I think the best model to understand this is Michael Pettis's balance sheet analysis. He covers it extensively, but here's his latest digest of the model:
It really makes clear how stark the choices are for China. The debt binge of the last ~10 years has masked the flattening out of productive investment, and there will need to be a reckoning. Hopefully it's a soft landing, but that will depend on politics as much as anything.
http://carnegieendowment.org/chinafinancialmarkets/66221
It really makes clear how stark the choices are for China. The debt binge of the last ~10 years has masked the flattening out of productive investment, and there will need to be a reckoning. Hopefully it's a soft landing, but that will depend on politics as much as anything.