From Dylan Grice — Albert Edward’s new alarmist colleague at Societe Generale — on the subject of Chinese bank lending…
The guy’s a natural – a worthy member of the Edwards’ school.
Grice makes the point that those who marvel at China’s apparent resilience in the wake of a global recession are implicitly assuming that a bunch of shadowy bureaucrats in Beijing have got it all worked out. Markets might often misallocate resources, but Maoist capitalists don’t, it seems.
As the SocGen man puts it:
In fact, the state-orchestrated inflation of bank credit is reckless (see Chart). Banks which haven’t wanted to lend have lent to borrowers who didn’t want to borrow, yet the money is now flowing into the stock market, into commodity inventories and into property. This raises serious questions over the value of the banks’ collateral.
If we learned one thing over the last few years it was to be suspicious of explosive credit growth. Yet the Chinese threaten to repeat the recent financial mistakes made in the West. No doubt the authorities are confident that no harm will come of such bank credit inflation or that, if it does, they will be able to control what they have unleashed. Unfortunately, this in itself is a repeat of the mistake made by Western policymakers.
Related links:
China cools on the commodity front – FT Alphaville
Faber on China: Still right after all these years… – FT Alphaville
Chinese liquidity – and stocks – go BOOM - FT Alphaville
China: Too much of a good thing? - FT Alphaville