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Video: Verity interviews with Michael. Pettis, Professor of Finance at Peking University

04-02-2011 17:14 BJT

 

 

VERITY : I am in north Beijing. I suppose you’d call this the University District. Peking University is here in the West and Tsinghua University is over here. I’m here to meet Michael Pettis. Now he’s the Professor of Finance at Peking University. He’s an author, he’s a blogger, he’s an expert on China’s economy. So, what’s he got to say about 12th 5-year guideline?

Michael. Pettis, Professor of Finance at Peking University

Verity: With the main elements of the new guideline, one of the main aspects could be the shift towards to building domestic consumption. How would that work? Do you think it’s quite a dramatic shift?

M.Pettis: The hope is that we get a dramatic shift. But it’s very difficult to do so. If you work to try to identify the single biggest challenge that China faces, I would argue that the challenge is the extremely low household consumption share of GDP.

Verity: Looking at the 12th 5-year guideline as a whole. Is it a really significant change in direction? Do you think it’s cautious, do you think it’s brave?

M.Pettis: Well, China will rebalance, it has to rebalance. There’s simply no way it continue this way, unless you assume that the rest of the world has an infinite capacity for debt which of course clearly it doesn’t. We're seeing debt crisis in Europe and we're seeing debt constraints in the United states so we may have reached the end of that level, that means china has to rebalance.

Now there’s two ways in which China can rebalance. The good way is that you can get household consumption to surge and GDP growth continues strong. The bad way is that GDP growth slows significantly and household consumption continues to grow at the same rate. Either way, household consumption will grow faster than GDP and China will rebalance.

Editor:James |Source: CNTV

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