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Michael Pettis Profile
Michael Pettis

@michaelxpettis

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Senior Fellow, Carnegie Endowment. For speaking engagements, please contact me at chinfinpettis @yahoo .com

Beijing
Joined October 2017
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@michaelxpettis
Michael Pettis
8 months
1/14 This very good article explains quite well the problems the Chinese economy currently faces, but it should stress more that the model didn't "break down" recently, when growth rates started to slow sharply. It broke down at least 10-15 years ago.
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@michaelxpettis
Michael Pettis
2 years
1/9 I've been arguing for well over a decade that the reason most economists thought that China's GDP would overtake that of the US in the next decade or two was because they misunderstood China's growth model and the way it "created" GDP. via @WSJ
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@michaelxpettis
Michael Pettis
2 years
1/9 The idea that China's astonishing growth over the past three decades was the result of its embrace of free markets, and its recent slowdown a consequence of its rejection of free markets, is much more ideological than empirical.
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@michaelxpettis
Michael Pettis
1 year
1/15 Almost everything Zakaria says here is wrong, and unanchored in any understanding of how the global balance of payments actually works. Like many people in Washington, Zakaria assumes (perhaps without realizing it) that the only things that should matter to the US are...
@FareedZakaria
Fareed Zakaria
1 year
If the US dollar's global supremacy erodes, America will face a reckoning like none before. My take:
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@michaelxpettis
Michael Pettis
1 year
1/9 "'Every night I ask myself why all countries have to base their trade on the dollar,' Lula said in an impassioned speech at the New Development Bank in Shanghai. 'Why can’t we do trade based on our own currencies?'"
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@michaelxpettis
Michael Pettis
4 years
Tang Jie, one of the very smart students in my Sunday seminar, presented the following graph in today’s meeting. It shows subway ridership this year in 30 major Chinese cities compared to the same period last year. Jie pointed out at least three interesting things about this...
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@michaelxpettis
Michael Pettis
2 years
1/10 Beijing is very worried about the potential effects of sanctions on China's vast holding of foreign assets, but the fact that they weren't able to come up with any solution shows the extent to which China is locked into a structural problem.
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@michaelxpettis
Michael Pettis
7 months
1/10 Excellent Martin Wolf piece on China which, as always, does a great job of presenting a systemic view of the problem. Debt is too high and growing too rapidly, he notes, but the risk for China, is not that it might suffer a financial crisis.
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@michaelxpettis
Michael Pettis
2 years
1/8 Germany is caught in the high-income version of the middle-income trap: "Roughly one-quarter of German jobs depend on exports, compared with about 6% in the US. Germany’s home market is too small to absorb the surplus production of its firms."
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@michaelxpettis
Michael Pettis
2 years
1/3 "Nearly 60% of China’s overseas loans are now held by countries considered to be in financial distress, compared with 5% in 2010." I've long argued that what others described as "debt-trap diplomacy" was in fact mostly inexperience. via @WSJ
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@michaelxpettis
Michael Pettis
26 days
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…
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@michaelxpettis
Michael Pettis
26 days
5/5 In the end, you can only sustainably consume an amount equal to what you produce. Economists are learning that cheap goods delivered through massive trade deficits do not increase consumption. They mainly increase debt.
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@michaelxpettis
Michael Pettis
8 months
1/3 Interesting article, but with a pretty bizarre quote from Zoltan Pozsar: “The west dreamt of the Brics as a lapdog, that they would accumulate dollars and recycle them into Treasuries, but instead of that they are renegotiating how things are done.”
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@michaelxpettis
Michael Pettis
3 years
1/7 Very interesting article. A series of Chinese studies may be discovering something about the high-speed rail system that France had already learned: rather than boost the economies of secondary cities, being connected... via @scmpnews
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@michaelxpettis
Michael Pettis
4 years
I apologize in advance for the long tweet, but this is a story worth remembering and which I’ve written about often. From the late 1930s to the late 1960s (excluding WW2), the USSR had consistently targeted (and met) such high GDP growth rates that very few economists doubted...
@aier
American Institute for Economic Research
4 years
The Soviet Economy Was Not Growing; It Was Dying: . Analysis by @PhilWMagness . #History #Socialism
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@michaelxpettis
Michael Pettis
8 months
We're not facing a "Lehman Moment". China is instead experiencing a long, drawn out economic slowdown as it is forced to reduce its over-reliance on non-productive investment without a commensurate rise in consumption. This has been the story for years.
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Michael Pettis
2 years
1/5 Little by little everyone seems to be moving towards a consensus that China's sustainable growth rate is 2-3%, and that once it can no longer prop up economic activity with non-productive investment and surging debt, it will settle to this rate.
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@michaelxpettis
Michael Pettis
4 months
1/8 Important Bloomberg article on worsening global trade constraints. It is becoming more and more likely that world moves towards a manufacturing over-production crisis. Given the current structure of its economy, China effectively... via @economics
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@michaelxpettis
Michael Pettis
1 year
1/9 Zoltan Posner argues here that the rising role of countries like China, Saudi Arabia and Russia as bankers to the developing world, displacing the US in the process, implies the decline of the dollar and of the exorbitant privilege.
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@michaelxpettis
Michael Pettis
9 months
1/3 It may seem like terrible luck and amazing coincidence that so many things are going wrong in the Chinese economy at the same time, but of course it is not coincidence at all. This is how systemic imbalances work themselves out.
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@michaelxpettis
Michael Pettis
8 months
1/10 While I agree with much of what El-Erian says in this piece, especially his point that the stimulus many are hoping for, expecting it to "reinvigorate domestic growth and restore China as a key engine of global expansion" would...
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@michaelxpettis
Michael Pettis
1 year
1/12 I fully agree with Jim O'Neill that "the dollar plays far too dominant a role in global finance", and that it would be better (for the US above all) if the BRICS were able to manage to cut back its role dramatically.
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@michaelxpettis
Michael Pettis
1 year
1/15 Since the 1960s few arguments in international finance have been as exciting as "the coming demise of the dollar", but these arguments seem always to founder on the same set of mistakes.
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@michaelxpettis
Michael Pettis
1 year
1/4 "The Economist’s argument [that the historical success of the US economy is due to laissez faire policies, minimal government intervention and free trade] reflects a fundamental misunderstanding of US history", says Brad Delong. @delong @ProSyn
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Michael Pettis
1 year
1/5 Very disturbing: "“Greece’s biggest success story over the past decade is exports,” said the chief economist of the Greek central bank," with the country's goods exports having soared 90% since 2010, compared with 42% in the euro area as a whole.
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Michael Pettis
4 years
This is what people are passing around on Wechat...
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@michaelxpettis
Michael Pettis
8 months
1/7 Good article comparing China today with Japan in the late 1980s, but I think this understates the problem: "President Xi Jinping is ideologically opposed to increasing government support for households and consumers, which he derides as “welfarism.”"
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@michaelxpettis
Michael Pettis
8 months
1/10 Very good article by Lingling Wei and Stella Yifan Xie on the key economic issue (or puzzle, if you like) facing China. In spite of China's very weak consumption, which is reinforced by its impact in driving weak business investment, Beijing is...
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Michael Pettis
1 year
1/9 I remember that one of the biggest problems during the Mexican banking crisis of 1995 was that bank owners had illegally lent money to each other through their banks to increase the reported amount of bank equity capital.
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Michael Pettis
3 years
1/16 It is a little frustrating to see the response many analysts had to the GDP growth data Chinese released today. These numbers aren’t especially good, and they certainly shouldn’t have been surprising. Back in April and May, when most analysts...
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@michaelxpettis
Michael Pettis
2 years
1/13 For years this has seemed counterintuitive to many, but Paul Krugman argues here that China's growing trade surpluses are not symptoms of health but rather indicate just how difficult it has been to boost very weak domestic demand.
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@michaelxpettis
Michael Pettis
4 months
1/9 A decade ago, when a few of us were warning of the astonishing similarities between China then and Japan in the 1980s, and predicting that China would suffer from a long, Japanese-style adjustment, most analysts were bewildered by the comparison.
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@michaelxpettis
Michael Pettis
2 years
1/10 Interesting article. “From our side of the table, none of this is shocking about Cathie Wood. I’ve seen this movie before,” says Carson Block. “It’s not that you were really that brilliant, you were just long.” He's right. This isn't shocking at all.
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@michaelxpettis
Michael Pettis
2 years
1/10 Good article on the difficulties China faces on its developing-country lending. "A Financial Times examination of the financial health of the Belt and Road Initiative has uncovered a mountain of non-performing loans."
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Michael Pettis
5 months
1/7 This Bloomberg article suggests that analysts are increasingly worried about the trade implications of China's shifting of domestic investment out of the property sector and into manufacturing. via @economics
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@michaelxpettis
Michael Pettis
10 months
1/10 "It turns out that the costs associated with leaving China are simply too high. As long as the ecosystem for manufactured goods remains in China, then so will its significant share of the world’s manufacturing." via @asiatimesonline
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Michael Pettis
10 months
1/4 I just finished reading Eric Helleiner's newest book. It's not necessarily for everyone, but for those interested in the history of "neo-mercantilist" thinking, it is a must-read.
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Michael Pettis
1 year
1/6 This is pretty ironic: "Morris Chang, founder of TSMC, called US efforts to reshore semiconductor production a 'very expensive exercise in futility'. Production costs at TSMC’s Oregon plant were 50 per cent more expensive than in Taiwan."
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Michael Pettis
1 year
1/5 Interesting article about one of the consequences of "deglobalization": "You’ve gone from a situation where if you did a power tool assembly in China or Mexico, you might have 50 to 75 people on a line. " via @WSJ
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Michael Pettis
2 years
1/15 Good piece: "There is one obvious answer. China needs to fundamentally reorientate its economy away from the current over-reliance on investment and towards greater consumer spending." But it is important to know how this works.
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Michael Pettis
3 years
1/19 Apologies in advance for this very long thread, but as regular readers know, I worry greatly about common misunderstandings of the role of reserve currencies. The author seems to assume that what makes a currency a dominant reserve currency is...
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@michaelxpettis
Michael Pettis
26 days
4/5 This does indeed mark an astonishing discovery for "standard economics". People are not just consumers. They are also producers, and the extent to which they can consume does not depend on how cheap consumer products are, but rather on how much they produce.
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Michael Pettis
1 year
1/6 This is crazy. Polish homebuyers were encouraged to take out mortgages in Swiss francs because the zloty was stable against the franc and interest rates on the latter were much lower. This creates a classic "inverted" balance sheet.
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Michael Pettis
1 year
1/7 Tyler Cowen says the US deficit doesn't matter because we should think of a sound dollar as a good or service that the US produces, just as China manufactures phones or Japan makes cars. This extraordinary claim simply isn't true. via @opinion
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@michaelxpettis
Michael Pettis
2 years
9/9 As Janos Kornai explained decades ago, when an increasing share of growth must be generated under soft-budget constraints, it almost always means that much of the "growth" is just "activity", and is not really what we think we mean by GDP.
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@michaelxpettis
Michael Pettis
9 months
1/15 While Adam Posen correctly recognizes the problems the Chinese economy currently faces, his explanation of what has gone wrong, and what Beijing must do to revive the economy is, in my opinion, completely off the mark. via @ForeignAffairs
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@michaelxpettis
Michael Pettis
3 months
1/9 Yao Yang, dean at the National School of Development at Peking University, said that "America’s industrial base has already been hollowed out. How can it possibly compete [with China]? The United States has obviously made a strategic mistake."
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@michaelxpettis
Michael Pettis
8 months
1/6 As Keynes explained over 90 year ago, liquidity is a constraint on investment, not a cause. When households and businesses are eager to invest, but cannot do so because of the high cost of capital, cutting interest rates will unleash investment.
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@michaelxpettis
Michael Pettis
1 month
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.
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Michael Pettis
2 years
1/13 "Several economists expect that China will avoid a Japan-style stagnation — if the right policies take effect." But when these economists give reasons, it seems they aren't familiar at all with the histories of Japan or of other developing countries.
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Michael Pettis
2 years
1/6 Very good article by Adam Tooze on the politics of central banking. Central banks are often portrayed as politically-neutral entities concerned with the optimal management of a country's monetary system. @adam_tooze
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Michael Pettis
2 years
1/6 Chen Long, from Chinese research outfit Plenum, gave a very interesting presentation yesterday on Chinese real estate demand to a small group of us. The title of the presentation was "No More Growth for China’s Real Estate."
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Michael Pettis
3 months
1/6 Interesting Bloomberg article on Germany's economic malaise. As the global fight over manufacturing share heats up, Germany seems, at least for now, to be in a particularly painful spot. But Germany was always vulnerable. via @economics
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Michael Pettis
2 years
1/10 Very good pice by Minxin Pei on China's ballooning debt. He concludes: "It might be possible for China to dodge another financial meltdown this time. But if local officials have to hire thugs...
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@michaelxpettis
Michael Pettis
11 months
1/3 Very interesting and worrying article: "In Russia, technology was one of the few sectors where people felt they could succeed on merit instead of connections. The industry also maintained a spirit of openness.
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Michael Pettis
7 months
1/17 It's hard for most of us to understand structural issues that drive an economy, and we much prefer to personalize them, blaming problems on bad leaders or vicious habits, but in doing so on the subject of China's economic slowdown, those of us who...
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Michael Pettis
8 months
1/4 Very good article. I found this especially notable: "According to a government adviser, who asked not to be named, Chinese central bankers’ priority is controlling risks, not boosting home sales. “The central government is well aware that the real...
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Michael Pettis
2 years
In two decades during which rich-country property prices soared, it's interesting that even ten years after its own massive property bubble began to deflate, Japanese prices were still declining for another decade or two. Real estate bubbles can take a long time to adjust.
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Michael Pettis
5 months
1/3 This is the right way to think about it. Over the past 2-3 decades a huge amount of fictitious wealth was created, with most bank, business, household and government balance sheets, and a great deal of economic activity, being organized around this "wealth" creation.
@Noahpinion
Noah Smith 🐇🇺🇸🇺🇦
5 months
What's happening here is that Chinese real estate, in aggregate, is worth a lot less than people thought, and the Chinese banking system has a giant tangled mess of accounting that makes it unclear who's going to take those paper losses, and this giant tangled mess of accounting…
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Michael Pettis
2 years
1/5 I don't know who put this graph together, but the story it claims to be telling, and the many similar stories told by others, is mostly nonsense. In the first place the history of global reserve currencies is very short. There has only been one: the US dollar.
@JamesYo43532848
James Young
2 years
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Michael Pettis
7 months
1/3 Just finished reading these two. The first one is the much-discussed biography of Keynes and the evolution of Keynesian ideas in the US. It was, as expected, and very good book and well worth reading.
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Michael Pettis
1 year
1/10 Citibank apparently has an interesting research piece on the similarities between China’s economy today and Japan's of the late 1980s and early 1990s: "Back in 2003," the FT notes, "Japan could no longer fool itself that all was well."
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Michael Pettis
7 months
1/7 Very good article on how the financial-distress impact of the real estate crisis in China can spread through the financial system. While we are unlikely to see a financial collapse, or anything so spectacular, we're instead likely to see a creeping...
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Michael Pettis
7 months
1/8 I don't have enough experience in manufacturing to know how available tooling engineers are in either the US or China, but I am old enough to remember that we were saying exactly the same things about Japan in the 1980s and Germany more recently.
@mikebeckhamsm
Mike Beckham
7 months
We began manufacturing in America in 2022. We will make over a million bottles domestically in our first year. I’ve learned first hand why it is so hard to build things in America. For us, the biggest barrier hasn’t been wages or regulation.
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Michael Pettis
1 year
1/3 A new report by the China Africa Research Initiative at the Johns Hopkins University seems to confirm what some of us have been saying for a long time: the China "debt trap" narrative never made as much sense as its proponents claimed. via @scmpnews
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Michael Pettis
5 months
1/4 According to Bloomberg, "Prime Minister Narendra Modi’s efforts to transform India’s economic model into one driven by manufacturing rather than consumption, are creating a tailwind for infrastructure and heavy-industry companies." via @markets
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@michaelxpettis
Michael Pettis
1 year
1/12 While I agree with much that @paulkrugman says in this article, he's wrong about this: "Even economic analysts like Michael Pettis," he says, "seem to believe that dollar dominance is the only reason America can run persistent large trade deficits."
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Michael Pettis
10 months
1/8 Rising US debt is indeed a problem, but the way to resolve it isn't by cutting back on government spending, and it certainly isn't by cutting back on government investment. The real way to resolve it is by reversing income inequality.
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Michael Pettis
9 months
1/5 Good article. More and more analysts, both inside and outside China, are starting to recognize what has been the case for years: "Here’s where China could turn Japanese. If the government keeps extending loans to troubled developers and... via @WSJ
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Michael Pettis
9 months
Good piece by @hofunghung , arguing, correctly, in my opinion, that "It would be wrong to think that external factors have radically altered China’s prospects. Rather, the country’s gradual decline started more than a decade ago."
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Michael Pettis
5 months
My home in Beijing, where it's been snowing all day.
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Michael Pettis
11 months
"The fundamental problem — that Chinese people paid excessive prices for real estate because they thought the price would always go up — remains. And that means that someone will eventually have to take the losses." @Noahpinion
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Michael Pettis
7 months
1/4 This article makes an important point that is not often enough recognized: manufacturers moving out of China's coastal manufacturing strongholds in order to lower costs are far more likely to move elsewhere in China than to move abroad. via @WSJ
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Michael Pettis
4 months
1/8 Good piece by Noah Smith on applying Robert Solow's growth model to the Chinese economy. His argument is that the benefits of additional investment in infrastructure suffer from diminishing returns, while costs don't (they may actually increase).
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Michael Pettis
8 months
1/4 "China remains embedded in US supply chains even as American firms have taken steps to reduce direct imports from the Asian country." I've long warned my clients to be very skeptical about claims that manufacturing will leave China and move offshore.
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Michael Pettis
4 months
"China has suspended a US$6.5 billion currency swap agreement with Argentina, and the freeze remains in effect until President Javier Milei demonstrates a clear intention to engage with Beijing, Argentine media have reported." via @scmpnews
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Michael Pettis
2 years
1/8 This article that makes an important point, namely that "decoupling from China isn’t going to be easy" for foreign manufacturers. That's what I tell my clients, although often to a lot of resistance and pushback.
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Michael Pettis
3 months
1/8 Very good article by Gavekal's Yanmei Xie on Chinese policy on EVs. For me the key point he makes is this: "China’s well-rehearsed industrial policy can be staggeringly wasteful but still produce stunning results." via @ft
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Michael Pettis
9 months
1/5 For those who think that China's rapid development in the 1990s and 2000s was driven mainly by the unleashing of the private sector, and not by active government intervention, here is what Wu Jinglian has to say in this piece on Ryutaro Komiya:
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Michael Pettis
1 year
6/9 He doesn't realize that what matters is not the currency in which Brazilian trade is denominated. It could be dollars, RMB, reais, euros or even Malaysian ringgits. What matters are the assets in which exporters want to to accumulate the proceeds of their exports.
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Michael Pettis
10 months
1/5 "“It’s like a declaration of war,” Robert Habeck, Germany’s vice-chancellor and economics minister, said last month." There's no hypocrite like a free-trade hypocrite.
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Michael Pettis
4 years
What's surprising about this paper is not its conclusion, but the fact that it was produced by the Fed, and not some radical leftists.
@tracyalloway
Tracy Alloway
4 years
New paper finds that increased corporate power is basically responsible for all of the negative financial and economic trends of the past few decades, including stagnant wages, rising inequality, more household debt and financial instability.
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Michael Pettis
8 months
1/5 Amidst all the recent China-related doom and gloom, it might surprise many when I say that I think the PBoC might be right, and the rest of this year seem not nearly as bad as the first seven months.
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Michael Pettis
8 months
1/2 "India will contribute just over 15% to global growth this year, according to the International Monetary Fund, right behind China’s 35% and more than the entire Western hemisphere’s 14%." But what matters to the economies of rest of the word isn't...
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Michael Pettis
7 months
2015-16 was when China experienced the shock of the Venezuela debt restructuring. Since then, Chinese appetite for developmental lending has dropped sharply. This is a pretty common experience for countries when they first begin investing in developing economies.
@chineseciv
Chinese History Expert
7 months
The golden era of Africa-China cooperation is over.
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Michael Pettis
4 months
1/3 While the rest of the world tries to gain international competitiveness by boosting spending on industrial infrastructure, the EU, led by Germany, seems determined not to allow itself to do the same. via @ft
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Michael Pettis
1 year
1/2 US manufacturing orders in China are down 40%, setting off an "unrelenting decline in container freight rates from Asia" which, in turn, is compelling ocean carriers to cancel sailings as vessel utilization hits new lows.
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Michael Pettis
2 years
1/4 It's astonishing how little these people know about American economic history. While economic freedom has certainly been one of the great strengths of the American economy, the claim that government support for industry...
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Michael Pettis
7 months
According to WSJ, "Evergrande had the equivalent of more than $332 billion in liabilities by June, which included money owed to suppliers, unfinished projects and its bond and loan obligations." This is substantially more than Argentina's external debt.
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Michael Pettis
2 years
1/14 “It may seem hard to believe today but Brazil and Mexico were once the envy of the world.” The story of Brazil, the first economy to be called an economic "miracle" is an especially impressive one.
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Michael Pettis
1 year
4/5 There is a real problem with our global trade system when export prowess is mainly a function of the repression of domestic demand. Countries become successful exporters not by boosting domestic productivity but rather by cutting back on domestic wages.
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Michael Pettis
2 years
I just finished Julian Gewirtz's excellent history of Chinese economic policymaking in the 1980s, in which he shows just how complex and contentious the early phases of "reform and opening up" were. For those interested in Party politics, this is an important book. @JulianGewirtz
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Michael Pettis
2 years
1/6 It really doesn't matter how innovative US manufacturing might be, as long as the role of the US in the global trade and capital regime is to provide the deficits needed to accommodate the surpluses of... via @WSJ
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@michaelxpettis
Michael Pettis
2 years
1/10 Yet again China's trade data "surprised" in the same way it has every month for over a year. Instead of slowing from last month's torrid pace, as everyone expected, July's export growth accelerated 18% year on year to $333 billion. via @scmpnews
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@michaelxpettis
Michael Pettis
2 years
4/9 This "growth" – which was really just activity and not growth – could only exist as long as the government and banking system were willing and able to tolerate an unsustainable increase in the debt associated with that activity.
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Michael Pettis
2 years
2/9 What really drove decades of Chinese growth was first, the removal of especially foolish forms of Maoist economic control and then, much more importantly, the surge in government-led investment in an economy that had been starved of effective investment for over five decades.
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Michael Pettis
1 year
15/15 For Zakaria to suggest that the erosion of the dominance of the global role of USD is one of the greatest threats facing the US is absurd. Not only is it not happening, but it would be better for the US if it did.
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Michael Pettis
2 years
2/9 What is more, they misunderstood it in the same way that most economists misunderstood it when they predicted in the 1960s that Soviet GDP would overtake US GDP in two decades, or when they predicted the same for Japan in the 1980s.
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Michael Pettis
1 year
7/9 For the world meaningfully to switch from dollars to RMB, exporters will have to want to hold their accumulated surpluses in RMB and, much more importantly, China will have to give up control of its monetary policy and abandon its surpluses for permanent deficits.
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