Why inflating debt away isn’t an option for China

CHINA FINANCIAL - Report 22 Apr 2024 by Michael Pettis

Special points to highlight in this report:

* First quarter results were better than expected in terms of the volume of economic activity delivered, but there has been no improvement in the composition of growth. In spite of continued promises by Beijing to deliver demand-side growth, Chinese growth continues to be driven by the supply side. Most measures of consumer demand remained weak relative to production and investment.

* As China continues to struggle with its debt burden, there have been calls for China to use inflation and/or more aggressive financial repression to get debt-servicing costs under control. To its credit, Beijing has so far refused to do so. In this report I explain why financial repression would only make China’s debt problems worse in the medium term.

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