2018-01-13

Still No Growth Momentum in China

Jeffrey Snider at Alhambra: The Dea(r)th of Economic Momentum
For as much as officials and Western Economists keep pushing the “rebalancing” idea, China’s economy remains an investment-led system where FAI (the investment) is derived from the industrial sector and therefore exports. China is inside and out, as it has been for a long time, the barometer of global growth because it is all the all-important marginal pivot in the process.

When industry/manufacturing/exports was booming before the Great “Recession”, and then appeared to again in its immediate aftermath, the Chinese were perfectly content with their so-called ghost cities. The reason was that that empty construction wouldn’t stay unused for very long, so long as economic growth, based on global trade growth, kept up its expected pace.

In very simple terms, there will be more ghost cities built if private entities in China, with some direction from (mostly local) government, feel that they won’t be ghost-towns for very long. If, however, it starts to feel like they might stay empty for too long, or have been already, then you will see less of them being developed and constructed. What ultimately dictates that difference is the export sector, no matter how much “rebalancing” is claimed.
The bump in investment created when China boosted credit in early 2016 led to a boost in global growth as Chinese demand worked through the economy. Now that bump is gone. Without a new source of growth, it will slowly drain out of the global economy.

1 comment:

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