国民收入核算: Short Observations

Due to a busy schedule, this blog post will contain various short points as opposed to the longer essay style posts I favor.

1.) Is the Chinese economy showing signs of consumption growth and an overall rebalancing away from investment?

No.

china-current-account

china-current-account-to-gdp

 

We know China is not rebalancing because China’s current account surplus is rising- see the two graphs above. The current account surplus is the difference between savings and investment; the resulting excess must be exported. China’s current account surplus declined around 2009 due to government led investment to fight off weakening foreign demand (Europe and America). Why is it rising now? China is over invested, so  debt burdens are forcing down the investment rate. The savings rate is forced up by repressing household income- effectively retarding consumption growth.  Savings is remaining high while investment levels are falling due to debt.  Perhaps the Chinese economy is in the process of rebalancing, but the current balance between savings and investment is not sustainable. Michael Pettis, in his book Avoiding the Fall writes:

China’s high trade surplus, in other words, is simply a residual that is necessary

to keep investment-driven growth manageable under conditions of repressed

domestic consumption.

 

2.) A real problem here is that the world is increasingly unhappy to absorb this surplus. Trade has already become a popular topic for the American election. I think trade is here to stay as a hot topic. To put it politely, I am anticipating more trade confrontations this year. Niall Ferguson provides excellent context for why trade is so suddenly important.

Bottom line here: China shouldn’t be happy with it’s current account surplus, and Americans are increasingly unhappy with China’s current account surplus. Confrontation looms.

3.) I hope this blog can stay closely related to economics and finance. However after talking to my father about world happenings, I recalled this article.  Two years later everything sounds so incredibly different. I wish I had something witty or interesting to say about the Brazil situation, but I am at a loss.  The world is watching you Brazil.

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