China’s economy

Hitting the kerb

A squeeze on lending hits China’s entrepreneurial heartland

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The taxi drivers had used this trick many times to gain more money. Usually the customer can also negotiate to pay less when the second customer is boarding. In the case of woman customers, she can usually refuse such an arrangement. In another case is the taxi driver uses often is to sell long distance customer to return taxi driver from another city. Usually the taxi driver pick up customers to travel to another city for a discounted price. Once the customers are boarded, the taxi driver will use his own dialect to call across the city if there are taxi drivers return to the customer's destination city. If there is, the first taxi driver will then meet at a certain location for the exchange. Customer can usually refuse but usually the taxi driver will offer an even lower fare. All three are happy.




Judging from the fact that China’s per capita cumulative fixed asset investment is still way below that of developed nations, problems will pop up here and there in its path of economic growth, but there is certainly a lot of room for China’s growth in GDP. How could anyone not be bullishing about it.

Just for the heck of it BTW, the chart 2 of the article is skewed in that the “off balance sheet lending” was not compared with “off balance sheet GDP” which may be different from the on balance sheet GDP.

It seems that all of the informal lending could lead to a very small recession in China. This is one of the articles that shows just how interesting it will be to see how China's economy changes.



Yen? Shurely shome mishtake...


China is getting so rich, they are geniuses when it comes to getting a bunch of money while multi tasaking. As the article talked about with the taxi cab drivers; its so funny how they pick up two people at once in order to make twice as much money. If I was the person that got the cab first and wanted privacy during my ride it get pretty ticked off, thats probably how some long time Chinese economic partners feel when a new state comes in to town and gets the same respect that the old state that had been partners with China for like 20 years felt.


The main dilemma the government is facing is whether they should bail out the crippled small biz in Wenzhou area where private lending was the main capital resources for years. These small biz companies are short of capital right now. If government doesn't bail them out, the domino effects can potentially shake up the communist regime. But if government bails them out with tax payers money, there can be turmoil from the other side. What a weird economy based on private lending which in fact reflects the unhealthy, financial or banking systems there. If you don't have 'guanxi', it's really hard for you to raise capital to start up your own biz.

Plaid Jumper

One funny comment we made about the run-aways of the bosses in Wenzhou is that they have all boarded the Ark for for the normal citizens in china cities who are generally struggling to make a life everyday, making more money with harmless tricks, like the taxi drivers, or even harmful tricks, like pouring industrial color into food, are happening everywhere. Long story short, China has way too many people. China is rich, but the wealth is concentrated on very few people, while the others may be in poverty still. Not many wealthy people are willing to touch the private lending, and that's why back-alley banks are so popular among small business. Desperate businessmen re willing to risk it.


TE has been talking about the coming "china slowdown" for the past seven years or so with various anecdotal evidences, prognosis, predictions etc. but china still continues to chug along with different methods of driving growth (lending in some case, exports, investment and now refocus on domestci consumption)...seems like there is enough carrying capacity in the economy to withstand all these binges and correct course.
it was npl in early 90's, infra investment before the games, now local govt lending..$1.7 trillion in local debt is not going to bring down an economy of the size of is just wishful thinking
is TE's rant wishful thinking or clear research? seems like the former to me. people feel that if you speak the untruth multiple times (propaganda), it will soon become the truth.

are we all trying to be nostradumus??


It would probably go a long way to improving lending generally in China if loans were given out at prices based on risk, rather than issued by government fiat. Small businesses that may well be viable, thrifty and sustainable suffer under government ordered credit squeezes just as the profligate do. There are some signs that China may be coming to realize the benefits of a true financial market, rather than a politically-based system, but these will be late to the scene, if they actually do materialize.


Chinese export reliance may be way lower than in 2008. Granted, the difference between now and then (2008) may only be a small step in our way of thinking. From the perspective of such a different market, however, this very difference is relatively larger. (Given their growth rate, increasing wealth among those few consumers (whose values nonetheless may have significantly increased)).

My assumptions are based on various articles published on WSJ, Reuters. In short, the dampening power, or non-export power, if you wish, may significantly be better than in 2008.


Overlending and overborrowing of debt to deliver the perception of real growth... sounds like a repeat of the West's mistakes to me.


Those who would consider China a rich country should maybe take a look at their GDP per capita PPP.


The squeeze on lending in China seems to be somewhat of a mini recession but it seems like it can be dealt with easily. China overall is doing very well and growing rapidly as an economy and probably will continue to do so for a long time. Every country goes through dips and economic problems, it's the cycle. China obviously knows how to make money as shown by the taxi drivers doubling their money by driving two people. Overall the informal lending is somewhat of an issue and should not be continued but China's economy will stay strong.


Most of the SMEs in Wenzhou should probably shutdown shop as they can hardly makes any money from export with the rise in input costs like Yuan rise, labour, material etc.

The smarter ones would have move their operations to the inner provinces so as to concentrate on the more sustainable consumption in local markets.


Its good to see that China is in fact human. There is no way this is going to bring China into a recession; however, It will indeed slow down their rise to global power. Small road blocks like this are going to inevitable in a roaring economy, but no matter how you look at it the future of China's economy looks strong. As shown by their genius and innovative cab drivers, China is a force to be reckoned with. It will be interesting to see how China's economy rebounds from this situation, and how its going to affect its future growth.



Oct 25th 2011 3:36 GMT

China: Rich. That's probably what most people will get out of when talking about the economy of the country with the most people in the world. Their economy hitting a small bump should not be concluded as a huge recession as the entire globe economy is on a shaky boat. Crafty businessmen like the mentioned taxi drivers are actually just the normal tricks people in Asia use to gain more profits (as I am Asian as well).

Share taxi is a excellent business idea. A new innovative business idea is to group people online to share taxi. A new economy in HK is happening.


China is getting rich extremely fast. However if they do not take lessons from Companies and countries in the past they will hit a recession. Greed in situations like this always leads to people lending out more money then they actually have.




The growth chart looks like an impulse response, maybe someone can build a transfer function and find out how the engineers running the country decide their next policy.



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