I don’t have time to do a long entry today, but in my June 30 entry I marveled at the huge explosion in new lending, and claimed that credible rumors suggested that total new loans for June would be an astonishing RMB 1.2 trillion. That would bring total new lending for 2009 to RMB 7.06 trillion, nearly three times last year’s first-half total of RMB 2.45 trillion.
Well, I was wrong. Here is what an article that just came out on Bloomberg says:
China’s new lending more than doubled in June from a month earlier, increasing concerns bad loans and asset bubbles will emerge amid a credit boom.
New lending was 1.53 trillion yuan ($224 billion), the central bank said on its Web site today, bringing total lending this year to 7.4 trillion yuan. The calculation for new loans is preliminary, the central bank added.
The government is countering an export collapse by flooding the economy with money to fuel domestic demand. Rapid credit growth poses a risk to the nation’s lenders and a concentration of credit in some industries and businesses may damage the stability of the financial system, the banking regulator said yesterday.
“Excess liquidity is fueling speculation and that means asset bubbles and wasteful investment,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. “Expect credit to slow dramatically in the second half.”
I was more than 20% too conservative in my prediction. This is the third biggest month in history, and of course all three of them occurred this year.
Today bank stocks were down, on rumors that the very high and clearly unsustainable loan growth rates would soon come to an end. If you need any evidence of how topsy-turvy things have become that fact should be enough.
Under “normal” circumstances the possibility that banks would continue to force new loan growth at anywhere near the current rates should raise terrible concerns about an explosion in future loan losses and cause bank stocks to collapse. Instead, it is concern that this lending spree might come to an end that causes bank stocks to fall.
Of course this might not be totally irrational. If you believe, as most of us do, that there is an implicit guarantee by the government on future loan losses, then this is clearly a heads-we-win, tails-the-government-loses proposition. Let them pile on the loans at the guaranteed spread between lending and deposit rates.
I guess it is time to introduce something that I might call the Pettis Rule of Banking (although I am way, way down on the list of people who first thought of this): “It is not even theoretically possible in a banking system in which bankers are given unlimited liquidity, tremendous pressure to make loans, and an implicit guarantee against losses, that enormous amounts of bad loans will not be made.”
It seems like the US and China are each trying to out-inflate the other. Whose printing press can run the fastest?
There’s more than a touch of crazy in all of this. I keep hoping those guys know what they are doing but it gets harder to believe that. Given that the Chinese people are well known for their attraction towards saving, their government is trying to force them to spend. The conclusion is likely to be a rush toward assets, no idea exactly what.
Re: topsy-turvy
Where is this money coming from? Are we to assume that reserve requirements were high enough previously to allow this credit expansion now? What small ratio of NPL’s can do this in?
“If something cannot go on forever, it will stop” -Herb Stein
“In economics, things take longer to happen than you think they will and they happen much faster than you thought they could” -Rudi Dornbusch
Two of my favorite economist quotes that I think are applicable to China’s stimulus strategy. I suspect that, aside from the stock market and commodity stockpiles, “stimulus” is essentially plugging holes in working capital and cash/financing needs of politically-connected and insolvent state-owned enterprises. If the Chinese were serious about stimulating and rotating their economy away from a mercantilist, export-driven regime to a domestic consumption regime increasingly focused on services, then they would spend/invest/underwrite more of a social safety net than the mere low-single-digit percentage allocated in November’s stimulus plan. Nobody forced China to accumulate $2 trillion in reserves; nobody is forcing China to sit on the bid in USDCNY; nobody is forcing China to buy Treasuries and keep US long rates low and flat despite the deficits; nobody is forcing China to lend at the amounts and annualized rates Professor Pettis details. How competitive would Chinese companies be if the currency adjusted in accordance with GDP / capita and savings vs investment ratios since the 1994 pegging, or at least since the worst of the Asian crisis had passed? Actions speak louder than words, and to me China has made the choice already as to whether it wants to rotate its economy away from Chinese exporter/foreign consumer subsidies to local consumer / foreign producer subsidies which will help ameliorate the global imbalances along with a secular rise in the US household savings rate.
But, just like with the US housing debacle, I feel the entrenched interests are too robust and the connected and elites too leveraged to the status quo to accept the necessary changes. Just like the US housing bubble, the lending spree and state-driven capital allocation will go on longer than anyone thought possible. And, just like the US housing debacle, only crisis will compel change.
Keep up the excellent, detailed, and objective scrutiny on this, I think you are definitely onto something.
Deposit growth was 2 trn yuan.
Prof. Pettis,
Do you use any models to assess what proportion of lending might migrate to the Non-performing categories?
I know fitch were trying to look at historical trends earlier this year, but I don’t think historical trend analysis is much use given the very extraordinary nature of these 7 months’ lending.
If 10trillion this year means that a 10% rate gives us 1 trillion of new NPLS, then this would seem manageable (presuming the economy recovers in time) given historical precedent.
10% might be wishful thinking though?
So the banks are making a lot of bad loans (real estate in particular seemed overdeveloped on my visit there last month).
So the government will eventually have to bail them out (again) with a big recapitalization scheme.
So what’s the downside?
-More government debt, for sure, and somewhere for Chinese to plow their savings.
-An unsustainable level of lending that will have to be replaced with private borrowing for investment and possibly government deficit spending to maintain full employment.
Eventually growth runs into some heavy headwinds in China, but I still think that’s a very long way off. There’s still a whole lot of wiggle room in an economy that is extremely competitive globally, and with a wealthy government in control of industry and its banking system.
DBS point out in their breakfast spread the other day that the credit is unlikely to be turned off before National Day celebrations are over
[...] Michael Pettis, professor of finance at Peking University, asks if we can “turn this thing of?” He remains certain that this rapid increase in loaning will definitely bring come with an increase in non-performing loans. This does not worry Chinese banks says Pettis because there “is an implicit guarantee by the government on future loan losses, then this is clearly a heads-we-win, tails-the-government-loses proposition.” [...]
Michael,there is more. If there is interest on this money, more lending has to occur so that the borrowers can get enough cashflow to pay the interest. There is something few understand, that savings equals debt in a credit economy. All we heard about in the 1980′s was the saving rate in Japan. What happened to Japan. Of course it collapsed on a pile of debt. In the China case, bank assets equal debts as well as liabilities of the bank. If this money is being used for asset purchases, then it is clear that we are looking at a collapse in the near future, unless those that sold the assets are interested in buying them back at the same price or higher. At some point this debt will become someones savings, someones cash balance or in a longer term someones bond. It will always be someone cash balance until compound interest consumes it.
“Tel” repeats something I hear over and over; both the U.S. and China are doing the same thing – but of course they are not. The Fed has made massive capital AVAILABLE to the banking system, but very little of that available capital has actually been lent; in China, the money was pushed THROUGH the banking system into the economy. In the U.S. there is fear (and lively debate) of inflation, but the Fed is confident that because of new legislation which allows them to pay interest rates on bank reserves, inflation will not be a problem. In China?
For graphical details look at B. Setser’s blog today and links from there.
“Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.” Mark Twain
Couple of interesting articles from Bloomberg today.
“China failed to complete a 28 billion yuan ($4.1 billion) government bond sale for the first time, as the central bank withdrew cash from the financial system to reduce inflation pressures.”
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a._DuMu6TXPg
“The central bank extended settlement last week by offering companies in Shanghai and four southern cities tax breaks to start conducting trade in the currency with Hong Kong, Macau and the 10 members of the Association of Southeast Asian Nations, which includes Indonesia, Thailand and Malaysia.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=aqA9QhRSNeqM
I’m not an expert but here are my thoughts:
Tel: Yes China and the US seem to be in a printing race. There is a semi-logic to this from the Chinese perspective: it keeps the exchange rate where China wants it to be. The alternative would be for them to keep buying USD, which they are doing as well. China have also been quite clever in this…. lending Asian economies RMB to help stimulate their economies.
Anonymous: Yes China has a lot of problems trying to redress the balance in it’s economy and yes, no-one forced China to accept T Bills or to continue buying T Bills. They are stuck between a rock and a hard place. Having accumulated this massive position in T Bills (having listened to the argument that they were as good as the paper it’s printed on) they now have to watch the Fed print money effectively watering down the value of Bills they are holding. So, the question is why don’t they stop? Well, with the Fed printing money, if no-one buys it, the value will collapse. Therefore, China has no option but to continue buying or risk the value of their USD reserves collapsing. They have slowed the rate at which they buy T Bills, but can’t stop altogether.
Do China have an alternative to T Bills? As far as i can tell, there are no currency alternatives, so they have (reportedly) been buying commodities to stockpile and use in the future.
PS I think it utter madness that China loan growth has exploded in this fashion. I view it as throwing money at a problem, hoping that it will solve it but not having much idea what the problem is.
Prof. Pettis
Do you have an email at which i can send you a chart. I can’t seem to post graphics here?
Houhui, last time around estimates of NPLs ranged from 20% to 40% of bank loan portfolios. This was for the total loan portfolio, not for new loans in a given year. We don’t know for sure because accounting treatment in China is pretty generous, but if 20% of loans go bad, that would be the equivalent of roughly 30% of GDP or more. If we assume that 20% is recoverable, that still adds contingent liabilities for total government debt of 25% of GDP.
By the way I probably agree with DBS. Especially after what has happened in Xinjiang I don’t think the government wants to risk a slowdown before the national holiday. As for your last question, my email address is Michael@pettis.com
Barry, the key is whether the new lending can generate sufficient cashflows to pay interest as well as at least partially amortize principle. We don’t know, and won’t for a few years, but with corporate profitability falling and debt servicing rising, it doesn’t do to be too optimistic. It is interesting that while car sales have surged 18% during the first six months of the year, according to Bloomberg, car-company revenues were down 2.3% and profits down 9.9%. This is a weird model. Normally, when the number of cars sold surges, so do profits and revenues. While bank analysts are loudly proclaiming the end of the crisis for China, I am more puzzled than ever by the weirdness of the numbers and by how rising debt and declining profits translate into health.
Ken, I am not sure I would characterize Chinese lending to Asian countries as necessarily “clever” so much as a short-term stop gap. As US net demand contract, China hopes that by financing current account deficits in developing countries these developing countries can replace US net demand (by running trade deficits, of course). But I suspect that either these countries will sharply resist the corrosive impact on their own manufacturing sectors or they run into a more unstable form of what I probably shouldn’t call the Triffin dilemma, but I am not sure if there is a name for this problem: China’s need to run trade surpluses to export overcapacity requires that these developing countries run up debt to pay for the consequent trade deficits, but as they do, and as their credibility consequently erodes, they begin to experience capital outflows that either force the trade deficits to disappear and become surpluses, or force China to assume huge amounts of credit exposure to increasingly bankrupt countries. The US can run up almost unlimited amounts of debt to finance current account deficits. Very few other countries can, and especially not developing countries.
[...] Lending in China explodes in June, new lending for 2009 already 3 times rate of all of last year [...]
A friend sent me a copy of “The Debt-Deflation Theory of Great Depressions”, by Irving Fisher, a couple of months ago and I think it is very relevant to China, more so than the US at this point. One of the main ideas is the need to reflate the economy to stave off deflation, otherwise “deflation casued by debt”, taken to mean overinvestment in productive capacity, “reacts on the debt and each dollar of debt still unpaid becomes a bigger dollar.” Or yuan, for a company in China. If we are to assume that in the Chinese context that net bank lending substitutes for monetary tools used in more advanced financial economies, than it would appear that the PBOC is trying to reflate in order to avoid a rapid contration in industrial activity, with the added bonus of putting a bit of downward pressure on the RMB. If this interpretation is correct, these loan figures do not seem that nutty, especially given the size of the net demand gap that China is trying to fill until external demand stabilizes. So what would be wrong with pumping a few trillion yuan into the state-owned banks in the next couple of years to clean up the messes that will probably show up on their balance sheets? All in all, the banks are the most efficient conduits for stimulus, and letting them spend now with the expectation that the government will clean them up later (when its own revenue streams pickup again) seems….full of Chinese characteristics, but effective nonetheless. Would we react differently if the government took on a 10% deficit this year on its own books to bolster the economy? Waste will no doubt be abundant, sure enough.
CNM, you may be right, but I think it is important when we are considering the impact of monetary expansion to work through the way in which the expansion occurs, rather than assume it works everywhere the same way. So if reflation means using monetary tools to expand demand, as it typically does in the US, I agree that it is a useful way of addressing overcapacity.
In China, however, given the structure of the financial system reflation seems to mean using monetary tools to expand production further, which won’t address the overcapacity problem. On the contrary, I think it will ultimately excaerbate it. In addressing the distinction between total demand and net demand I have tried to make this point before.
Yes, it could well exacerbate the overcapacity problem, and in this light they seem to be trying to buy time to find another way out. Not sure that there is one. Japan did not face demographic/employment pressure on the scale that China does, nor did it face the current prospects for global consumer markets that are out there today. In the Fisher article reflation was geared towards the supply side, which is why I cited the relevance to China today.
Perhaps related:
I wonder how this years spending splurge as well as the various vague warnings of the dollars waning strength relate to China’s April increase in gold reserves for the first time in nearly 7 years? Morever, by a substantial amount, about 40%. It will be interesting to see if that is only a one month bump or a new policy… Could this be the first steps of a withdrawal from the dollar towards other investments (if not currencies, then commodities)?
A few links:
http://www.pbc.gov.cn/english/diaochatongji/tongjishuju/gofile.asp?file=2002S6.htm
http://www.pbc.gov.cn/english/diaochatongji/tongjishuju/gofile.asp?file=2009S09.htm
Prof Pettis. Thank you again for your responses.
I seem to remember that during the 1999 / 2000 NPL clear-up a lot of the NPLs (alledgedly most of them, although i am not sure if i believe it) were supposed to be very old loans dating back to before key banking reforms in 1997 (?may actually be 1995 or ’96 – i can’t remember?).
Do you have any comments on the 5-tier system and the flexibility on the special mention —> NPL classification?
Michael,
What do you think of the surge in auto sales? So you view that as consumption growth and a positive to help rebalancing the world economy. Or, is it only driven by rebates and govt induced ledning that will lead to more npls?
Thanks,
David
I think the National day thing sounds like a good date…
Bloomberg carried another article today about a Chinese government failed debt auction, suggesting that it demonstrated that the Central bank are already beginning to suck out some liquidity…
In regards to Anonymous’s comments about how these episodes can go on for what seems impossibly long periods, I definitely saw that here in the U.S. as I was a close follower of the events of 2005-2007.
During that entire period, there were people pointing out the inevitable collapse and how lending standards had become a joke. I read in the WSJ how option ARMs were being used as “affordability” products. I read at Loan Performance how HALF of subprime loans in California were being refinanced within 12 months. CalculatedRisk documented the whole thing.
And yet it wasn’t until February 2007 that we started seeing concessions from the powers-that-be that “some types of loans” in “some markets” might pose problems. A year later, Bernanke was still calling the meltdown contained.
China is unlikely to recognize that all this lending has created a problem until it has absolutely no choice.
Michael, again I’ll preface that I’m no China expert. But I’ve been following a lot of analysis and I have a question. Relating to the earlier post about Fischer and Debt deflation, it is clear that China is in the role of the US in the early 30′s where the US (today) is playing the role of the overspending Europeans of the late 1920′s and 30′s. The US was the creditor nation then with great overcapacity. I have commented recently that I believe that China will blow through a lot of their $2 trillion in reserves over the next several years trying to keep up the mercantilistic behavior and I don’t think it will be successful (at least not a great success). This comment is based on the fact that I think we have a double dip recession in the US and then very poor growth (less than 1%) for years to come. Here’s my question, what kind of reserves did the US have going into 1930 relative to GDP versus what China has now relative to their GDP? I realize with the US tied to the gold standard in 1930 and China not allowing its currency to rise make for apples and oranges and its difficult to see how this plays out. I was just curious about the relative ratios of reserves to GDP. Thanks for your great info.
I have seen Keen referenced here. I briefly looked at his models. He wrote an interesting article “not keen on bailouts” where he points out that the relative amounts of debt/gdp/total economy. What is 1T of stimulus? For the US it wasn’t much, but for China?
Bottom line for the US was that reflation was difficult given the numbers. We have had a more aggressive version of liquidity injection in the form of QE but still. It seems the numbers have stabilized.
The point of “% of performing loans” is not part of Keen’s models but very important nonetheless. I have been noodling about this. For an example see venture capital in the US. VC expect 10x return because 1 in 10 makes it (roughly). So whether it is 10-20 or 30 is only relevant in the face of what the performing assets do. If the performing assets do 40 then a loss of 30 on the rest still yields 10 net growth. This is the classic Keynesian/monetarist argument that in the short run a monetary boost can result in real net economic growth, the basis of “stimulus” thinking.
Keen’s model are based on exogenous shocks (he lowers the velocity by 30% at the moment of shock). This result in temporary breakdown of the 6 coupled variable models. I have been searching for an endogenous shock and it may be in the performing loans vs growth difference. While you are positive you are stable, when you go negative you become unstable by negative feedback loops: for example cash flow needs cannot be effectively met as you have been piling claims on futures. So you don’t invest, so you have less growth and so on in a loop. That loop is exactly what QE tries to debunk in a fake way by increasing numbers artificially. QE: How to make a recession look like growth.
The main point is well taken, that it is always difficult to turn off the spigot once it is open. The US had become dependent on this monetary growth to show “growth”. Politicians cannot resist.
[...] Professor Michael Pettis adds some insight, which should terrify you: [...]
[...] RMB 1.5 trillion in new Chinese lending — can we turn this thing off? (Pettis) [...]
In support of MP on CNM’s comments: While it would be helpful to “buy time”, I am not sure that easy money gets us that. I actually think the problem will be exacerbated. As you wrote, the problem isnt the lending per se but the futility of channelling it to subsidizing global over-capacity. If such lending supported not speculation in financial assets, but companies that reduced the future burden on the government or increased employment and stability, it would be worthwhile and ease the pain of this global contraction both within China and globally.
For years, China has taken from its consumers (workers and farmers) to build a export class. For a society with somewhat of an inverted demographic pyramid, it is not irrational to sacrifice current consumption to put away wealth needed for the future. However, the concentration of wealth, its leveraging up in risky schemes (again at the expense of the average Chinese), is dangerous and the preception of wealth an illusion. It magnifies the problems facing the govt — esp. one of stability. Easy money like this does not ease the demographic/employment pressures (while inflation may actually make the situation a lot worse).
I would be curious to see how inflation is faring in China. Thankfully, I think this particular recipe should build inflating asset prices (like real estate) but stable prices for common goods (food, rental housing or even energy).
How can credit (= money, no?) expand so much and the CB keep the currency w/in a 25-50bps range all year?
I think the mayor elementof the NPL will be the export.
First of all,if the new lending go into the capacity increse AND the export decrease,then we have a lot of NPL,and as the quantity of the loans increase,then the % of the NPL loans increase (and I think that even the 2008 loans was quite bad)
And if the export will fall,then the NPL will decrease overnight.
Is there a mismatch between the owners of debt and the owners of assets (e.g. government — even large proportions of the market capitalization of the stocks on the exchange are owned by the government right?) whereas it’s “private” people who have borrowed?
I’m contrasting this with the US where both lenders and buyers are private enterprises. If there is a debt bust this would imply that whereas in the US where borrowers can sell their shares and sell other assets to repay debt, that same escape valve does not exist in China today.
How should one think about this? I’m used to thinking about asset liability matches… but not ownership mismatches.
with an estimated 1/3 of new lending in Q1 having already gone into Chinese casino, I mean, stock market, and more are chasing bubbles in residential real estate market (the “miraculous” rebound of apartment prices in large cities like Shanghai and Beijing in the face of economic decelaration), I don’t know how much of this monetary expansion is being put to productive use, or there is really any sectors left that can obsorb this massive investment without turning them into bad (unproductive) loans. Frist Japan, then US and Europe, now China in its last ditch effort to revive its unsustainable pace of growth and real estate bubble, this should bring us full circle to the beginning of a trully deflationary era, that is, after the collapse of Chinese asset markets.
[...] A runaway train? [...]
[...] expert Michael Pettis writes: Today bank stocks were down, on rumors that the very high and clearly unsustainable loan growth [...]
bcg81 & cnbear FTW so far….
I have no TV and shy away from moving images in general when it comes to conveying hard information. But I think FT’s John Authers is onto something with his “Short View” format of 3-minute videos (no subscription required). Check this one out.
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=6397103&fromSearch=n
re: the US and China’ 1930 comparisons.
A big difference (though not purely economic) is that China is not a democracy and makes no claims to be so, and its governments age is relatively young – only 60 years.
“We don’t know, and won’t for a few years, but with corporate profitability falling and debt servicing rising, it doesn’t do to be too optimistic.”
Corporate profitability was falling. It isn’t anymore. Profits have recovered significantly during March – May. There’s a pretty good inverse correlation between China PPI and profit margins. That’s not surprising given how important manufacturing is for China’s domestic profitability. PPI fell -7 in the year up to May. Expect to see Chinese profitability recover as lower raw materials prices and increased demand from the loans splurge hits home.
BTW 25% of GDP for NPLs isn’t too high, when you think how much the US has spent bailing out its banks $13 trillion at last count.
Alan, thanks for the link, interesting set of short videos for all of us with minuscule attention spans. In particular the video that you picked to post left me chuckling about the inability of most people in mainstream finance to grasp the implications of gross vs. net demand, not to mention the potential downside to a massive increase in money/credit supply, two topics that this blog has often illuminated for me.
[...] And if you need to know the size of the new loan package China had announced, do see RMB 1.5 trillion in new Chinese lending — can we turn this thing off?. [...]
Hello Michael,
Absolutely with you on this. Are you in Facebook? Come link me if you are. It is a really first rate way to disseminate instant news and opinion in a very succinct (50 word) fashion.
Michael: “It is interesting that while car sales have surged 18% during the first six months of the year, according to Bloomberg, car-company revenues were down 2.3% and profits down 9.9% profits are actually dropping. This is a weird model. Normally, when the number of cars sold surges, so do profits and revenues. ”
Great point Michael. This apparent anomoly may be explained by a changing sales mix in the car business. Mid last year sales tax on sub 1.6L vehicles was lowered, 1-6L to sub 2.0L raised slightly and over 2.0L tax was hiked quite a bit. This has resulted in quite a boom for cheap, compact cars. Last weeks Xinmin Evening Post (Shanghai) Cars Section had a listing of the top selling models for the first 6 months of 2009 (damn I didn’t keep it). What struck me was several top 10 models were compact cars, including a couple of local brands, and small cars dominated the list. Toyotas Camry and Crown were doing quite poorly with major drops in sales with only the Corolla holding it’s own.
Purchasing behaviour may be influencing the mix, partly driven by tax policy and partly by the expansion of the car market into the middle class in Tier 2 & 3 cities where consumers are seeking cheaper options. Fuel prices remain relatively high and don’t look like dropping soon.
China Automotive Information Net reports that 1-1.6L cars now makes up 63% of the total passenger vehicle market and 1.6-2.0L cars make up a further 21.5%. This is generally the cheap end of the market. Unfortunately I couldn’t get year on year comparative stats, but it could take stronger growth in the lower end sector and a drop in the higher end sector to result in a drop in overall revenue and profit.
[...] Excerpt from: RMB 1.5 trillion in new Chinese lending — can we turn this thing off? [...]
In the words of a great religious philosopher, “The chickens are coming home to rooooost!”
China followed the Japanese model in building their economy. Peg the currency to the dollar, when a company receives dollars it exchanges them for RMB’s. Then the bank goes to the central bank and exchanges the newly received dollars for newly minted RMB’s. The resulting RMB’s were required to be put into government bonds, thus sterilizing the new RMB’s and preventing them from becoming inflationary. However, recently the sterilization requirement was lifted and now banks are free to lend all this new money. Thus we are going to see hyper-inflation in China. All their talk of replacing the dollar is about deflection. They are blaming the US for all their problems and thus masking the real reason for their ills. But the wheels are coming off this bus rather quickly and it won’t be long before interest rates spike and the losses mount. And that trove of two trillion US will be but a memory.
http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=43ed27756df62210VgnVCM100000360a0a0aRCRD&ss=China&s=News
HEre is an SCMP article suggesting that there may be major changes coming economic policy this year.
Can’t read it. Requires subscription.
OK, I read the article with trial membership, but I dont think it contains much news.
They have always been saying that they want to decrease the urban rural wage gap and also to increase consumption. But not much has been done IMHO.
[...] expert Michael Pettis writes: Today bank stocks were down, on rumors that the very high and clearly unsustainable loan growth [...]
[...] Our quote comes from Michel Pettis, a professor at Guanghua School of Management, via his blog, China Financial Markets. [...]
[...] is from Michael Pettis’s China Financial Markets. It should probably be like the Pledge of Allegiance used to be in school, a required recitation [...]
[...] 1.5 trillion in new Chinese lending [...]
This site is now blocked in China
Prof. Pettis,
There are a number of skeptic views regarding China. Among the most interesting is by Hugh Hendry, a famed British hedge fund manager. He views China as a deep & out-of-the-money call option on US GDP growth.
His skepticism is expressed in these interviews:
http://www.youtube.com/watch?v=AdbUAX_y9jk&feature=related
http://www.youtube.com/watch?v=bl_Uiv89Tck&feature=related
and his claims on Chinese-induced commodity boom:
http://www.youtube.com/watch?v=7AWD-05oRTc&feature=related
Furthermore, there are also interesting views that China is actually now panicking… hence the trash-talks about the dollar & new world reserve currency (although there were many more fortunate times to do this, if it really was China’s goal), and the phenomenal boom in lending.
One summary of those views is this:
http://www.howestreet.com/articles_as_pdf/2009Jul101124bsccc071009.pdf
How much in agreement are you with these views? Perhaps you have more good points to add to the issue? Thanks in advance for your insights.
Best regards,
Roger
[...] Pettis seems to think so, and I rely on his insights: RMB 1.5 trillion in new Chinese lending — can we turn this thing off? and, I wasn’t impressed by China’s high reserve and GDP growth [...]
[...] this to China where the banks have lent a reputed 7.4 Trillion yuan – more than the budgeted 5.6 trillion. Austrian economics says that if you inflate the money supply [...]
[...] estate trip in China (Pettis) – RMB 15 trillion in new Chinese lending, can we turn this thing off (Pettis) – China: Bogus Boom? (AEI) – Beijing Borrows $8.8 Billion for Financial District (Bloomberg) – [...]
[...] Though I’m not a macro economist, this seems plausible: if individuals are cutting consumption to rebuild their balance sheets and corporations are cutting investment in the face of slack demand, then the money forced into the system by the central banks has few places to go. Of course, the article also notes that China is expanding the money supply so rapidly that new bubbles seem a virtual certainty. As usual, Michael Pettis has the details. [...]