By Shahab Sabahi
Energy and Environment - Policy analysis research group
R. Wolverson, in her post “Could china be the next Greece? “ appeared on Time, lucidly argues that China should watch its fiscal and monetary policy before experiencing a debt crisis. She investigates China’s growth plan and points at the significance of a boost in its domestic consumption. She sees the danger of inflation which hovers the China economy and remarks it as a growth constrain for foreseeable future. For her, China’s focus on favoring the corporate sector particularly on its exporters is a good example that the government controls on deposit yields and lending rates.
It’s true that China has historically had low deposit yields, which were not in favour of households as they are the savers. Inevitably low lending rates helped the growth of corporate sector and factories and leaves Chinese consumers to spend less. For sure this old policy cannot be affordable as China is due to expand its domestic consumption with adaptation of a new policy. It most likely leads the country to plunge in debt. So in short, China will walk the same path as the WEST did over its heydays. It is predictable as this is the nature of growth and governs all evolutionary systems when move along their growth path. No way out.
Wolverson also soundly points out the China huge foreign cash reserve will temporarily help out the country before fully dropping down the debt crisis.
In general, her analysis is satisfactory and China will certainly experience slowdown one day.
But the question is WHEN would it happen to China? and WHAT sort of policy may China adopt to delay the happening of this debt crisis or at least take place with less negative impacts?
The missing part in her analysis is the impact of China’s foreign policy. The recent vist of Chinese officials from the EU explains everything by itself. Diversification, investment in foreign currency but US$, investment and trade with countries who blessed with natural resources and more flexibility in foreign relation are centre of CHINA’s foreign policy. Something the WEST used to be master in and now lost it in favour of dogmatism. Realism fades away from the centre of the WEST’s foreign policy.
Energy and Environment - Policy analysis research group
R. Wolverson, in her post “Could china be the next Greece? “ appeared on Time, lucidly argues that China should watch its fiscal and monetary policy before experiencing a debt crisis. She investigates China’s growth plan and points at the significance of a boost in its domestic consumption. She sees the danger of inflation which hovers the China economy and remarks it as a growth constrain for foreseeable future. For her, China’s focus on favoring the corporate sector particularly on its exporters is a good example that the government controls on deposit yields and lending rates.
It’s true that China has historically had low deposit yields, which were not in favour of households as they are the savers. Inevitably low lending rates helped the growth of corporate sector and factories and leaves Chinese consumers to spend less. For sure this old policy cannot be affordable as China is due to expand its domestic consumption with adaptation of a new policy. It most likely leads the country to plunge in debt. So in short, China will walk the same path as the WEST did over its heydays. It is predictable as this is the nature of growth and governs all evolutionary systems when move along their growth path. No way out.
Wolverson also soundly points out the China huge foreign cash reserve will temporarily help out the country before fully dropping down the debt crisis.
In general, her analysis is satisfactory and China will certainly experience slowdown one day.
But the question is WHEN would it happen to China? and WHAT sort of policy may China adopt to delay the happening of this debt crisis or at least take place with less negative impacts?
The missing part in her analysis is the impact of China’s foreign policy. The recent vist of Chinese officials from the EU explains everything by itself. Diversification, investment in foreign currency but US$, investment and trade with countries who blessed with natural resources and more flexibility in foreign relation are centre of CHINA’s foreign policy. Something the WEST used to be master in and now lost it in favour of dogmatism. Realism fades away from the centre of the WEST’s foreign policy.
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