China faces lower growth

China’s growth over the past couple of decades was based on large increases in government-directed investment. As a consequence, it had to run large trade surpluses to absorb the resulting excess capacity in manufacturing……. This can’t continue.

~ By Michael Pettis –

As Japan and other fast-growing economies in the past have discovered, continued infrastructure spending grows increasingly wasteful and fails to deliver further growth. Subsidizing business through artificially low interest rates may encourage private investment as an alternative, but leads to:

  • bloated, inefficient corporations;
  • high inflation; and
  • massive speculative bubbles.

Options are narrowing and a shift to private consumption as the main driver of future growth is not without its risks:

  • low interest rates and high inflation are eroding private savings;
  • higher interest rates, however, would unmask business inefficiencies and collapse the speculative property bubble;
  • higher wages, on the other hand, will fuel inflation.

This Chinese puzzle may not be easy to solve.

3 Replies to “China faces lower growth”

  1. New format in not very ifnormative, old one much better at giving market pitcure, new one you think where’s the rest

  2. Colin, I look forward to your emails. However, now that you are changing formats etc may I dare to make a suggestion:
    Your tiny fonts are incredibly hard to read with my less than 20/20 vision.
    Please consider using larger fonts and expanding into the 50% of wasted white space to the right hand side.

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