A NY Times article today asks just that question, citing a warning from Alan Greenspan that China’s economy could (repeat, could) be at risk of overheating, especially in light of a recent CCP decision to reduce interest rates and incentivize banks to lend away.
While China’s leaders portray themselves as farsighted engineers who can manage their country’s economic growth better than a democratically elected government could, their recent economic policies show a strong inclination to let the good times roll for now and to worry later about any ensuing bust.
[….]
Prodding the money supply while resisting currency appreciation shows a reluctance to let economic growth falter at all, even as Western economists put China’s expansion at an annual pace of 10 percent this fall. “If you’re very preoccupied about social stability and you’ve got a weak banking system, do you really want to appreciate your currency?” said William Belchere, chief Asia economist at J. P. Morgan Chase.
The common denominator in many of China’s economic problems is a dysfunctional banking system that still extends some loans based on the political connections of borrowers, especially state-owned enterprises. At the same time, the executives of state-owned enterprises have shown a strong herd instinct of rushing into whatever industry seems to be growing fastest. A result is that many provinces build the same kind of factories at the same time, as is now the case with steel, and bank officers approve loans for most or all of the factories.
What’s most worrying, according to the article, is that there is no sober authority, like the Fed, to put the brakes on things. Those pulling the levers only want to rock and roll, but history proves such parties always come to an end. The harder you step on the gas, the worse the crash.
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By Zhang Li En
Well … it depends how serious a recession is … but if it’s bad enough, and if enough of the new middle class lose their savings in a meltdown of the banking system … then China’s stability is in serious trouble. No one believes the ideology anymore … but the standard line seems to be “we know we have problems, but things are getting better slowly” … if people stop believing it’s getting better … and start to believe it won’t in the future … might even get worse … the legitimacy of the government in Beijing is shot all to hell … and it could be the beginning of the end … back into a new warlord period … and chaos and mayhem for the rest of asia too. Bad bad bad.
December 14, 2003 @ 7:54 pm | Comment
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By Richard
It really would be earthshattering. Virtually the entire region — not to mention much of the West — has hitched its star to the Chinese economy. As critical as I am of the government, I would be crushed to see it all go down in flames. Not only would I lose my own job (no big deal) but people I know and cherish in China would lose theirs, and unlike me, they’d have no where to turn. And that would be a very, very, very big deal.
December 14, 2003 @ 11:20 pm | Comment
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By Winds of Change.NET
Capturing China: 2003-12-19
DEC 19/03 TOPICS INCL: PRC and Taiwan give-and-take; Chinese interaction with expat bloggers … The Information Revolution is coming to town … Economic indicators … Asian Weblog Awards … And your one-stop shopping for China-based blog commentary.
December 20, 2003 @ 12:58 am | Comment
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By Winds of Change.NET
Capturing China: 2003-12-19
DEC 19/03 TOPICS INCL: PRC and Taiwan give-and-take; Chinese interaction with expat bloggers … The Information Revolution is coming to town … Economic indicators … Asian Weblog Awards … And your one-stop shopping for China-based blog commentary.
December 20, 2003 @ 1:03 am | Comment
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By Winds of Change.NET
Capturing China: 2003-12-19
DEC 19/03 TOPICS INCL: PRC and Taiwan give-and-take; Chinese interaction with expat bloggers … The Information Revolution is coming to town … Economic indicators … Asian Weblog Awards … And your one-stop shopping for China-based blog commentary.
December 20, 2003 @ 1:06 am | Comment