China Review News published a commentary stating that, though China’s loose monetary policy quickly stimulated the economy, its residual effect has been to dampen China’s economy. First, a huge amount of loans has built up inflation pressure. The CPI has kept increasing since the fourth quarter of 2010; it reached a peak of 6.4% in June 2011. Since 2010, the People’s Bank of China has been forced to raise the deposit reserve ratio 12 times and the interest rate 4 times. This credit tightening causes economic growth to slow down. The unemployment rate may shoot up as small-and-mid-level businesses face challenging times to get loans.

Second, in 2008, by issuing bonds, local governments financed 70% of the government’s 4 trillion yuan ($US600 billion) stimulus package. By the end of 2010, local government’s debts had jumped to 10.7 trillion yuan ($US1.6 trillion). Local government’s inability to pay back the loans will hurt banks. The large local government debts also hinder the central bank’s ability to fight inflation, as higher interest rates makes it harder for local governments to pay back their loans.

Third, China’s efforts to cool down the overheated real estate market will hurt construction and other real estate related industries.

Source:
China Review News, August 3, 2011
http://gb.chinareviewnews.com/doc/1017/8/3/8/101783832.html?coluid=1&kindid=0&docid=101783832&mdate=0802001129

On People’s Daily Online, Niu Wenxin, Managing Editor and Chief Commentator of the CCTV Finance Channel, commented on the “sky-high" U.S. debt. Niu argued that, technically speaking, the U.S. government is already bankrupt. The total U.S. debt in 2007 was $US73 trillion, including hidden debts such as social security liability and bonds issued by companies with government guarantees or by local governments, but the total of U.S. current assets is only $US50 trillion. “The best choice for the U.S. is to repudiate its debt” and “force other countries to accept U.S. debt restructuring.”

“It is a ‘zero-sum’ game. If the U.S. wins, other countries (including China) will lose.” Niu then listed four reasons why China should not tighten its monetary supply: 1. Such a tightening will suppress economic growth. 2. It may lead to a financial crisis and recession in China. 3. It will cause higher unemployment. which in turn will result in social unrest and challenges to the CCP’s ruling position. 4. Europe is trying to hang on to the U.S. and hopes China will be sacrificed.

Source: People’s Daily Online, August 1, 2011
http://finance.people.com.cn/GB/15294964.html

According to China Review News (CRN), a Politburo meeting chaired by Hu Jintao on July 22 reported that China’s general economic health is positive, but the issues of imbalance, inconsistency and unsustainability are still very pronounced. New issues are also coming up due to the changes in the international and domestic environments. The primary goal of macroeconomic management is to stabilize the overall consumer price level, which includes maintaining strong control over the real estate market. The meeting also emphasized the firm position of lowering the rate of increase in housing prices and speeding up the development of low-income housing projects. The meeting called for unifying all thoughts and actions on all administrative levels towards the direction that the Party Central Committee pointed out.

Source: China Review News, July 22, 2011
http://gb.chinareviewnews.com/doc/1017/7/5/4/101775457.html?coluid=151&kindid=0&docid=101775457&mdate=0722214159