Has China Been Doing ‘Quantitative Easing’ all this time?

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Shanghai at night
Shanghai at Sunset aerial view of the Bund and Huangpu River
Shanghai at night
Shanghai at Sunset aerial view of the Bund and Huangpu River

The problem with China’s financial system is the Communist Party of China. There are no two ways about it. There is no avoiding this conclusion. It’s all about power and it’s all about command and control fiscal management. On the one hand, this type of top down ‘one size fits all’ centralized fiscal management system gets things done. There is no debate. There no arguments. The word only needs to come from on high and it gets done where it needs to get done. Compare this with all the infighting, wheeling and dealing, handwringing, and drama of your typical Western country’s fiscal management team or central bank board. There is no comparison when it comes to speed, decisiveness, and consistency.

The downside with the Chinese way of fiscal management is that its whole focus is on one thing and one thing alone: ensuring that the Communist Party retains its power. Not surprisingly, any considerations regarding ethics, transparency, accountability, and even proper fiscal prudence are set aside to ensure the number one job gets done. With this background, it isn’t a surprise that there are serious structural issues with ‘shadow banking’ in China. Tons of bad debt hidden from public view. Moreover, investments, real estate in particular, are ‘fixed’ and ‘can’t go down in value.’ Who knows what kind of financial shenanigans lurk in the books of government controlled or state owned or state operated enterprises. Trying to get to the true state of China’s fiscal health is like shadow boxing. Against this background, it isn’t hard to conclude that China’s been doing its own stimulus programs to meet economic targets-economy reality be damned. It’s not unimaginable to see billions of yuan worth of bad investments and loans. The only question left to ask is: when will the other shoe drop?

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