1/16
This article notes that Xi Gao's recent attack on the claims by Ray Dalio that excess debt accumulation inevitably results in financial crises "is part of the ongoing debate between deficit hawks and doves in China over debt-fuelled fiscal spending."
chinabankingnews.com/p/chinese-econ… 2/16
This debate is important because it will determine how long China's excessively high GDP growth targets can be maintained. If Chinese economic activity is to "grow" by more than the underlying economy can productively sustain, the way to so is by forcing those parts of...

1/6
It takes real effort to miss the point as completely as Albrech does. If income is constant, then it is obvious that lower prices will boost consumption. But to separate income from production, as he does, requires a very bizarre understanding of economics.

https://twitter.com/BrianCAlbrecht/status/1955708693091074132

2/6
The point I made is that if the real value of American production rises, Americans will be able to consume more—regardless of whether prices rise or fall nominally. If it declines, even falling nominal prices will not prevent them from consuming less without a rise in debt.

1/4
Yicai: "China’s margin trading balance on the Shanghai and Shenzhen stock markets topped CNY2 trillion yesterday for the first time in a decade. The balance has been climbing steadily since early June", rising by just over 12% as of yesterday.

yicaiglobal.com/news/margin-fi… 2/4
For the past year I've been telling my clients that I expected more upside than downside on mainland stock markets, and Shanghai CSI is up nearly 30% from a year ago, but as margin levels rise, it becomes more complicated.

1/8
SCMP: "Beijing now employs a wider arsenal of tools to manage volatility, with the key challenge being whether the yuan can open the door wider to market pricing and secure a larger international role – without destabilising swings."
scmp.com/economy/china-… 2/8
That is indeed the key challenge, and one about whose resolution we should be very skeptical. For the yuan to become more open to market pricing and to secure a larger international role, Beijing would have to reduce and even remove restrictions on the capital account.

1/7
WSJ: "China’s exports grew at a faster clip in July, showing that U.S. tariffs so far haven’t curtailed China’s export machine, although trade with America has fallen."

wsj.com/economy/trade/… 2/7
I wish we could just abandon the mistaken idea that if US tariffs on Chinese exports reduce China's exports to the US, they're likely to reduce total Chinese exports. That's not how trade works. What matters is what happens to total US net imports.

1/8
SCMP makes the rather strange claim that "after a sweeping debt-restructuring campaign", China is finally starting to bring its debt problem under control.
scmp.com/economy/china-… 2/8
But this "debt-restructuring campaign" was not actually about bringing debt under control but rather about recognizing (some of) the hidden liabilities of local governments and shifting them back on to local-government or central-government balance sheets.

1/5
I agree with Setser. What some people are seeing as "export strength" is really, in this case, demand weakness. Normally if a country's manufacturing production is surging because of increased efficiency, the "reward" for that rising efficiency should presumably come...

https://twitter.com/Brad_Setser/status/1953154366506172597

2/5
in the form of an equivalent rise in wages and consumption. The whole point of rising productivity, after all, is an equivalent rise in wages. For the same reason, the associated surge in exports should be rewarded with an equivalent surge in imports, with the reward coming in the form of improving terms of trade.

1/8
Very interesting SCMP article on the urgent debate within China on how best to bolster domestic consumption: "One point of contention is whether to set measurable consumption targets, in a similar fashion to...
sc.mp/3vl76?utm_sour… 2/8
other headline benchmarks like GDP growth. Some have called for indicators such as the share of consumer spending in GDP to be written into the blueprint, while others argue that such metrics are not operationally feasible as policy goals."

1/8
Reuters: “China's biggest solar firms shed nearly one-third of their workforces last year, company filings show, as one of the industries hand-picked by Beijing to drive economic growth grapples with falling prices and steep losses.”
reuters.com/sustainability… 2/8
Reuters continues: “The job cuts illustrate the pain from the vicious price wars being fought across Chinese industries, including solar and electric vehicles, as they grapple with overcapacity and tepid demand.”

1/7
NYT: "President Trump’s tariff threats have turned into a play for cold, hard cash as he tries to leverage U.S. economic power to cajole other nations to make multibillion-dollar investments in order to maintain access to America’s market."
nytimes.com/2025/08/04/us/… 2/7
If the US were a developing economy with very high investment needs and insufficient domestic saving to fund them, this "cold, hard cash" would indeed be good news. If correctly managed, it would lead to higher US investment and so higher US growth.

1/7
PIIE's Tamim Bayoumi and Joseph E. Gagnon: "The uniquely large and safe US financial system makes dollar assets the natural target for mercantilist foreign governments seeking to hold their currencies down in support of their exports. "

piie.com/blogs/realtime… 2/7
"Dollar assets", they add, "are also the primary outlet for excess saving in economies suffering from chronically deficient aggregate demand."

1/8
Reuters: "China's top leaders have pledged to support an economy that is facing various risks, by managing what is viewed as disorderly competition and beefing up capacity cuts in key industries in the second half of the year."

reuters.com/world/china/ch… 2/8
Like the promise to boost consumption, the promise to cut capacity in industries suffering from overcapacity is based on a failure to understand the causes of the problem. Neither weak domestic consumption nor excess capacity is caused by administrative oversight.

1/8
This ECB study notes that if US tariffs force China to redirect exports from the US to the EU, "the euro area could see imports from China rise by up to 10% in 2026."

ecb.europa.eu/press/blog/dat… 2/8
The report also notes that "additional Chinese exports could bring down headline inflation by around 0.15 percentage points in 2026," which would, in turn, allow the ECB to cut interest rates.

1/7
China Banking News says that Beijing's top economic policy focus in the second half of 2025 will be boosting domestic demand. Second, it will focus on cracking down on "involuted" competition, and third, it will try to stabilize property markets.
chinabankingnews.com/p/chinas-top-3… 2/7
I agree, but it's worth noting how difficult each of these will be. China cannot boost the role of domestic demand in driving growth simply by wishing for more consumption. The only way to do it sustainably is to implement income transfers that either undermine...

1/5
This very good FT article on China's inability stop expanding its already-excess reliance on manufacturing makes what I think are two especially important points.

via @ftft.com/content/f7979a… 2/5
First, that the surge in manufacturing investment in the past 3-4 years had nothing to do with Chinese or global manufacturing needs but was instead driven by the need to externalize the cost of China's property-sector collapse. As property investment plunged, this was...

1/6
Yicai: "Weak domestic demand has been the main cause of the Chinese yuan’s 15 percent depreciation since 2022, so robust and timely counter‑cyclical policies are needed to restore the currency to fair value."

yicaiglobal.com/news/boosting-… 2/6
According to Zhang Bin of the China Finance 40 Forum, "the exchange rate is mainly determined by how yuan assets stack up against overseas assets in terms of returns, rather than the amount of foreign exchange obtained by exports."

1/10
Industrial profits in China were down 4.3% year on year in June, and down 1.8% during the first half of 2025, even as revenues rose 2.5%. The drop was led by SOEs, down 7.6% in the first half, while private-sector companies saw profits rise by 1.7%.
english.news.cn/20250727/7b9bb… 2/10
Beijing wants to prevent what it sees as disruptive pricing competition by limiting the ability of businesses to compete on prices, but I don’t see how they can succeed. Price cutting is not the problem—it is simply a symptom of the problem.

1/9
This $400 billion investment fund deal with Japan may indeed be "unprecedented", but its hard to see how it helps to address any of the reasons for the US trade imbalances.
nytimes.com/2025/07/23/bus… 2/9
It does not change the demand-supply imbalances in Japan or the rest of the world, and it does not change the US role in absorbing the resulting savings imbalances.

In other words it will have no impact on the US trade deficit.

1/8
Caixin: "Chinese policymakers are stepping up efforts to stamp out rampant “involution-style” competition across a range of key industries. Since a Politburo meeting in July last year, addressing the problem has become a top priority because of...

caixinglobal.com/2025-07-24/in-… 2/8
the damage it’s causing to the economy by distorting market pricing, eroding corporate profit margins, and undermining industrial efficiency."

And yet the article also notes that "in the second quarter, the national industrial capacity utilization rate fell to 74%."

1/4
Goldman Sachs Group calculates that "wages grew 3.9% from a year ago in the second quarter — the lowest reading on record, with the exception of the pandemic years."
bloomberg.com/news/articles/… 2/4
The only sustainable way to raise the consumption hare of GDP is to raise the household income share. If, instead, household income is growing more slowly than GDP, then either consumer debt must surge or the imbalances must get worse.

1/4
Bloomberg: “Just because China holds a large market share in certain products doesn’t mean it should be accused of overcapacity,” Vice Finance Minister Liao Min said. “Such claims are oversimplifications and fail to capture the full reality.”
bloomberg.com/news/articles/… 2/4
He's technically right, of course. Many countries produce more in certain sectors than they can absorb domestically, and so export the balance. The fact that China is a major exporter in certain sectors isn't the problem.