Martin Wolf: Why China Could Fail Like Japan
The Financial Times’ economics editor Martin Wolf takes up the theme treated at some length by China-based economist MIchael Pettis: that Chinas’ economy has moved into unknown and dangerous terrain. No sizeable economy has had investment and exports combined constitute nearly 50% of GDP, and that model is not sustainable. As we have indicted, there is evidence that investment is becoming less and less productive. China is taking $7 of debt to generate $1 of GDP, when the US at the tail end of the bubble needed a mere $4 to $5 of debt for each incremental $1 of growth.
We’ve often recapped Pettis here and are glad to see Wolf take up his analysis.
Wolf does recite the optimist case on China, with the biggest factor being that China has a long way to go in improving the incomes of its citizens, and that alone can give it a very long lasting growth trajectory.
On the risks, Wolf sets aside commodities scarcity and environmental issues to focus solely on the economics case.
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