Randomly Noted

DJN colleague Robert Flint does a lovely job of explaining what’s been going on in China this week as contradictory fears have mounted that 1) Beijing is creating a dangerous economic bubble by permitting its banks to lend at a torrid pace and in some cases to stock-market speculators; and 2) Beijing may suddenly and drastically slam the breaks on such lending by ordering banks to stop, as the government did in 2008. So far, most people seem to be worried about the latter possibility: The Shanghai stock market sank Wednesday after China’s banking regulator signaled it may crack down on banks lending to market speculators, and a well-known magazine, Caijing, cited two big lenders saying they’ll pull back their lending. In an apparent effort to reassure both jittery constituencies, China’s central bank spoke out late Wednesday; it issued a statement on its website – apparently a recently delivered speech by Vice Governor Su Ning – saying 1) the government won’t take administrative steps to curb bank lending, 2) nor will it stand by as banks make inappropriate loans. In his analytical piece, “Let 100 Banks Lend! Let 100 Bubbles Burst!” Flint muses that “Decades after Mao, China’s government is still concerned with the correct handling of contradictions – but now it’s more about contradictions within the financial system than among the people. Maintaining high levels of employment while fending off stimulus-inflated economic bubbles is one such contradiction the fourth generation of Chinese leadership is struggling to resolve. ” Have a look at Robert’s piece, which contains a reminder of the stunning ramp-up in lending that occurred in the months after Beijing launched its massive economic stimulus plan last November. Bank lending in the first half of 2009 totaled CNY7.4 trillion, which is equivalent to half of China’s GDP during the period. China’s industries stocked up on whatever they needed – and lots of stuff it didn’t need. At the same time, the Ministry of Finance found some loans were used by companies to invest in stock and property markets! All in all, “a very bubble-friendly environment,” as Flint puts it. Now we’ll all watch and wait to find out whether the central bank does as Su says and ensures “the mind and action” of all financial institutions are “as one” with the government.