Opinion

Anatole Kaletsky

The case against a Chinese financial crisis

Anatole Kaletsky
Feb 24, 2014 17:13 UTC

A severe slowdown in China is viewed as among the greatest risks facing the world economy this year, and Thursday’s dismal news on Chinese manufacturing output exacerbated these fears. But the really important news from Beijing pointed in the opposite direction: Bank lending in China, instead of slowing dramatically as many economists had expected, accelerated in January to its fastest growth in four years.

This means China is unlikely to act as a brake on the global economy in the months ahead — despite the recent weak manufacturing figures. It also suggests that predictions of a credit crunch or financial crisis in China will likely prove wrong — or at least premature.

To welcome stronger bank lending in China is not to deny that credit growing at double the gross domestic product growth is unsustainable and will ultimately have to be curbed. The Chinese authorities themselves clearly believe this. The government and the central bank want to reduce credit growth and to replace the unregulated, opaque “shadow lending” system with properly supervised, well-capitalized modern banks.

The government has two other economic objectives, however, that it sees as equally or more important.

The three priorities were clearly set out at the Communist Party Third Plenum last November. First, the Chinese economy must be restructured away from over-dependence on infrastructure investment and exports, toward private businesses that increase the quantity and quality of consumer goods and services.

Yellen looks toward a Keynesian approach

Anatole Kaletsky
Feb 13, 2014 19:18 UTC

This has been a banner week for the world economy, inspired largely by events in the United States.

In Washington, the first congressional testimony from Janet Yellen in her position as new Federal Reserve Board chairwoman reassured and impressed two notoriously petulant audiences: Tea Party congressmen, who had assembled a posse of hostile witnesses to attack the Fed’s “easy money” policies; and panicky Wall Street investors, who had spent the previous month swooning on fears that monetary policies might not be easy enough.

The significance of Yellen’s testimony lay not in the fact that she was a bit more “dovish” than former Chairman Ben Bernanke, or seemed more committed to the new central bankers’ fad for “forward guidance,” as opposed to “quantitative easing.” More striking, if subtle, was the change in economic philosophy that Yellen represented.

Behind the wave of market anxiety

Anatole Kaletsky
Feb 6, 2014 23:33 UTC

What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.

Almost all agree that the market turmoil has been linked to alarming events in several emerging economies — including Turkey, Thailand, Argentina and Ukraine — that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.

But why has near-panic hit so many emerging markets at the same time?

There seem to be four broad explanations. Whether this current volatility marks the end of the straight-line ascent in asset prices that started in March 2009, or whether it is just another opportunity to “buy on dips,” will largely depend on the relative importance of each of these factors.

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