/biz/ - Business & Finance

>>12438439
more highlights
>The trillion-dollar question is when will the Chinese recession strike? The reason why so many analysts and strategists have been early (i.e., since 2010) in calling for a recession in China is their lending quota business, which Chinese authorities have perfected in using their economic expansion for 25 years.
>The PBOC issued new lending quotas in November and announced cuts in reserve requirements for Chinese banks earlier this month. The required reserve ratio for banks will drop by 0.5 percentage point on Jan. 15 and a further 0.5 percentage point on Jan. 25. The cut will release a net 800 billion yuan ($116 billion) of liquidity according to the People’s Bank of China. The bet is that with credit multiplier effects associated with fractional reserve banking, this move will have a positive and lasting economic effect.
>Chinese monetary interventions of the sort we have seen in the past two months are beginning to remind me of the old “kicking of the can down to road”. None of this fixes the problem of too much borrowing in the Chinese economy, but offers another band-aid solution. It does buy the Chinese authorities time to ponder a way out of this mess, which is precisely the way to make the mess much bigger.
>Since China is a hybrid economy of government control combined with free enterprise, officials there think they can eliminate the economic cycle — but they can’t.
>History has shown that extreme monetary policy of the type we have in China today is that it tends to lose efficacy over time. The more indebted the system is, the less effective more lending is.