Chinese growth is an illusion. Forcelli explains why

10/14/2024

To paraphrase a famous saying, the dragon loses his hair, but not his vice. Indeed, this appears to be the case. The only way to let the economy get back on track, in Ras Xi JinpingIt appears to be a matter of putting money in banks, so that loans to families and companies increase, reviving demand and thus consumption. In theory it wouldn’t make a difference. But in practice, things could take a different and decidedly more dangerous path. Yes, because it is also true that Beijing is preparing for a third wave of liquidity tsunami. But it is equally true that this money is debt money, and certainly not the result of income or growth.

This constitutes a fundamental contradiction. The recovery of the economy, which has not yet been achieved, is being financed by debt, thus mortgaging the future of younger generations of Chinese. And so is the fate of the banks themselves: with more debt, sovereign risks increase and institutions are filled with government bonds. But all this is of little interest to the party. So much so that over the weekend there were a series of announcements of new economic stimulus plans, clearly of a government nature.

Bloomberg In fact, it announced in recent hours the possibility of pumping one trillion yuan, or about $142 billion, into major government banks. But currently, the new allocations have reached 200 billion yuan, or about $28 billion, announced the Chairman of the National Development and Reform Commission (NDRC), the third body of the State Council of the People’s Republic of China. , Cheng ShanjiAt the conference on Tuesday, October 8th. The central government will provide local governments with 100 billion yuan, or 14 billion US dollars, while another 100 billion yuan will be allocated to investment projects.

In short, the Chinese government’s vision is very clear: build growth on debt. The Minister of Finance himself Because FuanHe explained that the executive authority, after the measures already announced by the Central Bank (supporting debt through subscription to public securities), is ready to “significantly increase” the same debt in order to relaunch the economy. formish.net Ask for an opinion Alberto Forcellian economist, essayist and great connoisseur of things Chinese.

China’s growth is corrupt, meaning it is built on a debt of 140% of GDP, according to the latest report from the International Monetary Fund. “This is not good news,” Forcelli explains. However, if you really want to know, these are false incentives, because too much debt prevents the same interventions for the economy. In short, the dragon is stuck in a plaster cast, blocked, prisoner of his debts. Even the Chinese don’t believe it anymore, as they have seen their economy end up inside this funnel. The evidence for this is that growth in China is not only slow, but also unhealthy, precisely because it is achieved using about 80% of the debt allocated to the regions. There is something absolutely unhealthy in Chinese growth, where debt is incurred for the sake of growth, but in the end that same debt ends up becoming a cage, precisely for those interventions that, according to the party’s logic, should push GDP to move again. Other.