After more than two decades in China – including years spent teaching finance at Peking University and Tsinghua University – Michael Pettis has become an oft-cited voice on the challenges faced by the world’s second-largest economy. Before moving to Beijing, he also worked on Wall Street as a trader, with stints at JP Morgan and Bear Stearns.
In this interview, Pettis discusses the dichotomy between China’s household consumption and its world-leading manufacturing sector, evaluates the new global landscape for trade and reminisces about the glory days of Beijing’s arts scene.
China’s economy has been under scrutiny for its ability to sustain growth, especially with the annual gross domestic product target set at “around 5 per cent”. What is the biggest challenge facing the Chinese economy?
I think everybody understands the basic problem of the Chinese economy – very weak domestic demand.
For any economy there are two components of domestic demand – consumption and investment.
Chinese growth has always been extremely investment-oriented. Not only does it have the highest investment share of GDP in history, but even if China were to reduce that share by 10 percentage points, it would still be one of the highest investing countries in the world.
