10
Sep

China’s impossible trinity

Written on September 10, 2015 by Waya Quiviger in Asia, Global Economy, News

Chinese bank notes

This weekend’s meeting of the G20 group of countries sounded a relatively optimistic note on the global economy, in sharp contrast to the recent price falls in world asset markets.

So who is right: the markets or the ministers? The swing factor between a continuing stable but uninspiring global recovery and relapse into a global downturn is China.

The big question is: how steep is China’s economic slowdown? Those looking for an answer have pointed to China’s surprise decision to devalue its currency in early August.

Does this suggest that policy-makers are panicking and trying to boost exports?

The fundamental problem that China faces is that its economy is deeply unbalanced – both internally and externally – at a time that it is also slowing.

Economists tend to look at an economy for internal balance (a state of affairs in which neither employment nor inflation is too high or too low) and external balance (a situation in which a country’s current account (its borrowing or lending to the rest of the world) is neither too high nor too low.

China is currently struggling to achieve both kinds of balance.

Chinese policy-makers have a tricky task ahead but not unmanageable one.

It’s a challenge that could be made much easier by some global policy co-ordination and co-operation. Read more…

Published on Sept. 8th in http://www.bbc.com/

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