Pages

1 May 2015

China: Literally A Matter Of Life Or Death


April 26, 2015: Many people in the financial community, both in and outside China, fear that Chinese economic growth is not just slowing down but about to stall and quite possibly go into decline. Some call it the Japan Syndrome because the current Chinese situation is similar to Japan’s in the 1990s. Both China and Japan experienced explosive GDP growth for decades mainly because of highly efficient export industries. But there was something else going on in both countries that got less attention internationally; a lot of that GDP growth was sustained by massive internal spending on construction (of infrastructure, housing and all sorts of stuff both countries lacked before their spectacular economic boom). Eventually there was no more need for massive construction efforts but in both cases the government realized that it would have a lot of unemployed people if the construction effort was cut back as much as reality required. So a lot of money was borrowed until the banks got into trouble and threatened to trigger an economic depression. This forced the Japanese to make a lot of adjustments and while Japan escaped economic disaster, for over two decades Japanese economic growth has been stalled.

No comments:

Post a Comment