The Train Wreck
Nice graphics, scary economics.
Fears of a slowdown | Economist.com
Unfortunately, the Chinese government has few tools at its disposal to manage the pace of growth. Its attempts to tighten monetary policy have been feeble, hampered by its policy of keeping the yuan artificially cheap. Though the government has tried to “sterilise” its foreign currency operations by issuing more government securities to mop up the resulting excess yuan, its efforts are constrained by the shaky banking system.
China has tried to bolster its weak macroeconomic controls with microeconomic interventions, placing administrative restrictions on investment in specific industries it considers to be growing too fast. China’s economy may now be too big for such policies to do much good but the government is fearful of choking off export-led growth when so many Chinese are desperate for jobs. And the relatively primitive state of China’s financial system makes it hard to fine-tune either micro or macroeconomic policies—particularly since so much investment is driven by political considerations at all levels of government.
