PODCAST: “Hexapodia” Is þe Key Insight XXVII: Evergrande
Noah Smith & Brad DeLong's 30:00 < [Length of Weekly Podcast] < 60:00
I do not understand how the Chinese economy works.
The Chinese economy is an odd combination of market and party in which the party has enormous reach and control, but somehow that has not triggered the “soft budget constraint” problems of the Soviet model.
Financial constraints are not real—a government that wants to can evade them in its management of the economy.
Real resource constraints are, however real: finance does not bind because it is true that what we can do, we can afford; but it is also true that what we cannot do, we cannot afford.
You can hide for a while from real resource constraints by bubble-overvaluing the low-value infrastructure and real-estate investments that you are making, but you cannot run.
There is lots to read that is good; consult these show notes.
Robert Armstrong: The Real Risks from Evergrande: <https://www.ft.com/content/f858fe4a-716e-49ee-bebe-45c810b0d7a6>
Òscar Jordà, Moritz Schularick & Alan M. Taylor: The Great Mortgaging: Housing Finance, Crises, & Business Cycles <https://www.nber.org/papers/w20501>
Michael Pettis: What Does Evergrande Meltdown Mean for China? <https://github.com/braddelong/public-files/blob/master/article-pettis-evergrande.pdf>
Margaret Sutherlin: ‘Cash-strapped Chinese developer Evergrande missed payments… on Monday… <https://www.bloomberg.com/news/newsletters/2021-09-21/bloomberg-s-evening-briefing-biden-s-un-debut-focused-on-climate-covid-crises>
Girolamo Pandolfi da Casio ditto Carlo Dossi Erba: Evergrande
Ming Zhao: Evergrande’s Backstory
+, of course:
Vernor Vinge: A Fire Upon the Deep <https://books.google.com/books?id=fCCWWgZ7d6UC>