1/6 China’s exports in November rose 5.9% year on year, leading to a $111.7 monthly trade surplus. A few years ago, a monthly trade surplus of over $100 billion would have seemed almost inconceivable, but so far this year it has happened six times

bloomberg.com/news/articles/… **

2/6 While exports to the US in November were down 29% year on year, according to Bloomberg, "Exports to the EU expanded almost 15% last month. Shipments to Africa surged nearly 28%, while those to the 10-nation Southeast Asian trading bloc gained only 8.4%." **

3/6 Contrary to what many think, it is not just a lucky coincidence that Chinese exports to the rest of the world have surged even as exports to the US have declined. The fact that US imports from the rest of the world have surged even as US imports from China have declined... **

4/6 shows just why we should only think about trade systemically, and not incrementally or bilaterally. As long as the US runs huge and growing trade deficits, its growing deficits with the rest of the world will finance the rest of the world’s growing deficits with China. **

5/6 The corollary, of course, is that if Washington is ever able to put into place serious policies that reduce US trade deficits and revive US manufacturing, this would change global trade and global imbalances much more profoundly than policies during the past few years. **

6/6 Without US deficits financing their surpluses, after a few months during which developing-country debt would surge, either European trade deficits would grow or Chinese trade surpluses would contract. This is what the rest of the world should really be preparing for. **

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More from @michaelxpettis

Nov 30

1/10 WSJ: "What saves American finance is the dollar’s status as the must-have global asset and trading currency. Both roles face challenges, though, and the more the U.S. exploits foreigners, the higher the risk they look elsewhere."

via @WSJwsj.com/finance/invest…

2/10 While this is widely believed, it isn’t true. Foreign capital inflows don’t fund fiscal deficits. They fund current account deficits, and they must be matched domestically either by higher US investment, higher US unemployment, or higher US household and fiscal debt.

3/10 For those who understand accounting identities, these are the three main ways foreign inflows can result in wider gap between investment and saving. When there is an increase in net foreign inflows, in other words, one (or some combination) of these must occur.

Read 10 tweets

Nov 28

1/12 Weijian Shan is right: China does need to let the renminbi rise, and substantially. An appreciating currency would "subsidize" imports and "tax" exports – the opposite of what tariffs are supposed to do. Given that households are net importers... ft.com/content/5bb8ed…

2/12 and manufacturers are net exporters, an appreciating currency is effectively an income transfer from manufacturers to households.

This, as former PBoC governor Zhou Xiaochuan explained many years ago, would be a very effective part of the income rebalancing process.

3/12 In fact any policy that correctly rebalances the distribution of income towards more domestic consumption works the same way, raising the household share of GDP – by increasing wages relative to productivity, raising interest rates, expanding social welfare spending, etc.

Read 12 tweets

Nov 28

1/8 Xinhua: "China aims to "achieve a notable increase in household consumption as a share of GDP," and to increase the role of domestic demand as the principal engine of economic growth over the next five years, according to the new MIIT plan". english.news.cn/20251127/5539c…

2/8 But while everyone in government now acknowledges the urgent need to raise the consumption share of GDP, and wants to be seen doing something to achieve the goal, it isn’t clear that they know what to do. This new "comprehensive" plan "to improve the alignment of...

3/8 the supply and demand of consumer goods" seems mainly to focus on producing more and better consumer goods, as if the problem in China is that households have plenty of money to spend, and are eager to spend it, but just don’t have anything to spend it on.

Read 8 tweets

Nov 26

1/18 Martin Wolf wonders whether the US or China will be the first to abandon its current follies on trade imbalances, but I don’t think this is the right way to understand the current "fracturing" of globalization. via @ft@ftft.com/content/b5157c…

2/18 As I see it, everyone (even Europe, eventually) is relearning what we used to know: a highly globalized trading regime can only work when all major economies choose more or less the same tradeoff between global integration and economic sovereignty.

3/18 That’s because economies that exert more control than their trading partners over their external accounts (i.e. choose more economic sovereignty and less global integration) are also able to exert more control over their internal accounts, i.e. they are able to structure...

Read 18 tweets

Nov 26

1/7 Good FT article on declining investment growth in China: "A sharp decline in reported investment in China suggests President Xi Jinping’s campaign against excessive industrial competition may be having an impact on the Chinese economy."

via @ftft.com/content/008738…

2/7 While some of the decline may reflect “a statistical correction of previously over-reported data”, as Goldman suggests, at least part of it shows that Beijing’s battle against involution is working.

3/7 But here’s the problem. The massive, post-2022 surge in investment in the industries that later suffered from involution was no accident. It was the engineered response to the collapse in property investment after 2021-22.

Read 7 tweets

Nov 26

1/14 This very good Robin Harding article points out that the purpose of trade should be the exchange of goods, and not the mercantilist accumulation of assets abroad. ft.com/content/f294be…

2/14 However he makes a mistake when he says: "There is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to."

3/14 That is not why China (or any other surplus country) doesn’t import nearly as much as it exports. There are always foreign goods that people would like to import, especially from Europe, and in a well-managed global trading system, even in the extremely unlikely case that...

Read 14 tweets