10/15 The most likely outcome, in my opinion, is it shifts investment into other manufacturing sectors, those not yet suffering involution. This, of course, won't resolve the problem of excess capacity, but it will make it much less concentrated in a few key sectors.
11/15 Another possibility (on which they already seem to have started), is to increase spending on infrastructure. The problem is that China already has "excess capacity" in infrastructure, after the huge amounts that poured into infrastructure investment between 2010 and 2017.
Michael, are there publicly accessible data that show these huge shifts in investment that you describe over the last 20 years?
Yes, widely available, for example here: www.ecb.europa.eu/press/econom...
Many thanks.
Sounds like military Keynesianism is the answer.
12/15 The third possibility, and the best by far, is that it shifts resources to boost consumer spending. This is what most analysts cited in this article have proposed. But of course more consumption has also been the best "choice" for the past 10-15 years, and hasn't happened.
13/15 That's because it is extremely difficult to pull off. Low consumption in China is not the result of an oversight that can be fixed administratively. It is fundamental to an economic system in which household transfers subsidize rapid growth in investment and manufacturing.
14/15 What this means is that the only sustainable solution to China's problem of excess capacity is to engineer a transformation of the country's economic system and growth model. Other "solutions" just shift excess capacity from one sector to another.
15/15 We will eventually see this transformation, but I think Beijing can still postpone it for a few more years. Until then, I mostly expect excess capacity in the involuted sectors to shift mainly into other manufacturing sectors and partly into infrastructure.
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They can also start a war and shift into arms manufacturing. At some point that might be easier to justify than building excess cars, roads, etc.. I do hope they can avoid this and shift to consumption.
Assuming they want to avoid this or arent deliberately accelerating things.
This seems highly plausible to me, especially given the likelihood of a military arms race in AI/robotics.
ai-2027.com