How will a Chinese adjustment affect the world?

CHINA FINANCIAL - Report 17 Apr 2016 by Michael Pettis

Special points to highlight in this issue:
• Recent debt and economy-related data released by the PBoC and the National Bureau of Statistics suggest that economic activity is stabilizing, but for the wrong reasons. Debt continues to rise faster than ever.
• I continue to expect that China is more likely to see a non-disruptive economic adjustment, in which GDP growth continues to slow sharply over the rest of this decade, than a chaotic one perhaps involving a financial crisis.
• When a country is undergoing its always-difficult adjustment after many years of investment-driven “miracle” growth, it is always dangerous to make economic forecasts because the evolution of any adjustment is highly path-dependent and the greatest tensions within the adjustment process are always political. While there are some plausible forecasts that can be proposed for certain sectors of the economy, in most cases it is much more useful to consider various adjustment scenarios, and subsequently to work through the consequences of each.

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