M. Pettis

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    • Tue Nov 11th 07:12 AM | Rating: 0 0
      Commented on:
      Can China Take Up Consumption Slack From the U.S.?
      Chinayouren, that's part of the answer. China cannot use foreign currency reserves for domestic investment without pushing the RMB through the roof and effectively killing off the export industry. But there is also the fact that reserves aren't unencumbered wealth. They are simply assets against which there are liabiltiies, in the same way that Citibank has a trillion dollars of assets but is not worth a trillion dollars (it also has nearly that much debt).

      In other words the PBoC had to borrow RMB to buy the reserves, and some people think the rise in the value of RMB liabilities may have already wiped out the PBoC's capital cushion. Giving the government reserves as a 'gift' is no different than having the MoF borrow the money domestically, with the difference being that it would result in a rise in PBoC domestic liabilities rather than MoF domestic liabilities.
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    • Thu Oct 9th 07:01 AM | Rating: 0 0
      Commented on:
      China: Expectations for Fiscal Expansion a Little Hasty
      PA you certainly can't be accused of excessive optimism
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    • Tue Oct 7th 01:42 AM | Rating: 0 0
      Commented on:
      How the US Slowdown Is Slowing Down China
      It is no longer as useful as it once was to measure the dependency of two economies by the amount of direct trade to each other. One of the consequences of globalization has been that products are produced and assembled in several coutnries before they are shipped to their final destination, so if, for example, China produces a widget, sells it to Japan, who paints it green before selling it to the US, the widget will not appear as a China sale to the US even though ultimately it is US demand that abosrbs Chinese supply.

      One of the side-effects of globalization has been the seeming paradox that each country's exports to the US has declined as a share of total exports even while US imports are growing as a share of world GDP. The first fact seems to indicate that the world is becoming less dependent on the US consumer while the second suggests that the world is more dependent on the US.

      I would argue that the latter is true, and increased trade specialization explains the former fact. If the US slows down, and espcially if there is a sympathetic slow down in Europe, I have little doubt that developing coutnries, especially those reliant on exports, are going to be seriously affected.

      As an aside, Paultaut, we will need to see September and October figures before we can be confident that internal consumption can take up the slack. I suspect much of the July/August surge was Olympics related.
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    • Wed Oct 1st 02:48 AM | Rating: 0 0
      Commented on:
      China: Holiday Thoughts on Misunderstanding Data
      Thanks for all the great comments. The main points I tried to make in the first part of my piece were: 1) As most of the comments implicitly ackowledge it is not very useful to assume that there is such a thing as "Chinese opinion" when in fact this is a very complex country undergoing huge social transformation and, not surprisingly, there is a very wide range of views including some very mixed feelings about the process of change. Chinese attitudes to China are at least as nuanced and conflicted as American attitudes to the US are, and the view of young people as being dominated by the fen qing (sorry for the typo) is no more accurate than to assume all young Austrians are neo-Nazis just because the neo-Nazis are more visible in the headlines. 2) This complexity and distrust has political and economic implications.

      And AWJ, I am not disparaging young people from elite colleges (nor are all my young friends from elite colleges -- I actually deal with a pretty wide group of people here). At Beida, Tsinghua, Renda, Zheda, Fudan and several of the other elite schools at which I taught and lectured I have met lots of very impressive students who have a great deal of idealism and are eager to see Chinese advance in a wide variety of areas, but there is no point assuming that elite students have any more objective view than students from what you unfairly call the "trash" schools. In fact Beida students know that, one way or the otjher, their prospects for advancing in China or going abroad (and all six of the people I spoke to Sunday night said they would not hesitate for a second to emigrate if they could, but it was too difficult for them to do so) are fairly good, and this cannot help but affect their feelings and observations.

      By the way I agree with your dismay about Bjork's silly and self-interested behavior. If you are Modern Sky come see me at the Maybe Mars booth, where i spend a lot of time.

      The second part of my peice was, I guess, a warning about my own perspectives. I am no more objective than anyone else, but my many years experience in other developing countries leaves me very wary of the claim that economic processes are different in China. I think we need to look at data in China and understand that even when the data is right, it can give us a view that is the opposite of reality because the system has so many moving parts and they react in sometimes contradictory ways to each other.
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    • Sat Sep 27th 05:03 AM | Rating: 0 0
      Commented on:
      China: A Run on the Bank of East Asia
      John, I don't really follow either of those instruments so I don't have anything useful to say. Sorry.

      Portable, I agree with you completely. Adding gasoline to speculative trading strategies in a market that is already completely dominated by speculation is not a good idea. Expect to see more, not less, volatility.
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    • Fri Sep 19th 07:43 AM | Rating: 0 0
      Commented on:
      No Rest for the Chinese Stock Market
      PAF, given current markets I am a little surprised that you think things are going so well. At any rate I am not a Chinese nespaper. It is not my goal to try to cheer people up. It is my goal to try to understand risks in the financial system, and you would have to be pretty foolish to argue for the bright side of collapsing real estate prices. The fact that collapsing real estate prices might help future buyers may very well be true, but it hardly is good news for existing investors, and it is always terrible news for banks. I would have thought that was sort of obvious.

      By the way your IP numbers obviously haven't been deflated by PPI or you would have had a different view. As for consumer demand, I have always said July and August growth was high but this may because of the Olypmpics. We must wait and see. I suggest, again, that we wait and see.
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    • Fri Sep 19th 07:28 AM | Rating: 0 0
      Commented on:
      How Susceptible is China to the Global Crisis?
      Kelaido, if you can figure out a way to profit from my travel schedule I am happy to form a hedge fund with you. I'll tell you my schedule several days in advance and you trade.

      Amd yes, the melatonin seems to work. My trip back was a lot easier.
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    • Fri Sep 19th 07:26 AM | Rating: 0 0
      Commented on:
      How Susceptible is China to the Global Crisis?
      Chinawatcher, the comparison was between Chinese exposure to stocks versus real estate, and given that the real estate market is many times the size of the stock market (and banks are, in theory, not supposed to lend for stock purchases), their exposure to real estate is much larger.

      On the comparison with the US, real estate development and investment is at least as important to the Chinese economy (and probably more) than it is to the US economy. Since the US was driven into crisis by problems in the real estate market, I don't think we should be comfortable that Chinese banks, even if their exposre were lower, are safe. At any rate given that nearly all financing comes from the banking sysytem, it suggests to me that directly and indirectly a decline in real estate may be far more damaging for Chinese banks. By the way bankers often tell me in confidence that real estate expositre in the banks is much gretaer than simply the loans listed as real estate loans. A lot of borrowers are little more than real-estate shells.
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    • Wed Sep 3rd 03:01 AM | Rating: 0 0
      Commented on:
      China Still Needs Revaluation, but How Much?
      The problem with a gradual appreciation is not that speculators will profit. The problem is that the financial system will be swamped by speculative inflows. This has already happened and it is clear that it cannot continue much longer.
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    • Mon Sep 1st 07:54 AM | Rating: 0 0
      Commented on:
      China: Post Olympic Slowdown
      JTB, many of the investment banks regularly publish data on vacancy rates, although these are not always reliable. There was a bank bailout in the late 1990s and early 2000s that, according to the World Bank, cost China about 55% of GDP. My guess is that in case of a economic slowdown we will again see NPLs rise. As HT points out the bankruptcy law here is still complex and poorly understood. No one knows how it will be enforced in the case of a sharp rise in bankrupticies.
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    • Fri Aug 22nd 06:42 AM | Rating: 0 0
      Commented on:
      China: Olympic Fever and the Market
      Kelaido, actually restrictions on what China can buy in the US and Europe are far less than restrictions on what foreigners can buy in China, although I suspect that there will be a hardening of attitudes in all countries over the next few years. Still, what Chinese companies can buy far exceeds what they cannot. The more important question is whether they have the management capability to digest major acquisitions. There is a long history of companies making big mistakes when they first embark on foreign acquisition sprees.
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    • Thu Aug 21st 08:14 AM | Rating: 0 0
      Commented on:
      China: Real Estate Loan Growth May Be Slowing
      Kelaido, my sister-in-law and niece are Brazilian and so I have a family connection to Brazil. I have travelled to and have friends in both countries, however, so I wasn't terribly upset by Brazil's defeat.

      I don't really have specific recommendations on stocks. I usually try to get a diversified portfolio of B-shares when I invest, but right now I am in cash and will remain for a while longer.
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    • Thu Aug 21st 08:09 AM | Rating: 0 0
      Commented on:
      China: Olympic Fever and the Market
      It's a mistake to think of reserves as wealth. PBoC reserves are required to protect China from an interruption in external financing, and from that point of view China has far more than it needs. On the other hand if China needs to acquire an asset abroad, it has far more than $2 trillion available to it. As the world's second or third largest econony, China's wealth and buying capacity far exceeds its reserves.
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    • Tue Aug 19th 06:26 AM | Rating: 0 0
      Commented on:
      China: Real Estate Loan Growth May Be Slowing
      RLIRPH and Longshort, I agree that there may be more problems in the stock market, but over the medium term I think there is definitely value in the B-shares. This is why I recommend defensive plays -- including companies with little leverage, and so little exposure to a banking contraction. China still has a good growth story behind it.
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    • Tue Aug 12th 06:25 AM | Rating: 0 0
      Commented on:
      China: PPI Inflation and Trade Surplus Higher Than Expected
      PLD, of course we always need to avoid reading too much into one month's numbers, but i would argue that given the world slowdown and the huge base, export growth has been strong all year.
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