Here’s why China is not able to rein in debt 6 Mins Ago | 01:38
China’s growth rate can be “much, lower” when Beijing gets a grip on controlling debt, a finance professor in one of China’s top university said Thursday.
“I have absolutely no doubt that once Beijing is ready get control of the growth in credit – which they are a long way from doing – growth rates are going to be much, much lower compared to the current growth fee,” said Michael Pettis, financing professor at Peking University.
In that scenario, equilibrium growth rates will be 2 to 3 3 percent, Pettis told CNBC on the sidelines of the Fortune Global Forum in Guangzhou, China. The country targeted growth around 6.5 percent this year.
Up to now, the Chinese federal government has achieved little success in reining in debt growth in the last five to six years, as the united states has a GDP growth focus on that requires more growth compared to the economy can generate organically. “Therefore, the only method to get there is with debt and with accelerating levels of debt,” stated Pettis, who was simply a former managing director at Bear Stearns.
Reducing debt, while demanding, can be unlikely to spur a financial crisis in China because the bank operating system is still shut and very controlled, he added.
And although there are fears that a slowdown in Chinese growth will drag the world economy down, Pettis said it would not come to be as drastic as most imagine.