The Truth About Chinese Credit

Derek Scissors / January 05, 2010

A top story in the Washington Post last Saturday concerned Chinese banks. It was badly misleading, to the point of almost seeming intentional.

The article leads with the claim that “new lending by Chinese banks has injected $1.3 trillion into the world economy.” That is the figure injected into the Chinese economy, for the benefit of Chinese producers. These producers then ramp up output, pushing out more exports and, at home, displacing foreign imports. At the moment, this probably harms the world economy.

The small fraction of Chinese lending that goes overseas is dominated by a single purpose– acquisition of foreign mineral resources and stakes in foreign companies by Chinese state-owned firms. China’s foreign loans smooth the way for these acquisitions in Africa, Australia, and elsewhere, with all other lending goals typically an afterthought. (more…)