China Stimulus Numbers and Thoughts

I’ve been questioning for a while now how much more stable the Chinese banking system is compared to the West’s in the wake of the current economic meltdown. I’ve found some interesting figures from the Economist that shed some light onto the situation.

From one article:

According to Josh Felman, of the IMF’s Asia research department, state banks and others issued 5.5 trillion yuan ($800 billion) of new loans in the first quarter—more than in the whole of 2008.

If American banks were being reckless in their lending in the lead up to the current crisis, I question how China will be able to productively invest that much money in that short of a time frame. In fact, a different article has a potential answer:

There is widespread concern that this investment boom is adding to China’s excess capacity. Investment amounted to 44% of GDP last year (compared with 18% in America), which many economists reckon was already too much. Worse still, as well as forcing state firms to invest, the government is directing state-owned banks to lend more, despite falling corporate profits. Many of those loans could turn sour. Like Japan in the 1980s, it is argued, an artificially low cost of capital causes chronic overinvestment and falling returns. If so, it will end in tears. To assess that risk you need to ask two questions. How much excess capacity was there already? And where is the new investment going?

In fairness, the rest of the article basically says that this investment is well targeted in infrastructure, and in areas where there is little existing capacity, but I still have reservations. Where Beijing says the money should be spent, may not in fact be where the money ends up. In places further from central control, I’m concerned that there might be skimming from infrastructure money to line the pockets of local party members, as seems to have been the case in areas of China hit by the 2008 earthquake.
I’m very much of two minds about China these days, and I guess the fact that they are building useful infrastructure while also saddling their state owned banks with a lot of what will likely turn out to be bad debt is strangely comforting.