in above expectations on a year-on-year basis and below expectations on a quarter-on-quarter basis, which shows how hard it is to reconcile the two.

english.news.cn/20250416/fb2cb… 2/8
At 5.4% year on year, compared to 5.3% in 2024, economic activity in the first quarter of 2025 was disproportionately driven by a surge in exports. On a quarter on quarter basis GDP growth was only 1.2%, however, below expectations and well below last year's 1.5%.

1/10
WSJ: "Around this time, less developed parts of the world, where labor costs were much lower, began dialing up manufacturing of nondurable goods in Latin America and Asia. The U.S. started importing more and more of those items."

wsj.com/economy/us-man… 2/10
I think this is a common misperception. It is not low wages abroad that drove manufacturing out of the US. After all Japanese wages in the late 1980s matched or even exceeded American wages, and yet Japan nonetheless absorbed a great deal of manufacturing from the US.

1/6
SCMP: "Yu has been outspoken in his advocacy for the reduction of China’s US Treasury bill holdings and has advised Beijing to stay alert for any attempts to use the country’s foreign assets against it."

via @scmpnewssc.mp/8tmps?utm_sour… 2/6
It won't be easy for China to shift away from US assets, but to the extent it tries, this could create a new set of tensions within the global trading system. That's because every year China must acquire enormous amounts of foreign assets to balance its surplus.

1/4
Good article on how US tariffs are complicating the relationship between China and the EU. Some analysts argue that US tariffs will force China and the EU closer together as each diverts its exports from the US to the other.

nytimes.com/2025/04/04/wor… 2/4
But that assumes that either the EU is willing to replace the US as consumer of last resort for excess Chinese manufacturing capacity, or that China will play that role for the EU. The former will be extremely painful for the EU, while the latter is all but impossible.

1/9
Citibank thinks that "the 54% US tariffs on China’s goods announced since the start of Trump’s second presidential term may drag the country’s gross domestic product growth down by 2.4 percentage points in 2025."
via @economicsbloomberg.com/news/articles/… 2/9
I don't think this is the right way to think about it. The surge in China's trade surplus contributed 1.5 percentage points (ppt) to China's GDP growth in 2024. This is an extraordinarily high contribution, and there is almost no way it will be...

1/14
It is hard to see much systemic thinking in the new round of tariffs, and because trade can only be resolved on a systemic basis, and not on a bilateral basis, this means that they are unlikely to be very helpful.

nytimes.com/live/2025/04/0… 2/14
Unfortunately it is also very hard to discuss tariffs in a non-hysterical way. They are neither the panacea that the Trump administration supposes they are, nor are they the instrument of Satan, as most American economists truly believe them to be.

1/12
Yicai: "China will further strengthen the role of domestic consumption in driving economic growth this year to offset the impact of weaker external demand caused by higher tariffs imposed by the Trump administration, according to...
yicaiglobal.com/news/china-to-… 2/12
Shen Kaiyan, of the Shanghai Academy of Social Sciences."

"At the same time, we must recognize that consumption stems from effective demand that is backed by purchasing power," Shen said, adding that in the long run, increasing household income is essential.

1/10
Paul Krugman is right to say that foreign central bank purchases of US bonds are unlikely to be big enough to drive US trade imbalances, but then he sort of misses the main point, which is that the US economy must...
open.substack.com/pub/paulkrugma… 2/10
adjust to net inflows whether or not these inflows are driven by central banks or by other entities. What matters is the extent to which countries that need to acquire foreign assets to balance their surpluses acquire these assets in the US.

1/8
Reuters: "During Sunday's meeting, the countries' trade ministers agreed to speed up talks on a South Korea-Japan-China free trade agreement deal to promote "regional and global trade", according to a statement released after the meeting."
reuters.com/world/china-ja… 2/8
This sounds good on paper, but China and South Korea both depend on trade surpluses to resolve their weak domestic demand, and while Japan has been running small deficits recently, it is unlikely to want them to surge by enough to help resolve the net imbalances.

1/9
It may be exciting to view the global rise of trade conflict as wholly a Trump-Xi thing, and many do, but in fact the conflict between the US and China is only a small part of the rise of global trade tensions.

via @ftft.com/content/c4bce4… 2/9
As Joan Robinson argued decades ago, spreading trade conflict is the inevitable consequence of large, beggar-thy-neighbor trade imbalances that externalize the cost of weak domestic demand in trade surplus economies.

This FT article shows what this means in practice.

1/20
The views of Maurice Obstfeld (and other American economists) on the relationship between the internal and external accounts of the US are finally starting to evolve.

brookings.edu/wp-content/upl… 2/20
From insisting that the the US external account is wholly driven by domestic imbalances, and that the only sustainable way the US can reduce its trade deficit is by reducing the fiscal deficit, he now accepts that the reality is "more nuanced".

1/9
WSJ: "Over the past month, economists at HSBC, ANZ and Citi raised projections for China’s gross domestic product growth to 4.8%, 4.8% and 4.7% from previous estimates of 4.5%, 4.3% and 4.2% respectively."

via @WSJwsj.com/economy/chinas… 2/9
"That brings their expectations," WSJ continues, "closer to the ambitious target of around 5% growth Beijing has set for the year."

In fact these estimates shouldn't be taken at face value. GDP growth this year will be 5% – i.e. the growth target – just as it was last year.

1/6
According to SCMP, China's Economic Daily, a state-owned newspaper, is warning that "Inefficient investments continue to be a drain on...
scmp.com/economy/china-… 2/6
China’s economy, and debt-laden local governments need to ensure that the projects they back are actually needed in their communities. Over the decades, local governments have relied on big construction projects to drive...

1/14
Barry Eichengreen: "Ultimately, the fate of the dollar will turn on the willingness of America’s leaders to uphold the rule of law, respect the separation of powers and honour the country’s commitments to its foreign partners."

via @ftft.com/content/8a71dc… 2/14
He's right, of course, that financial sanctions, taxes on capital inflows, proposals to restructure foreign ownership of US government bonds, and other restrictions on capital inflows will almost certainly undermine the global role of the US dollar.

1/9
In what may be an important article, Lingling Wei of the WSJ suggests that Beijing may be considering limiting Chinese exports to the US as a concession to the Trump administration.

via @WSJwsj.com/economy/trade/… 2/9
For those in the administration who see bilateral trade imbalances as the main problem (anyone, for example, who thinks tariffs on Canada and Mexico are good ways to reduce US trade imbalances), this may seem like a victory on trade, but in fact it doesn't change much.

1/6
I think it no longer makes sense to talk about "China’s property sector" without recognizing in fact that there are at least two very different property sectors in China, and John Lam, who is cited in this article, recognizes the distinction.
bloomberg.com/news/articles/… 2/6
As I have been saying for nearly a year, following a presentation made late last summer by Chen Long, head of Plenum China, property prices may indeed be bottoming out in the richer 6-7 eastern provinces and municipalities.

1/4
Bloomberg: "The US is starting to look a lot like China. And China is starting to look a lot like the US. The result is convergence."

This may be a clever journalistic conceit, but that's all it is. They aren't converging in any meaningful sense.

bloomberg.com/news/newslette… 2/4
The US share of global consumption is far higher than its share of global GDP, while China's share of global consumption is far lower than its share of global GDP. Each country's imbalance is the opposite of the other's.

1/6
Interesting Bloomberg article on how US tariff policies that shift Chinese exports from the US to the rest of the world has been painful for other counties.

via @BWbloomberg.com/news/features/… 2/6
I'd add, however, that the real pain is likely to come in the future if the US were ever to get a rational trade policy. For now, bilateral tariffs are pretty useless in resolving the US imbalance. The US trade deficit is likely to be at least as high in 2025 as in 2024.

1/7
Good Martin Wolf article on Stephen Miran's proposal to restructure the global trading system. My only criticism is his conflating of declining manufacturing employment with declining manufacturing.

via @ftft.com/content/9fa4a7… 2/7
He notes that "the US is far from the only high-income country with falling shares of employment in manufacturing".

He's right, but the problem facing US manufacturing is not the falling employment share. That's actually a good thing.

1/8
Bloomberg: "Chinese banks are slashing rates on consumer loans to record lows as policymakers ramp up stimulus to stabilize growth and counter US President Donald Trump’s tariffs."
via @economicsbloomberg.com/news/articles/… 2/8
This could be quite important. Chinese regulators have put pressure on banks to increase consumer lending. If they succeed, this is certainly one way to reduce the excessively-high household savings rates that is part of China's weak consumption story.