Money in the right handsNick Land / text
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Money in the right hands
By Nick Land
Shanghai Star. 2004-07-01
Everyone who turns an economically sensitive eye to today's China sees
quite quickly that among the country's various problems one has
overwhelming prominence: the misallocation of credit. While reform and
opening up has transformed the industrial, entrepreneurial, educational and
cultural dynamics of the society in an almost incomprehensibly positive
direction, the woes of the financial system are able to scare even the most
ardent China-boosters.
So tangled has the network of politically guided lending become that it is
unlikely anyone is in a position to place a reliable figure on the total of bad
debts in the country. There can be little doubt, however, that they now
amount to a considerable proportion of both national financial assets and
GDP.
By routing the task of industrial restructuring through the nation's banks, by
way of politicized lending, China has perhaps postponed the task of
dismantling its loss-making SOEs - and the attendant wave of unemployment
in smoke-stack dominated regions - but only at the expense of the health of
its overall financial system.
While China's giant State-owned banks are probably immunized against the
possibility of catastrophic crisis, the more invisible problem of creditstarvation among the most productive sectors of the national economy
continues, year after year, to be a serious impediment to optimum economic
development. An enormous proportion of the country's available capital is
channelled into staving-off disaster among sick SOEs, at the cost of
potentially far more productive investment among the country's myriads of
small-scale entrepreneurs. They are attempting to turn ideas into realities and
build the leading companies of the future, in an environment where the pool
of investment capital has already been quaffed dry by State-owned dinosaur
businesses in yesterday's industries - many staggering with painfully slow
steps to eventual bankruptcy and extinction.
Proving that wider social goals need not be compromised by putting credit
into the hands of those who can use it most productively, Du Xiaoshan,
Professor of Economics and Rural Development at the Chinese Academy of
Social Sciences, has been promoting "microcredit" initiatives in the country,
directing small loans to hard-pressed rural families and businesses who
would otherwise fall through the cracks of the national banking system.
Such microcredit systems demonstrated their viability in Bangladesh, where
Grameen Bank adopted the approach with huge success, enabling
enterprising villagers to improve agricultural efficiency and set up essential