Skeptics question China’s stimulus use

Scott Tong Aug 11, 2009
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Skeptics question China’s stimulus use

Scott Tong Aug 11, 2009
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Steve Chiotakis: The latest reports today out of China show the country’s on the way back. Industrial output, trade, and retail sales all improved last month. Beijing is in the middle of a multibillion-dollar stimulus to provide medicine to the world’s third-largest economy. But there are some side effects to all the feel-good news. From Shanghai, here’s Marketplace’s Scott Tong.


Scott Tong: Chinese factory production went up 11 percent over last year. Retail spending rose 15 percent. Credit the government’s $600 billion dollar stimulus package. Thing is, it’s not clear all the money is being used the right way. China’s stimulus is mostly government loans that pay for infrastructure projects. But economist Frank Song at the University of Hong Kong has a sneaking suspicion some loans went to companies and individuals who played the stock market.

FRANK Song: A part of that might be channeled into the stock markets and real estate market. Part of that might create some risk if the bubble burst.

If the bubble bursts, those government loans would go sour. Shanghai’s stock market’s up 78 percent this year. Skeptics say the government stimulus has created superficial exuberance. Frank Song also frets about wasteful spending on infrastructure projects.

Song: A lot of these highways and bridges, for example, there’s not much traffic.

And without traffic, those projects could lose money. Another way the government loans could turn non-performing.

In Shanghai I’m Scott Tong for Marketplace.

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