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China keeps its money flowing

Scott Tong Dec 28, 2009

China keeps its money flowing

Scott Tong Dec 28, 2009


Bob Moon: Which country is the world’s leading exporter? Until this past year, the correct answer would have been Germany. But over the past weekend, a top (Chinese) official predicted the Germans have likely been toppled from that spot by China.

This decade, Chinese exports have grown an average 25 percent a year. That’s twice as fast as Germany. That growth rate isn’t a huge surprise considering China is the one country that it seems was barely rattled by the economic turmoil of 2009. To take a look back at the year, and a bit forward to 2010, Marketplace’s Scott Tong joins me now.

SCOTT TONG: Hello, Bob.

Moon: So from here it sure feels like China emerged unscathed or relatively unscathed. Does it feel that way from there?

TONG: It feels pretty good, but it depends who you talk to in China. Let me just tell you a story about my distant cousin who was raised in China, lives in Shanghai. He’s a factory manager at a General Motors factory, where they make cars for the China market. And he works about 29 days every month because China is now the world’s largest auto market. It’s going to pass the U.S. this year. But his dad, my distant uncle, is hurting because he’s a consultant to a factory that exports stuff to America — power drills and that kind of stuff. So what you have is China’s domestic economy is roaring, and it’s compensating for a really ugly global economy. And if you do the math and put it together, most think China is going to grow at about 8 percent and change. So as China keeps growing, the multinational American companies keep coming and planting their flag here. The latest one is Krispy Kreme Doughnuts, Bob. So I suppose it’s our sign that China’s transition to a free-market economy is hereby complete.

Moon: Watch your waist, Scott.

TONG: There you go.

Moon: Why did China shake this off so quickly, having said what you just told us?

TONG: Well, quickly is the word. Early in the year, the Chinese government rolled out this $585 billion stimulus package. And it sure helps when you have an authoritarian government that doesn’t have to worry about filibusters or Senate minority leaders getting in the way of progress. So that money flowed quickly into the economy through bank loans. And here’s the difference between Chinese bankers and American bankers. The American banker will assess risk and all that, the Chinese banker will look at that a little bit but here if you’re a banker at a state-owned bank, and the state the government tells you to lend to is a state-owned company, well, let me think about, yes, your loan is approved. So that money went quickly into infrastructure, incentives for consumers to buy things like cars and appliances and computers, and so we have 8 percent growth.

Moon: So all this lending, too much of a good thing? That’s where the housing bubble came from in the U.S., after all.

TONG: One economist calls it crazed money. So what we’re hearing is worries now about a bunch of things that come with easy money. Take inflation, bad loans, an asset bubble, property prices are perhaps topic number one among middle-class Chinese these days, because housing is very unaffordable. I mean the soap opera that everyone is watching is called “Snail House” because that’s the size of the home that a lot of people can afford, is this itty-bitty home right now. So we will see next year how all these howevers play out in the economy.

Moon: Well spin this forward a bit for us. What kind of world can we expect with China in the next year?

TONG: Well, we will hear a lot more cases of Chinese outbound investment, Chinese money going everywhere in the world, and where is it going to go? Well, you know, it’s going to be buying parts of sports teams. A Chinese investor is about to finish buying a small fraction of the Cleveland Cavaliers. Chinese solar energy companies are going to set up plants in the U.S. There’s talk of a Marshall Plan. Beijing and the World Bank are talking about a giant amount of loans to Africa. So all of this will happen, and we will hear about that. And for Americans what this outside investment could do to help is it could help the stock market, it could help U.S. companies float that would otherwise go under with this Chinese investment money. What we may hear less of from China is the constant drone of China being America’s banker, America’s banker, America’s banker because the more Americans save, they’re actually buying more American bonds than the Chinese are.

Moon: Marketplace’s Scott Tong with the view from Shanghai. Thanks for joining us, Scott.

TONG: All right, Bob.

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