Chinese carmaker BYD Co. may be getting some bad news as it prepares to start selling in the U.S. next year. A planned reduction in government subsidies and a phase-out of interest-rate controls threaten to raise costs for it and thousands of companies across China.
China may increase investments as possible stimulus plans if the economy slows “sharply,” Michael Pettis, chief strategist at Guosen Securities Co., said in an interview with Bloomberg Television today.
China is under growing pressure from Asia, Europe and the U.S. to revalue its currency. Until recently, it even looked like we were about to embark on a sustained process of yuan revaluation fairly soon.
If we accept the argument that China must, and will, rebalance its economy by reducing its reliance on investment, what happens if it proves politically impossible to cut investment rates sharply? Gross domestic product growth rates would remain very high, but debt levels would also grow unsustainably. At some point, China will reach its debt capacity limits and no longer be able to fund investment.