How to think about Chinese medium-term growth prospects

CHINA FINANCIAL - Report 15 Mar 2019 by Michael Pettis

Special points to highlight in this issue:
• China’s two national political sessions last week set off a largely expected series of announcements and a huge amount of analysis, with nothing fundamentally changing. Beijing still faces the same constraints and the same set of adjustment scenarios.
• The most important thing that has come out of the two sessions and the preceding several months, in my opinion, is the by-now widespread recognition that China’s GDP data have very little connection with what we generally assume GDP to mean. This is unambiguously good news. The sooner we recognize the relative uselessness of China’s high GDP growth numbers as indicators of the economy’s performance, the sooner China can begin to adjust.
• Given China’s deep imbalances and its dependence on rising debt and non-productive investment, it is a fairly simple process in principle to work through the range of adjustment scenarios China faces. In this issue of the newsletter I list six possible scenarios and how they will impact the Chinese economy, including financial crisis, a very sharp devaluation or depreciation of the RMB, and a 50 percent collapse in real estate prices.

Now read on...

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