Love the stimulus you're with, but China's still got to reform its economy--badly
Monday, August 31, 2009 at 12:58AM COMMENT: "China needs to stimulate reform, not only the economy," by Yu Yongding, Financial Times, 26 August 2009.
Sensible piece that says all this government spending in China is hiding defects and delaying much-needed reform. The big danger, of course, is overcapacity--a refloating of the world economy on the not so sturdy back of a bubble (especially on money supply).
Good news is, China's debt will only be 20% of its GDP (round about $1T, I reckon).
Main point of piece: you only get so much stabilization from infrastructure spending. China still needs to work pensions and healthcare so household consumption can take over.
Yu is with the Chinese Academy of Social Sciences (I met a lot of these guys and gals in Shanghai recently) and a former member of the monetary policy committee of the Chinese central bank, so he knows from where he speaks:
To achieve a sustainable rebound, China needs to strike a fine balance between crisis management and structural reforms. If China fails to tackle its structural problems, including its export dependency, high investment rate, and wide income gaps, growth is unlikely to be sustainable.
Weird, but I feel I could write the same about the U.S., just changing "export dependency" to "import dependency" and "high investment rate" to "low savings rate."
Take note, Mr. Obama.
Oh wait a minute, I think that's the actual logic he's using in tackling healthcare.
Seems there's plenty of reforms needed all around.
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