China’s problem is excessive debt in the economy, not a banking system facing insolvency. Beijing’s reform strategy should reduce the debt burden as quickly as possible to minimize the economic costs.
There is no way Beijing can address its debt problem without a sharp drop in GDP growth, but as unwilling as Beijing may be to see much lower growth, it doesn’t have any other option.
China is embarking on ambitious economic reforms to boost its growth prospects. What is the rationale behind these new reforms and what are the prospects for their success?
A simple model can help illustrate the problems that China will face over the coming decade.
Because savings and investment must always balance, the idea that the savings rate in any country is determined at home is nonsense.
While it is difficult to predict the nature and timing of the shocks buffeting China’s economy, China’s difficult economic situation makes such crises inevitable.
Some analysts contend that the RMB is no longer undervalued but is in fact overvalued. However, a more careful analysis suggests that the yuan is still undervalued, but perhaps not by much.
The structure of investment strategies in the Chinese stock markets had always guaranteed that this would be a brutally volatile market that trades almost exclusively on “the consensus about the consensus”, and therefore prices will reflect very rapid shifts in this consensus.
Although China’s stock market panic in the summer of 2015 has subsided, the fundamental questions have not been resolved, which leaves it open to possible continued volatility.
Why Alexander Hamilton should remain on the ten dollar bill.
A deep grounding in economic and financial history is important for modern economic analysis.
The value placed on current and future growth says a lot about the quality of that growth. It also has important policy implications, especially for reforms.
For now, for all the excited chatter, the Asia Infrastructure Investment Bank is an institution laden with symbolic value and little else.
The biggest constraint to the EU’s survival is debt. Europe will not grow and unemployment will not drop until the costs of the excessive debt burdens are addressed.
European nationalists have successfully convinced the world, against all logic, that the European crisis is a conflict among nations, and not among economic sectors.
If the world does indeed face another decade or two of “superabundant capital” in spite of economic stagnation and slow growth, the historical precedents suggest a number of consequences.
Chinese economic growth will continue to slow. Although many economic analyses are based on the success of economic reforms, near-term growth is more accurately forecast in terms of balance sheet constraints.
China’s consumer price index (CPI) and producer price index (PPI) data suggest that China is facing deflationary pressures. Beijing must tackle the country’s debt and create alternative sources of demand to address them.
Economists tend to undervalue institutional flexibility, especially in the first few years after a major financial crisis, perhaps because in the beginning countries that adjust very quickly tend to underperform countries that adjust more slowly.
A slowing Chinese economy might be good or bad for the world, depending on domestic savings and domestic investment.