Thursday, January 21, 2010

Stimulus Watch: China keeps throwing out the dough

Apparently China is making a mild attempt to preempt a credit crisis in China...

"Premier Wen Jiabao said yesterday China will “well manage” the pace of credit growth after a record 9.59 trillion yuan of new loans were doled out in 2009, stoking concerns of asset bubbles and worsening credit quality. China’s central bank last week raised the proportion of deposits banks must set aside as reserves for the first time in 18 months."

Lending 9.59 trillion yuan is lending over 25% of GDP in one year. Let's see what they plan for next year...

"China has told some banks to limit lending and will restrict overall credit growth in the nation to 7.5 trillion yuan ($1.1 trillion) this year, banking regulator Liu Mingkang said."

This amount is still over 20% of GDP of nominal loans in one year. Wow.

In addition, the fiscal stimulus keeps rolling...

"...the 4 trillion renminbi multiyear fiscal package, which was announced last year, which is equivalent to 15% to 20% of GDP. ...It's a massive undertaking, all funded internally by the Chinese government plus some private equity participation."

I am not sure when China's fiscal stimulus effect is expected to peak. If someone has found a reference, let me know.

Overall, should you go long China? Can't say. Looks tempting. Despite the huge run up already, i will look into opportunities.

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