In my dealing with China's economists, I have found them to be very well educated and conservative. Just what you'd want/expect from an economist. I also found the government leaders listen to them. Possibly more so than we have done in the U.S.
I doubt they have any choice at this point but to leverage debt to keep the economy fueled. Lets hope they find a better balance and know when to reign it it than the U.S. did. All said, its probably a good thing they are in the debt game as it keeps the playing field leveled.
They have reigned in the housing market a bit. For example, they keep adjusting the amount you have to put down on a home. What used to be 15% to 30% in some areas has gone to 30 or 50%. Yep, you could never buy a home in China for 5% down!
Here in Beijing it's been interesting to watch the effects of stimulus on the housing market. The government is promoting growth by giving lots of cash to larger organizations and entities, which in turn give them to a couple of people who quickly buy real estate. The result is that prices are rising and falling in large amounts quickly depending on what the government is doing. (On a side note, most of the Party members I've known have been involved in real estate, so I don't think it's accidental that there are systemic pressures to support the real estate market.)
That said, home ownership is still out of the reach of most of the common people.
I think the article is about dead wrong. China has a problem with its banking sector, And the stock markets are ridiculous since corporate profit is tied to real estate prices. But China still does not have a problem. The four big banks will be bailed out of their losses by the center (the last giveaway was 54 billion) and when you think of it this way, China isn't leveraging debt so much as spending credit to keep itself afloat.
The ignorance at the WSJ is hilarious. Who is keeping them in business?
What this article is saying is that in the future, I'm guessing 2 to 5 years, China could see a credit bubble and misguided investments.
If you're an economist this is obvious. And as the article states, the Chinese leadership knows it as well. They had been tightening credit before the recent downturn.
Therefore it is a very reasonable assumption that China will start tightening again in 2 to 5 years when the global economy recovers.
In other words, this article gives no new or insightful information.
You are correct that the author argues that restrictive government policies ameliorated some of the effects of very low interest rates. But on a close reading of the article, even this author, who seems to think government control of the economy is doing very well so far, concedes that there is already "misguided investment."
Private Chinese firms are already complaining that they're being squeezed out by their state owned counterparts (who are getting the bulk of the bank financing and government stimulus funds): http://www.chinastakes.com/2009/8/china-stimulus-plan-critic...
They have the assets to backstop the debt bubble they are creating but what I am hoping is that it puts the US and China back on an even level since all of there foreign reserves will have to go to the debt or they will have to inflate the yaun taking away some of the advantage they have now.
I doubt they have any choice at this point but to leverage debt to keep the economy fueled. Lets hope they find a better balance and know when to reign it it than the U.S. did. All said, its probably a good thing they are in the debt game as it keeps the playing field leveled.
They have reigned in the housing market a bit. For example, they keep adjusting the amount you have to put down on a home. What used to be 15% to 30% in some areas has gone to 30 or 50%. Yep, you could never buy a home in China for 5% down!