Monday, October 20, 2014
Stimulus
This article looks at the current Chinese Economy and how their GDP and Consumer-Price Index is well below the wanted inflation rate. There has been so much government intervention in China that economists are wary of calling for further stimulus. They are worried that it will increase lending to parts of the economy that have already borrowed too much. The sectors that have already borrowed too much include property developers, state-owned enterprises, and some local governments. They say that "extra lending to these groups is not the only kind of stimulus." Instead they believe that "much of the borrowed money was spent on existing assets, such as land and property, that do not add much to production, jobs or consumer-price pressures. If this form of credit expansion packed much of a GDP punch, China would already have rapid growth and high inflation." Many economist believe that fiscal authorities can help by cutting taxes and lifting social expenditures. Lending needs to help produce new goods, not speculation in existing assets.
Subscribe to:
Post Comments (Atom)
Chinese people have a high desire to save and nothing the government does will change that. The people are increasing their savings partly because they now realize so much of what they saved and invested in real estate is worth nothing. So they're having to save more. China has relied on the West to spend more than it earns for decades. The recent slow down merely reflects that the West has run out of money to keep up its lifestyle.
ReplyDelete