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Michael Pettis: Rocking Chinese Finance


Blogger and indie-music impresario Michael Pettis is becoming an influential voice on China's economy

Beijing - D-22 looks like a Chinese version of New York's seminal punk club of yore, CBGB. Young hipsters sporting Mohawks and ripped T-shirts chug Tsingtao beers and puff on Zhongnanhai cigarettes. Demerit, Carsick Cars, Snapline, and other Chinese bands flail at their guitars and drum kits on stage. Dancers pogo to the beat. So why is a 50-year-old former trader from Bear Stearns (JPM) standing behind the bar offering his opinions on exchange rates, the Smoot-Hawley tariffs, and Keynesian theory?

The bartender is Michael Pettis, a veteran New York banker who moved to China seven years ago to teach finance to graduate students. After 14 years of investment banking, the excitement of doing deals had faded, and a short visit to Beijing left him convinced that China was the place to be. "There was this sense of incredible change," Pettis says. "I could have come as a banker, but bankers work too hard."

It's not like Pettis is slacking off. The lanky indie-music fan spends most evenings at D-22, which he founded three years ago. During the day he teaches finance at Peking University (in English—his Chinese is sketchy), and in between he tends to a blog that has made him an increasingly influential voice on China both in the country and abroad.

A couple of times weekly, Pettis makes voluminous blog posts at mpettis.com, where he weighs in on China's trade relations, unemployment, fiscal stimulus, and a host of other economic topics. Scores of readers post lengthy responses to the blog, creating a lively forum for debates on China. "Anyone who cares about China is going to check in to see what Mike is thinking," says Hans Humes, president of New York hedge fund Greylock Capital Management, who worked with Pettis in the 1980s at Manufacturers Hanover Trust. "They would be crazy not to."

A recent theme has been what Pettis calls China's demand dilemma. As consumption plunges worldwide, Pettis warns, China won't be able to boost internal demand and might instead export its excess production, sparking protectionism abroad. On Feb. 17 and 18, Pettis brought those concerns to Washington, where he met with senators and Treasury Dept. officials and testified before a congressional commission examining China's role in the global downturn. "He brings a real on-the-ground sense of how people actually behave in Chinese institutions," says Daniel H. Rosen, a principal at the Rhodium Group, a New York-based consultancy, and a former Clinton White House adviser who oversaw negotiations on China's membership in the World Trade Organization.

Pettis learned to navigate developing economies early. He was born in Spain to a French mother and an American father working as a geologist and civil engineer. He spent his youth in Peru, Pakistan, Haiti, and Tunisia, and attended high school in Spain. Before 1975, when he entered Columbia University (where he eventually earned a master's of international affairs and an MBA), Pettis had spent a total of just two weeks in the U.S. "He's been operating in the global economy his whole life," says Eric R. Hermann, president of New York hedge fund FH International Asset Management, who knows Pettis from his days in New York.

CALLING CALAMITIES

That background piqued Pettis' interest in emerging markets, which he focused on when he joined Manny Hanny's sovereign debt team in 1987. Over the next decade-plus he jumped from firm to firm, doing work on Latin America, the Philippines, Macedonia, and Korea. At Bear Stearns, former colleagues say, he had a reputation for predicting calamities such as Argentina's meltdown, and he played a key role in developing peso-denominated bonds for Mexico after the 1994 financial crisis there. His insights were often shaped during long, wine- and whiskey-fueled dinners in New York that brought together academics, policy wonks, and his emerging-market banker pals.

Pettis says he's happy in his new role as finance professor and indie-rock impresario, though he's not exactly making a killing. He and two partners (including a former Goldman Sachs (GS) banker) put $200,000 into D-22, which continues to lose about $1,000 a week even as it regularly sells out its 250-person capacity. His talent management company and record label, Maybe Mars, which has signed a handful of local bands, have yet to see a profit either. "You don't leave Wall Street to get rich," Pettis says with a smile. "But China is undergoing its own version of the 1960s, and the music scene is exploding." How could someone passionate about both rock and finance go wrong in a country where the economy is at least as dynamic as the music scene? "I figured there's only one opportunity in life," Pettis says, "to get involved in something so historic."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

"Princelings" on the Rise

What China blogs does Pettis read? A favorite is by Northwestern University professor Victor Shih. In a recent posting, Shih says the layoffs of Chinese migrant workers are more likely to cause social unrest than the high unemployment of the late 1990s. In another, he notes the rising profile of "princelings," the children of top leaders.

To read Shih's blog, go to bx.businessweek.com/china-business/reference/

Roberts is BusinessWeek's Asia News Editor and China bureau chief.

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