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China's Great Depression

Michael Pettis, Peking University | December 15, 2008

The myth of decoupled markets is all but shattered. ++ Asian countries, especially China, who benefited from trade imbalances and western overconsumption, will have difficulty adjusting. ++ In reaction to these new economic conditions trade deficit countries could absorb the production imbalance through government spending; trade surplus countries could attempt to increase domestic consumption to replace declining exports; or, there will be a large reduction in global production. ++ In any case, Asia will have tough times ahead.