Global instability as a determinant of China’s economic development

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2

Ternopil national economic university

УДК 339.9

Global instability as a determinant of China's economic development

Ornat M.R., Researcher Науковий керівник - Іващук І. О., д.е.н., професор, Head of M&A department,

Investment bank ART-Capital

Introduction

Problem formulation. The global economic instability is one of the key factors that influences on each country taking part in the world economy. Actual processes of globalization and integration are interrelated with the factors of economic instability and vulnerability. This article is aimed to consider the problem of interrelations between the China economic growth and global instability. Historically China economic miracle has formed the basis for future global economic instability. And actually global instability has the impact on the China's economic development. The author tries to consider the global instability as the determinant of China's economic development.

Analysis of researches and publications. The problem of global economic instability and it's interrelations with the China's economic development is researched by such scientists and economists as: John Maynard Keynes, Human Minsky, Kenneth Rogoff, John Chan, Frederic Mishkin, David Shambaugh, Elvira Kurmanalieva, Vasiliy Koltashov and others. Albeit according to the analysis of the results of their researches, the stated problem is not fully investigated and should be examined more thoroughly.

Purpose statement. The task of the article is the research of theoretical, methodological and conceptual principles of the global economic instability and its impact on the China's economic development. A set of scientific methods are used in the research such as historical, empirical, comparative analysis and others. The author considers the impact of China's economy on world economy and global instability and vice versa.

Statement of the main research

In the last five years, the global economy has experienced severe bouts of economic instability that have had devastating impacts on crisis countries. Two of the key questions facing policymakers today are how to reduce the risk of global economic instability and how to cope with it when it occurs [1].

An unregulated global economy dominated by corporations that recognize money as their only value is inherently unstable, egregiously unequal, destructive of markets, democracy, and life, and is impoverishing humanity in real terms even as it enriches a few in financial terms.

Theoretical basis of global economic instability

The economic instability hypothesis has empirical and theoretical aspects. The readily observed empirical aspect is that market economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement - inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system [2].

The theoretical argument of the financial instability hypothesis starts from the characterization of the economy as a capitalist economy with expensive capital assets and a complex, sophisticated financial system. The economic problem is identified following Keynes as the "capital development of the economy,” rather than the Knightian "allocation of given resources among alternative employments.” The focus is on an accumulating capitalist economy that moves through real calendar time [2].

The classic description of a debt deflation was offered by Irving Fisher (1933) and that of a self-sustaining disequilibrating processes by Charles Kindleberger (1978). Martin Wolfson (1986) not only presents a compilation of data on the emergence of financial relations conducive to financial instability, but also examines various financial crisis theories of business cycles [2].

As economic theory, the financial instability hypothesis is an interpretation of the substance of Keynes's "General Theory”. This interpretation places the General Theory in history. As the General Theory was written in the early 1930s, the great financial and real contraction of the United States and the other capitalist economies of that time was a part of the evidence the theory aimed to explain. The financial instability hypothesis also draws upon the credit view of money and finance by Joseph Schumpeter (1934, Ch.3) Key works for the financial instability hypothesis in the narrow sense are, of course, Hyman P. Minsky (1975, 1986) [8].

The capital development of a market economy is accompanied by exchanges of present money for future money. Present money pays for resources that go into the production of investment output, whereas the future money is the "profits” which will accrue to the capital asset owning firms (as the capital assets are used in production). As a result of the process by which investment is financed, the control over items in the capital stock by producing units is financed by liabilities - these are commitments to pay money at dates specified or as conditions arise. For each economic unit, the liabilities on its balance sheet determine a time series of prior payment commitments, even as the assets generate a time series of conjectured cash receipts [2].

This structure was well stated by Keynes (1972). There is a multitude of real assets in the world which constitutes our capital wealth - buildings, stocks of commodities, goods in the course of manufacture and of transport, and so forth. The nominal owners of these assets, however, have not infrequently borrowed money [Keynes' emphasis] in order to become possessed of them. To a corresponding extent the actual owners of wealth have claims, not on real assets, but on money. A considerable part of this financing takes place through the banking system, which interposes its guarantee between its depositors who lend it money, and its borrowing customers to whom it loans money wherewith to finance the purchase of real assets. The interposition of this veil of money between the real asset and the wealth owner is an especially marked characteristic of the modern world.” [4].

This Keynes "veil of money” is different from the Quantity Theory of money "veil of money.” The Quantity Theory "veil of money” has the trading exchanges in commodity markets be of goods for money and money for goods: therefore, the exchanges are really of goods for goods. The Keynes veil implies that money is connected with financing through time. A part of the financing of the economy can be structured as dated payment commitments in which banks are the central player. The money flows are first from depositors to banks and from banks to firms: then, at some later dates, from firms to banks and from banks to their depositors. Initially, the exchanges are for the financing of investment, and subsequently, the exchanges fulfill the prior commitments which are stated in the financing contract [4].

In a Keynes "veil of money” world, the flow of money to firms is a response to expectations of future profits, and the flow of money from firms is financed by profits that are realized. In the Keynes set up, the key economic exchanges take place as a result of negotiations between generic bankers and generic businessmen. The documents "on the table” in such negotiations detail the costs and profit expectations of the businessmen: businessmen interpret the numbers and the expectations as enthusiasts, bankers as skeptics [4].

Expectations of business profits determine both the flow of financing contracts to business and the market price of existing financing contracts. Profit realizations determine whether the commitments in financial contracts are fulfilled - whether financial assets perform as the pro formas indicated by the negotiations. Thus, in a market economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations. The key financial relationships link the creation and the ownership of capital assets to the structure of financial relations and changes in this structure. Institutional complexity may result in several layers of intermediation between the ultimate owners of the communities' wealth and the units that control and operate the communities' wealth. [2].

In the modern world, analyses of financial relations and their implications for system behavior cannot be restricted to the liability structure of businesses and the cash flows they entail. Households (by the way of their ability to borrow on credit cards for big ticket consumer goods such as automobiles, house purchases, and to carry financial assets), governments (with their large floating and funded debts), and international units (as a result of the internationalization of finance) have liability structures which the current performance of the economy either validates or invalidates [8].

An increasing complexity of the financial structure, in connection with a greater involvement of governments as refinancing agents for financial institutions as well as ordinary business firms (both of which are marked characteristics of the modern world), may make the system behave differently than in earlier eras. In particular, the much greater participation of national governments in assuring that finance does not degenerate as in the 1929-1933 period means that the downside vulnerability of aggregate profit flows has been much diminished. However, the same interventions may well induce a greater degree of upside (i.e. inflationary) bias to the economy [8].

In spite of the greater complexity of financial relations, the key determinant of system behavior remains the level of profits. The financial instability hypothesis incorporates the Kalecki (1965)-Levy (1983) view of profits, in which the structure of aggregate demand determines profits. In the skeletal model, with highly simplified consumption behavior by receivers of profit incomes and wages, in each period aggregate profits equal aggregate investment. In a more complex (though still highly abstract) structure, aggregate profits equal aggregate investment plus the government deficit. Expectations of profits depend upon investment in the future, and realized profits are determined by investment: thus, whether or not liabilities are validated depends upon investment. Investment takes place now because businessmen and their bankers expect investment to take place in the future [2].

The economic instability hypothesis, therefore, is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated. In contrast to the orthodox Quantity Theory of money, the financial instability hypothesis takes banking seriously as a profitseeking activity. Banks seek profits by financing activity and bankers. Like all entrepreneurs in a capitalist economy, bankers are aware that innovation assures profits. Thus, bankers (using the term generically for all intermediaries in finance), whether they be brokers or dealers, are merchants of debt who strive to innovate in the assets they acquire and the liabilities they market. This innovative characteristic of banking and finance invalidates the fundamental presupposition of the orthodox Quantity Theory of money to the effect that there is an unchanging "money” item whose velocity of circulation is sufficiently close to being constant: hence, changes in this money's supply have a linear proportional relation to a well defined price level [2].

Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on "income account” on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over” their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units [8].

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system [8].

In particular, over a protracted period of good times, market economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values [2].

The Impact of Current Global Economic Instability on China's Economy

The reasons for concern in international financial circles about an unstable Chinese economy are obvious - the global economy is now dependent on China to an unprecedented extent [5].

Compared with the 1997 Asian Financial Crisis (AFC), the current economic instability has a much more severe impact on China's economy. This is most clearly manifested in export slowing down, financial sector instability and inflation pressure. Although by far we have been managing the condition fairly OK, a big issue is that current global economy situation creates a lot of uncertainty to China's economy. And it unravels the hidden structural imbalance that has long been accumulating in China's economy [10].

China is the world's leading consumer of energy resources, and a slowdown in its economy will result in reductions in oil prices. If its growth is slowed down to 4-5% a year, this will be a challenge to all the CIS economies, especially Central Asian economies which are more closely tied to China.

The Chinese economy, whose renewed growth with the help of government incentives in 2009-2010 had significantly facilitated the recovery from the crisis for both China and the rest of the world, has again slowed down. This is partially due to a change in state policy in 2011: having faced overheating in the economy, which manifested itself in accelerating inflation and, in particular, a quick rise in real property prices, the authorities took measures to restrain the credit expansion, which have already brought results.

As a result of this, inflation went down and the real property boom is fading out. In addition, the slowdown in China's economic growth has been caused by a number of longer-term factors: the demand for Chinese exports is falling because of difficulties in Western economies, while increasing prices and wages in the country make them less competitive. At present, China's monetary policy is being weakened to a certain extent since the previous year's tightening made it achieve its objectives at large. If the Chinese economy avoids disruptive developments, in particular in the financial sector (which was accumulating considerable volumes of bad debts during the previous credit expansion), China could even become a source of positive effects for the global economy. The fact that the authorities still possess very significant financial reserves makes this rather probable; however one should not rule out the possibility that the situation will change unfavorably. The financial crisis in China, as well as the hasty financial consolidation in the US, which we discussed above, can be caused by unfavourable events outside the country, for example in Europe. If this happens, the crisis will have a considerable impact on the global economy [6].

China's economy may be facing a period of instability and imbalance as it transitions from high-speed growth. China's growth slowed for a second straight quarter to 7.5 percent in the April- June period, increasing the risk that Premier Li Keqiang will miss a full-year target for the same pace [7].

Expansion below 7 percent won't be tolerated because China needs to achieve a moderately prosperous society by 2020, according to a commentary published July 21 by the official Xinhua News Agency. 7 percent is the "bottom line” and the nation can't allow growth of less than that [7].

Meanwhile, the political uncertainties are compounded by economic uncertainties. The national economy is facing a severe slowdown. Whether 7%, 5%, or possibly even lower GDP growth--the Chinese economy is experiencing its most profound contraction since 1989-1992. The problem is that statistics in China are distorted by the state (at lower as well as higher levels) and nobody really knows the real severity of the downturn. Markets do not like uncertainty, and money is flowing out of the country in significant amounts while foreign investment inflows have also dropped off. Inventories of goods are piling up, as export markets dry up and factories operate at overcapacity. Non-performing loans and bank debts are again building to a serious extent. Local government finances are particularly fraught--estimated by the central government at 11 trillion RMB--or one-quarter of China's output . Disguised debt makes the problem even bigger [9]. globalization world economy china

Export growth has been slowing down due to a shrinking external demand, especially taking into account of the price factor. By far, this effect remains to be modest with the picking-up of the demand outside of the US in recent months. Given the volatility of the international financial market, however, one has reason to be worried about the prospect of export. SMEs in coastal area are the ones who are most seriously hurt. They are facing stringent condition of RMB appreciation, increasing cost of inputs, and shrinking demand. Policies originally set to fight against inflation posed further pressure for them to get loans from banks [10]. Though the structural problems hidden under the prosperous exporting sector had been well mentioned before the crisis, i.e. in the long-term China will face rises in production cost due to the increasing labor, capital, land, energy and environment protection cost, the rapid change of the global market brought this problem onto surface. To cope with the challenge, it is imperative for China to upgrade itself in the chain of division of labor [10].

Although the initial exposure to the sub-prime related securities is limited, it turned out that the second-round effect of the financial crisis and indirect effect of the global financial turbulence felt by the financial market is much severer than we had originally thought, and it dampened market sentiment. RMB exchange rate experienced a rapid appreciation early this year, and since then has been dominated by frequent fluctuation. Rapid capital inflow seeking better returns also became a big concern. Although trade surplus has been narrowing, China's FX reserves have been building up rapidly, mounting to over US $ 1.8 trillion in June. The majority of the inflows may have come to China in official ways. Take for example, of the US$ 228.4 bn increase in reserves in the first four months, FDI and the trade surplus contributed only US $ 93.1 bn (Although there are other factors to explain the gap, a big portion of it remains unexplainable). The buildup of FX reserves has revived the debate on hot money associated with capital inflow, and it caused a lot of uncertainty to financial market such as the pressures on inflation and the risk that the withdrawal of capital could put on local financial system and etc. China's stock market experienced the biggest slump around the world in the past 10 months. It has been 70% lower than its peak in 2007. Stock market index is at a 7-year's lowest point [10].

As far as banking sector is concerned, Chinese banks' exposure to structured products remains to be manageable. Overall, balance sheets of Chinese banks are still dominated by straight forward lending commitment to households and corporations, with assets dominated by loans. And Chinese banks maintain the requirement of 70% loan-to-deposit ratio by supervisors. Banks are insulated from a squeeze in the money markets that tripped up banks elsewhere. That said, Chinese banks do feel pressures in several indirect ways. Tightening policies posed challenge for banks' profit, and real estate sector is also facing difficulties. If its price turns down, this would leave banks with more defaults in their mortgage loans [10].

Due to the reason of excess liquidity and increasing international fuel and commodity price, the rise of CPI hit 11 years high in February this year, to an annualized rate of 8.7%, and declined after which due to stringent policy measures adopted. CPI has been moderated to 4.9% in August. Given that PPI remains elevated, topping 10.1% in August, and China consumes fuels and commodities with a rising intensity, potential risks of inflation remains high [10].

Instabilities and uncertainties are gripping society. Inflation and unemployment are both on the rise. China's 120 million migrants pool faces fewer opportunities on the coast and are now again "floating” around the interior looking for work. Crime has spiked in several cities. Tibet and Xinjiang remain ethnically restive. And the yawning gap in social equity widens by the day. This adds up to a combustible and unpredictable social situation [9].

Finally, China faces many new uncertainties externally. Its relations with the United States have shown various signs of strain for months. Its relations with Japan have deteriorated sharply over the disputed islands in the East China Sea. Its relationships in Southeast Asia have also been badly battered by its excessive territorial claims in the South China Sea. Ties with Australia and India reveal frictions and mistrust. Public opinion polls elsewhere in the world--in Europe, Africa, and Latin America--all indicate mixed perceptions of China. China's foreign policy thus faces considerable uncertainties as well [9].

The government has tried stimulus measures ($160 bn. recently announced), but more infrastructure spending is not what China needs. Spending on software, not hardware, is what China needs: social services, financial services, the service sector, and the knowledge economy [9].

In some ways the downturn offers a golden opportunity to undertake the "rebalancing” the government has long talked about, to free up all the pent-up personal savings--but people won't spend because they are afraid of their futures and hedge against personal uncertainties. Those with excess funds--the middle class--are parking it offshore out of the country in property and foreign bank accounts (a clear indication of the fragility of the CCP and political system) [9].

Taken together, this set of Chinese uncertainties adds up to a considerable volatility in the nation's domestic and global position. After growing accustomed over the past two decades to considerable stability and predictability in and with China, the world had now better be more prepared for greater instabilities and unpredictability. It may be the "new normal” [9].

Conclusions from the research

China economic growth had a great influence on the global instability and vulnerability of world economy. The economic instability hypothesis is a model of a market economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds [2].

China's economy may be facing a period of instability and imbalance as it transitions from high-speed growth.

Бібліографічний список

1. Frederic S. Mishkin. Global Financial Instability: Framework, Events, [Електронний ресурс]. - Режим доступу: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.13.4.3.

2. Hyman P. Minsky. The Financial Instability Hypothesis [Electronic resource]. - Access: http://www.equities.com/editors-desk/economy-markets/business-outlook/minsky-s-financial- instability-hypothesis#sthash.nkJRQv36.dpuf.

3. Kenneth Rogoff. International Institutions for Reducing Global Financial Instability. The Journal of Economic Perspectives, 1999, Vol. 13, No. 4., pp. 21-42. [Electronic resource]. - Access:http://www.sfu.ca/~kkasa/rogoff JEP99.pdf.

4. John Maynard Keynes. The Collected Writings of John Maynard Keynes, / vol. X, essays in Biography. London: Macmillan for the Royal Economic Society.

5. John Chan. Financial markets fear Chinese economic instability, [Electronic resource]. - Access:http://www.wsws.org/en/articles/2011/07/chin-i22.html.

6. Elvira Kurmanalieva. The Impact of Global financial and Economic Instability on the CIS. [Electronic resource]. - Access: http://www.eabr.org/general//upload/CII%20-%20izdania/Yerbook- 2012/a n5 2012 12.pdf

7. China's Cooling Economy Faces Instability, State Researcher Says, [Electronic resource]. - Access: http://www.bloomberg.com/news/2013-07-23/chinese-economy-facing- instability -as-growth-cools-drc-says.html.

8. Hyman R. Minsky. Stabilizing an Unstable Economy [Electronic resource]. - Access:http://digitalcommons.bard.edu/cgi/viewcontent.cgi?article=1143&context=hm archive.

9. Davyd Shambau (2012), Instability and Unpredictability in China: The "New Normal”? 2012 [Electronic resource]. - Access:http://www.chinausfocus.com/political-social- development/instability-and-unpredictability-in-china-the-new-normal/.

10. Economist Intelligence Unit, Global outlook October 2012[Electronic resource]. - Access: http://gfs.eiu.com/FileHandler.ashx?issue id=559575640&mode=pdf.

11. Василий Колташев. Ахиллесова пята Китая. [Електронний ресурс]. - Режим доступу: http://www.vz.ru/columns/2014/1/16/667748.html.

References

1. Frederic S. Mishkin. Global Financial Instability: Framework, Events, Issues, available at: http://pubs.aeaweb.org/doi/pdfplus/10.1257/iep.13.4.3.

2. Hyman P. Minsky. The Financial Instability Hypothesis. available at: http:/equities.com/editors-desk/economy-markets/business-outlook/minsky-s-financial-instability-hypothesis#sthash.nkJRQv36.dpuf.

3. Kenneth Rogoff (1999), International Institutions for Reducing Global Financial Instability. The Journal of Economic Perspectives, Vol. 13, No. 4., pp. 21-42. available at: http://sfu.ca/~kkasa/rogoff JEP99.pdf.

4. John Maynard Keynes. The Collected Writings of John Maynard Keynes, / vol. X, essays in Biography. London: Macmillan for the Royal Economic Society.

5. John Chan.Financialmarkets fearChinese economic instability, availableat:http://wsws.org/en/articles/2011/07/chin-i22.html.

6. Elvira Kurmanalieva (2012), The Impact of Global financial and Economic Instability on the CIS. available at: http://www.eabr.org/general//upload/CII%20-%20izdania/Yerbook- 2012/a n5 2012 12.pdf

7. China's Cooling Economy Faces Instability, State Researcher Says, available at: http://bloomberg.com/news/2013-07-23.

8. Hyman R. Minsky. Stabilizingan Unstable Econ. availableat:http://digitalcommons.bard.edu/cgi/viewcontent.cgi?article.

9. Davyd Shambau (2012), Instability and Unpredictability in China: The "New Normal”? available at: http://chinausfocus.com/political-social-development/instability-and-unpredictability-in- china-the-new-normal/.

10. Economist Intelligence Unit, Global outlook October 2012, available at: http://gfs.eiu.com/FileHandler.ashx?issue id=559575640&mode=pdf.

11. Koltashov, Vasylii (2014), Akhilesova piata Kytaiy. available at:http://vz.ru/columns/2014/1/16/667748.html.

Анотація

Глобальна нестабільність як детермінанта економічного розвитку Китаю. Орнат М.Р.

Мета. Метою даної статті є дослідити теоретичні, методологічні та концептуальні положення глобальної економічної нестабільності, а також її вплив на економічний розвиток Китаю.

Методика дослідження. В дослідженні застосовано цілий набір наукових методів. Зокрема, історичний, емпіричний, порівняльний аналіз та інші методи використані при розгляді впливу економіки Китаю на світову економіку та глобальну нестабільність і навпаки.

Результати. Встановлено, що за останні п'ять років світова економіка зазнала жорстких поштовхів глобальної нестабільності, яка спричинила деструктивний вплив на країни, які знаходяться в кризі.

Виявлено, що серед найважливіших питань, з якими зіштовхуються політики та економісти на даний час є завдання зменшення ризиків глобальної економічної нестабільності та питання як справитися з наслідками останньої.

Визначено, що глобальна фінансова нестабільність пов'язується з міжнародними валютними та фінансовими дисбалансами, а відтак - з наслідками для міжнародних ринків, прогнозуванням зовнішніх шоків для національних економік. Економічна модель Китаю не змінилася за часи глобальної нестабільності.

Наукова новизна. Вперше досліджуються взаємозв'язки між зростанням економіки Китаю як основи для розвитку глобальної нестабільності та навпаки вплив глобальної нестабільності на зменшення темпів зростання економіки Китаю.

Практична значущість. Гіпотеза глобальної економічної нестабільності має теоретичні та емпіричні аспекти. Розглянутий емпіричний аспект полягає в тому, що ринкова економіка експонує інфляцію та боргову дефляцію, які можуть вийти з під її контролю.

В таких процесах реакція економічної системи на зміни в економіці посилює зміни - інфляція спричиняє нову інфляцію, боргова дефляція спричиняє боргову дефляцію. Причини занепокоєння в міжнародних фінансових колах щодо нестабільної економіки Китаю є очевидними, оскільки залежність світової економіки від Китаю зараз надзвичайно велика.

Ключові слова: глобальна нестабільність, економіка Китаю, зростання, теорія Кейнс, інфляція, експорт.

Annotation

Global instability as a determinant of China's economic development. Ornat M.R.

Purpose. The task of the article is the research of theoretical, methodological and conceptual principles of the global economic instability and its impact on the China's economic development.

Methodology of research. A set of scientific methods are used in the research such as historical, empirical, comparative analysis and others. The author considers the impact of China's economy on world economy and global instability and vice versa.

Findings. In the last five years, the global economy has experienced severe bouts of economic instability that have had devastating impacts on crisis countries. Two of the key questions facing policymakers today are how to reduce the risk of global economic instability and how to cope with it when it occurs.

Originality. For the first time conjunctions between Chinese economic growth as the basis for global instability and vice versa the impact of global instability on slowing down China's economy are being researched.

Practical value. The economic instability hypothesis has empirical and theoretical aspects. The readily observed empirical aspect is that market economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement - inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. The reasons for concern in international financial circles about an unstable Chinese economy are obvious - the global economy is now dependent on China to an unprecedented extent.

Key words: global instability, China's economy, Keynes' theory, export.

Аннотация

Глобальная нестабильность как детерминанта экономического развития Китая. Орнат М.Р.

Цель. Целью данной статьи есть исследовать теоретические, методологические и концептуальные положения глобальной экономической нестабильности, а также ее влияние на экономическое развитие Китая.

Методика исследования. В исследовании использован целый ряд научных методов, а именно исторический, эмпирический, сравнительный анализ и другие. Автор рассматривает влияние экономики Китая на мировую экономику и глобальную нестабильность и на оборот.

Результаты. Установлено, что за последние пять лет мировая экономика претерпела жестких толчков глобальной нестабильности, которая повлекла деструктивное влияние на страны, которые находятся в кризисе. Выявлено, что среди важнейших вопросов, с которыми сталкиваются политики и экономисты в настоящее время является задача уменьшения рисков глобальной экономической нестабильности и вопросы как справиться с последствиями последней. Определено, что глобальная финансовая нестабильность связывается с международными валютными и финансовыми дисбалансами, а затем - с последствиями для международных рынков, прогнозированием внешних шоков для национальных экономик. Экономическая модель Китая не изменилась за время глобальной нестабильности.

Научная новизна. Впервые исследуются и анализируются взаимосвязи между ростом экономики Китая как основы для развития глобальной нестабильности и на оборот влияние глобальной нестабильности на сокращение роста экономики Китая.

Практическая значимость. Гипотеза глобальной экономической нестабильности подразумевает теоретические и эмпирические аспекты. Рассматриваемый эмпирический аспект предусматривает, что рыночная экономика экспонирует инфляцию и долговую дефляцию, которые могут выйти из-под ее контроля. В таких процессах реакция экономической системы на изменения экономики порождает новые изменения - инфляция провоцирует новую инфляцию, долговая дефляция - новую дефляцию. Причины обеспокоенности в международных финансовых кругах относительно нестабильной экономики Китая являются очевидными, поскольку зависимость мировой экономики от Китая сейчас на беспрецедентном уровне.

Ключевые слова: глобальная нестабильность, экономика Китая, рост, теория Кейнса, инфляция, экспорт.

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