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>Chinese banks are not banks; they are cash distribution pipelines, generally controlled or heavily influenced by the government. Selective industries are fed l

>Chinese banks are not banks; they are cash distribution pipelines, generally controlled or heavily influenced by the government. Selective industries are fed loans, based on the flavor of the week, on terms dictated from above. When the pipelines are empty (as they are now), the government just inserts more money into the other end. This is the single most different aspect of the Chinese system. Banks operate as partially privatized central planning. The government prints its own money and hands it out to the banks whenever they lend badly to favored government entities. Corruption in banking is dealt with severely to prevent the bad behavior that the moral hazard would entail. There is such deep denial of the corrupt nature of private money creation in banks in the west that most analysts overlook this as a key advantage of the Chinese system. How many years have we had predictions that the Chinese economy was going to bust any day now?

tomp 12y ago
I find you comment interesting and agreeable, but I'm not sure what to make of this sentence: > There is such deep denial of the corrupt nature of private money creation in banks in the west that most analysts overlook this as a key advantage of the Chinese system. Can you maybe explain it? Are banks more corrupted in the West or in China? Is <something, I'm not sure what> an advantage or a disadvantage of the Chinese system as compared to the west?
- marcosdumay 12y ago
  Banks loan much more money than there is available, creating systemic risk and in extreme cases making the government unable to directly control inflation. The upside is that loans get much cheaper, making it possible to invest on enterprises that wouldn't exist otherwise. Looks like banks in China can only do that with their government authorization.
  - seanmcdirmid 12y ago
    Banks in china use every loophole available to lend more than the gov wants them to; the government is more reactive than proactive in reigning the banks in. Of course, the government is incredibly multilayered and not cohesive, so usually this simply means local government vs. central government.

tomp 12y ago

I find you comment interesting and agreeable, but I'm not sure what to make of this sentence: > There is such deep denial of the corrupt nature of private money creation in banks in the west that most analysts overlook this as a key advantage of the Chinese system. Can you maybe explain it? Are banks more corrupted in the West or in China? Is <something, I'm not sure what> an advantage or a disadvantage of the Chinese system as compared to the west?

marcosdumay 12y ago
Banks loan much more money than there is available, creating systemic risk and in extreme cases making the government unable to directly control inflation. The upside is that loans get much cheaper, making it possible to invest on enterprises that wouldn't exist otherwise. Looks like banks in China can only do that with their government authorization.
- seanmcdirmid 12y ago
  Banks in china use every loophole available to lend more than the gov wants them to; the government is more reactive than proactive in reigning the banks in. Of course, the government is incredibly multilayered and not cohesive, so usually this simply means local government vs. central government.