China


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Looks like the kids who came how with western degrees may have gotten their way.
That’s the last thing the world needs right now.

Liu Mingkang, head of the China Banking Regulatory Commission (CBRC), said in an interview Jan. 20 that several Chinese banks had been asked to restrain their lending after proving to have inadequate capital reserves. Chinese media reports claimed that new bank loans so far in January have risen to as high as 1 and 1.5 trillion yuan ($146-$220 billion) — approaching or equaling the massive hike in January 2009. As a result, several major Chinese commercial banks (whose names were not given) were given oral commands to stop new lending for the rest of the month.

The problem for China is that the entire economy depends on extremely loose lending policies, and when credit slows, companies in the critical manufacturing and trade sectors get squeezed. A great many Chinese companies rely on external consumers for their profits, but while exports showed growth for the first time in December, they face the usually slow months of January and February; only when spring comes around will it really be clear whether global demand has recovered sufficiently to support China’s exporters. Thus, exports are no refuge yet, and since Beijing has no intention of knocking the legs out of growth, it will continue shoving credit into the system.


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2 Responses to China

  1. warren mosler says:

    agreed!

    I just thought the comments may have some value added for those directly involved.

    Yes, we have no one to blame but ourselves for any lack of aggregate demand.

    Reply

  2. winterspeak says:

    Warren:

    China is a bit of a conundrum. They run a fixed peg fx, and run mercantilist industrial policy, which neither a western educated Economist nor a PK would condone.

    Also, a significant portion of their financial sector is essentially a GSE, where the State both directs and backstops nominally “private” lending. Again, I don’t think a western educated Economist nor a PK would condone this.

    I don’t know what inflation really is in China, and so I don’t know whether fiscal contraction — either your raising capital requirements or by some other means — is correct right now or not. Certainly, a slower China is not what the rest of the world needs, but I can’t get too mad at China for that. The rest of the world already has all the tools necessary right under their own noses.

    Reply

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