The 19FortyFive reports that Chinese policymakers pressure banks to meet strict loan quotas to boost the economy.
Clever bankers are lending while simultaneously allowing borrowers to deposit comparable amounts with their institutions at identical interest rates to reach challenging targets.
Companies no longer want funding to start new initiatives. The dominant way of thinking in Chinese boardrooms and the rest of society is pessimism about the economy.
The collapse of the Chinese economy is not the big news. It’s in contrast to the export industry. China’s stimulus programs are not effective. To sum it up, the nation’s economy is worn out.
When past economies appeared sluggish, China’s business community could rely on the central government to spur growth through massive stimulus initiatives. After all, that is how former Premier Wen Jiabao managed to keep China from contracting during the 2008 financial crisis while the rest of the world suffered.
Wen overdid it. Beijing increased credit by an amount comparable to that of the U.S. banking system over the five years that started in 2009. At the end of 2008, the premier flooded an economy that was only a third the size of America’s.
Wen overreached. According to Anne Stevenson-Yang of J Capital Research, the Chinese have equated their nation to a train with its last car on fire. To ensure that the flames blow backward, the train must move quickly. As soon as the train begins to sluggish, the passenger cars catch fire.
According to Stevenson-Yang, author of China Alone: The Emergence from and Potential Return to Isolation, “that is China with debt.” You can keep refinancing the previous debt if you add enough money to the system, but you have to increase capital exponentially.
The nation has been accruing debt enormously, possibly seven times more quickly than it has been producing a nominal gross domestic product.
Nobody knows how much debt China has accrued, but the entire country’s indebtedness might be an amount equal to 350% of GDP. The percentage may even be higher due to the infamous “hidden debt” and Beijing’s overstatement of economic output.
Regardless of the amount of debt, senior Chinese authorities are confronted with issues they cannot resolve, as evidenced by, among other things, defaults by significant real estate developers, the so-called “mortgage boycotts” in which homeowners refuse to repay debts, and bank runs.
The Communist Party is aware of this and has known it for a long time. In 2007, Wen Jiabao described the state of the economy as “unstable, imbalanced, uncoordinated, and unsustainable.”
The failure of Evergrande Group last fall, which effectively led to other defaults in the critical real estate industry, serves as a warning of what will occur across the nation. No longer is there any chance for the government to avert one of the worst economic crises in recorded history.