Even before the Covid-19 outbreak, the Chinese economy was slowing, after more than three decades of rapid economic expansion. Thirty years of recorded growth at around ten per cent per annum is unprecedented in human history. This has enabled hundreds of millions of people to be lifted out of poverty, and the material transformation of a poor country to one that is classified by the World Bank as upper-middle-income.
Despite all this, there is a broad consensus, including among Chinese government officials, that the country’s development model needs to change if it is to continue its transformation and become a rich country. Many economists argue that this will involve a rebalancing of the economy, in order to continue to grow and develop in a way that is more sustainable both for China itself, and for the rest of the world, given that as the world’s second largest economy behind the US, internal changes now have a major impact globally. Continue reading →
In this very brief interview, Michael Pettis argues that in order to sustain growth in the wake of the global pandemic, the Chinese government will need to ramp up public spending. The response to Covid-19, both in and out of China, has hit private consumption, investment and exports hard. Increased government spending is the only element of aggregate demand remaining.
He also repeats what he has said for some years, that the ‘underlying’ growth rate of the economy is much lower than the headline rate and the government’s targets due to massive investment in unproductive sectors and projects. This means that eventually even the headline growth rate will have to fall towards the underlying rate, possibly leading to a ‘lost decade’ for China.
A video interview below with the always original Michael Hudson on the Real News Network (transcript here). He discusses the impact of Trump’s tariffs, the failure to bring back manufacturing production to the US, and how the President is managing to isolate America and unite much of the rest of the world.
Last weekend’s G20 summit in Osaka resolved nothing substantial in the ongoing trade and technology war that the US is now waging with China. At best, a truce was agreed on any further escalation in tariffs and other measures against Chinese tech companies. But there was no long-lasting agreement reached. And that’s because this is […]
In this short video, some insights from Michael Pettis on Chinese economic growth numbers, the nation’s debt and its sustainability, the extent (or not) of deleveraging, the low share of consumption in national income, the perennial need for a rebalancing of its economy, and how this can be done.
A fascinating piece from Michael Pettis, an economist I regularly reference, on how China is probably growing much more slowly than the official GDP figures make out, alongside a discussion of the nature and measurement of GDP itself.
This would confirm his long-held thesis that China’s ultra-high investment growth model has been unsustainable for some years, and will change of necessity, either through enlightened policy or, more painfully, in the absence of such a policy.
Trade tensions and rising protectionism are combining with the exhaustion of the recent economic upturn to slow growth in many countries.
The slowdown in China could lead to a ‘lost decade’ of relative economic stagnation there, until growth rebalances away from a significant share of unproductive investment and towards a higher share of consumption and a lower but more productive share of investment in overall demand.
Although the country is already economically powerful, its rise to global dominance could be much further away than many ‘China bulls’ have predicted. Even so, given its prominence in global manufacturing value chains, relative stagnation will have a large but uneven impact on global economic activity.
The Economist magazine has an interesting article this week questioning the sustainability of the Chinese growth model and drawing some parallels between it and the Soviet Union in the post-war period.
During the last 40 years, the rapid development of China has been perhaps the most extraordinary example of economic transformation in human history, both in speed and scale. The economy grew by around ten percent per year for three decades. Growth has in recent years begun to slow, but is apparently still humming along at more than six percent, a decent clip by any standard. Hundreds of millions of its population have escaped from poverty and the new ‘workshop of the world’ has flooded the world with cheaper goods.
But cracks have begun to show, particularly since the financial crisis of a decade ago. The Chinese government’s response to a collapse of exports was to ramp up lending from state-owned banks and embark on a massive spending spree on infrastructure. Continue reading →
I recently bought a new sun hat (stay with me). A label inside reads ‘made in China’. Replacing my previous hat was well overdue, as it was more than 20 years old. Out of curiosity and before getting rid of it, I checked inside and saw a label, which also read ‘made in China’. I must be something of a geek, as this got me thinking about the manufacture of clothing and development processes.
It is notable that China is manufacturing and exporting clothing such as this, just as it was twenty years ago. The hats are not dissimilar. Of course, the Chinese economy is the largest manufacturing nation in the world and exports a huge amount of goods of all kinds. But according to this experience, companies there are still involved in the manufacture of quite basic clothing. Continue reading →
The rapid growth and transformation of the Chinese economy since 1978, when policymakers began a programme of economic reforms, has been extraordinary. Up until the last few years, GDP growth averaged around 10% per year, lifting hundreds of millions out of poverty. This represents the largest episode of poverty reduction in human history. China, as the largest manufacturing nation, has become the ‘workshop of the world’.
With a population of 1.4 billion, and an economy relatively open to international trade, these changes have and will continue to have an enormous impact on the rest of the rest of the world. For this reason, we should take a great interest in China’s continuing evolution.
Donald Trump, both on the campaign trail and since becoming US President, has placed great emphasis on getting some sort of ‘better deal’ between the US and Chinese economies. His administration has criticised China for taking advantage of the US on trade and the use of technology. But should China’s rise be a worry in these respects? Or is the US being hypocritical? In fact today’s rich countries all intervened in the economy and used forms of trade, industrial and technology policy to promote their growth and enable periods of ‘catch up’ with those at the frontier. China has been no exception. Continue reading →
I refer to the work of Michael Pettis quite often on this blog. He strikes me as a highly original thinker, combining macroeconomics, finance, development, political economy and economic history in a way which provides a deep understanding of world economic events.
He recently posted here about what he sees as the two main models of economic development which nations have used to transform their economies at certain times in history: the high wages model, and the high savings model.
Models of development can be described as a set of policies and institutions which aim to develop the economy and achieve sustained rises in productivity and output via industrialisation and the advancement of technology.
For Pettis, both models aim to raise wages and productivity, but they are distinct from one another in how they drive the investment which makes this possible. Continue reading →