China’s Real Economic Crisis

China’s leaders know this very well, of course, which is why they are unleashing a massive and unprecedented amount of industrial policy spending — in the form of cheap bank loans, tax credits, and direct subsidies — to raise production in militarily useful manufacturing industries like autos, batteries, electronics, chemicals, ships, aircraft, dro

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Exporting your way out of a recession is fine and good — it’s basically how Germany and South Korea shrugged off the Great Recession in the early 2010s.3 But China’s export boom is heavily subsidized, both with explicit government subsidies, and — more importantly — with ultra-cheap abundant bank loans. Subsidies are distortionary — they mean that ... See more