At Telegraph Ambrose Evans-Pritchard suggests that China has entered a “liquidity trap”:
China is at mounting risk of a Japanese-style “liquidity trap” as monetary policy loses traction and the economy approaches credit exhaustion, forcing a shift towards Keynesian fiscal stimulus.
Officials at the Chinese People’s Bank (PBOC) have begun to call for a fundamental change in strategy, warning that interest rate cuts have become an increasingly blunt tool.
They cannot easily stop companies hoarding cash or halt the slide in private investment.
Sheng Songcheng, the PBOC’s head of analysis, set off a storm last month by warning that the economy had “started to show some signs of being caught in a liquidity trapâ€.
He has since stepped up his pleas for action by the fiscal authorities to relieve the burden on the central bank, a Chinese variant of the parallel drama that is being played out in Europe and Japan.
Frankly, I doubt that conventional Keynesian pump-priming will do much more than build more empty cities or factories that make products with no one to buy them and that highlights China’s basic problem. China has tremendously more productive capacity not only than it needs but than the world needs, the result of massive government subsidization over decades. Bad decisions made over the period of thirty years have resulted in an enormous amount of deadweight loss. China’s problems are likely to persist unless and until they can start dealing with that deadweight loss.
If the authorities want to spur China’s economy, they should start giving money to the Chinese people rather than to the still mostly state-owned Chinese businesses. There’s a reason they haven’t done that. They can’t control the outcome.
The China glut has become an issue in our business. Do you know, or have a citation, of the size measured perhaps in years at, say, 5% growth? 2 yrs? 4, 8 etc. somewhere in my memory I thought I had seen reference to a burn off of capacity and stocks of inventory in the 5-10 year range.
Thanks