Comments on: What should have been discussed during the SED meetings (Part 2) http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/ China's financial and monetary links to the world Tue, 16 Mar 2010 05:13:22 -0500 http://wordpress.org/?v=2.8.6 hourly 1 By: Key Trends in Globalisation » Who was right and who was wrong on China’s economic performance? http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-4362 Key Trends in Globalisation » Who was right and who was wrong on China’s economic performance? Sun, 03 Jan 2010 13:25:13 +0000 http://mpettis.com/?p=944#comment-4362 [...] 5%. Michael Pettis of Beijing University did not give a quantitative growth prediction but made the qualitative judgement that: ”I continue to stand by my comment… that the US would be the first major economy out [...] [...] 5%. Michael Pettis of Beijing University did not give a quantitative growth prediction but made the qualitative judgement that: ”I continue to stand by my comment… that the US would be the first major economy out [...]

]]> By: A Philosophy Blog » Just how much China’s share markets have outperformed the US http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-3962 A Philosophy Blog » Just how much China’s share markets have outperformed the US Fri, 04 Dec 2009 22:19:10 +0000 http://mpettis.com/?p=944#comment-3962 [...] the general debate that has been going on regarding the prospects for China’s economy. Professor Michael Pettis of Peking University has formulated one side of this discussion with commendable clarity: ‘I [...] [...] the general debate that has been going on regarding the prospects for China’s economy. Professor Michael Pettis of Peking University has formulated one side of this discussion with commendable clarity: ‘I [...]

]]> By: John Ross http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-3079 John Ross Sun, 16 Aug 2009 21:02:44 +0000 http://mpettis.com/?p=944#comment-3079 Bcg81 There is a legitimate issue you raise over when to date the beginning of the international financial crisis from. I was taking it from the collapse of Lehman’s in September 2008, which is when the interbank lending collapse took place, but an argument can be made out, as you say, that it should be dated started earlier. Let us however consider your proposed starting point of July 2007. This is again a case where it slightly frustrating one cannot put charts in the comment section as they show the pattern very clearly. I have produced one for China’s trade <a href="http://ablog.typepad.com/keytrendsinglobalisation/2009/08/new-china-economic-data-shows-declining-trade-surplus-and-accelerating-economy.html" rel="nofollow">here</a>. The pattern it shows is clear. Given the variability of trade on a month by month basis it is best to use a three month moving average. On this basis China’s trade surplus was gently falling from July 2007, when it was $23.6 bn, your starting date, until July 2008 when it was $19.2 bn. Then it began to shoot upwards peaking in January 2009 at $38.1bn – this was the period when imports were falling more rapidly than exports. But after that it began to fall very rapidly and by June 2009 it was down to $12.5 bn or only slightly more than half the level of July 2007. So even if we take your July 2007 starting point China’s trade surplus has fallen by nearly half. Therefore whether we take your starting point of July 2007 or the September 2008 I had in mind China’s trade surplus has fallen very substantially since the financial crisis started. As to when the financial crisis should be dated from it is also interesting to look at US consumption. A chart showing the trend can be found in the same place as for trade. Total US consumption, the sum of personal and government consumption, rose rapidly as a proportion of GDP from 1997 until the end of 2003, then stabilised until the end of 2007, and then began to rise sharply again from the beginning of 2008 under the impact of the developing financial crisis. Taking precise figures US total consumption was 85.4% of GDP in the second quarter of 2007 – that is immediately before July 2007 which you take as the beginning of the financial crisis. In the last quarter of 2007 it had risen to 85.8% of GDP. In the second quarter of 2009 US consumption was 87.6% of GDP. That is a rise of 2.2% of GDP since prior to July 2007 and an increase of 1.8% of GDP since the last quarter of 2007. Therefore even if you take the financial crisis as starting earlier, as you do, then it is clear consumption has increased, and saving fallen, as a proportion of US GDP. Chan lee James That is a most gracious apology and let us take that whole matter as finished and concentrate on the most important – the actual trends in the US and Chinese economies. The question of whether what is important is US private consumption or US total consumption (private plus government) depends on what is being analysed. If we were looking at, for example, the potential for US auto sales it would be highly relevant to distinguish between private and government consumption. But what was being analysed in these exchanges was the US balance of payments deficit and this depends on <i>total</i> US consumption, investment and saving and not only on private consumption. Nemo incognito – your comment about the unsustainability of the current level of US transfer payments is an argument that consumption in the US <i>may</i> fall in the future. But it also may not – as a countervailing force for example US investment is under strong downward pressure and this may more than offset any drop in transfer payments. The balance depends on a number of factors. Furthermore the US balance of payments deficit could shrink, that is one of the 'global imbalances' could decline, even if US consumption rose as a proportion of GDP – that would occur if US investment continued to fall more rapidly than US saving. The point I was making was that so far under the impact of the financial crisis US consumption has <i>not</i> fallen as proportion of the US economy – on the contrary it has risen quite significantly. Therefore taking these points the <i>factual</i> situation is: US consumption has risen, not fallen, as a proportion of US GDP since the financial crisis began. China’s trade balance has <i>declined</i> - because its imports have fallen less than its exports – this applies whether you take the financial crisis as starting in July 2007, January 2008, or September 2008. These trends are those I set out in my original comment and are the opposite of the trends stated by Professor Pettis. Bcg81
There is a legitimate issue you raise over when to date the beginning of the international financial crisis from. I was taking it from the collapse of Lehman’s in September 2008, which is when the interbank lending collapse took place, but an argument can be made out, as you say, that it should be dated started earlier. Let us however consider your proposed starting point of July 2007.
This is again a case where it slightly frustrating one cannot put charts in the comment section as they show the pattern very clearly. I have produced one for China’s trade here. The pattern it shows is clear.
Given the variability of trade on a month by month basis it is best to use a three month moving average. On this basis China’s trade surplus was gently falling from July 2007, when it was $23.6 bn, your starting date, until July 2008 when it was $19.2 bn. Then it began to shoot upwards peaking in January 2009 at $38.1bn – this was the period when imports were falling more rapidly than exports. But after that it began to fall very rapidly and by June 2009 it was down to $12.5 bn or only slightly more than half the level of July 2007.
So even if we take your July 2007 starting point China’s trade surplus has fallen by nearly half. Therefore whether we take your starting point of July 2007 or the September 2008 I had in mind China’s trade surplus has fallen very substantially since the financial crisis started.
As to when the financial crisis should be dated from it is also interesting to look at US consumption. A chart showing the trend can be found in the same place as for trade. Total US consumption, the sum of personal and government consumption, rose rapidly as a proportion of GDP from 1997 until the end of 2003, then stabilised until the end of 2007, and then began to rise sharply again from the beginning of 2008 under the impact of the developing financial crisis. Taking precise figures US total consumption was 85.4% of GDP in the second quarter of 2007 – that is immediately before July 2007 which you take as the beginning of the financial crisis. In the last quarter of 2007 it had risen to 85.8% of GDP. In the second quarter of 2009 US consumption was 87.6% of GDP. That is a rise of 2.2% of GDP since prior to July 2007 and an increase of 1.8% of GDP since the last quarter of 2007. Therefore even if you take the financial crisis as starting earlier, as you do, then it is clear consumption has increased, and saving fallen, as a proportion of US GDP.
Chan lee James
That is a most gracious apology and let us take that whole matter as finished and concentrate on the most important – the actual trends in the US and Chinese economies. The question of whether what is important is US private consumption or US total consumption (private plus government) depends on what is being analysed. If we were looking at, for example, the potential for US auto sales it would be highly relevant to distinguish between private and government consumption. But what was being analysed in these exchanges was the US balance of payments deficit and this depends on total US consumption, investment and saving and not only on private consumption.
Nemo incognito – your comment about the unsustainability of the current level of US transfer payments is an argument that consumption in the US may fall in the future. But it also may not – as a countervailing force for example US investment is under strong downward pressure and this may more than offset any drop in transfer payments. The balance depends on a number of factors. Furthermore the US balance of payments deficit could shrink, that is one of the ‘global imbalances’ could decline, even if US consumption rose as a proportion of GDP – that would occur if US investment continued to fall more rapidly than US saving. The point I was making was that so far under the impact of the financial crisis US consumption has not fallen as proportion of the US economy – on the contrary it has risen quite significantly.
Therefore taking these points the factual situation is:
US consumption has risen, not fallen, as a proportion of US GDP since the financial crisis began.
China’s trade balance has declined – because its imports have fallen less than its exports – this applies whether you take the financial crisis as starting in July 2007, January 2008, or September 2008.
These trends are those I set out in my original comment and are the opposite of the trends stated by Professor Pettis.

]]> By: bcg81 http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-3073 bcg81 Sun, 16 Aug 2009 13:32:56 +0000 http://mpettis.com/?p=944#comment-3073 I think numbers in brackets did not post. Second paragraph should be: cumulative year-on-year DECREASE (i) in imports of -$120.4 bio; (ii) in exports of -$156.8 bio; and (iii) in the trade balance of -$36.2 bio. Fourth paragraph: Nov 08 through Jul 2009 imports fell year-on-year a cumulative -$195.3 bio while exports fell less: -$181.8 bio, for a net $13.5 bio increase in the trade balance, nothwithstanding the recent reversal of this trend. (Through the data Prof Pettis had for his 7/29/2009 FT piece, imports fell -$178.7 bio, exports -$150.6 and the trade balance increased $28.2 bio.) I think numbers in brackets did not post.

Second paragraph should be: cumulative year-on-year DECREASE (i) in imports of -$120.4 bio; (ii) in exports of -$156.8 bio; and (iii) in the trade balance of -$36.2 bio.

Fourth paragraph: Nov 08 through Jul 2009 imports fell year-on-year a cumulative -$195.3 bio while exports fell less: -$181.8 bio, for a net $13.5 bio increase in the trade balance, nothwithstanding the recent reversal of this trend. (Through the data Prof Pettis had for his 7/29/2009 FT piece, imports fell -$178.7 bio, exports -$150.6 and the trade balance increased $28.2 bio.)

]]> By: bcg81 http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-3072 bcg81 Sun, 16 Aug 2009 13:24:46 +0000 http://mpettis.com/?p=944#comment-3072 In my second paragraph that's a cumulative year-on-year DECREASE (i) in imports of bio; (ii) in exports of bio; and (iii) in the trade balance of $ bio. Sorry, sloppy. In my second paragraph that’s a cumulative year-on-year DECREASE (i) in imports of bio; (ii) in exports of bio; and (iii) in the trade balance of $ bio. Sorry, sloppy.

]]> By: bcg81 http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-2/#comment-3058 bcg81 Sat, 15 Aug 2009 16:40:04 +0000 http://mpettis.com/?p=944#comment-3058 Here’s how I would interpret the trade data: I’d make the ‘first day’ of the ‘financial crisis’ Jul 1, 2007. Since then China’s monthly exports grew more or declined less year-on-year than imports in all but four months (Feb, Apr, May and Jun 2008) through Jan 31, 2009. During that period, there was a cumulative year-on-year INCREASE (i) in imports of $234.6 bio; (ii) in exports of $322 bio; and (iii) in the trade balance of $87.4 bio. That trend reversed beginning in Feb 2009. Beginning in Feb and through the Jul 2009 trade numbers, monthly exports have declined more year-on-year than imports in all but one month (Mar 2009). During this period, there was a cumulative year-on-year DECREASE (i) in imports of bio; (ii) in exports of bio; and (iii) in the trade balance of $ bio. If we start in Feb 2009 and stop with the last print, it seems fair for Prof Ross to say that there has been “a continuing trend whereby China’s imports have declined much less rapidly under the impact of the financial crisis than its exports” (again, with one contrary data print out of six, in Mar). But since our troubles began on 7/1/2007, there has been a net increase in the trade balance of about $51 bio based on which it seems to me fair for Prof Pettis to say that imports have fallen faster than exports (the last data available to Prof Pettis when he was writing in the FT on 7/29/2009, for Jun 2009, was even more supportive: the net increase in the trade balance was $65.8 bio). One might argue that exports weren’t ‘falling’ at all until the Nov 2008 print. If we start in Nov 2008, through Jul 2009 imports fell year-on-year a cumulative $ bio while exports fell less: $ bio, for a net $13.5 bio increase in the trade balance, nothwithstanding the recent reversal of this trend. (Through the data Prof Pettis had for his 7/29/2009 FT piece, imports fell bio, exports and the trade balance increased $28.2 bio.) So: as Rien Huizer suggested much less tediously, both Prof Pettis’ and Prof Ross’s views seem consistent with the data, depending on where you start and stop. Here’s how I would interpret the trade data: I’d make the ‘first day’ of the ‘financial crisis’ Jul 1, 2007. Since then China’s monthly exports grew more or declined less year-on-year than imports in all but four months (Feb, Apr, May and Jun 2008) through Jan 31, 2009. During that period, there was a cumulative year-on-year INCREASE (i) in imports of $234.6 bio; (ii) in exports of $322 bio; and (iii) in the trade balance of $87.4 bio.

That trend reversed beginning in Feb 2009. Beginning in Feb and through the Jul 2009 trade numbers, monthly exports have declined more year-on-year than imports in all but one month (Mar 2009). During this period, there was a cumulative year-on-year DECREASE (i) in imports of bio; (ii) in exports of bio; and (iii) in the trade balance of $ bio.

If we start in Feb 2009 and stop with the last print, it seems fair for Prof Ross to say that there has been “a continuing trend whereby China’s imports have declined much less rapidly under the impact of the financial crisis than its exports” (again, with one contrary data print out of six, in Mar). But since our troubles began on 7/1/2007, there has been a net increase in the trade balance of about $51 bio based on which it seems to me fair for Prof Pettis to say that imports have fallen faster than exports (the last data available to Prof Pettis when he was writing in the FT on 7/29/2009, for Jun 2009, was even more supportive: the net increase in the trade balance was $65.8 bio).

One might argue that exports weren’t ‘falling’ at all until the Nov 2008 print. If we start in Nov 2008, through Jul 2009 imports fell year-on-year a cumulative $ bio while exports fell less: $ bio, for a net $13.5 bio increase in the trade balance, nothwithstanding the recent reversal of this trend. (Through the data Prof Pettis had for his 7/29/2009 FT piece, imports fell bio, exports and the trade balance increased $28.2 bio.)

So: as Rien Huizer suggested much less tediously, both Prof Pettis’ and Prof Ross’s views seem consistent with the data, depending on where you start and stop.

]]> By: Nemo Incognito http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-1/#comment-3042 Nemo Incognito Sat, 15 Aug 2009 10:26:44 +0000 http://mpettis.com/?p=944#comment-3042 Well I should probably behave myself a little better and not be an ass but let me make a few comments about that much vaunted increase in consumption as a % of US GDP: 1) Transfer payments. massive this year, as I recall its 20%+ of income this year. This isn't sustainable and is likely to be withdrawn. 2) For next quarter, the cash for clunkers effect is going to be huge. To get more unbiased view of this look at consumption adjusted for these two. The transfer/fiscal ammo isn't unlimited. Well I should probably behave myself a little better and not be an ass but let me make a few comments about that much vaunted increase in consumption as a % of US GDP:

1) Transfer payments. massive this year, as I recall its 20%+ of income this year. This isn’t sustainable and is likely to be withdrawn.
2) For next quarter, the cash for clunkers effect is going to be huge.

To get more unbiased view of this look at consumption adjusted for these two. The transfer/fiscal ammo isn’t unlimited.

]]> By: Armando http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-1/#comment-3036 Armando Sat, 15 Aug 2009 05:03:58 +0000 http://mpettis.com/?p=944#comment-3036 "Seatrus, I agree with Glen that these per capita comparisons don’t mean very much and can pretty much be used to prove nearly every position as well as its opposite. For example people often say that because Chinese consumption is so low relative to US consumption, any problem requiring a surge in Chinese consumption is all but resolved, but in that case many countries in Africa, Latin America and Asia with even lower consumption levels that China should have seen unbroken surges in consumption since time immemorial, and they haven’t. It is true that china “should” spend a lot more on “public projects, such as roads, railways, airports, power stations, electricity grids, schools, hospitals, low income housing etc, and most importantly, the green technology,” but that doesn’t mean that it will happen. There are still balance sheet limitations on what any government can spend and there are also indirect adverse impacts of unrestrained fiscal expansion." If the per-capita statistic is meaningless, and that would include any statistic that could be manipulated. China does not possess the monopoly in data manipulation. Case in point, during the dot.com boom in the USA during the early 2000, many Wall Street analyst dubbed it the new economy and they were using dubious mean of evaluation all those dot.com companies that were not making any money by themselves but by constantly raising capital by selling share again and again! Enron and WorldCom were cooking their book with the help of accounting firm such as Arthur Andersen in case of Enron. Also, the real state bubble in the USA was also subject in data manipulation to support that housing price can always go up since the population was increasing really fast so the demand for house was never enough! Anyone can use statistic to support any point and statistic manipulation is not reserved to a particular nation. There is a basic difference between Africa and China, China has a track record of building massive infrastructure so all the potential infrastructures project stated by Seatrus is backed by China record in building Highway, bridges, rail track, airport, housing and speed in urbanization rate. Besides, China national deficit is in much better than the USA and Japan balance sheet. True, that China start from a lower base than many advanced countries but that does not mean that their effort to be deride and considered to be meaningless... They have to start from a lower base, but the main point that they keep improving despite all the difficulties encounter. I am not saying that the CCP are saint or anything like that but you have give the devil his due! “Seatrus, I agree with Glen that these per capita comparisons don’t mean very much and can pretty much be used to prove nearly every position as well as its opposite. For example people often say that because Chinese consumption is so low relative to US consumption, any problem requiring a surge in Chinese consumption is all but resolved, but in that case many countries in Africa, Latin America and Asia with even lower consumption levels that China should have seen unbroken surges in consumption since time immemorial, and they haven’t. It is true that china “should” spend a lot more on “public projects, such as roads, railways, airports, power stations, electricity grids, schools, hospitals, low income housing etc, and most importantly, the green technology,” but that doesn’t mean that it will happen. There are still balance sheet limitations on what any government can spend and there are also indirect adverse impacts of unrestrained fiscal expansion.”

If the per-capita statistic is meaningless, and that would include any statistic that could be manipulated. China does not possess the monopoly in data manipulation. Case in point, during the dot.com boom in the USA during the early 2000, many Wall Street analyst dubbed it the new economy and they were using dubious mean of evaluation all those dot.com companies that were not making any money by themselves but by constantly raising capital by selling share again and again! Enron and WorldCom were cooking their book with the help of accounting firm such as Arthur Andersen in case of Enron.
Also, the real state bubble in the USA was also subject in data manipulation to support that housing price can always go up since the population was increasing really fast so the demand for house was never enough!
Anyone can use statistic to support any point and statistic manipulation is not reserved to a particular nation.

There is a basic difference between Africa and China, China has a track record of building massive infrastructure so all the potential infrastructures project stated by Seatrus is backed by China record in building Highway, bridges, rail track, airport, housing and speed in urbanization rate. Besides, China national deficit is in much better than the USA and Japan balance sheet. True, that China start from a lower base than many advanced countries but that does not mean that their effort to be deride and considered to be meaningless…
They have to start from a lower base, but the main point that they keep improving despite all the difficulties encounter.
I am not saying that the CCP are saint or anything like that but you have give the devil his due!

]]> By: chan-lee james http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-1/#comment-3018 chan-lee james Fri, 14 Aug 2009 16:33:28 +0000 http://mpettis.com/?p=944#comment-3018 Prof. Ross: My apologies if you you took my reflections on your prolific posts as being abusive. Nonetheless, your last reply to John T. fails to address the key issues he and others raise. A big uncertainty is surely where the rapidly rising US HOUSEHOLD savings rate will stabilise -- and its implications for the US budget defict and the Rest of the World. Your citations of quarter to quarter to changes in TOTAL consumption to "prove" your position is to say the least, unconvincing. James Prof. Ross: My apologies if you you took my reflections on your prolific posts as being abusive.
Nonetheless, your last reply to John T. fails to address the key issues he and others raise.
A big uncertainty is surely where the rapidly rising US HOUSEHOLD savings rate will stabilise — and its implications for the US budget defict and the Rest of the World. Your citations of quarter to quarter to changes in TOTAL consumption to “prove” your position is to say the least, unconvincing. James

]]> By: bomlat http://mpettis.com/2009/08/what-should-have-been-discussed-during-the-sed-meetings-part-2/comment-page-1/#comment-3014 bomlat Fri, 14 Aug 2009 13:51:35 +0000 http://mpettis.com/?p=944#comment-3014 seatrus You numbers are fine,however,the matching point (when both country using the same amount of energy) is in 2013 and 2015(if the consumption monotone growth,then the last day consumption have to be higher by 11.5% than the first day cosnumption in the given year). And this year is 2009 , so that points of time are four and six years away from now. seatrus
You numbers are fine,however,the matching point (when both country using the same amount of energy) is in 2013 and 2015(if the consumption monotone growth,then the last day consumption have to be higher by 11.5% than the first day cosnumption in the given year).
And this year is 2009 , so that points of time are four and six years away from now.

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