Download Animal Spirits with Chinese Characteristics: Investment by M. DeWeaver PDF

By M. DeWeaver

ISBN-10: 0230115691

ISBN-13: 9780230115699

Animal Spirits with chinese language features is the 1st specific account of the funding booms and busts that force China's enterprise cycles. This interesting new quantity appears to be like first on the explanations of those fluctuations, then examines the principal government's countercyclical coverage responses. DeWeaver exhibits that the volatility of chinese language funding is essentially the results of perverse incentives inherited from the command-economy period. Beijing's optimal countercyclical regulations consequently nonetheless take the shape of advert hoc administrative interventions. opposite to renowned trust, Beijing can't 'fine track' the economic system. It additionally stands little likelihood of transitioning to a much less risky 'mode of growth.'

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Additional resources for Animal Spirits with Chinese Characteristics: Investment Booms and Busts in the World's Emerging Economic Giant

Example text

The actual record of the socialist economies makes it clear that these difficulties are insurmountable in practice. Planning never worked well enough to prevent constant discrepancies between targeted and actual output. Investment continued to be as volatile as ever, in many cases exhibiting even wider swings than those observed under capitalism. In China the problems with central planning were exacerbated by the devolution of investment-decision-making authority to lower levels of government. This made economic coordination even more difficult and SOCIALIST BOOMS AND BUSTS 33 produced powerful incentives for overinvestment.

This provides strong incentives to maximize investment at the expense of economic rationality. At the same time, state enterprises and investors in local-governmentpromoted projects can afford to bet on long shots. The former can count on bailouts when things go wrong. The latter enjoy significant cost savings, which reduce their need for financial leverage and thereby allow them to survive bigger downturns than they otherwise could. As a result, even privately owned companies overinvest. Chapter 6 shows why the state-owned banking sector continues to finance investment booms.

Naturally this means that investment favored by the government is more likely to get financing. And even if the relationship between the banks and the state were entirely “arms length,” bankers would still be biased in favor of government-backed projects. These not only have more land to use as collateral but are also perceived as having at least an implicit government guarantee. Such borrowers are simply better risks. State dominance is thus not only a matter of the state being the largest investor.

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