The impact in China and abroad of slowing growth

CHINA FINANCIAL - Report 23 Sep 2015 by Michael Pettis

-Given China’s size, and the ways in which its domestic imbalances have been reflected in external markets, the way in which China adjusts is likely to have major impacts both on domestic economic sectors and those abroad. It is important to work through the consequences of an adjustment to determine this impact.

- The best way to do so is to consider the various adjustment scenarios and what they have in common. Among these scenarios there are economic reasons that will drive the direction China takes but, even more importantly, there are likely to be political reasons.

- Fundamental to any rebalancing is the way in which wealth is implicitly or explicitly transferred from the state sector to the householder. Because each form of transfer has its own set of winners and losers, the process must inevitably be a highly politicized one.

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