Reality Creeps up on Chinese State-Capitalism

Ambrose Evans-Pritchard writes about the Chinese government’s (publicly) dismissive reply to an International Monetary Fund warning about Chinese debt-fueled over-investment.

A single sentence serves as an executive summary:

All those extrapolation charts of a Chinese-led planet that enthralled us all in the BRICS hysteria of 2008 will look very silly indeed, unless China heeds the IMF’s advice.

Just about everything one has read in the popular press about China – as a perpetual growth machine – has been wrong.

Reform is possible, but the Party leadership (collectively) is hesitant:

Professor Michael Pettis from Beijing University expects growth to fall to 3pc or 4pc over the 10-year term of President Xi Jinping, which would come as a shock to many. He argues that this may be no bad thing provided the government bites the bullet on reform, and provided the Chinese people are at last given a bigger share of the pie.

Headline growth would collapse, but household income would not. This is what occurred in Japan after the Nikkei bubble burst. The Chinese people would hardly feel the difference. The social upheaval everybody fears might never happen. Mao statues might not topple so soon after all.

Unfortunately, the reform drive has yet to advance much beyond hot air. “Progress with rebalancing has been limited and is becoming increasingly urgent. A decisive shift toward a more consumer-based economy has yet to occur,” said the IMF.

Via China defies IMF on mounting credit risk and need for urgent reform.

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