Michael Pettis:
How fast does consumption need to grow in China in order for a meaningful rebalancing to take place? Probably a lot more than you think. This is arithmetically the case because China is starting from such a low base.
At roughly $1.2 trillion in 2008, total Chinese private consumption is only a little more than that of France (around $1.0 trillion) and still less than that of Germany (about $1.3 trillion, not to mention the UK’s $1.4 trillion and Japan’s $3.2 trillion). This fact alone should cause us to be extremely skeptical of feverish claims about the role Chinese consumers can play in making up for any contraction in US consumption – which at roughly $9.4 trillion last year is nearly eight times the size of China…
I think too many commentators underestimate the magnitude of the problem.