1/6
China’s total social financing (the best official measure of debt) rose in the first quarter by 8.8% year on year, to RMB 390.3 trillion. This is the lowest rate of increase in over 20 years, which may at first seem like a good thing from...

caixinglobal.com/2024-04-23/chi… 2/6
a debt-sustainability point of view, but according to China's NIFD, the country's "macro leverage" ratio, a proxy for debt-to-GDP, "inched up" (according to Caixin) by 6.8 percentage points in the first quarter of 2024, to 294.8%.

http://114.115.232.154:8080/

1/15
Foreign ministry spokesperson Li Jian says that the U.S. "overcapacity" narrative is a very blunt US policy tool whose purpose is to undermine Chinese industry. He isn't completely wrong: there is a lot of confusion over what "overcapacity" means.

english.news.cn/20240420/3e344… 2/15
China's domination of certain industrial sectors, for example, isn't in itself overcapacity. As Li noted, "The US exports 80% of its chips, especially advanced chips, and is a large exporter of pork and agricultural products. Is that 'overcapacity' according to US logic?"

1/8
Although Russell Napier is right to identify China's high and soaring debt as a major problem for the economy, he then says: "China needs to not just reflate its economy but to inflate away its debts."

via @ftft.com/content/9f4005… 2/8
That would be a terrible mistake, and I think the PBoC understands why.

You cannot just "inflate away" debt. Inflation is just a mechanism for resolving debt by passing on the costs to net monetary savers.

1/6
This NYT article shows just how confused many economists continue to be about trade. They worry that because in recent years a few economies have been implementing trade and industrial policies, this means an end to free trade and free markets.

nytimes.com/2024/04/17/bus… 2/6
This turning away from free markets, they say, will constrain future growth.

Leave aside that industrial and trade policies have often expanded growth, their worries show just how little they understand what free trade and comparative advantage mean.

1/5
Chinese GDP grew by 5.3% in the first quarter of 2024, well above expectations, reinforcing concerns that GDP growth in China means something quite different than GDP growth in economies that operate under hard-budget constraints.

caixinglobal.com/2024-04-16/chi… 2/5
While most economists inside and outside China recognize that sustainable GDP growth in China requires that consumption play a stronger role in driving growth, with investment and the trade surplus playing a declining role, the opposite happened in the past three months.

1/5
FT: "Japan’s central bankers and government officials say the country may finally become a “normal” economy. Companies will be able to pass on increased costs to consumers in the form of higher prices, and workers will demand better pay."

ft.com/content/88174b… 2/5
We've heard this story before, and I think there are at least two reasons to remain skeptical. First, while wage-driven growth in domestic consumption would certainly be a good thing in the medium term, in the short term it runs into the same old problem.

1/9
Good Brad Setser piece on Chinese overcapacity. I'd add that the idea overcapacity can be measured on a sector by sector basis, as in a recent Bloomberg article, shows how poorly it is understood. The problem of overcapacity is not incremental. It is systemic.

https://twitter.com/Brad_Setser/status/1776699723929272802

2/9
From a trade point of view, the problem is that exports are not being exchanged for imports, as they necessarily must in a system of comparative advantage, but rather to externalize the cost of excess savings and weak domestic demand.

1/4
"In meetings with top Chinese officials, Yellen will seek to convey her view that the excess production is unhealthy for China and that there is a growing drumbeat of concern about it in the U.S., Europe, Japan, Mexico and other major economies."

reuters.com/business/energ… 2/4
The problem is not that Chinese officials don't know this, but that they have few other options. They cannot (and don't want to) revive investment in the property sector, and they are reluctant to unleash a 2009-style infrastructure spending orgy.

1/7
Atif Mian argues here that "There are two main forces behind the rise of imbalances that have generated the debt supercycle: the saving glut of the rich and the global saving glut."

He is right, and policymakers should understand why.

@AtifRMian imf.org/en/Publication… 2/7
In advanced economies (and some developing ones), investment is not constrained by scarce savings but rather by weak demand. In that case excess savings in one sector (a savings glut) doesn't lead to higher investment. In fact it may even lead to lower investment.

1/4
According to French Finance Minister Bruno Le Maire, "Europe needs “re-balancing instruments” to better defend its economic interests and avoid being squeezed between US protectionism and Chinese interventionism."

via @economicsbloomberg.com/news/articles/… 2/4
He's right, of course. The current global system of highly unbalanced trade is only possible because the US role of absorber of last resort of global excess savings has also made it global consumer of last resort.

1/5
WSJ: "The message will also mark an evolution for Yellen—and the end of a bygone era in U.S. economic thinking about China. Like other economists of her generation, Yellen, 77 years old, said the surge in Chinese exports at the start of the 21st century had seemed like a positive...

via @WSJwsj.com/politics/polic… 2/5
development, providing low-cost goods to global consumers. But the inexpensive exports also helped hollow out the U.S. manufacturing base in what became known as the China shock, leaving Americans out of work and fueling a political backlash to globalization."

1/6
"Chinese local governments are gearing up for another tough year and coming to terms with the new normal of frugality amid growing pressure on fiscal revenue and efforts to tackle their debt burdens," says Caixin.

caixinglobal.com/2024-04-03/in-… 2/6
The article cites Premier Li Qiang as saying "Prestige and vanity projects and wasteful and excessive spending will be strictly prohibited. Governments at every level must get used to keeping their belts tightened, run on lean budgets, and ensure that fiscal funds are used where they are needed most and to the best effect."

1/9
Very interesting NYT article that argues, with input from Dani Rodrik, that we may be undergoing a major change in the way countries can develop. Until now the way to go from poor to rich was through export-oriented growth: "Move subsistence...

nytimes.com/2024/04/02/bus… 2/9
farmers into manufacturing jobs, and then sell what they produce to the rest of the world."

We forget that this "obvious" way for countries to develop was actually a strategy that worked only in the past five decades. Before that, development followed a very different track.

1/8
SCMP: New installations "have vastly exceeded domestic demand. And they are among the examples of why Chinese leaders recently acknowledged that “overcapacity in some industries” was a major economic challenge to tackle in 2024.

via @scmpnewssc.mp/ew24w?utm_sour… 2/8
But this is a misreading of the problem. The issue for the global economy is not China's “overcapacity in some industries”, but rather its massive overcapacity in the aggregate relative to domestic demand.

1/4
Bloomberg: "Russia’s central bank said it has no better options than the Chinese yuan for its reserves after two years of the Kremlin’s war on Ukraine and the subsequent seizure of its international assets. As of March 22, Russia’s...

via @marketsbloomberg.com/news/articles/… 2/4
international reserves stood at $590.1 billion, having decreased by about $40 billion over two years of the war, according to data from the central bank."

The numbers aren't huge, but they nonetheless pose an interesting dilemma for Beijing.

1/9
"Former President Donald Trump’s idea to implement a 10% tariff on all imported goods would spike prices by as much as $1,500 annually for American families, according to a news analysis."

I find these types of incremental studies to be hopeless.

semafor.com/article/03/27/… 2/9
Tariffs are just one of many kinds of industrial or trade policies that work by shifting income from the household sector to subsidize the productive sector. While they may reduce foreign supply of the tariffed good, they also increase total supply of domestic tradable goods.

1/6
FT: "There’s a common consensus: Japan’s demography is one of, if not the, root causes of its deflation challenges."

Japan (and China) have shrinking populations and suffer from deflation. So shrinking populations must be deflationary, right?

ft.com/content/6aac7c… 2/6
But it's not quite that obvious. What unites these two economies is not just shrinking populations, but also low household income shares of GDP and, as a consequence, weak consumption and an excess reliance on investment and trade surpluses to drive growth.

1/9
"One camp says the yuan will likely stabilize because the PBoC is trying to curb its depreciation, while another argues volatility will increase as officials are trying to loosen their grip on the currency and guide it lower to boost exports."

bloomberg.com/news/articles/… 2/9
There certainly is pressure on the PBoC to weaken the RMB in order to boost exports further. I don't know what the current thinking is, but the PBoC used to understand that this was actually counterproductive, and would hurt the economy by further weakening domestic demand.

1/10
"China’s high-tech sector is driving an increasing amount of demand for goods and services in the world’s second-biggest economy, and its contribution could rival real estate by 2026, according to Bloomberg Economics."

via @technologybloomberg.com/news/articles/… 2/10
"With the property sector forecast to continue shrinking in the coming years," BE adds, "the fast growth of high tech industries and their increasing economic weight make them a promising growth engine."

BE may be making the same mistake analysts made in 2022-23.

1/12
"The new elite project is industrial policy, with a focus on creating national champions," Raghuram Rajan says, adding that "countries will have to relearn the lesson that governments are not good at picking winners."

Neither claim is true.

ft.com/content/73bf74… 2/12
US industrial policy, for example, is not about creating national champions but about protecting domestic industries from very aggressive beggar-thy-neighbor policies implemented elsewhere. The US share of global manufacturing has declined sharply over the past few...

1/7
More and more prominent Chinese economists are calling for fiscal transfers to the household sector. In this recent piece, Zhang Jun, Fudan's dean of economics, argues that Beijing should embark on "a comprehensive strategy to support and enhance...

eastisread.com/p/zhang-jun-ad… 2/7
real household incomes, with fiscal spending directed towards families aiming to boost the real income of middle and low-income families. This approach should include a significant increase in transfer payments to families."