The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Stimulus spree leaves China on a knife-edge

The deployment of China’s 2008/09 economic stimulus package ignored the mistakes made in the country’s previous attempts to revitalize the market. Local authorities were flooded with cash, prompting reckless investment decisions. The dimensions of the folly are as yet unclear but there’s no doubt that a massive non-performing loans crisis will ensue. Elliot Wilson reports.

WHEN CHINA UNVEILED a $600 billion stimulus package in November 2008 it caught the world on the hop. Governments from Washington to Canberra eyed this largesse with longing, envious of Beijing’s ability to funnel vast amounts of cash into domestic industrial projects literally overnight.


For most of 2009 China was hailed as a steady hand on the wheel, steering the world through the worst of the global recession. But what few asked at the time was how Beijing was splashing the cash – and if anyone was overseeing the largest Keynesian fiscal package since the Great Depression.


A few simple but scary truths are now starting to emerge. First, the country’s leaders had neither hand on the wheel: they were driving blind and hoping no one would notice. Most of the $600 billion package – siphoned into the vast hinterland via leading state banks – wound up in the pockets of local authorities, most of which invested in pet projects designed to create short-term jobs, not long-term returns.


Such misdirected munificence will have two unintended consequences: crises lifted straight from China’s 1990s playbook. The first will be the virtual bankruptcy of dozens if not hundreds of heavily indebted municipal authorities.




You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree