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China’s low level of social capital constrains its ability to absorb additional capital stock productively, causing the country to over-invest.
National savings represent a lot more than the thriftiness of local households, and as such it has a lot less to do with household or cultural preferences and more so with the policies or institutions that restrain the household share of GDP.
The speed of China’s growth in the coming decade depends on whether or not it is possible to maintain current levels of consumption growth once investment growth is sharply reduced.
It may be useful to think about Japan as a model for understanding the adjustment process in China, since the Japanese model shows how risky it is to shift to a slow-growth model.
China’s leadership is saying all the right things, but the political and economic challenges they face to achieve meaningful reforms remain daunting.
To assess China's rebalancing in 2013, look for how quickly growth slows, how much debt grows, and the movement of inflation and trade figures. Globally, keep on eye on Target 2, Spanish bonds, and Japanese debt.
Higher growth in China is no longer compatible with a strengthening balance sheet. Fortunately, the current Chinese leadership recognizes the need to implement informs and understands that it is going to be a politically difficult process.
A new report suggests that even under optimistic scenarios, it will be very hard to maintain a high rate of investment in China. The challenge is to find a readjustment strategy that does not lead to a sharp drop in GDP growth.
A new worldwide monetary contraction could reverse many of the advances in globalization that the international community takes for granted.
The current cycle of globalization could end in a painful period of debt adjustment and payment imbalances across the globe, with a likely slowdown of growth in China, a possible abandonment of the euro, and the risk of increasing U.S. protectionism.
Ineffectual loan quotas have led Chinese banks to devise new, riskier lending mechanisms. This trend will continue as long as China maintains its loose monetary and credit policies.
Chinese growth may continue at a rapid pace this year, but a growing liquidity-induced bubble will eventually require major reforms.
Although an appreciation in China's currency value could benefit the United States in theory, Chinese leaders would likely counterbalance such a rise with policies that could further damage both the Chinese and U.S. economies.
Although China's growth next year is likely to remain high, expectations for China's average growth over the next decade are being revised downward.
European economic adjustment will be both economically and politically painful, but Europe's financial crises will continue to recur until real fundamental rebalancing occurs.
China's interest rate hikes are primarily intended to rebalance China's overheated investment sector, but they will likely have little effect on the country's rising inflation.
Europe's debt crises are likely to worsen, requiring many European countries to implement difficult long-term economic and political adjustments to recover from their fiscal woes.
Although the U.S. Federal Reserve's recent quantitative easing is a necessary step, it makes China even less likely to embrace Secretary Geithner's proposal to limit current account surpluses.
An international agreement to limit current account surpluses would be a productive step toward global economic rebalancing, but in order to decrease its trade deficit, the United States must also enact domestic reform.
The Chinese central bank's decision to raise interest rates is a positive step toward economic rebalancing, but it needs to be followed up by larger rate hikes if China is to increase domestic consumption.
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