I often wonder if the human brain is wired to look for explanations that are unicausal. Think about how often you hear the phrase, „The real problem is he is.“ . . „
Why assume there is only one real problem? Most macroeconomic problems are complex to some degree. Here is a typical situation:
1. Negative real shocks slow economic growth and lower the natural rate of interest.
2. The policy rate exceeds the natural rate of interest because the central bank is slow to react.
3. This will tighten monetary policy and slow nominal GDP growth.
4. With nominal wages remaining high, economic growth will be slower than the initial negative real shock.
Recent Bloomberg article Discusses Xi Jinping's attempts to address China's recent economic problems. The focus is entirely on non-monetary factors.
It is true that China faces many structural problems. Xi Jinping inherited a deeply flawed economic model, and although he has made some improvements, he has also created a new set of problems. In particular, China is moving in the direction of authoritarian nationalism, which is unfavorable to economic dynamism.
As Mr. Xi's anti-corruption campaign continues after more than a decade of purges, officials have increasingly focused on security and studying Xi Jinping's ideology, and are reluctant to take chances. is getting stronger.Bureaucracy's „lying down“ is also a problem recognized By top leaders. At a major economic conference in December, Mr. Xi criticized local officials for delaying or misunderstanding party orders.
„Sometimes you have to give people room to make mistakes, but right now we don't have that,“ said Liquan Ren, director of modern alpha at New York-based wealth management firm WisdomTree. . „That's a problem for China. Local officials need to be willing to try things.“
Of course, the Western world has also become more nationalistic. Thus, China's problems are partly due to factors beyond its control. However, in my opinion, a country's performance is at least 90% determined by domestic policies and at most 10% explained by external factors.
In addition to China's structural problems, China's monetary policy has recently become more contractionary. In the short term, this has a bigger impact on growth than all the various supply-side issues.
While an NGDP growth rate of about 4% may seem OK for a country like the United States, it is a sharp slowdown from the roughly 8% to 10% numbers seen for most of the past decade. Masu. This may explain why Chinese citizens are currently so pessimistic about the state of their country's economy. In contrast, money is nearly neutral in the long run, so long-run growth is determined almost 100% by supply-side factors.
So what is China's real problem? Is it structural or financial?
Why not both?
PS. I also agree with that Adam Posen's views Regarding China's structural problems.