Ezra Klein: Problems Ahead for China’s Banks?

On the Washington Post blog, Ezra Klein interviews Patrick Chovanec, associate professor at Tsinghua University’s School of Economics and Management:

EK: Let’s talk about China’s stimulus. A lot of people know that they flooded the market with more than 4 trillion yuan, but you say that’s not the half of it.

PC: In November of 2008, when China was first hit by the financial crisis and the began seeing exports drop off, the state council announced the $4 trillion stimulus plan. But there really wasn’t so much a plan as an announcement. The way these projects, and much more, were financed was a lending boom that took place throughout 2009. The banks in China lent $10 trillion RMB. The country’s total loan portfolio expanded by one-third in the course of one year. That really fueled the the growth you saw in China. And remember, it’s a state-owned banking system. So when the word went out, go forth and lend, that’s what they did.

But the lending actually became larger than they thought. Originally, they wanted $6 trillion in total lending that year. But they blew past that in a month. Then the regulatory commission raised the cap to $7.5 trillion. Then, by the end of June, they hit that, and they couldn’t stop lending because that was keeping the economy going. And that was the real stimulus that took place in China.

June 9, 2010 2:09 PM
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Categories: Economy