Recognizing the Need for Economic Adjustment

by Michael Pettis, China Financial Markets In China, I have argued many times, high growth is no longer compatible with a strengthening balance sheet. If China is growing at a rate that approaches or exceeds five or six percent, it is probably a safe bet that debt is rising faster than debt servicing capacity. The good news is that the current leadership seems very clear about the need to implement reforms, and also understands that this is going to be politically a difficult process. Last week Xinhua had this article: China must maintain economic growth and persevere with market-oriented reforms in the face of multiple risks in the economy, the new helmsman of China’s ruling party has said. The government should continue its proactive fiscal and prudent monetary policies next year and improve the economy’s internal vigor and dynamic, said Xi Jinping, general secretary of the C...