Michael Pettis, academic expert with boots on the ground in China, is highlighting in his latest newsletter how the recently published decline in rates of growth in China is probably not casue for panic. Pettis has been arguing that any investments necessary to grow at a pace higher than 4% would require credit growth even faster than what we are presently seeing right now. Pettis believes, and I am in accordance with his point of view, that credit is growing disproportionately even in the face of slowing growth. This might be a sign of misallocated investments which now need more debt to fund the growing delta between real debt servicing cost associated with the investment and the debt servicing capacity of the same investment.

Slower growth as part of a managed rebalancing process toward more domestic demand and less capex and exports should in the long run be beneficial to all.