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1/8
Zhang Bin notes that China’s reliance on debt-fueled growth – especially local-government debt – is creating huge systemic risks for the economy and argues that Beijing should rely more on US-style quantitative easing, rather than Chinese-style... https://www.scmp.com/economy/china-economy/article/3129102/chinas-central-bank-should-be-more-fed-top-researcher-says?utm_source=Twitter&utm_medium=share_widget&utm_campaign=3129102
Zhang Bin notes that China’s reliance on debt-fueled growth – especially local-government debt – is creating huge systemic risks for the economy and argues that Beijing should rely more on US-style quantitative easing, rather than Chinese-style... https://www.scmp.com/economy/china-economy/article/3129102/chinas-central-bank-should-be-more-fed-top-researcher-says?utm_source=Twitter&utm_medium=share_widget&utm_campaign=3129102
2/8
fiscal expansion, to power growth. Among other things he says the former will lower debt costs, strengthen the role of the private sector, and raise the consumption share of GDP.
While he is certainly right to worry about China’s terrible debt burden and the role of...
fiscal expansion, to power growth. Among other things he says the former will lower debt costs, strengthen the role of the private sector, and raise the consumption share of GDP.
While he is certainly right to worry about China’s terrible debt burden and the role of...
3/8
fiscal spending in driving it, I am not sure US-style QE will help. To the extent it lowers borrowing costs, this will mostly come at the expense of depositors, which means downward pressure on the household share of GDP and, with it, on the consumption share, in which...
fiscal spending in driving it, I am not sure US-style QE will help. To the extent it lowers borrowing costs, this will mostly come at the expense of depositors, which means downward pressure on the household share of GDP and, with it, on the consumption share, in which...
4/8
case the only way it really boosts consumption (by some sort of wealth effect?) is by replacing local-government debt with household debt. This doesn’t solve China’s debt problem so much as transfer it from one overburdened sector to another.
case the only way it really boosts consumption (by some sort of wealth effect?) is by replacing local-government debt with household debt. This doesn’t solve China’s debt problem so much as transfer it from one overburdened sector to another.
5/8
What I think most analysts still haven’t fully recognized is that there are literally only three ways China can stabilize its debt burden. First, it can discover a new outlet for productive investment that replaces the huge amount of non-productive investment that has...
What I think most analysts still haven’t fully recognized is that there are literally only three ways China can stabilize its debt burden. First, it can discover a new outlet for productive investment that replaces the huge amount of non-productive investment that has...
6/8
driven GDP growth and debt for the past 10-20 years – very unlikely given that Beijing has been promising, unsuccessfully, to do this for at least a decade, and the sheer extent of investment needed makes it hard even to imagine how the numbers would work.
driven GDP growth and debt for the past 10-20 years – very unlikely given that Beijing has been promising, unsuccessfully, to do this for at least a decade, and the sheer extent of investment needed makes it hard even to imagine how the numbers would work.
7/8
Second, in order to drive rapid and sustainable consumption growth it can implement for one or two decades an annual transfer – politically hard to pull off in the best of cases – equal to 2-3 percentage points of GDP from local governments to ordinary households.
Second, in order to drive rapid and sustainable consumption growth it can implement for one or two decades an annual transfer – politically hard to pull off in the best of cases – equal to 2-3 percentage points of GDP from local governments to ordinary households.
8/8
Third, it can restrain non-productive investment altogether, which means allowing GDP growth to drop to 2-3% or lower. There is no policy “innovation”, in other words, that can maintain high growth rates without a significant worsening of the country’s debt burden.
Third, it can restrain non-productive investment altogether, which means allowing GDP growth to drop to 2-3% or lower. There is no policy “innovation”, in other words, that can maintain high growth rates without a significant worsening of the country’s debt burden.
