1/17
It's hard for most of us to understand structural issues that drive an economy, and we much prefer to personalize them, blaming problems on bad leaders or vicious habits, but in doing so on the subject of China's economic slowdown, those of us who...
cnb.cx
It's hard for most of us to understand structural issues that drive an economy, and we much prefer to personalize them, blaming problems on bad leaders or vicious habits, but in doing so on the subject of China's economic slowdown, those of us who...
cnb.cx
2/17
failed to understand the problems China already faced 10-15 years ago, and who weren't sufficiently skeptical about the prevailing China hype, are simply creating a new way of misunderstanding the Chinese economy.
failed to understand the problems China already faced 10-15 years ago, and who weren't sufficiently skeptical about the prevailing China hype, are simply creating a new way of misunderstanding the Chinese economy.
3/17
According to this article, "most, though not all, China watchers point to Xi himself as the instigator of the recent changes" that have led to the rapid reversal of China's growth momentum. Beijing's anti-market policies in the past 3-5 years, they say, explain the reversal.
According to this article, "most, though not all, China watchers point to Xi himself as the instigator of the recent changes" that have led to the rapid reversal of China's growth momentum. Beijing's anti-market policies in the past 3-5 years, they say, explain the reversal.
4/17
Not only is this not true, but it borders on the absurd. If every country that has followed this development model has gone from a first stage of rapid, sustainable growth to a second stage of rapid but unhealthy growth...
carnegieendowment.org
Not only is this not true, but it borders on the absurd. If every country that has followed this development model has gone from a first stage of rapid, sustainable growth to a second stage of rapid but unhealthy growth...
carnegieendowment.org
5/17
driven by deep imbalances and surging debt, to a final stage of very difficult adjustment, why do we require a sudden and unexpected change of direction among Beijing policymakers to explain the same pattern in China?
driven by deep imbalances and surging debt, to a final stage of very difficult adjustment, why do we require a sudden and unexpected change of direction among Beijing policymakers to explain the same pattern in China?
6/17
While it's true that recent policy shifts in Beijing may have made things worse at the margin, it's important to understand at least three things about China's economic slowdown.
While it's true that recent policy shifts in Beijing may have made things worse at the margin, it's important to understand at least three things about China's economic slowdown.
7/17
First, this slowdown was predicted long ago, and was the inevitable (and predicted) consequence of over a decade of rising imbalances and unsustainable increases in debt, both of which were the very consequences of the excessively high growth rates of the past 10-15 years.
First, this slowdown was predicted long ago, and was the inevitable (and predicted) consequence of over a decade of rising imbalances and unsustainable increases in debt, both of which were the very consequences of the excessively high growth rates of the past 10-15 years.
8/17
Second, because of these deep imbalances (deeper than any other country that followed this model), there were only a limited number of paths the economy could follow, all requiring either slower growth rates or contentious political reforms.
carnegieendowment.org
Second, because of these deep imbalances (deeper than any other country that followed this model), there were only a limited number of paths the economy could follow, all requiring either slower growth rates or contentious political reforms.
carnegieendowment.org
9/17
China accounts for 17% of global GDP, 12% of global consumption, and an astonishing 30% of global investment. It is obvious that investment must slow sharply, which means that unless consumption surges (how?) GDP growth must also slow sharply.
carnegieendowment.org
China accounts for 17% of global GDP, 12% of global consumption, and an astonishing 30% of global investment. It is obvious that investment must slow sharply, which means that unless consumption surges (how?) GDP growth must also slow sharply.
carnegieendowment.org
10/17
Third, the very policies that many analysts are blaming for the slowdown were in fact the consequence, not the cause, of the slowdown. The shift from a less market-oriented to a more state-oriented economic focus was largely the consequence of a shift from the...
Third, the very policies that many analysts are blaming for the slowdown were in fact the consequence, not the cause, of the slowdown. The shift from a less market-oriented to a more state-oriented economic focus was largely the consequence of a shift from the...
11/17
hard-budget constrained parts of the economy to the soft-budget constrained (something János Kornai explained decades ago), itself the consequence of setting 10-15 years of GDP growth targets that exceeded what the real economy was capable of delivering.
hard-budget constrained parts of the economy to the soft-budget constrained (something János Kornai explained decades ago), itself the consequence of setting 10-15 years of GDP growth targets that exceeded what the real economy was capable of delivering.
12/17
If we feel compelled to blame someone for China's problems today, we should blame the Hu administration, because they knew (before 2007) that they had a serious problem and because that would have been the easiest time to force through the necessary reforms.
If we feel compelled to blame someone for China's problems today, we should blame the Hu administration, because they knew (before 2007) that they had a serious problem and because that would have been the easiest time to force through the necessary reforms.
13/17
But even that would be superficial: no government has ever transformed a "winning" development strategy once it became obsolete, for reasons Albert Hirschman explained decades ago – just as he also explained why every successful development model must make itself obsolete.
But even that would be superficial: no government has ever transformed a "winning" development strategy once it became obsolete, for reasons Albert Hirschman explained decades ago – just as he also explained why every successful development model must make itself obsolete.
14/17
It has long been the case that for most analysts the main purpose of China is to confirm whatever economic prejudices they already hold. That is why many analysts had to go from a belief that China's rapid development was the automatic consequence of...
It has long been the case that for most analysts the main purpose of China is to confirm whatever economic prejudices they already hold. That is why many analysts had to go from a belief that China's rapid development was the automatic consequence of...
15/17
China's abandonment of government intervention in the economy (an almost laughably silly claim) to the belief that China's economic slowdown is the equally automatic consequence of China's renewed infatuation with government intervention.
China's abandonment of government intervention in the economy (an almost laughably silly claim) to the belief that China's economic slowdown is the equally automatic consequence of China's renewed infatuation with government intervention.
16/17
It simply isn't true. China's slowdown is structural, and is happening almost exactly as predicted by some of us (including Anne, who is cited in the article) over a decade ago. That is also why the whole "Japanification" narrative arose.
@doumenzi
It simply isn't true. China's slowdown is structural, and is happening almost exactly as predicted by some of us (including Anne, who is cited in the article) over a decade ago. That is also why the whole "Japanification" narrative arose.
@doumenzi
17/17
This matters if we want to understand the limited number of ways in which the Chinese economy can adjust, how unevenly those adjustments cost will be distributed domestically and internationally, and what kinds of policies will actually matter to China's long-term growth.
This matters if we want to understand the limited number of ways in which the Chinese economy can adjust, how unevenly those adjustments cost will be distributed domestically and internationally, and what kinds of policies will actually matter to China's long-term growth.
1/3
Agree with Martin Wolf: "The most intractable economic problem is over-reliance on credit-fuelled investment, not consumption, as a source of demand and the parallel over-reliance on capital accumulation, not innovation, as a source of rising supply."
ft.com
Agree with Martin Wolf: "The most intractable economic problem is over-reliance on credit-fuelled investment, not consumption, as a source of demand and the parallel over-reliance on capital accumulation, not innovation, as a source of rising supply."
ft.com
2/3
I think he underestimates the challenges, however, when he uses Taiwan and South Korea as possible models. China's investment and debt levels are much higher, and were so for much longer, than for either of the two, which means it must make a much greater adjustment.
I think he underestimates the challenges, however, when he uses Taiwan and South Korea as possible models. China's investment and debt levels are much higher, and were so for much longer, than for either of the two, which means it must make a much greater adjustment.
3/3
Among other things this requires a substantially larger surge in consumption to bring investment to some "reasonable" level without a much sharper drop in GDP growth. What is most striking about China is the simple arithmetic of adjustment.
carnegieendowment.org
Among other things this requires a substantially larger surge in consumption to bring investment to some "reasonable" level without a much sharper drop in GDP growth. What is most striking about China is the simple arithmetic of adjustment.
carnegieendowment.org
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