Olumide Abimbola

“China is not merely climbing the technological ladder; it is pulling up the ladder behind it.” @shoumitro_c and @arvindsubraman explain how China’s rise has narrowed the possibilities available to poorer countries: fam.ag/3QB7xbZ

Tordoir and Klein are right in saying that the "best" way to resolve global imbalances is for Beijing to take steps (including currency revaluation) to raise the household share of GDP, but it is important to understand the reason "this feels far away". It is not the Beijing has a special animus towards consumption, as any have argued. The claim that Beijing is ideologically opposed to allowing households more wealth relative to the state seems to have become an after-the-fact justification, both abroad and sometimes even in China. But in fact other countries that pursued the same high-saving/high-investment growth model also ran into the same set of problems. Once they had closed their underinvestment gap, the economy shifted from rapid, healthy growth to less rapid, and increasingly unhealthy, growth, driven by excessive reliance on unproductive investment and trade surpluses. They also recognized that they had to rebalance domestic income distribution towards households, but had the same difficulty that China currently has in rebalancing towards consumption. In every case, they were nonetheless forced to do so not because of foreign pressure but because the surging debt associated with the soaring non-productive investment and the manufacturing subsidies eventually became unsustainable. The most obvious case is – as always – Japan, which formally recognized in 1986 (in the Maekawa Commission Report) that it had a serious problem with low consumption and said, with great fanfare, that it would take urgent steps to boost the consumption share of GDP. In fact the consumption share of GDP didn't bottom out until 1991, five years later, and it took a further 17 years (until 2008), even under very accommodating global conditions, for Japan to raise its consumption share by 10 percentage points. This wasn't because Tokyo was ideologically opposed to consumption but rather because raising the consumption share required structural changes that undermined other parts of the economy. Because the low consumption share was part of a growth model that also resulted in easily-available capital, a very forgiving banking system, and heavily-subsidized manufacturing, raising the former also meant reversing the latter. Everyone remembers that in the 17 years during which Japan raised its consumption share, GDP growth declined from roughly 4% in the previous decade to just over 0%. What analysts often don't remember is that during this time Japan's share of global manufacturing also declined by more than 50%. That's the problem. As long as Beijing sets high GDP growth targets and as long as it wants to continue supporting the manufacturing sector (which, at this point, represents a larger share of the economy than even the property sector at its peak), the only way it can rebalance towards consumption is with huge – and perhaps politically disruptive – transfer of assets and income from local governments to households. The point is that until Beijing either sharply lowers the GDP growth target (perhaps to 2%?) or forces the transfers to households, it can make all the promises it likes about raising the consumption share of GDP, and foreign policymakers can propose as often as they like that this is the only real solution to global imbalances, but it cannot happen. That is why it is basically a waste of time for foreign policymakers to try to "convince" Beijing that they should stop opposing a rise in China's consumption share on ideological grounds. Beijing is not opposed to allowing Chinese households to have a better living standard. What they are opposed to is anything that might slow economic growth and undermine manufacturing, especially now when China already has a large problem with youth unemployment and overall underemployment.

💵🔄🇨🇳New research by @AidData at @williamandmary finds that Kenya's switch last fall to convert some of its Chinese loans from U.S. dollars to Chinese renminbi (RMB) was actually a restructuring—with major implications for other borrowing countries. reuters.com/world/asia-pacif…

Really important framing of China's so-called "forced technology transfer." These were voluntary agreements that foreign companies entered with open eyes. China didn't have the benefit of being a US ally like Japan, South Korea, and Taiwan. So they had to use the leverage they had--in this case market access--to get the tech they needed. Awesome discussion with @john_d_minnich on The Economics Show with @SoumayaKeynes: ft.com/content/6f535527-2d49…

1. It’s a bit late for that: for now the priority is to prevent disorderly industrialisation. You can’t make policy for industry doesn’t exist anymore. 2. It’s possible that nobody can ultimately compete with China. That might even be true sans subsidies and post FX adjustment.

🚗🔋 Many think Beijing masterfully planned China's EV takeover. Fengming Lu (@ANUBellSchool ) and I spent 3 years and 60+ interviews finding out what actually happened in our latest article @TheChinaJournal. A thread 🧵

When China spent decades building dominance in rare earths supply chains, what was it really trying to do? Build an economic weapon? Or something else? I asked @jessicacweiss on The Economics Show with Soumaya Keynes podcast this week... ft.com/content/34a8939c-ba23…

This should be brilliant on Thursday in Brussels. Sandbu vs Pettis on a panel about global imbalances... with the excellent Maria Demertzis involved too. Sandbu today in the FT: Europe is running from a phantom China threat Pettis, I am sure, will have plenty to say on that

All true and underscores a point I've long been making––any mutually beneficial Sino-European partnership (including any concessions on trade) requires a credibly European break with the US––but Tooze is clearly sketching out a thought experiment rather than imputing motive.