You see what happens when the state owns the banks. Really owns the banks, that is.
In the UK we fret, how is it that banks get all this money from us, the taxpayers, and yet will not lend?
It’s not like that in China. The figures really are staggering.
Lending in the first half of this year from Chinese banks was no less than three times greater than lending in the same period last year.
In all, Chinese lending during the period came in at 7.37 trillion yuan; that’s just over 1 trillion dollars if you want to see it in Uncle Sam’s money.
To put that in context, this amounts to one-fourth of China’s GDP. It is also more than the Chinese government had in mind.
Inevitably this has led to fears of a Chinese bubble. Will property prices rise too high, will the stock market overheat again? Can it last?
The truth is that, actually, property prices in China relative to wages are cheap. Sure, if they grow too fast there may be a sharp reversal, but the trend will surely be up for many years.
In China, savings are too high. This is in part due to the lack of a social security safety net. If you lose your job you really are in deep trouble, so the Chinese save that much more for the much feared rainy days.
This in turn has meant Chinese demand lags behind supply.
When a small economy in some out of the way backwater produces more than it buys, hardly anyone notices.
But this is not like that. The reality is that of the world’s four largest economies, three – that’s China, Japan and Germany – have been doing precisely that – growing on our country’s money.
In a way then, countries that grow via exports are benefiting from a bubble.
The surge in Chinese lending will surely mean more Chinese spending. The changeover may occur too fast, creating problems on the way, but actually, what we are seeing in China, is precisely what we want to see.
It’s called global realignment.
A more pertinent question is not is China creating a bubble, but rather, why doesn’t Germany get its consumers spending too? If it doesn’t, the underlying bubble is still there.
© Investment & Business News 2013