Sunday, May 01, 2005

China's Economy: Crash or Slow Decline?

Stratfor has long been pessimistic about the future of the Chinese economy because of certain structural and political issues in China. Despite frequent criticism of our bearish view, China's economic problems are now becoming conventional wisdom, with the new debate over the style of the Chinese downturn rather than its potential existence. Even if the central government came up with a brilliant plan for a massive restructuring of the economy, it is unlikely to be implemented locally. Beijing has difficulty squeezing money out of the profitable coastal provinces to fund development in the inland provinces, where the urban-rural gap continues to grow and social unrest boils over much more regularly. When Beijing tried to slow lending in 2004, it was unsuccessful; local and regional banks and governments simply made up for the reduced money coming from the center. The unrestrained investment the IMF worries about is caused by local governments that are thinking and acting for themselves, and as their interests coincide more with foreign investors than neighboring provinces, Beijing's grip will continue to slip.


Post a Comment

<< Home