The slowdown in money growth is having a major impact in China
New bank loans last month dropped 33 percent from March to 681.8 billion yuan. According to Bloomberg, a third of April’s new credit was also so-called discounted bills, or short-term loans often used by banks to pad the total figure.
The Chinese government is likely to make matters worse from here. The government's powerful State Cabinet announced yesterday,
a series of “key infrastructure projects that are vital to the overall economy and can facilitate growth,” and a plan to speed up construction of existing railway, environmental protection and rural project.
These are all make work projects that will drain capital from the private sector. The last thing China needs is more ghost cities, airports and railway stations.
The trap no political leaders can avoid:
ReplyDeleteIt's better to do something - even something wrong - than to be perceived to be doing nothing. Even if non-interference is the best course of action.
The "planned economy" mindset, however, is deeply historically ingrained in China, so perhaps it's unrealistic to expect much else from the Chinese government... unlike a certain other supposedly capitalist superpower whose leaders should understand "mis-allocation of capital" and really ought to know better.
If China's expenditures on infrastructure are considered to be draining the private sector of precious investment capital, then does government infrastructure spending by western governments not do exactly the same thing? Of course, it does!! That's why sovereign re-engineering following banking crises has a muted benefit at best while overlaying on the society the burden of huge additional debt - 86% on average according to Reinhart & Rogoff (This Time It's Different).
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