Over at the Financial Times Alphaville BlogJapan’s lessons for China, about state capitalist China’s systemic economic problems. (Those who write that China’s a perpetual juggernaut either don’t understand fundamental economics, don’t understand that fundamental theory applies universally, or most likely commit both errors).
The post outlines China’s four principal economic problems (per Stephen Green, Standard Chartered’s chief China economist), how Japan faced similar problems (per Lombard St Research’s Brian Reading and Diana Choyleva), how Japan’s temporary fixes failed (per Reading), and how China is trying to apply some of those same (sure-to-fail) fixes (Choyleva).
Solid analysis, all around.
China needn’t wind up with two lost decades of stagnation (“Stagnation, the default solution to excessive savings in the absence of structural reform”), as happened in Japan. China could avoid these Japanese-situation mistakes, but
Choyoleva says the party is also wedded to the idea of growth and many officials benefit directly from the status quo. While that’s possibly beginning to change, it does appear to remain a big conundrum and source of tension. It remains to be seen how much pain can be inflicted for longer term gain.
In the end, a sound economic analysis like Michael Pettis’s – that China could rebalance – runs up against political impediments of the kind that Minxin Pei so well describes.
Via Japan’s lessons for China.