Top economist Kenneth Rogoff says China’s economic troubles are the result of a debt bubble that started in 2008 – and money used to prop up growth over the past decade is now hitting back.
A Harvard professor wrote an op-ed for Project Syndicate last week pointing to a “debt supercycle” that started in the US during the financial crisis, reached Europe in 2010, and now reaches the world’s less prosperous nations.
Beijing has a strong record of containing economic fires, but today’s China’s economic troubles crisis of slowing growth and high debt is unprecedented, he said.
Almost all of China’s current problems can be traced back to its massive post-2008 investment stimulus, which fueled the real-estate boom. Despite building housing and offices at breakneck speed for years, the bloated property sector – which accounts for 23% of GDP, including imports – is now yielding diminishing returns.
A good example of this is the recent collapse of China’s major property developers, such as Evergrande and Country Garden.
Despite China’s similar housing supply and infrastructure to other advanced economies, its per capita income remains low, Rogoff said, shaking confidence in the sector.
There may have been a longer debt supercycle than expected due to the pandemic, but it was still a critical piece of the story, and now, as China’s economy falters, it may be the best explanation for what might happen.
A number of experts are arguing that China’s economy is experiencing a secular stagnation, a period of slow economic growth akin to Japan’s in the 1990s. As a result, the nation faces a number of demographic and financial imbalances, including a shrinking workforce.
The nation officially slipped into deflation over the last quarter, as demand failed to revive itself following a so-far disappointing economic reopening.
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