[gitah]

When you have a hammer everything looks like a nail. My problem with these kind of analysis is that it pretty much only looks at things from a financial perspective thinking it's the be-all-end all.

However, on first level principles, money is simply an abstraction; it's a medium for trading your services for other people's services. And if you become more efficient, you can buy more services with the same amount of effort and vice versa. The root cause of this increase in efficiency is technology.

As a developing country, China has lots of easy productivity growth just by adopting current technologies on the technological frontier. Therefore, I think an analysis on how fast China is advancing in various technological areas and their industrial policy would be much more useful than one just at a financial level. Are Chinese companies as a whole becoming more productive and creating new technology?

[spangry]

As a developing country, China has lots of easy productivity growth just by adopting current technologies on the technological frontier.

High rates of growth in developing countries, with the rate slowing as they 'catch-up' to more developed countries, is also what the bog-standard macro-growth model (Solow-Swan) predicts.[0] To simplify, developing countries will have lots of labour inputs and relatively few capital inputs. Therefore the marginal factor productivity of each capital input will be high. Eventually, as the economy reaches capital saturation, the marginal productivity of capital will decline and the economy will settle into a low 'steady-state' growth level, where real growth is largely the product of technological advances.

This is why I've always been puzzled by economic commentators who assume China will continue to enjoy 7-9% GDP growth rates forever. Although I'm not suggesting that there's "nothing to see here" in this particular case. China does indeed have a bubble (and massive oversupply) in its residential property market, mostly due to the stimulus deployed just after the GFC. It could make one hell of a pop.

[0] https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model#Condi...

[valarauca1]

Solow-Swan model is based on neoclassical economics that assumes a closed market with zero technological growth. In the event of technological growth it assumes a steady state is still reached. And I quote, "Due to Common Sense." [1] How TF do you consider this a valid scientific theory?

This is a theory based on NeoClassical economics which modern Behavior Economics finds that the models of NeoClassical economics fail in nearly every situation [2].

The Solow-Swan model has no rigor, predictions, or testable results to justifying its usage nor faith in its system. Science is a quantitative game, yet economics isn't?

[1] https://academic.oup.com/qje/article-abstract/70/1/65/190377...

[2] http://www.slembeck.ch/pdf/learning.pdf

[leoc]

> However, on first level principles, money is simply an abstraction; it's a medium for trading your services for other people's services. And if you become more efficient, you can buy more services with the same amount of effort and vice versa. The root cause of this increase in efficiency is technology.

Pettis does discuss this at length.

[gitah]

Can you elaborate?

From the article, Pettis assumes the following is true:

  1) China has overinvested in infrastructure and manufacturing capacity to such an extent 
  that in the aggregate the cost of additional 
  public sector investment exceeds the present 
  value of future increases in productivity generated by 
  the investment

and

  2) China's long-term sustainable growth rate is substantially below the economy's current GDP growth target

Why does he make these assumptions without also analyzing the technology improvement aspect? I don't see anything about that in this article.

[paradite]

Similarly, if you use Western standards to measure economic metrics of China, everything looks weird.

China is still pretty much a planned economy, where the government is in control of major state-owned corporations. I wouldn't worry too much about the debts that they owe to the state.

[hackuser]

> I wouldn't worry too much about the debts that they owe to the state.

Why not? The state can forgive the debt, but when those resources disappear from the economy then many people will lose out.

[nickgrosvenor]

Lots of Charlie Munger type language in this comment.