China’s Real Economic Crisis

But the purpose of investment today is to serve consumption tomorrow, and without a revival of consumption, the current surge in investment must itself be reversed. This suggests that overall growth in private-sector demand over the next few years is likely to be minimal.

This can be seen in how conservatives keep on stressing the importance of “ownership” as the best safety net for households[97], the inflating bubble of student loans, or the excessive reliance on consumption driven by credit card debt. With the financial system as the only mechanism for sustaining production and consumption, today’s problem is les

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