Straightforward 🧵 on China's persistent dilemma. China officially insists that it will not repeat Japan's downfall in the "lost decade", but every month of inaction takes it farther down Japan's path and increases the damage once the current unsustainable model fails.
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This illustrates the real reason why rebalancing in China is so hard. Chinese manufacturers are so dependent on the transfers that are the result of direct and indirect subsidies, two of the most important among the latter being an undervalued currency and very easy financing terms, that even a small reversal of these transfers can be brutally difficult for the manufacturing sector.
