Stock market volatility and currency devaluation have caused the international community to take note of the state of the Chinese economy. AEI scholars weigh in on the recent run on the Chinese stock market, its causes and its implications for the US and global economy.
AEI economist Derek Scissors has been researching China’s economic policy for more than two decades:
Beijing took a monetary policy step Tuesday, loosening interest rates and required reserve ratios and allowing banks to freely set (in principle) one-year deposit yields. When stocks calm, this liberalization will be hailed as important. It isn’t. Chinese interest rates can’t be free or anywhere close to it while state banks remain predominant… Over 90% of national banking assets are state-owned in one form or another… Chinese state banks are actually in a worse position than other state-owned enterprises… The key is not “liberalization” of interest rates, but privatization of institutions.
Read Scissors’ full piece here, “Chinese interest rates: bank ownership matters.”
Former Deputy Director, Policy Development & Review, IMF Desmond Lachman:
A major problem for the global economic outlook is that the bursting of the Chinese credit market bubble is all too likely to highly damage a number of other major emerging market economies like Brazil, Turkey and Russia, which until now have also been important sources of global economic growth. It will do so in part by depressing global commodity prices and by reducing export growth prospects for the many countries with which it trades. Equally importantly, it will do so by contributing to a steep decline in those countries’ currencies, which will in turn increase the burden of those countries’ externally denominated debt.
Read Lachman’s full piece here, “China’s economic woes may spread beyond its borders.”
Chinese economy expert Weifeng Zhong:
The recent slowdown in China’s economy and the plunge in its stock market has sparked a massive round of government interventions such as share buyback and currency devaluation, which has compromised economic freedom in China. The Chinese people have demanded more political freedom as they become wealthier, and the government’s response has been to reduce public unrest by directly intervening in the economy. While the Chinese government has bought into the belief that government is better than markets at setting prices, its interventions will be counterproductive, and its growth model unsustainable. Instead of piecemeal attempts to pacify its citizens, the Chinese government should let the Chinese people enjoy genuine political freedom.
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Quick Links:
China’s troubling lurch back to socialism
In face of crisis, policy makers should plan, not panic
China Global Investment Tracker
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