by VIJAY PRASHAD
The IMF cut China’s growth outlook from 8 per cent to 7.75 per cent for the coming year. These are still the strongest figures to be anticipated for any of the leading industrial countries so the leadership in Beijing is not immediately anxious. In Beijing last week the IMF’s David Lipton noted that this forecast cut came because the IMF believes that absent “continued liberalisation and reduced governmental involvement in the economy” and with a consequent “greater role for market forces,” a financial crisis might strike China.
Such words are simply formulaic. The real problem, Lipton conceded, is that China’s leadership had committed the country to far too much “social financing” – namely credit from the state-owned banking sector and commercial lenders – that rose by almost 60 per cent this year. This credit growth is largely in capital investment, although some of it is sloshing around China’s vaunted shadow banking sector. “Growth has become more dependent – perhaps too dependent – on the continued expansion of investment,” said Lipton.
The IMF warns that too much investment by Beijing in its own country will create unbalanced growth. A Goldman Sachs reports from last year, however, disagrees. Investment flow is important, says Goldman, but so too is a country’s capital stock, its residual assets – “On this metric, China still has a long way to go. Its capital stock/worker is only 6 per cent of Japan’s level and 16 per cent of Korea’s.” In other words, per capita investment in infrastructure is not at levels that are seen as normal in the Global North and in its East Asian satellites.
But perhaps the ink on the IMF reports suggest something other than what is on the page. In other IMF departments there is anxiety about the capital drought in the Global North – with intimations of terrible austerity for Europe on the near horizon. For example, Portugal’s official unemployment rate is 18 per cent, with a debt to GDP ratio of 124 per cent. The Chair of the Euro Zone finance ministers, Jeroen Dijsselbloem was in Lisbon recently where he said that if the Portuguese do not hold onto their targets of reducing their public deficit from 6.4 per cent last year to 5.5 per cent this year, and then to 4 per cent (2014) and 2.5 per cent (2015), the surplus holding countries of Europe will not be able to arrange any further bailout. Small protests in Portugal will certainly take on Greek-like proportions. The US Fed, meanwhile, has begun to cut back on its own buy back of Treasury bills. Who will buy the debt that has been accumulated in the Global North? If the Chinese are busy recycling their surplus inside China, which surplus holder will “balance” the “global” economy? That seems to be the proximate IMF worry.
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