1/7
@yanisvaroufakis makes some very important points here. China's success in manufacturing has been heavily dependent on the willingness of the US to absorb the consequences (through its trade deficit) of China's low household income share of GDP.
prosyn.org
@yanisvaroufakis makes some very important points here. China's success in manufacturing has been heavily dependent on the willingness of the US to absorb the consequences (through its trade deficit) of China's low household income share of GDP.
prosyn.org
2/7
If the US were to take vigorous steps to abandon its role of global absorber of excess savings, it would indeed force China, as he points out, to "ditch the industrial model at the heart of Chinaβs economic miracle."
If the US were to take vigorous steps to abandon its role of global absorber of excess savings, it would indeed force China, as he points out, to "ditch the industrial model at the heart of Chinaβs economic miracle."
3/7
He notes: "Domestically, the shift away from export-oriented physical manufactures would cause aggregate fixed capital investment to fall from around 50% of Chinaβs national income to no more than 30%, with domestic consumption taking up the slack.
He notes: "Domestically, the shift away from export-oriented physical manufactures would cause aggregate fixed capital investment to fall from around 50% of Chinaβs national income to no more than 30%, with domestic consumption taking up the slack.
4/7
He is absolutely right, although even a 30% investment share of GDP might still be too high. I don't think enough analysts understand how profound a systemic change this would imply in the Chinese economy, and how much growth would slow.
He is absolutely right, although even a 30% investment share of GDP might still be too high. I don't think enough analysts understand how profound a systemic change this would imply in the Chinese economy, and how much growth would slow.
5/7
Where I disagree with Yannis is his suggestion that following such a change we could see a substantial expansion of the role of the RMB in global trade and capital flow. This implies that China will be willing as part of its adjustment to run large trade deficits.
Where I disagree with Yannis is his suggestion that following such a change we could see a substantial expansion of the role of the RMB in global trade and capital flow. This implies that China will be willing as part of its adjustment to run large trade deficits.
6/7
That didn't happen with Japan after 1990 (when everyone expected the yen to become a dominant global currency), and I think the reason is that it implies that the already-difficult reduction in savings that this adjustment would imply will be made that much more difficult.
That didn't happen with Japan after 1990 (when everyone expected the yen to become a dominant global currency), and I think the reason is that it implies that the already-difficult reduction in savings that this adjustment would imply will be made that much more difficult.
7/7
But in spite of that disagreement, I think this is one of the more thoughtful pieces I have seen on China's role within the global trading system and the difficult adjustment it faces.
But in spite of that disagreement, I think this is one of the more thoughtful pieces I have seen on China's role within the global trading system and the difficult adjustment it faces.
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