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Are The Chinese Sacrificing Themselves To Save The World?

I doubt Beijing sees it quite that way. But that's the distinct impression I get from reading this Wall Street Journal piece on the Chinese efforts (so far successful) to prop up their economy. On the one hand:

The success so far of China's stimulus has been one of the few bright spots in the worst global downturn in a generation, with all advanced economies expected to contract this year. ...

"China will be among the first countries to lead the global economy out of this recession," said Hans Timmer, director of the World Bank's economic forecasting department. Developing countries such as China are becoming a bigger driver of global growth as U.S. households cut back consumption and boost savings, he said.

So without China's stimulus program, we'd all be in a much bigger hole. On the other hand, setting aside its fiscal stimulus, which seems perfectly kosher, China's response to the recession seems to involve reinflating a lot of bubbles:

China has rebounded after authorities used the state-controlled banking system to engineer one of the most dramatic monetary expansions in history. Banks have issued twice as much in new loans so far this year as in the first half of 2008, and China's money supply is now expanding at nearly triple the rate in the U.S.  ... [T]he activity it supports is, at least in the short term, good news for home builders, car makers and suppliers of commodities like copper. ...

Although home sales collapsed for much of last year, confidence started to return after the stimulus plan. Residential property sales were up 50% in June alone. More importantly, developers have resumed building, encouraged by easy financing and rising sales. Construction starts were up 12% from a year earlier in June, marking the first increase after 11 straight months of decline. [emphasis added.]

Doesn't exactly sound healthy to me. You obviously want to ease credit to prevent a deflationary spiral after an asset bubble collapses. But this strikes me as going much, much further. If there really had been a bubble in, say, the housing market, then reinflating it this way obviously doesn't solve the problem; it just postpones the day of reckoning and ensures that the wreckage is much deeper and more widespread. And, in China, that's the kind of thing that could have not just enormous economic effects, but also social and political ones. I'm certainly for it if it cushions our recession. I'm just not sure why the Chinese regime would necessarily be so keen. (Then again, maybe the idea is get through today and worry about tomorrow tomorrow. Not exactly a Confucian axiom, but that could be where they find themselves....)

Having said that, maybe the idea isn't so much to mitigate the domestic and global downturns (though those are welcome biproducts) as to grease China's transition from a low-consumption, high-saving, high-exporting economy to one based (less precariously) on domestic consumption, which anyone familiar with the international financial system has said is essential. It's hard to tell, but the last graf of that Journal piece offers some hint of this:

Economists both inside and outside China are urging the government to look to local rather than foreign consumers for future markets, suggestions that may be getting traction. "We will introduce innovative consumption unleash the potential of consumption in driving economic growth," Vice Premier Li Keqiang said this month.

Those are definitely the right words; I guess I'll believe it when I see it.

--Noam Scheiber