Commentary
Michael Pettis
{
"authors": [
"Michael Pettis"
],
"type": "legacyinthemedia",
"centerAffiliationAll": "dc",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "asia",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "AP",
"programs": [
"Asia"
],
"projects": [],
"regions": [
"North America",
"United States",
"East Asia",
"China"
],
"topics": [
"Economy",
"Trade",
"Foreign Policy"
]
}
Source: Getty
In The Media
China’s War on Low U.S. Interest Rates—When Imbalances Get Out of Hand
Despite recent Chinese criticism of low U.S. interest rates, changing these rates in either direction would have adverse effects on China’s economy, underscoring the deep imbalances in the global financial system.
Published on Nov 17, 2009
Source: The New York Times
PETTIS: The criticism by China’s top bank regulator, Liu Mingkang, of too-low U.S. interest rates indicates how terribly confused the debate has become. Low U.S. interest rates and the expected depreciation of the American dollar encourage investors to borrow dollars and invest in Asia, where it may be encouraging additional investment in China, a country that is already drowning in too much investment.
But low interest rates in the U.S. will help reverse the sharp fall in U.S. consumption that has been catastrophic for China’s export sector.
China’s overinvestment problem was created as part of the imbalance that had Chinese overproduction feeding American overconsumption for many years. China’s huge stimulus is likely to increase production even further at the expense of domestic consumption, putting even more pressure on China to sell its excess capacity to American consumers.
So which hurts China, lower or higher U.S. interest rates? Unfortunately, both. That is the problem with imbalances getting out of hand. They are never easy to fix.
About the Author
Michael Pettis
Nonresident Senior Fellow, Carnegie China
Michael Pettis is a nonresident senior fellow at the Carnegie Endowment for International Peace. An expert on China’s economy, Pettis is professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets.
- Is China’s High-Quality Investment Output Economically Viable?
- What GDP Means in a Soft Budget Economy Like ChinaCommentary
Michael Pettis
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie China
- Trump and Xi Are Angling for Three Years of StabilityCommentary
But their "principal to principal" model will only be as effective as the political strength of each leader back home.
Damien Ma
- China Sells Stability Amid American VolatilityCommentary
U.S. unpredictability has allowed China to capitalize on its positioning as the “responsible great power”. Paradoxically, the more China wins the perception game, the more likely expectations will rise for Beijing to deliver not just words but to demonstrate with its deeds.
Chong Ja Ian
- Why Vietnam Is Swinging in China’s DirectionCommentary
Hanoi and Beijing have long treated each other as distant cousins rather than comrades in arms. That might be changing as both sides draw closer to hedge against uncertainty and America’s erratic behavior.
Nguyễn Khắc Giang
- China’s Energy Security Doesn’t Run Through Hormuz but Through the Electrification of EverythingCommentary
Across Asia, China is better positioned to withstand energy shocks from the fallout of the Iran war. Its abundant coal capacity can ensure stability in the near term. Yet at the same time, the country’s energy transition away from coal will make it even less vulnerable during the next shock.
Damien Ma
- The Xi Doctrine Zeros in on “High-Quality Development” for China’s Economic FutureCommentary
In the latest Five-Year Plan, the Chinese president cements the shift to an innovation-driven economy over a consumption-driven one.
Damien Ma
