This Thursday 4:30 CT at UW:
China GDP growth through Q3:
BOFIT reviews the recent stimulus measures:
My impression is that the failure of the CCP to roll out greater fiscal stimulus means that one shouldn’t expect a big cyclical rebound (and certainly none of the measures announced or even contemplated the factors affecting the secular trend, including increasingly statist policies in pursuit of other goals). To wit, from Natixis today:
• Two major developments have followed the Third Plenum in July. First, a series of economic data releases indicated that the plenum had done nothing to improve the country’s short-term outlook. Second, a series of stimulus measures were announced over a two-week period, that have so far failed to reinvigorate the economy.
• The government is unlikely to enact the reforms necessary to support consumption due to high public debt and limited fiscal capacity, as doing so would require cutting subsidies central to the country’s industrial policy. This would contradict Xi Jinping’s focus on innovation.
• The People’s Bank of China may need to continue interventions in both the sovereign bond market and the stock market, though this could reduce foreign investor interest in Chinese financial markets.
• The government’s stimulus measures so far have largely been aimed at stabilizing asset prices rather than addressing the deeper issues of demand and overcapacity.
I don’t think Lardy necessarily agrees with this viewpoint (nor the lagging consumption story in general), which is why it’s a good idea to listen!
Looks like a fun one. I probably won’t be getting drinks until Friday, so I can probably watch this one while still in my “right mind” (such as my “right mind” is in my case). Appreciate the “heads up” because I enjoy most of these a lot.
We (I) lack data needed for some of the basic calculations needed to assess China’s capacity to expand its stimulus. Some, buy not all.
g>r 4.6%>2.4%
https://fred.stlouisfed.org/graph/?g=1wHHY
That’s for the 3-month rate, but g>r is true for all investment-graderates out to 5 years.
So China can use fiscal stimulus to foster growth.
A glance at the chart will show that the gap between g and r has narrowed substantially. We also know that lots of investments in China don’t provide returns equal to the growth rate of nominal GDP. So a cavalier conclusion that g>r so all is right with China would not be wise.
I mentioned that I lack data for some basic analysis. I don’t know of a source for Chinese spending multiiers. New fiscal expansion should take spending multiiers into account. I don’t know of a source for potential GDP estimates. Fiscal multipliers are higher when there is an output gap.
Debt/GDP is available, but don’t know of a source for interest payments as a share of GDP. The World Bank provides data for the public sector, but private debt is a bigger problem for China. Just can’t tell how big.
Absent this basic background information, figuring out whether China’s prospects are good or bad, whether more stimulus is a good idea, what kind of stimulus is likely to work best, is hard to do. So it’s also hard to know whether Lardy’s optimism of the pessimism of someone like Pettis is more credible.
Lardy’s recent statements, as Menzie suggests, are pretty hopeful as regards China’s outlook. A question I’d like answered is whether Lardy has a good forecasting record as regards China. Lardy has been publishing on China for a long time, through much of the period of China’s world-beating growth. That can bias a fella’s perceptions. I’m curious about Lardy’s forecasting record, especially during the Xi period.
The U.S. experience is that going big on fiscal expansion works to lift an economy back toward full capacity. China isn’t the U.S., but Japan’s experience also suggests going big is the right approach to a big output gap. The U.S. borrows in dollars, Japan in yen, China in yuan – the budget constrain is pretty flexible in such cases.
“This overcapacity idea is that you shouldn’t produce more than you can sell domestically. If that was carried to an extreme, that would mean no trade globally. Everybody would just produce what they consume at home,” Lardy told Xinhua in an interview Thursday.
https://english.news.cn/20240421/2b8882da727c428da82c13c42e6c69fe/c.html
I realize that journalistic recitation of complex ideas can make a mess. That said, Lardy iseems to have engaged in some pretty serious question begging in that quote. Yes, IF overcapacity arguments are predicated only on producing no more than what the domestic market demands, then you’ve written off comparative advantage.
If, on the other hand, we see evidence of government subsidies to export industries, then Lardy has misrepresented the actual argument – not the sort of thing you want to see from public intellectuals. It’s more of a trade lawyer argument, and that’s bad.