1/9
One of the problems I have with discussions by the IMF and the World Bank – and indeed by most economists – about China's economic prospects is that while by now nearly everyone agrees that Chinese growth includes many years...
imf.org/en/News/Articl…
One of the problems I have with discussions by the IMF and the World Bank – and indeed by most economists – about China's economic prospects is that while by now nearly everyone agrees that Chinese growth includes many years...
imf.org/en/News/Articl…
2/9
of "inflated" – or "low quality" – growth, driven by wasted investment in non-productive property and infrastructure, there seems to be no recognition of the future cost of this inflated growth.
of "inflated" – or "low quality" – growth, driven by wasted investment in non-productive property and infrastructure, there seems to be no recognition of the future cost of this inflated growth.
3/9
The conclusion is always that if Beijing implements the right reforms, while growth will slow a little, it will be high-quality and sustainable. This seems to assume that there will be no adverse consequence or difficult adjustment costs for growth in the future.
The conclusion is always that if Beijing implements the right reforms, while growth will slow a little, it will be high-quality and sustainable. This seems to assume that there will be no adverse consequence or difficult adjustment costs for growth in the future.
4/9
But if there is no rising cost in the future for all the bad investment in the past, then why bother reforming? The existing growth model generates substantial increases in economic activity, lots of jobs, and rising GDP. Why not keep it up forever?
But if there is no rising cost in the future for all the bad investment in the past, then why bother reforming? The existing growth model generates substantial increases in economic activity, lots of jobs, and rising GDP. Why not keep it up forever?
5/9
It must be because the cumulative impact of many years of inflated growth will be negative growth in the future as this accumulation is amortized. In other words it must be because more inflated growth today means less growth tomorrow.
It must be because the cumulative impact of many years of inflated growth will be negative growth in the future as this accumulation is amortized. In other words it must be because more inflated growth today means less growth tomorrow.
6/9
And that seems to be what the historical precedents suggest. In every previous case in modern history of an investment-driven growth "miracle", it seems that the longer the "inflated" stage, during which debt grows faster than GDP, the more difficult...
And that seems to be what the historical precedents suggest. In every previous case in modern history of an investment-driven growth "miracle", it seems that the longer the "inflated" stage, during which debt grows faster than GDP, the more difficult...
7/9
the subsequent adjustment to a more sustainable model in which the previous imbalances are reversed, whether the adjustment is in the form of a crisis (e.g. Brazil 1983), a lost decade of very low growth (Japan 1990) or both.
the subsequent adjustment to a more sustainable model in which the previous imbalances are reversed, whether the adjustment is in the form of a crisis (e.g. Brazil 1983), a lost decade of very low growth (Japan 1990) or both.
8/9
The point is that if the current growth model doesn't create substantial economic costs in the future, then there probably is no point in reforming it, and certainly no urgency. If it does, our discussion of future expectations should include some assessment of these costs.
The point is that if the current growth model doesn't create substantial economic costs in the future, then there probably is no point in reforming it, and certainly no urgency. If it does, our discussion of future expectations should include some assessment of these costs.
9/9
It won't be easy, but perhaps we can start by trying to estimate the cumulative impact of many years of "inflated" growth. After all if it is inflated, doesn't that mean GDP is overstated relative to where it would have been without this inflated growth?
It won't be easy, but perhaps we can start by trying to estimate the cumulative impact of many years of "inflated" growth. After all if it is inflated, doesn't that mean GDP is overstated relative to where it would have been without this inflated growth?
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