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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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    Analysis: The next Chinese shock may destroy the world economy

    Rocky
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    • Post n°1

    Analysis: The next Chinese shock may destroy the world economy Empty Analysis: The next Chinese shock may destroy the world economy

    Post by Rocky Sat Feb 16, 2019 4:48 am

    Analysis: The next Chinese shock may destroy the world economy
    Analysis: The next Chinese shock may destroy the world economy 640

     15 February 2019 02:46 PM
    Editing: Sally Ismail
    Direct: For many years, China has been challenging the prevailing view widely that political openness is essential for economic development in the long term.
    But recent developments within the macro economy indicate that the state of exception in the country is nearing the expiration date with potentially devastating effects of the global economy.
    Project Syndicate published an analytical view of the economies of Arvind Subramanian and Jay Vielman that China's rapid economic growth in the absence of political openness will soon end badly.
    Fears are increasing
    In September 2018 , the authors argued that China's economic and foreign policies were defying the laws of economy and geopolitics, and he cautioned that that position could not continue. Since then, fears have been increasing.
    Until recently, China was able to pursue a development path that stemmed from the government's far-reaching control over the economy (and society at large), but the era seems to have ended.
    China's domestic debt is rising to unsustainable levels, and domestic investment levels have exceeded the point of declining revenue and are moving towards negative territory.
    Moreover, China's export support strategy, the strengthening of industrial national enterprises and the expropriation of foreign technology have gone beyond what Western countries, especially the United States, can tolerate.
    The initiative and the path adopted by Chinese President Xi Jinping show all signs of imperialist excesses, not because the lending of the initiative far exceeds the ability of participating governments to borrow, but the terms of their loans are too rigid and high, Harvard University's Ricardo Hausmann recently concluded.
    The authors' expectations in September suggest that some of the decline in China's economic performance is inevitable.
    Even if China is not heading for a complete crisis, it is almost certain that it may suffer from a combination of economic slowdown and a sharp devaluation of the exchange rate.
    Since then, this prediction has become more likely.
    With the growing decline in global economic growth and exports, the Chinese economy is on a more downward path than the 6.4 % growth recorded in the fourth quarter of last year .
    The average economic growth rate of more than 9 % and realized since the 1980s and until recently seems far away.
    As a response to the current global economic slowdown, the Chinese government has decided to ease restrictions on public and private borrowing.
    But this move will only worsen the country's debt and excessive investment problems, or, as the Chinese proverb says, it is a kind of "drinking poison to tell your thirst."
    Even without these macroeconomic developments, China's challenge to solid economic development outcomes would not last forever. Economists Douglas North, Daron Asimoglu and James Robinson have shown that long-term economic development tends to rely on strong state institutions and open political systems as necessary to promote Competition, investor confidence, dynamism and innovation.
    China is more than an exception
    In the 1990s and the first decade of the third millennium, the West speculated that China might cease to be an exception and change its course towards normalcy through democratic and open political institutions.
    In practice, this has translated into Western policies to facilitate the rise of China and the decisions taken by US companies to transfer manufacturing capacity to Beijing.
    But under the leadership of "Xi Jinping," China is instead less open.
    As Nicholas Lardy of the Peterson Institute of International Economics explains in a new book, China's economy is also being transformed from a private sector-led growth model to a capitalist one.
    In other words, political and economic changes make China a bigger exception, so the likelihood that a return to normality will come in the form of a sharp deterioration in economic performance is increasing.
    The exact timing of this corrective action can not be determined, but the more China defies the rules of economic development, the more likely it is.
    Unfortunately, any disruption in China's economic performance would have a Zanzali impact on the rest of the world as it could lead to a significant weakening of the renminbi.
    In fact, China may be working to devalue its currency in order to boost its exports and ease the inevitable fall in domestic demand, especially the investment side.
    Such a scenario would have the same effect as the tsunami on global currencies.
    Other major Asian countries may also be responding to the devaluation of their domestic currencies in order to maintain their competitiveness, and Europe and the United States may face sharp price deflation with their currency strength.
    The world needs the same processing
    With regard to historical comparison, it should be borne in mind that in the 1930s the US dollar and the British pound fell 40 % in four years while France and Germany remained broadly stable (against gold).
    Like the United States and Britain in 1929 , just before the Great Depression, the major Asian economies that may be affected by the shock of the Chinese currency now account for about 30 % of world trade.
    What makes it even worse is that trade today is more important for the global economy than it was 90 years ago.
    In 2017 , merchandise exports accounted for 20 to 25 % of global GDP , compared with 8% only in 1929
    This means that the devaluation of Asian currencies would have a more global impact than the depreciation of the dollar and sterling in the 1930s.
    Thus, the Chinese shock is likely to go far beyond the devaluations of the competitive currencies in the early 1930s, one of the worst economic periods recorded in history.
    In one way or another, the continued challenge of macroeconomic, geopolitical and economic development laws will accelerate their inevitable return to normalcy.
    When this happens, the world must better prepare itself.


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