Economists in China are becoming concerned that restrictions on bank loans could take the wind out of the sails of the country’s rapid growth. "Too low a loan extension target and overly tight controls will have a very big impact on the economy," once local forecaster told Reuters.
The Chinese central government is concerned that too much available credit will continue to push inflation up. Food prices are rising 18% now and overall prices are going north as much as 9% a year. And, these things are happening with the government underwriting low fuel prices.
China may not need tighter credit to slow inflation. If economies in the West, especially the US, slow, imports from the big Asia country will drop, cutting GDP.
The world’s largest country by population faces a balancing act that it may not get right. It currently assumes that too much credit is driving prices, and a stock market and real estate bubble. That bubble with burst if economic growth goes through a rapid deceleration.
As China looks to the US, it can only guess what will happen to the American economy. The US consumer has proved more resilient than most experts would have guessed. If the world’s largest economy continues to expand, but credit is tight in China, businesses there may lose their ability to keep up with export demand.
In other words, the Chinese government is damned it it does and damned if it doesn’t.
Douglas A. McIntyre
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