Michael Pettis

3/3
It seems that everyone, whatever their ideological priors, is beginning to recognize that in a hyperglobalized world, countries that intervene minimally in their external accounts must bear the costs created and externalized by countries that intervene aggressively.

2/3
But not only does the experience of China (and many others) suggest that the truth is much more complex, the solutions the article proposes for Europe seem to consist mainly of trade and industrial policies aimed at protecting European industry from foreign mercantilism.

To avoid crushing change, Europe must take control of its destiny If it does not, China will exploit the continent’s weaknesses

1/3
This article argues (as The Economist must) that "using trade protection and industrial policy to shore up strategic manufacturing would only accelerate Europe’s decline".
www.economist.com/leaders/2025...

Are We the Mercantilists? The U.S. is playing defense against this practice, not embracing it.

Michael Lind argues that mercantilist policies that result in beggar-thy-neighbor trade surpluses invariably lead to retaliation and trade contraction. Although they are on opposite ends of the political spectrum, this is the same argument Joan Robison made.
www.commonplace.org/p/michael-li...

Lula, Ramaphosa and Sánchez: We face an inequality emergency The needs of ordinary people must be placed at the centre of the world’s agenda

"Extreme levels of inequality are by no means inevitable. They are a policy choice."
www.ft.com/content/9cc0...

The Global Trading System Was Already Broken But there’s a better way to fix it than a reckless tariff regime.

6/6
The point is that Asia Pacific's huge foreign reserves have as much effect on economic conditions in countries like the US, who absorbs most of these reserves, as they are the consequence of economic conditions in the countries that created them.
www.foreignaffairs.com/world/global...

How to Fix Free Trade A global customs union could solve the problem of imbalances.

5/6
But they don't stop there. A country's external imbalances must always be consistent with those of its trade partners, and if it created its external imbalances with domestic policies, it also created, or at least constrained, those of its trade partners.
www.foreignaffairs.com/united-state...

4/6
The huge external imbalances of these countries are, in other words, consequences of huge internal imbalances created by policies designed to boost manufacturing production at the expense of consumption. The costs of these policies were exported through their trade surpluses.

3/6
This is far more than they could possibly need to defend their currencies, and is more likely to be the consequence of aggressive trade and industrial polices designed both to maximize manufacturing and to create large trade surpluses (in part by undervaluing their currencies).

2/6
If you add hidden or covert reserves, held at state banks, insurance companies, and sovereign wealth funds, there is probably another $4-8 trillion (Brad Setser probably has the best estimate of covert reserves).

Asia’s Currency-Defense War Chest Has Swelled to $8 Trillion Asia’s foreign-exchange reserves have surged to almost $8 trillion, providing the authorities from Tokyo to Mumbai with ample ammunition if they need to step up defending their currencies.

1/6
Bloomberg: "The major central banks in the Asia Pacific region have added more than $400 billion to their reserves this year, with 11 of the largest monetary authorities now having a stockpile of close to $8 trillion."
www.bloomberg.com/news/article...

5/5
These new measures effectively transfer income from banks and local and central governments to property owners, and because Chinese banks need anyway to be recapitalized, the full cost of the transfer is being borne (at least initially) by the government.

4/5
But while that makes it harder to see who is taking the loss on lower house prices, it doesn't mean that the loss has disappeared. It just means that rather than have property owners (individuals, developers, local governments) absorb the full cost, part of it is being absorbed elsewhere.

3/5
It is worth noting, however, that these payment subsidies are all ways of effectively lowering property prices without the depressing optics of actually lowering them. They allow buyers to pay less for new homes without explicitly reducing their list prices.

2/5
The new proposals include mortgage subsidies, income tax rebates for mortgage borrowers, and lower home transaction costs.

I don't expect these to do much to turn around the property market, except in top-tier cities where they were probably close to bottoming anyway.

China Weighs New Property Stimulus Package as Crisis Drags On China is considering new measures to turn around its struggling property market, as concerns mount that a further weakening of the sector will threaten to destabilize its financial system, according t...

1/5
Bloomberg: "China is considering new measures to turn around its struggling property market, as concerns mount that a further weakening of the sector will threaten to destabilize its financial system." www.bloomberg.com/news/article...

As high-speed rail erodes airfares, China’s airlines are stuck in overcapacity Flight loads have surpassed pre-pandemic levels on high-density routes, but China’s carriers are still struggling to balance their books.

As high-speed rail erodes airfares, China’s airlines are stuck in overcapacity
sc.mp/09iue?utm_so...

Chinese Broker CICC Plans to Absorb Peers Dongxing Securities, Cinda Securities in Share Swap

As the consolidation of China's financial industry continues, Yicai reports that "securities giant China International Capital Corporation has unveiled plans to absorb Dongxing Securities and Cinda Securities." www.yicaiglobal.com/news/chinese...

Trade-in program likely to continue next year Initiative boosts consumption via subsidies for upgraded, greener items.

China Daily: "China is likely to extend the consumer goods trade-in program into 2026. The funding pool for the program in 2026 is expected to remain at around 300 billion yuan, unchanged from the levels seen in 2025."
www.chinadaily.com.cn/a/202511/20/...

For the few who might be interested, a recent interview (in Chinese) about developments in the Chinese indie music scene.
r.xiumi.us/board/v5/2Vv...

Most Chinese Provinces Report Nine-Month Growth in Fiscal Revenue

According to Yicai, of the 28 Chinese provincial-level regions that have released data, 22 reported an increase in tax and non-tax revenues in the first three quarters of 2025 of "around 2%", four reported declines, and two reported double-digit growth.
www.yicaiglobal.com/news/24-of-2...

8/8
(or both), especially after decades in which business and the government were built around the reverse transfers.

As the history of countries in the past century that have faced the same challenge makes clear, raising the consumption share of GDP by so much is never easy.

7/8
In either case, getting consumption to grow so much faster than GDP requires huge implicit or explicit transfers from government and businesses to the household sector. It is hard to imagine how such transfers wouldn't undermine either the economy, or political institutions...

6/8
If, on the other hand, China's average growth between now and 2035 is closer to 2%, as is likely, raising the household consumption share of GDP to 61% from 39% would require that household consumption grow by just under 6.3% a year, still far above current growth rates.

5/8
currently hopes and expects, raising the household consumption share of GDP to 61% from 39% would require that household consumption grow by just over 8.5% a year, something it hasn't managed since the mid-2000s, when GDP was growing 12-14%.

4/8
To achieve this by 2035 would require that growth in household consumption exceed growth in GDP by roughly 4.3 percentage points. To give an example of what this implies, if China's GDP grew over that period by 4.2% annually on average, as Beijing...

3/8
Most prominent economists in China have already called for increases of anywhere from 5 to 10 percentage points of GDP, and while Cai is right that household consumption of 61% of GDP would indeed make China a more "normal" country, I wonder if he has done the math.

2/8
The article continues: "Currently, household consumption accounts for about 39% of China’s GDP, according to Cai Fang, an academician at CASS. Over the next decade it should rise to around 61% as China strives to become a “moderately-developed” country by 2035."

Chinese economist calls on Beijing to add consumption target to long-term goals Cai Fang of the Chinese Academy of Social Sciences said Beijing’s benchmarks for 2035 should include a quantitative figure for consumption.

1/8
SCMP: "China should add a quantitative target for consumption growth as part of its long-term modernisation goals to help sustain growth momentum as the country’s population declines, a prominent Chinese economist said."
sc.mp/qmm5m?utm_so...

How to Fix Free Trade A global customs union could solve the problem of imbalances.

“To sustain a stable and fair global system, policymakers must recognize that integration entails shared constraints.”

@michaelpettis.bsky.social makes the case for a global customs union: