2/5
pretending they are fine, they turn into zombies, wasting economic resources."
This is the Richard Koo recommendation, in which a surge in central government debt balances attempts to manage down SOE and local-government debt.
pretending they are fine, they turn into zombies, wasting economic resources."
This is the Richard Koo recommendation, in which a surge in central government debt balances attempts to manage down SOE and local-government debt.
3/5
On the other hand, as the article notes, if local governments and SOEs "are forced to restructure and shut down, they default on loans, imposing losses on lenders and temporarily depressing growth, but freeing workers and capital to be redeployed into more productive areas."
On the other hand, as the article notes, if local governments and SOEs "are forced to restructure and shut down, they default on loans, imposing losses on lenders and temporarily depressing growth, but freeing workers and capital to be redeployed into more productive areas."
4/5
In that case, the article concludes, "short-term pain is taken for long-term gain."
Of course Beijing wants to avoid a short-term contraction as it rebalances domestic demand and addresses the losses behind its huge and rising debt burden.
In that case, the article concludes, "short-term pain is taken for long-term gain."
Of course Beijing wants to avoid a short-term contraction as it rebalances domestic demand and addresses the losses behind its huge and rising debt burden.
5/5
But without major (and unlikely) transfers from local governments to households, there's no way to do this.
Very few governments in this position have been willing (or able) to accept a short-term contraction for longer term resolution. We'll see if China will be different.
But without major (and unlikely) transfers from local governments to households, there's no way to do this.
Very few governments in this position have been willing (or able) to accept a short-term contraction for longer term resolution. We'll see if China will be different.
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