By Tom Bradley

I came across a talk by China-based professor Michael Pettis on Paul Kedrosky’s ‘Infectious Greed’ blog. For those who are interested in China and where it’s headed, I highly recommend these 38 minutes. It’s heavy duty economics, but the points are made clearly and methodically.

Mr. Pettis’ comments are a cautionary tale. China’s growth has been impressive, but has created distortions in the economy. The country is highly dependent on investment spending for its growth (factories, mills, roads, bridges, airports, trains). In turn, it has increasingly become dependent on available credit. Debt levels overall are still manageable, but Mr. Pettis points out that the pace of loan growth is unsustainable. He also talks about the impediments getting in the way of the Chinese consumer becoming a bigger factor in the economy, something that the country desperately needs.