Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number accepted.
Today we focus on economic growth and related issues in China.
Is 7 per cent China's new normal? (Peter Cai, China Spectator) Peter Cai says yes. In GEI Analysis Michael Pettis says no - the new normal will be closer to 3%. See here and here. According to Peter Cai half of China's companies will be in the red if GDP growth goes under 7%. Would 3% growth create a Chinese depression?
Can China walk the reform talk? (Geoff Raby, China Specatator) Raby doesn't think it will be a walk in the park but he sees China "settled into a high, but sustainable growth path".
"China's centrally planned jig is up. It can take the pain now and get on with rebalancing or it can delay again and make the ultimate reckoning a debt crisis. In a Western democracy one could be confident that the latter course of poor policy would be pursued. In a communist state, with the power to carry better policy in the national interest, the cost/benefit analysis may have shifted towards early action."
China Banks Get Greater Freedom on Small Loans (Grace Zhu, Shen Hong and Wynne Wang, The Wall Street Journal) China has been struggling with high and fluctuating short-term interest rates as liquidity concerns keep coming back to the forefront. The sustainability of debt is the issue. The government has now taken action to make writedowns of non-performing debt easier:
"China is moving ahead with reforms to overhaul its financial system by helping banks clean up their balance sheets and launching a trial program to give smaller lenders easier access to cash."
"QE, which is directly responsible for the $2.4 trillion in excess reserves, was not helpful (and possibly harmful) to credit growth in the US."
See the next article for a particularly lucid explanation of Sober Look's observations.
Banks Don't Lend Out Reserves (Frances Coppola, Forbes) Frances Coppola has contributed to Global Economic Intersection. This is an especially straightforward explanation of the significance of Sober Look's graphics in the preceding article. The most important statement comes more than half way through the article:
Loans + excess reserves = deposits
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