The Chinese authorities have applied a touch of the brakes to an over-accelerating economy by slowing down investments in the property market. Following a decision taken by local authorities in Shanghai, banks operating in that area have been required to immediately interrupt further property loans for the last two weeks of the year: a brief temporary measure, hardly enough to have any direct effect on the economy, but nevertheless a clear signal.
While the rest of the world is gasping for breath in the credit squeeze, for some months now China has found itself contemplating the opposite problem: too much liquidity in circulation, which too often flows towards construction projects that are fuelling a building spree exceeding market demand… although this latter point is open to debate. What is undeniable is the risk that inflation may get out of hand.
China’s central authorities had already acted to restrain overenthusiastic bank lending at the beginning of 2010, showing their ability to take immediate preventive steps thanks to their direct control of the country’s economy. At that time they basically used two decrees: one ordering the banks to increase their obligatory reserves and the other compelling them to channel a certain volume of credit to sectors other than property and construction.
Despite these measures, the financial community sidestepped the restrictions simply by bloating the quantity of money in circulation, in the process increasing the risk of galloping inflation.
In November Shanghai banks opened the taps for new loans to the tune of 36 billion Yuan (almost five million euros), taking the overall national total for the year dangerously close to the 2010 ceiling of seven thousand five hundred billion Yuan set by Peking in order to avoid the economy overheating… so triggering the new stop-sign held up by the government.
In reality, Chinese economic policies have to take into account a whole complex of often conflicting pressures and opinions: the economy mustn’t overheat, but it must keep growing robustly in order to offer prosperity to an ever greater number of people. And what if this boom is the result of doping, contrived to favour the already rich and contributing to increase the gap between haves and have-nots?
Hence the restrictive measures aimed at reining in certain sectors more than others: Shanghai (financial capital and embodiment of “China-style capitalism”) and the property sector (with its insatiable appetite for big quick profit).
But even towards these single sectors care must be taken not to overdo restrictions, given the number and power of the interests involved: this explains the restrained but unmistakeable signal sent in the year’s final fortnight, maintaining central guidance and its pre-established lending limits.