{"id":19590,"date":"2016-04-06T11:22:18","date_gmt":"2016-04-06T16:22:18","guid":{"rendered":"http:\/\/olduvai.ca\/?p=19590"},"modified":"2016-04-06T11:22:18","modified_gmt":"2016-04-06T16:22:18","slug":"western-mistakes-remade-in-china","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=19590","title":{"rendered":"Western Mistakes, Remade in China"},"content":{"rendered":"
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Western Mistakes, Remade in China<\/a><\/h3>\n<\/header>\n
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SHANGHAI \u2013 The Chinese economy faces an enormously challenging transition. To achieve its goal of joining the world\u2019s high-income countries, the government has rightly urged a \u201cdecisive role for the market.\u201d But, while market competition works well in many sectors, banking is different. Indeed, over the last seven years, China\u2019s reliance on bank-based capital allocation has led to the same mistakes that caused the 2008 financial crisis in the advanced economies.<\/p>\n

Rapid GDP growth requires high savings and investment, and high savings almost never result from free consumer choice. States can directly finance investment, but bank credit creation can achieve the same effect. As Friedrich Hayek put it in 1925, rapid capitalist growth depended on \u201cthe \u2018forced savings\u2019 effected by the extension of additional bank credit.\u201d<\/p>\n

\"Shanghai<\/a>The Contradictions of Chinese Capitalism<\/strong><\/p>\n

Introducing\u00a0PS<\/em>\u00a0On Point.
\nMaking sense of a world of conflict and conflicting ideas.<\/p>\n<\/section>\n

Japan and South Korea both used bank credit to finance high levels of investment in their periods of rapid growth. South Korea\u2019s nationalized banks directly funded export-oriented companies. In Japan, private banks were \u201cguided\u201d toward the tradable sector.<\/p>\n

But while governments dictated broad sectoral priorities, banks decided the firm-by-firm allocation and extended credit via loan contracts, which imposed financial discipline. If Japan and South Korea had instead used direct government finance, capital allocation would almost certainly have been worse.<\/p>\n

But while Japan\u2019s banking system helped drive stunning post-war growth, its credit-fueled real-estate boom in the 1980s and subsequent bust led to 25 years of slow growth and creeping deflation. The global financial crisis of 2008 and subsequent post-crisis malaise replicated the Japanese experience in many other countries.<\/p>\n

As economies get richer, they become more real-estate intensive. That is partly because people devote a rising share of their income to competing for property in more attractive locations, and partly because in service-intensive economies, high-value-added activities and talent cluster in dominant cities.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Western Mistakes, Remade in China SHANGHAI \u2013 The Chinese economy faces an enormously challenging transition. To achieve its goal of joining the world\u2019s high-income countries, the government has rightly urged a \u201cdecisive role for the market.\u201d But, while market competition works well in many sectors, banking is different. Indeed, over the last seven years, China\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[10516,9014,63,89,13315,111,130,175,195,240,312,353,8402,965],"class_list":["post-19590","post","type-post","status-publish","format-standard","hentry","category-economics","tag-adair-turner","tag-bank-credit","tag-banks","tag-boom-and-bust","tag-capital-allocation","tag-capitalism","tag-china","tag-credit","tag-debt","tag-economic-growth","tag-financial-crisis","tag-gdp","tag-project-syndicate","tag-west"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19590","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19590"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19590\/revisions"}],"predecessor-version":[{"id":19591,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19590\/revisions\/19591"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19590"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19590"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19590"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}