Michael Pettis rocks.
By definition more savings and less investment mean that Japan’s trade surplus must rise. Japan, in other words, is planning to move backwards in terms of rebalancing. Remember that until 1990 Japan had the same problem that China did: its rapid growth was largely a function of policies that transferred wealth from the household sector to subsidize growth.
These policies – an undervalued currency, repressed interest rates and low wage growth, which of course are the same as China’s – restrained consumption and encouraged debt-fueled investment. This investment, we now realize, was wasted on a massive scale and the eventual government absorption of all the bad debt caused government debt to rise.
After 1990 Japan began the slow rebalancing process, but rather than privatize assets and transfer wealth directly to the household sector, the Japanese did it by having the government assume private sector debt. This was politically much easier than privatizing and removing interest rate and capital allocation distortions, but it also meant much slower growth and burgeoning debt."
So, there we go. Laid out very nicely that this entire China growth story ought to end up with some rebalancing which could stretch out many years. I still await low GDP numbers and possibly a negative real number.
Also, another post by another blogger, here; can't seem to be able to copy the picture, but have a look. Do note that the 2009, 10 and 11 are massive. But so are the prior years... RMB 3.5 Tn is around USD 500 Bn is around INR 2,500,000 Crore.