Quote Originally Posted by Dayuhan View Post
They also lend it, increasingly and in massive quantities, to the well-connected and extraordinarily wealthy elite that straddles government and "private" enterprise. Crony lending is a huge issue, and nobody has a clue what the banks actually have on their books in terms of bad loans.

Of course the Chinese government can bail out the banks, but whether or not they can bail out the companies that incurred those loans is another question. If a company borrows, builds a dozen skyscrapers that end up empty, and goes bust... ok, the bank cam be bailed out, but the company isn't going to keep building skyscrapers (though the people behind that company, closely connected to those running the banks and those staging the bailouts, will have salted their share away). That means a whole lot of unemployed workers, and a whole lot less demand for steel, concrete, etc.

It will be interesting to see where it all goes and there's absolutely no certainty about outcomes, but anyone who thinks the Chinese have created a superior economic model that's bound to swallow the world is barking at the moon.
This is a good summary of the weak points of state capitalism. State Owned Enterprises (SOE) and state champions get plenty of government support in the form of cheap money and favorable legislation but that can only help a business that is competitive. Propping up uncompetitive businesses simply because they are owned or favored by the state just drains the governments coffers for little or no return. Anyone who has been to the Department of Motor Vehicles in the US knows that the state is poor at encouraging productivity and that includes state owned/supported commercial ventures. This is also true of innovation as government bureaucrats have little incentive to innovate and innovators outside of SOEs or state champions cannot compete for resources. By themselves these things put the lie to the "superiority" of state capitalism but the rampant corruption that accompanies state capitalism frankly obliterates the myth.