Some positive news about the Chinese economy

Here’s the story: China likely to drag the world into global recession, Citigroup says. Here’s how it begins:

China is sliding into recession and the leadership will not respond quickly enough with large-scale fiscal policies that could avoid a major slowdown and stimulate demand, Citigroup’s top economist Willem Buiter said.

The only thing to stop a Chinese recession, which the former external member of the Bank of England defines as 4 per cent growth on “the mendacious official data” for a year, is a consumption-oriented fiscal stimulus program funded by central government and monetised by the People’s Bank of China, Buiter said.

“Despite the economy crying out for it, the Chinese leadership is not ready for this,” said Buiter, the man who coined the term “Grexit” during the Greek debt crisis.

So what is positive about that, you might ask. If it is a deliberate decision not to reflate but to go through the adjustment that is obviously required, there will be about a year of mess, possibly not even that, and growth will resume on a stronger basis. It will also be a sign that the Chinese leadership understand how useless Keynesian economic theory is and are now biting the bullet and will endure the pain of the next twelve months. This is all speculation from both Mr Buiter and myself, but it will be interesting to see how things do unfold. If there really is a recession and no stimulus and the Chinese economy comes out of it in 2016-17 stronger than ever, we will be re-writing our textbooks without any doubt.