The Big Q: What is the Secret of China’s rising Economy?
The Big A: The government owns the Banks; the bankers do not own the government.
China’s stimulus plan is working better than that of the USA and the UK because the government is using the banks for public ends, rather than allowing the banks to use the government for private ends. In the USA, the banks are the most powerful lobby on Capitol Hill, they “own” the government.
The USA is spending trillions of “Greenbacks” to bail out its banking system, helping to revive the languishing economy, such as China, now called a “miracle economy”, decoupled from the rest of the world and is maintaining an amazing 8 percent + annual growth rate.
This has been questioned by lots of polls, commentators, economists and other talking heads, as they ask how that growth is possible, when other countries relying heavily on exports have suffered major downturns and remain in economic doldrums.
Economist Richard Wolff sceptically puts it this way: “We now have a situation in the world where we have a global capitalist crisis. Everywhere, consumption is down. Everywhere, people are buying fewer goods, including goods from China. How is it possible that in that society, so dependent on the world economy, they could now have an explosive growth? Their stock market is now 100 percent higher than at its low -- nothing remotely like that hardly anywhere in the world, certainly not in the United States or Europe. How is that possible? In order to believe what the Chinese are saying, you would have to agree that in a matter of months, at most a year, no more, they have been able to transform their economy from an export-based powerhouse to a domestically focused industrial engine. Nowhere in the world has that ever taken less than decades.”
How can China’s stimulus plan be working so well?
The answer may be very simple in that China has not let its banking system run roughshod over its productive economy. Chinese banks work for the people rather
The key reason China is booming now is due to the way its government handled its banks. China has not allowed its banking sector to become so powerful, influential and big that it can call the shots or side track the bailout.
In simple terms, the government prefered to answer to its people and put their interests first, before that of any vested interest or group and that is why Chinese
In fact, I have learned recently that one major Chinese bank is exploring going to the USA to loan money to Americans who cannot get loans from their own
In China, unlike in the USA, credit is flowing freely, not just to the financial sector but to industry and local governments. The State owned banks have increased
The People’s Bank of China estimates that total loans for the first half of Y 2009 were US$1.08 T, 50 percent more than the amount of loans Chinese banks issued in all of Y 2008. This at the height of the world’s financial crisis when the US banks
virtually shut down lending to all but the
most credit worthy corporate customers.
The US Federal Reserve has also
engaged in record levels of lending, but its
loans have gone to bail out the financial
sector itself, leaving Main Street and local
The financial sectors in the USA and
the UK are booming and have been leading
sectors on this new Bull Market, while the
needs of regular people appears to be going
from bad to worse, unemployment is high,
businesses are failing and house foreclosures
are rampant across the country. Wall
Street and Main Street in the USA might
just as well be in different solar systems.
Why? Well, in large part, because USA
and UK banks are not lending money to
the people, as the US and UK banks have
captured all the money from the taxpayers
and the cheap money, for what is called
quantitative easing from central banks. They are using the cheap money to shore
up, and clean up their balance sheets rather
than lend it to the people. Thus, high-jacking
the money, and the government is doing
nothing about it. In fact, they are complicit
in this action.
OK, so the Chinese economy is not
perfect. The drive to make profits from foreign
investment capital has indeed encouraged
speculative ventures, with a great deal
of money going into high-rise apartments
and other real estate developments that
most people cannot afford. When I lived in
Beijing between 2002 and 2006, I lived in
the 27th floor penthouse of a new high rise,
with my own swimming pool. It was not
expensive for me but for a regular Chinese
it was out of reach.
Chinese workers are complaining of
too much capitalism, since now they have
to pay for housing, health care and higher
education which were all formerly paid up
by the State, and while efforts are being
made to make more loans available to
medium sized and small businesses, Stateowned
businesses and large corporations
do get most of the loans because the banks
have been told to tighten lending standards;
hence larger entities are safer credit
There are many who are preaching
that the Chinese economic miracle is a
“bubble” about to burst, with dire consequences.
Historically, however, when “bubbles”
have collapsed suddenly it has been because
they were punctured by speculators
You may recall the Japanese stock
market bubble burst in Y 1990, and when
other Asian countries followed in Y 1998,
it was because foreign (USA) speculators
were able to attack their currencies with
exotic derivatives, thus causing the victim
countries to defend themselves by buying
up their own national currencies with
their foreign currency (US$) reserves,
which were soon exhausted as the dollars
returned to the USA.
Today, it is different because China
has accumulated so much in the way of
USD reserves that it would be difficult in
the extreme for US speculators to do the
same thing to the Chinese stock market as
they did to Japan. A gradual stock market
decline, due to natural market forces, is
something an economy can take in its
Now, for the time being, China’s
stimulus plan is working better than that of
the US and the UK, and a Key reason it is
working better is that the government rules
its banking sector.
The government can operate the
banks’ credit mechanisms in a way that
serves public enterprise and trade, because
it owns most of the banks, a feature of
China’s economy that has allowed it to get
closer to the original American capitalist
ideal than the USA is now. I am keenly
aware, having lived there for 4 yrs, that although
China is continually referred to as a
Communist country, it has never been truly
textbook Communist at all. Communist
Party leader Deng Xiaoping, who opened
China to foreign investment after 1978, said
that it does not matter what colour the cat
is, so long as it catches mice. So, whatever
the Chinese economy is called and/or you
wish to call it, today it provides a framework
that effectively encourages entrepreneurs.
We all know Jim Rogers, an outspoken
expatriate American investor and
financial commentator, based in Singapore. In a 2004 article entitled, “The Rise of Red
Capitalism”, he wrote: “Some of the best
capitalists in the world live and work in
Communist China. . . . No matter how
long China’s leaders persist in calling
themselves Communists, they seem quite
intent on creating the world’s dominant
capitalist economy.” In the meantime, the
US has sunk into what Rogers calls “socialism
for the rich.”
When ordinary US businesses go
bankrupt, they are left to deal with the asphalt
jungle on their own; but when banks
considered “too big to fail” go bankrupt,
the American taxpayers pay the losses
while the banks’ owners keep the profits
and are allowed to continue speculating
with them; and the rescue of Wall Street
with taxpayer money is a huge departure
from capitalist principles, one that has
changed the face of the US economy.
The capitalism we were taught in
school involved small family-owned businesses,
family farms, and small entrepreneurs
competing on a level playing field.
The government’s role was to make sure
everyone played fair, but that is not the sort
of capitalism that the US has today.
The small stores and family farms have been squeezed out by giant chain stores and large industries. The small farms have been bought up by multinational agribusinesses, and Wall Street banks have gotten so powerful that some US Congressmen complain publicly that the banks now own Congress. The big banks and corporations have rewritten the rules for their own needs. Healthy competition has been replaced by “predator” capitalism in which the small are systematically swallowed up by the Big Sharks. The result: an everwidening gap between rich and poor that represents the greatest transfer of wealth in world history, and the people are helpless to do anything about it.