1/8
I think this is a pretty important article. It points out that China is embracing supply-side policies even though analysts increasingly recognize that fiscal support would be better targeted at households than at businesses.
bloomberg.com/news/articles/…
I think this is a pretty important article. It points out that China is embracing supply-side policies even though analysts increasingly recognize that fiscal support would be better targeted at households than at businesses.
bloomberg.com/news/articles/…
2/8
In fact China has embraced supply-side policies for at least three decades, but I wouldn't suggest it is a conservative policy. Supply-side policies make sense in economies in which productive investment is constrained by scarce savings or by logistical bottlenecks.
In fact China has embraced supply-side policies for at least three decades, but I wouldn't suggest it is a conservative policy. Supply-side policies make sense in economies in which productive investment is constrained by scarce savings or by logistical bottlenecks.
3/8
The problem is that while this was true of China for most of the period since the 1980s, it stopped being true about a decade ago, after which the main constraint on productive investment was no longer scarce savings but rather weak domestic demand.
The problem is that while this was true of China for most of the period since the 1980s, it stopped being true about a decade ago, after which the main constraint on productive investment was no longer scarce savings but rather weak domestic demand.
4/8
That is why, since then, Beijing's supply-side policies have only generated growth by pumping up non-productive investment in property and real estate, which in turn is why the growth in investment-related debt began rapidly outpacing the growth in GDP.
That is why, since then, Beijing's supply-side policies have only generated growth by pumping up non-productive investment in property and real estate, which in turn is why the growth in investment-related debt began rapidly outpacing the growth in GDP.
5/8
That is also why supply-side policies will provide no more useful in generating sustainable growth in China than it has in the US. Not only do they address the wrong set of problems, they actually make them worse by further weakening sustainable domestic demand.
That is also why supply-side policies will provide no more useful in generating sustainable growth in China than it has in the US. Not only do they address the wrong set of problems, they actually make them worse by further weakening sustainable domestic demand.
6/8
But if analysts are increasingly aware of the problem, why hasn't Beijing been able to redirect resources and policies towards boosting demand rather than supply? Why has it been so hard to shift policies in spite of a decade of promises?
But if analysts are increasingly aware of the problem, why hasn't Beijing been able to redirect resources and policies towards boosting demand rather than supply? Why has it been so hard to shift policies in spite of a decade of promises?
7/8
Probably, as Albert Hirschman explained, because to switch from an entrenched regime of investment and supply-side measures to a new regime of fiscal redistribution and demand-side measures requires major changes in social, economic and political institutions.
Probably, as Albert Hirschman explained, because to switch from an entrenched regime of investment and supply-side measures to a new regime of fiscal redistribution and demand-side measures requires major changes in social, economic and political institutions.
8/8
Ultimately, in other words, the constraint is political. The constituencies that benefit from supply-side measures (the financial elite in the US case, the political elite in the Chinese case) are always eager to see them extended, even when they are not justified.
Ultimately, in other words, the constraint is political. The constituencies that benefit from supply-side measures (the financial elite in the US case, the political elite in the Chinese case) are always eager to see them extended, even when they are not justified.
Rebates and tax cuts to businesses are expected to add up to 2.2% of GDP this year.
yicaiglobal.com/news/china-to-…
yicaiglobal.com/news/china-to-…
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