He Qinglian: 12 years later, the aftermath of China’s five trillion dollar bailout still exists

For a long time, China’s economic development has been built on debt. If the 40 trillion yuan of local “hidden debt” is included, the government’s debt ratio will soar to 85% by the end of 2020, well above the warning red line of 60%.

The U.S. government is vigorously promoting infrastructure plans in the same way as China’s 2009 government bailout of five trillion dollars (local matching funds amounted to more than 20 trillion that year), all without the credit of money-printing machines. Other mountains of jade, can attack the stone, the Americans especially need to remember the experience of China’s $5 trillion bailout. In retrospect, the main success of China’s $5 trillion bailout in 2009 was to protect employment, but the main failure was to distort the structure of the economy, forming a high dependence of the government on land finance and severely inhibiting the consumption of residents. A bigger consequence was that the construction of “railway (road) and public (road) infrastructure” was already in serious surplus, and the main flow of funds was real estate, especially to residential housing, and when there was a serious surplus of real estate, China had to find a way out for the excess capacity, so there was the “Belt and Road” plan that was pushed to several continents around the world. The “One Belt, One Road” program, which is not very economically effective today, has caused many international conflicts and many projects have become one “foreign aid” project after another.

When this interval, it is necessary to analyze the successes and failures of China’s 5 trillion bailout.

The start of the money printing machine

From 2009, China’s economy basically relies on the issuance of additional money to drive growth. Figuratively speaking, the money issued every year, in addition to piling up in the house, the rest are piled up in the debt chain.

I’m not singing China’s praises, quoted from senior financial officials. 2010, Wu Xiaoling, deputy director of the National People’s Congress Finance and Economics Committee, said, “In the past 30 years, we have driven rapid economic development with an excessive supply of money.” According to the article “China leads the world in monetizing its economy with serious monetary over-issuance” (21st Century, January 28, 2013), since 2009 China’s central bank has exceeded the money supply of Japan, the United States and the eurozone, becoming the world’s largest “money printing machine” at the time, and in 2012 the world’s new money supply exceeded 26 In 2012, the world’s new money supply exceeded 26 trillion yuan, with China accounting for nearly half. According to the article, China’s economy was assessed to be among the most monetized in the world, after balancing differences in per capita income.

How much money has China over-issued? The following data are available for reference: 1. China’s currency issuance is growing much faster than GDP growth, with M2 growth averaging 18% over the decade as of 2012, compared to 9.5% for GDP; 2. China’s M2 to GDP ratio was 1.89 times as of the end of 2011. The result is a rapid decline in the purchasing power of the RMB and a persistent hyperinflationary state in China. This situation has led some experts to discuss issuing large denomination banknotes to facilitate circulation and also to save money printing costs. The Chinese government has weighed up the issue, preferring to bear the high cost of issuance rather than issuing large denomination banknotes, mainly for psychological reasons, not wanting to make inflation visible and cause psychological panic among the public. Many people have openly said that the stability of the Chinese economy lies in the confidence of the people.

Has the United States become the world’s largest money printing machine? It is not difficult to draw conclusions by simply checking on the Federal Reserve website.

Real estate inhibits consumption

Chinese people’s income is limited, out of fear of inflation, people worry that “money is gross”, they think that only buy a house is considered safe, so residents’ housing expenditure has increased significantly year by year, here are only a few years in which residents’ housing expenditure broke 100 billion, trillion, 10 trillion data.


Residents’ total annual expenditure on home purchase (billion yuan)

Current year home purchase burden rate






















As seen in several key figures listed in the above chart.

i. house prices are skyrocketing. in 1998, the average home sales price was RMB 2,062; in 2020, the average sales price is RMB 9,860, up 2.6% from 2019. between 22 years, China’s house prices have increased more than four times on average.

Second, residents’ consumption is severely squeezed by housing expenditure. in 2020, urban residents’ income increases by only 3.5%, annual consumer price increase is 2.5%, while consumer spending shrinks by 3.8%, the first contraction in consumer spending since 1990 and the first since the establishment of the Chinese Communist Party. According to estimates, the size of China’s total spending on home purchases in 2020 is $13.90 trillion, up 11.6% from $12.45 trillion in 2019. To put it bluntly, residents would rather squeeze other consumer spending than buy a house.

Third, Chinese residents have heavy personal debt, most of which stems from home purchases. According to financial practitioners, in the past five years (2016-2020), China has been one of the fastest growing countries in terms of resident debt, with an increase of 22.2%, far exceeding the 0.9% in the United States, 7.2% in Japan and 4% in Germany. This explains the ultra-high home purchase burden of Chinese residents.

The government’s financial dependence on real estate is even more severe

According to official Communist Party data, China’s land sales will generate $8.41 trillion in revenue in 2020, and the national fiscal revenue will be about 18 trillion yuan, accounting for 44% of the national fiscal revenue and 84% of the local fiscal revenue. Under such circumstances, neither the central government nor local governments can or have the real will to adjust the economic structure.

Unable to adjust, because China’s domestic consumption is shrinking, the market is in the doldrums, the industrial structure naturally can not be adjusted, is still the pattern of government finance is still dependent on real estate. In this case, naturally, there is no will to adjust. As I wrote several years ago, the Chinese government controlled the price and scale of real estate in an effort to keep the bubble alive. Later, the government, out of fiscal need, real estate companies, out of market need, and property owners, out of personal wealth not to shrink, formed a community of interests in the mid-2010s that all needed to keep the bubble alive. This is the reason why the gray rhino of the real estate bubble has not gone crazy yet.

A common misconception: China’s exports are re-emerging

In 2020, China’s exports increase, and several mainstream U.S. media outlets, in addition to the official Communist Party media, agree that China’s exports are booming again and will soon be able to compete with the U.S. economy.

What will happen to the U.S. economy is very much in flux with the current Biden administration’s economic policies pursuing ideological gratification and violating market rules, as discussed in a separate article. But if we carefully analyze the structure of China’s export commodities, we will find that the three categories of medical supplies, household goods and home office supplies are the three pillars that will drive the modest growth of China’s foreign trade export figures in 2020, with the highest increase being in medical supplies and textiles (in fact, mainly materials for masks), with increases of 40.5% and 29.2% respectively, an increase that is related to the epidemic and is destined to be un This increase is related to the epidemic and is destined to be unsustainable. Other major export growth commodities, mainly laptops, increased exports of data equipment to meet the needs of people working at home in the closed state of the epidemic. Plastic products, mainly household items, lamps, furniture, toys, and so on, are all forced by the global epidemic to increase imports to China. In summary, this wave of export boom will be over by mid-2021 after the vaccine becomes widely available on a large scale, and is unlikely to last in the long term.

In late March, more than 20 U.S. think tanks, university professors (including six Nobel laureates in economics), and former presidential economic advisors went to China to attend the China Development Forum 2021, including two former and current members of the President’s Council of Economic Advisers; six Nobel laureates in economics from Harvard and Stanford Universities, Yale, Columbia, and New York University; pro Democratic think tanks Brookings Institution, Peterson Institute for International Economics, Carnegie Endowment for International Peace, National Committee on U.S.-China Relations, President and former President of the National Committee on U.S.-China Trade, President of the Ford Foundation, Editor-in-Chief of The Economist, etc. All of these institutions and these people have been the dominant players in U.S. relations with China for the past two decades. Several of them revealed at the meeting that the Biden administration will buy a lot of goods from China, Japan, and the European Union after a major infrastructure boom, which is good news for China.

Since World War II, Roosevelt’s New Deal has become synonymous with loose monetary policy, stimulating the economy by printing large amounts of money and increasing fiscal investment, and reducing unemployment, which came from Keynes’ theories and was praised by him, and became the model of government intervention in the West after World War II, and only talked about its benefits, but Almost 30% of economists also disagree with it. Today, central banks (in the US it is the Treasury Department, since the functions of the US central bank and Treasury Department are exactly reversed from China) are Keynesians and pursue monetary easing. China’s half-trillion stimulus in 2009 was praised by the West at the time for saving the world economy in the midst of the international financial crisis. However, China has been struggling with debt since then, with no hope of improving its economic structure, and these lessons are worth remembering.