In this two-minute video from the Wall Street Journal, Ken Brown explains the basic imbalances caused by Chinese insular banking system and why it generates too much infra-structure investment and favors large state-owned businesses over smaller businesses and consumption. While the discussion and animation is engaging, it does not really bring us closer to a solution, other than the neo-liberal mantra of greater deregulation.
That message may have been more compelling before the recent financial crisis. Of course, we are sensitive to the distortions caused by state-owned banks lending to state-owned businesses and still mostly state-set interest rates. Yet, the call for liberalization seems overly simple. Did not the US and Europe err in precisely that direction ? Did not the US and Europe enjoy rapid industrialization and growth during periods when interest rates and banking activity were closely regulated?
This piece is cross-posted from Marc to Market with permission.