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  • The Truth About Chinese Credit

    A top story in the Washington Post last Saturday concerned Chinese banks. It was badly misleading, to the point of almost seeming intentional.

    The article leads with the claim that “new lending by Chinese banks has injected $1.3 trillion into the world economy.” That is the figure injected into the Chinese economy, for the benefit of Chinese producers. These producers then ramp up output, pushing out more exports and, at home, displacing foreign imports. At the moment, this probably harms the world economy.

    The small fraction of Chinese lending that goes overseas is dominated by a single purpose– acquisition of foreign mineral resources and stakes in foreign companies by Chinese state-owned firms. China’s foreign loans smooth the way for these acquisitions in Africa, Australia, and elsewhere, with all other lending goals typically an afterthought.

    The link made by the Post between loans and China’s holdings of Treasuries is tenuous, at best. One reason: China’s official reserves do not include foreign currency held at banks, so that bank lending has no direct connection to official Chinese holdings of American bonds.

    Finally, praise is heaped on the rapid expansion of Chinese lending in a tough period for the global economy. We have recently seen the results of a rapid expansion of American lending in a seemingly better time. The correct question is not how good Chinese lending supposedly is for the global economy, but how much damage a popped Chinese financial bubble would do.

    Posted in International [slideshow_deploy]

    2 Responses to The Truth About Chinese Credit

    1. Spiritof76 says:

      It is ridiculous to talk about China by a newspaper that is on the verge of bankruptcy, claiming that the Chinese were working some miracles for the welfare of the globe. China doesn't care about the rest of the world except when it helps their national interest. They need to create jobs for the millions every year to hold on to their one-party rule. Only in the US, our one-party rulers spend like there is no tomorrow even when the natinal debt is the highest in the world. US is a banrupt country hurtling downwrds hyperinflation and/or the greatest depression of all times.

    2. Pingback: Chinese Banks Funding Chinese, Not Global, Recovery | National Review Institute Blog

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