The credit rating organization, Fitch Rating, said that Chinese banks are taking huge risks in providing loans to support the government’s plan to stimulate the economy. In the first four months of this year, under the push of the government’s infrastructure development plan, Chinese banks offered loans in the amount of Renminbi 5,200 billion yuan (762 billion dollar), surpassing the 4,900 billion yuan total bank loans for last year. Aggressively targeting profits is another reason for the increase in bank loans.

The Bank of China’s quarterly report said that its supervising arm is following up on the actual usage of the loans. Fitch Rating’s interpretation is that the government has lost control of the loans; otherwise it would know where the money went. It also pointed out that as the assets quality at China’s banks starts to deteriorate, more problems will surface down the road.

Source: BBC Chinese, May 21, 2009
http://news.bbc.co.uk/chinese/simp/hi/newsid_8060000/newsid_8062600/8062633.stm

On May 20, the International Herald Leader, under Xinhua News, reported on the foundation laying ceremony for China’s biggest luxury shopping center in Shanghai. Among the ceremony attendees was French LVMH group President Beorne Arnold who expressed confidence in the Chinese market.

Beorne Arnold’s confidence is not unfounded. According to a research, in 2008, for the first time, China replaced the U.S. and became the second largest consumer of luxury goods in the world. However, China’s luxury goods consumption is a dysfunctional social phenomenon. The majority of luxury goods consumers are young people with less earning power who buy things in order to show off. Additionally, non-Chinese brands dominate the luxury goods market, which negatively impacts the expansion of China’s domestic brands. The consumption also does not help the tens of millions of Chinese who are living below the poverty line. Per China’s present poverty relief standard, over 40 million people live below poverty line. Using the UN’s poverty standard, the number is over 150 million.

Source: International Herald Leader, May 25, 2009.
http://news.xinhuanet.com/herald/2009-05/25/content_11430893.htm

Voice of America published an article about the Chinese Stimulus Package based on reports by the Chinese State Auditing Administration. The auditing publication revealed issues on the how the spending effort was completed. Some investments were used for monetary speculation. Some funds were not actually delivered to the intended projects. Small and medium sized businesses were left behind. By the end of March, based on audit results covering 335 new projects in 18 provinces, the Central Government delivered 94% of the promised funds while only 48% of corresponding local investments were actually completed. The US agency Stratfor Global Intelligence suggested that, the Chinese Stimulus Package can help the economy in the short term at the cost of a long term solution.

Source: VOA, May 20, 2009.
http://www.voanews.com/chinese/n2009-05-20-voa2.cfm

The CCP Central Party School’s newspaper, Study Times, recently published an article discussing the importance of increasing the Chinese people’s wealth. The key point is that compared to the growth of China’s national wealth, the growth of average people’s income has lagged far behind. According to a study of the period from 1995 to 2007, China’s fiscal income increased by 5.7 times, and the average yearly increase was 16%. In contrast, the average annual increase of city residents’ disposable income was 8%, and the average annual increase of rural residents’ disposable income was 6.2%. Consequently, many people are asking, “How can we spend more money when we don’t have any money?"

The article’s author argued that the ultimate goal of a country’s economic and social development is to let its people have a prosperous life. A “wealthy nation full of poor people” can never sustain a society’s healthy growth.

Source: Study Times, May 25, 2009.
http://www.studytimes.com.cn/WebPage/ny1.aspx?act=1&id=2672&nid=9696&bid=12&page=1