Martin Wolf on the three challenges China faces
The FT's Martin Wolf takes a big picture look at China today
- How to transform pattern growth to consumption from manufacturing
- How to manage the inevitable slowdown
- How to manage it's place in the world economy
The topics sound overly broad but he breaks it down into the particular challenges, including spurring innovation and reducing pollution. He focuses on how China invests an impossibly-high 45% of GDP as debt explodes.
"Sustaining aggregate demand as investment growth weakens will be very challenging," he writes.
At the moment, there are signs China wants to restart property and commercial lending. It was the blueprint for the past 10 years but the dangers are rising.
In the global picture, Wolf makes an interesting point on the yuan and reserves. It's a hint to watch Chinese reserves closely in a sign of how they're managing the downward pressure on the currency.
"The tendency for an outflow of surplus funds [is] to weaken the exchange rate and so increase exports and the current account surplus. Beijing seems prepared to let foreign currency reserves run down rather then tighten outflow controls sharply or let the exchange rate fall. How these pressures are resolved will have global significance."
