China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle

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Jul 18, 2024

Michael Pettis, financial expert, discusses China's investment-driven growth model, challenges in increasing consumption, comparisons to Japan's economic decline, impact of trade surpluses on deficit countries, and the fallacy of 'trade is always good' mindset among economists.

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INSIGHT

Investment-Driven Growth

Investment-driven growth works best for under-invested economies.
High investment in developed economies often leads to unproductive endeavors and rising debt.

INSIGHT

China's Real Estate Dilemma

China's 2021 decision to constrain real estate was necessary, albeit belated.
The real estate sector's substantial contribution to China's investment-driven economy presents a challenge.

INSIGHT

China's Investment Reliance

China's economy relies heavily on investment, unlike the global average.
Reining in investment requires increased consumption or decreased GDP growth.

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Recent writings by Michael Pettis:

“Which Country Should Design U.S. Industrial Policy?”: https://carnegieendowment.org/china-financial-markets/2024/07/which-country-should-design-us-industrial-policy?lang=en

“Trade and the Manufacturing Share”: https://www.phenomenalworld.org/analysis/trade-and-the-manufacturing-share/

“Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace”: https://www.amazon.com/Trade-Wars-Are-Class-International/dp/0300244177

Timestamps:

(00:00) Introduction

(01:18) The Problem With China's Investment-Driven Growth Model

(09:52) Why Increasing China's Consumption Is So Hard

(17:36) China's Plan To Reignite Economic Growth In China

(20:43) Why China Will Follow Similar Path To Japan In Its Economic Decline In 1990s

(24:03) Impact That Trade Surplus Countries (China, Germany, etc.) Have on Trade Deficit Countries (U.S., U.K., etc.)

(28:06) VanEck Ad

(28:46) Interview Continues

(36:59) The Fall of The "Trade Is Always Good" Consensus Among Economists

(49:58) Permissionless Ad

(50:57) Is China "Cheating At Trade"?

(57:19) The Three Things The U.S. Can Do To Respond To Its Role As "Global Consumer Of Last Resort"

(01:01:53) Why U.S. Capital Controls Are Necessary To Truly Fix The American Trade Deficit

(01:06:35) Both Trump and Biden Factions Are Determined To Resolve U.S.' Trade Imbalances

(01:08:36) China's Move From Real Estate To Manufacturing Is Exacerbating Its Trade Surplus With The Rest Of The World

(01:14:53) Chinese Real Estate Crisis Unlikely To Imperil The Chinese Banking System, Argues Pettis (Because The Government Is In Control)

(01:18:58) What About The Chinese Shadow Banking System?

(01:21:13) How Pettis Sees This All Playing Out

(01:25:09) How Falling Real Estate Prices (And Stock Markets) Impact Sentiment In China

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.