Did China Cause the Credit Crisis?

China did not cause the credit crisis. But without China, the credit crisis could not have happened. Too much debt was what caused the credit crisis. But people should appreciate that China’s emergence, and the supply-side shock that it brought, played a vital role in creating the low interest rates which encouraged huge over-borrowing. Nearly one in every five people on this planet is Chinese. So China’s formal emergence into the world economy in the late 1990s was bound to be the biggest part of globalization, the process by which the people of the world are being gradually unified into a single society and beginning to function together. In fact, China’s emergence was an event big enough to change the way the world economy worked. The effect was hugely beneficial, but came with the risk of upsetting the world economy. Unfortunately neither the effect, nor the risk, were really understood at the time they were happening, at least in the Western nations where the financial crisis occurred. A combination of wrong policies and systemic failures, analyzed in this chapter, meant that the potential downside to China’s emergence materialized, and some of the beneficial effects were washed out to sea.

China Joins the World Trade Organization

Following years of negotiation, in 1999 China finally decided to sign up to the world economy by joining the organization that sets the rules by which countries trade with each other—the World Trade Organization—thereby ...

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