Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
carnegieendowment.org
Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
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Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#2Such a long article just to state something well known: income growth has stalled for sure, and industry been contracting.
China is about to hit its Brezhnev era. That's my fear.
But for as long as Yi Da Yi Lu and state contracts rain gold, I see no personal reasons to worry
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#3Such a long article just to state something well known: income growth has stalled for sure, and industry been contracting. China is about to hit its Brezhnev era. That's my fear. But for as long as Yi Da Yi Lu and state contracts rain gold, I see no personal reasons to worry
I have been reading his blog for years (ever since Calculated Risk, another great economics blog, pointed to him). He has been beating the same drum the entire time. His point is that the mechanics of how an economy work at the macro level reduce to a simple set of equations between investment, savings and consumption. And that those equations force hard choices that have political implications.
I have passed some articles to economics professors I know, but haven't heard whether Pettis' ideas make sense from a theoretical perspective. I know they make sense to me, a layman.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#4I don’t get this article. China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth. Their wages are steadily increasing. Their internal market is the healthiest of any g20 economy. Investments both internally and internationally are up and their population has little dept.
On top of that they haven’t touched retirement age, so they have a lot of leverage there.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#5As a non-expert, it seems likely that of the 3 options, wealth transfer will be the main solution to China's debt problems. (It's worth noting, China's high corporate debt levels are, like Japan's, owed to mainly to domestic creditors, and I believe also denominated in the local currency.)
In a totalitarian dictatorship, "political opposition from so-called vested interests" is not that strong a barrier when political and economic stability is at stake.
I think while some unsustainable debt will continue to be allowed to default, a lot of debt will eventually be painfully bailed out by taxpayers (both households and corporations) over time.
This mean lower health, education, and social welfare spending affecting people who didn't cause the debt problem in the first place. That's just the unfortunate price of accumulating large amounts of non-productive debt.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#6I don’t get this article. China exceeded their economic growth target for 2018 in April when their economy hit 6.8% growth. Their wages are steadily increasing. Their internal market is the healthiest of any g20 economy. Investments both internally and internationally are up and their population has little dept. On top of that they haven’t touched retirement age, so they have a lot of leverage there.
I’m no economist, but I think the point is that they’re collecting debt at a high rate too. If they continue to grow faster than that debt, all is well. Once their growth starts to revert to the G20 mean, they’ll need to change their strategies dramatically.
But I’m not an economist.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#7As a non-expert, it seems likely that of the 3 options, wealth transfer will be the main solution to China's debt problems. (It's worth noting, China's high corporate debt levels are, like Japan's, owed to mainly to domestic creditors, and I believe also denominated in the local currency.) In a totalitarian dictatorship, "political opposition from so-called vested interests" is not that strong a barrier when politica…
There is no Zhu Rongji in current generation of party leaders.
From my personal observations, the leeching of public debt through borderline fraudulent projects barely ceased under Xi. This is an elephant in the room. Only the moment they will lift a knife on it, will we be assured that they began an actual move on that front.
Do you know why Xi raised his hand on his closest supporters in the reactionary camp he leads - Bo and Co?
He did so because he was too afraid that Bo as a much more charismatic person will take over the lead of reactionaries from him.
Now, he needs to pay his supporters in the party lavishly in form of state sanctioned corruption - all kinds of unsupervised small local projects where money vanish using long lending chains, or simply stratospheric remunerations for offsprings of party officials employed somewhere in the chain.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#8Studying economics for some time, I think economists often ask wrong questions. So let's say trade war occurs, and china will lose some of its exports. The main question is not whether savings would decrease or investment rise, the main question is how all the spare capacity left will be utilised. Yeah, if it won't be utilised then there will be unemployment, well pointed by the author. If domestic consumer will consume what was produced for exports, then consumption would increase and savings would fall. If Chinese will find a way to use spare capacity to produce something else what is in higher demand (high tech let's say) then investment would rise. And let me assure you that strong Chinese government will find a way to use all the freed up labour/capital resources, so any downfalls would be temporary. On the other side are democracies like US which don't have that much control over production side and whose economies are not that robust to shocks that China may face now.
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#9I've tried reading this piece a couple times, but despite the bullet points and numbered lists, I can't make any sense out of it. I presume this is because I lack essential background knowledge. Can someone please help explain the context?
When he says "China's debt problems", what exactly is he referring to?
When he says "there are also only four ways that Beijing can respond", what are they responding to and what is the goal of their response?
Re: Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers
#10Unlike liberal democracies, Beijing has more room to act in crisis. China has extractive institutions that will ultimately be a growth limiting factor, but I don't see it limiting their crisis responses.
* There will be no political gridlock between left and right that can be solved only with half measures. Decisions are done in small groups of 30 people at most, with several hundred people having some influence.
* They don't have ideological fear of meddling with the markets or private property. It's all about being practical.
Beijing can make mistakes when handling the crisis. After they realize their error, they can take as big hammer as needed to fix it.