Railways and Public Housing Isn’t China’s Saving Grace

Published on Author tamayoa16

According to Gwynn Guilford, a writer for Quartz, the Chinese government does not want the economy to continue growing. Premier Li Keqiang wants to stimulate the economy, mainly by accelerating railway construction, public housing and slashing taxes for small businesses. To foot the bill, however, the government wants banks to fund these endeavors.

However, building railroads and public housing doesn’t generate any cash. It may be beneficial in the short run, but those initial investments could have been used for something more productive in the long run. “Foremost among these,” according to the article, “is the government’s artificially low rigging of the deposit rate, which keeps borrowing cheap, thought it comes at the cost of household consumption”.

The main reason behind why the government isn’t investing in something more worthwhile is because there are no longer any projects that generate value.  Looking at the calculations by Wei Yao, an economist at s Société Générale, the country must invest nearly twice as much as it did five years ago. The rest of the credit is being used to pay off interesting on existing debts.

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