Since 2008, the Chinese government has attempted to reduce export dependency, but it is using the wrong tool. It believes that China exports too much, when in fact it is because Chinese household income is too low. It put in place policies that inflated real estate prices, often in regions such as Guangdong, which are China s export engines. The rising real estate value has crowded out Chinese exports while doing little to boost Chinese income. The ensuing massive investment boom is no different from an export-driven strategy, except that there is a time delay. Between 2008 and 2015, the Chinese trade surplus did shrink, but so did the GDP growth rate. The devaluation earlier this month is a final acknowledgment that China has to choose between restructuring and growth, but it cannot have both.
To get out of this bind requires more economic and political reforms and less stimulus measures. The most dangerous aspect of China s growth model is its addiction to debt and to the idea that gimmicks, such as inflating asset bubbles, are real policy solutions. The most meaningful reforms call for a less intrusive and a more accountable state and a government that earns its legitimacy not by impressive GDP statistics but by the public services it provides.
It seems to me the China story is about central planning and how it just doesn't work. I'm not seeing much of that in the MSM.