If market performance is anything to go by, Taiwan is the biggest beneficiary of China’s economic stimulus.
The Great Debate
The Chinese leaders have a dream. The banks pump trillions of yuan into the market, which props up asset prices, creates new demand, and gets the economic engine roaring again. Then, just before inflation starts to surge, the money is drained out of the system.
Please don’t call it a liquidity crunch, but it rather looks as though China might have had to sell a sliver of its vast hoard of U.S. Treasury paper to fund its private sector’s big overseas foray.
Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.
Chairman Mao believed the economy needs to run on two legs, but when it comes to corporate financing, China is advancing in a series of giant hops. Its banks are flooding the market with credit, while equity markets actually supply less capital as a proportion of the whole.
Chairman Mao used to say the truth is always kept by the minority.
A little-known private Chinese machinery company’s bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays like Chinalco’s for Rio Tinto have failed.
When U.S. Treasury Secretary Timothy Geithner told students at Peking University that China’s holdings of U.S. Treasury bonds were safe, his answer drew loud laughter from the audience.
Beijing may criticize American consumers for spending money they do not have, but the truth is Chinese leaders do the same, they just make sure it doesn’t end up on their account.
Abundant liquidity, government support and a strong yuan fueled Chinese companies’ overseas buying spree.