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China - Looking out of the ditch
Our Beijing Bureau
31 DEC
China's economy looks to be heading back to some sort of growth after the meltdown in 2004. Tight measures by the new Govt and greater freeing of control to the provinces has resulted in the glimmer of hope for China.
In 2004 the economy had collapsed due to huge foreign outflows caused by political insurgency & revolts by the chinese people. The first to be affected were the Chinese banks whose NPA's were very high with most loans given to the state-run companies & cronies. These state-run companies were running at very low productive returns. There was also a large amount of borrowed money pumped into speculative property development that never saw returns. The bad loans were as high as 40% of outstanding loans (as high as 38% Of GDP) appx. 400bn by the end of 2004. From early 2001, China went into deflation. Prices in most provinces dropped for over 2 yrs. This deflation led to weaker demand as consumers postponed spending. The bad-debts further aggravated the banks' failures.
However as control was taken over by the liberal Democrats in 2006 & strict capital controls & growth inducing measures have realised in a margin of improvement in China's economy. The future seems bright since China's first democratic elections are slated for 2012.
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