Here are a selection of articles that prof. Pettis recommends as ‘further reading’…
you know this industry probably better than any and since most of the assets under management are under Asset Management Co related/pertaining to Banks or other types of financial institutions, (I would guess that in CHina it should be very different), I really dont see how the bulls will publicly come out and modulate their argument against themselves…until it is too late and even so they will still find arguments to explain what went wrong….. Normally, I have never considered myself a bull or a bear, I think that for day traders it is a funny way to market themselves daily…but what I admire of your arguments is the common sense part that seems to be lacking nowdays…….in Spain thee is a saying….”dont through stones on your own roof”…and so over here in Spain…….bulls continue to reign…and look what happened.
Thanks for the article…..
sorry for the misspelling….
Overall a good and reasonable prediction based upon simple mathematics and some basic economic assumptions. As a quarterly visitor to China (mostly the Shanghai area) for the last 10 years my growth predictions would be very similar to yours, but based on somewhat different intuitive and anecdotal premises.
First – The size of China’s economy is beginning to hit the mathematical limits of compounding. A perpetual 10% increase of a larger and larger GDP is a mathematical impossibility.
Second – Going forward, Central Planning will prove to be more of a hindrance than a benefit. It will be very difficult for a centrally planned economy to effectively micro manage the huge number of market decisions required to redirect growth from investment to consumption.
– The majority of decisions made by the Central Committee over the last 15 years have been beneficial to economic growth. However many of the decisions were easy choices; build an infrastructure, develop energy and basic manufacturing industries etc. Picking the low hanging fruit so to speak. On my quarterly visits since 2010/2011, it has become increasingly obvious that new infrastructure investments have a much lower marginal value.
– Members of the Central Committee have become enormously rich over this period on infrastructure projects and GSE’s. It seems somewhat doubtful that these same influential party members are going to take away the punch bowl until debt burdens imposed by reckless investments result in some sort of economic crises.
Third – Chinese products are no longer inexpensive. Lower end products are being out-sourced to Indochina and manufacturing for higher end products are beginning to be repatriated closer to the end market. In our case, we have opened a second contract manufacturing facility in Mexico and costs are fairly equal. A large increase in demand for Chinese goods in the West is unlikely.
Fourth – Expect some political instability from the interior regions of China. When the promised increased living standards experienced in the coastal regions does not materialize in the interior, there will be political repercussions.
Fifth – China’s overall economic policy appears to be patterned after the mercantilist policies adapted by the US in the first half of the 20th century, Japan in the 80’s, and currently Germany in the EU. The eventual unwinding this policy will likely result in much slower economic growth rates going forward.
I think your 3-4% prediction is spot on.
The example of CCCP shown that it is possible to make an economy half as efficient like the US with central planning.
If China will be half as efficient than the US then its economy will be two-three times bigger then the US.
Dear Prof. Pettis,
Thank you for a helpful article “Revisiting my 2011 predictions”.
1. FYI I think there is a typo in “Not only is the household share of GDP much to low to tolerate the huge transfers needed to resolve the next banking crisis”. It should be “much too low” instead.
2. Would privatization in China bring good investment opportunities? I don’t really know financial history well, but have the impression that the early participants of past privatizations (of China and other countries) were successful investments. Is that a correct understanding?
3. Or, would the new capital that participates in the coming China privatization become the ones who pay for the coming rebalance?
4. Or, do you envision that the privatization would be carried out by that the central government just give out shares ownership to the people directly, without trying to attract capital?
Michael, could you please contact me regarding articles from this site that we have republished on Asia Times Online. I have been unable to pin down your email address from our earlier correspondence.
Regards, Chris Stewart, Asia Times Online.
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