Saturday, July 21, 2012

The Dark Side of China's Economy

Prashanth Perumal has emailed a link to what I consider an important analysis of the economy of China. The article, written by Dee Woo, seems to come very close to an Austrian Business Cycle Theory analysis about the Chinese economy. I would only point out that Woo says China's central bank, the People's Bank of China, can not print China out of the coming collapse, even though it is currently trying. I would argue that the PBOC could technically do so, but it would require money printing at a rate of 30% plus. This would result in massive price inflation in China and likely civil unrest. This is what is keeping the PBOC from all out money printing.

Aside from this technical point, Woo's piece is very important in understanding the problems of both past aggressive PBOC money printing and the central planning that still impacts large parts of the Chinese economy. The full must read article is here.

3 comments:

  1. The biggest eye opener to me is the corruption and insider enrichment that has gone on inside the ruling political party(rise of the 'Princelings'). The view I had prior was one of both party and people all pulling together to create an economic miracle, with the notion by the workers that they would benefit. Perhaps this is how it began (and hence in part the early-on white hot economy), but it sure has not wound up this way. Same as in America, Europe, and elsewhere, if anything will slow down the Chinese Miracle it will be the realization that the average citizen lives in a 'rigged-deck' country.

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  2. As someone trying to grasp the basics of economics, can someone help me out and explain to me - in simple terms - what "capital requirements" and "Tier 1 capital" are?

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    1. Not much to do with economics.

      http://en.wikipedia.org/wiki/Basel_III

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