More on China, after reading position papers!

I've been writing and commenting on China a lot lately, yesterday I read tens of thousands of words from economists in think tanks about the state of the Chinese economy. Thoughts.

It seems quite clear that the country is in a balance-sheet recession. The households are using their liquidity to pay back loans instead of consuming. To trigger increase in consumption and regain the public confidence is essential right now but it's quite likely the government has seriously misread the situation and has interpreted the failure of government spending to boost the economy. The problem is at demand-side, they consider it a supply side problem and are attempting to fix it by expanding the rate of the government in the market. This will not only not improve the situation, waste funds due to mis allocating in over invested industries, it might also trigger further escape of capital and confidence because it'll look like the government isn't interested in problem solving.

There has to be a transfer from the government to the public, Maybe by sales of local government resources. That doesn't appear to be happening yet, instead the local governments are taking even more debt load. Observers have commented most of China's debt is held domestically, and considered it a strength. That might be, for normal countries, but a default by any institution internally will further depress consumer confidence. You don't want to spend if the life savings you lent to the government might get defaulted on. Either the central must bail everyone out by devaluing and inflating the yuan, an unlikely scenario due to inflation considerations among others, or it must force the periphery to cede resources-and power. my guess is the centre will strengthen its security apparatus tentacles, weaken local Structures, and lengthen the recession as long as possible. The party is over, the good times are done, the government must decide how long it can play the music until everyone notices there's no chairs to sit on.