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Saturday 19 Aug 2017 | 23:11 | SYDNEY
Saturday 19 Aug 2017 | 23:11 | SYDNEY

China growth: Careful what you wish for

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14 May 2009 12:52

From the excellent blog of Michael Pettis, a professor at Peking University’s Guanghua School of Management, I learn that there is an ongoing debate among China's governing classes about how the Chinese economy should be restructured as a result of the financial crisis.

It is now commonly accepted that China's export-led model is under strain from the fact that China's 'exporter of last resort', the US, is in a severe recession. And President Obama has argued that the US economy that emerges from that recession should be less oriented toward consumption.

So there is an assumption in China that the economy needs to shift toward creating more domestic demand to compensate for a drop in exports that could last beyond the downturn and become a permanent feature of the US economy. But the speed at which China transforms its economy is the main subject of internal dispute. According to Pettis:

One side says: Before we can fix the economy we need relief, and that is most likely to happen by reinforcing the existing economic structure. The other side says: The longer we take to postpone the adjustment, the worse.

The 'immediate relief' side of the debate is dominated by provincial leaders who see first hand the damage the downturn is causing. But the 'internationalist' faction has a better view of China's long-term interests, and argues China needs to undergo some pain now to make the transistion from export-led growth to domestic consumption. Pettis warns that a quick return to Chinese double-digit growth, which the world now craves, could actually signal that the provincialist argument has won, to the long-term detriment of the Chinese economy and the world.

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