1/9
This Robin Harding article provides a very good explanation of China's problems, and identifies the major issues, but I worry about its conclusion: "China’s central government is one of the least indebted in the world. It has ample scope to...
ft.com
This Robin Harding article provides a very good explanation of China's problems, and identifies the major issues, but I worry about its conclusion: "China’s central government is one of the least indebted in the world. It has ample scope to...
ft.com
2/9
transfer cash to households, boost consumption and get the economy moving. Alarmingly, a recent politburo meeting provided a long list of policies but little sign of hard cash. If China is to sustain its long run of economic success, it is down to Beijing to act."
transfer cash to households, boost consumption and get the economy moving. Alarmingly, a recent politburo meeting provided a long list of policies but little sign of hard cash. If China is to sustain its long run of economic success, it is down to Beijing to act."
3/9
It's good that analysts increasingly recognize the fundamental imbalance in the Chinese economy and its role in driving not just the slowdown in GDP growth but, more importantly, the deterioration in the quality of that growth, but while I think Harding is right to argue...
It's good that analysts increasingly recognize the fundamental imbalance in the Chinese economy and its role in driving not just the slowdown in GDP growth but, more importantly, the deterioration in the quality of that growth, but while I think Harding is right to argue...
4/9
that Beijing must engineer a transfers to the household sector in order to boost the role of consumption in driving growth, I don't think Beijing should fund these transfers by borrowing except as a very temporary measure, and only if it imposes a more sustainable solution.
that Beijing must engineer a transfers to the household sector in order to boost the role of consumption in driving growth, I don't think Beijing should fund these transfers by borrowing except as a very temporary measure, and only if it imposes a more sustainable solution.
5/9
That's because if rising debt isn't a problem, then there is no need to rebalance the economy, whereas if it is a problem (and clearly it is), shifting the locus of debt creation from local governments to the central government would merely postpone the needed resolution.
That's because if rising debt isn't a problem, then there is no need to rebalance the economy, whereas if it is a problem (and clearly it is), shifting the locus of debt creation from local governments to the central government would merely postpone the needed resolution.
6/9
What China needs above all is a structural shift in the distribution of income, and this must involve a redirection of national income away from the government (probably mainly local governments) towards households. That's why it is so difficult to manage.
What China needs above all is a structural shift in the distribution of income, and this must involve a redirection of national income away from the government (probably mainly local governments) towards households. That's why it is so difficult to manage.
7/9
But if this transfer is mainly funded by Beijing borrowing, it doesn't solve the problem. It simply allows the existing system to continue until Beijing either decides or is forced to curtail central-government borrowing. This was basically the Japanese "solution".
But if this transfer is mainly funded by Beijing borrowing, it doesn't solve the problem. It simply allows the existing system to continue until Beijing either decides or is forced to curtail central-government borrowing. This was basically the Japanese "solution".
8/9
I agree with Harding that in the short term Beijing should probably use its balance sheet to raise household income so as to prevent a rapid deterioration in the Chinese economy from becoming self-reinforcing.
I agree with Harding that in the short term Beijing should probably use its balance sheet to raise household income so as to prevent a rapid deterioration in the Chinese economy from becoming self-reinforcing.
9/9
But it should be clear that this is not the solution, nor even a partial solution. It is merely a temporary stopgap to prevent the economy from deteriorating while Beijing attempts the brutally difficult task of rebalancing the underlying distribution of income.
But it should be clear that this is not the solution, nor even a partial solution. It is merely a temporary stopgap to prevent the economy from deteriorating while Beijing attempts the brutally difficult task of rebalancing the underlying distribution of income.
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