Friday, April 17, 2015

Two articles about Chinese economy

The first from Bloomberg The Major Paradox at the Heart of the Chinese Economy:
"Step back from conflicting daily headline numbers, and a different economic reality emerges. China is the midst of an ambitious, and risky, rebalancing act -- away from its old growth model of credit-fueled, investment-led and export-powered growth that astounded the world with 10 percent annual average GDP gains from 1980 to 2012.
The long game is to transform China’s $10.4 trillion economy into a more sustainable one, featuring a vibrant service sector and a more diversified finance industry that doesn’t rely so heavily on state-owned banks to allocate capital. It will be a messy process and will result in sub-par growth, at least by Chinese standards." And goes on to describe the efforts.
The second from WSJ, may be good for developing countries if it pans out:
"The conventional wisdom is that for foreigners to become big holders of yuan, China has to run a trade deficit. (Then foreigners are left holding yuan earned by selling stuff to China that they don’t need to buy stuff from China.)
But there’s another route. China could instead simply give yuan to other countries to invest in (presumably Chinese-made) equipment and know-how, as the United States’ Marshall Plan gave Europe dollars with which to rebuild. This, says Mr. Gave, is China’s strategy: “For China, financing foreign infrastructure projects, even at relatively low returns, is a more attractive proposition than keeping foreign reserves in low-yielding U.S. or eurozone bonds.”
For China, the key to making the yuan a rival to the dollar is political will: When your currency becomes a reserve currency, you get more influence in the world, and in return the world gets more influence over you. Given China’s global aspirations, that trade-off is going to look steadily more appealing."
See also the previous posts about AIIB

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