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1/6
Important article. This is almost the definition of how economic entities operate under soft budget constraints: "Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies."
@KeithBradsher
nytimes.com/2023/09/06/bus…
Important article. This is almost the definition of how economic entities operate under soft budget constraints: "Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies."
@KeithBradsher
nytimes.com/2023/09/06/bus…
2/6
The article notes that demand for gasoline-powered cars has collapsed within China, but rather than close down manufacturing facilities, they are kept open with subsidies and easy access to credit. The only option, in that case, is to expand exports.
The article notes that demand for gasoline-powered cars has collapsed within China, but rather than close down manufacturing facilities, they are kept open with subsidies and easy access to credit. The only option, in that case, is to expand exports.
3/6
As the article notes, "overall exports of Chinese goods, everything from furniture to consumer electronics, slumped 5.5 percent in the first eight months of this year. But this year, exports of cars surged 86 percent through July."
As the article notes, "overall exports of Chinese goods, everything from furniture to consumer electronics, slumped 5.5 percent in the first eight months of this year. But this year, exports of cars surged 86 percent through July."
4/6
This places enormous pressure on foreign car producers, who simply cannot compete with manufacturers that don't have to worry about budget constraints or access to credit.
But it also places enormous pressure on China. As a larger share of...
This places enormous pressure on foreign car producers, who simply cannot compete with manufacturers that don't have to worry about budget constraints or access to credit.
But it also places enormous pressure on China. As a larger share of...
5/6
economic activity shifts to highly subsidized areas for which there is little demand at home, the economy must increasingly rely not just on unsustainable increases in debt, but also on unreliable – and highly politicized – foreign demand to prevent the economy from slowing.
economic activity shifts to highly subsidized areas for which there is little demand at home, the economy must increasingly rely not just on unsustainable increases in debt, but also on unreliable – and highly politicized – foreign demand to prevent the economy from slowing.
6/6
Those with long memories will remember that this is what happened in the late 1980s in Japan. China's booming car exports are not signs of rude good health. They're symptoms of weak domestic demand, structural imbalances, and an over-reliance on soft budget constraints.
Those with long memories will remember that this is what happened in the late 1980s in Japan. China's booming car exports are not signs of rude good health. They're symptoms of weak domestic demand, structural imbalances, and an over-reliance on soft budget constraints.
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