Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, March 22, 2024

AI Summary. Employees at more productive firms and firms with more structured management practices have substantially higher pay, with a doubling of productivity associated with 15% higher pay for the highest-paid employee versus 7% for the median worker. The authors estimate rising productivity can explain 40% of the increase in within-firm inequality.

Melanie Wallskog, Nicholas Bloom, Scott Ohlmacher and Cristina Tello-Trillo National Bureau of Economic Research
Date Posted:
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Increases in firm-level productivity disproportionately raise wages for top earners, and since 1980 have driven 40% of the rise in within-firm inequality as measured by the CEO/median pay ratio. @I_Am_NickBloom @WallskogMelanie @tellotri

How much of rising within-firm pay inequality does productivity explain?

Core argument: A doubling of firm productivity is associated with 15% higher pay for a firm's highest-paid employee, likely the CEO, versus 7% for the median worker.

We find that employees at more productive firms and firms with more structured management practices have substantially higher pay. This pay-performance relationship is particularly strong amongst top-paid executives, with a doubling of firm productivity associated with 15% more pay for the highest-paid employee (likely the CEO) compared to 7% for the median worker. The highest-paid worker sees a 19% pay increase in public firms but only an 11% pay increase in private firms for a doubling of productivity. More productive firms have higher within-firm inequality. The magnitude of this pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980.

Takeaways by Macro Roundup® AI

  1. A doubling of firm productivity is associated with 15% higher pay for a firm's highest-paid employee, likely the CEO, versus 7% for the median worker.
  2. For a doubling of productivity, the highest-paid worker's pay rises 19% in public firms but 11% in private firms, and more productive firms show higher within-firm inequality.
  3. The magnitude of the estimated pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980; employees at firms with more structured management practices also have substantially higher pay.

Related Articles:

  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Global private capital assets under management total $13tn, compared with $103tn in fixed income outstanding, $101tn in equity market capitalization, and $98tn in banking sector balance sheets. Over the past decade private markets grew by $8tn, less than the $42tn, $35tn, and $34tn increases in those public financing markets.

Torsten Sløk and Rajvi Shah Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that global private capital, which can bear high levels of risk, accounts for less than 5% of total public and private capital.

How large are private markets compared with public financing markets?

Core argument: Global private capital assets under management total $13tn, against $103tn of outstanding global fixed income, $101tn of global equity market capitalization, and $98tn of global banking sector balance sheets.

Comparing public and private markets. Global private capital AUM: $13T. Global fixed income outstanding: $103T. Global equity market cap: $101T. Global size of banking sector balance sheets: $98T. Increase in the size of global private markets AUM over the past decade: $8T. Increase in the size of global fixed income markets over the past decade: $42T. Increase in the size of global equity market cap over the past decade: $35T. Increase in the size of global banking sector balance sheets over the past decade. $34T. Private capital has over the past decade grown much slower than global financing markets.

Takeaways by Macro Roundup® AI

  1. Global private capital assets under management total $13tn, against $103tn of outstanding global fixed income, $101tn of global equity market capitalization, and $98tn of global banking sector balance sheets.
  2. Global private markets AUM grew by $8tn over the past decade, less than the $42tn increase in global fixed income, $35tn in global equity market capitalization, and $34tn in banking sector balance sheets.
  3. Private capital has grown much more slowly than global financing markets over the past decade.

Related Articles:

  • Trends In Private Markets Going Into 2024 — Global private capital assets under management total $13tn, less than 5% of global financing markets, against $103tn in outstanding fixed income, $101tn in equity market capitalization, and $98tn in banking sector balance sheets. Over the past decade private capital grew by $8tn, far less in absolute terms than fixed income ($42tn), equities ($35tn), and banking ($34tn).
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.
  • Private Credit: Characteristics and Risks — Private credit loans are negotiated bilaterally outside traditional regulatory requirements and are illiquid because no secondary market exists, leaving investors expected to hold them to maturity or face steep losses if they need to exit. Scarce data on this growing form of nonbank lending makes assessing its risks difficult.

AI Summary. The long-standing link between economic sentiment and government popularity has disappeared in the US while remaining strong in France and Germany and, to a lesser degree, the UK. The author attributes this decoupling to hyper-partisanship, arguing that American voters' political allegiances now shape their economic perceptions rather than the reverse.

John Burn-Murdoch Financial Times
Date Posted:

The historic relationship between consumer sentiment and government approval has broken down in the US but remains strong in Western Europe suggesting US political polarization has driven the decoupling. @jburnmurdoch

Has partisanship severed the link between economic sentiment and government popularity?

Core argument: The historical link between economic sentiment and government popularity has evaporated in the US, while remaining almost as strong as ever in Western Europe, where French and German government favourability stays closely tied to economic fortunes.

The new rule — that “It’s no longer the economy, stupid” — has since reasserted itself. What makes this apparent shift all the more notable is that it appears to be an exclusively American phenomenon. The age-old relationship between economic sentiment and a government’s popularity has evaporated in the US, but it remains almost as strong as ever in Western Europe, with the favourability of French and German governments still closely linked to economic fortunes. The same is true in the UK, albeit to a lesser extent. This contrast between continents supports the theory that the hyper-partisan nature of US politics is behind the decoupling. The US electorate is now cleanly divided into Democrat and Republican factions, more hostile to one another than ever before, making it harder for economic trends to move people between political camps. If anything, voters’ politics are now shaping their economic perceptions, not the other way around.

Takeaways by Macro Roundup® AI

  1. The historical link between economic sentiment and government popularity has evaporated in the US, while remaining almost as strong as ever in Western Europe, where French and German government favourability stays closely tied to economic fortunes.
  2. The contrast between continents supports the theory that the hyper-partisan nature of US politics drives the decoupling, with the electorate cleanly split into mutually hostile Democrat and Republican factions that economic trends struggle to move voters between.
  3. In the US, voters' politics now appear to shape their economic perceptions rather than the reverse, while the UK follows the Western European pattern to a lesser extent.

Related Articles:

  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.

AI Summary. China's property market is in a yearslong downturn and its benchmark CSI 300 stock index has lost about a third of its value, while consumer confidence sits near its lowest level in decades alongside weak private-sector investment and very high youth unemployment. Households are spending less and saving more, with savings reaching a record $19.83tn according to central bank data.

Cao Li Wall Street Journal
Date Posted:

The Chinese middle class is “spending less, saving more, and shying away from risky investments” in the face of a stock market rout and declining real estate prices.

Why is China's middle class spending less and saving more?

Core argument: Chinese household savings reached a record $19.83 trillion by February, according to central bank data, as citizens spend less, save more, and avoid risky investments.

The property market has entered a yearslong downturn, the country’s benchmark CSI 300 stock index has lost around a third of its value and the economy has become increasingly vulnerable, suffering from moribund consumer confidence, weak private-sector investment, and sky-high youth unemployment. Chinese citizens are spending less, saving more, and shying away from risky investments. Household savings in the country reached $19.83 trillion by February, the highest figure on record, according to data from the central bank. Consumer confidence is near its lowest level in decades.

Takeaways by Macro Roundup® AI

  1. Chinese household savings reached a record $19.83 trillion by February, according to central bank data, as citizens spend less, save more, and avoid risky investments.
  2. China's benchmark CSI 300 stock index has lost around a third of its value, and the property market has entered a yearslong downturn.
  3. China's economy is increasingly vulnerable, with consumer confidence near its lowest level in decades, weak private-sector investment, and high youth unemployment.

Related Articles:

  • Why Are China’s Households in the Doldrums? — Chinese mortgage loans account for over 50% of total household debt, at $6tn and a third of GDP, and the stock of outstanding mortgage loans has declined for the first time as households prioritize repayment. Other forms of consumer credit have slowed sharply while new deposit growth has accelerated.
  • Foreign Direct Investment in China Falls to Lowest Level in Decades — China's direct investment liabilities, a measure of foreign capital flowing into the country, totalled about $33bn in 2023, an 82% decline from the prior year and the lowest annual level since 1993, according to China's State Administration of Foreign Exchange.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

AI Summary. Chinese steel exports reached an eight-year high, rising 32.6% year over year to 15.9mn tonnes in a two-month period, as a property crisis weighs on domestic consumption. China produces about 55% of the world's steel, so analysts say even small export increases can pressure world prices.

Joe Leahy and Harry Dempsey Financial Times
Date Posted:

Chinese steel exports increased 32.6% y/y to an 8-year high as the country seeks to drive growth through exports.

Are rising Chinese steel exports pressuring global prices?

Core argument: Chinese steel exports rose 32.6% year-on-year to 15.9mn tonnes in the first two months of the year, the highest for that period since 2016, according to National Bureau of Statistics figures.

Chinese steel exports are at an eight-year high as a property crisis undermines domestic consumption in the world’s second-largest economy and fuels concerns of global oversupply across several industries. In the first two months of this year, Chinese exports increased 32.6% against a year earlier to 15.9mn tonnes, the highest since 2016 for the period, according to figures from the National Bureau of Statistics. The country makes about 55% of the world’s steel, so even a small increase in exports can lead to price pressures in world markets, analysts said. The last time China’s steel exports were this high was during an economic slowdown from 2015 to 2016. “There’s too much steel in the world,” said Colin Richardson, head of steel at price reporting agency Argus Media. “Even with a pullback in China, there will be too much steel.”

Takeaways by Macro Roundup® AI

  1. Chinese steel exports rose 32.6% year-on-year to 15.9mn tonnes in the first two months of the year, the highest for that period since 2016, according to National Bureau of Statistics figures.
  2. China produces about 55% of the world's steel, so even a small increase in its exports can create price pressures in world markets, according to analysts.
  3. Colin Richardson, head of steel at price reporting agency Argus Media, said there is too much steel in the world and that oversupply will persist even with a pullback in China.

Related Articles:

  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.
  • Brazil Launches China Anti-Dumping Probes After Imports Soar — Brazil's industry ministry has opened at least half a dozen investigations into alleged dumping of Chinese industrial products, spanning metal sheets, pre-painted steel, chemicals and tyres. Brazilian steelmakers have asked for tariffs of 9.6% to 25% on imported steel, as Brazil's steel and iron imports from China rose from $1.6bn to $2.7bn.
  • Mexico Targets Chinese Steel Imports With Increased Tariff Of Nearly 80% — Mexico imposed a tariff of nearly 80% on some steel imports, including certain Vietnamese exports of cold-rolled steel sheets, after local producers said Chinese steelmakers had strangled their production. Exporters that prove the steel originates outside China are exempt.

Monday, March 25, 2024

AI Summary. The authors argue that the gradual fall in interest rates from 1989 to 2019 likely played a prominent role in the observed rise in wealth-to-income ratios, as households need to accumulate more wealth for retirement when interest rates are low. In their quantitative exploration, target saving motives dominate intertemporal substitution effects in the aggregate.

Paul Beaudry, Katya Kartashova and Césaire Meh National Bureau of Economic Research
Date Posted:

A new @NBERpubs paper finds that decreasing interest rates likely led to a substantial increase in the rate of retirement saving as consumers anticipated low future returns.

Do falling interest rates raise household wealth-to-income ratios?

Core argument: The authors' quantitative exploration suggests the fall in interest rates from 1989 to 2019 played a prominent role in the observed increase in wealth-to-income ratios.

In this paper, we put forward the notion that the gradual fall in interest rates observed from the late 1980s up until the COVID period likely favored an increase in household-level demand for wealth. Our quantitative exploration suggests that the fall in interest rates from 1989 to 2019 likely played a prominent role in the observed increase in wealth-to-income ratios. The reason we put forward is the need to accumulate more wealth for retirement when interest rates are low - roughly speaking, at the aggregate level target saving motives dominate intertemporal substitution effects.

Takeaways by Macro Roundup® AI

  1. The authors' quantitative exploration suggests the fall in interest rates from 1989 to 2019 played a prominent role in the observed increase in wealth-to-income ratios.
  2. The authors argue that lower interest rates raised household-level demand for wealth because households need to accumulate more wealth for retirement when returns are low.
  3. In the mechanism the authors propose, target saving motives dominate intertemporal substitution effects at the aggregate level.

Related Articles:

  • The US Capital Glut and Other Myths — The US capital-output ratio remains close to its postwar average and the real return to capital has stayed roughly constant near 6%, at 5.84% in the 2000s and 6.42% in the 2010s. Market-based real returns averaged 5.52% from 1950-1989 versus 6.95% from 1990-2019, a rise rather than the decline a capital glut implies.
  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • Global Savings Glut’s Demise Threatens Higher Borrowing Costs — The global surplus of savings that helped hold down long-term interest rates has crested, with aging populations, a weakened Chinese economy, and a more fragmented global economy threatening to turn it into a shortfall. The International Monetary Fund projects China's savings will fall to 42.4% of its gross domestic product as its current account surplus shrinks.

AI Summary. Microsoft and Nvidia's combined weight in the S&P 500 rose from 6.3% in 2021 to 12.3%, while Alphabet, Amazon, Apple, Meta, and Tesla's combined weight fell from 18% to 16.2% as they underperformed the index. The other 493 stocks rose 33.5% in value, from $23.9tn to $31.9tn.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid proposes designating Alphabet, Amazon, Apple, Meta, and Tesla as the “5 Not So Magnificent Anymore” stocks as they have underperformed the overall S&P 500 index since 2021.

Have only two of the Magnificent 7 outperformed the index?

Core argument: Microsoft and Nvidia together have nearly doubled their share of the S&P 500's total value since 2021, rising from 6.3% to 12.3% as the pair significantly outperformed the index.

Figure 2 divides the Magnificent 7 into two groups and shows their weights in the index since 2021. One group consists of only two stocks: The Magnificent 2 Microsoft and Nvidia [Mag2]. The other group consists of the remaining five stocks: Alphabet, Amazon, Apple, Meta, and Tesla [5NSMA] an acronym for “5 Not So Magnificent Anymore” stocks. In 2021, the 5NSMA stocks accounted for 18% of the total value of all 500 stocks in the index. The Mag2 accounted for 6.3%. Since 2021, the 5NSMA have underperformed the index. Today, their weight in the index has fallen to 16.2%. On the other hand, the Mag2 have significantly outperformed the market. In 2021, Microsoft and Nvidia together accounted for the aforementioned 6.3% of the market. Today they account for 12.3%. The other 493 shares in the S&P 500 have risen from a total value of USD 23.9 trillion at the beginning of 2021 to USD 31.9 trillion today, an increase of 33.5%.

Takeaways by Macro Roundup® AI

  1. Microsoft and Nvidia together have nearly doubled their share of the S&P 500's total value since 2021, rising from 6.3% to 12.3% as the pair significantly outperformed the index.
  2. The other five "Magnificent 7" stocks — Alphabet, Amazon, Apple, Meta, and Tesla — have underperformed the S&P 500 since 2021, with their combined index weight falling from 18% to 16.2%.
  3. The 493 S&P 500 stocks outside the Magnificent 7 rose in total value from USD 23.9 trillion at the start of 2021 to USD 31.9 trillion, an increase of 33.5%.

Related Articles:

  • Five Easy Pieces — The rally in the seven largest US technology stocks has been driven by earnings rather than valuation: of the group's 28% return, 21 percentage points came from sales growth, 6 from margin expansion, and 1 from multiple expansion. Market concentration has reached its highest level since 1972, and large spikes in concentration have frequently coincided with or preceded prior recessions.
  • Magnificently Concentrated — Since 1957, the 10 largest stocks in the S&P 500 have trailed an equal-weighted index of the remaining 490 stocks by 2.4% per year on average, though over the past decade the largest 10 outperformed by 4.9% per year. The authors argue history suggests the capitalization-weighted S&P 500 is likely to underperform the equal-weighted version over the next decade.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. The authors argue that manufacturing-led growth in China would be unsustainable over the medium term, producing low returns and a new cycle of bad debt, while its scope is limited by trading partners' willingness to absorb more Chinese goods. China's manufacturing trade surplus stands at $1.6tn, more than 10% of GDP.

Ozge Akinci, Hunter Clark, Jeff Dawson, Matthew Higgins, Silvia Miranda-Agrippino, Ethan Nourbash, and Ramya Nallamotu Federal Reserve Bank of New York
Date Posted:

A @NewYorkFed analysis argues that higher-than-expected growth in Chinese manufacturing driven by credit expansion would likely drive meaningful upward pressure on U.S. inflation through rising global commodity and intermediate goods prices.

Can manufacturing-led growth sustain China's economy over the medium term?

Core argument: China's manufacturing trade surplus stands at $1.6 trillion, more than 10% of GDP, and the authors argue that trading partners' willingness to absorb a further flood of Chinese products limits the scope for manufacturing-led growth.

We believe any period of manufacturing-led growth would prove unsustainable over the medium term—thus our characterization of the scenario as involving a “sugar high.” A sustained focus on manufacturing will lead to low returns and a new cycle of bad debt. The scope for manufacturing-led growth will also be limited by trading partners’ willingness to absorb a new flood of Chinese products. In this connection, China’s manufacturing trade surplus now stands at a massive $1.6 trillion, more than 10% of GDP. Our sugar-high scenario assumes that there will be no new restrictions over the near term. The materialization of this upside scenario could generate persistently higher inflation in the U.S. over the next two years. The boost in Chinese demand generates higher demand for foreign goods, including both final goods and intermediate inputs. This pushes up U.S. exports while generating significant upward pressure on global commodity and intermediate goods prices.

Takeaways by Macro Roundup® AI

  1. China's manufacturing trade surplus stands at $1.6 trillion, more than 10% of GDP, and the authors argue that trading partners' willingness to absorb a further flood of Chinese products limits the scope for manufacturing-led growth.
  2. The authors characterize manufacturing-led Chinese growth as a "sugar high" that would prove unsustainable over the medium term, arguing that a sustained manufacturing focus leads to low returns and a new cycle of bad debt.
  3. In the authors' sugar-high scenario, which assumes no new restrictions in the near term, stronger Chinese demand for foreign final goods and intermediate inputs lifts U.S. exports and global prices, and could generate persistently higher U.S. inflation over the next two years.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • A Second Dose of Trump On Trade Would Differ From The First — A second Trump administration would pair a 10 percentage point tariff increase on all US trading partners with a tariff of at least 60% on Chinese imports, with advisers arguing a broad import tax addresses America's persistent pattern of trade deficits rather than bilateral imbalances. Researchers estimate China's manufacturing goods surplus reached a record of almost 2% of world GDP.
  • China’s Excess Savings Are A Danger — China's current account surplus of 4% of GDP is larger in global terms than its 2007 peak of 10%, because its share of the world economy at market prices rose from 6% to 17%. Sustaining that surplus would require China to fund deficits in smaller developing countries.

AI Summary. China has issued government procurement guidelines that phase out US microprocessors from Intel and AMD in state PCs and servers and sideline Microsoft's Windows and foreign database software in favor of domestic alternatives. China accounted for 27% of Intel's $54bn in sales and 15% of AMD's $23bn.

Ryan McMorrow, Nian Liu and Qianer Liu Financial Times
Date Posted:

China’s import substitution campaign is accelerating with new guidelines banning Intel and AMD microprocessors and Microsoft Windows from government PCs and servers. The autarky strategy is referred to as xinchuang, “IT application innovation.”

Is China replacing US chips and software in government computers?

Core argument: China's new procurement guidelines will phase Intel and AMD microprocessors out of government PCs and servers; China was Intel's largest market last year, supplying 27% of its $54bn in sales and 15% of AMD's $23bn in sales.

China has introduced new guidelines that will mean US microprocessors from Intel and AMD are phased out of government PCs and servers, as Beijing ramps up a campaign to replace foreign technology with homegrown solutions. The stricter government procurement guidance also seeks to sideline Microsoft’s Windows operating system and foreign-made database software in favour of domestic options. It runs alongside a parallel localisation drive under way in state-owned enterprises. China was Intel’s largest market last year, providing 27% of its $54bn in sales and 15% of AMD’s $23bn in sales. Microsoft does not break out China sales but president Brad Smith last year told the US Congress that the country provided 1.5% of revenues. Beijing’s procurement revamp is part of a national strategy for technological autarky in the military, government, and state sectors that has become known as xinchuang or “IT application innovation.”

Takeaways by Macro Roundup® AI

  1. China's new procurement guidelines will phase Intel and AMD microprocessors out of government PCs and servers; China was Intel's largest market last year, supplying 27% of its $54bn in sales and 15% of AMD's $23bn in sales.
  2. The stricter Chinese procurement guidance also seeks to sideline Microsoft's Windows and foreign-made database software in favour of domestic options; Microsoft president Brad Smith told the US Congress that China provided 1.5% of revenues.
  3. Beijing's procurement revamp forms part of a national strategy for technological autarky across the military, government and state sectors known as xinchuang, or "IT application innovation," and runs alongside a parallel localisation drive in state-owned enterprises.

Related Articles:

  • China Intensifies Push to ‘Delete America’ From Its Technology — A Chinese government directive requires state-owned companies in finance, energy, and other sectors to replace foreign software in their information technology systems by 2027, part of a broader push to remove U.S. technology. Hardware makers were targeted first, with Dell, IBM, and Cisco equipment gradually replaced by Chinese products.
  • The US-China Chip War is Escalating — China's imports of chipmaking equipment have reached record highs, with purchases rising from Japan, the Netherlands, and Singapore alongside a rebound in imports from the United States, as Chinese manufacturers work to indigenize chip production. Chinese government and military buyers have obtained some NVIDIA A100 and H100 chips that US sanctions were designed to block.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.

AI Summary. Short-term Treasury bills have risen to 22.4% of outstanding U.S. government debt, above the 20% limit recommended by the committee that advises the Treasury on borrowing. Demand remains solid, with investors requiring no extra compensation to hold longer-term Treasurys and fewer alternatives available in corporate and mortgage-backed bond markets.

Eric Wallerstein Wall Street Journal
Date Posted:

Since 2019 the Treasury market has grown 60% to $27T and shifted towards short-term bills. Currently, 22.4% of Treasuries outstanding have a maturity of one year or less, above the government’s 20% recommended level.

Is government debt shifting toward short-term bills without weakening demand?

Core argument: Treasury bills with maturities of one year or shorter have risen to 22.4% of the $27 trillion in outstanding U.S. debt, above the 20% limit recommended by the borrowing committee that advises the government.

The amount of bills—those with maturities of one year or shorter—has risen to 22.4% of debt outstanding, above the recommended 20% limit set by the borrowing committee that advises the government. Demand has been more than adequate. Investors still aren’t requiring extra compensation to hold longer-term Treasurys. The so-called term premium is actually negative. One reason demand for Treasurys remains solid: fewer alternatives. Many companies issued long-term bonds when the pandemic sent rates near zero, then slowed borrowing when the Fed started raising them. The market for mortgage-backed securities is nearly frozen, with few Americans moving in the most expensive housing market in decades.

Takeaways by Macro Roundup® AI

  1. Treasury bills with maturities of one year or shorter have risen to 22.4% of the $27 trillion in outstanding U.S. debt, above the 20% limit recommended by the borrowing committee that advises the government.
  2. Demand for Treasurys has been more than adequate, with investors not requiring extra compensation to hold longer-term issues and the term premium actually negative.
  3. Fewer alternatives support Treasury demand: many companies issued long-term bonds when the pandemic sent rates near zero and slowed borrowing once the Federal Reserve raised them, while the mortgage-backed securities market is nearly frozen.

Related Articles:

  • The Long Term Budget Outlook: 2024 to 2054 — The Congressional Budget Office projects the federal budget deficit will reach 8.5% of gross domestic product over a 30-year horizon, with outlays rising to 27.3% of GDP and revenues to 18.8%. The projected growth is attributed to rising interest costs, large sustained deficits excluding interest, and spending on federal health care programs, particularly Medicare.
  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.
  • Bond Vigilantes Snooze As Treasury Market Shrugs Off Vast US Borrowing — The 10-year US Treasury yield has fallen from a peak of 5% to 4.3% as inflows into US bond funds reached their highest level since 2021, despite heavy government borrowing. Goldman Sachs projects the stock of outstanding Treasuries will rise by $1.7tn this year, weighted more toward longer-dated bonds that are riskier for investors.