Macroeconomics II

China's banking regulator has told commercial banks it will penalize them if they don't evenly spread out next year's lending, in the latest sign that the government considers administrative controls important in keeping the economy from overheating.

I've jumped on this topic before. China has a bit of a problem because its banks are insolvent. And not a little insolvent, very insolvent. Chinese banks bare little resemblance to western banks. They are used to keep state owned industries afload and to print money for the Chinese government. There is no Fed.

So when the government talks about limiting lending, it isn't suggesting that state owned industries find another source of money (like revenue generation) or go belly-up. It's restricting lending directed at the private sector for investment.

Not that Chinese banks are good at risk assessment in the private sector either, but they stand a far better chance of getting repaid.

Again, this isn't a move designed to boost revenues at banks; the government is seeking crude ways to tinker in macroeconomics.