More on Craziness of China's Stimulus

by Dollars and Sense

From The Financial Times. Here's a taste:

This was thanks largely to the government's Rmb4,000bn ($585bn, 409bn euro, 355 bn pound) fiscal stimulus and the Rmb7,370bn of new bank loans extended in the first half of the year, triple the amount lent in the same period a year earlier. Economists at BNP Paribas estimate that the loan expansion was equivalent to 45 per cent of half-year GDP and say they know of no other economy that has created credit on such a scale since the second world war.

This lending boom, carried out by the country's state-controlled banks on the orders of the central government, has raised concerns that much of the money has gone to borrowers who will not be able to pay it back. "I worry what’s happening now is similar to what happened in the US in 2001--the government is flooding the economy with cash that just ends up papering over the problems," says a Chinese corporate executive who used to live in the US.



Rule of the iron rooster
By Jamil Anderlini
Financial Times
Published: August 24 2009 20:19 | Last updated: August 24 2009 20:19
Under the leadership of the Communist Party, the people in China brace up to cope with the financial crisis and have scored marked successes to the worldwide attention. High-level figures from the western political and economic spheres...envy China's superb performance...as well as "China's spirit"--the kind of solid, unbreakable "Great Wall" at heart to ward off the financial crisis.


English-language editorial in the People's Daily, official mouthpiece of the Communist party of China, July 30


China's rulers can be excused a modicum of less-than-grammatical gloating after the economic rebound the country has achieved in recent months. With its quick and overwhelming response to the crisis, Beijing appears to have engineered a powerful V-shaped recovery and by most estimates is on track to exceed the 8 per cent growth target it set at the start of the year.

Official readings of industrial production, fixed investment, power consumption and gross domestic product all show a strong revival, while equity and property prices have soared in recent months. There have even been signs of a recovery in exports, although these are still about one-quarter below the levels of a year ago.

But a growing number of economists and officials say the positive growth data hide worrying structural imbalances and the government’s response to the crisis may only have postponed an inevitable reckoning. With the world looking to China as a beacon to lead the way out of economic gloom, a second downturn would have a big impact on global confidence, not to mention commodity prices.

"There is such a thing as good 5 per cent growth and bad 8 per cent growth," according to one senior adviser to the government. "We worry that what we're seeing falls more into the latter category."

On an annual basis, China's economy grew 7.9 per cent in the second quarter, well up from 6.1 per cent in the first quarter. If measured sequentially the rebound was even more obvious, economists estimate, with seasonally adjusted quarter-on-quarter growth at zero in the fourth quarter of 2008 but picking up to 3 per cent in the first three months of this year and as much as 16-17 per cent in the second quarter.

Read the rest of the article

Labels: bailout, bank lending, China, financial crisis, speculation

 

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8/25/2009 09:44:00 AM