China is a topic on which I have differed greatly from many analysts and macro commentators with whom I generally share a similar economic philosophy. What I have heard from many in this camp is this story about how China was the next great power and that they are going to revalue the yuan higher. In that process, they would be able to shift their economy away from a dangerous overemphasis on fixed asset investment and toward consumption.
There was this notion that China had its house in order and was about to totally shift the balance of economic power in the world as the West melted away. In the middle part of the last decade I heard this argument yet it always seemed a little preposterous.
In 2007/2008 as the Western housing markets and banking systems came apart this view was expressed in the now much maligned (and rightfully so) “decoupling thesis” which turned out to be nothing but a fantasy. Read More
