This is the Cato Daily Podcast for Tuesday, September 22nd, 2015.

I'm Caleb Brown.

China has bigger economic problems than most people know.

The problems of state-led capitalism have revealed themselves in recent years, but many of the hopes of returning long departed manufacturing jobs to the United States are also rooted in a poor understanding of how economic development works.

So says Cato Institute Senior Fellow Jerry O'Driscoll.

China's stock market crash, the recent stock market crash, indicates cumulative problems

in the Chinese economic model.

After the global financial crisis, China engaged in even more aggressive expansionary monetary

policy and government spending than did the west in order to prevent

the global recession from impacting the Chinese economy.

The result of years of this has been they built up a lot of excesses and the excesses have appeared in asset markets in in real estate markets and in the stock market.

The government has encouraged its citizens to buy stocks and encouraged state-owned enterprises to buy stocks in order to prop up the stock market.

There already has been a crash in real estate and then the stock market

was a secondary crash. And as I said, this indicates very significant stresses in the Chinese economic model.

Okay with respect to the United States how does that impact what the United States

has done with its decision recently to not begin the long anticipated process of

raising interest rates. Yes the Chinese situation impacts on the United States, first of all directly because of financial

linkages.

Remember, China is our biggest creditor and there's a lot of investment by Western, including

United States companies in China and then it has

also an impact that of Chinese economic growth slows and countries that export to China are affected.

U.S. doesn't export a lot to China, but other countries in the West do.

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