The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Weak links in the circle of imbalance

China’s inefficient economy is under threat because its capital costs are set to rise, but it is as likely to falter because US consumerism hits the wall. And there are signs that American profligacy cannot be sustained much longer

The financial world is locked into a circle of imbalance. It is imbalanced because the US is booming while running a huge external deficit. Meanwhile, Europe and Japan struggle and run external surpluses; Asia and the Opec members boom by selling to the US. It’s a circle because Japan and Asia and Opec recycle their surpluses back into dollars. And thus the financial world goes round – after a fashion.

So, despite relatively modest growth in the OECD, the share of profits is at or near its historical peak and the cost of capital is near historical lows.

All this is made possible because China and other emerging markets hold down global labour rates as effectively as their own through the threat and reality of job losses in areas where labour costs are high.

World inflation

China is keeping world inflation down because it is not a profit maximizer – the result of its long history as a centrally planned economy. Its economic model is characterized by maximizing volume and size at low margins. China is also able to underpay its workers because its labour supply is so large. And capital is underpriced in China because it is still directed by the state towards huge investment projects of doubtful economic viability.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree