Michael Pettis — Why market liberalisation now may hurt China more

In the end, while standard macroeconomic reforms may work in theory -- albeit under an unrealistic set of assumptions -- they’ve never worked in practice. Rather than eliminating the controls that protect China from a financial crisis, leaders should confront their debt problem head-on and begin deleveraging.

For that to happen, it would help if the decision-making process were more, not less centralised. Only forceful action from the top can overcome the tremendously powerful vested interests that are blocking the redistribution of local-government wealth.

A more liberal China may be desirable in the abstract -- but not until a more controlled China gets a handle on its debt problems.

Today
Why market liberalisation now may hurt China more

Michael Pettis | Professor of Finance at the Guanghua School of Management at Peking University in Beijing

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While China's government debt remains contained, at 46.9 percent of GDP as per latest figures from the Bank for International Settlements, top policymakers have recently raised concerns about a sharp build-up in household debt.

Outstanding household consumer loans have surged close to 30 percent since the middle of last year and reached 30.2 trillion yuan as of October.

Outstanding yuan-denominated property loans amount to 31.1 trillion yuan and individual mortgage loans totals to 21.1 trillion yuan as of the third quarter of 2017, data from the People's Bank of China showed.

Yet, at the same time, China's economy is said to be held back by the traditionally high level of household saving, which is supposedly holding back restructuring from an investment-based economy to a consumption-based one.

CNBC
China's debt is growing at a faster pace despite years of efforts to contain it

Reuters