China’s central bank must manage an economy structured in many ways quite differently from that of other major regions, such as Japan or the European Union. But the PBoC faces the same question of how effective monetary policy can be today. That has significant implications for the central bank’s signalling, which appeared to take a neutral stance on Monday.
India isn’t keeping the best company. When Reserve Bank of India officials reviewed the global economy at February’s meeting, they ticked off a list of major emerging markets that had struggled: China, Russia, Brazil and South Africa all got a must-do-better grade. Disappointing numbers released Thursday mean policy makers can add one closer to home: India itself.
Whether Bitcoin’s value goes up or Bitcoin’s value goes down, people around the world are asking the same question: What exactly is the potential of crypto-assets? The technology behind these assets—including blockchain—is an exciting advancement that could help revolutionize fields beyond finance. It could, for example, power financial inclusion by providing new, low-cost payment methods to those who lack bank accounts and in the process empower millions in low-income countries. The possible benefits have even led some central banks to consider the idea of issuing central bank digital currencies. Before we get there, however, we should take a step back and understand the peril that comes along with the promise.
It’s a bomb! A mountain! A horror movie and a treadmill to hell! To doomsayers, China’s $25 trillion pile of public and private debt is a threat to the global economy. Or maybe it’s just a manageable byproduct of the boom that created the world’s second-biggest economy.
An oft-overlooked aspect of Pakistan’s debt situation is the political economy. There is an inherent asymmetry between the ‘benefits’ derived from new debt undertaken, and the burden of its repayment. There are two facets worth considering. First, those segments who tend to ‘benefit’ from the debt contracted (the elite) are usually different from those who bear the incidence of the debt burden (the less affluent).
China’s growth has slowed largely as a result of changes in its fundamentals: less favorable demographics, a shift in emphasis from exports and public investment to the service sector and domestic consumption, and lower demand from advanced economies. But China’s past success also contributed to this slowdown, in the form of higher wages, which narrow the scope for rapid growth based on low-cost labor and technological catch-up.
The current China conundrum lies in both economic and political dimensions, although much of the alarm about China’s economic downturn appears to be misplaced or overstated. China’s economic fundamentals essentially are solid. Multiple indicators point to a growth slowdown that remains broadly in line with the leadership’s game plan, and the authorities can draw upon enormous financial resources and economic resilience. Particularly if planned reforms go forward, the Chinese economy should be able to continue functioning as a reliable driver of global economic growth.
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During the last U.S. presidential election, an editorial in a Chinese state-run newspaper declared that if Washington insisted on flouting Chinese interests (by selling arms to Taiwan, for example), Beijing should “use its financial weapon to teach the U.S. a lesson.” Three years later, America owes even more to China than the $1.16 trillion it owed then. But the increase in debt holdings hasn’t translated to an increase in leverage; quite the opposite, writes William Pesak.
Since the dawn of capitalism, closed societies with repressive governments have — much like China — been capable of remarkable growth and innovation. Sixteenth-century Spain was a great imperial power, with a massive navy and extensive industry such as shipbuilding and mining. One could say the same thing about Louis XIV’s France during the 17th century, which also had vast wealth, burgeoning industry and a sprawling empire. But both countries were also secretive, absolute monarchies, and they found themselves thrust into competition with the freer countries Holland and Great Britain.
What does China’s leadership lose politically as a result of the country’s precipitous stock market decline? A bit of international swagger, but probably not much else – for now.
