• Why China Likely Won’t Buy Fewer U.S. Treasury Bonds

    January 12, 2018

    A January 2018 Bloomberg article suggests that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.

  • EVENT: China’s Economy After the Party Congress

    September 29, 2017

    Michael Pettis will be joined by Carnegie’s vice president for studies Douglas H. Paal to address economic factors challenging China and the new leadership that will emerge from the congress. Watch live on Monday, October 2.

  • Is China’s Economy Growing as Fast as China’s GDP?

    September 05, 2017

    If local governments and state-owned enterprises in China systematically invest in projects that are not economically justified, to the extent that these projects are not correctly marked to market, China’s reported GDP will be overstated by that amount, as will its total wealth.

  • Does Cutting Taxes on the Wealthy Lead to Greater Growth?

    June 26, 2017

    Policies that increase income inequality can in some cases lead to higher savings, higher investment, and greater long-term growth. But, in other cases, such policies either reduce growth and increase unemployment or force up the debt burden. What determines which of these outcomes takes place is whether or not savings are scarce and have constrained investment.

  • Guaranteeing Employees Against Losses

    June 14, 2017

    A number of Chinese companies are trying to shore up their stock prices with programs that encourage employees to buy shares and ensuring them against losses. These programs have implications about leverage in China and about the way losses may be distributed within the banking system.

  • Will a Smaller Fiscal Deficit Cause the Trade Deficit to Decline or Unemployment to Rise?

    May 22, 2017

    In a recent much-remarked-upon and very short op-ed, George P. Shultz and Martin Feldstein argue that the only way, or at least the best way, to cut the U.S. trade deficit is for Washington to cut the U.S. fiscal deficit. It is at least as likely, however, that cutting the fiscal deficit will simply increase debt or increase unemployment.

  • Why A Savings Glut Does Not Increase Savings

    May 02, 2017

    Contrary to conventional thinking, a savings glut does not necessarily cause global savings to rise. A savings glut must result in an increase in productive investment, an increase in the debt burden, or an increase in unemployment.

  • No, First Quarter Numbers Don’t Mean Growth Has Bottomed Out

    April 18, 2017

    As long as China has debt capacity, it can achieve any GDP growth rate Beijing requires, simply by allowing credit to expand. But debt levels are already high, and credit must expand at an accelerating pace to maintain growth. China is probably still a few years away from reaching its debt limits, but the more debt grows, the lower the country’s growth rate average will be over the long term.

  • Mexico’s Positive Impact on the U.S. Trade Balance

    April 03, 2017

    Contrary to what one might first expect, Mexico’s role in global trade is actually beneficial to the United States. While restricting Mexican imports will reduce the American deficit with Mexico, it will increase the overall American deficit.

  • China and the History of U.S. Growth Models

    February 28, 2017

    The Chinese development model is an old one and can trace its roots at least as far back as the infant industry protection, internal improvements, and system of national finance of the American System of the 1820s and 1830s. Understanding why the many precedents for its growth model have succeeded in some few cases and failed in others will help us enormously in understanding China’s prospects.

  • Is Peter Navarro Wrong on Trade?

    February 02, 2017

    Whether the U.S. current account deficit is harmful or not to the U.S. economy depends on the assumptions we make about capital scarcity. In a world awash with excess capital and insufficient demand, the U.S. current account deficit is a drag on growth.

  • My Reading of the FT’s “. . . Glimpse of China’s Economic Future”

    January 06, 2017

    The three scenarios listed in a recent Financial Times article set out the range of plausible economic outcomes available to China. The most likely is that China experiences a long, but orderly, growth deceleration as it grinds away at its debt burden, but under easily specified conditions each of the three is possible.

  • A U.S. Retreat on Global Trade Will Not Lead to a Shift in Power

    December 16, 2016

    Rejecting the Trans-Pacific Partnership should not mean the rejection altogether by Washington of the very idea of a stable, rules-based trading system. The world is better off with such a regime.

  • China: Choosing More Debt, More Unemployment, Or Transfers

    November 20, 2016

    China’s success will depend Beijing’s ability to centralize power, to begin to sell off government assets, to rein in credit growth, and to accept much lower GDP growth rates.

  • The Impact in China and Abroad of Slowing Growth

    October 02, 2016

    China’s rebalancing can only occur in a limited number of ways, and each of these has a fairly predictable impact. The path Beijing chooses to follow will likely be based on political decision-making.

  • Does it Matter if China Cleans Up its Banks?

    August 31, 2016

    China’s problem is excessive debt in the economy, not a banking system facing insolvency. Beijing’s reform strategy should reduce the debt burden as quickly as possible to minimize the economic costs.

  • Rebalancing, Wealth Transfers, And The Growth Of Chinese Debt

    June 22, 2016

    There is no way Beijing can address its debt problem without a sharp drop in GDP growth, but as unwilling as Beijing may be to see much lower growth, it doesn’t have any other option.

  • Will China’s New “Supply-Side” Reforms Help China?

    January 25, 2016

    China is embarking on ambitious economic reforms to boost its growth prospects. What is the rationale behind these new reforms and what are the prospects for their success?

  • China’s Rebalancing Timetable

    November 29, 2015

    A simple model can help illustrate the problems that China will face over the coming decade.

  • Thin Air’s Money Isn’t Created Out of Thin Air

    October 19, 2015

    Because savings and investment must always balance, the idea that the savings rate in any country is determined at home is nonsense.

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