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...

1/5
Good Scott Kennedy piece on involution: "Central government bureaucrats understand that official exhortations for avoiding price cuts and pushing industries to adhere to “self-discipline” are doomed to failure, but they have to at least look like they are trying."
@KennedyCSIS
csis.org/blogs/trustee-… 2/5
As I argue below, involution is just the most recent name for an old structural problem in China, that of excessively high GDP growth targets accommodated by increasingly soft budgets. The result is excess capacity throughout the economy.
carnegieendowment.org/posts/2025/08/…

1/6
According to the WSJ, after a few years in which the earnings of the poor rose faster than the earnings of the rich, in 2025 the earnings of the rich have risen faster. In theory this should have resulted in a lower US trade deficit.
wsj.com/economy/us-eco… 2/6
That's because the rich consume less of their income than the poor, and so a shift in the relative income share from poor to rich should have reduced overall US consumption and increased overall US savings, which in turn should have reduced the US trade deficit.

1/6
SCMP: "President Xi Jinping has called for more efforts to develop a unified domestic market, arguing that it will be crucial to helping China secure an edge in international competition and meet its development goals."
scmp.com/economy/china-… 2/6
In a hyperglobalized world, a country gets to choose between economic sovereignty and global integration. The more it chooses to integrate into the global trade and capital system, the less control it exerts over its domestic economy.

rodrik.typepad.com/dani_rodriks_w…

1/7
In August, both growth in industrial output and growth in retail sales came in well below expectations, with the former up 5.2% and the latter up 3.4% (compared to 5.7% and 3.7%, respectively, in the previous month).
english.news.cn/20250915/7a106… 2/7
As always, the key point is that for all the talk of rebalancing, the proxy for output growth continues to outpace the proxy for consumption growth by quite a large margin.

Meaningful rebalancing requires that consumption outpace GDP growth by roughly two percentage points.

1/8
Bloomberg: "China urged Mexico to “think twice” before levying tariffs, a warning that could signal Beijing’s willingness to retaliate over a move it sees as giving into demands from the US."
bloomberg.com/news/articles/… 2/8
Mexico announced plans earlier this week to impose duties of as much as 50% on cars and other products made by China and several Asian exporters.

These are the kinds of stories I think we'll see more of in the next year or two.

1/14
Barry Eichengreen warns, correctly, that "The dollar’s international primacy isn’t eternal. To be sustained, it has to be actively fostered and preserved."

But why sustain the dollar’s international primacy? Is this merely a modern monetary fetish?
wsj.com/finance/curren… 2/14
While the primacy of the dollar is certainly good for bankers, financiers, and very wealthy owners of movable capital, what's much less obvious is the extent to which it benefits or harms American workers, manufacturers and middle class households.

1/10
Interesting new IMF paper on the extent of industrial policy subsidies to Chinese manufacturers and SOEs (to the extent information is available) and their impact on productivity.
imf.org/en/Publication… 2/10
It measures national-level cash subsidies, tax benefits, subsidized credit, and subsidized land, which collectively amount, it says, to a high 4% of GDP. The authors note that other subsidies exist, including sub-national subsidies, but these are harder to measure.

1/5
Is the expansion in robotaxis driven by the needs of the economy or by policy decisions? This is not a topic on which I have much information or knowledge, but last week I told a Chinese friend of mine (a well-known economist) that I had heard that as many as 30% of the...

https://twitter.com/YuanTalks/status/1965684723273060364

2/5
cars in Beijing streets were Didi drivers (China's Uber). This struck me as an incredibly high number.

He told me that he thought in fact 30% might actually be a low estimate. He also told me that he believed Didi drivers aren't able to get more than one fare an hour.

1/7
Although August CPI deflation widened year on year to -0.4%, compared to 0.0% in July and well above expectations of -0.2%, leading many analysts to worry that deflation in China is accelerating, I think prices actually did fine.
en.people.cn/n3/2025/0910/c… 2/7
CPI was driven down mostly by a 4.3% decline in food prices, with core inflation up 0.9%, its sixth straight month of higher year-on-year prices. More importantly, in my opinion, month-on-month CPI prices were flat in August, after rising 0.4% in July.

1/7
NYT: "Through August, China exported $141 billion to Africa, while importing $81 billion. The widening trade imbalance with Africa stems from surging exports of Chinese-made batteries, solar panels, electric vehicles and industrial equipment."
nytimes.com/2025/09/08/bus… 2/7
"The swell in exports to Africa," it continues, "along with record volumes of goods sold to Southeast Asia and Latin America, underscores the resilience of Chinese manufacturers in finding new markets for the products they continue to churn out in enormous quantities."

1/7
For all the talk of rebalancing domestic demand in China, Chinese exports continue to climb much faster than imports in 2025. In the first seven months of 2025, exports were up 6.9% in RMB terms, while imports were up 1.2%.
english.news.cn/20250908/e41cd… 2/7
For just the month of August, exports were up 4.4% year on year to $321.8 billion while imports were up 1.3% to $219.5 billion, leaving China with a trade surplus of $102.3 billion, its fifth trade surplus this month of over $100 billion, with five out of...