Asia Times Online :: The real challenge facing China's growth

China Business

Jun 19, '13

MICHAEL PETTIS
The real challenge facing China's growth

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.

I have argued that a recent International Monetary Fund paper by Il Houng Lee, Murtaza Syed, and Liu Xueyan supports my

contention that China has over-invested beyond its capacity to absorb capital.

This argument is in opposition to claims made by many analysts (for instance at Goldman Sachs and the Economist) that China has not over-invested systematically, and that in fact, with much less capital stock per worker than advanced countries like the US or Japan, China has a long ways to go before it begins to bump up against the productive limits of investment.

I have recently had a number of conversations with clients who wanted to pursue a little further the issue of how to think about an optimal level of capital stock per capita. In my central bank seminar at Peking University we recently spent a couple of sessions hashing this out in a way that we found very useful, ... 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.

(Copyright 2013 Michael Pettis.)

Head Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East, Central, Hong Kong
Thailand Bureau: 11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110