Some things to watch for in 2018: Part Two
Special points to highlight in this issue:
* For all the discussion about enforcing market discipline by eliminating explicit or implicit government guarantees on local-government and corporate borrowings, any credible reintroduction of credit risk is likely to cause an unacceptably large and disorderly pricing adjustment. This is why after so many years of promises Beijing still hasn’t been able to use the threat of bankruptcy as a means of enforcing market discipline.
* While trade action from Washington aimed at reducing the US current account deficit may be justified, it is a mistake to focus on measures that address bilateral trade imbalances without considering capital imbalances. Simply embargoing trade or imposing tariffs, while improving the US-China bilateral trade imbalance, is likely to leave the overall US trade deficit either unaffected or possibly even larger.
* It has long been known that China faces both a severe water shortage overall and a lopsided distribution of its existing water resources. While Beijing has so far managed to push forward the adverse consequences of its water shortage, it may be reaching the limits of its ability to continue doing so. If China were to suffer a few years of abnormally low rainfall, this could be enough to bring China’s water shortages to a head.
This issue is a continuation from last week’s issue in which I discuss eight topics, in no particular order, that I expect to follow during 2018. The first four topics, covered in the January 8 issue, were:
- The global trade regime must be restructured
- What will GDP growth be in 2018?
- Is China rebalancing demand within the economy?
- Will enforcement of the hukou make it harder for Beijing to manage debt?
In this issue, I will discuss Beijing’s implicit guarantee of provincial borrowings, the right way to understand the economic implications to the US and China of protectionist initiatives in the US, China’s water shortage, and the geo-political implications of Beijing’s foreign investment to developing countries.
- Will Beijing no longer guarantee provincial borrowings?
- How might trade affect the US and China in 2018?
- Beware of water shortages and consider their consequences
- How important is China’s strategic vision for Africa?
Now read on...
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