China’s End of Exuberance
— July 23, 2013
By A. Michael Spence
But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe. And the Chinese authorities are now scaling back the other major driver of their country’s growth, public-sector investment, as low-return projects seem to generate aggregate demand but prove unsustainable fairly quickly.
The government is using a variety of instruments, including financial-sector credit discipline, to rein in investment demand. Essentially, the government guarantee associated with financing public-sector investment is being withdrawn – as it should be.
Read full article as published in Project Syndicate
A. Michael Spence is the William R. Berkley Professor in Economics & Business.