Critique “The Great Rebalancing” by Michael Pettis



Critique “The Great Rebalancing” by Michael Pettis

Executive Summary

This paper highlights the views and analysis of Michael Pettis about China's economy which is recognizing rapid growth. This paper presents the critical analysis of this book and the analysis of Michael Pettis. The author mentions that the current account surplus do not shrunk as consequence of reduced savings which is needed urgently in Chinese economy (Pettis, 2013). Moreover, the savings rate actually increased and China realized trade surplus and did not decline but rebalanced suddenly (Görgün, 2013).

The author Michael Pettis is doubtful about the ability of social safety net reforms for consumption increase. He is right by making the point about the building out of social safety net which is financed by new fees on households that will not boost consumption. Additionally, Pettis analyzed the GDP growth of China to be slow in order to achieve rebalancing. However, the Chinese debt levels have not increased since 2008-09 but they have emerged into markets while suffering debt-related crises. The growth in the China in the past decade was subsidized heavily by hidden transfers from the sector of household in form of undervalued currency, low interest rates and low wage growth (Görgün, 2013).

Critical Discussion

In the book of Michael Pettis the Great Rebalancing, there is the highlighting of the external and domestic Chinese imbalances which are reflecting excess of GDP share investment, a large current account surplus and a household which is historically low in consumption share of GDP. He explained the transmission mechanism from China's consumption repressing policies leading to external surplus. This difference between the national investments and savings is equal to the surplus of current account (Pettis, 2013) (Huang, 2013).

According to Pettis, the production which is not invested or consumed domestically is sent overseas ...