Few buzz phrases scare economists more than “new paradigm.” If such things existed, Japan would still dominate the world economy, risk would have been eliminated from Wall Street, and the euro would have spread boundless prosperity from Berlin to Athens.
So why do so many market observers continue to insist that basic principles of growth and stability don’t apply to China? News that exports fell 3.3 percent year on year in January, while imports fell 19.9 percent — the most in more than five years — don’t seem to have fazed many analysts. Bloomberg China economist Tom Orlik points out that the numbers may have been skewed by pre-Lunar New Year buying last year and a crackdown on mis-invoicing of exports to Hong Kong. More broadly, though, optimists are simply convinced that President Xi Jinping will soon introduce more stimulus measures to keep growth ticking above 7 percent.
The idea that China can borrow indefinitely in order to prop up growth simply doesn’t wash. In a new report on the world’s growing debt glut, McKinsey highlights three huge risks: unsustainably high government borrowing, households in over their heads and China. The mainland earns its singular position because of another trio of concerns: too much debt concentrated in real estate; the scale and complexity of its shadow-banking entities; and rampant off-balance sheet borrowing by local governments.
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