Facts about the Chinese slowdown

Why then is China slowing so sharply? Simple, real estate investment
has hit a wall. After growing at 20% y/y for a long time, real estate
investment stalled – with a y/y growth rate of around 0% (Figure 5).
That means that China is in turn producing more steel and cement than
it needs, and producers of steel and cement are cutting back. That in
turns hurts iron ore exporters…

This though is very much a result of China’s own policy choices. Rather
than allowing the real exchange rate to appreciate back when China was
truly booming (05-late 07/ early 08), China’s policy makers opted to
rely on administrative curbs on credit growth. That left China more
exposed to global slump in demand – as it kept exports up by limiting
real appreciation even as it credit curbs limited the amount of froth
in the real estate market back when China was booming and real interest
rates were negative. China invested a lot in real estate, but it is no
Dubai. But China’s policy makers still look to have slammed the brakes
on a bit too hard. Rather than slowing gradually, real estate
investment fell off a cliff

That’s a Brad Setser summary of work from the World Bank.  Here is much more, very interesting throughout, although I doubt if there was a much smoother path than what was chosen.  It is also argued that the low price of oil means China will have no problem keeping up its purchases of U.S. Treasury securities.

Addendum: Yes comments are working again…


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