![]() ![]() ahead of the Lehman shock in 2008, Greece and other countries ahead of the European sovereign debt crisis, which took on a lot of debt – not as much debt as China, but a lot of debt – and they had a financial crisis. But we do find a bunch of economies like Korea in 1997, the U. And when we look around the world, we can’t actually find any other economies which have taken on so much debt in such a short period of time. By the time you get to 2015, it’s gone all the way up to 250% of GDP. In 2008 extending borrowing was up by 140% of GDP. And so from 2008 on, we had just an astonishingly rapid buildup of debt in the financial system. A fter the great financial crisis, exporting wasn’t really working anymore, s o the model switched from turning saving into exports to turning saving into investment. A nd that’s what they did very successfully in the 1990s and even more after they entered the World Trade Organization in 2001. Or, they can lend it to themselves, and then it comes back in the form of investment. They can lend it overseas a nd then it comes back to the Chinese economy in the form of export demand. And to turn that saving into demand, there’s two possibilities. China saves a very, very high proportion of its national income. Orlik : So the original sin of China’s economy and China’s unbalanced growth model is an extremely high savings rate. S o, how would you summarize the basic story of your book? Why do they need this rapid credit growth? Who’s doing the borrowing? Who’s doing the lending? A key point of it is that China has relied a lot on the build-up of debt, that is rapid growth of credit in order to fuel growth. Other topics are completely taboo a nd I’m certainly not defending Chinese authoritarianism, b ut nice point about a lot of freedom – freedom may be too generous a word – but a lot of space for policy debate. A lot of the issues you take up about the financial sector and debt and the growth model, you know, these things are actively debated. M y experience in China as well was that there really was a lot of room for debate on certain topics. But if we focus narrowly on the economics, the impression I came away with from discussions with policymakers, discussions on the ground, was that sense that people were motivated and did have an incentive to think outside the box.ĭollar : That’s a really nice point, Tom, about policy space. Clearly there are a huge number of problems with the social system. It just strikes me as a kind of very energetic and ingenious institution.Ĭ learly there’s a huge number of problems in China. F rom the reform of the interest rate system, to the reform of the exchange rate system, to the steps which they’ve taken to begin de-risking the financial system. So, if we just think about the central bank, the People’s Bank of China, I think one of the things which strikes me about the People’s Bank of China over the last fifteen years is just how much policy innovation there has been there. I t’s certainly true that the political system and the state ownership in the economy have a depressing impact, b ut my overwhelming impression from meeting with Chinese policymakers, Chinese workers, and Chinese entrepreneurs was a sense of dynamism, forward-looking optimism, and ingenuity. And I think that’s sort of an important underpinning of the China collapse pessimism or China collapse theories that implicitly inform U.S. Right? There’s just been a kind of nationwide suppression of incentives to perform – something like we saw in the Soviet Union in the 1970s and 1980s. Orlik : So, I think one of the prevailing narratives about China that we hear in the West is that because of the single – party state and because of the large presence of the state in the economy, the p olicy space and the market space is both kind of sclerotic. What are some of the things you saw that help us understand how China ha s been successful and dynamic? And you’ve seen both the best and the worst of China. I think 10 years, if I remember correctly. Thanks for having me on.ĭollar : So, you lived in Beijing for a long time. ” Today, my guest is Tom Orlik, chief economist of Bloomberg Economics and the author of the new book, “ China: The Bubble that Never Pops. Dollar : Hi, I’m David Dollar, host of the Brookings trade podcast “ Dollars and Sense. ![]()
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