Great stuff from Michael Pettis on Kevin07:
2/11
A significantly slowing Chinese property market would mean slower global growth, with a particular impact on commodities that service construction.”— Michael Pettis (@michaelxpettis) October 17, 2021
4/11
recent years, but China’s contribution to global growth is something quite different, and is expressed through its balance of payments. Any future Chinese slowdown will affect global growth, in other words, mainly through the evolution of its trade and capital accounts.— Michael Pettis (@michaelxpettis) October 17, 2021
6/11
2) A Chinese slowdown will be good for the global economy if it involves a contraction in China’s current account (unless more than 100% of the contraction is accounted for by increased capital flows to advanced economies).— Michael Pettis (@michaelxpettis) October 17, 2021
8/11
with a real rebalancing of domestic demand — as is likely, and as occurred in the case of Japan in the 1990s — China’s surplus will contract and, as it does, it will add net demand to the global economy. In a world of weak demand, that will be positive for global growth.— Michael Pettis (@michaelxpettis) October 17, 2021
10/11
The main point is that as China slows, the global economy is likely overall to be slightly better off, not significantly worse off, depending on how it rebalances. As always, the case of Japan as its own economy shifted from the great imbalances of the 1980s is revealing.— Michael Pettis (@michaelxpettis) October 17, 2021
Great to see Kevin07’s drivel taken to task.
But I have to disagree with Professor Pettis as well on this
with a real rebalancing of domestic demand — as is likely, and as occurred in the case of Japan in the 1990s
I don’t think so. As Pettis himself admits, right now China may be addressing its debt and investment over-stretch but it has none of the policies in place to shift income from the investment hogs to households.
Rather, what will happen implicitly, is that slowing investment and decreasing debt ratios will result in weaker GDP that hits interest rates and delivers a lower currency. That is, the balance of payments will not adjust via stronger consumption and higher imports but via a larger trade surplus.
Let’s not concern ourselves with what might happen. This is already happening. Are we really supposed to conclude that Beijing does not know it?
Of course, it does. It has already seen off the Trump administration’s feeble trade war, trashed the deal, and is enjoying a record external sector boom post-COVID.
In short, as China slows and de-risks itself, it intends to steal even more growth from the global economy.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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