China’s GDP growth could be half of reported number, says US economist at prominent Chinese university
- US economist Michael Pettis of Peking University says China gross domestic product is overestimated as bad debt is not written down
- Best way to solve problem would be to transfer wealth from state sector to consumers, Pettis said
If China’s bad debts were written down, its economic growth rate would be half the recorded number, a US economist at a prominent Chinese university has warned.
In a speech in Shanghai this week, Michael Pettis, professor of finance at Peking University, warned that China’s debt is closely linked to the government’s perceived overstatement of its gross domestic product (GDP).
The government is accused of perpetuating the existence of “zombie companies”, by granting loss-making companies loans. Banks in turn treat these companies as creditworthy, whereas in reality they should be written off as bad debt, Pettis said.
“If you believe there is bad debt that has not been sufficiently written down, you must believe that China’s GDP is overstated, relative to what it would be in any other country. That must be true,” Pettis said.
“If we are able to calculate GDP correctly, it would probably be half of the recorded number.”
Pettis is not alone seeing troubles with China’s official growth number.