If China’s state plan says loans will be made then loans will be made in China

One of those little things about a state planned economy. Sure, sure, there all sorts of levers and twizzles that politics - or the government if you prefer - can use to fine tune the economy and so optimise the plan!

Then there are humans:

Jerry Hu, who owns an auto-parts firm in eastern China, was approached in October with a strange request. A loan officer from one of the country’s biggest banks asked him to borrow 5 million yuan ($700,000), deposit the money and repay it next month. The bank even agreed to cover the interest.

Obviously, if demand is faltering then let’s boost it a bit with a bit of that Keynesian demand management!

Known as “quick-lend-and-recover,” the practice is spreading as banks come under unprecedented pressure to hit government-set targets that can’t be met by real demand, according to interviews with almost two dozen bankers. The loans underscore a major challenge facing policymakers as China’s economy slows: They can make funds cheaper and more abundant, but they can’t force people to borrow, spend or invest.

Well, quite. This is also known as pushing on a piece of string.

Jane, who works for a bank in Zhejiang and requested to be identified only by her first name, was asked by several rival banks to take out a consumer loan and hold the funds for only a few days before repaying. Banks in these cases have also offered to cover the interest, with some loan officers even using their own money to pay for clients such as Jane, so that they can tap them again.

China has lots of pieces of string, obviously, but pushing on them does tend to have the usual effect.

The incentives are to obey the plan. The reports will come back that the plan is working - loans are going up therefore demand will too, right? But that demand won’t arrive if people are simply incentivised to follow the plan. Which is the problem with planning of course. Everyone doing it thinks they’re commanding great big levers which command the economy while they’re mostly pieces of string they’re pushing upon. For that usual boring reason of humans, eh? Who will just go on doing what they think is in their own best interests at any one time whatever people in offices a thousand miles away think about it.

Tim Worstall