They were too stubborn with zero covid policies, that led to this deflationary situation. Now that they have reopen, they are too stubborn again by not printing enough money to stimulate the economy. It was because probably they were hesitant of approving more effective local mRNA vaccines, that led to prolonging zero covid policies.
Chinese Economics Thread
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They were too stubborn with zero covid policies, that led to this deflationary situation. Now that they have reopen, they are too stubborn again by not printing enough money to stimulate the economy. It was because probably they were hesitant of approving more effective local mRNA vaccines, that led to prolonging zero covid policies.
Give it a rest. The argument that a reopening would supercharge the economy has proven to be false. mRNA has proven to be useless as there is little and no difference for countries that vaccinated with mRNA and those vaccinated with other types of vaccines. The biggest drag to the Chinese economy is property prices which the Chinese government has been trying to tame for many years.
Due to the fact that printing more money would do little to the real economy as we have witnessed what has happened to the US. I would argue that a moderate and loose approach is far better than helicopter approach. More importantly, any excess money can't be redirect to the housing market except keeping the housing sector afloat.
Japan before the "lost decades" and China of today really can't compare. For one, Japan didn't grow 5-6% a year but around 1%.
Japan before that prolonged stagnation reached its maximum human and economic developmental potential.
They spread high education to the entirety of their population and achieved maximum technological innovation by that time.
What I'm trying to say is that they reached the maximum potential for their entire population overall, that's why they stagnated.
They didn't stagnate because of deflation, you can have both deflation and high growth rates, it is not correlated, but they stagnated because they simply reached their maximum as a country.
Then they tried to do perma low-interest rates, and money printing to stimulate some growth but that also stopped working over time.
Despite there being similarities in terms of sharp declining birth rates and an aging population (that won't take effect for at least another 10 years for China today based on the time when it started happening), China currently is still nowhere near reaching its full potential.
There are hundreds of millions of people more to urbanize, give better education, technological innovations are not stopping, etc...
In my opinion, China has around two more decades before it also reaches its maximum economic potential as a country like Japan.
China clearly broke past the so-called "middle-income trap", and defeated it with its amazing innovation and high tech, and it is still far behind the "developmental trap" stage of Japan back in the 90s. I think that China can at least double its current GDP before stopping.
Japan before that prolonged stagnation reached its maximum human and economic developmental potential.
They spread high education to the entirety of their population and achieved maximum technological innovation by that time.
What I'm trying to say is that they reached the maximum potential for their entire population overall, that's why they stagnated.
They didn't stagnate because of deflation, you can have both deflation and high growth rates, it is not correlated, but they stagnated because they simply reached their maximum as a country.
Then they tried to do perma low-interest rates, and money printing to stimulate some growth but that also stopped working over time.
Despite there being similarities in terms of sharp declining birth rates and an aging population (that won't take effect for at least another 10 years for China today based on the time when it started happening), China currently is still nowhere near reaching its full potential.
There are hundreds of millions of people more to urbanize, give better education, technological innovations are not stopping, etc...
In my opinion, China has around two more decades before it also reaches its maximum economic potential as a country like Japan.
China clearly broke past the so-called "middle-income trap", and defeated it with its amazing innovation and high tech, and it is still far behind the "developmental trap" stage of Japan back in the 90s. I think that China can at least double its current GDP before stopping.
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The Chinese vaccine on paper may not have been as effective as Pfizer and Moderna's, but it was at the very least on par with J&J and Astrazeneca, plus when they did reopen almost all the deaths were non-vaccinated rather than those who were vaccinated. I agree that keeping zero-COVID was a mistake, but it was hardly something motivated by the government's knowledge of the vaccine's supposed inefficiency.
Not to mention I don't know how printing money is meant to spur economic growth, since in the US that only created more problems.
The recovery was never going to be instantaneous since zero COVID and the economic crackdown left bigger scars that a simple reopening was never going to fix. In that respect now that the government has reversed those policies, the only hope is that with an inflation being tamed in the US leading to lower interest rates and better domestic conditions the recovery can gain more momentum.
This makes a lot of sense. But, I don't this is the only reason.
People are maybe still fearful to spend due to still being under the impression of a zero covid period.
It's maybe cultural, the Chinese are not big dumb spenders, without a second thought, like people from the West.
Anyways, curious to learn what the central bank will do to mitigate this.
It has plenty of tools under its arsenal, I don't think deflation will win.
China actually needs massive printing of money for a year, just for restoring consumer confidence, and restarting the service economy. The US economy is structurally different from China. The US was near bankrupt even before covid. With the massive printing during covid, it resulted in over spending, the current inflation situation and an even higher debt ceiling was needed.
The issue is you have no control over what excess money supply would go and do to the economy. In 2008, China did a massive stimulus that resulted in a massive increase in housing prices. In 2016, after massive outflow of money due to a slow down in housing prices, China again resorted to massive stimulus which again resulted in a massive increase in housing prices.
China can't afford to do another stimulus that could again resulting in another increase in housing prices. That's why China is approaching this slowdown in more targeted and less aggressive manner. Free money is never free. Excess money supply and ultra low interest rate could stimulate the economy but you would eventually need to pay a price which the US did with multiple years of high inflation and unafforadable housing which resulted in homeless crisis even for those are not mentally ill or drug addicted.
Here's the narrative about Plaza Accord that I've seen from various sources: USD strength was hurting American competitiveness. US forced Japan (and France, Germany, UK) to sign Plaza Accord, resulting for Japan in JPY strengthening against the USD. Japanese exports suffered. BOJ lowered interest rate. However, the resulting liquidity did not go to improving Japanese competitiveness, but went into real estate and stock market speculation. Japanese entities bought Rockerfeller building, Columbia Pictures and so on. Then inflation happened, and BOJ raised rates, popping the real estate and stock market bubbles. Japan has been in trouble since.
I've not seen write-ups on what Japan has done or could've done since the bubbles popped that could have made their situation better or worse.
Of coz US would like to destroy China's competitiveness, but China now isn't really in the same situation as Japan then.