China's Growth: Far Less than Meets the Eye

Seeking Alpha ^ | August 03, 2009 | Craig Pirrong

[arthurus]

Think about it. Chinese banks are lending three times as much during the most severe world economic downturn since the depression as they did when the Chinese economy was booming last year. A tripling of lending would inevitably lead to the financing of numerous negative net present value projects even in normal times. In current circumstances, the waste of resources must be astounding.

As I’ve written before, massive government stimulus like that being undertaken in China and being funneled through the banks can lead to increases in measured output. But the return on the projects funded is usually negative, and substantially so. In other words, you pay people to dig holes, and buy cement to fill them in, the expenditure counts as economic “output,” but all you’ve got in the end is cement filled holes that will not do what capital is supposed to do: provide a stream of benefits into the future.

[arthurus]

Some good comments at the end.

[griswold3]

mark for later
Are the Chinese creating their own ‘credit bubble’?

[C19fan]

I have been hearing these types of stories for the past decade. Chinese banks have been propping up state-owned-enterprises for awhile. But I guess with China’s massive foreign reserves it just recapitalizes the banks and the cycle starts over again.

[Welcome2thejungle]

China is embracing capitalism as fast as we are embracing socialism. In the Investor’s Business Daily it seems that half the companies featured in the IBD 100 are Chinese. China has a vibrant stock market and lots of IPOs. They are also running buget surpluses and have enormous currency reserves. We, on the other hand, are running up massive budget deficits and trade deficits. Our currency is becoming worthless. We have too many bonds in circulation and the price of the bonds are going down.

Of course China is growing faster. They are moving towards capitalism as fast as we are moving away from it. BHO is determined to remake our economy along the same lines of Europe which has been in state of decline for decades.