Global Macro Analysis About China
In this article, first published on SeekingAlpha, I argued that Chinese production based economic model has reached a tipping point, where additional capacity would have a negative impact on their economy.
China May Have Triggered The Global Recession We Actually Need
Anyone remember the Asian Financial Crisis and why the Newly Industrialized Economies (NIEs) could not handle the crisis triggered by Thailand in the 1990s?
Just to refresh our memories, most of these Asian economies were experiencing “production based growth” or picking the low hanging fruits. Their economies scaled up to a point where adding further capacity negatively affected the output. This is similar to the concept of diseconomies of scale.
China has been pursuing a similar production based growth model. For years, we knew they have built cities after cities in order to meet the GDP target. Oh yes, unlike free market economies, where growth is organic, in the command economy hell of China, you can apparently “create” growth.The situation has reached a point where central planners wanted to build 50 Boston size cities by 2020. However, at this point, creating capacity in the economy is actually (finally) negatively affecting their economy as vital resources are pulled from where they are needed to build roads and buildings in places, where there is no demand.
You can read the full article here.