Michael Pettis
@michaelpettis.bsky.social
Senior Fellow at Carnegie China. For speaking engagements, please write to [email protected]
Michael Pettis is an American professor of finance at Guanghua School of Management at Peking University in Beijing and a nonresident senior fellow at the Carnegie Endowment for International Peace. He was founder and co-owner of punk-rock nightclub D22 in Beijing, which closed in January 2012. .. more
Economics
76%
Political science
11%
8/8
Just for China to be a more "normal" low-consuming country by 2035 requires that consumption growth account for roughly 85% of GDP growth every year during the next ten years. We're nowhere near that number.
Just for China to be a more "normal" low-consuming country by 2035 requires that consumption growth account for roughly 85% of GDP growth every year during the next ten years. We're nowhere near that number.
7/8
What is more, the fact that total consumption accounts for roughly 56% of total China's GDP means that the 53.5% consumption share of growth in 2025 is actually consistent with a decline in the overall share. It is still going in the wrong direction, in other words.
What is more, the fact that total consumption accounts for roughly 56% of total China's GDP means that the 53.5% consumption share of growth in 2025 is actually consistent with a decline in the overall share. It is still going in the wrong direction, in other words.
6/8
This is a little dishonest. Consumption's 53.5% contribution to GDP growth in 2025 year to date is certainly better than its 2024 contribution of 44.5%, but both are bad numbers, and well below the already-low 60% it typically contributed to GDP growth before COVID.
This is a little dishonest. Consumption's 53.5% contribution to GDP growth in 2025 year to date is certainly better than its 2024 contribution of 44.5%, but both are bad numbers, and well below the already-low 60% it typically contributed to GDP growth before COVID.
5/8
Xinhua goes on to say: "Consumption remains a robust driver of the Chinese economy. In the first three quarters of this year, final consumption expenditure contributed 53.5 percent to China's economic growth, compared to 44.5 percent for the entirety of 2024."
Xinhua goes on to say: "Consumption remains a robust driver of the Chinese economy. In the first three quarters of this year, final consumption expenditure contributed 53.5 percent to China's economic growth, compared to 44.5 percent for the entirety of 2024."
4/8
This may have been the problem in the USSR in the 1960s and 1970s, when one of the the main ways to repress consumption growth was through the scarcity of consumer goods, but it isn't the problem here. In China, the problem is scarcity of demand, not of supply.
This may have been the problem in the USSR in the 1960s and 1970s, when one of the the main ways to repress consumption growth was through the scarcity of consumer goods, but it isn't the problem here. In China, the problem is scarcity of demand, not of supply.
3/8
the supply and demand of consumer goods" seems mainly to focus on producing more and better consumer goods, as if the problem in China is that households have plenty of money to spend, and are eager to spend it, but just don't have anything to spend it on.
the supply and demand of consumer goods" seems mainly to focus on producing more and better consumer goods, as if the problem in China is that households have plenty of money to spend, and are eager to spend it, but just don't have anything to spend it on.
2/8
But while everyone in government now acknowledges the urgent need to raise the consumption share of GDP, and wants to be seen doing something to achieve the goal, it isn't clear that they know what to do. This new "comprehensive" plan "to improve the alignment of...
But while everyone in government now acknowledges the urgent need to raise the consumption share of GDP, and wants to be seen doing something to achieve the goal, it isn't clear that they know what to do. This new "comprehensive" plan "to improve the alignment of...
Economic Watch: China eyes improved supply-demand alignment to unlock consumption potential
english.news.cn
1/8
Xinhua: "China aims to "achieve a notable increase in household consumption as a share of GDP," and to increase the role of domestic demand as the principal engine of economic growth over the next five years, according to the new MIIT plan".
english.news.cn/20251127/553...
Xinhua: "China aims to "achieve a notable increase in household consumption as a share of GDP," and to increase the role of domestic demand as the principal engine of economic growth over the next five years, according to the new MIIT plan".
english.news.cn/20251127/553...
Global Public Goods and the Miran Doctrine
Global Public Goods and the Miran Doctrine In his Hudson Institute speech this spring, Stephen Miran, then chair of the President’s Council of Economic Advisers and now a Federal Reserve Governor …
medium.com
Very interesting piece by Michael McNair.
medium.com/@mcnai002/gl...
medium.com/@mcnai002/gl...
Ha-Joon Chang on the Future of India's Industrialisation
Facing US tariffs and automation risks, Ha-Joon Chang argues that India must rebuild manufacturing via industrial policy, capital controls, and national champions.
frontline.thehindu.com
Good interview of Ha-Joon Chang on the Indian economy and on developments economics more generally.
frontline.thehindu.com/interviews/i...
frontline.thehindu.com/interviews/i...
18/18
control over its external accounts, the fourth option is the most likely, which will be terribly disruptive for the surplus countries.
The first and last are the only stable options. Martin Wolf hopes for either of the first two, whereas I believe the last two are more likely.
control over its external accounts, the fourth option is the most likely, which will be terribly disruptive for the surplus countries.
The first and last are the only stable options. Martin Wolf hopes for either of the first two, whereas I believe the last two are more likely.
17/18
The first option is unlikely, and the second is probably also unlikely. If Europe does nothing to control its external accounts, the third option is the most likely, which could be very disruptive for the European economy. If Europe follows China and the US in asserting...
The first option is unlikely, and the second is probably also unlikely. If Europe does nothing to control its external accounts, the third option is the most likely, which could be very disruptive for the European economy. If Europe follows China and the US in asserting...
16/18
4. Every major economy decides either (like China) to maintain its current choice of economic sovereignty, or (like the US) to shift away from global integration towards more economic sovereignty, in which case global trade and (especially) global trade imbalances contract.
4. Every major economy decides either (like China) to maintain its current choice of economic sovereignty, or (like the US) to shift away from global integration towards more economic sovereignty, in which case global trade and (especially) global trade imbalances contract.
15/18
3. Some other region replaces the US as the the main accommodators of global imbalances. It can't be the developing world as they cannot finance the large, necessary deficits, and it won't be Japan and India for structural reasons, so this basically means Europe.
3. Some other region replaces the US as the the main accommodators of global imbalances. It can't be the developing world as they cannot finance the large, necessary deficits, and it won't be Japan and India for structural reasons, so this basically means Europe.
14/18
2. The US reverts to the old days of accommodating the trade and capital imbalances of the rest of the world. As it does so it continues to deindustrialize and debt continues to rise to make up for demand that shifts abroad.
2. The US reverts to the old days of accommodating the trade and capital imbalances of the rest of the world. As it does so it continues to deindustrialize and debt continues to rise to make up for demand that shifts abroad.
13/18
That means that the world now only has four options.
1. China and other surplus countries can decide to accept less economic sovereignty and more global integration, which means among other things giving up control of their currencies and their trade and capital accounts.
That means that the world now only has four options.
1. China and other surplus countries can decide to accept less economic sovereignty and more global integration, which means among other things giving up control of their currencies and their trade and capital accounts.
12/18
Once the US decided that it would no longer tolerate a continued decline in its share of global manufacturing (17%) and a continued rise in its share of global consumption (28%) relative to its share of global GDP (24%), it forced a rupture in the global trading system.
Once the US decided that it would no longer tolerate a continued decline in its share of global manufacturing (17%) and a continued rise in its share of global consumption (28%) relative to its share of global GDP (24%), it forced a rupture in the global trading system.
Opinion | Are Domestic Manufacturing Jobs Worth Protecting?
Yes, but only when what threatens them is other countries’ industrial policy.
www.wsj.com
11/18
American economists insisted that the resulting decline in US manufacturing share was a consequence of rising US manufacturing productivity, but they had completely confused declining manufacturing employment with declining manufacturing share.
www.wsj.com/opinion/are-...
American economists insisted that the resulting decline in US manufacturing share was a consequence of rising US manufacturing productivity, but they had completely confused declining manufacturing employment with declining manufacturing share.
www.wsj.com/opinion/are-...
10/18
manufacturing subsidies by allowing their shares of global consumption to grow more slowly than their shares of global GDP, by definition this mean that the accommodating countries would have to take the opposite position.
manufacturing subsidies by allowing their shares of global consumption to grow more slowly than their shares of global GDP, by definition this mean that the accommodating countries would have to take the opposite position.
9/18
But this had costs to the US. If China, Japan, Germany, South Korea and other economies decided they wanted to expand their shares of global manufacturing faster than their shares of global GDP, and to pay for the required...
But this had costs to the US. If China, Japan, Germany, South Korea and other economies decided they wanted to expand their shares of global manufacturing faster than their shares of global GDP, and to pay for the required...
8/18
very open, flexible, and well-governed capital accounts.
As long as this happened, the rest of the world could ignore the resulting trade imbalances (with the obvious exception of extremely disruptive inter-EU trade imbalances between 2002 and 2009).
very open, flexible, and well-governed capital accounts.
As long as this happened, the rest of the world could ignore the resulting trade imbalances (with the obvious exception of extremely disruptive inter-EU trade imbalances between 2002 and 2009).
7/18
For a long time, China was just one of many major economies (albeit the largest and most forceful) to control their external accounts, while the US (along with the UK and Canada) were the economies that did most to accommodate the resulting trade surpluses, mainly through...
For a long time, China was just one of many major economies (albeit the largest and most forceful) to control their external accounts, while the US (along with the UK and Canada) were the economies that did most to accommodate the resulting trade surpluses, mainly through...
6/18
But if every country's external and internal imbalances must always be consistent, the ability of a surplus country to control the external accounts of its trade partners also gives it the ability to shape its trade partners' internal accounts.
But if every country's external and internal imbalances must always be consistent, the ability of a surplus country to control the external accounts of its trade partners also gives it the ability to shape its trade partners' internal accounts.
5/18
But it also allows them to structure the the external imbalances of their trade partners. A country's external imbalance is always consistent with the external imbalances of its trade partners – if the former runs trade surpluses, the latter must run trade deficits.
But it also allows them to structure the the external imbalances of their trade partners. A country's external imbalance is always consistent with the external imbalances of its trade partners – if the former runs trade surpluses, the latter must run trade deficits.