"To move from the abstract to something specific, I will assume, as occurred in 2009-10 as a consequence of the global crisis, that for reasons external to China there is a sharp contraction in its current account surplus, mainly caused by a sharp fall in exports....." (he then goes on to describe the repercussions that match his model.)
Maybe I'm misunderstanding what he's saying, but isn't what he describes true of any export-driven economy? And, doesn't it ignore the fact that a large portion of the country is still pre-industrial and is easy pickings for GDP growth? It should be not terribly difficult to grow GDP via moving these people to an industrial standard of living based on domestic consumption, albeit not nearly as easily as in an export-driven economy where your customers are holding your hand along the path. And, does it not also ignore the possibility of moving up the value chain as their technological prowess increases? China is producing some pretty sophisticated technology on their own these days, and they have no shortage of engineers (although the quality may not be world class, I have no idea).
This isn't to say his theory is wrong, it just doesn't seem terribly useful. But I think I must be missing something?
So what you are talking about would amount to a rebalancing of the economy from the SOEs to the private sector. This is something he has written extensively about and that he thinks is necessary for long-term sustainable growth. But something has to be done about the SEOs, and right now they are kept afloat by a transfer in the OTHER direction. That is, the resources spent on their debt is cannibalizing growth in other areas.
To piggyback on your point, Pettis lays out explicitly how China should shift to consumer-driven GDP growth... then also points out how politically difficult it will be (because it likely entails assigning losses to the wealthy and politically connected, via breakup of SOEs, transfer of wealth to households from the government, etc).
So yes, grandparent's point is correct, that there's room for consumer-led GDP growth. But the mechanism for how to get there is not easy. (And it's something Pettis has written about extensively.)
I'm probably a bit naive, but I don't really understand why it would be that difficult. You have an extremely hard working populace with powerful aspirations (viewing their countrymen who've risen up from poverty), they have the technology and manufacturing prowess, natural resources, political will and experience, money....if any country in the history of the world was in a position to do it, China seems like the very well best prepared by far. The biggest hurdles I can think of is the cultural propensity for corruption and excessive savings, far from insurmountable imho.
No, they really don't have any political will to do anything about the SEOs. That is why their debt is still ballooning in an unsustainable manner. Just as Japan didn't, and the Japanese economy is still held back by keeping failing business afloat. The entrenched elite is just too strong, in both Japan and China.
China may overcome the issues in a way Japan didn't, but the things you list apart from the political will (that they emphatically doesn't have) is plain irrelevant.
Maybe I'm misunderstanding what he's saying, but isn't what he describes true of any export-driven economy? And, doesn't it ignore the fact that a large portion of the country is still pre-industrial and is easy pickings for GDP growth? It should be not terribly difficult to grow GDP via moving these people to an industrial standard of living based on domestic consumption, albeit not nearly as easily as in an export-driven economy where your customers are holding your hand along the path. And, does it not also ignore the possibility of moving up the value chain as their technological prowess increases? China is producing some pretty sophisticated technology on their own these days, and they have no shortage of engineers (although the quality may not be world class, I have no idea).
This isn't to say his theory is wrong, it just doesn't seem terribly useful. But I think I must be missing something?