But even more key to China’s recovery, economists say, are two other government efforts that are paying big dividends: looser lending and export supports.
The state-controlled banking system here — which breezed through the global financial crisis with minimal losses as American financial institutions reeled — unleashed $1.2 trillion in extra lending to Chinese consumers and businesses in the first seven months of this year. That money is financing everything from a boom in car sales, up 82 percent in August from a year earlier, to frenzied factory construction.
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Beijing also has given huge tax breaks and other assistance to exporters. They include placing broad restrictions on imports and intervening heavily in currency markets to hold down the value of the renminbi, to keep Chinese exports competitive even in a weakened global economy.
Indeed, subsidies abound at all levels of government: the Wuxi municipal government just offered up to $146,000 to each local business that increases exports in the last three months of this year.
To be sure, not all the laid off workers throughout China have been hired back. “Some plants reduced worker numbers by 20 to 30 percent, now they hire back 10 percent,” said Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, which represents export-oriented factories employing 10 million Chinese workers.
Even so, American trade data shows that imports from China only eroded 14.2 percent in the first seven months of this year while imports from the rest of the world plunged 32.6 percent. China’s trade surplus, already the world’s largest, was $108 billion for the seven-month period. “We definitely see an upswing in sales orders in the second half of this year when compared to the first half,” said Gu Fung, the sales manager at the Wuxi Baolai Batteries Company.
China’s well-capitalized banking system allowed for rapid investment.
Chinese banks came into the crisis with enormous excess reserves, the result of three years of tight regulatory limits on lending to prevent the economy from overheating. When those limits were removed, and authorities urged bank executives to lend, the total value of loans outstanding shot up more in the first seven months of this year than in the previous 24 months.
By contrast, total loans and leases outstanding at financial institutions insured by the Federal Deposit Insurance Corporation actually fell $249 billion, or 3.2 percent, in the first half of this year.
Though Washington has used taxpayer money to bail out American banks, it does not have Beijing’s power to force banks to lend that money to businesses and consumers.
As much as a third of the extra bank lending in China appears to have gone into real estate and stock market speculation. But the bulk has gone into investments by companies and local governments, with tangible results.
China’s currency and trade policies, though highly effective, would be hard for the United States to emulate.
For instance, government intervention in currency markets has prevented the renminbi from moving appreciably against the dollar in more than 14 months, and has pushed the renminbi down by 18 percent against the euro since March.
Government agencies have been told not to buy imported goods with money from economic stimulus programs unless no domestic alternative is available. Washington has imposed a less restrictive rule, misleadingly known as “Buy American,” requiring that construction materials for the stimulus program be bought from any of the 39 countries that have agreed to free trade in government procurement — which China has not.
Still, China’s stimulus efforts could be sowing the seeds of future distress. With so much money washing into the system so fast, regulators have voiced concerns about corruption in government investment projects.
Cheap cash has a way of inflating bubbles — just ask Wall Street — that could damage China’s economy and its banks when they pop. “You have to imagine the rigor and due diligence” that mainland banks have been showing in rushing out so many loans, said Benjamin Hung, the chief executive of the Hong Kong unit of Standard Chartered Bank.
But such concerns are so 2008.