The decline in China’s growth rate is a good thing for the country and the world, Peking University finance professor Michael Pettis writes in the Financial Times.
China appears to be heading for a hard landing, and it must sharply reduce interest rates and expand credit to save itself and the world from disaster, Pettis, a senior associate at the Carnegie Endowment, writes.
While Chinese rebalancing -- which will involve raising the consumption contribution to its Gross Domestic Product -- will mean declining growth and rapidly increasing real interest rates, instead of “panicking and demanding that Beijing reverse the process, we should be relieved that China is finally solving its problems,” he writes.
Fears that slower growth will lead to social dislocation in China and economic dislocation in the rest of the world will not be realized if the change is managed well, Pettis writes, noting that “if Chinese growth slows even to 3 percent, as I expect it will, but household income continues growing at 5-6 percent, this is far from being socially disruptive.”
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