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Chinese Banks Funding Chinese, Not Global, Recovery

In the January 2, 2010 Washington Post Ariana Eunjung Cha reports:

China’s state-owned banks have become a main engine of the global recovery, financing the construction of copper mines, purchase of airplanes, expansion of retail stores and other projects even as their U.S. and European counterparts scale back lending.

Over the first nine months of 2009, new lending by Chinese banks has injected $1.3 trillion into the world economy, according to statistics from the People’s Bank of China, which functions as China’s central bank.

But as Heritage Foundation Asian Studies Center Research Fellow Derek Scissors points out, it is a stretch to say this $1.3 trillion has been an engine of recovery for anyone but China:

That is the figure injected into the Chinese economy, for the benefit of Chinese producers. These producers then ramp up output, pushing out more exports and, at home, displacing foreign imports. At the moment, this probably harms the world economy.

The small fraction of Chinese lending that goes overseas is dominated by a single purpose– acquisition of foreign mineral resources and stakes in foreign companies by Chinese state-owned firms. China’s foreign loans smooth the way for these acquisitions in Africa, Australia, and elsewhere, with all other lending goals typically an afterthought.