Demystifying China's macroeconomic policy. Sign up for free updates read by the World Bank and J.P. Morgan: https://xitter.cf/t.co/sZ5LRckG8j

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China Banking News retweeted
Wide income gaps constrain demand, argues Jiang Xiaojuan 江小涓. Local tax breaks for high earners pull against common prosperity. Her case for inclusive reform is worth reading. A veteran policymaker and economist, she is a voice we track closely. Read our context note and summary: buff.ly/JbRxXDT original article: buff.ly/zptAcOD #JiangXiaojuan #PRCEconomy #EconomicReform #CommonProsperity #IncomeDistribution #Consumption
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China Banking News retweeted
I would argue that the first chart below is probably the single most investment-relevant chart for Chinese markets right now. Strong exports have been the key factor keeping Chinese growth resilient this year, thereby reducing the urgency for policymakers to stimulate domestic demand. But as the chart shows, roughly 40% of that export strength has been driven by the global AI build-out, particularly in the US. Any slowdown in AI capex would therefore disproportionately hurt Chinese exports at a time when domestic demand is already in recession. In other words, bad news for AI could actually be good news for the Chinese stimulus trade: it would increase the likelihood of a stronger policy response from Beijing to shore up domestic demand, particularly consumption. For global investors looking to hedge against a potential AI selloff, I believe Chinese consumer stocks are becoming increasingly attractive, especially following this year’s selloff.
China releases Q3 GDP tonight. In nominal terms, AI is a big part of China’s export boom. Chips and computers account for more than 40% of the recent export increase. But on a net basis, AI trade is weighing on China’s trade surplus. The surplus growth comes from vehicles and other machinery. The chip export boom is also mostly about prices. In September, China’s chip exports rose 136% in value from a year earlier, but the number of chips rose only 1%. Most of that is memory chips, where the global shortage has driven up prices. So AI trade isn’t adding much to real export growth. If net exports boosted real GDP growth in Q3, it wasn’t because of AI.
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China Banking News retweeted
I spent 35 years building banking systems for banks worldwide, including central banks. I know how banks decide where their money goes. When you build systems, you have to make them work, so you have to know how they work. The Basel Committee de-industrialised the countries that adopted its rules. It's that simple: I explain the whole complicated mechanism in my essay. They simply regulated it away because that was the most profitable thing to do. It was implemented in such a systemic global way, and nobody seemed to notice Capital is what a bank must hold before it can lend, the way a manufacturer or miner must hold supplies before it can sell. No miner doubles their costs to serve one group of customers. But that's what the banking system does to miners and manufacturers. Since 1988, the Basel rules have required banks to hold twice the capital against a factory loan as against a home loan, and under Basel III the gap reaches five times. So banks lend less to industry and more against houses. It should be stopped tomorrow. Manufacturing's share of GDP fell in ten of the eleven countries I examined. In Australia it fell from 13.7% to 5.4%. Every other country that followed fell as well. The only truly crafty ones were the Koreans, who did a good job of offsetting it. Regulators were warned in writing that the rule would steer credit, and they adopted it anyway. No parliament voted for it, and it's simply too dumb to keep doing, but we do . Not today; there is no justification. Yet from India, across Europe, across the US, including Australia, sanctions against industrial capacity. Financialization has gone too far it needs to be reviewed . The charge is manslaughter by gross negligence. The mechanism is proven. Same Rules, Different Ruins:ctindale.substack.com/p/same…
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China Banking News retweeted
Ex-Huawei talent has helped seed a whole wave of Chinese physical AI startups. Of course, the causal effect runs the other way too: being ex-Huawei also gives you tons of cred for startup fundraising.
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China Banking News retweeted
Oh look at that, a Chinese Open Source model is basically at parity with American frontier labs models merely a month after it was said this was supposed to be impossible now, something something no moat, something something the current absurd AI Capex is justified somehow, something something we need some regulatory layer to protect American enterprises.
DeepSeek
@deepseek_aiOct 17
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China Banking News retweeted
Caixin: "The government is seeking to bring private companies into a massive infrastructure push centered on “six networks,” covering water, power, logistics, computing power, next-generation communications and urban underground pipelines. But the challenge is to create a financing and regulatory framework in which companies participate because projects offer genuinely attractive and stable conditions for investment, operation and returns." caixinglobal.com/2026-10-16/…
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China Banking News retweeted
Good of Michael to highlight this piece by @adam_tooze I was so fortunate to sit next to Perry in our INET office. Because my background was finance (as a fund manager), we saw the world of markets much the same way (although I would never be presumptuous enough to suggest that my knowledge remotely approached Perry's genius). I was a huge fan of Kindleberger, so we had a lot of great discussions about Perry's findings (Mehrling was an extremely diligent scholar and was never happier than when he was digging about in archives). The distinction that Adam draws here between Kindleberger's transnationalism (and, by extension, Perry's) and Dornbusch's internationalism, is crucial because the former rightly posits the central role of the USD in global finance and the key role the Fed played as counterparty of last resort in terms of alleviating/arresting the crisis. Perry in effect rebutted the doomsday analyses that presupposed an imminent demise of the dollar. Likewise, Perry recognised that the euro would not be in existence today without the Fed's active support via the provision of dollar swap lines and de facto uncollateralised lending to the ECB. Perry understood this intuitively.
Good Adam Tooze piece on Perry Mehrlin's very important work on money. There is a very big difference between a global view of national economies and a national view of the global economy, and in what Dani Rodrik calls our "hyperglobalized" world, the former provides the much greater insight. @adam_tooze adamtooze.substack.com/p/cha…
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China Banking News retweeted
Suggested reading: Peter Ireland (1996): "The Role of Countercyclical Monetary Policy," Journal of Political Economy. It anticipated themes that became central in New Keynesian macroeconomics and deserves a lot more attention than it has been receiving.
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China Banking News retweeted
Makroökonomik sollte nicht verhaltenstheoretisch mikrofundiert sein (Verhalten von Haushalten und Unternehmen), sondern geldtheoretisch fundiert: Wer erzeugt wie Geld und wie hängen Ausgaben und Einnahmen gesamtwirtschaftlich (BIP, BoP, Sektoren) zusammen? link.springer.com/book/10.10…
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China Banking News retweeted
Matthew Yglesias
@mattyglesiasOct 15
The smart finance guys are making lots of good points about AI, data centers, etc etc etc but I am always haunted by Romer & Romer about the disastrous consequences of underrating the power of basic macro. aeaweb.org/conference/2013/r…
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China Banking News retweeted
Fed Chairman Kevin Warsh says AI is going to "fundamentally change the conduct of monetary policy" by improving forecasts. "We torture data with old-fashioned models to try to find out what's underlying inflation trends. Not so long from now, it won't be torture."
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Replying to @gonglei89
Cheers homey - much appreciated.
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China’s deposit exodus and the transformation of banking system balance sheets open.substack.com/pub/chinab…
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China Banking News retweeted
Thank you, Florin, for sharing this beautiful paper. What I will remember most about Perry, though, is that he eventually took a different road and the courage it took to do so. He had a Harvard PhD and a JPE paper. Everything was there for a conventional career in macroeconomics. Instead, he turned away from mathematical economics and read Bagehot, Hawtrey, Allyn Young, Hicks and Minsky, forgotten traditions of monetary thought that he brought back to life as what he called the money view. He later said he almost did not survive it. Most of his papers were rejected, and Barnard told him his record was not strong enough for tenure. He eventually got it for a book, The Money Interest and the Public Interest, in which he went looking for what he called his intellectual ancestors. Perry sometimes called himself, too modestly, a historian of economic thought. As Florin says, he remained to me an elegant and deep theorist even when not using mathematics, while now working in a direction orthogonal to most of the profession. I genuinely believe he had far more impact this way, and did more for our understanding of money, than he ever could have on the conventional path. He also made a choice that would be unusual today, spending much of his time building his synthesis in his money and banking course at Barnard, with his students. The course became a MOOC with close to 200,000 enrollments, and an eye-opener for many. I was one of them. I signed up while interning at the ECB as a PhD student, without expecting much. I was amazed by how much I learned. It was different from everything I had been taught, and complementary to it. I remember trying to follow the balance sheets of the shadow banking system he drew on the pixelated board, and the eureka moments when he had us look past the institutional details to the same economics of banking and central banking across countries and centuries. I remember him deciphering the euro crisis live. That course, and the reading that followed, shaped the monetary economist I became. Writing on repo, FX swaps and stablecoins, I have tried to understand shadow banking the way he taught us, as an ecosystem of interlocking balance sheets where heterogeneous institutions together transform liquidity exactly as a bank would. Almost every paper I have written starts with the balance sheets of the model. As always happens when someone you have learned so much from passes, I wish I had interacted with him more, and had been more explicit about what my work owes him. Perry found his intellectual ancestors in forgotten books. He is now one of mine, and I will do my best to carry the money view forward.
RIP Perry Mehrling. An incredibly elegant and deep theorist, especially for all things "money". This 1993 note is a gem (on the suboptimality of the Friendman rule in Bewley models due to redistributive effects). (HT @a_auclert who first pointed me to this paper 10+ years ago!)
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China Banking News retweeted
MUST READ: China state media op-ed on Chinese oil imports: “… China's initiative to reduce imports exceeds the sum of strategic oil reserves released by other countries, effectively blocking the vicious circle of out-of-control global oil prices…” www-news-cn.translate.goog/e…
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China Banking News retweeted
International and Monetary Economics Network
@int_mon_econOct 15
Highly relevant! "Fiscal-Monetary Interactions: The Role of Debt Maturity" by Luca Bettarelli, Francesco Frangiamore, Davide Furceri, Anh D. M. Nguyen, and Francesco Scianna. "This paper examines how the maturity structure of sovereign debt shapes fiscal–monetary interactions in the United States. Using exogenous monetary policy shocks and nonlinear local projections, we show that debt maturity influences both the fiscal consequences of monetary tightening and its macroeconomic transmission. When the government relies more heavily on short-term debt, contractionary monetary policy shocks lead to large and persistent increases in public debt, more pronounced deteriorations in fiscal and financial conditions, and significantly larger declines in output, inflation, and private investment. These effects are substantially attenuated when debt maturity is longer. We rationalize the findings with a model in which a constrained intermediary holds both private credit and long-duration government debt and carries its bond portfolio at amortized cost. The intermediary’s opportunity cost of lending therefore depends in part on the yield locked in when the bonds were acquired, rather than solely on their one-period holding return, allowing sovereign debt maturity to directly influence the price of private credit." imf.org/en/publications/wp/i…
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China Banking News retweeted
Protected farmland can still lose its yield. The PRC’s new laws put soil quality and upkeep alongside controls on land loss. Upgrades bring jobs and spending. The test is what they leave in the fields. Our analysis: putting farmland quality into law link to brief: buff.ly/oKMgBoo #China #Agriculture #FoodSecurity #Farmland #RuralDevelopment
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China Banking News retweeted
Remembering Perry Mehrling | Institute for New Economic Thinking ineteconomics.org/perspectiv… This is horrible news. Perry was my office mate when we worked together at INET. Rare for academic economists, he had a superb understanding of finance and was therefore able to provide a coherent and fully cohesive ability to integrate this knowledge into standard economic models. His explanation of the 2008 crisis was incredibly astute. His analyses came with a lucidity, precision, and erudition unmatched by almost any economist I knew. I also found him to be a brilliant writer and, above all else, a lovely human being. It was a pleasure and privilege to get to know him as a friend as well as esteemed colleague. RIP Perry. You will be missed, and the economics profession has sustained a tragic loss.
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Alway worth remembring that Zoltan Pozsar considers Perry Mehrling to be his John Maynard Keynes.
Policy Tensor
@policytensorOct 14
In another world. In our world, he was isolated from the whole discipline; forced to work in a little corner of his own; not even regarded as a real economist by the math junkies. His entire career is a great indictment of economics. The situation in 2006 was so bad that you were better off reading one book by Mehring than getting a PhD in economics from Harvard. It was only with the shock of 2008 — that only he and a few others, and none of the mainstream economists, could make sense of — that his star rose. This was the beginning to the empirical turn in a discipline long dominated by math junkies. We’re maybe a quarter of the way out of the vice grip of the Brahmins. Take the current fake Nobel prize. It was awarded to someone for mathematical jiu jitsu that greatly satisfied the Brahmins but has almost no empirical support. Even a single paper by Mehring is vastly more important to an actual understanding of the world than the entire literature on microfoundations of the New Keynesian toy models.
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China Banking News retweeted
Days after EU–China talks on hybrid trade and EV prices, Beijing cut NEV export VAT rebates from 13 to 9 percent from April 2027. The cut is also a domestic industrial-policy lever, making it harder for carmakers to carry thin-margin price wars into overseas markets. Cui Dongshu 崔东树 China Passenger Car Association, expects low-margin exporters to face the greatest pressure, while the change could also ease trade friction. Our August brief on Beijing’s trade surplus identified export tax rebates as the leading candidate for adjustment. The NEV cut follows that logic, using tax policy to curb thin-margin competition while fine-tuning the surplus. link: buff.ly/NxYpldB
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