China's Stimulus No Better Than America's; Local Governments Piling Up Huge Debts

Obama tried a stimulus and so did we. Now we both have debt problems…

Many are predicting that we are seeing the demise of the American economic model and the rise of China’s. To those one might say: not so fast. China has huge debt problems of its own. Consider this assessment from Wally Lam at the Jamestown Foundation:

“The Chinese Communist Party (CCP) leadership’s apparent failure to rein in reckless borrowing by local administrations has raised serious questions about the efficacy of the country’s stimulus package–and the viability of its vaunted economic model. Last month, the National Audit Administration (NAA) disclosed that regional governments had run up debts totaling 10.72 trillion yuan ($1.65 trillion). Independent credit agencies have reckoned that the actual figure is around 14 trillion yuan ($2.15 trillion), or 35 percent of the country’s GDP (Bloomberg, July 5; Voice of America News, July 5). These horrendous debts show the party-state apparatus may be losing control over the regions’ finances. More significant is the fact that 33 years after Deng Xiaoping kicked off the era of reform, the country is still dependent on old-style state investments to boost GDP growth rates.”

Why are they running up this debt? In part because local ambitious leaders are like politicians in America: they think that by spending gobs of money, that can make the local economy look good and….get promoted. More from Lam:

“According to Beijing University of Science and Technology economist Hu Xingdou, local cadres are convinced that faster-than-normal economic growth is a ticket to a quick promotion up the hierarchy. “They don’t mind incurring tonnes [sic] of debt because it’s the responsibility of their successors, if not the central government, to return the money,” said Professor Hu (VOA news, June 25; Huxingdou.com, July 1).”

China may not pass America after all. Their leaders apparently function too much like our politicians….

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