As long as China has debt capacity, it can achieve any GDP growth rate Beijing requires, simply by allowing credit to expand. But debt levels are already high, and credit must expand at an accelerating pace to maintain growth. China is probably still a few years away from reaching its debt limits, but the more debt grows, the lower the country’s growth rate average will be over the long term.

China Financial Markets provides in-depth analysis of one of the world’s largest and most vital economies. Edited by Carnegie Senior Fellow Michael Pettis based in Beijing, China Financial Markets offers monthly insights into income inequality, market structures, and other issues affecting China and other global economies. A noted expert on China’s economy, Pettis is a professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets.

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  • Mexico’s Positive Impact on the U.S. Trade Balance

    20
    April 03, 2017

    Contrary to what one might first expect, Mexico’s role in global trade is actually beneficial to the United States. While restricting Mexican imports will reduce the American deficit with Mexico, it will increase the overall American deficit.

  • China and the History of U.S. Growth Models

    28
    February 28, 2017

    The Chinese development model is an old one and can trace its roots at least as far back as the infant industry protection, internal improvements, and system of national finance of the American System of the 1820s and 1830s. Understanding why the many precedents for its growth model have succeeded in some few cases and failed in others will help us enormously in understanding China’s prospects.

  • Is Peter Navarro Wrong on Trade?

    76
    February 02, 2017

    Whether the U.S. current account deficit is harmful or not to the U.S. economy depends on the assumptions we make about capital scarcity. In a world awash with excess capital and insufficient demand, the U.S. current account deficit is a drag on growth.

  • My Reading of the FT’s “. . . Glimpse of China’s Economic Future”

    31
    January 06, 2017

    The three scenarios listed in a recent Financial Times article set out the range of plausible economic outcomes available to China. The most likely is that China experiences a long, but orderly, growth deceleration as it grinds away at its debt burden, but under easily specified conditions each of the three is possible.

  • A U.S. Retreat on Global Trade Will Not Lead to a Shift in Power

    31
    December 16, 2016

    Rejecting the Trans-Pacific Partnership should not mean the rejection altogether by Washington of the very idea of a stable, rules-based trading system. The world is better off with such a regime.

  • China: Choosing More Debt, More Unemployment, Or Transfers

    3
    November 20, 2016

    China’s success will depend Beijing’s ability to centralize power, to begin to sell off government assets, to rein in credit growth, and to accept much lower GDP growth rates.

  • The Impact in China and Abroad of Slowing Growth

    October 02, 2016

    China’s rebalancing can only occur in a limited number of ways, and each of these has a fairly predictable impact. The path Beijing chooses to follow will likely be based on political decision-making.

  • Does it Matter if China Cleans Up its Banks?

    August 31, 2016

    China’s problem is excessive debt in the economy, not a banking system facing insolvency. Beijing’s reform strategy should reduce the debt burden as quickly as possible to minimize the economic costs.

  • Rebalancing, Wealth Transfers, And The Growth Of Chinese Debt

    June 22, 2016

    There is no way Beijing can address its debt problem without a sharp drop in GDP growth, but as unwilling as Beijing may be to see much lower growth, it doesn’t have any other option.

  • Will China’s New “Supply-Side” Reforms Help China?

    January 25, 2016

    China is embarking on ambitious economic reforms to boost its growth prospects. What is the rationale behind these new reforms and what are the prospects for their success?

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The Carnegie
Podcast

President Trump has made it clear that he wants to reduce the U.S trade deficit with China. If he follows through on his campaign promises to impose tariffs, how would China react? Is a trade deficit with China necessarily a bad thing for the US? One of the most thought-provoking economists on China, Michael Pettis examines the trade relationship between Washington and Beijing, and explains how the Chinese growth model is facing unique challenges.

The Carnegie Podcast is an occasional series featuring commentary and analysis from Carnegie experts on critical global issues.

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