When Will China Emerge From the Global Crisis?

Author: Michael Pettis  ·  February 22nd, 2012  ·  Comments (0) Share This Print  13  11

This posting is from the January 30 issue of my newsletter, and so ignores recent events in Chongqing, but of course those events make my discussion of the political debate  entry all the more relevant, I think.  Before getting to the policy debate, I want to mention that in late January Caixin, one of my favorite magazines, had an interview with Liu Mingkang, former China Banking Regulation Commission chairman. In it Liu says:

I’ve said in the past that this economic crisis will spread from the United States to Europe and finally land in Asia. Now we can see that it’s already begun influencing Asia.

In 2008 and 2009 I argued that the crisis we were undergoing would affect every major economy in the world, but not necessarily at the same pace. I suggested that the US typically is quick to adjust and, given the pace of deleveraging that was already taking place, I expected that it would be the first major economy out of the crisis, probably in the next two to three years, as private debt levels continue to decline and public debt growth slows.
China had an even bigger adjustment to make, but I worried that there were institutional factors that would slow down the adjustment process, especially with the expected change in leadership this year. Although I did not expect to see a serious contraction in growth until after 2013, I said that China would be the last major economy to emerge from the crisis. Why? Because the huge increase in investment it engineered to postpone the domestic impact of the global crisis exacerbated the imbalances within the economy and increased its already-excessive reliance on debt and investment to generate growth. end quote from:

When Will China Emerge From the Global Crisis?