I am always getting asked deep questions regarding China’s economy and I almost always demur because I am not an economist.
But is China experiencing a bubble, people always want to know? Based on my experience of having been intimately involved (from the legal side) with two bubbles (the dot.com and the real estate bubble), my feeling is yes. I get that feeling because whenever anyone mentions there might be a real estate bubble in China, non-economists get angry and insist things are different this time or that You Ain’t Seen Nothing Yet?
This all feels a lot like irrational exuberance to me, but what do I know? Read or listen to those who really know economics, I tell people.
But where are those people?
There really are incredibly few real economists/finance people with China expertise writing/speaking in English to a general audience. Michael Pettis is one of them. He is someone who clearly does know whereof he speaks. Do I agree with him? That’s irrelevant. What matters is that he applies legitimate economic/financial tools to analyzing China and for that alone, you should be reading his blog, China Financial Markets.
I mention all of this today because Pettis just came out with a great post analyzing how China can and likely will go about re-balancing its economy to increase consumer spending. Pettis sets out the following four options and analyzes each of them politically, economically, and, most interestingly, as to who will be the winners and the losers:
- Raising the value of the Renminbi
- Raising interest rates
- Raising wages
- Transferring state assets
This is an important and very thoughtful post and I highly recommend it.