To stimulate economy again?

Since 2008, many countries have published approaches to stimulate economy to increase the rate of employment. China, as the second biggest economy in the world, adjusted loan rate and deposit rate to anticipate an economic growth faster than 8.1%.

In “China cuts key interest rates to boost growth”, the writer tells us that China cut key interest rates to stimulate economic growth, and China postpones to execute the tougher bank capital rules in case of it hurts economic growth. At present, Euro zone sticks in debt crisis, the growth rate in US shrinks, India has the lowest growth rate in the last five years and China has 8.1% growth rate in the first season in 2012. It is time to loan more money to micro-enterprises and individuals to expand consumption.

Originally, I think it is normal to adjust loan rate which is one kind of routine job in banks, but when I found it is so frequent to adjust loan rate in China, I think it is wired and shortsighted. Chinese banks give loans depends on orders from their superior; they don’t think about how to make money or how to grasp a potential client. In 2010, when we submitted an application to loan for the second house in Changsha, the local bank rejected us because government published a new rule to forbid loan for second house in order to curb the house price continue to increase. We had to give up the second house. I wondered how the bank to survive in the next year. As expected, I accepted many calls from many banks to invite me to loan money at a reasonable rate the next spring. Just during several months, the situation changes so fast.

Now it is another time to see the bank adjust loan rate to stimulate economy, stock market and estate market. I think it doesn’t work this time. First of all, economic development fluctuate in a circle which maybe last several years. Not only in China, but also in the whole world, economic development becomes difficult. Financial crisis or debt crisis continues to erupt in different countries, which is the symptom of economic problems. Many countries have the lowest growth rate recently which means economic development is in its trough. Thus, I don’t think it can be changed just by reducing loan rate. Secondly, Chinese economic obstacle is nothing to do with economic leverage. High price of house guarantees government high income but deprives people’s ability to consumption, which make the economy lose energy. Chinese economy is softly landing now. Government should look for new growth points to develop economy without relying on estate market. It is not easy to find another way to make money, so I think it doesn’t work just adjusting loan rate. Thirdly, expanding loan was an efficient way to boost economy in china, but it is not now. Government loans a lot of money from banks to carry out foundational projects such as express rail or image projects, which was turned out to breed corruption. Government projects are unuseful to the public or harmful to them because there are some incidents in express rail. These projects symbolize local government abusing money. The public can’t ignore that any more.

Chinese economic problems are complicated than we can imagine. It mixed with economic circle, economic structure transition and corruption in political system. In my opinion, stimulating economy can start from reducing individual income tax and combating corruption.

References
China cuts key interest rates to boost growth (2012, June 7). BBC News. Retrieved June 12, 2012 from http://www.bbc.co.uk/news/business-18349596