The economist Gao Liankui wrote a commentary that was published in Hexun on a book that Yang Guoying wrote on the current economic problems that China faces. The economic problems that Yang identified are internal inflation and deflation, investment issues, revenue from taxation, external financial risks, and Chinese enterprises going overseas.
According to Yang, if deflation continues for a long time, a strong and negative cycle will likely form in which recession leads to serious deflation. This would seriously accelerate the economic recession even further.
As for the excessive investments that local governments make, it is because of these governments’ credibility and their guarantee of highly transferable assets such as land that local governments have been able to increase their debts in spite of the central government’s prohibition.
On the deficit that local governments’ excessive investments have caused, Yang also expressed concern that the negative cycle of the increase in the deficit and of economic growth have entered an extremely dangerous phase.
Yang also noted that the obstacles that Chinese companies face when going overseas have changed from pressure from international competitors to resistance from governments in developed countries. It comes in the form of technical resistance, intellectual property rights resistance, and political resistance.
Yang observed that from the experiences of several Chinese companies, the excessive use of financial instruments originally meant as a hedge against risks may actually bring further risks to China’s manufacturing.
Source: Hexun.com, October 29, 2013