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ZERO HEDGE – China's Broken Shock Absorber

By Daniel Cloud, Ph.D.

Analysts who’ve only started paying attention to the country in the last decade often seem convinced that China has no real business cycle, or a very mild one, that because its economy is centrally planned, it’s free from the fluctuations in investment that cause booms and recessions in countries that lack the scientific guidance of a Leninist single-party state. This convenient belief, however, is mostly an artifact of the period over which they’ve been observing its economy.

In what’s generally, since at least the 1950’s, been a short, very high-amplitude cycle with a roughly seven year period, the period between 1992 or 1993 and 2007 or 2008 is unique. It has a “soft landing” (or as DeWeaver calls it, a “long landing”) in its middle that was unlike any other slowdown China has experienced in its post-World-War II economic history. The boom of the early 1990’s wasn’t followed by the usual bust. Instead, after a fairly mild slowdown, another boom period began towards the end of the decade, without the usual deep cyclical trough between expansions.

DeWeaver’s explanation of this anomaly suggests that it is unlikely to be repeated. We’re probably living, now, with a China that’s back to the sort of violent swings in economic activity, and repeated struggles with inflation, that have been characteristic of most of its recent history. To understand why, it’s necessary to understand his explanation of the nature of the cycle itself.

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