@kentwillard i think Xi has played geopolitics terribly, but i am more sanguine than you are about China’s economic trajectory. China builds to overcapacity and then seeks foreign markets for its excess, but i think its industrial policy is no longer shaped by trying to win foreign markets, just making crap. China increasingly focuses on industries it considers important, either domestically or strategically, and uses foreign markets to help pay for that. 1/

@kentwillard so i don’t think China is focusing on exports in fact. Western economists always say so, but that’s because Western industries don’t like the combination of Chinese overcapacity and “free trade” market access. we accuse as their “strategy” the side effects that trouble us, but i think they are side effects, China will do much the same when their market access is cut off. (they’ll still export to the the less industrial, nonaligned world!) 2/

@kentwillard China is suffering now from a real-estate bust and sluggish domestic consumption. But China’s authoritarian opacity means it can selectively bail out or punish real estate investment funds without political blowback about corruption and moral hazard. It is already doing this. 3/

@kentwillard Western economists have been predicting Western style financial crises in China for years. They don’t happen. China “foams the runway” by recognizing investment losses only at the time of regulators’ choosing, when punishing them won’t be destabilizing, or by never recognizing losses after quiet bail outs. 4/

@kentwillard Domestic underconsumption is really only a problem for China if it comes with political discontent, if the public is unhappy with reduced consumption in ways that threaten “stability”. Xi is very resistant to stimulus or welfare state support of consumption, but he does have those options, deflation is the current concern, inflation not a binding constraint. If domestic underconsumption / citizen discontent becomes a problem, the state will (however reluctantly) support demand. /fin