A final quick one on China – policy constraints

We’ve done local colour on China property, plus some horror graphs already today. Now a proper China watcher, Michael Pettis, chimes in, over at Ed’s place, with more background, especially on the interest rate policy bind that the Chinese are in. With respect to rate rises, his verdict in short form:

they’re damned if they do and damned if they don’t

There’s plenty more to it than that, so read the whole thing, of course. Note also that he is more sanguine than your scribe about how long the ball can be kept in the air. though that mild optimism is balanced by this all too plausible guess at how things really are, behind that report on local authority loan losses:

I would suggest, based on my pretty extensive experience in emerging markets, that we should assume the real problem is worse than the initial evaluation.  It almost always is.

For my part, I think there has already been a tightening of sorts, via the regulatory change that I remarked on already today:

But analysts say the apparent success of the clampdown on lending disguises a worrying new trend that involves banks co-operating with lightly regulated trust companies to keep loans off their books.

The regulator ordered a stop to this type of lending at the start of the month.

So I suppose we just keep our ears open (and we might want ear plugs).

Print Friendly, PDF & Email

2 comments

  1. DownSouth

    Richard Smith said: “So I suppose we just keep our ears open (and we might want ear plugs).”

    Amen for those ear plugs—-always better to bury one’s head in the sand than face a corrupt and treacherous world head-on.

    It seems the entire global economy is being kept alive with just a prayer and a hope. We can now add China to the list of the world’s danger zones that have the potential to blow the entire global economy to smithereens. Layer China’s uncertainties on top of the problems facing the Eurozone and the Anglosphere and one is left wondering where all hell is going to break loose first.

    Oh well, here’s hoping you’re wrong, but scared to death you’re not.

  2. Sundog

    I don’t know what to make of Pettis contributing to Ed’s blog. The post appears on Pettis’s own site, too.

    http://mpettis.com/2010/07/the-pboc-can%E2%80%99t-easily-raise-interest-rates/

    The Chinese are smart to have Pettis teaching in one of their top universities, and unlike a certain banker who’s got top-level contacts in China and seems likely to continue parroting the CCP line in his new teaching position, Pettis calls ’em as he sees ’em.

    Speaking of China, I haven’t read Ian Bremmer’s book but have listened to him talk about it a couple of times (links escape me at the moment). Something about him rubs me the wrong way — I suspect he’s got a bad case of Beltway Syndrome and reads Tom Friedman’s drivel for the wrong reasons.

    Erich Follath has a solid article at Der Spiegel that seems to cover some of the same territory as Bremmer. Being of the opinion that much of the current and coming Mess has to do with integrating China into the world economy, I think it’s worth a look.

    Erich Follath, “China’s soft power threatens the West”
    http://www.spiegel.de/international/world/0,1518,708645,00.html

    BTW DownSouth I think there will be much noise over the fallout from China’s frenzied stimulus thus the recommendation for earplugs. For example, as far as I know Krugman hasn’t trumpeted the China example but some “conservatives” have. Nevertheless “Keynesian stimulus” and the efficacy of government will no doubt be discredited as NPLs in China are discerned and/or acknowledged.

Comments are closed.