1/6
According to one Chinese government policy adviser, “The major problems are all interconnected: debt, local government finances, housing prices and consumption. Which one do you solve first? The pressure is coming from many directions.”
ft.com/content/13476b…
According to one Chinese government policy adviser, “The major problems are all interconnected: debt, local government finances, housing prices and consumption. Which one do you solve first? The pressure is coming from many directions.”
ft.com/content/13476b…
2/6
He's right. Most of China's major economic problems are inter-related, and solving one of them requires that they all be solved simultaneously, which is why it is politically so difficult. Beijing cannot isolate each imbalance and solve it one at a time.
He's right. Most of China's major economic problems are inter-related, and solving one of them requires that they all be solved simultaneously, which is why it is politically so difficult. Beijing cannot isolate each imbalance and solve it one at a time.
3/6
The key problem – and its key strength until about 15 years ago – is the imbalance in the distribution of income. As long as China was severely underinvested, this imbalance forced up domestic savings and resulted in rapid growth in productive investment and surging GDP.
The key problem – and its key strength until about 15 years ago – is the imbalance in the distribution of income. As long as China was severely underinvested, this imbalance forced up domestic savings and resulted in rapid growth in productive investment and surging GDP.
4/6
But once it closed the gap between actual investment and the optimal level of investment for its level of social and political development, some time in the mid-2000s, the imbalance continued to force up savings to beyond what China could productively absorb.
But once it closed the gap between actual investment and the optimal level of investment for its level of social and political development, some time in the mid-2000s, the imbalance continued to force up savings to beyond what China could productively absorb.
5/6
Everything followed from that: repressed consumption, persistent trade surpluses, soaring debt, massive amounts of unproductive investment, overvalued real estate, and mismatched balance sheets.
Everything followed from that: repressed consumption, persistent trade surpluses, soaring debt, massive amounts of unproductive investment, overvalued real estate, and mismatched balance sheets.
6/6
None of this is new, and should have been obvious over a decade ago. Unfortunately, as this 2010 essay points out, the longer it took to address the income imbalance, the more costly it would become.
carnegieendowment.org/chinafinancial…
None of this is new, and should have been obvious over a decade ago. Unfortunately, as this 2010 essay points out, the longer it took to address the income imbalance, the more costly it would become.
carnegieendowment.org/chinafinancial…
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