China: Shadow Lending Hampers Beijing(shadow lenders flood market w/ easy credit)

BEIJING—Lending by lightly regulated financial companies outside China's formal banking system has ballooned this year, causing increasing headaches for the government in its efforts to manage the economy and control inflation, observers say.

China's government has traditionally used its control of the largely state-owned banking sector to regulate the country's pace of economic growth, directing it to pump out cheap credit in good times and restricting the volume of new loans to prevent overheating. But controlling credit has become more difficult as the financial system gets more sophisticated, analysts say, complicating Beijing's efforts to bring the economy in for a smooth landing in coming months.

China has a long history of gray-market financing flowing from small, informal and unregulated groups, to sectors not well covered by banks. A number of formally incorporated entities, including trust, leasing and guarantee companies, have also emerged, with the scope to provide alternative financing. As banks labor under stricter limitations on how they can lend, they have been looking to trust companies in particular to trim their balance sheets and lessen their regulatory burden.

. . . inflation and property prices are still stubbornly high . . . Chinese authorities [worry that it may be made worse by] further quantitative easing in the U.S.

I heard Gordon Chang (Forbes) say that Tiananmen Square (1989) was as much about inflation as it was about democracy, maybe more so. That's true, here's another source, "[Leading up to Tiananmen Square] Large differences between state-set and free-market prices created other difficulties, including an overheated economy -- with inflation 'as high as 28 percent'".

Some speculate that the tsunami of dollars could be a weapon that we are using.

BTW, for those who think that Red China is well on the way to a free-market capitalist economy may be right but.. "the Chinese thought a compromise between a market economy, a command economy and a socialist economy [would] be possible . . . [the problem is China has] 'tried to jump from a feudal to a socialist system without going through capitalism at all.'"

Some adjustments have been made and now capitalism paves the way to "Socialism with Chinese Characteristics."

As China feels the pinch of the economic downturn, its government is under increased pressure from the “neo-leftist” and “rightist” camps. The rightists want Beijing to speed up democratization, while neo-leftists demand the restoration of some sort of socialism. The two camps have recently intensified their criticism of each other to compete for public influence.

http://www.atimes.com/atimes/China/KD24Ad01.html

Thanks for posting the link.

"The neo-leftists are made up of young or middle-aged intellectuals . . . [who] advocate a stronger role for the government in the economy and wealth distribution. The rightists are a much larger group, mostly made up of liberal intellectuals, party veterans and economists."

Wow, sounds like the Democrat Party New Left and Party liberals of the 1960s-70s. The 1960s Marxist-Alinsky street/campus revolutionary rabble and their ideological issue chased the Party liberals out of the Party and are now arguably "the Establishment." They admired Mao back then and appear to still hold that admiration. The Chinese neo-leftists say that they are not Maoist. Yeah, sure.

I will add this link from your link The Chinese are not happy

"The list of unhappy people . . . reads like an almanac of China's social groups. They include children trafficked for slave labor, prisoners killed in detention from torture, migrant workers deprived of jobs, college students left unemployed, intellectuals accused of crimes because of their speech, and "all those Chinese people who quietly cry at night because they have been humiliated or injured". Yes, China is unhappy, he concludes.

"The Communist Party, which has held power since 1949, faces a swell of popular discontent over rampant corruption, income disparity and its failure to prevent children's deaths in last year's Sichuan earthquake, and the scandalous cover up of contaminated infant milk formula that has poisoned over 300,000 babies."

I'm rooting for a Maoist revolution to overthrow the corrupt Dengists, restore the Bamboo Curtain, and, through their incompetence and tyranny, move Red China back to the 1950s. IOW, one way to avoid a worldwide existential war.

IMO the pro-western, free-enterprise folks cannot rally the masses and beat the Party but the Maoists can (theirs not ours).

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