China Prepares for a Massive New Stimulus

“Unless the Chinese steel and aluminium industries have discovered how to make do without electricity, it would appear that their growth has virtually ground to a halt,”

The Chinese are in deep trouble. The Communist Party knows that it is sitting on a tinderbox. The only things keeping it from bursting into flames are massive repression and the perception by the general public that China is on the rise, and that the public is too.

In 2009 China poured stimulus that was twice that of the US experiment over half the time, even though the Chinese economy was running hot. The idea was that the stimulus would counter the slowdown happening in the West.

So the Chinese built pyramids just as Keynes advised—though even Keynes probably would have not gone as far as the Chinese given that the Chinese economy was not in recession at the time.

The result of this stimulus has been massive waste. Once the credit spigots were opened up even further than they had been the apparatchiks went to work building cities, and rail systems, and highways. Now, in many cases these projects are already crumbling right along with the Chinese economy. Something to keep in mind when people such as Paul Krugman argue that “stimulus” should be used for infrastructure.

So here comes another dose of funny money, which will in the end fail, again. This economic tack, the same one most world leaders subscribe to, has no way out. There is only disaster in the end.

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Isn't China on the gold standard?

Matthew Crockett
Matthew Crockett

I think the value of infrastructure spending isn't related to stimulus except in a short-term quick-fix sort of way. It is however important in a long term sense because without infrastructure the conditions to operate a business within are undermined. Without roads you don't have transport of goods and materials. Without power, it's impossible to run a factory.