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China's troubles: Mimicking America

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Sunday, July 21, 2013, 9:00 p.m.
 

Trouble for China's economy — growth slowing dramatically, government debt mounting, real estate showing signs of a “bubble,” weak financial-sector controls enabling risky lending — means trouble for the global economy. And it shows that even in a nation ruled by central-planning Communists, short-term “stimulus” is no recipe for long-term prosperity.

Flagging those warning signs in its latest annual report on China's economy is the International Monetary Fund. It says the “mix of investment, credit and fiscal stimulus” China has relied on since the global financial crisis “is not sustainable and is raising vulnerabilities,” according to The New York Times.

China's annual economic growth peaked at more than 14 percent in 2007, pre-crisis. Today, it's about 7.5 percent — and the IMF says that without big, systemic changes soon, China might not be able to sustain even that level of growth.

With its currency and labor-cost advantages less than they used to be, weakening exports, Beijing knows that China needs more domestic consumption for better economic balance. Yet its infrastructure spending — “stimulus” — continues to grow as a share of China's economy.

In some ways mirroring the U.S. experience during and since the global crisis, China's situation shows that basic economics applies regardless of ideology. Unchecked, reckless lending inflates “bubbles” that burst disastrously and “stimulus” provides only temporary, illusory “growth” — whether it's Beijing or Washington at the controls.

 

 
 


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