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Avoiding the Fall: China's Economic Restructuring . MICHAEL PETTIS . Washington, DC : Carnegie Endowment for International Peace , 2013. viii + 157 pp. $17.96; £13.99. ISBN 978-0-87003-407-7
Book Reviews
Michael Pettis's Avoiding the Fall is a tour de force on the structural imbalances facing China's economy. Pettis offers the most comprehensive and compelling case for the pessimists who see a major slow down (beyond the one that has already occurred) in the offing for China. Already inclined to side with the pessimists, reading Pettis's book has made me even less hopeful of a soft landing as China restructures.
The first two chapters present the external and internal imbalances, respectively, and do so in a manner that is accessible to non-economists. The first chapter helps set up the rest of the volume by demonstrating that China has not rebalanced towards a more consumption-driven economy, even though its trade surplus has decreased relative to the enormous peak of 10 per cent of GDP. Adding a necessary international political economy dimension, Pettis argues that large trade surpluses will be increasingly unacceptable for the trade-deficit countries given the global financial crisis. Thus, the trade-surplus countries will have to bear the brunt of adjustment even if they are very reluctant to do so (here Pettis points out that Japan is as reluctant as China to accept such adjustment). The second chapter provides an incisive account of the rise of China's unsustainable investment-driven growth and draws parallels with earlier developers' pursuit of similar financial repression policies. The chapter also delineates excellently the three different ways (lagging wage growth, undervalued currency and repressed interest rates) that resources are...