MONETARY POLICIES
“Non-Performing or
Infrastructure”?
Money that Need Not Be Repaid
Critics say China has a dangerously high debt-to-GDP ratio and a “bad debt” problem, meaning its banks have too many “non-performing” loans. But according to financial research strategist Chen Zhao in
Loans” “Helicopter Money for
to back this extensive lending. As for China’s public “debt,” most of it is money created on bank balance sheets for economic stimulus. Zhao writes:
During the 2008-09 financial crisis, the U.S. government deficit shot up to about 10 percent of GDP due to bail-out programs like the TARP. In contrast, the Chinese government deficit during that period didn’t
FX
very similar to what European central bankers
are calling “helicopter
money” for infrastructure – central bank-generated money that does not need to be repaid. If the Chinese loans get repaid, great; but if they don’t, it’s not considered a problem. Like helicopter money, the non- performing loans merely leave extra money circulating in the marketplace, creating the extra “demand” needed to fill the gap between GDP and
Quantitative Easing vs. Qualitative Easing
a Harvard review called “China: A Bullish Case,” these factors are being misinterpreted and need not be cause for alarm. China has a high debt to GDP ratio because most Chinese businesses are funded through loans rather than through the stock market, as in the US; and China’s banks are able to engage in massive lending because the Chinese chiefly save their money in banks rather than investing it in the stock market, providing the deposit base
change much. However, Chinese bank loan growth shot up to 40 percent while loan growth in the U.S. collapsed. These contrasting pictures suggest that most
of China’s four trillion RMB
stimulus package was carried out by its state-owned banks. ... The so-called “bad debt problem” is effectively a consequence of Beijing’s fiscal projects and thus should be treated as such. China calls this government bank financing “lending” rather than “money printing,” but the effect is
consumer purchasing power, something that
is particularly necessary in an
economy that is contracting due to shrinking global markets following the 2008-09 crisis.
In a December 2017 article in the Financial Times called “Stop Worrying about Chinese Debt, a Crisis Is Not Brewing”, Zhao expanded on these concepts, writing:
[S]o-called credit risk in China is, in fact, FX TRADER MAGAZINE April - June 2018 37
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