On Tue, Aug 20, 2013 at 3:34 PM, Marv Gandall <[email protected]> wrote:
> On 2013-08-20, at 1:56 PM, raghu wrote: > > > The debt that Pettis, Krugman et al worry about is internal i.e. some > Chinese entity holding large paper claims on some other Chinese entity. > > > > It is true that these claims "net out" if you look at China as a > monolithic entity. So these debts can effectively be nullified by the > stroke of a pen in theory. > > > > But so what? > > > > Aren't you ignoring the politics and competing interests within China? > There are going to be BIG winners and losers in any such bailout. You think > the losers are just going to sit back and take one for the team? > > Assuming there might be a bailout at some point, why should we expect the > pattern to be any different than previously? > Ok, now we are finally moving past the strawmen and talking about the actual issue: why indeed should we expect anything different from the adjustments the PRC regime did in 2009? I think this is really the core of it. As I read Pettis, he is arguing that yes, this time is indeed different. He considers the past adjustments as "kicking the can down the road" kind which continued the imbalances in the Chinese economy and in many ways, significantly aggravated those imbalances. And what is the nature of this imbalance which Pettis and others are so exercised about? It is primarily the transfer of income from the household sector and domestic consumption, to the corporate sector (state-owned and private) to subsidise investment and export. I don't know if he is right, but I don't think the argument is so easily dismissed. > The other big losers will be the thousands of microlenders in the shadow > economy who are lending to small private firms unable to raise capital > through conventional channels. In the aggregate the "losers" in a big readjustment will be the coastal exporters and the corporate sector more generally and the "winners" will be households. It is not at all clear that the household sector is politically that powerful compared to the corporate sector. > However, even the most long-standing bearish commentators like Michael > Pettis don't think a full-blown crisis in the cards, even in the unlikely > event growth tumbles precipitously from its current 7.5% level. Pettis > recently estimated that GDP need only grow by 3-4%, implying zero > investment growth, in order for median Chinese income to continue growing > robustly, ensuring social stability while the economy is weaned away from > export-led growth: > I don't disagree. It depends partly on what you call a "crisis". The question is not whether some catastrophe will befall the country. Rather it is whether big changes are imminent on the recent economic growth patterns. -raghu.
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