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Noah Smith 🐇
@Noahpinion
, 10 tweets, 5 min read Read on Twitter
Today's @bopinion post is an alternative bear case for China.

Most China bears focus on excessive debt and the risk of a "hard landing". Instead, I focus on the possibility that China will win the economic battle but lose the war.

bloomberg.com/opinion/articl…
China hasn't had a recession in a very long time.

China bulls say that this is because the government has everything under control.

They're probably right.
But HOW does the Chinese government actually control the economy in order to prevent recessions from ever happening?

They appear to use a lot of credit policy. What we might call "macroprudential" policy.

bloomberg.com/opinion/articl…
Now China's model of economic stabilization will be tested once again.

And you can bet they're going to go back to the same playbook that worked so many times in the past.

bloomberg.com/news/articles/…
But this will direct national resources ever more towards the sectors where credit is most quickly and easily deployed: real estate, construction, local government, infrastructure, etc.

A nation of empty apartments will get more empty apartments.

In other words, China's iron-clad macro stabilization policy might be having an unintended side effect.

Each time they deploy it, they're changing their growth model.

bloomberg.com/opinion/articl…
And what do you get when you reorient your growth model away from exports and technology toward real estate and construction?
Economists tend to think of macro stabilization policy as basically orthogonal to long-term productivity growth.

But these probably interact more than we realize.

Often, stabilization can be good for long-term productivity.

But some kinds may not be.
China bears keep focusing on the risk of the kind of "hard landing" that tends to happen to the U.S., Japan, Europe, etc.

Maybe instead, they should be worrying about the soft landing.

(end)

bloomberg.com/opinion/articl…
cc @YuanfenYang @danwwang @damienics @vshih2 @BaldingsWorld @georgemagnus1
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