Is China poised for an economic slowdown? A new paper suggests it is.
Several analysts have been arguing that China has, if not feet of clay, been overvalued. Via Ryan Avent, a new paper on China's economic growth makes the case that China is due for an economic slowdown. Avent analyzes:
The story this suggests is one that's quite at odds with the prevailing view in much of the worldâ??that China's relentless growth will continue until it dominates the global economy. Another possibility arises. Within a few years, we may be reading "What's the matter with China?" stories. A growth slowdown and demographic difficulties will challenge the policy status quo and could potentially expose serious weaknesses in the growth model (as Warren Buffet says, when the tide goes out, one sees who's been swimming naked). India, on the other hand, will be ascendent.
UPDATE: Avent isn't alone. None other than Doctor Doom himself thinks China's headed for a crash:
Iâ??m writing on the heels of two trips to Chinaâ?¦.My meetings deepened my own impression and RGEâ??s long-standing house view of a potentially destabilizing contradiction between short- and medium-term economic performance: The economy is overheating here and now, but Iâ??m convinced that in the medium term Chinaâ??s overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossibleâ??most likely after 2013â??China is poised for a sharp slowdown. Continuing down the investment-led growth path will exacerbate the visible glut of capacity in manufacturing, real estate and infrastructure. I think this dichotomy between the high-growth/inflation pressures of the next couple of years and growth hitting a brick wall in the second half of the quinquennium is far more important than the current focus on a â??soft landingâ? amid double-digit growth.
(AP Photo)
