Peter Doyle on China and the Return of Deflation

Link goes to a PDF: China.

Another summation of China. I want to highlight one paragraph because it sums up everything that I posted in recent years in a series of posts on the leadership transition:

But most fundamentally on policy options, the Chinese authorities cannot reconcile the lessons they learned from Gorbachev (that Perestroika plus Glasnost equals collapse) with need for reform. It is this, rather than still-entrenched corruption, which is the real blockage.

The reform plan laid out by Li Keqiang has still been mostly blocked to this point, and you may recall a few table pounding moments in recent years, such as the one where he told local officials to stop meddling with the local economy. Local officials are still propping up steel mills and coal mines, and the government unleashed a series of policies to bailout local real estate markets in 2016.

He closes by pointing out this is not a China-only story:

The true global impact of the post Lehmans and Euro Crises on the world has been masked by the Chinese credit boom post-2009. Though China may intone that in various spheres (environment, financial, etc), its not ready for full global leadership, just imagine what the post Lehmans world and the Euro Crisis would have looked like to date, absent the Chinese credit boom. China's global role has been pivotal.

The 2008 crash didn't die, it was papered over mainly by China, because China's stimulus was huge, it forced its banking system to participate (whereas the Western public said no more debt), and it worked for a time. It sparked a genuine boom in economic activity for about 2 years (weakness in real estate sparked panic in 2011 and that's when commodity prices peaked). The world's central bankers are now out of paper unless they want to destroy their currencies.