Shallowness list

(1) In the NYT Economix blog, Simon Johnson and his co-author try to downplay the global repercussions of a slowdown in China growth and China’s shadow banking malaise:

So if China avoids a Lehman crisis but does face a serious growth slowdown, how worried should Europe and the United States be for their own economic growth? The answer is, not much at all.

China is still only a small fraction of the world economy. World G.D.P., calculated by the International Monetary Fund, was $73.5 trillion at the end of 2013, while China’s G.D.P. was about $9 trillion, or 12 percent of the total. The United States at $16.7 trillion and the European Union at $17 trillion are each nearly double the size of China (using market prices and actual exchange rates).

China’s main link with the rest of the world is through trade. According to the latest available data from the World Trade Organization, for 2012, China’s merchandise imports accounted for nearly 10 percent of the world’s imports. Exports to China in 2013were $1.95 trillion.

Surprising coming from someone who has studied the role an reach of the financial sector and its linkages.

I am surprised that he is not taking into account linkages within Chinese economy (cascading effects) and also international financial linkages. If China shadow banking implodes, will international financial institutions remain unaffected? Haven’t they lent to China banks, shadow banks and Chinese corporations? If deposits made into non-banking sector for higher yield go bad (are not repaid), what about the ripple effect on real estate values? What happens to carry-trade deposits and hence, the Yuan exchange rate? If Yuan tumbles, will it not create its own ripple effects?

Then, there will be second round effects from the RoW back to China.  Further, given that the US stock market is trading at bubbly levels and given that corporate bonds trading are at exorbitant levels, we do not know if a sharp slowdown in China economy would not trigger a collapse in corporate profits, then in US stocks and then the ripple effects coming back to haunt Asian and China stocks, credit and economies.

How sure can we be about our knowledge of China shadow banking? Do we know how big it is? What about (local and international) exposure through derivatives?

[Andrew Smithers has written a good piece on China in FT]

(2) Swaminathan Aiyar has written a piece on why Ukraine should have had nuclear warheads. I have no problem with his change of heart on nuclear deterrence. I welcome it. But, his reading of the situation in Ukraine seems woefully off the mark. He sees Russia as the trouble-maker. I doubt if that is the case.

(3) Ms. Renu Kohli had written a piece on the ‘Hindu rate of growth’. She has every right to suggest that India would find it difficult to break out of its current state of low growth, irrespective of who comes to office. That is her prerogative. But, there is no need to call it the ‘Hindu’ rate of growth. It is devoid of meaning. It is laziness.

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