I have been a "China is unlikely to keep its model going for more than another five years—a decade tops" perma-bear since 1988. All I understand is that I do not understand the Chinese economy. I wish I did understand it: Arvind Subramanian and Josh Felman: R.I.P. Chinese Exceptionalism?: "Over the past few decades, China’s growth has appeared to violate certain fundamental laws of economics.... China’s debt keeps on rising.... For any normal country, the build-up of extensive surplus capacity would lead to sharp declines in investment and GDP growth. And that, in turn, would produce financial distress, followed by a crisis if the warning signs were ignored. But China has had a different experience...
...China’s economic exceptionalism is now being threatened by a perfect storm of existing stresses–namely, the domestic debt build-up–and new complications, including US trade barriers, the geopolitical pushback against China’s Belt and Road Initiative (BRI), and tightening monetary conditions, particularly in the United States. After the 2008 financial crisis, China shifted its economic model away from exports and toward internal sources of growth. But such a rebalancing requires ever more debt and investment, thus creating greater risks of collapse. As a result, the government has had to tread carefully, providing only moderate dollops of stimulus to the economy as needed. There is no how-to manual for managing this balancing act. Policy interventions that seem moderate in the moment could turn out to have been excessive. At some point, Stein’s Law will assert itself.... Xi would do well to remember not just Stein’s Law, but also Rüdiger Dornbusch’s Law, which holds that, “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” Sooner or later, Chinese exceptionalism will give way to the laws of economics. The world should prepare itself. The consequences could be severe–and unlike anything experienced in recent history...
#shouldread
