Tuesday, January 26, 2010

China Moves Against Bank Lending

Apparently markets are shocked, just shocked, that China is trying to rein in its banks. It's a smart move on their part. China does not currently have the ability to replace OECD countries as a consumer market, and their 2008-09 expansion of bank lending was done for domestic reasons, not to save (or dominate) the rest of the world. It was deep credit and treasury markets that allowed the US to support the world economy on the consumption side, without massive inflation, for one. That model is now broken. China has a very small bond market; new money dumped into their system much more quickly becomes inflationary and speculative. Their private consumers basically do not take on debt.

1"Bank of China, Construction Bank Start Curbing Credit"; Bloomberg

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