1/13
Very good article by @greg_ip on the tradeoff China must make between debt and growth. He notes that as China tries to repress investment in non-productive areas, “If this ultimately funnels credit to more productive uses, that would be...
wsj.com/articles/everg… via @WSJ
Very good article by @greg_ip on the tradeoff China must make between debt and growth. He notes that as China tries to repress investment in non-productive areas, “If this ultimately funnels credit to more productive uses, that would be...
wsj.com/articles/everg… via @WSJ
2/13
positive for Chinese growth in the long run.” He then suggests that Beijing might find it harder than ever to do this because of its recent efforts to “to rein in market forces, steer the flow of capital and restrict how entrepreneurs and investors make profits.”
positive for Chinese growth in the long run.” He then suggests that Beijing might find it harder than ever to do this because of its recent efforts to “to rein in market forces, steer the flow of capital and restrict how entrepreneurs and investors make profits.”
3/13
He’s probably right, but I would add that even without these recent efforts, funneling credit to more productive uses was always much easier said than done. In the first place the amount of investment that has to be funneled from less productive uses, like...
He’s probably right, but I would add that even without these recent efforts, funneling credit to more productive uses was always much easier said than done. In the first place the amount of investment that has to be funneled from less productive uses, like...
4/13
property and infrastructure, to more productive uses, is huge – perhaps 10 to 20 percentage points of GDP or more – so that even in the best of cases it isn’t obvious that this amount can be absorbed.
property and infrastructure, to more productive uses, is huge – perhaps 10 to 20 percentage points of GDP or more – so that even in the best of cases it isn’t obvious that this amount can be absorbed.
5/13
But what makes it worse is that there is no evidence that the most productive enterprises in China have been starved of financing in the past several years. China saves so much more than it invests domestically that it exports large amounts...
But what makes it worse is that there is no evidence that the most productive enterprises in China have been starved of financing in the past several years. China saves so much more than it invests domestically that it exports large amounts...
6/13
of savings for which it cannot find a domestic use. Increasing that amount of savings (by reducing the amount that goes to non-productive investment) might simply mean that China has to export even more of its savings.
of savings for which it cannot find a domestic use. Increasing that amount of savings (by reducing the amount that goes to non-productive investment) might simply mean that China has to export even more of its savings.
7/13
The point is that in recent years, growth in business investment – which one would assume on the whole tends to be productive – hasn’t been especially brisk, and at times private businesses have seemed more interest in disinvesting than in investing.
The point is that in recent years, growth in business investment – which one would assume on the whole tends to be productive – hasn’t been especially brisk, and at times private businesses have seemed more interest in disinvesting than in investing.
8/13
This shouldn’t be a surprise. Sustainable private-sector manufacturing is directed mainly towards exports and domestic consumption, and while the former has done well, the latter, which matters much more, hasn’t.
This shouldn’t be a surprise. Sustainable private-sector manufacturing is directed mainly towards exports and domestic consumption, and while the former has done well, the latter, which matters much more, hasn’t.
9/13
It’s easy to get excited about the amazing opportunities in high tech, but remember that high tech is a very small part of the economy. There is a limit to how much new investment it can absorb productively.
It’s easy to get excited about the amazing opportunities in high tech, but remember that high tech is a very small part of the economy. There is a limit to how much new investment it can absorb productively.
10/13
This becomes even harder if Chinese businesses with growth potential didn't already have plenty of access to capital. Three years ago a former student who had done extremely well in his nearly ten years in private equity visited me and told me he was leaving PE because...
This becomes even harder if Chinese businesses with growth potential didn't already have plenty of access to capital. Three years ago a former student who had done extremely well in his nearly ten years in private equity visited me and told me he was leaving PE because...
11/13
it had become too crazy. The competition to find viable investment opportunities had become so fierce that anyone who dressed reasonably well, he said, and could Power Point, could easily raise millions. He was leaving PE (with quite a lot of money) to go to the other side.
it had become too crazy. The competition to find viable investment opportunities had become so fierce that anyone who dressed reasonably well, he said, and could Power Point, could easily raise millions. He was leaving PE (with quite a lot of money) to go to the other side.
12/13
Every country at this stage of the development model, in which malinvestment has become a major source of growth, has proposed to resolve the problem by shifting from non-productive investment into more productive areas, but I can’t think of any who pulled it off.
Every country at this stage of the development model, in which malinvestment has become a major source of growth, has proposed to resolve the problem by shifting from non-productive investment into more productive areas, but I can’t think of any who pulled it off.
13/13
This doesn’t mean China cannot do so, but it does mean we should be skeptical. The points Greg Ip makes should perhaps make us even more skeptical.
This doesn’t mean China cannot do so, but it does mean we should be skeptical. The points Greg Ip makes should perhaps make us even more skeptical.
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