China Prepares Vast Stimulus

The Headline reads:  China Prepares Vast Stimulus as Slump Threatens Asia

Read about at the link.

"The city of Changsha has seized the moment, unveiling plans to spend $130bn (£82bn) on roads, satellite towns, and an industrial park – almost 150pc of its GDP. 

Guizhou trumped this today, touting an eye-watering investment package of $470bn on transport, energy, infrastructure and eco-tourism over 10 years. It is a staggering sum for a sleepy province with just 35m people.

The Chinese railways have chipped in with plans to crank up spending by 40pc in the second half of the year.
It is unclear how such projects can be financed. Fitch Ratings said China has already reached the point of diminishing returns from debt-fuelled growth. The economic return on each extra yuan of credit has collapsed from 0.75pc to under 0.4pc over the last five years.
Prof Eichengreen said China’s authorities have abandoned efforts to wean the country off mega-projects, with tell-tale “ghost towns” and “bullet trains running off rails”. “The restructuring agenda is now on hold,” he said."


While the world is headed for austerity, China is spending. 

I still do not understand money.  How can I figure out what China is doing - going in the opposite direction regarding government spending when everyone else is reducing it.

What is going on??????  There must be a reason for China doing this.  What is it?

"Full-throttle stimulus may keep uber-growth alive for a while but only at the cost of an ever-more deformed economy, ever more reliant on exports. China’s leaders know the risks. The last credit spree in 2008-10 pushed investment to 49pc of GDP – unprecedented in world history – and is now deemed a policy error by Beijing. "


WTF?????!!!  


Is there a plan here???

In a comment on the link" purepressed" said this:

"All the "Stimulus" China needs is to break the self imposed Dollar peg.
The RMB rises in value against the Dollar and China's material imports cost less. The Global purchasing power of the Chinese consumer rises... Yes for sure they will lose out when it comes to exporting to poundland and wal-mart but the domestic purchasing power has increased at a rate of knots.. China's otherwise surplus production can be /will be diverted into it's domestic consumption. This will be incredibly bad for the UK and the US as we have become so used to cheap Chinese imports and borrowing Chinese money to pay for them that WE will no doubt suffer withdrawal or the prospect of paying higher prices for pretty much everything... A price of our QE programme more than an appreciation of the RMB. The United States as the worlds biggest debt junkie of course will be even more screwed.  The only people who are in for a hard landing are the people who behave like debt fuled junkies.... oh hang on a second.. "I guess that means us then"."

Everyone else in the comment thread that China is putting a gun tot their head, headed for disaster.

What do I know about all this, what can explain it?

China reserve ratio is 20%.  A fact, for what it is worth.

People's Bank of China (a government bank) is the central bank of China, like the Federal Reserve (a private bank) is our central bank.   Hmmm.....  Government Bank --- Private Bank.   There is a difference!   Another fact.

The People's Bank of China is a wholly owned government bank.  Not a bank that the government chose to do business with, like we did after we created the Fed as a private bank then our government chose to do business with it because it was the only bank in town.  Just like we individually  choose to do business with a bank of choice.


Seems like there might just be more control of the central bank by the people because it is owned by the government.  Seems like there is less control of the Fed because it owns the government.  People's Bank of China.  An excellent name for a Bank.  Truth in naming?  "People's" being the possessive form of the the word "people"  Gosh maybe it really says what it IS!  Novel!  What if we were to change the name of our central bank called the Federal Reserve to reflect who owned it?  What would be an appropriate name?  Maybe the Fed should have a name reflecting all the owners like a law firm of private partners called Dewey, Cheatem and Howe? 


PBofC loans all this money to government agencies to build stuff.  We laugh at them for the cities they build with nobody in them and trains that run off the rails.  It was all built with government money.  Big debt creation.  China suffering from massive debt spells doom.  At least by our standards and ways of doing business in our debt money system.

What does China do with all their debt?  Wipe it off the books.  Forgive it.  Almost like a Jubilee?

Poor China!  They are so happy spending all this money loaned by the government bank employing people, building things.  Don't they understand the concept of debt associated with a loan.  Somebody better teach them Economics!  They should look it up on Wikipedia and learn that loans have to be repaid.  Countries have National Debt.  Money it owes somebody because somebody loaned the government money to spend and want repayment of principal and interest!

Poor Europe and USA. We are so happy spending all the money loaned by the European Central Bank and the Federal Reserve.  Dumb Chinese do not even know how to handle money!  They are really going to pay for their stupidity and get what it coming to them.  They will have to work for nothing just to pay off all their debt!

Idiots!  Wait,  wait, don't tell me........Who are the idiots?

Holy Crow!  Could China have a devious plan?

All our money is debt money.  What little money we have is called reserves on which the debt money is based in a fractional reserve banking system.  Our reserve is X%?????  China's  reserve is 20% .  What happens when massive amounts of loaned money is not repaid?  In the debt money system loaned money that is repaid to satisfy the loan extinguishes money.  It goes back to the great nothing to be brought out of the great nothing again to be reloaned by a banker if there is enough held in reserve to allow this.

What if all that money loaned out by the PBofC is never paid back.  Where does the money that was loaned go to?  How does it go out of the system if loans are not repaid to extinguish the money created to make them?   It is all on a computer somewhere and when will it ever cease to exist.?  Or maybe it some amount of paper money that wears out and has to be replaced with an equal amount of new paper money.   Through a 1 to 1 replacement program for paper money it still never ceases to exist.  Good question. 

Where does the money go that does not have to be repaid for government loans in China if loans by the central government bank to local governments for spending on cities with no people go.  Where does it go  when the local government debt is forgiven?  Happy days!  It goes to the people who got paid to build government projects.  Those people do not have to replace what was loaned with their taxes?  Don't have to pay interest on what was loaned either.  Double Happy!  There is a character in Chinese for Double Good Luck.  There must also be one for Double Happy. 

Money given to the People in return for work!  People have money to spend.  They did not used to have much of that to spend so how could they buy much in the past?  There is a direct  relationship, you know, did you know that?  Unless however you borrow on credit to spend money you did not earn.  Money you did not work for but will---forever if the debt is big enough and that is where we are headed.  What country does that sound like.  One where you have to pay back the debt.  One that says we have to pay the national debt, just like private debt.

What is the savings rate in China?

In this paper, we define "The Chinese Saving Puzzle" as the persistently high national saving rate at 34-53 percent of gross domestic product (GDP) in the past three decades and a surge in the saving rate by 11 percentage points from 2000-2008. Using data from the Flow of Funds Accounts (FFA) and Urban Household Surveys (UHS) supplemented by the findings from existing studies, we analyze the sources and causes of China's high and rising saving rates in the government, corporate, and household sectors. Although the causes of China's high saving are complex, we suggest that the evolving economic, demographic, and policy trends in the internal and external environments of the Chinese economy will likely lead to a decline in national saving in the foreseeable future.

Savings will decline in the future as the Chinese buy stuff!  Sounds like a domestic market.  Wow!  The Chinese producers will be making money hand over fist when they sell to both a huge domestic market spending all that saved money as well as the foreign market spending all the money in China for stuff they are buying on credit cards with continuing growth in gross credit (debt) position!

Can the Chinese producers really handle all that productive joy.  What happens when they decide that the domestic market is just as good as the foreign market?  The foreigners raise the prices on all the raw material that China needs to produce all the stuff.

Economic war?

Is China making a stealth move toward 100% real money.  Is that the answer to where all that money loaned that is not repaid actually going?

Re-entered from the quote above:

"The last credit spree in 2008-10 pushed investment to 49pc of GDP – unprecedented in world history – and is now deemed a policy error by Beijing. "


Oh, so sorry.  We Chinese so wrong to make big mistake and go on spending spree unprecedented in world history.  We know so little about history.  We must learn from west......Europe and America so rich.  1% rich.  In China we try to make 99% rich.