Michael Pettis: China's Economic Growth Model Is Dying
Forward Guidance
The Importance of Domestic Demand in China
In China, what happens is if you lower household income, then savings go up. That's because households consume less and so businesses get higher share of the pie. So that makes businesses more competitive but reduces domestic demand. If you want to reverse that, I can tell you exactly what to do. You have to give households more. But remember, if the reason Chinese manufacturers are so competitive is because of all of these direct and hidden subsidies, take them away and reverse them. And they suddenly become very uncompetitive.
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