China has an excess capacity boom. Basically, China prints money to hit its GDP growth targets by building stuff. Their economic system doesn’t care about profit. It’s all about throughput.
China also has very low consumption levels at ~45% of GDP as its total NGDP is at ~$11-12 trillion. In other words, it’s consuming power in the global market is < $5 trillion. China also pays ~4-6 times for energy as the US, which means its non-energy purchasing amount is ~$3-4 trillion. These imbalances aren't sustainable.When fixed capital formation as a percentage of GDP is growing faster than GDP growth, that's necessarily unsustainable (since the purpose of investment is for future consumption and investment rates higher than consumption rates are unsustainable for eternity). China also socializes the debts, which means that this run-up in debt to sustain capacity levels and GDP growth will just show up as lower growth later on.And Pettis is likely correct about structurally lower growth in China's future. In development economics, this concept is called the "middle income trap". For a poor country, getting to middle-income status by taking advantage of its cheap labor, no regulations, and so forth is very easy and initially produces rapid growth. But as the country progresses into higher income/capita, growth rates basically fall off a cliff. To give you an example, I was called a China bear when I was saying Chinese growth rates would be <6-7% by the end of the decade. They're already at <7% growth even though they print or create liabilities into their banking system by ~$8-10 trillion in 2016-17. That's terrible. China's current growth is basically cannibalistic. The cost of environmental degradation alone makes much of the growth unproductive in the long-term.