The Avanti Group

http://blogs.wsj.com/chinarealtime/2013/08/05/why-hasnt-loan-growth-generated-economic-growth-chinas-central-bank-explains/

For economists, the hot topic is why China’s growth is so much lower than its expansion of credit. Money supply has notched increases of close to 15% year-over-year in recent months, but economic growth for the second quarter was only half that rate.

In its latest monetary policy report (in Chinese), China’s normally tight-lipped central bank offered various explanations, some more reassuring than others:

• Loans going into areas that don’t immediately generate growth — like land needed for construction projects.

• Hoarding of cash by businesses at a time of economic uncertainty, with some businesses using funds to make more loans at a higher interest rate.

• Old industries fading away and new industries firing up both need credit, but neither generates stellar output.

• A more sophisticated financial system takes longer to get credit to end users.

The central bank sees risks — especially with businesses sticking to their credit-hoarding ways despite a shift to lower potential growth. But overall they strike a reassuring tone. Wide gaps between growth in credit and the real economy are not uncommon, they say, especially during slowdowns.

To solve the problem, the central bank highlights the importance of structural reforms.

“The economic structure determines the financial structure,” it says, “the crucial point in increasing the efficiency of capital is accelerating the adjustment of the economic structure, creating new growth areas and new drivers.” The message to China’s top leaders: we can’t fix the financial system till you fix the economy.

The central bank also took a politically correct swipe at the reflation policies of Japan’s Prime Minister Shinzo Abe, warning that Japan might end up creating new asset bubbles.

http://the-avanti-grouphannie.wikia.com/wiki/The_Avanti_Group_Wiki

http://www.youtube.com/watch?v=KAgyvkayCRE