Andy Xie: Monetary easing won’t resolve China’s economic imbalance

Andy Xie, Chinese Economist, opines that monetary easing won’t resolve China’s economic imbalance. Quantitative easing only delays the inevitable: painful reform.

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…the stock market bubble is likely to burst this year. What then?

China’s economic tasks are: one, to deal with the consequences of the property bubble; and, two, to reach a sustainable balance between investment and consumption. The numerous micro problems that many analysts like to point out stem from these two macro challenges. When the macros are healthy, most micro problems will just go away. It is sad to see that the government loves to talk about micro problems and takes no action to deal with their macro origins.

China still has potential. The current per capita income, merely a fifth of the level of advanced economies’ and 20 per cent below the global average, is far less than Chinese workers can achieve. A good economic system could quickly bring China’s per capita income to half the OECD level. To get there, China must increase household consumption from one third to 60 per cent of GDP and reduce fixed asset investment from half to 30 per cent of GDP.

Playing with money, such as through quantitative easing, merely postpones the day of reckoning. Without structural reforms to boost investors’ willingness to pay for the future, the hidden non-performing loans will bring down the financial system. Being clever is just not enough. China must accept the pain that comes with real reforms.

Read the full article here…

Andy Xie

Dr Andy Xie 謝國忠Shanghai-based independent economist, has just been named “ 50 Most Influential Persons in Finance”by Bloomberg, and is currently director of Rosetta Stone Advisors.Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.

Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.

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