I am posting two articles from the China Economic Quarterly in 2001, by Tom Rawski and myself, that discussed China’s macro-economic performance during the last ‘structural adjustment’ period, when Zhu Rongji laid off 30 million+ state workers.
The point is that there is a big ‘hard landing’ debate going on just now, as we enter a new structural adjustment period. Rawski showed fairly convincingly in his article that in 98-99 real (as opposed to reported) GDP growth dipped as low as 2-3%. With the benefit of hindsight, this did not, however, lead to economic calamity. Indeed the low growth facilitated structural change as Beijing forced the provinces to adjust local economies to be less wasteful.
No two scenarios are ever the same. However, in discussing what is happening in China today, I think it is useful to look back on that late 90s period before the credit cycle that kicked off in 2002.
Let me know if this link does not work:
FT (sub needed) today has a story on shipbuilder Rongsheng running out of cash. And how they are begging government for money. It reminds how credit starvation is the key weapon in the central government’s arsenal.