By June 27, 2013 Read More →
Growth and Rebalancing: Jan Kregel on China’s Economy

Growth and Rebalancing: Jan Kregel on China’s Economy

The upheaval in Chinese interbank markets last week has prompted many to take a closer look at growth drivers and credit dynamics in China. Recent events have not come as a surprise to all, however.

Some noted fund managers, such as Hugh Hendry and Jim Chanos, have been highly skeptical of the “China as the engine of global growth” story for some time. As Hendry puts it, “From the pulpit of a ten-year bull market, those businesses serving the tigerish growth of China have, by way of consistent share price out-performance, become the stalwarts of institutional equity portfolios. Former skeptics have become confirmed zealots …. But have their portfolios become dangerously out of sync with realities on the ground?”

Such realities range from an epic real estate bubble to the rapid expansion of the shadow banking sector; at the core of the debate, however, lies the question of economic rebalancing. Broadly speaking, demand in an economy can come three sources: consumption, investment and the external sector (trade surplus). China’s economy is widely recognised to be overly dependent on investment (at a staggeringly high 48% of GDP – Indonesia, for instance, stands at 39%) and exports to generate growth.  Although the Chinese government has recognised the risks this poses, fixed-asset investment and growing export capacity have been systematically favoured over domestic consumption, in particular in the wake of China’s huge 2008 economic stimulus package. What does all this mean for the sustainability of Chinese growth?

Speaking at INET’s latest conference, Jan Kregel of the Levy Economics Institute of Bard College provides an overview of the debate, as well as key insights on some the institutional characteristics of the Chinese political economy that seem to trip-up so many China watchers (Kregel starts at minute 28)

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Read More:

Kate Mckenzie – China’s liquidity crunch, and what it means for everyone – FT Alphaville

Michael Pettis – Feedback Loops – China Financial Markets

Michael Pettis – Crunch Time – Foreign Policy

Nick Lardy – China could reform its state businesses by stealth – FT

(Wikimedia Commons image courtesy of J. Patrick Fischer)

About the Author:

William Oliver is Nabateans’ editor for international economics and Middle East current affairs. He obtained his degree in History from the School of Oriental and African Studies in London. While his studies focused on the Middle East in the 18th and 19th centuries, William has a long-standing interest in international finance and the political economy of development. William’s work is aimed at understanding how the Middle East integrates with the global economy, and into the wider geopolitical landscape.

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  1. Can Chinese growth be sustained? | Pearltrees | June 27, 2013
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