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06 November 2011

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John Ross

Nathan,

Its a question of very different numbers in the US and Europe on the one hand and China on the other.

Obviously when China launched its stimulus programme in 2008 it knew the high bank lending would lead to an increase in the percentage of non-performing loans - banks were indeed instructed to increase provision for bad loans. But taking the change from the 3rd quarter of 2007 to the 3rd quarter of 2011 (as China did not publish quarter by quarter GDP changes until this year to make a comparison to the 3rd quarter of 2011 this is the data that has to be used) then in this four year period US GDP has increased by a total of 0.6% and China's GDP has increased by 42.2% of GDP. Even if were necessary to recapitalise a substantial part of China's banking system, which it isn't, the resources generated for the government by that GDP growth would permit this - at present China's budget deficit is under 3% of GDP. This is entirely different to the essential bankruptcy of the entire banking system which hit the US and Europe in 2008.

nathan

Hi john, Im a long time lurker that enjoys your blog. You make important arguments against our media's 'common sense' view of the chinese economy.

I was wondering whats your take on The chineses banking system, currently this seems to be the latest version of the 'China's dynamism will stall because..." meme that you frequently dissect.
-That china has a bubble within its shadow banking system similar to the credit crunch.

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John Ross

  • Is Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China

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