Beijing’s New Leaders Are Right to Hold Back

The world is struggling to rebalance its great savings imbalances and is not advancing much. In Europe, and as I discussed in my very long May 21 blog entry, it seems that Germany is still unable to force though the adjustments needed in internal demand and is hoping to foist its imbalances onto the rest […]

How Much Investment is Optimal?

In the May 10 issue of my blog I referred to a very interesting IMF paper written by Il Houng Lee, Murtaza Syed, and Liu Xueyan. The study, “China’s Path to Consumer-Based Growth: Reorienting Investment and Enhancing Efficiency”, attempts among other things to evaluate the efficiency of investment in various provinces within China. I argued in the newsletter that the paper supported my contention […]

Excess German Savings, not Thrift, Caused the European Crisis

One of the reasons that it is been so hard for a lot of analysts, even trained economists, to understand the imbalances that were at the root of the current crisis is that we too easily confuse national savings with household savings. By coincidence there was recently a very interesting debate on the subject involving several economists, […]

Feedback Loops

Early this month Martin Wolf had another of his very interesting articles, this time on China, which I think suggests some of the concerns we must have about the upcoming adjustment. Wolf argues that it may be useful to think about Japan as a model for understanding the adjustment process in China since the Japanese model […]

The Challenges for China’s New Leadership

The 2013 NPC and CPPCC Annual Sessions have ended with the formal selection of China’s new leaders. Not surprisingly there were few surprises. My quick take is that the leadership is saying all the right things, but they have been saying these things for quite a while – nearly two years in the case of […]

Pettis: What I’ll Be Watching in 2013

I’ll be watching a number of things in 2013 in order to get a better sense of what the future will bring. On January 22 Princeton University Press will be publishing my book, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead, and in the last chapter of the book I argue that the great trade, […]

Recognizing the Need for Economic Adjustment

In China, I have argued many times, high growth is no longer compatible with a strengthening balance sheet. If China is growing at a rate that approaches or exceeds five or six perent, it is probably a safe bet that debt is rising faster than debt servicing capacity. The good news is that the current leadership seems very […]

The IMF on overinvestment

The IMF’s Il Houng Lee, Murtaza Syed, and Liu Xueyan have published a very interesting and widely noticed study called “Is China Over-Investing and Does it Matter?” In it they argue that there is strong evidence that China is overinvesting significantly. According to the abstract: Now close to 50 percent of GDP, this paper assesses the appropriateness […]

Is There an Asian RMB Bloc?

In the past two weeks we have been treated with a mostly positive but nonetheless mixed bag of economic data from China. There has been good news, bad news, good news with worrying underlying trends, and bad news with silver linings. Analysts have announced that things are getting worse and that things are getting better. […]

When the Growth Model Changes, Abandon the Correlations

Chiwoong Lee at Goldman Sachs has a new report out (“China vs. 1970s Japan”, September 25, 2012) in which he predicts that China’s long-term growth rate will drop to 7.5-8.5%. I disagree very strongly with his forecast, of course, and expect China’s growth rate over the next decade to average less than half that number, […]