Economist Michael Pettis, one of the most authoritative voices on China’s finances, grabs the mosquito can and doses it generously onto his legs. At this time of the afternoon and at this time of year, your Beijing garden may be in disarray. Pettis, a 65-year-old American, has been with the Asian giant for 20 years and lives in an alley just a stone’s throw from the Forbidden City in a so-called “siheyuan,” an ancient building made up of several buildings built around a room. Uncovered center. Because the house is both large and spectacular, he shares: The rooms on the north side contain the offices of the record label he founded years ago (though he later sold it); The southern flank was used until not long ago by a composer who was preparing an opera (now he has gone to Thailand in search of inspiration).
Pettis is not a typical economist, if such a thing even exists. Wearing shorts and flip-flops, he searches the fridge for a few Tsingtao beers, the national brand, and sits on the terrace with his legs up. The conversation begins with the latest news spreading like wildfire through Beijing’s political gossip mills: Apparently President Xi Jinping suffered considerable wrath at the recent meeting that the Communist Party high command holds on Beidaihe Beach every summer from “the elders” about the country’s economic progress and its handling of relations with the United States. The scandal would have been so big that he would not have attended the G20 summit. The bombshell was published by media outlet Asia Nikkei (the Japanese are reportedly among those with the best sources in the Chinese capital). Although it is obviously difficult to verify: Chinese politics is practically inscrutable.
“Something is happening, that’s clear. However, there is no way to know whether the article is accurate or not. In China, we tend to assume these things,” says Pettis, a professor of finance at the Guanghua Business School in Beijing and a foreign researcher at the Carnegie Endowment for International Peace. It has been a summer full of grim economic news for the country, which has been unable to get the engine going after the anti-pandemic lockdown was lifted: exports are falling, the real estate sector is pale, domestic consumption is failing to take off and youth unemployment has reached such high levels that authorities decided in August to stop publishing the figures.
In any case, Pettis has been warning for years that Beijing’s economic model is exhausted. The meteoric growth rates of the past will most likely not be repeated and growth will be below 5%. It will undergo an adjustment process similar to the one that dried up Japan’s manna in the 1990s. We must banish the idea that the Asian giant will eventually overtake the United States, he adds. For years he swam against the tide with such theories. The Chinese miracle was too impressive to deny. Today he is joined by economists of the caliber of Paul Krugman. “China’s economic problems may date back to 2006,” Pettis says in the cracking voice of someone who has lived a long time.
His more than 20 years in China have given him a lot. While teaching at the capital’s best universities, he founded two well-known rock clubs and founded the above-mentioned record house. Pettis loves indie music. He talks about the Asian giant’s rise in the early 2000s as if he were remembering a golden age. “Beijing was the right place. Like Seattle in the ’90s.” Both stores closed. The decline of this vibrant scene is almost a metaphor for the remaining golden years of cosmopolitanism and unbridled growth.
During his training in New York, where he completed a master’s degree in development and an MBA at Columbia University before starting on Wall Street, he had already opened a concert hall and another label. He hung out with alternative rock groups like Sonic Youth (“they were fascinated by the Beijing music scene when they came”).
Pettis feels like a New Yorker. But he was born in Spain, more precisely in Zaragoza, where his father landed in the 1950s: he was a civil engineer and worked on the construction of the city’s airport, created by the Americans. The family lived in different parts of the world, from Pakistan to Peru, but eventually settled in Torremolinos, where intellectuals, hippies and foreign artists as well as the jet set visited. His mother, a French woman, founded an international school in Benalmádena that still exists today. She and two of her brothers still live there. This reminds him of the time when he visited Spain in 2008 before the big brick disaster. He attended a large celebration with dozens of people. “They were all dedicated to the real estate sector.” Something similar is happening in China. It is part of the upcoming realignment.
Staying with him means constantly talking about imbalances: that is, at its core, the economy. Their conversation sometimes becomes complex, abstract and does not provide answers to the everyday minutiae of journalists. He also asks not to record or take notes: this way you can express yourself more freely, he adds.
As darkness falls in the courtyard, Pettis explains that China has for decades relied on rains of credit and money in real estate and infrastructure for its growth. There was a lot to build in a country that was still just beginning. But such investments are now becoming unnecessary and therefore unproductive. Beijing only has one option left: to increase consumption. In his view, the formula is to get households to save less (rates are very high in China to compensate for the lack of a public social safety net). This would make more money available and demand would increase. But it is not easy to achieve it. He predicts serious political conflicts in the coming episodes of this struggle.
That in the internal key. At the international level, in a scene marked by the rivalry between China and the United States, he returns to 1944 and Bretton Woods to recall the teachings of the famous economist John Maynard Keynes: “You can’t live in a global economy with constant imbalances. “, he concludes. “Hence the protectionist movements in the world. “The system needs to be reformed.”
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