Michael Pettis
@michaelpettis.bsky.social
Senior Fellow at Carnegie China. For speaking engagements, please write to [email protected]
Michael Pettis is an American professor of finance at Guanghua School of Management at Peking University in Beijing and a nonresident senior fellow at the Carnegie Endowment for International Peace. He was founder and co-owner of punk-rock nightclub D22 in Beijing, which closed in January 2012. .. more
Economics
76%
Political science
11%
3/3
recipient economies suggests that analysts still rely almost exclusively on the very unrealistic models that economists use to understand trade. Recent history suggests these flows are more likely to reduce the recipient economy's share of global manufacturing.
recipient economies suggests that analysts still rely almost exclusively on the very unrealistic models that economists use to understand trade. Recent history suggests these flows are more likely to reduce the recipient economy's share of global manufacturing.
2/3
It's good that the world is increasingly recognizing that capital flows are not just a residual of trade flows, but actually drive trade imbalances. To argue, however, that these flows are more likely to "plant the seeds of future jobs, productivity and innovation" in the...
It's good that the world is increasingly recognizing that capital flows are not just a residual of trade flows, but actually drive trade imbalances. To argue, however, that these flows are more likely to "plant the seeds of future jobs, productivity and innovation" in the...
US and China Flip the Global Script as Capital Flows Reverse
As the US draws back, China is again dispersing capital globally, leading the rest of the world to confront a fundamental change in their economic relationships with both superpowers.
www.bloomberg.com
1/3
Bloomberg: "As the US increasingly tries to lure investments and production home, China Inc. is stepping into the vacuum, exporting capital alongside its manufactured goods and planting the seeds of future jobs, productivity and innovation abroad."
www.bloomberg.com/news/feature...
Bloomberg: "As the US increasingly tries to lure investments and production home, China Inc. is stepping into the vacuum, exporting capital alongside its manufactured goods and planting the seeds of future jobs, productivity and innovation abroad."
www.bloomberg.com/news/feature...
7/7
lower growth target as its development model shifts away from being investment intensive and towards the institutional reforms that allow its businesses and workers to become more productive. But so far Beijing doesn't seem willing to give up GDP growth targets.
lower growth target as its development model shifts away from being investment intensive and towards the institutional reforms that allow its businesses and workers to become more productive. But so far Beijing doesn't seem willing to give up GDP growth targets.
6/7
In the past five years, the consequences have become clear. China has a debt problem, and it is concentrated especially among the poorer provinces that were supposed to show the most "catch up" growth. What Guizhou really needs if it is to rein in its debt is a much...
In the past five years, the consequences have become clear. China has a debt problem, and it is concentrated especially among the poorer provinces that were supposed to show the most "catch up" growth. What Guizhou really needs if it is to rein in its debt is a much...
5/7
could absorb was much lower than that of the richer, more productive provinces. What the poorer provinces really needed, in that case, was not more investment, but rather more institutional reform.
Instead, they got a lot of the former and very little of the latter.
could absorb was much lower than that of the richer, more productive provinces. What the poorer provinces really needed, in that case, was not more investment, but rather more institutional reform.
Instead, they got a lot of the former and very little of the latter.
4/7
This is only true when the economy suffers from underinvestment. The problem is that the lower the level of productivity, the lower the level of infrastructure it can productively absorb. This means that the amount of investment that poorer, less productive provinces...
This is only true when the economy suffers from underinvestment. The problem is that the lower the level of productivity, the lower the level of infrastructure it can productively absorb. This means that the amount of investment that poorer, less productive provinces...
3/7
this would be especially a problem in the poorest provinces. That's because there was a widespread (and wholly incorrect) belief that the poorer the province, the faster it could "catch up" to the richer provinces through high levels of infrastructure spending.
this would be especially a problem in the poorest provinces. That's because there was a widespread (and wholly incorrect) belief that the poorer the province, the faster it could "catch up" to the richer provinces through high levels of infrastructure spending.
2/7
He may be as corrupt as this article suggests, but it seems a little unfair to blame him for Guizhou's debt problem. I have argued for nearly two decades that not only would China's excessively high GDP growth targets lead to a surge in the country's debt burden, but that...
He may be as corrupt as this article suggests, but it seems a little unfair to blame him for Guizhou's debt problem. I have argued for nearly two decades that not only would China's excessively high GDP growth targets lead to a surge in the country's debt burden, but that...
Former Vice Governor of Guizhou Expelled for Failing to Curb Local Debt
Wu has been accused of associating with ‘political swindlers’ and failing to address local-government debt, marking the sixth removal of an alternate member from the 20th Central Committee
www.caixinglobal.com
1/7
Caixin: "China’s top disciplinary watchdog has expelled a former vice governor of Southwest China’s Guizhou province, accusing him of failing to execute Beijing’s mandate to reduce local-government debt and associating with “political swindlers.”"
www.caixinglobal.com/2026-01-08/f...
Caixin: "China’s top disciplinary watchdog has expelled a former vice governor of Southwest China’s Guizhou province, accusing him of failing to execute Beijing’s mandate to reduce local-government debt and associating with “political swindlers.”"
www.caixinglobal.com/2026-01-08/f...
China’s Currency is Now Facing Substantial Appreciation Pressure
China wants a slow, managed move in its currency. The market—and China’s trading partners—may not be as patient.
on.cfr.org
Brad Setser on the RMB: "An immovable object is meeting a potentially unstoppable political force."
While I think there will definitely be RMB appreciation this year, I don't think it will be nearly enough to satisfy anyone.
on.cfr.org/49wu13q
While I think there will definitely be RMB appreciation this year, I don't think it will be nearly enough to satisfy anyone.
on.cfr.org/49wu13q
China’s Top Cities Face Office Glut With Supply Doubling Demand in 2025
New supply outstripped demand by more than double in Shanghai, Guangzhou and Shenzhen last year, pushing vacancies to historic highs
www.caixinglobal.com
Caixin: "China’s top-tier cities struggled with a worsening glut of premium office space in 2025, as new supply outpaced demand by more than double in key hubs including Shanghai, Guangzhou and Shenzhen."
www.caixinglobal.com/2026-01-10/c...
www.caixinglobal.com/2026-01-10/c...
2/2
Although many analysts believe that redeployed funds are more likely to favor relatively conservative options, such as insurance products and bank wealth management products, if a meaningful portion is redirected into stocks, this could could provide another year of support.
Although many analysts believe that redeployed funds are more likely to favor relatively conservative options, such as insurance products and bank wealth management products, if a meaningful portion is redirected into stocks, this could could provide another year of support.
Analysis: China’s Deposit Maturity Wave Puts Household Money to the Test
Trillions in deposits nearing maturity raise questions over where savings will flow
www.caixinglobal.com
1/2
Caixin: "Between 30 and 60 trillion yuan in longer-term fixed deposits will come due this year, reshaping how Chinese savers allocate their wealth in 2026, as years of falling interest rates erode the appeal of rolling money back into banks."
www.caixinglobal.com/2026-01-09/a...
Caixin: "Between 30 and 60 trillion yuan in longer-term fixed deposits will come due this year, reshaping how Chinese savers allocate their wealth in 2026, as years of falling interest rates erode the appeal of rolling money back into banks."
www.caixinglobal.com/2026-01-09/a...
2/2
To a hammer, every problem looks like a nail. China's small businesses complain far more about lack of demand than they do about lack of financing, so its not at all clear how further supply-side subsidies, this time on the financing side, will help.
To a hammer, every problem looks like a nail. China's small businesses complain far more about lack of demand than they do about lack of financing, so its not at all clear how further supply-side subsidies, this time on the financing side, will help.
China Offers Subsidized Loans to Small Businesses in New Stimulus Push
New fiscal package includes interest support and risk-sharing mechanisms to revive private investment and household demand
www.caixinglobal.com
1/2
Caiixin: "China unveiled a new package of fiscal and financial measures aimed at jumpstarting domestic demand, including — for the first time — nationwide interest subsidies on loans to small, midsize and micro enterprises."
www.caixinglobal.com/2026-01-10/c...
Caiixin: "China unveiled a new package of fiscal and financial measures aimed at jumpstarting domestic demand, including — for the first time — nationwide interest subsidies on loans to small, midsize and micro enterprises."
www.caixinglobal.com/2026-01-10/c...
The purpose of this investment is mostly to generate growth, productive capacity and jobs at home.
5/5
One caveat. I don't know the extent to which the declining US trade deficit reflects rising gold sales, but excluding jewelry, I would not include gold sales in the trade account. They really belong more appropriately in the capital account.
One caveat. I don't know the extent to which the declining US trade deficit reflects rising gold sales, but excluding jewelry, I would not include gold sales in the trade account. They really belong more appropriately in the capital account.
4/5
Given that Japan, South Korea and Taiwan will fight hard to prevent significant deterioration in their trade balances, I expect Europe will ultimately reflect the bulk of the rebalancing, which may become an even greater challenge for German and European manufacturing.
Given that Japan, South Korea and Taiwan will fight hard to prevent significant deterioration in their trade balances, I expect Europe will ultimately reflect the bulk of the rebalancing, which may become an even greater challenge for German and European manufacturing.
3/5
Simple arithmetic tells us that the difference must be reflected in the trade balances of other countries. Some of this will have showed up initially as rising trade deficits among developing countries, but this will ultimately be limited by their abilities to finance them.
Simple arithmetic tells us that the difference must be reflected in the trade balances of other countries. Some of this will have showed up initially as rising trade deficits among developing countries, but this will ultimately be limited by their abilities to finance them.
2/5
If this persists, it may be the most important factor for those thinking about what is likely to happen in 2026. In a three-month period during which the Chinese trade surplus has surged, the US trade deficit has declined.
If this persists, it may be the most important factor for those thinking about what is likely to happen in 2026. In a three-month period during which the Chinese trade surplus has surged, the US trade deficit has declined.
U.S. Trade Deficit Fell to Lowest Level Since 2009 as Tariffs Reshape Trade
www.nytimes.com
1/5
NYT: "The U.S. trade deficit in goods and services shrank to $29.4 billion in October, down from $48.1 billion the prior month. The figure was the lowest monthly trade deficit recorded since June 2009."
www.nytimes.com/2026/01/08/b...
NYT: "The U.S. trade deficit in goods and services shrank to $29.4 billion in October, down from $48.1 billion the prior month. The figure was the lowest monthly trade deficit recorded since June 2009."
www.nytimes.com/2026/01/08/b...