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Bubble trouble 3 flash
Bubble trouble 3 flash





bubble trouble 3 flash

Should we write China off? Of course not. The result is policy paralysis, with China making halfhearted efforts to push the same kinds of investment-led stimulus that it used in the past. As best I can tell, the country’s leadership suffers from a strange mix of hostility to the private sector (just giving people the ability to spend more would dilute the party’s control) unrealistic ambition (China is supposed to be investing in the future, not enjoying life right now) and a sort of puritanical opposition to a strong social safety net, with Xi condemning “welfarism” that might erode the work ethic. So why isn’t this happening? Several reports suggest that there are ideological reasons China won’t do the obvious. And in the short run, the government could just give people money - sending out checks, the way America has done. Get state-owned enterprises to share more of their profits with workers. The obvious answer is to boost consumer spending. Then China channeled excess savings into a monstrous real estate bubble, but this bubble is now bursting. For a while China maintained demand by running huge trade surpluses, but this risked a protectionist backlash.

bubble trouble 3 flash

And the story of Chinese policy has been one of increasingly desperate efforts to mask this problem. The result is that China has a huge quantity of savings all dressed up with no good place to go. But that kind of growth is now a thing of the past.

bubble trouble 3 flash

#Bubble trouble 3 flash drivers#

Why? I’m not sure there’s a consensus about the causes, but an IMF study argued that the biggest drivers are a low birthrate - so people don’t feel they can rely on their children to support them in retirement - and an inadequate social safety net, so they don’t feel that they can rely on public support either.Īs long as the economy was able to grow extremely fast, businesses found useful ways to invest all those savings. Such a downturn may well reduce the amount business are willing to invest, so an attempt to save more can actually reduce investment.Īnd China has an incredibly high national savings rate. If businesses aren’t willing to borrow and then invest all the money consumers are trying to save, the result is an economic downturn. Why do things look so ominous in China?Īt a fundamental level, China is suffering from the paradox of thrift, which says that an economy can suffer if consumers try to save too much. As I’ve pointed out, even Japan, often held up as the ultimate cautionary tale, has done fairly decently since its slowdown in the early 1990s. However, slower growth needn’t translate into economic crisis. In any case, China clearly can’t sustain anything like the high growth rates of the past. The great Massachusetts Institute of Technology economist Robert Solow famously quipped that attempts to explain why some countries grow more slowly than others always end up in “a blaze of amateur sociology.” There were probably deep reasons China couldn’t continue to grow the way it had before 2008. But China’s slowdown began even before Xi took power.Īnd in general nobody is very good at explaining long-run growth rates. Certainly Xi’s focus on state control and arbitrariness haven’t helped. Many analysts attribute China’s loss of dynamism to Xi, who took power in 2012 and has been consistently more hostile to private enterprise than his predecessors. You should take such estimates with large handfuls of salt, but there has been a clear slowdown in the rate of technological progress.Īnd China no longer has the demography to support torrid growth: Its working-age population topped out around 2015 and has been declining since. The International Monetary Fund estimates that total factor productivity - a measure of the efficiency with which resources are used - has grown only half as fast since 2008 as it did in the decade before. Since the late 2000s, however, China seems to have lost a lot of its dynamism. But the speed of China’s convergence was extraordinary. This surge was, to be fair, only possible because China started out technologically backward and could rapidly increase productivity by adopting technologies already developed abroad. For three decades, after Deng Xiaoping took power in 1978 and introduced market-based reforms, China experienced an enormous surge, with real gross domestic product increasing more than sevenfold.







Bubble trouble 3 flash