Update on Austro-Chinese business cycle theory

Here is David Ignatius:

My favorite analyst of bubble economies is David M. Smick, who predicted the U.S. financial mess in his book "The World Is Curved." He notes some worrying statistics: Until the global financial crisis, Chinese exports represented 43 percent of its gross domestic product. To make up for collapsing foreign demand once the recession hit in 2009, China launched a $1.8 trillion stimulus and lending program — amounting to about 38 percent of its GDP. This money was supposed to reach consumers, but Smick estimates that 85 percent of the subsidized loans went to state-run companies and banks — pumping the investment bubble even larger.

Here is from the FT:

Prices of commercial and residential property in China’s 70 largest cities rose by 10.7 per cent in February from the same period a year earlier, a marked increase from the 9.5 per cent year-on-year gain in January, according to China’s statistics bureau.

I believe that in a time when the U.S. fiscal stimulus is under political fire, many American economists have been reluctant to criticize the Chinese program and send a potentially mixed message. 

On a separate but related note, here is a piece on forthcoming rural migration in China.


Because of the currency lock between China and the US, China stimulus adds to the total world USD stimulus.

China should have just cut taxes. Individuals can decide for themselves whether their own money should be consumed or saved or invested.

The bureaucrats are just helping their friends and buying stock in companies they're directing funds to and shorting those same stocks later.

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