Author Topic: The Future of China: Michael Pettis Interview  (Read 5116 times)

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Online Mirkkanen

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The Future of China: Michael Pettis Interview
« on: October 23, 2013, 11:44:40 PM »
http://www.peakprosperity.com/podcast/82631/michael-pettis-future-china

Is China destined to emerge as the dominant superpower that will drive the 21st century to new heights of prosperity? Or instead, might it collapse spectacularly under the weight of its own overinvestment, dragging the global economy down with it in history's largest 'hard landing'?

Few people can see the big picture in China more clearly than Michael Pettis, Beijing-based economic theorist and Professor of Finance at Peking University. Michael sees China's future prosperity tied to its ability to successfully address:

    Overinvestment
- Its political and economic systems are now dependent on elevated levels of investment spending. Moreover, a decreasing amount of those investment dollars are able to generate net-positive financial or social returns.
    Currency undervaluation - Money printing and excessive foreign reserves are creating imbalances that will be very hard for the central authorities to unwind without painful repercussions.
    Low wages (and wage growth) - Chinese household income has not grown as fast as GDP, creating big wealth disparities in favor of the elite.
    Over-indebtedness & low interest rates - Much of China's new borrowing is used to pay interest on current debt. Any material rise in interest rates is sure to create a cascade of insolvencies.
    Asset bubbles - Much of Chinese wealth is tied up in assets that are exhibiting dangerous levels of price inflation, real estate being a prime example. (Property prices in Beijing and Shanghai are higher than Manhattan, which is astounding considering the much lower average Chinese income)

Pettis, to put it mildly, is skeptical that China will be able to resolve these issues gracefully. In fact, he feels we've seen this movie before with predictable outcome. Just perhaps not on so grand a scale . . .

I am listening now . . .

Offline NBM

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Re: The Future of China: Michael Pettis Interview
« Reply #1 on: October 24, 2013, 02:06:26 PM »
Excellent article Mirk, thanks for sharing it.
I am a student attempting to learn, I do not know if this perspective is "the truth" but it is a step for me in understanding how this great ball of wax is constructed.
The YouTube version has some interesting comments.
http://www.youtube.com/watch?v=39oTIG1wCPA

Offline BChung

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Re: The Future of China: Michael Pettis Interview
« Reply #2 on: October 25, 2013, 01:23:15 AM »
Excellent piece best summary of China's dire situation IMO. Hopefully the hoarding of Gold and other commodities can provide whatever a cushion there is for China when the reckoning comes.

Just came back from China for a 2 month long trip and its shock just shock how much worthless property are still being build and sitting empty in the outskirts of of where basically. Everyone is bullish about property, brainwashed in believing that you can't go wrong with property, certainly reminds me of pre 1997 asian financial crisis period in Hong Kong. Ridiculous over investments, perfectly good roads are being torn down and rebuild just for the sake of adding GDP numbers.

The only good news I am hearing out of this madness is that the private sector is now obtaining loans easier than a few years back when all loans are made to mostly corrupted and incompetent SOE at the expense of the private sector. For every healthy cities I can name 6-8 other cities that are in ridiculous debt.

YOu should also add the Whole Jiangsu province is pretty much bankrupt, wuhan the capital of Hubei is gone too, needing to pay 1 billion RMB everyday for the next 2-3 years just to stay afloat, in the most prosperous province guangdong, Zhuhai, Dongguan is basically bankrupt being artificially kept afloat by bank borrowings, shenzhen the darling of Chinese reforms is only floating because of the land prices it still can command due to its proximity to Hong Kong.

China has gotten to a point where the savings of the people is simply not going to able to support the corruption and incompetence of the gov't. If China wants the Chinese century dream to come true or the CCP just simply want to be here for the remainder of the century they need to let those zombies SOE go bankrupt just like they did in the nineties.  The CCP should go back and study history and remind their dumb communist minds that hyperinflation by the KMT was one of the main reason causing the KMT's downfall and giving China to CCP.

Or in the words of my Favorite China based economist Andy xie, Chinese bubble has already burst just in a very slow motion. IMO no matter how much gold China is trying to hoard its simply insurance or a big ass band aid for a wound that never stops bleeding and unfortunately with housing prices rising double digits yet again, seems like the wound just gotten bigger. Seems the gold price correction is the only good thing that have happen to China for some time.

I believe that the PBOC is trying to internationalize the RMB asap hoping that they can take a portion of the dollar's dominant status as a reserve currency of choice so maybe just maybe like the Dollar they can buy time when there is an international demand of RMB if not the RMB might just become worthless paper much earlier than the Dollar becomes junk. Hopefully when the RMB free floats China will announce a gold reserve that is enough to buy confidence and honestly I think this is the only way out of China, well I suppose more currency swaps with London & Singapore is a good news. 

Offline Pandaguy

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Re: The Future of China: Michael Pettis Interview
« Reply #3 on: October 25, 2013, 05:12:15 AM »
Excellent piece best summary of China's dire situation IMO. Hopefully the hoarding of Gold and other commodities can provide whatever a cushion there is for China when the reckoning comes.

Just came back from China for a 2 month long trip and its shock just shock how much worthless property are still being build and sitting empty in the outskirts of of where basically. Everyone is bullish about property, brainwashed in believing that you can't go wrong with property, certainly reminds me of pre 1997 asian financial crisis period in Hong Kong. Ridiculous over investments, perfectly good roads are being torn down and rebuild just for the sake of adding GDP numbers.

The only good news I am hearing out of this madness is that the private sector is now obtaining loans easier than a few years back when all loans are made to mostly corrupted and incompetent SOE at the expense of the private sector. For every healthy cities I can name 6-8 other cities that are in ridiculous debt.

YOu should also add the Whole Jiangsu province is pretty much bankrupt, wuhan the capital of Hubei is gone too, needing to pay 1 billion RMB everyday for the next 2-3 years just to stay afloat, in the most prosperous province guangdong, Zhuhai, Dongguan is basically bankrupt being artificially kept afloat by bank borrowings, shenzhen the darling of Chinese reforms is only floating because of the land prices it still can command due to its proximity to Hong Kong.

China has gotten to a point where the savings of the people is simply not going to able to support the corruption and incompetence of the gov't. If China wants the Chinese century dream to come true or the CCP just simply want to be here for the remainder of the century they need to let those zombies SOE go bankrupt just like they did in the nineties.  The CCP should go back and study history and remind their dumb communist minds that hyperinflation by the KMT was one of the main reason causing the KMT's downfall and giving China to CCP.

Or in the words of my Favorite China based economist Andy xie, Chinese bubble has already burst just in a very slow motion. IMO no matter how much gold China is trying to hoard its simply insurance or a big ass band aid for a wound that never stops bleeding and unfortunately with housing prices rising double digits yet again, seems like the wound just gotten bigger. Seems the gold price correction is the only good thing that have happen to China for some time.

I believe that the PBOC is trying to internationalize the RMB asap hoping that they can take a portion of the dollar's dominant status as a reserve currency of choice so maybe just maybe like the Dollar they can buy time when there is an international demand of RMB if not the RMB might just become worthless paper much earlier than the Dollar becomes junk. Hopefully when the RMB free floats China will announce a gold reserve that is enough to buy confidence and honestly I think this is the only way out of China, well I suppose more currency swaps with London & Singapore is a good news. 

NICE POST!  Yes, the criminalistic CCP has got to go. The CCP wastes massive amounts of "public funds" and bribes on lining their own pockets. Sure, KMT did similar, however, KMT also spent alot on war with Japan while Mao husbanded his army in caves. Also, I can add, first hand, that all around where I live in China, many people are currently adding huge additions to their homes. This has been occuring over the past two years. Once one person makes their addition, their neighbor follows likewise. The construction boom around me is like a cancer gone wild. That is wealthy Chinese mentality -- one must either equal or surpass your neighbor. Bear in mind -- most of these homes remain empty. The owners are very wealthy, and own many homes. They would rather have them remain empty than lower the rent to acquire tenants.  Go figure .....

Offline pandamonium

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Re: The Future of China: Michael Pettis Interview
« Reply #4 on: October 25, 2013, 08:36:36 AM »
Precious metals will be the World currency.........there is a finite amount so parabolic spike in price has got to happen......