China reports $123b fiscal deficit in 2010

Actually, this wasn’t a big headline. It was tucked in the corner of the business section. In the western press we hear so much about China rising to the top, we would just assume that they run a budget surplus.

In reality, when China’s economy needs a boost, Beijing breaks out the check book and dumps money into local governments and national projects.

Maybe I am over simplifying things, but if we look at 5000 years of history in China, an emperor’s mandate to rule came from heaven. No floods, good harvest…everybody happy and he stays in power.
In modern China, there is an unwritten agreement between the people and government which basically says, if citizens are better off than the last generation, the government keeps its mandate to rule.

Because life in China was so bad in the 60s and 70s, as China opened up over the past 30 years, it was pretty easy to keep the masses happy, moving on up to a deluxe apartment in the sky.

Here’s your Air conditioner, flat screen TV, take a trip abroad. Look at our Beijing Olympics…we have arrived and have money to burn…to “get rich is glorious” as Deng Xiao Ping said.

As the mandate to rule is based informally on keeping this quality of life for the average person going up and up, one of the barometers of the government’s effectiveness is that the GDP targets are hit. One way to make sure these targets are achieved is to break out the check book and spend when needed.

It reminds me of the public works projects during the great depressions in the USA where government spending created jobs.

But in this case, BJ isn’t fighting a depression, they are fighting to retain their mandate to rule. And they are pretty good at it.

Got to give them credit, a handful of technocrats in Beijing have their hands on some massive levers. And I for one have faith they will slow China’s overheating economy down with a soft landing.

Summary:
So there is some talk of a hard landing for the Chinese economy, but I think it will be a soft landing in late 2011 because Beijing got the Benjamin’s. Plenty of cold cash reserves to run a deficit budget and spend this economy in the right direction.

1 Comment

  1. Individual Income Tax Law | CSIC on August 23, 2011 at 2:18 pm

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