Michael Pettis: Revisiting 12 Predictions on China

Michaeol Pettis is a finance professor at Peking University’s Guanghua School of Management.

From Zero Hedge:

In 2006, Michael Pettis (one of the best known on-the-ground academic-and-practitioner experts on China) started making a number of predictions based on what he thought was the necessary and logical development of China’s growth model. Some of these predictions seemed fairly outlandish, especially to China analysts – Chinese and foreign – who had very little knowledge of economic history or other developing countries, but many of them so far have turned out quite well. As more and more analysts are beginning to understand the constraints of the Chinese growth model he thought it might be useful to list some of these predictions to get a sense of what might be still to come.

http://www.zerohedge.com/news/michael-pettis-revisits-12-predictions-china

From China Financial Markets:

1.       China will be the last major economy to emerge from the global crisis.

2.       Chinese consumption will continue to stagnate or decline as a share of GDP until the growth model is abandoned.

3.       Although there were many factors that explained both rapidly rising GDP and the contracting consumption share, financial repression would eventually be recognized to be the key factor.

4.       Investment is being misallocated on a massive scale and this was not due to any special Chinese characteristic but was rather a fundamental requirement of the way the system operated.

5.       Debt is rising at an unsustainable pace and debt levels will become unsustainable well before the end of the decade.

6.       When specific debt problems are indentified, resolute attempts by Beijing to resolve them would be warmly welcomed by analysts but wholly irrelevant – because the problem of debt was systemic, not specific.

7.       Privatization, a topic all but forbidden in polite company, would become a very hot topic of conversation by 2013-14.

8.       As some policymakers gradually became aware of the problem with the growth model and the risk of crisis, a fundamental political split would emerge between those that demanded rapid reform and those that wanted to maintain control of resources.

9.       Chinese government debt will continue to balloon through the rest of this decade.

10.    If the transition is not mismanaged, average Chinese GDP growth rates will drop to 3% for the 2010-20 decade.

11.    If China rebalances correctly, then much slower GDP growth rates will be accompanied by only slightly slower growth rates in household income.

12.    Non-food commodity prices are set to collapse over the next three to four years.

http://www.mpettis.com/2012/05/03/revisiting-predictions/