Macro Hive Conversations With Bilal Hafeez Ep. 330: Paul Cavey on US-China Trade War, Japan Politics and Taiwan Imbalances
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Oct 16, 2025 Paul Cavey, a seasoned China economist with 25 years of experience and founder of East Asia Econ, shares his insights on pressing regional issues. He dives into the recent escalations in the US-China trade war, evaluating China’s strategic leverage. Discussing the potential for Japanification in China, he contrasts it with Japan's past. Paul highlights China's two-speed economy, the nuanced implications of its bad debts, and the outlook for Japan's currency. He also warns about Taiwan's dependence on semiconductors and compares South Korea's risks to Japan's.
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Consumption Near Trend, Savings Need Mobilising
- Cavey says consumption in China is close to pre-COVID trend in real terms, though that trend was weak already.
- The issue is mobilising savings previously directed into property back into productive domestic demand.
Use Bonds To Finance Welfare And Mobilize Savings
- Do consider special bond issuance to fund local spending on education and healthcare to mobilize domestic savings.
- Target welfare for migrant workers and reuse excess housing to stabilize property while boosting consumption.
China Rates May Have Bottomed
- Cavey thinks China's monetary easing cycle may be near its end as property correction largely completes and PBoC balance-sheet support has already expanded.
- This implies short-term rates have probably bottomed unless exports collapse from trade escalation.
