Read on Twitter
1/10
Excellent Martin Wolf piece on China which, as always, does a great job of presenting a systemic view of the problem.
Debt is too high and growing too rapidly, he notes, but the risk for China, is not that it might suffer a financial crisis.
ft.com/content/156c09…
Excellent Martin Wolf piece on China which, as always, does a great job of presenting a systemic view of the problem.
Debt is too high and growing too rapidly, he notes, but the risk for China, is not that it might suffer a financial crisis.
ft.com/content/156c09…
2/10
"China is a creditor country; its debts are overwhelmingly in its own currency; and its government owns all the important banks. A policy of financial repression would work quite well."
Beijing, in other words, can always manage to service debt through hidden transfers.
"China is a creditor country; its debts are overwhelmingly in its own currency; and its government owns all the important banks. A policy of financial repression would work quite well."
Beijing, in other words, can always manage to service debt through hidden transfers.
3/10
"The danger is rather one of chronically weak demand. The investment rate is already spectacularly high, while growth is slowing. Still higher non-property investment cannot be justified."
That's the key point. Weak demand is at the heart of China's many economic problems.
"The danger is rather one of chronically weak demand. The investment rate is already spectacularly high, while growth is slowing. Still higher non-property investment cannot be justified."
That's the key point. Weak demand is at the heart of China's many economic problems.
4/10
Even with its excessively high investment rate, China suffers from weak domestic demand mainly because the consumption share of GDP is so extraordinarily low, and this will be made all the more difficult as China is forced by debt to bring down the growth rate of investment.
Even with its excessively high investment rate, China suffers from weak domestic demand mainly because the consumption share of GDP is so extraordinarily low, and this will be made all the more difficult as China is forced by debt to bring down the growth rate of investment.
5/10
China must bring down its savings rate by 10-15 percentage points of GDP, Wolf points out, and it has no choice: one way or another it will. But there are broadly two ways this can happen. The bad way is with a sharp drop in GDP growth.
China must bring down its savings rate by 10-15 percentage points of GDP, Wolf points out, and it has no choice: one way or another it will. But there are broadly two ways this can happen. The bad way is with a sharp drop in GDP growth.
6/10
In that case GDP growth would fall more sharply than consumption growth, with the result being a reduction in the savings share of GDP. This could happen quickly, as with the US in the early 1930s, or slowly, as with Japan in the 2-3 decades after 1990.
In that case GDP growth would fall more sharply than consumption growth, with the result being a reduction in the savings share of GDP. This could happen quickly, as with the US in the early 1930s, or slowly, as with Japan in the 2-3 decades after 1990.
7/10
The good way is with a sharp rise in consumption growth. But, as Wolf pints out, what drives such low consumption is mainly the low household income share of GDP. So more rapid consumption growth requires more rapid household income growth.
The good way is with a sharp rise in consumption growth. But, as Wolf pints out, what drives such low consumption is mainly the low household income share of GDP. So more rapid consumption growth requires more rapid household income growth.
8/10
But how to raise growth in household income while reducing growth in the very investment that has so substantially underpinned economic activity?
The only way is through transfers. China must transfer roughly 1.5% of GDP every year from local governments to households.
But how to raise growth in household income while reducing growth in the very investment that has so substantially underpinned economic activity?
The only way is through transfers. China must transfer roughly 1.5% of GDP every year from local governments to households.
9/10
That's why it is so difficult. For decades China has built its economy around hidden transfers from households – in the form of weak wage growth, low real interest rates, undervalued currencies, etc. – that subsidized Chinese investment and its manufacturing competitiveness.
That's why it is so difficult. For decades China has built its economy around hidden transfers from households – in the form of weak wage growth, low real interest rates, undervalued currencies, etc. – that subsidized Chinese investment and its manufacturing competitiveness.
10/10
Not only must these transfers be eliminated, they must be reversed. That almost certainly requires a major restructuring of the economy, along with the political, business, legal and financial institutions that were built around 2-3 decades of these transfers.
Not only must these transfers be eliminated, they must be reversed. That almost certainly requires a major restructuring of the economy, along with the political, business, legal and financial institutions that were built around 2-3 decades of these transfers.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
