Can what made the US sick make China well?

It seems ironic that in the crazy scramble to protect itself from the consequences of the US collapse of the US debt-growth model, China has headed down the same path.

As my fellow blogger Paul Hodges pointed out last Friday, official concerns over the bubbles in equity and property markets are increasing.

Zhang Jianguo, president of the 2nd largest bank, China Construction, has announced a 70% cut in H2 lending to Rmb 200bn ($29bn), “to avert a surge in bad debt”.

What’s also alarming is that the government is getting increasingly alarmed that too much lending has gone into speculation rather than where it’s supposed to go – investment in infrastructure.

This again raises the danger that chemical companies have made unrealistic assumptions about underlying demand.

And this article, by Chen Changhua writing in the Chinese newspaper, Cajing, includes the following point:

“How quickly a country can recover from an economic slump is determined by the productivity of the country. Japan has not been able to recover from the 1990s slump mainly because there are not enough competitive new-generation enterprises to replace old enterprises. “

He warns the same fate could befall China unless the state-owned enterprises, the beneficiaries of much of the huge amounts of new lending, face tougher competition from the private sector.

Never underestimate the power of vested interests.

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