Right. Indeed. But who pays what price to whom, (as Lenin said “kto kovo”). I think the most interesting China related issue for serious political economists is if, when and how bits and pieces of the system will crack, corrode or whatever mechanics analog one might choose and what pieces of the system then will turn out to be critical for the structure as a whole. And to what extent broken pieces can be repaired in time for the structure to survive.

I spent a lot of time looking for that kind of weaknesses in another fascinating Asian non-democracy with a peculiar mixture of government, politics and business, all within the same cooptative, but mobile and competitive elite, and what you see is that these things are pretty resilient and their non-elite citizens patient and tolerant for leadership imperfections, as long as certain boundaries are not crossed (as these elites apparently believe themselves and which according to some is an important principle of policy making). If you can move the market like one would like to move the hole on a green during a game of golf, it gets a little easier for the player with that capacity. Likewise, economics becomes a different game when you can manipulate markets and politics – indefinitely?.

I think we’ve seen this in China, and it’s certainly been a theme in small oligopolistic banking markets such as Hong Kong and Singapore. In Hong Kong, HSBC has had around 50% (or more) of local deposits throughout Hong Kong’s history. Deposit rates have been so pathetically low, that it made more sense to own HSBC stock and take the dividend or take out an HSBC loan to buy an apartment. Perhaps China admired this model and saw it as a convenient way to develop their own HSBCs…

Thank you for your posts.
Stefan

We have the ABC IPO and capital raising needs by BOC, CCB and ICBC all coming up. Someone may have to wait till 2011!

Also i hear rumours today that next years total new RMB lending target will be about 7.5 trillion

Here, condo speculators tended to be highly leveraged (often less than a 10% down payment) and intended to sell within a few months. In China, people put 50% down and seem content to sit on an empty, unfinished condo for years.

On the one hand, China’s situation would seem to be less prone to the explosive fall in prices deleveraging brings about. On the other hand, this apparent safety seems to have allowed the over-building to go much further. Booming Shanghai has higher vacancy rates than Manhattan saw in 1933.

I can’t get my head around what the optimists see as the outcome. That growth will suddenly increase at a rate that will both allow the development to continue and absorb all the empty buildings over the next 4-5 years? Or that the appetite to buy and service empty buildings continually increases?

The Fed is incentivizing the same sort of activity here. Rates set at zero so banks are spraying capital everywhere in hopes of landing high yields. Abolish the Fed!

Your posts are usually close to the frontier of (often missed) reform opportunities in China. What is happening in the Chinese financial system is typical of a mixed model/developmental state/state-led economy. China has retained state capitalism where it is not a political burden for the ruling party. And the party (or organized elite) has the means to extract a lot from the rest of the population, as long as some semblance of bevenolence can be maintained. Not very good for efficiency but not harmful enough to cause riots.

However the banking system will be the scene of some interesting micro-political spectacles. But there is always CIC to support new issues.

In the US one of the main reasons net savings rates tend to fall with interest rates is that households borrow more for purchases like cars and home remodeling with lower rates. It is more that borrowing rises, not that saving falls. But in China I don’t think most households have that option.