In a piece of good news, the 17.3% growth in industrial production in November was well below expectations and below last month’s 17.9%.This is, for me, a key figure.Rising industrial production is central to the monetary trap in which China is stuck. As production surges ahead of consumption, the trade surplus must also grow (since the excess must be exported), and as it does it forces the PBoC to expand domestic money supply in a way that then reinforces fixed asset investment and future growth in industrial production.A reduction in the rate of growth would imply a future reduction in the growth rate of the country’s trade surplus. From a monetary point of view that is a very good thing.
Before we get too happy, however, it should be pointed out that growth rates are still too high.Last year industrial production rose 16.6%, and for the whole of 2008 it is likely to rise by roughly by 18.5%. They may have also declined a little because of the tightening measures that were recently put into place, and by the fact that companies haven’t yet learned how to get around them. Let’s see if they continue to come down over the next few months.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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