Rudd and Pettis both wrong on China

Great stuff from Michael Pettis on Kevin07:


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 β€” as is likely, and as occurred in the case of Japan in the 1990s

I don’t think so.Β  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.

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