China Increasingly Relies on Nonproductive Investment for Growth – MishTalk


China’s reliance on nonproductive debt for growth has been obvious for years. But let’s go over why that is so.

Embedded in the Way China Works

Erosion of Role of Bankruptcy Is Critical for Growth

This happens in the US too, but not the same degree or in the same ways.

For example, the Fed recently papered over US treasury note losses of banks by swapping them for dollars at par. But the Fed has not lifted a finger on commercial real estate losses.

The amusing thing is how many people believe the yuan or a BRICS-based currency (call it a BRICK) will replace the dollar as the world’s reserve currency when it meets zero conditions necessary.

What Would it Take for the “Brick” to Succeed?

  1. The Brick would need to float freely. The yuan doesn’t.
  2. A functioning Brick-based bond market.
  3. A significant desire by individuals to trade in Bricks and accept Bricks rather than local currencies or the dollar.
  4. Willingness of China to stop export mercantilism.
  5. Trust

China meets none of the conditions. For discussion, please see What Would it Take for a BRIC-Based Currency to Succeed?

Meanwhile, China has an imploding property bubble, capital controls. a yuan that does not float, and is overly dependent on insolvent and corrupt State Owned Enterprises (SOEs) for growth. And China’s demographics are horrible.

Instead of supporting consumption, it has again turned to exports for growth. That strategy is not good for either China or the US. But here we are.





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