Share

Beijing desperately needs a recession to shift the economy

New loans grew more than expected on the mainland last month… The monthly total grew to 948.7 billion yuan, compared with July’s total of 463.6 billion yuan, the central bank said. It beat expectations of 750 billion yuan from analysts polled by Reuters.

SCMP, September 15

I like recessions. Let me repeat this in case you think your eyes have deceived you on this page. I like recessions. I think they do any economy an enormous amount of good.

The problem is that no-one ever changes direction in boom times. Whatever any business or industry is doing when things are going well, it is all just full speed straight ahead, pedal to the metal, don’t bother yourself with anything else going on around you. There is money to be made. Grab it while you can.

But economies have to change direction from time to time, just as racing cars do, and any racing driver who is still going top speed when he comes to a sharp bend in the track is in for serious trouble. Likewise economic performance. There are times when it is best to slow down.

Recession is the part of the cycle is where you say, “Ouch, got that wrong somewhere, it seems. Let’s think about this again. Perhaps we should do things a bit differently next time. Let’s work out how while we have time on our hands with things so slow just now.”

Even if this only results in cost cutting that makes the business more efficient in the next cycle, recession has proved itself valuable. But mostly it does a good deal more. It refocuses attention on new directions, new methods, new markets and new products. Paradox though it may seem, recession is where an economy grows up to its next stage of development.

It is my view that Beijing should recognise the mainland economy’s need for a recession now. It really is time to reconsider rustbelt industries and low margin export processing that trades on suppressed wages.

But all the latest news has brought us is another return to growth in the rustbelt and cheers that exports of the usual plastic consumer rubbish may be rising again. Most critically, there is no sign yet that the fuel for driving along all this old, early stage industry has been cut off. The financing taps are still wide open.

I would not lay particular emphasis on the fact that there was a month on month increase of 948 billion yuan in new loans in August. There was a 2.5 trillion yuan leap in January on this basis and increases of almost 1.4 trillion yuan in both March and June.

It is just as bad if you track total social financing which adds debt and equity securities to the mix. This figure was up 1.47 trillion yuan in August but again, as the chart shows you, it all looks mostly like a seismograph record in an earthquake.

How anyone would care to hazard “expectations” anywhere within a trillion yuan for such monthly numbers is a mystery to me and averaging such guesses on a straw poll is clearly a work of comedy.

The underlying trend, however, is plain. The squeaky wheels will get their grease. Credit is to be made plentifully available to all who scream loudly enough for it.

And this tells me that Beijing is furiously pushing back against every natural force that would bring the mainland economy into a long delayed and much needed recession.

If only there were a way of sugar-coating this pill, it might more readily be taken down. There is not. It nonetheless must be swallowed soon.