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

Forward Guidance

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Challenges of Increasing Consumption and Economic Imbalances in China

Increasing consumption as a percentage of GDP in China presents significant challenges compared to Western economies like the United States, where boosting consumption appears more straightforward by distributing money. In China, however, reliance on increasing debt to spur consumption is unsustainable due to existing debt issues. A more effective solution lies in increasing the household income share of GDP, but this poses allocation challenges, as gains for one sector necessitate losses for another. This conflict particularly affects businesses and government entities, complicating the redistribution of economic power. Similar historical precedents, such as Japan's experience in the 1980s with imbalances and the necessity to shift economic reliance toward consumption and household income, further illustrate the complexity of these challenges in China.

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