1. Run of the Red Queen: Government, Innovation, Globalization, and Economic Growth in China, by Dan Breznitz and Michael Murphree. This book argues that China is not on the verge of making major product innovations, but is coming up with a healthy stream of product-cheapening process innovations. Here is a good interview with one of the authors. Reading it is not always a thrill, but it is full of substance and an important book. It provides lots of evidence — from novel corners — for the “China as more decentralized than we think” view.
2. Tom Orlik, Understanding China’s Economic Indicators: Translating the Data into Investment Opportunities. A very useful book, the title is much more accurate than the last three words of the subtitle. I wish the book had more on believability, however.
3. Aaron L. Friedberg, A Contest for Supremacy: China, America, and the Struggle for Mastery in Asia. I have yet to read this one.
Here are some interesting estimates:
Data from UBS show China’s bank-sector credit—a measure that includes bank loans and holdings of bonds—as a share of gross domestic product rising from 121% in 2008 to close to 150% in 2010. Taking account of banks’ off-balance-sheet lending, the number is even higher, closer to 180%, and the rate of increase in the last year sharper.
Such a rapid expansion in credit is risky. UBS points out that a 35 to 40 percentage-point increase in the credit-to-GDP ratio of other economies over a five-year period has often coincided with the arrival of a crisis. In China, fault lines in loans to the property sector and local governments are already starting to emerge.
As important, China is getting less growth bang for its credit buck than it used to. From 2003 to 2008, total social finance—a Chinese government measure that includes on- and off-balance-sheet lending by the banks as well as bond and equity issuance—expanded on average by 18% a year, supporting growth in nominal GDP of 17% a year. In 2009 and 2010, finance exploded 33% a year on average, but GDP growth slowed to 12%.