China: the politics of economic adjustment
By Michael Pettis
Beijing-based economist Michael Pettis has carved out through his "China Financial Markets" blog a distinct position with his commentaries on the Chinese economy, notably with his consideration of the difficulties it faces with its necessary rebalancing towards a more consumption-based model. Asia Times Online here draws the attention of Pettis' latest insightful analysis to a wider public.
The past two years have seen a surprising amount of turmoil at the highest levels of the Chinese political establishment. We have seen political alliances re-shuffled, powerful business and political
leaders arrested, factional disputes magnified, and an explosion of rumors of more to come.
After 20 years of what seemed, on the surface at least, remarkable cohesion within China’s political elite, events of the past two years have come as a great surprise to many.
And yet the historical precedents suggest that none of this should have surprised us. After nearly 30 years of spectacular economic growth and impressive social and political advances, China has probably exhausted the growth model that had once served it so well.
It now suffers from many of the internal imbalances that were the near-automatic and easily predictable consequences of the policies associated with the growth model it had pursued, and policymakers in Beijing are very aware of the urgent need to adopt a new set of policies that will allow China both to rebalance the economy so as to protect itself from the consequences of soaring debt and to lay the foundations for another 30 years of solid economic growth and social and political advancement.
China is not the first country to have experienced a long period of miraculous growth. But, as University of Chicago’s Robert Aliber implied in his Warholian quip about growth miracles ("in the future every country will grow rapidly for 15 years"), the most difficult part of growth miracles has not been the growth miracle itself but rather the subsequent adjustment.
Consider the most notable examples of growth miracles: the United States in the 1920s, Germany in the 1930s, the Soviet Union from the late 1940s to the early 1960s, Brazil from the late 1950s to the late 1970s, Japan in the 1980s, and many others. ... more
Michael Pettis is a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has taught, from 2002 to 2004, at Tsinghua University's School of Economics and Management and, from 1992 to 2001, at Columbia University's Graduate School of Business. He is also Chief Strategist at Guosen Securities (HK), a Shenzhen-based investment bank.
(Reprinted with permission. For Michael Pettis' blog, see here. )