Michael Pettis
China: the first Axis of Growth
Our base case calls for continued Chinese growth as it transforms itself from a growth model based on low cost-labour driven exports and infrastructure investment to one based on higher value-added exports and domestic consumer spending.
What's the trade?
Bloomberg TV interview with Patrick Chovanec
Here’s the trade
The winners of this transformation remains the commodity complex, as rising incomes mean greater resource intensity, and companies focused on the Chinese consumer
- Beijing can slowly reverse the transfers, for example by gradually raising real interest rates, the foreign exchange value of the currency, and wages, or by lowering income and consumption taxes.
- Beijing can quickly reverse the transfers in the same way.
- Beijing can directly transfer wealth from the state sector to the private sector by privatizing assets and using the proceeds directly or indirectly to boost household wealth.
- Beijing can transfer wealth from the state sector to the private sector by absorbing private sector debt.
- Beijing can cut investment sharply, resulting in a collapse in growth, but it can mitigate the employment impact of this collapse by hiring unemployed workers for various make-work programs and paying their salaries out of state resources.
China: the first Axis of Growth
Our base case calls for continued Chinese growth as it transforms itself from a growth model based on low cost-labour driven exports and infrastructure investment to one based on higher value-added exports and domestic consumer spending.
What's the trade?
Bloomberg TV interview with Patrick Chovanec
Here’s the trade
The winners of this transformation remains the commodity complex, as rising incomes mean greater resource intensity, and companies focused on the Chinese consumer