1/9
Good piece by @Noahpinion on the the Chinese economy. He notes: "The country’s leadership is now hastily backtracking on many of the policies that triggered the slowdown. But so far the reversals don’t seem to be having the desired effect."
noahpinion.substack.com
Good piece by @Noahpinion on the the Chinese economy. He notes: "The country’s leadership is now hastily backtracking on many of the policies that triggered the slowdown. But so far the reversals don’t seem to be having the desired effect."
noahpinion.substack.com
2/9
It shouldn't surprise us that reversing these "bad" policies isn't having much effect in reviving growth. That's because while some of Beijing's recent policies may have "triggered" the slowdown, these policies didn't cause the slowdown.
It shouldn't surprise us that reversing these "bad" policies isn't having much effect in reviving growth. That's because while some of Beijing's recent policies may have "triggered" the slowdown, these policies didn't cause the slowdown.
3/9
China's slowdown, like that of every other country that has followed a similar growth model, is the consequence of pursuing a once-very-successful growth model for 10-15 years longer than the model could be justified.
China's slowdown, like that of every other country that has followed a similar growth model, is the consequence of pursuing a once-very-successful growth model for 10-15 years longer than the model could be justified.
4/9
When China suffered from huge underinvestment, an inept governance system and massive inefficiencies in manufacturing and production, it made sense to adopt a growth model that combined forced savings, market liberalization and very high government-directed investment.
When China suffered from huge underinvestment, an inept governance system and massive inefficiencies in manufacturing and production, it made sense to adopt a growth model that combined forced savings, market liberalization and very high government-directed investment.
5/9
In the past 10-15 years, however, these problems were largely resolved. China should have then switched towards a more balanced growth model that relied much less on investment, but like most countries that had successfully adopted this model, it found it very hard to switch.
In the past 10-15 years, however, these problems were largely resolved. China should have then switched towards a more balanced growth model that relied much less on investment, but like most countries that had successfully adopted this model, it found it very hard to switch.
6/9
As a result (again, like every other country that has followed this model), it began increasingly to depend on investment in non-productive projects. That's when the country's debt burden began to soar, something that doesn't happen when debt funds productive investment.
As a result (again, like every other country that has followed this model), it began increasingly to depend on investment in non-productive projects. That's when the country's debt burden began to soar, something that doesn't happen when debt funds productive investment.
7/9
The longer this went on – and in China this went on longer than in other countries, generating much deeper imbalances – the more difficult the adjustment was always likely to be.
carnegieendowment.org
The longer this went on – and in China this went on longer than in other countries, generating much deeper imbalances – the more difficult the adjustment was always likely to be.
carnegieendowment.org
8/9
The important point is that the "bad" policy changes that many blame as the CAUSE of China's slowdown were actually the CONSEQUENCE of China's slowdown. János Kornai described this as the necessary expansion of that soft-budget-constrained parts of the economy.
The important point is that the "bad" policy changes that many blame as the CAUSE of China's slowdown were actually the CONSEQUENCE of China's slowdown. János Kornai described this as the necessary expansion of that soft-budget-constrained parts of the economy.
9/9
The reversal of these "bad" policies, while great news for those who benefit from the existing growth model, won't cause growth to pick up. Without a major, and probably disruptive, shift to a very new growth model, growth must continue to slow.
carnegieendowment.org
The reversal of these "bad" policies, while great news for those who benefit from the existing growth model, won't cause growth to pick up. Without a major, and probably disruptive, shift to a very new growth model, growth must continue to slow.
carnegieendowment.org
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