Confucian banking by mattsteinglass
March 18, 2009, 6:27 pm
Filed under: China, Economics

This line leaps out from Keith Bradsher’s NYT piece on how China may emerge from the global recession stronger than ever:

And while American leaders struggle to revive lending — in the latest effort with a $15 billion program to help small businesses — Chinese banks lent more in the last three months than in the preceding 12 months.

Here’s the difference between the way East Asian and Anglo-Saxon governments treat their bankers. In the Anglo-Saxon economic model, governments assume they will get out of the way of the banks, let them make their own investment decisions, and set broad macroeconomic policy through the interest rate and  money supply operations of the central bank. In East Asia, on the other hand, when the government decides it has a critical macroeconomic policy objective, it tells its banks to fall in line with that objective. And they do.

I clearly remember attending a meeting of the finance ministers of the APEC countries in Hanoi in late 2006 where Hank Paulson told the Chinese in so many words that they had to stop interfering in the investment decisions of their banks and shift to effecting macroeconomic policy through interest rates. The following year, I watched as Vietnam’s government addressed its inflation problem by gathering all its bankers together and telling them to stop lending so much, or else. It worked. Then in 2008 we saw the US’s hands-off approach to the financial sector completely collapse, as the US was forced to nationalize AIG and bail out the rest of the banking sector. And now we’re seeing the US powerless to get its banks to participate in the national effort to rejuvenate the economy, watching huge financial institutions (AIG, Citibank) take hundreds of billions of dollars in government handouts and then tell the government to go screw itself. Meanwhile, in China, the government tells the banks to lend some goddamn money for the national good. And they do.

This is a genuine challenge to the Western model of governance, and it’s time we admit it.

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