On Global Re-balancing
The Return of Big Chinese Surpluses (And Large U.S. Deficits) (Brad Setser)
https://www.cfr.org/blog/return-big-chinese-surpluses-and-large-us-deficits
What is clear is the dominance of the US and China on both sides of the global balance sheet. We think this reflects the contrast in the proportion of supply vs demand-side based stimulus provided by both countries (with other important drivers including commodity prices and employment schemes in EU contributing to the erosion of surpluses). We touched upon how BoP dynamics are part of PBoC’s inherent considerations behind its policy stance.
New World Order
Beware the long arms of American and Chinese law (Financial Times)
https://www.ft.com/content/33e23a5b-3e33-4b2e-a8ee-e7b341ef3a30
Navigating the new world order requires one to fully understand its strengths and weaknesses, trade-offs in policymaking while making efforts to make one more robust. Hence the importance of self-sufficiency in the coming years. The previous model where one can leverage on global demand amid a stable geo-political and security environment have seen its days.
Germany is being forced to take a leadership role it never wanted (The Economist)
The world needs a united EU, which requires Germany to increasingly fill its role as the political-economic hegemon of Europe. We continue to monitor closely how the debate evolves, especially heading into a critical election cycle.
Atlanticism will remain in retreat, whoever wins the US election (Financial Times)
https://www.ft.com/content/09f95f8f-c718-4cb0-a2a4-dd3cbcdd7d62
The world’s geo-political relationships are in flux in times of a change in the world order as competing and symbiotic objectives clashes and are brought to the surface.
Limits of current growth model and need for reforms.
The opposite of stimulus (J.Brown)
https://thereformedbroker.com/2020/10/01/the-opposite-of-stimulus/
Recent years’ performance to an extent reflects the cushion provided by monetary policies. However, the negative side-effects will increasingly weigh on future expansion with cycles shortening. This reflects the adverse impact of the reversal rate and the ossification of the economic structure due to accommodative monetary policies. The need for a rethink in the economic growth models pursued everywhere and the importance of new economic growth strategies will determine economic, political and market outcomes in the near future.
On China.
Xi’s Dual Circulation Strategy: Can it succeed? (George Magnus)
https://blogs.soas.ac.uk/china-institute/2020/09/14/xis-dual-circulation-strategy-can-it-succeed/
China’s dual-circulation strategy (“DCS”) entails an inevitable recognition of the need to address deficient domestic demand, to achieve self-sufficiency in key sectors, and advancements in critical technologies (these reflect the rapidly shifting dynamics in the global order as argued before). Hence, ‘domestic circulation’ is very much placed at the forefront of DCS (“国内大循环为主体”). ‘International circulation’ re-emphasises China’s openness to trade/selective opening up of markets, but only if the above pre-conditions are met. As opposed to the author, we think it may not necessarily imply an inherent fixation on widening its external surplus (i.e. a shrinking external surplus should not be seen as contradictory to DCS); nor should it necessarily be non-conducive for growth dynamics in the longer run.
The China Dashboard – Summer 2020 (D.Rosen & L.Gloudeman, Rhodium Group)
https://rhg.com/research/dashboard-summer-2020/
While domestic circulation is deemed to be at the forefront of DCS, stimulus during the Covid-19 pandemic has focused almost exclusively on supply-side measures. China’s recovery since has been driven predominantly by infrastructure, property construction and exports while consumption detracted. Debt burdens have also worsened.
On Federal Reserve’s Policymaking
Fed Speakers Creating Confusion (T.Duy)
https://blogs.uoregon.edu/timduyfedwatch/2020/09/24/fed-speakers-creating-confusion/
While policy flexibility provides future options, it at the same time causes confusion. This is especially so considering that different Committee and market participants are interpreting policies differently. See too.
